Chapter-05Chapter-05

Termination of Termination of ContractContract

DefinitionDefinition

When the rights and obligations When the rights and obligations arising out of a contract are arising out of a contract are extinguished, the contract is said to extinguished, the contract is said to be discharged or terminated. be discharged or terminated.

A contract may be terminated in A contract may be terminated in any of the following waysany of the following ways

By PerformanceBy Performance Mutual consent or agreementMutual consent or agreement Subsequent or supervening Subsequent or supervening

impossibilityimpossibility By lapse of timeBy lapse of time By operation of LawBy operation of Law By breach of contractBy breach of contract

Discharge by performanceDischarge by performance

When a contract is duly performed When a contract is duly performed by both the parties, the contract by both the parties, the contract comes to a happy ending and comes to a happy ending and nothing more remains. The contract nothing more remains. The contract in such a case is discharged or in such a case is discharged or terminated by due performance. terminated by due performance.

Discharge by mutual consent or Discharge by mutual consent or agreementsagreements

As a contract is created by means of As a contract is created by means of an agreement, it may also be an agreement, it may also be discharged by another agreement discharged by another agreement between the same parties. It may take between the same parties. It may take the following formsthe following forms

NovationNovation AlterationAlteration RescissionRescission RemissionRemission

NovationNovation

Novation occurs when a new contract Novation occurs when a new contract is substituted for an existing is substituted for an existing contract. It may be between the contract. It may be between the same parties or between different same parties or between different parties. Novation can not be parties. Novation can not be compulsory. It can only be done the compulsory. It can only be done the mutual consent.mutual consent.

IllustrationIllustration

A is indebt to B and B to C. By mutual A is indebt to B and B to C. By mutual agreement B’s debt to C and B’s loan agreement B’s debt to C and B’s loan to A are cancelled and C accepts A as to A are cancelled and C accepts A as his debtor. There is novation his debtor. There is novation involving change of parties.involving change of parties.

AlterationAlteration

Alteration of a contract means change in Alteration of a contract means change in one or more of the material terms of a one or more of the material terms of a contract. If a material alteration in a written contract. If a material alteration in a written contract is done by mutual consent, the contract is done by mutual consent, the original contract is discharged by alteration original contract is discharged by alteration and the new contract in its altered form and the new contract in its altered form takes its place.takes its place.

It is relevant to state that a material It is relevant to state that a material alteration made in a written contract by one alteration made in a written contract by one party without the consent of the other, will party without the consent of the other, will make the whole contract void.make the whole contract void.

RescissionRescission

A contract may be discharged before A contract may be discharged before the date of performance, by the date of performance, by agreement between the parties to agreement between the parties to the effect that it shall no longer bind the effect that it shall no longer bind them. Such an agreement amounts them. Such an agreement amounts to ‘rescission’ or conciliation of to ‘rescission’ or conciliation of contract. An agreement of rescission contract. An agreement of rescission releases the parties from their releases the parties from their obligations arising out of contract.obligations arising out of contract.

IllustrationIllustration

A promise to deliver certain goods to A promise to deliver certain goods to B on a certain date. Before the date B on a certain date. Before the date of performance, A and B mutually of performance, A and B mutually agreed that the contract will not be agreed that the contract will not be performed. The contract stands performed. The contract stands discharged by rescission. discharged by rescission.

RemissionRemission

Remission may be defined ‘as the Remission may be defined ‘as the acceptance of a lesser sum than what acceptance of a lesser sum than what was contracted for or a lesser fulfillment was contracted for or a lesser fulfillment of the promise made.’ Section-63 of the of the promise made.’ Section-63 of the Act deals with remission of performance Act deals with remission of performance and lays down that a promise may remit and lays down that a promise may remit or give up wholly or in part, the or give up wholly or in part, the performance of the promise made to performance of the promise made to him and a promise to do so is binding him and a promise to do so is binding even though there is no consideration even though there is no consideration for it.for it.

IllustrationIllustration

If the promise agrees to accept Taka If the promise agrees to accept Taka 2000/ in full satisfaction of a claim of 2000/ in full satisfaction of a claim of Taka 5000/, the promise is Taka 5000/, the promise is enforceable and the promisee can enforceable and the promisee can not in future bring a suit for the not in future bring a suit for the recovery of Taka 5000/. recovery of Taka 5000/.

Termination by impossibility of Termination by impossibility of performanceperformance

There is no question of discharge of a There is no question of discharge of a contract which is entered into to perform contract which is entered into to perform something that is obviously impossible. something that is obviously impossible. Section-56 of the Act provides that an Section-56 of the Act provides that an agreement to do an act impossible in itself agreement to do an act impossible in itself is void. But when a contract which was is void. But when a contract which was capable of being performed at the time it capable of being performed at the time it was made, subsequently becomes was made, subsequently becomes impossible to perform is treated as void. impossible to perform is treated as void. This is known as supervening impossibility. This is known as supervening impossibility.

Impossibility of performance.. Impossibility of performance.. (Con’t)(Con’t)

In other words where an event which In other words where an event which could not reasonably have been in the could not reasonably have been in the contemplation of the parties when the contemplation of the parties when the contract was made, renders contract was made, renders performance impossible or unlawful, performance impossible or unlawful, the contract becomes void and stands the contract becomes void and stands discharged. This is known as discharged. This is known as frustration of the contract brought frustration of the contract brought about by supervening impossibility. It about by supervening impossibility. It is also known as the doctrine of is also known as the doctrine of supervening impossibilitysupervening impossibility. .

This supervening impossibility This supervening impossibility may occur in the following waysmay occur in the following ways

Destruction of the subject Destruction of the subject mattermatter

Failure of ultimate purposeFailure of ultimate purpose Death or personal incapacity of Death or personal incapacity of

the promisorthe promisor Change of Law Change of Law Outbreak of warOutbreak of war

Discharge by Operation of LawDischarge by Operation of Law

A contract terminates by operation of Law in A contract terminates by operation of Law in the following cases the following cases

Death : Death : Where a contract is of personal nature, Where a contract is of personal nature,

the death of the promisor discharges the the death of the promisor discharges the contract. In other contracts the rights and contract. In other contracts the rights and liabilities of the deceased person pass on to liabilities of the deceased person pass on to the legal representative of the deceased the legal representative of the deceased person. person.

Insolvency:Insolvency: A contract is discharged by the A contract is discharged by the

insolvency of one of the parties to the insolvency of one of the parties to the contract.contract.

Discharge by breach of contractDischarge by breach of contract

If a party commits breach of If a party commits breach of contract, then the contract will be contract, then the contract will be terminated. Breach brings an end to terminated. Breach brings an end to the obligations created by a contract the obligations created by a contract on the part of each of the parties. on the part of each of the parties. Breach of contract may be of two Breach of contract may be of two typestypes

Anticipatory breachAnticipatory breach Actual breachActual breach

breach of contract (Con’t)breach of contract (Con’t)

An An Anticipatory breachAnticipatory breach of contract is of contract is a breach of contract occurring before a breach of contract occurring before the time fixed for performance has the time fixed for performance has arrived. arrived.

Actual breachActual breach occurs when a party occurs when a party fails to perform his obligation upon the fails to perform his obligation upon the date fixed for performance by the date fixed for performance by the contract. For example where on the contract. For example where on the appointed day the seller does not deliver appointed day the seller does not deliver the goods.the goods.