Termination or Discharge of Contracts

Definition: When the obligations created by a contract come to an end, the contract is said to
be discharged or terminated.

Methods of Termination
A contract may be discharged or terminated in any of the following ways:

1) By performance of the promise or tender

2) By mutual agreement
3) By impossibility of performance
4) By operation of law—i.e., death, insolvency, or merger
5) By lapse of time
6) By material alteration without the consent of the other parties
7) By breach made by one party

1. By Performance of the Promise or Tender

The obligation of a party to a contract comes to an end when he performs his promise. When all
the parties to a contract perform their obligations the contract comes to an end. This is the normal
or natural way of terminating a contract.

Tender means ‘offer to perform the obligation’. If a party offers to perform his obligation but the
offer is not accepted by the other party, the obligation of the first party comes to an end.

2. By Mutual Agreement

If all the parties agree, a contract may be cancelled or altered or replaced by a new contract.
Whenever any of the options happen, the old contract is terminated.

3) By Impossibility of Performance

Impossibility of performance of a contract makes it void. There are two types of impossibility of
performance of a contract:

(a) Pre-contractual Impossibility

(b) Post-contractual Impossibility

(a) Pre-contractual Impossibility: Pre-contractual impossibility occurs when an agreement

at the time of formation was impossible to perform. The agreement is void ab initio and
creates no rights and obligations. For example, a promise to ride a horse to the sun.
 (b) Post-contractual Impossibility: Post-contractual impossibility occurs when a contract at
the time of formation was possible to perform, but subsequently has become impossible
to perform. This is also known as Doctrine of Frustration. For example, a music hall was
let for a series of concerts on certain days. The hall was burnt down before the date of
first concert. The contract of concert becomes void.

4) By Operation of Law—i.e., Death, Insolvency, or Merger:

A contract terminates by operation of law in case of death, insolvency, and merger.

Death: If performance of the obligation requires personal skill or ability, death terminates the
man.

Insolvency: Upon insolvency, the rights and obligations of the insolvent are transferred to the
Official Assignee determined by the court and the contract comes to an end.

Merger: When a superior right and an inferior right coincide, the inferior right vanishes into the
superior right. This is known as merger. For example, a man holding a property under lease
buys the property. His rights as a lessee vanish and are merged with the right of ownership.

5) By Lapse of Time:

Contracts may be terminated by the lapse of time. For example, if a partnership is formed for a
certain period, the partnership agreement comes to an end with the expiry of time.

6) By Material Alteration without the Consent of the Other Parties:

If a party makes ‘material alteration’ on the document of the contract without the consent of the
other party/parties, the contract becomes terminated.

The term ‘material alteration’ means a change on the document that affects the affects the rights
and liabilities of the other party/parties.

7) By Breach Made by One Party:

When a contract is broken by one party, the other party is freed from the obligation of
performing the contract. If so, the contract comes to an end. But the other party can take
remedial measures.

The Methods of Termination of a Contract by Mutual Agreement

If all the parties agree, a contract may be cancelled or altered or replaced by a new contract.
Whenever any of the options happen, the old contract is terminated.

Termination by mutual agreement may occur in any of the following ways:

(a) Novation: Novation occurs when the existing contract is replaced by a new contract,
either between the same parties or between different parties.

(b) Alteration: Alteration means making change in one or more of the terms of a contract.

(c) Remission: Remission means the acceptance of less than what was contracted for.

(d) Waiver: Waiver means the abandonment of the rights of a party. A party to a contract
may waive his rights under the contract. Therefore, the other party is released from the
obligation.

(e) Merger: When a superior right and an inferior right coincide, the inferior right vanishes
into the superior right. This is known as merger. For example, a man holding a property
under lease buys the property. His rights as a lessee vanish and are merged with the right
of ownership.