Meaning of a Contract:

A verbal agreement or a written agreement, particularly

one concerning business, deals, or tenure that is planned
to be enforceable by law, is called a contract.
Definition of a Contract:
Contract, in the least complex definition, is a guarantee
that is enforceable by law. The guarantee or promise
might be to accomplish something or to shun
accomplishing something. The creation of an agreement
requires the common consent of at least two people, one
of them usually making a proposition and another
accepting the contract
The Indian Contract Act, 1872 defines the term “Contract”
under its section 2 (h) as “An agreement enforceable by
law”. In other words, we can say that a contract is
anything that is an agreement and enforceable by the law
of the land.

This definition has two major elements in it viz –

“agreement” and “enforceable by law”.

Agreement
In section 2 (e), the Act defines the term agreement as
“every promise and every set of promises, forming
the consideration for each other”. To form an agreement,
the following ingredients are required:

 Parties: There need to be two or more parties to

form an agreement.
 Offer/ Proposal: When a person signifies to another
his willingness of doing or omitting to do
something with a view to obtain other’s
assent. [Section 2(a)]
 Acceptance: When the person to whom the proposal
is made signifies his assent for the same thing in
the same sense as proposed by the
offeror. [Section 2(b)]
 Promise: When a proposal is accepted, it becomes a
promise. [Section 2(b)]
Consideration: It is the price for the promise. It is
the return one gets for his act or omission. [Section
2(d)]
An agreement is, therefore, a promise or set of promises
forming consideration for all the parties. [Section 2(e)]

Agreement = Promise or set of promises (offer +

acceptance) + Consideration (for all the parties)
 Promise
The Act in its section 2(b) defines the term “promise” here
as: “when the person to whom the proposal is made
signifies his assent thereto, the proposal becomes an
accepted proposal. A proposal when accepted, becomes a
promise”.

In other words, an agreement is an accepted promise,

accepted by all the parties involved in the agreement or
affected by it. This definition says that in order to establish
or draft a contract, we need to initiate some steps:

i. The definition requires a person to whom a certain

proposal is made.
ii. The person (parties) in step one has to be in a position
to fully understand all the aspects of a proposal.
iii. “signifies his assent thereto” – means that the person
in point one accepts or agrees with the proposal after
having fully understood it.
iv. Once the “person” accepts the proposal, the status of
the “proposal” changes to “accepted proposal”.
v. “accepted proposal” becomes a promise. Note that the
proposal is not a promise. For the proposal to become
a promise, it has to be an accepted proposal.
To sum up, we can represent the above information
below:

Agreement = Offer + Acceptance

Discharge of contract
A contract is a legally binding agreement between two or
more parties, where one agrees to do or refrain from
doing something in exchange for consideration.
Discharge of contract means terminating the contractual
relationship between the two or more parties who
entered into the contract previously. When the rights,
obligations and duties of the parties come to an end it is
known as the discharge of contract. Discharge of contract
also ceases the legally binding power of the contract.
Therefore, once a contract has been discharged the
parties are no more obligated to each other and the
contract becomes void.
The discharge of a contract is characterised as the end
of an agreement or an arrangement made by a couple
of parties, which results in the failure in performing or
playing out the obligations referenced at the hour of
making a contract with the acknowledgment of all the
parties with free consent. Subsequently, the
commitments might be legal or contractual or
performance, or even operational.
The various ways a contract can be discharged are stated
in the article below.

Various modes of discharge of contract

Discharge by performance
A contract can be discharged by performance and it is
the most common form of discharge of contract. A
contract will be discharged if the duty stated in the
contract has been fulfilled by the parties. If only one
person in a contract performs the promise which is
mentioned then he alone is discharged. There are two
types of discharge of a contract by performance.

For example; A and B enter into a contract that A will pay

B Rs 1,000 if B delivers a package to C’s house. B does the
agreed part specified in the contract and upon doing it A
pays B the mentioned amount in the contract. Thus, the
contract is discharged by performance since both parties
performed the specified task in the contract.
Actual performance
In this case both the parties in a contract must perform
their promises. Unless the Indian Contract Act, 1872 or
any law at the time being prohibits the parties from
performing their promises. In case either party dies or is
unable to fulfil the promise then the representatives of
such party shall be liable to perform the promise laid
down in the contract.

