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Discharge by mutual agreement

Just as a contract is formed by an agreement between two parties, similarly it can be brought to an end by another agreement between the same parties even before its performance. A contract can be discharged by a mutual agreement in any of the following ways:
  • Novation: It means substitution of the original contract by a new one. It takes place when an existing contract is substituted by a new one, either between the same parties or between the new ones. When the parties to the new contract are same then the new contract must have terms which are substantially different to the old one. Discharge of the old contract, is regarded to be the consideration of the new contract. It is essential for novation that there must be a mutual consent of all the concerned parties.

Rules regarding novation are as follows

  • Novation must be done before the expiry of the time of performance of the original contract
  • It is possible only by mutual consent of the parties and cannot be done unilaterally
  • The new contract replacing the old one must be capable of legal enforcement
  • It must substitute the present contract (An agreement to substitute a contract in future will not be novation)
As a result of novation, the old contract is totally discharged and the law does not entertain any action based upon the terms of the old contract



X owes Y ₹ 20,000.He enters into an agreement with Y and Gives Y a mortgage of his (i.e., X’s) estate for ₹ 10,000 in place of the debt ₹ 20,000, Here the old contract is extinguished and a new contract comes into existence. Here we are able to witness that the new contract is substantially different from the old one in form and obligation.



Amar has to pay ₹ 1,000 to Akbar, while Akbar has to pay the same amount to Anthony. All the three mutually agree and decide that Anthony will henceforth accept Amar as his debtor and hence Akbar is discharged of his liability towards Anthony. Akbar is furthermore not liable to Amar.

  • Rescission: It means cancellation of one or more terms of the contract. The parties to the contract may decide that they will cancel their contract without bringing a new contract in its place. This is discharge by rescission. When some of the terms of the contract are cancelled then the other terms are still operative and enforceable. When whole of the contract is cancelled it discharges both the parties to the contract and there is no obligation outstanding.
    It may take place in any of the following ways:
    • With the mutual consent of the parties
    • By a party whose consent was not freely obtained (voidable contract)
    • One party may rescind the contract, if there is a breach of contract by another party, the party rescinding the contract must restore the benefit received from the other party

Anil agrees to supply 50 tons of wheat to Sunil. Before the supply is made, Anil and Sunil agree that no wheat needs to be supplied. The contract is rescinded by mutual consent.



A contracts with B to supply 50 bags of coco beans but A fails to supply 50bags of coco beans on the decided date. Here B can rescind the contract on failure of performance by A.

  • Alteration: An alteration means a change in one or more terms of the contract with the mutual consent of the parties. The alteration discharges the original contract and creates a new contract. However, the parties of the new contract remain the same. The old terms and conditions are not to be preformed while the new terms and conditions must be performed.

Younis agreed to supply 50 bags of rice at the rate of ₹ 100 per bag to Khan. The delivery was to be made in five equal installments, the first supply was to commence from 1st June. Subsequently, Younis and Khan entered into an agreement that the delivery would be made in two equal installments and the price would be ₹ 105 per bag. In this case, the old contract is discharged and the parties become bound by the contract with changed terms.

  • Remission: The term ‘remission’ may be defined as the acceptance of a lesser obligation where more is due.
    It takes place when the promisee
    • Dispenses with a part or whole of the performance of a promise
    • Extends the time for the performance by the promisor
    • Accepts a lesser sum
    • Accepts any other consideration, other than agreed in the contract

Note: A promise to give concession to the promisor in whatever form is binding on the promisee even if it is without consideration.



Ganesh owes ₹ 5,000 to Gopal. Gopal mutually along with Ganesh agrees that he will receive only ₹ 2,000 in full satisfaction of the whole debt. The promise of concession to Ganesh is binding on Gopal although there is no consideration for it.

  • Waiver: Waiver may be defined as the intentional abandonment (i.e., giving up) of the rights by one party who is entitled to claim performance of the contract. On waiver, the other party is discharged from the performance of his liabilities under the contract.

A took a loan of ₹ 1,00,000 from XYZ & Bank. The amount to be paid was in installments of ₹ 5,000 each. Due to prompt payment by A, XYZ & Bank waived off the last installment voluntarily. A need not pay the last installment of ₹ 5,000 and neither can XYZ & Bank claim it.


Note: No consideration is necessary for waiver.

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