Discharge of a Contract: the Whole Picture

In one line

Discharge means the contract is over and nobody owes anything further under it, and there are five ways it can happen.

In the words a student can write in an exam: a contract is discharged by performance (section 37), by agreement (sections 62 and 63), by impossibility or frustration (section 56), by breach (section 39, with the remedies in sections 73 to 75), and by operation of law. MU's syllabus names "Discharge of contract" as topic 3.2, and this chapter is the synthesis that topic asks for; each mode is worked in full in its own chapter.

What discharge means, and what it does not

Discharge means the contractual obligations come to an end and the parties are no longer bound to perform.

Two things it does not mean, and both are regularly misunderstood.

It does not always mean nobody owes anything. A contract discharged by breach leaves the guilty party liable in damages. A contract discharged by frustration leaves benefits to be restored under section 65. What ends is the obligation to perform, not necessarily every liability arising out of the contract.

It does not mean the contract was never good. A void agreement was never a contract; a discharged contract was one and has run its course.

The five modes

Mode one: discharge by performance

The normal way. Section 37 requires the parties to perform, or offer to perform, their respective promises, and when both have performed the contract is discharged.

Two variants sit here.

• Actual performance, where both parties do what they promised.
• Attempted performance, or tender. Section 38: where a promisor makes a valid offer of performance and it is not accepted, he is not responsible for the non performance and does not lose his rights. A tender of goods discharges the obligation to deliver; a tender of money does not discharge the debt.

The supporting sections are those on who must perform (40, 41), joint promises (42 to 45), time and place (46 to 50), reciprocal promises (51 to 54) and time as the essence (55). See [The Obligation to Perform, and Who Is Bound].

Mode two: discharge by agreement

What was made by agreement can be unmade by agreement. Three named modes in section 62 and four powers in section 63.

• Novation: a new contract or a new party substituted, section 62.
• Rescission by agreement: the contract cancelled, section 62.
• Alteration: terms changed, the contract continuing, section 62.
• Remission, waiver, extension of time, and accord and satisfaction: section 63, and no consideration is required.

Accord and satisfaction is the name for the last of section 63's powers: the accord is the agreement to accept something different, and the satisfaction is the thing actually accepted. See [Discharge by Agreement: Novation, Rescission and Alteration] and [Remission and Waiver of Performance].