Jurisprudence, Interpretation and General Laws · Contract Law

Performance, Discharge and Breach of Contract Explained

Updated 11 October 2026 · Fact-checked

A contract is discharged when the rights and duties under it end. This happens by performance, agreement (novation, rescission, alteration, remission), impossibility or frustration under Section 56, operation of law, or breach. On breach, the innocent party can claim damages under Section 73, limited to natural and foreseeable loss, not remote loss.

Understand Performance, Discharge and Breach of Contract

A contract creates rights and duties. Discharge means those rights and duties come to an end. Until a contract is discharged, the parties stay bound by it. So the first question in any problem is: how did this contract end, or did it?

The usual way is performance. Each party does what it promised. If a party offers to perform and the other refuses to accept, that is a tender. A valid tender protects the person who made it, even though the work was not actually done. Remember that tender must be unconditional, made at the proper time and place, and for the whole of the promise.

A contract can also end by agreement. Under novation, a new contract replaces the old one, with or without new parties. Under rescission, the parties cancel the contract. Under alteration, a material term is changed. Under remission, the promisee accepts less than promised or gives up the claim. Under accord and satisfaction, a different performance is accepted in place of the original one.

A contract can end by impossibility or frustration. Section 56 says an agreement to do an act impossible in itself is void. If an act becomes impossible or unlawful after the contract is made, because of an event the promisor could not prevent, the contract becomes void when that happens. Illustration (d) of the section gives a cargo contract ended by a declaration of war. Illustration (b) gives a marriage contract ended when a party goes mad. The section also says that a promisor who knew, or with reasonable diligence might have known, that the act was impossible or unlawful, while the promisee did not know, must compensate the promisee for loss.

If one party fails to perform, that is breach. The innocent party may sue for damages under Section 73. Compensation covers loss that arose naturally in the usual course of things, or that both parties knew at the time of contracting to be likely. It does not cover remote and indirect loss. The innocent party must also take into account the means of remedying the inconvenience. Quasi-contracts (obligations resembling those created by contract) also give a right to compensation, as Section 73 itself says.

Key rules to remember

Impossible agreement (Section 56, para 1): Agreement to do an act impossible in itself = void from the start; Example: agreeing to discover treasure by magic (Illustration (a)).
Supervening impossibility (Section 56, para 2): Act becomes impossible or unlawful after contract + event promisor could not prevent → contract becomes void when the act becomes impossible or unlawful; The contract is valid when made and becomes void later. Mere hardship or higher cost is not impossibility.
Promisor who knew (Section 56, para 3): Promisor knew or, with reasonable diligence, might have known + promisee did not know → promisor pays compensation for promisee's loss; Illustration (c): A, already married, contracts to marry B and must compensate B.
Damages for breach (Section 73): Compensation = loss naturally arising in the usual course OR loss the parties knew to be likely at the time of contract; no compensation for remote and indirect loss; Knowledge must exist when the contract is made, not later.
Market-difference measure (Section 73, Illustrations (a), (c), (d)): Buyer's damages = market price at time of breach − contract price (if higher); seller's damages = contract price − market price (if lower); Both depend on the price at the date of breach.
Mitigation (Section 73, Explanation): Loss is estimated after taking into account the means that existed of remedying the inconvenience; The innocent party cannot claim loss it could reasonably have avoided.
Discharge of surety (Section 134): Surety is discharged by a contract releasing the principal debtor, or by a creditor's act or omission whose legal consequence is discharge of the principal debtor; A link to the law of guarantee. See Illustration (a) to Section 134.

How to solve Performance, Discharge and Breach of Contract questions

Use this order for any problem or theory question on how a contract ended or what follows from breach.

1Identify the contract and the promise that was not performed or was affected.
2Ask whether it was performed or validly tendered. If yes, the contract is discharged.
3If not, check for an agreement to end it: novation, rescission, alteration, remission, or accord and satisfaction.
4Check for impossibility. Was the act impossible when the contract was made (Section 56, first paragraph) or did it become impossible or unlawful later through an event the promisor could not prevent (second paragraph)? Check whether the promisor knew or ought to have known (third paragraph).
5If there is breach, state the right to damages under Section 73 and apply the two-part test: natural loss or loss known to be likely.
6Exclude remote and indirect loss, and apply the market-price measure and mitigation where facts give prices or alternatives.
7Write a clear conclusion: whether the contract is discharged, by what mode, and what amount or remedy the party gets.

