Modes or Methods of Termination/Discharge of Contract
Meaning and Definition of Termination or Discharge
The term termination and discharge are similar in the case of the contract.
The word termination refers to the end of something and discharge refers to free from something. Thus, termination or discharge of the contract means ending up or discontinuing the contractual relationship between the parties.
There is the termination of the contract when the obligations and rights created by the contract come to an end. It means, the contract can be terminated when contracting parties become free from their task or legal obligations created by the contract.
Termination of the contract thus is the final stage of the contract. A
contract is known as terminated or discharged when it ceases to operate.
After discharge or termination of the contract, parties are free from contractual obligations as well as all the obligations under the contract come to an end. So no party will remain in the position to demand the performance once the contractual relation gets terminated and discharged. It is thus formal ending up of the contractual relationship.
When there exists any lawful reason to end the contractual relation before
fulfillment of its performance then only such termination will valid and
applicable in the eye of law.
Modes or Methods of Termination/Discharge of Contract
If the contract is fully and exactly performed by its party then it will
come to end with a happy ending and there will not anything to be performed
and that is the most common and expected way of discharging contractual
relationships. But apart from such general methods, there are certainly
other methods of termination or discharge of the contract and which are
briefly explained below;
- By performance of a contract;
- By mutual consent or agreement;
- By subsequent supervening impossibility or illegality;
- By lapse of time;
- By operation of law;
- By breach of contract
Discharge of contract due to performance
Performance of a promise by all the contracting party to a contract is one
of the most usual, easy, and natural ways of termination or discharge of the
contract. Performance may be actual or attempted. When the contracting
parties fulfill their part of dusty fully and exactly then the contractual
relationship between them will be completed and there are no more obligations
have remained. This is known as termination or discharge of contract by the
performance. The performance of the contract can be of two types;
a. Actual performance
When the parties perform their promise following the terms and conditions of the contract, there will be the actual performance of the contract and it is terminated.
b. Attempt to performance or the tender of performance
When performance is offered by the Promiser but is not received by the
Promisee there is an attempted performance. It is not the performance of the
contract but the law has recognized the valid tender as equivalent to the
performance of the contract.
Thus, in the case of valid tender, the promiser does not need to perform again and again.
Discharge of contract due to mutual agreement or consent
A contract is the outcome of the consent of the parties creating rights and obligations between them. The parties may be freed from such obligations if they want. So, parties may be discharged from their respective obligations and the original contract between them gets terminated.
Section 533
of the Civil Code described following several modes of termination of the contract by agreement. This agreement of cancelation present in the expressed or implied form.
This kind of termination may occur in any of the following ways:
Novation
Novation means the substitution of a new contract in the place of the old contract. The new contract could be either between the existing parties or between new parties. In such cases, the old contract is revoked and substituted by now one.
Thus, where the new contract is agreed by all the parties to replace the existing contract then that is called novation.
For example, A owes B Rs. 10,000 under a contract. A, B, and C agreed that
B shall thenceforth accept C as his debtor, instead of A. The debt of A to B
is at an end and a new debt comes into being between B and C.
Alteration
Any agreement between the parties that vary some terms and conditions to obtain the original objective may also terminate the contract. The alteration is a change in one or more terms of a legal document. This is possible only with obtaining the consent of the other party to the contract.
In such cases, the old contract is get terminated and the parties are bound to a new contract.
For example, A promises to deliver 10 tons of wheat to B at the rate of Rs.
2000 per ton on 1st May and B promise to make payment to A on
1ST June. Afterward, A and B mutually decide that the delivery is made in 5 equal installments and the price will be Rs. 1500 per ton. Here,
the old contract got terminated and the new become bound by the contract with altered terms.
Remission
An agreement, in which the parties accept a less sum of money or a less significant fulfillment of the liability, also terminates the contract. It is a unilateral act of a contracting party to discharge the other at his will with happiness and pleasure the other.
If the promise once accepted, he cannot claim such amount later on and the promiser is released from his obligation of the contract so concluded. Thus,
due to remission, the initial contract gets terminated.
Rescission
Rescission refers to the act of cancellation. The parties to a contract can revoke or cancel their respective obligations before the performance, based on mutual consent and consideration. It is the dissolution of the contract.
In such a case also contract will be discharged and terminated.
For example, A promises to deliver 10 tons of wheat to B at the rate of Rs.
2000 per ton on 1st May at B’s farmhouse and B promises to make payment to A on 1ST June. Before that fixed date, A and B
mutually revoke the contract. Here the contract needs not to be performed.
Waiver
The term waiver refers to the autonomous sacrifice of entitling upon something for which he is legally entitled. If a waiver provision is made in the contract, any of the parties can terminate it in this way. Consideration is not necessary for this kind of termination.
For example, A owes B Rs.5000 on 1st May. Before the time of repayment to B, by feeling poor situation of A, he waives the amount of supplies notice of waiving the amount. The contract is terminated.
Merger
The merger is said to have taken place when a substandard or an inferior right
acquired by a contract is merged into a greater or superior right acquired
by the same party under the same or another contract, there occur
termination of an old contract.
For example, A possesses a car under the lease. If he buys such a car then he becomes the owner of the car. His rights under lease merge into his rights as an owner of the car. This is a merger.
Accord and satisfaction
The term accord refers to the promise to accept less than that the amount
receivable under the contract and satisfaction means lesser payment of
lesser fulfillment.
These terms are developed under English law. It means accord supported by consideration is necessary and only accord is not valid.
For example, A owes Rs. 1000 to B. B agrees to accept Rs.7000 in satisfaction in his claim. This promise is unenforceable in English law. But if A pays and B accepts, there is accord and satisfaction. The old contract gets terminated.
