Presentation on theme: "DISCHARGE OF CONTRACT HOW A CONTRACT COMES TO AN END"— Presentation transcript:
1 DISCHARGE OF CONTRACT HOW A CONTRACT COMES TO AN END A party who is subject to the obligations of a contract may be discharged from those obligations in one of four ways. The agreement is then at an end. The four ways are:A) Performance;B) Agreement;C) Breach;D) Frustration.Each of these methods of discharge is explained below.A) PERFORMANCE1. This is the normal method of discharge. Each party fulfils or performs his contractual obligations and the agreement is then ended. As a general rule contractual obligations are discharged only by complete and exact performance. Partial performance does not usually suffice; nor does incorrect performance:2. The other party may prevent performance. In that case the offer ('tender') of performance is sufficient discharge.3. If one party is prevented by the other from performing the contract completely he may bring a quantum meruit action to claim for the amount of work done.i) Time of performance1. If one party fails to perform at the agreed time he may perform the contract later – the contract continues in force, unless prompt performance is an essential condition.2. If the parties expressly agree that `time shall be of the essence' and so prompt performance is to be a condition, that is conclusive and late performance does not discharge obligations.
2 ii) Complete performance As a general rule the contract price is not payable unless there is complete performance. There is no right to demand proportionate payment for partially completed work.There are number of exceptions, cases where part payment of the contract price may be recovered in exchange for incomplete performance.a) The contract may provide for performance by installments with separate payment for each of them (a divisible contract)b) Other party may prevent complete performance. The party so prevented from completing is entitled to be paid for what he has done under the doctrine of quantum meruitc) The other party may accept partial performance and must then pay for if.(d) The doctrine of substantial performance may be applied, especially in contracts for building work etc.B) AGREEMENTa) A contract may include provision for its own discharge by imposing a condition precedent which prevents the contract from coming into operation unless the condition is satisfied.b) In any other case the parties may agree to cancel the contract before it has been completed: performed on both sides. But the agreement to cancel is itself a new contract for which consideration must be given.c) If there are unperformed obligations of the original contract on both sides; each party provides consideration for his own release by agreeing to release the other (bi-lateral discharge).d) But if one party has completely performed his obligations, his agreement to release the other from his obligations (unilateral discharge) requires consideration, such as payment of z cancellation fee (called accord and satisfaction).C) FUNDAMENTAL BREACHIf one party breaks a condition the other may treat the contract as discharged. The injured party may prefer (the option is his) to treat the contract as still continuing despite a breach of condition and merely claim damages for his loss.i) Anticipatory breach or repudiationA party may break a condition of the contract merely by declaring in advance that he will not perform it when the time for performance arrives, or by some action which makes future performance impossible. The other party may treat this as anticipatory breach and treat the contract as discharged forthwith.
3 D) FRUSTATION (SUBSEQUENT IMPOSSOBILITYTIY) i) If it is impossible to perform the contract when it is made, there is usually no contract at all- it is void and each party is released from performing any obligation after the frustrating event.ii) The rigour of this principle is modified by the doctrine that in certain circumstances contract may be discharged by frustration. If it appears that the parties assumed that certain underlying conditions would continue, the contract may be frustrated if their assumption proves to be false. Contracts have been discharged by frustration in the following circumstances.(a) Destruction of the subject matter(b) Personal-incapacity to perform a contract of personal servicec) Government intervention or supervening illegalityd) Non-occurrence of an event if it is the sole purpose of the contracte) Interruption which prevents performance of the contract in the form intended by the partiesA contract is not discharged by frustration in the following circumstances.a) If an alternative mode of performance is still possibleb) If performance becomes suddenly more expensivec) If one party has accepted the risk that he will be unable to performd) If one party has induced frustration by his own choice between alternativesIn most cases the rights and liabilities of parties to a contract discharged by frustration are regulated by the Law Reform (Frustrated Contracts) Act 1943.