Business Laws and Ethics · Indian Contracts Act, 1872

Performance and Discharge of Contracts for CMA Inter

Updated 10 October 2026 · Fact-checked

A contract is discharged when the rights and duties under it end. This happens by performance, tender, agreement (novation, rescission, alteration), impossibility, or breach. To solve a question, identify the mode, apply the rule and its conditions, then state the effect: who is freed and who can claim compensation.

Understand Performance and Discharge of Contracts

A contract creates duties. Discharge means those duties come to an end. The usual way is performance: each party does what the contract promises, at the agreed time and place, in the agreed manner.

Sometimes a party offers to perform and the other side refuses. This offer is a tender. A valid tender must be unconditional, made at the proper time and place, and the other party must get a reasonable chance to check the thing offered. If it is refused, the offering party is not treated as having defaulted. Remember this as the general rule; check the exact wording in your study material for the section numbers.

Contracts can also end by agreement. Under Section 62, if the parties agree to substitute a new contract, or to rescind or alter the old one, the original contract need not be performed. Novation is a new contract replacing the old one, often with a new party. In Illustration (a) to Section 62, A owes B, and A, B and C agree that B will accept C as debtor. A's debt ends and a new debt from C to B arises. Illustration (c) shows the limit: if C does not assent, no new contract exists and B still owes C.

A contract can end by impossibility. Under Section 56, an agreement to do an act impossible in itself is void. A contract to do an act that later becomes impossible, or becomes unlawful because of an event the promisor could not prevent, becomes void when the act becomes impossible or unlawful. This is the doctrine of supervening impossibility, often called frustration. If a promisor knew, or with reasonable diligence could have known, that the act was impossible or unlawful, and the promisee did not know, the promisor must compensate the promisee.

Finally, a contract can be discharged by breach. Under Section 73, the injured party is entitled to compensation for loss that naturally arose in the usual course of things, or that the parties knew at the time of contracting to be likely to result. Remote and indirect loss is not compensated. Anticipatory breach, where a party announces before the due date that they will not perform, is covered in the topic on remedies; here, treat it as a breach that lets the other side treat the contract as ended and claim damages.

Key rules to remember

Discharge by agreement (Section 62): New contract substituted, or old contract rescinded or altered ⇒ original contract need not be performed; Novation, rescission and alteration all rest on the parties' fresh agreement. The new party must assent, as Illustration (c) shows.
Impossible agreement (Section 56, para 1): Act impossible in itself ⇒ agreement void from the start; Example: Illustration (a), agreeing to discover treasure by magic.
Supervening impossibility (Section 56, para 2): Act becomes impossible, or unlawful by an event the promisor could not prevent ⇒ contract void when that happens; Void from the moment of the event, not from the start. Illustration (d): war declared, contract becomes void.
Compensation for known impossibility (Section 56, para 3): Promisor knew or could have known; promisee did not know ⇒ promisor compensates promisee; Both conditions are needed: promisor's knowledge and promisee's ignorance.
Damages for breach (Section 73): Compensation = loss naturally arising in usual course, or loss the parties knew was likely; no remote or indirect loss; In sale cases the usual measure is the difference between contract price and market price at the time of breach.
Mitigation (Section 73 Explanation): Loss estimated after taking into account the means of remedying the inconvenience; The injured party should take reasonable steps to reduce loss.
Discharge of surety (Section 134): Release of principal debtor by contract, or creditor's act or omission discharging debtor ⇒ surety discharged; A link to the guarantee chapter. Illustration (c): creditor fails to supply timber, surety is discharged.

How to solve Performance and Discharge of Contracts questions

Use this method for any problem or theory question on discharge of contracts.

1Read the facts and list what each party promised and what actually happened.
2Decide the mode of discharge: performance or tender, agreement, impossibility, or breach.
3State the rule in plain words with its section number and exact conditions.
4Apply each condition to the facts one by one. Check whether a new party assented, whether the event was foreseeable or preventable, and whether the loss is direct.
5State the effect: contract void, original contract ended, or damages payable.
6If money is claimed, compute only the recoverable loss and exclude remote loss.
7Close with a one-line conclusion that answers the question asked.

Quickest way: Four-label sort

When to use it: Use for MCQs and short case-based questions where you have under two minutes.

Label the facts: new agreement, impossible, or broken.
If new agreement, ask: did every party involved assent? If not, no novation.
If impossible, ask: was it impossible from the start (Section 56, para 1) or later (para 2)? Void from start or from the event.
If broken, pick the loss that was natural or known; reject remote loss such as a lost side contract that was not communicated.