Discharge of contract due to the supervening impossibility
Among the essentials of the contract, the possibility to perform is a very important element. It the work or duty under the contract was possible to perform at the time of formulation but later on, it becomes impossible then this is called subsequent or supervening impossibility. The contract becomes void from the time of its impossibility or when the work becomes impossible to perform.
This rule is recognized as the Doctrine of supervening impossibility or The doctrine of frustration. Thus the notion impossibility does not create legal
obligation makes impossibility to performance valid and terminates the contractual relationship between the parties. The notion supervening
impossibility consists of following situations;
Destruction of the subject matter
If the subject matter or main concern of the contract right after its the formation is damaged and cracked not including any default of the promiser
or promisee then the contract will get terminated or discharged.
Death or permanent incapacity of parties
Where the contract requires the personal capacity to perform, his death or
incapacity outs an end to the contract.
Change of law
A contract is made to do or not to do something and it is at the time of the formation, valid but thereafter before the performance, if the change in the law
happens and performance becomes impossible or unlawful the contract gets
terminated.
For example, C and D enter into a contract, and C agrees to sell 100 tons of potato that he has produced in his land. But before the delivery id state declares that selling potato to the individual buyers is illegal and all the seller has to sell to the government then the formed contract will be terminated due to a change in the law.
Declaration of war
A contract between citizens of an alien enemy is void. When the parties of contract engaged into the contract before the declaration of war and after entering into a contract if the war has been declared by both of the nations then it is now impossible to perform the contract. In such a case the contract is either suspended during the war or terminated.
Natural calamities
When any circumstances arise out of the control of a human being such as
flood, earthquake, and the pandemic and so on, the contract automatically
terminated.
Failure of all objectives
If the set objectives of the contract have failed then the contract comes to an end. It means when there are several objectives of the contract and there is a failure of all the objectives then the contract will be discharged.
Not an excuse (Exceptions to the termination by impossibility)
A contract is not forever finished based on a subsequent impossibility. A
person is not freed from the legal obligations that he has undertaken. There
is no excuse for a promisor in the following cases;
Difficult of the performance of a contract
The contract is not discharged simply on the ground that it becomes more difficult to perform the contract than agreed. In such a case, neither party to the contract can claim discharge of the performance. So no party can be freed from their respective obligations.
Commercial hardship or impossibility
The physical and legal impossibility and hardship are excusable but any
hardship and impossibility of expectation to higher profit is not a
sufficient excuse to terminate the contract.
Impossibility due to default of the third party
The dogma of supervening hopelessness is not applied in the case when his
failure of performance of his promise due to the default or any ac of the
third party.
Strikes, lockouts, and civil disturbance
Except otherwise mentioned in the contract, the strikes, lockdowns,
lockouts and civil disturbances do not terminate the contractual
relationship between parties.
Additional tax, revenue
In a contract of any additional taxes or fees that have to be paid
afterword, then the contract will not be terminated because of additional
tax, revenue.
Failure of any one objective
If the contract has formed including various objectives and in case of
failure of anyone objective does not constitute an adequate cause to excuse
the parties from their obligations.
Discharge of contract due to the lapse of time
If there is a stipulation of time for the performance of the contract then respective parties have to fulfill their obligations within the provided time. It means all the contracts should be performed within a fixed or reasonable time.
If any of the parties does not perform the contract within the prescribed
time limitation, he loses his remedy under the contract. In case of a
contract, the period of limitation is two years if a party does not file a
suit to enforce his right within the prescribed period the courts will not
enforce the contract.
Discharge of contract due to the operation of law
Sometimes the operation of the law itself terminates the contractual relationship between the parties. It can because of the termination of the contract. Thus in a different case, the procedure of law discharges the contract. The following cases are those in which law becomes active to
discharge the contractual liability:
Death of the Promisor
Any contract which is formed because of personal skill, interest, or qualification then that must be performed of fulfilled by the promisor himself. If a contract is of such nature, the contract is terminated as soon as the promisor dies or becomes insane permanently. But in case of all other contracts, all rights and liabilities of the deceased person passed to the heir of the deceased.
Insolvency
If a party to the contract becomes insolvent, the contract related to him gets terminated. So, when a competent court declares that a party to the contract has become insolvent, the rights and liabilities are transferred to the official receiver appointed by the court.
The insolvent person is not allowed to enter into the contract and as a
result, any contract by or with insolvent is known as void one. So if the person is declared as insolvent then his contractual obligations will get terminated and he is being discharged from all of his liabilities under the contract.
Unauthorized Material Alteration
Material alteration refers to a change in the contract to affect the rights and duties of the contracting parties. A material alteration in a written contract without the approval and consent of the other party will affect the whole contract and the contract becomes void.
It means if one party without the consent of the other party makes such an alteration in the contract, the other party can avoid the contract. In this case, the effect of alteration is just like the effect of cancellation. But,
the alteration not related to the matter of the contract and alteration with the common interest of the parties would not affect the validity of the contract.
For example, A entered into a contract with B to sell his house to B for
Rs. 2000,000. A holds the contract paper and he made an alteration in the amount and made it Rs. 2500,000. B is not bound to purchase the house.
Merger
(Explanation is same as above)
Discharge of contract due to breach
In contract each of the parties must perform his promise, when one party fails to perform it then the contract is deemed to have been violated and it comes to end. In the case of breach of contract, the contract goes termination. In case the breach of contract, a non-breaching party or innocent party can receive the contract from his part and claim the compensation against the breaching party. In this situation, the whole contract is terminated.
Thus, it is an unjustifiable failure to perform terms of a contract. It is failing to perform the contract following the contract. It is nonperformance of the contract impliedly and expressly at the time of performance or even before that.
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