Chapter-05 Termination of Contract Definition When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged or terminated. A contract may be terminated in any of the following ways By Performance Mutual consent or agreement Subsequent or supervening impossibility By lapse of time By operation of Law By breach of contract Discharge by performance When a contract is duly performed by both the parties, the contract comes to a happy ending and nothing more remains. The contract in such a case is discharged or terminated by due performance. Discharge by mutual consent or agreements As a contract is created by means of an agreement, it may also be discharged by another agreement between the same parties. It may take the following forms Novation Alteration Rescission Remission Novation Novation occurs when a new contract is substituted for an existing contract. It may be between the same parties or between different parties. Novation can not be compulsory. It can only be done the mutual consent. Illustration A is indebt to B and B to C. By mutual agreement B’s debt to C and B’s loan to A are cancelled and C accepts A as his debtor. There is novation involving change of parties. Alteration Alteration of a contract means change in one or more of the material terms of a contract. If a material alteration in a written contract is done by mutual consent, the original contract is discharged by alteration and the new contract in its altered form takes its place. It is relevant to state that a material alteration made in a written contract by one party without the consent of the other, will make the whole contract void. Rescission A contract may be discharged before the date of performance, by agreement between the parties to the effect that it shall no longer bind them. Such an agreement amounts to ‘rescission’ or conciliation of contract. An agreement of rescission releases the parties from their obligations arising out of contract. Illustration A promise to deliver certain goods to B on a certain date. Before the date of performance, A and B mutually agreed that the contract will not be performed. The contract stands discharged by rescission. Remission Remission may be defined ‘as the acceptance of a lesser sum than what was contracted for or a lesser fulfillment of the promise made.’ Section-63 of the Act deals with remission of performance and lays down that a promise may remit or give up wholly or in part, the performance of the promise made to him and a promise to do so is binding even though there is no consideration for it. Illustration Ifthe promise agrees to accept Taka 2000/ in full satisfaction of a claim of Taka 5000/, the promise is enforceable and the promisee can not in future bring a suit for the recovery of Taka 5000/. Termination by impossibility of performance There is no question of discharge of a contract which is entered into to perform something that is obviously impossible. Section-56 of the Act provides that an agreement to do an act impossible in itself is void. But when a contract which was capable of being performed at the time it was made, subsequently becomes impossible to perform is treated as void. This is known as supervening impossibility. Impossibility of performance.. (Con’t) In other words where an event which could not reasonably have been in the contemplation of the parties when the contract was made, renders performance impossible or unlawful, the contract becomes void and stands discharged. This is known as frustration of the contract brought about by supervening impossibility. It is also known as the doctrine of supervening impossibility. This supervening impossibility may occur in the following ways Destruction of the subject matter Failure of ultimate purpose Death or personal incapacity of the promisor Change of Law Outbreak of war Discharge by Operation of Law A contract terminates by operation of Law in the following cases Death : Where a contract is of personal nature, the death of the promisor discharges the contract. In other contracts the rights and liabilities of the deceased person pass on to the legal representative of the deceased person. Insolvency: A contract is discharged by the insolvency of one of the parties to the contract. Discharge by breach of contract Ifa party commits breach of contract, then the contract will be terminated. Breach brings an end to the obligations created by a contract on the part of each of the parties. Breach of contract may be of two types Anticipatory breach Actual breach breach of contract (Con’t) An Anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived. Actual breach occurs when a party fails to perform his obligation upon the date fixed for performance by the contract. For example where on the appointed day the seller does not deliver the goods.
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