Quickest way: Mode, section, measure

When to use it: Use this when you have only a few minutes for a short-note or a short problem.

Name the mode of discharge in one line.
Quote the section: 56 for impossibility, 73 for damages.
Apply the test: foreseeable at contract date? Natural loss?
Compute damages as contract price versus market price at breach.
Close with a one-line conclusion.

Common mistakes in Performance, Discharge and Breach of Contract

Treating higher cost or hardship as frustration under Section 56.
Students think any big difficulty makes performance impossible.
Fix: State that Section 56 needs the act to become impossible or unlawful through an event the promisor could not prevent. Greater expense alone does not suffice.
Saying a frustrated contract was void from the start.
Students mix the first and second paragraphs of Section 56.
Fix: For supervening events, the contract becomes void when the act becomes impossible or unlawful, not before.
Awarding damages for loss the promisor did not know of.
Students add up all actual losses of the innocent party.
Fix: Allow only natural loss or loss known to be likely when the contract was made. See Illustrations (i), (k) and (p) of Section 73, where losses on unknown contracts are not allowed.
Using the market price on the wrong date.
Students use the date of the contract or the date of the suit.
Fix: Use the market price at the time the contract ought to have been performed, or at the time of refusal, as the illustrations show.
Confusing novation with alteration.
Both change the contract.
Fix: Novation replaces the old contract with a new one. Alteration changes a material term of the same contract.

Worked examples

Example 1

A agrees to sell 50 maunds of rice to B at ₹2,000 per maund, delivery on 1 March. A refuses to deliver. On 1 March the market price is ₹2,300 per maund. B buys 50 maunds elsewhere at that price. B also lost a resale profit of ₹10,000 on a contract with C, which A did not know of. What can B recover?

Show the solution

The contract is valid and A has broken it by refusing delivery, so Section 73 applies.
Natural loss: B must pay more for the same rice. The difference is ₹2,300 − ₹2,000 = ₹300 per maund.
For 50 maunds: 50 × ₹300 = ₹15,000.
The resale profit of ₹10,000 arises from a contract with C that A did not know of when contracting. It is a remote and indirect loss. Illustrations (k) and (o) of Section 73 show this treatment.

Answer: B can recover ₹15,000 as damages under Section 73. The ₹10,000 resale profit cannot be recovered.

Example 2

X contracts to deliver goods at a foreign port for Y. After the contract, X's Government declares war on the country where the port is located, and delivery becomes unlawful. Is X liable for non-performance?

Show the solution

Provision: Section 56, second paragraph, says a contract to do an act that after the contract is made becomes impossible, or by reason of an event the promisor could not prevent becomes unlawful, becomes void when the act becomes impossible or unlawful.
Facts: the contract was valid when made. A declaration of war, which X could not prevent, made delivery unlawful.
Analysis: this matches Illustration (d) to Section 56. Nothing suggests X knew of the coming war, so the third paragraph on compensation does not apply.
Conclusion: the contract becomes void when war is declared and X is not liable for non-performance.

Answer: The contract becomes void when war is declared under Section 56, and X is not liable for damages.

Exam tips

Write the provision first, then facts, then a clear conclusion. Cite Section 56 or 73 by number.
In problems on damages, always test remoteness and knowledge at the date of contract. This is where marks are lost.
Learn the three paragraphs of Section 56 separately. Examiners set one problem for each.
For short notes on discharge, list all modes in one line and give one-line meaning of novation, rescission, alteration and remission.
Show your arithmetic in damages problems line by line, even if the sum is small.

Practice questions from Contract Law

Performance, Discharge and Breach of Contract in other exams

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

Performance, Discharge and Breach of Contract: frequently asked questions

What are the modes of discharge of a contract?

A contract is discharged by performance, by agreement (novation, rescission, alteration, remission, accord and satisfaction), by impossibility or frustration, by operation of law, or by breach. Name the mode clearly in your answer.

What is the doctrine of frustration under Section 56?

It applies when an act becomes impossible or unlawful after the contract is made, due to an event the promisor could not prevent. The contract becomes void when that happens. Higher cost or inconvenience alone is not enough.

What is the difference between novation and rescission?

In novation a new contract replaces the old one. In rescission the parties cancel the contract and nothing replaces it. Both end the original obligations by agreement.

What damages can be claimed for breach of contract?

Under Section 73, you can claim loss that arose naturally in the usual course of things, or that both parties knew was likely when contracting. Remote and indirect loss is not payable, and you must account for means of reducing the loss.