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CMA Foundation · Fundamentals of Business Laws and Business Communication

Discharge of Contracts for CMA Foundation Paper 1

Discharge of a contract means the contract comes to an end and the parties are freed from their obligations. It happens by performance, agreement, impossibility, lapse of time, operation of law or breach. To solve MCQs, identify the mode of discharge from the facts, then apply the rule and its conditions.

What this chapter covers

This chapter answers one question: how does a contract end? A valid contract creates rights and duties. Discharge is the point where those duties stop. The Indian Contract Act, 1872 recognises several modes, and each has its own rules and consequences.

The chapter has six parts. First is performance, including tender (a valid offer to perform). Next come discharge by agreement (novation, rescission, alteration, remission and waiver), impossibility and supervening events, lapse of time and operation of law, and breach, including anticipatory breach. The last part, discharge of a surety from liability, links to contracts of guarantee.

This chapter builds on offer, acceptance, consideration, free consent and void agreements. It also leads into remedies for breach, damages and contracts of indemnity and guarantee. Questions are mostly scenario-based. You read a short fact pattern and pick the mode of discharge or the legal result.

Discharge of contracts gives you many short, scenario-based MCQs where the answer is a clear rule. Once you learn the modes and their conditions, these questions can be answered in under a minute each. The ideas also help in other chapters on contract remedies, guarantee and sale of goods, so the effort pays off across Paper 1. Since there is no negative marking, a clear grasp of the rules also lets you eliminate wrong options with confidence and attempt every question.

Discharge of Contracts: topics in the order to study them

  1. 1Discharge of Contract by Performance and TenderPerformance is the normal way a contract ends, and tender is its base for understanding what happens when the other side refuses.
  2. 2Discharge by Mutual Agreement, Novation and RescissionThese are the other voluntary ways to end a contract, so they come right after performance.
  3. 3Discharge by Impossibility and Supervening EventsHere the contract ends without anyone's fault, which is easier to grasp once you know voluntary modes.
  4. 4Discharge by Lapse of Time and Operation of LawThese are short, rule-based modes that are quick to learn once the main ones are clear.
  5. 5Discharge by Breach and Anticipatory BreachBreach is the involuntary, fault-based mode, and you can compare it with all the earlier modes.
  6. 6Discharge of Surety from LiabilityThis applies discharge ideas to guarantee, so study it last, after the general rules are firm.

How to prepare Discharge of Contracts

Aim to recognise each mode from a short set of facts and recall its key condition. Use this sequence.

  1. Read the six topics once and make a one-page list of the modes of discharge, each with a one-line meaning.
  2. For each mode, note the exact condition that triggers it, such as who must agree, or whether the promise was impossible from the start or became so later.
  3. Make small examples with simple rupee amounts, for instance Asha agrees to sell goods to Ravi for ₹50,000, and change the facts to see which mode applies.
  4. Compare similar pairs side by side: novation and rescission, impossibility and breach, actual breach and anticipatory breach.
  5. Learn the ways a surety gets discharged as a short list, then test each against a simple fact pattern.
  6. Solve MCQs by first naming the mode, then checking the options against that rule, and eliminate any option that mixes up two modes.
  7. In the last revision, redo the questions you got wrong and recite the comparison pairs from memory.

Common mistakes in Discharge of Contracts

  • Confusing novation with rescission.

    Fix: Remember that novation brings in a new contract or new party in place of the old, while rescission only cancels the contract.

  • Treating every impossibility as a ground for discharge.

    Fix: Check the timing in the facts, and note that a self-created or merely difficult performance does not discharge the contract.

  • Mixing up actual and anticipatory breach.

    Fix: Look at the due date. If refusal comes before it, it is anticipatory. If performance fails on or after it, it is actual breach.

  • Thinking part performance always discharges the contract.

    Fix: Remember that performance must be complete and as agreed, unless the parties accept otherwise.

  • Memorising the surety's discharge list without examples.

    Fix: Tie each point to a small story, such as a creditor changing the loan terms without the surety's consent, and test yourself.

Last-day revision: Discharge of Contracts

  • Discharge means the contract ends and the obligations stop.
  • Performance must be complete and as agreed to discharge the contract.
  • Tender is an offer to perform, and it must be unconditional, at the right time and place, and to the right person.
  • Novation replaces the old contract with a new one, or a new party takes the place of an old one.
  • Rescission cancels the contract by agreement, and the parties are freed from their duties.
  • Impossibility that arises after the contract is made can discharge it, and the parties need not perform.
  • A contract can end through the expiry of the period allowed by law for bringing a claim.
  • Operation of law covers events such as insolvency of a party and merger of rights.
  • Breach occurs when a party fails to perform, and the other party may sue for damages.
  • Anticipatory breach happens when a party declares before the due date that it will not perform.
  • A surety can be discharged by revocation, by variation of terms without consent, or by release of the principal debtor, as per the Act's rules.

Discharge of Contracts practice questions

Discharge of Contracts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Discharge of Contracts: frequently asked questions

How many modes of discharge of a contract should I know for CMA Foundation?

Focus on performance, mutual agreement, impossibility, lapse of time, operation of law and breach. Add the ways a surety is discharged. Learn each with its core condition and one simple example.

What is the difference between novation and rescission?

In novation, a new contract replaces the old one, or a new party replaces an old party. In rescission, the parties cancel the contract and nothing replaces it. Questions usually test whether something new takes the old contract's place.

What is anticipatory breach?

It is when a party announces, or shows by conduct, before the due date that it will not perform. The other party can treat the contract as ended and claim damages, subject to the rules in the Act.

How should I attempt discharge of contract MCQs in the exam?

Read the facts and name the mode of discharge first. Then match the options to that rule and drop any that apply a different mode. Since there is no negative marking, always mark an answer.