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Discharge of Contract. 1.What is discharge of contract ---- Ending of contract (termination of rights and obligations) 2.A contract can be discharged.

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Presentation on theme: "Discharge of Contract. 1.What is discharge of contract ---- Ending of contract (termination of rights and obligations) 2.A contract can be discharged."— Presentation transcript:

1 Discharge of Contract

2 1.What is discharge of contract ---- Ending of contract (termination of rights and obligations) 2.A contract can be discharged by different ways. What are they? (1) discharge by performance (2) discharge by agreement (3) discharge by impossibility of performance (4) Breach

3 (1)Which one is the most common way to discharge a contract? By performance of contractual duties, where the terms of contract have been fulfilled. (2) How to discharge a contract by agreement? A. discharge by making the rescission contract Both parties can reach an agreement to rescind the contract. (mutual rescission) B. Discharge by making novation or substituted agreement A novation is an agreement whereby one of the original parties is replaced by a new party who assumes the rights and duties of the original party.

4 In a novation, one party is completely released from contractual obligation and is substituted by another. A B C Novation is rather different from assignment or delegation. Contractual rights and duties can be transferred to third parties, except they are highly personal. When rights are transferred, the transfer is an assignment. When contractual duties are assumed by third parties, a delegation has occurred.

5 (3) Discharge by impossibility of performance A. Nonperformance is regarded as a breach of contract. If some events beyond the control of the parties leads to nonperformance, party may be excused and discharged from its contractual promise. B. What situations are taken as impossibility? a.Goods cannot be delivered on time because of shortages of freight car. b.Money cannot be paid on time because the bank is closed.

6 c. Fred, a famous dancer, contracted to play a leading role in its new ballet. Before the ballet can be performed, however, Fred becomes ill and dies. d. A contracted B to sell his Rolls-Royce. Beyond expectation, the car was burned down one night before being transferred to B. e. After a contract was made to loan money at 20%, the usury rate was changed to make loans in excess of 12% illegal.

7 f. As the market price had risen a lot, a party would have to pay one hundred times more than the original estimate. Reasons: Impossibility can be divided into objective impossibility and subjective possibility It cant be done. I simply cant do it. It is impossible for me to perform. It is impossible for anybody to perform. Only objective impossibility can be excused from nonperformance.

8 Accordingly, in a and b such excuses do not discharge a contract. The nonconforming parties are normally held in breach of contract. In c the situation is an objective impossibility. The death of Fred discharged the contract as his personal performance was essential to the completion of contract. When the specific subject matter of the contract is destroyed, performance is rendered impossible owing to the accident.

9 When a change in law renders performance illegal, the contract is discharged. When performance becomes commercially impracticable, the contract is discharged. (the doctrine of commercial impracticability--- To perform the contract turns to be more difficult or expensive than anticipated and it is impracticable to perform the contract.)

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