TERMINATION OR DISCHARGE OF
CONTRACTS
CHAPTER – 11 | FARHANA
NOOR
METHODS OF TERMINATION
When the obligation created by a contract come to an end, the contract is said to be
discharged or terminated. A contract may be discharged or terminated in any of following ways –
i. By performing of the promise or tender.
ii. By mutual consent cancelling the agreement or substituting a new agreement in place of the old.
iii. By subsequent impossibility of performance.
iv. By operation of law- i.e death, insolvency or merger.
v. By lapse of time.
vi. By material alteration without the consent of the other parties.
vii. By breach made by one yearly.
RULES REGARDING TERMINATIONS
1. Termination by performance
The obligations of a party to a contract come to an end when he performs his
promise. Performance by all the parties of the respective obligations, puts an end to the contract completely. This is the normal and natural mode of discharging a contract.
2.Termination by mutual agreement
By agreement of all parties, a contract may be cancelled or its terms altered or a new agreement substituted for it. Whenever any of these things happen, the old contract is terminated.
Novation
Novation occurs when a new contract is substituted for an existing contract, either between the same parties or between different parties.
It is now held that novation may occur by two ways, (i) change of parties and
(ii) a substitution of a new contract in place of the old.
Example –
1. A in indebted to B and B to C. By mutual agreement B’s debt to C and A’s debt to B is cancelled and C accepts A as his debtor. There is novation.
2. On an amalgamation of two company into a new company, the creditors of the old companies can enforce their claims against the new company. The new company is substituted for the old company.
Alteration
Alteration of a contract means change in one or more of the terms of a contract.
Alteration is valid if it is done with the consent of all the parties to the contract.
REMISSION
Remission maybe defined as the acceptance of less than what was contracted for.
Example – A owes B rs 5000. A pays to B and B accepts in full satisfaction for the whole debt. Rs 2000. The old debt is discharged.
RESCISSION
Rescission means cancellation of all or some of the terms or a contract. The rescission of a contract may occur under various circumstances:
1. It may be done by mutual consent.
2. Where a party to a contract fails to perform his obligation, the other party can receive compensation for breach of contract.
3. In a voidable contract, one of the parties has the option of rescinding it.
Example – P promise to deliver certain goods to Q on a certain date.
Before the date of performance P and Q mutually agree that the contract will not be performed. The parties have rescinded the contract.
WAIVER
Waiver means the abandonment of a right. A party to a contract may waive his rights under the contract.
Thereupon the other party is released from his obligations.
When a superior right and an inferior right coincide and meet in one and the same person, the inferior right vanishes into the superior right. This is known as merger.
Example – A man holding property under a lease, buys the property. His rights as a lessee vanish. They are merged into the rights of ownership which he has now merger.
MERGER
3. Subsequent or supervening impossibility
Pre-contractual Impossibility
A contract which at the time it was entered into was impossible to perform, is void ab initio and creates no rights and obligations, eg, a promise to ride a horse to the sun.
Post-contractual Impossibility
A contract to do an act which, after the contract is made becomes impossible, or by
reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
1. Destruction of an object : In contract in which the performance depends on the continued existence of given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse performance.
Example –
(i) A music hall was let for a series of concerts on certain days. The hall was burnt before the date of the first concert, The concert become void.
(ii) A person contracted to deliver 200 tons of potatoes from a particular field. The potatoes were destroyed by a pest through no fault of the party. The contract was held to be discharged.
2. Change of law
The performance of a contract may become unlawful by a subsequent change of law. In such cases the original contract becomes void.
3. Failure of pre-conditions
When a contract is entered into on the basic of the continued existence of a cert state of things, the contract is discharged if the state of things changes.
Example – A & B contract to merry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
4. Death or incapacity for personal services
Where the personal qualification of a party is the basis of the contract the contract is discharged in cases of death or personal incapacity.
5. Outbreak of war
A contract entered into during war with an alien enemy is void. A contract entered into before war commenced between citizens of countries
subsequently at war, remains suspended during the pendency of the war.
After the termination of the war, the contract revives and may be enforced.