Common mistakes in Performance and Discharge of Contracts

Treating novation as valid when the new party never agreed.
Students focus on the old debtor and the creditor and forget the third person.
Fix: Check that all parties assent, as Section 62 Illustration (c) shows. Without assent, no new contract exists.
Saying a contract becomes void just because it has become costlier or harder.
Students confuse hardship with impossibility.
Fix: Section 56 speaks of the act becoming impossible or unlawful. Only that ends the contract; extra cost alone does not.
Claiming that a supervening event makes the contract void from the beginning.
Students mix up the first and second paragraphs of Section 56.
Fix: Para 1 covers acts impossible in themselves. Para 2 makes the contract void only when the act becomes impossible or unlawful.
Awarding compensation for every loss that follows a breach.
Students think the injured party is entitled to all consequences.
Fix: Section 73 excludes remote and indirect loss. Illustration (n): non-payment on a due date gives only the principal plus interest, even if the creditor is ruined.
Giving a promisor compensation duty when the promisee also knew the act was impossible.
Students stop reading after the promisor's knowledge.
Fix: Section 56, para 3 needs the promisee to be unaware. If both knew, the compensation rule does not apply.
Confusing alteration with novation.
Both are under Section 62 and both end the original obligations.
Fix: Alteration changes terms of the same contract between the same parties. Novation substitutes a new contract, often with a new party.

Worked examples

Example 1

Ravi owes ₹50,000 to Meena. Ravi, Meena and Suresh agree that Meena will accept Suresh as her debtor in place of Ravi. Later Meena sues Ravi for the ₹50,000. Is she entitled to succeed?

Show the solution

The facts show all three parties agreeing to substitute a new debtor.
This is novation under Section 62: the parties agree to substitute a new contract for the old one.
As in Illustration (a) to Section 62, the old debt of Ravi to Meena is at an end and a new debt from Suresh to Meena has arisen.
So Meena cannot claim from Ravi under the old contract.

Answer: Meena fails. The agreement of Ravi, Meena and Suresh is a novation, which discharges Ravi's original debt; Meena can claim only from Suresh.

Example 2

Anil agrees to supply 1,000 tons of iron to Bharat at ₹100 per ton. To perform it, he contracts with Chetan to buy 1,000 tons at ₹80 per ton, telling Chetan the purpose. Chetan fails, Anil cannot get other iron, and Bharat cancels. What can Anil claim from Chetan?

Show the solution

Chetan broke his contract, so Section 73 applies.
Anil's loss is the profit he would have made on the Bharat contract, and Chetan knew of this purpose when contracting, so it is loss the parties knew to be likely.
Profit per ton = ₹100 − ₹80 = ₹20.
Total profit = ₹20 × 1,000 = ₹20,000.
This matches Section 73 Illustration (j).

Answer: Anil can claim ₹20,000 from Chetan as compensation.

Exam tips

For case-based MCQs, look for the words 'assent', 'war', 'declared illegal' or 'remote'. They signal novation, supervening impossibility or limits on damages.
Write the section number with each rule. Where unsure of a number, state the rule in words instead.
In written answers, use a short layout: rule, application, conclusion. This earns step marks.
Distinguish clearly between void from the start and void when the act becomes impossible; examiners test this pair often.
Use the illustrations to the sections as ready examples; they are easy to recall and score well.

Practice questions from Indian Contracts Act, 1872

Performance and 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.

Performance and Discharge of Contracts: frequently asked questions

What are the modes of discharge of a contract?

The main modes are performance (including valid tender), agreement (novation, rescission or alteration), impossibility, and breach. Your study material may also list lapse of time and operation of law. Learn each with its rule and one example.

What is the difference between novation and alteration of a contract?

Novation replaces the old contract with a new one, often involving a new party who must assent. Alteration changes some terms of the existing contract. Both are covered by Section 62, and in both the original terms need not be performed.

What is the doctrine of frustration under Section 56?

If an act becomes impossible after the contract is made, or becomes unlawful because of an event the promisor could not prevent, the contract becomes void when that happens. Illustration (d), where war is declared, is the standard example.

Is a party always liable for all loss after a breach of contract?

No. Section 73 allows compensation for loss that arises naturally or that the parties knew was likely. Remote and indirect loss is excluded, and the injured party should take reasonable steps to reduce the loss.