Termination (Discharge) of Contract

• Termination of a contract means that the parties are no more liable under the contract. The rights and obligations created by the contract come to an end.

• Modes of Termination of a Contract: 1. By Performance: When parties to the contract actually fulfil

their respective obligations arising under the contract or make valid offer to fulfil such obligations.

2. By Lapse of Time: (i)If contractual obligations are not fulfilled within the fixed or reasonable time period; and (ii) when law of limitation applies (Section 89 of the Contract Act).

Modes of Termination of a Contract

3. By Operation of Law:• Death.• Insolvency.• Merger of Rights.

4. By Agreement or Consent. Section 81 of the Contract Act.• Novation: Substitution of existing contract for new

contract.• Rescission: Cancellation of the contract.• Alteration: Change in one or more terms of the contract.

Termination continue..

• Remission: Acceptance of lesser fulfilment of the terms of the contract.

• Waiver: Abandonment of the rights by the party who is entitled to claim performance.

• Acceptance of any other satisfaction.

5. By Breach of Contract. When a party to the contract fails to perform its obligations under the contract, a breach of the contract occurs. A breach of a contract discharges the other party (aggrieved party) from performing its obligations.

Impossibility of performance and the Doctrine of Frustration

6. By Promisee Failing to Offer Facilities for Performance: Section 80 of the Contract Act.

7. By Impossibility of Performance. Section 79 of the Contract Act.

General Rule: If a contract becomes impossible to perform due to the occurrence of a substantial change in circumstances after the conclusion of the contract, both the parties to the contract are discharged from their respective obligations.

• This is called supervening impossibility or doctrine of frustration.

Cases of Supervening Impossibility

Conditions: (i)Performance must become impossible, (ii) Impossibility should have been caused by the circumstances which were beyond the control of the parties, and (iii) impossibility must not be self-induced.

• Destruction or Non-availability of the Object Necessary for the Performance of the Contract. Section 79 (2) (c).

• Change of Law or Government Policy (in consequence of which the contract becomes illegal or inconsistent with the government policy). Section 79 (2) (a).

• War and Natural Disasters. Section 79 (2) (b). War, flood, landslide, fire, earthquake, volcano etc.

• Death or Incapacity of the Promisor. Section 79 (2) (d).

Cases that do not Constitute Supervening Impossibility

• Difficulty in performance.• Strikes or lockouts.• Increased tax, fees or other payable charges.• Default or failure of a third person on whose word the promisor

relied.• Decrease in profit or incurring loss.• Impossibility of performance with regard to one of the objects

when the contract is entered into for several objects.

• Consequences of the Supervening Impossibility• Refund of already made payment.• Compensation for any advantage received.