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Termination of Contract – Business Law | Management Notes

Termination of Contract  | Methods of Termination of Contract | Legal Aspects of Business and Technology | BBA |Management Notes

Termination of Contract 

Termination of Contract means getting relief or free from the contractual liabilities between the parties involved in the contract.Once a party formally agrees to a contract, they become liable under law to fulfill their contractual duties. Failure to perform the terms stated in the contract can result in a breach of contract lawsuit or other legal liabilities.However, there are some conditions under which a contract can be legally terminated before the contractual duties have been fulfilled. This is known as “termination of contract” and may occur for many different reasons. Termination of contract is governed by contract laws, which may vary according to each individual state.A contract may be terminated in the following ways:

Termination of Contract

By performance of contract
When both the parties fulfill their respective promises in time, it is said to be performance of contract.When the contract is performed automatically the contract is terminated.
For e.g: Shyam promises to give Rs 50,000 to Hari in exchange of VCD. When Hari gives VCD to Krishna and Krisina gives Rs 50,000 to Hari then contract between them comes to an end.Hence, contract is terminated by performance of contract.

Impossibility of performance
A contract may be terminated if it is impossible to perform. A contract when made was possible to perform, but because of the happening of some unavoidable reasons such as deduction of subject matter, change of law it may become impossible to be perform later. When the contract is impossible to perform. contract is terminated
For e.g: Krishna agrees to sell his car for Rs 5,00,000 to Hari Before the car is sold, the car is completely damaged by accident. Due to impossibility of performance, the contract is terminated.

Termination by mutual agreement:
Making re-agreement between the parties with their mutual consent terminates the contract.If the first agreement is replaced by another agreement (caled re-agreement) upon their mutual consent, the first agreement existence comes to an end.
For e.g: Krishna agrees to sell his Hero Honda motorcycle to Hari for Rs. 100,000.But before the sold of Hero Honda motorycle to Hari they mutually agreed for not performing tie contract.Here agreement existence comes to an end.

By operation of law:
In the following condition a contract may terminate by operation of law.

  • By the death of the parties:A contract comes to end and terminate by operation of law after the death of either party.
  • By insolvency of the parties:If a party to the contract becomes insolvent his/ her liabilities and rights will be developed upon the official assignee by the court an therefore contract will be terminated.
  • By merging one contract with another: Sometimes one contractual party may enjoy two different right on the same
    subject matter by making two different contract.
    For e.g.Krishna hires motorcycle from Hari for a month on rental basis for Rs.2000 but after 15 days Krishna made an agreement to buy the motorcycle with Hari and buy it. Here the first contract merge with second one. Hence the first contract will be terminated by operation.Termination by breach of contract:

    If one party fails or denies performing his/her contractual liabilities created by contract, it is said to be breach of contract.When one party breach the contract,the other party will also get relief from his contractual liabilities.In such case the contract is terminated.
    f. Termination of contract by material alternation: The term material alternation means a change made in the material mentioned in the contact.If one party changes the material in the contact without obtaining the consent of other party, the contract is terminated.
    For eg: Krishna promise to sell and deliver Pokhareli rice on lst jan and Hari promise to pay for goods on 1st
    February. Afterwards Krishna and Hari mutually decide that the goods shall be delivered from Shyam’s store. Here original contact has been terminated by material alternation.g. By recession of contract: Recession means cancellation of the contact by the party.For e.g.Krishna promise to Hari to sell and deliver pokhareli rice on 1st Jan at his down and Hari promise pay for goods on 1st feb. If krishna doesn’t supply goods to Hari on time then Hari may rescind the contract.h. Termination by lapse of time:A contract is terminated if it is not performed or enforced within specified time mentioned in the contract.

Similarly, Other Related Posts: Termination of Bailment 

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