A contract is a written document in which the parties specify the terms and conditions of their partnership and business dealings. A contract’s termination is crucial since it gives the parties a way out. A contract may be cancelled by the parties concerned under the Indian Contract Act of 1872 by providing justifiable grounds such as exasperation, repudiator breach, and cancellation by previous agreement, retraction, or upon fulfillment.
The parties may agree to this dissolution voluntarily or the state may require it. Nevertheless, if a contract is broken or terminated without both parties’ permission, the party who wasn’t at fault for the violation can seek legal remedy as a result of the termination. A contract may be terminated in specific circumstances, rendering it invalid and no longer legally enforceable. Contracts can only be terminated by the parties concerned.
A contract can be lawfully ended by either party before the other has completed all of their commitments under the terms of the agreement. There are several grounds for which a party may end a contract. Whether either party is liable for breach of the contract before it was terminated depends on how and then when the agreement is terminated.
Events of Termination of a Contract
- Impossibility of Performance
A contract imposes obligations on one or even more parties, known as execution. An organization may, for instance, engage a great orator and have them to sign a deal to appear at one of their events. Performance occurs when the great orator completes the obligations outlined in the contract. It is referred to as inability of performance or occasionally “frustration” if for any reason it is difficult for the public speaker to complete his obligations.
Performing would be impossible, for instance, if the speaker suffered a major injury and no one could step in to substitute him. In this case, the corporation has the right to terminate the contract. Provisions governing the impossibility of contract are included in Section 56 of the Indian Contract Act, 1872. There is no reason why someone else couldn’t carry out the obligations outlined in the contract.When someone promised to paint a home, but the house burnt down before it can be painted, it is an instance of an impossible performance.
Illustration- “A” agrees to transport goods for “B” to a foreign port. Then A’s nation wages war on the nation in which the seaport is located, the agreement is null and invalid. In Punj Sons Pvt. Ltd. v. Union of India (1985), Punj Sons Pvt. Ltd. and the state signed a contract where the latter was required to provide certain milk bottles that were to be properly covered with “hot dip coating” produced from tin alloys. The Court determined that the contract has become unenforceable under Section 56 notwithstanding the company’s best efforts to make the tin alloys available.
- Breach of Contract
A breach of contract is when one party willfully fails to uphold the terms of the agreement. This behaviour is cause for contract termination. A party may well have broken a contract if they partially or completely failed to fulfill their duties. An insignificant breach of contract would occur, for instance, if you ordered a product that didn’t come until the day after the scheduled delivery date. Nevertheless, a serious violation occurred if your order didn’t arrive until two weeks beyond the delivery date and it had an impact on your company.
The offended person often has the right to claim monetary compensation for his losses and to terminate the contract in the event of a substantial violation.
- Termination of Prior Agreement
The parties could decide to allow termination under a certain set of conditions. A violation of the contract occurs if any of the particular requirements are not met. As long as both sides consented to its provisions, the earlier agreement serves as a termination clause and is binding. If both you as well as the other parties have previously agreed in writing that the contract may be terminated for a particular reason, you may do so. This kind of clause is frequently referred to as a break clause. The specifics of what constitutes a valid basis for contract termination must be included in the contract. This should specify the conditions under which one of the parties may end the agreement. Most of the time, in order to end a contract, one party must provide the other side a notice in writing.
Rescission of a contract refers to the termination of a contract due to misrepresentation, unlawful behaviour (such as fraud), or error. For instance, if you purchase a house and then learn that the buyer purposefully concealed the property’s terrible physical state, you may be able to cancel the agreement. If one party is too young to enter into a contract or if an aged person becomes incapable of making judicial decisions, the contract may be rescinded.
- Doctrine of Frustration
It is applicable when a party is “excused” from fulfilling their commitment because events have since changed. In other words, the contract’s goal is disappointed since it cannot be achieved. According to the court’s ruling in Satyabrata Ghose v. Mugneeram (1953), “the key principle upon which the theory is based is that of impossibility of fulfillment of the contract; in fact, impossibility and frustration are sometimes employed as interchangeable synonyms. The parties are released from further performance of the contract since they did not pledge to execute impossibility as a result of the altered circumstances”. Additionally, it was noted that the Doctrine of Frustration invalidates the contract and shouldn’t be used often.
- Completion of Contract
Once the duties stipulated in the contract are fulfilled, the agreement is effectively ended. Documents proving the completion of contract obligations should be kept by the parties. If the opposing party wants to subsequently contest whether your contract duties were fulfilled, documentation is useful. If a disagreement arises, evidence of contract compliance will be needed in court.
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