Attempted performance
When the promisor offers to give his performance under
the contract, but the promisee refuses to accept the
same, then it amounts to discharge by attempted
performance.

Discharge by mutual agreement

In this case, the parties to a contract do not perform the
promise stated in the contract if they arrive at a mutual
agreement. This requires substituting or altering the
existing contract with a new one.

Illustration: ‘P’ owes a certain sum of money to ‘Q’ under

a contract, but they arrive at a mutual agreement that
henceforth ‘R’ will pay back the money owed to ‘Q’. This
results in a mutual discharge of the contract between ‘P’
and ‘Q’ and a new contract is formed between ‘R’ and
‘Q’.

Novation
It occurs when a contract is substituted for the old
contract between the same or new parties. In order to
enforce novation, the following conditions must be
followed. It is laid down in Section 62 of the Indian
Contract Act, 1872.

 There must be a valid reason for substituting the

contract.
 Consent of all the parties is required.
 The old contract must be substituted before the
expiry or breach of the contract.
In the case of Manohur Koyal v. Thakur Das(1888), the
defendant failed to pay the agreed upon sum to the
plaintiff on the due date stated in the contract. However,
the defendant promised to pay Rs. 400 to the plaintiff
and to execute a fresh kistibundi bond. The plaintiff
agreed to this but the defendant failed to pay that
amount consequently, the plaintiff sued the defendant.
The Calcutta High Court stated that since the new bond
was created after the breach of the original contract,
therefore the contract cannot be discharged by novation
but by breach of contract.
Remission
Remission occurs when parties to a contract accept a
lesser amount or lesser degree of performance than
what was initially agreed upon in the contract. Section
63 of the Act states that a party may;

 Remit the performance stated wholly or in part.

 Extend the time for performance.
 Accept any other kind of performance apart from
the one mentioned in the contract.
Illustration: Paul owes 10 lakh rupees to Peter but due to
some unforeseen circumstances Paul can only repay 6
lakh rupees to Peter within the stipulated time period.
But if Peter agrees to accept the amount which could be
paid by Paul and settle the debt then, Peter’s act of
remission discharges the contract.

Alteration
It means changing one or more contract terms, thereby
discharging the old contract and forming a new one.
Alterations to a contract must take place with the
consent of all the parties to the contract. In the
case, United India Insurance Co. Ltd v. M.K.J.
Corporation(1996), the Supreme Court held that utmost
good faith must be observed by the contracting parties
and the duty of good faith is of a continuing nature even
after the completion of the agreement no material
alterations can be made to the contract without the
mutual consent of the parties.

Rescission
Rescission takes place when the parties in the contract
agree to dissolve the contract. In this case, the old
contract stands discharged and no new contract is
formed.

Waiver
The term waiver means the abandonment of a right. A
party to a contract may have their rights specifically
stated under the contract which also helps to release the
other party from the contract and the contract is
discharged.

Merger
When an existing inferior right of a party, in respect of a
subject matter, merges into a newly acquired superior
right of the same person, in respect of the same subject
matter, then the previous contract conferring the inferior
right stands discharged by the way of merger.
Discharge by lapse of time
A contract will be discharged if the performance is not
completed within the given time period. This might also
result in a breach of contract. In that case, a person
might file a suit under the court of law stating that his
rights have been infringed and also claiming to enforce
his rights. The individual whose rights have been
breached can file a suit under the Limitation Act, 1963.

For example; A had to deliver fresh fruits to B’s

storehouse within a period of two days but due to A’s
irresponsibility, he delivered the fruits after two weeks.
Therefore, in this case, the contract will be discharged as
the required performance was not completed within the
specified time.

Discharge by operation of law

This mode of discharge of contract does not allow the
fulfilment of the promise laid down in the contract by the
provisions of law. Situations such as death, insolvency,
merger, etc. do not enable the fulfilment of the promise,
hence it results in the discharge of the contract.
Discharge by supervening impossibility
Discharge of a contract by supervening impossibility is a
contract that has become impossible or illegal to
perform. In these cases the contract becomes void. It is
also known as the doctrine of frustration. Frustration
occurs when it is established that due to subsequent
changes in circumstances, the contract has become
impossible to perform or it has been deprived of its
commercial purpose. The ways in which it occurs are
mentioned below;

 On the destruction of subject matter, a contract will

be discharged and no party will be held liable.
 If the performance of the promise mentioned in the
contract becomes unlawful then the contract will
be void.
 A contract tends to be discharged on accounts of
death or personal incapacity.
 When the circumstances surrounding a contract
change then it will be discharged.

