Class Notes on Business Law

KU Dhulikhel

Termination of Contract

Introduction

Termination of contract is the end of the contractual relationship between the contractual parties. From
the very beginning of the contract, there is a creation of contractual obligation and rights within the
parties. If parties get relief from that obligation and rights then it is said to be the termination of contract.

In some cases, other rights and obligation may arise because of termination of contract, but they are
altogether independent of the original contract. The related sections of Nepalese Contract Act 2056 are,
Section 79, 81, 82, 89

Methods of Termination of contract (LIPABO)

There are altogether 6 methods of Termination of contract

1. By Lapse of time
2. BY Impossibility to perform/Frustration/DOSI/Substantial change in the circumstances
3. By Performance of contract
4. By Agreement of the parties to the contract
5. By Breach of contract
6. By operation of law

Termination of contract by Lapse of Time

If the parties have agreed upon a contract for the fixed period, then the contract is discharged after expiry
of such stipulated time.

Ex- Mr Principal has appointed Mr Agent to work as a sales agent for 4 years. This contract will terminate
after 4 years.

Two things we need to know

1. Contractual limitation/time
2. Legal limitation/time – Related with section 89 of NCA-2056

Termination of Contract by impossibility to perform (DOSI)

If contract become impossible to perform due to some unavoidable technical reason, that is beyond the
control of human being such as destruction of subject matter, happening of natural calamities.

Then contract is terminated because of impossibility perform Section 79 (Read it out thoroughly)

Termination of Contract by Performance

When the parties to the contract fulfill their obligation arising under the contract within a time, place and
manner prescribed then parties are discharge from contractual liability and contract ends
 Class Notes on Business Law
KU Dhulikhel

Whenever both of the parties fulfill everything which they have agreed, then there will be nothing left for
performance. However if only one party perform the promise, that party alone will discharge,

By agreement of the parties

Since the contract is the law created by the parties for themselves, they can do whatever they want to do,
remaining within the law. Parties may terminate the contract through following method

1. Agreement of Renovation
a. Change of the party
b. Change of the contract
c. Change of the parties and contract
2. By alteration
3. By Repeal
4. By Remission
a. Absolute
b. Partial
5. By waiving the rights
6. By accord and satisfaction

By breach of contract

Breach of contract means breaking of the obligation, which contracts impose. It occurs when a party of
the contract without lawful excuse doesn’t fulfill his/her contractual obligation or by his own acts makes
it impossible to perform his obligation under it. Section 82 (Go to it thoroughly)

Since one party breach the contract then another also discharged from the contract. This is the annoying
termination of contract, because it may drag party to the contract towards the legal remedy

Kinds of breach of contract

1. Actual
2. Anticipatory

By Operation of law

1. Insolvency of the parties

2. Death of the parties
3. Destruction of contract
4. Merger of Contractual rights