Discharge by breach
When a contracting party refuses or fails to perform or
disables himself from performing or makes the
performance of the promise stated in the contract
impossible by his conduct, then the contract is said to be
discharged by breach. A party to a contract may
discharge it by actual breach or anticipatory breach.

When a default is committed by a party on the due date

of performance it amounts to an actual breach and when
the party commits a default before the due date of
performance it amounts to an anticipatory breach.
Breach of contract is concerned with the termination of
the original contract due to the failure of performing
obligations by either or all of the parties, which
discourages each of the other parties. It relates to void
or terminating the original contract completely. These
breaches of contracts may be either anticipatory or
actual.

Suit for specific performance

In this case, where the damage or loss suffered cannot be
measured in terms of money the court, in such cases
directs the defaulting party to perform the contract
specifically where the ordinary remedy by a claim for
damages is not adequate compensation. It is a
discretionary remedy. The instances where the court
orders discretionary remedy:
  Where the act in itself is such that monetary
consolation for its non-performance is not
adequate.
 Where it is not probable that monetary
compensation will be available.
 Where no standard is available to ascertain the value
of the actual harm caused by non-performance.
Suit for quantum meruit
In the legal sense, the term quantum
meruit means ‘payment in proportion to the work done’.
In other words, quantum meruit means that a person can
recover compensation in proportion to the work done or
service rendered by him. It is known as a quasi-
contractual remedy. The claim on quantum meruit arises
in the following cases:

 When a party performs a part of the contract, but

the other party breaks it in between, then the
injured party can claim compensation for the work
done or the service rendered.
 When something has been done non-gratuitously.
 Where some work has been done and accepted
under a contract that is subsequently discovered to
be void, then in such case, the person who has
 performed the part of the contract is entitled to
recover the payment for the work done.
Exceptional cases when a contract is not discharged
The doctrine of frustration or supervening impossibility
does not apply to the following cases mentioned below.

1. When in any case a situation arises that makes the

performance of the certain promise mentioned in
the contract very difficult to be performed, then in
that situation, it makes the promise challenging to
be fulfilled but the contract is not discharged.
2. Commercial hardships make the contract
unprofitable but it does not discharge a contract.
3. Strikes, lock-outs, civil disturbances and riots do
not discharge the contract unless there is a clause
in the contract specifying that in such event the
contract will be terminated.
4. A contract is not discharged due to the self-
induced incapacity of the parties to a contract.
5. In a contract where performance is relied upon by
a third party, it will not be discharged due to the
failure or default of the third party.
Difference between discharge, rescission and termination
of a contract
Discharge of contract takes place when the parties to a
contract have fulfilled and performed their obligations as
stipulated and negotiated in the contract. It is an ideal
course of action as the parties to the contract have
attained the obligations and performed the agreed upon
duties.

When a contract is formed under fraudulent

circumstances, the party who was defrauded will not be
expected to fulfil the obligations stated in the contract.
The fraud may involve overt, intentional fraud, a
misrepresentation of facts or circumstances, or a
material omission. Despite the type of fraud, the party
may end the contract without any consequence. This
kind of termination of a contract is known as rescission.

A contract can be terminated by discharge or rescission

however, certain circumstances outlined in the contract
may enable the parties to a contract to terminate the
said contract even if all the duties and obligations stated
in the contract have not been fulfilled. Further,
sometimes a contract can be terminated due to a change
in circumstances thus making it impossible to fulfil.

Conclusion
Thus we can understand that discharge of contract refers
to the contractual relationship coming to an end when
the obligations and duties have been fulfilled by the
parties to a contract. In this case, the parties are free
from the obligations of the contract. As mentioned
earlier there are various modes of discharging a contract
but the best way to do it is by performing the promise
within the stipulated time stated in the contract as the
other modes are quite unpleasant ways to release the
parties from duties because it leads to damages.