Principle of Business Law

Discharge of Contract

Sangay Paldon
 Principles of Business Law (BLW203)

Table of Contents
1. Introduction: ........................................................................................................ 2
2. Performance: ....................................................................................................... 3
2.1. Substantial performance .............................................................................. 4
2.2. Partial performance...................................................................................... 4
2.3. Quantum Meruit: ......................................................................................... 5
2.4. Severable Contracts ..................................................................................... 5
3. Agreement: .......................................................................................................... 5
3.1. Novation: ..................................................................................................... 6
3.2. Rescission: ................................................................................................... 6
3.3. Alteration: .................................................................................................... 7
3.4. Remission: ................................................................................................... 7
4. Breach: ................................................................................................................ 8
4.1. Anticipatory breach of contract ................................................................... 8
4.2. Actual breach of contract:........................................................................... 8
5. Frustration: .......................................................................................................... 9
6. Conclusion: ....................................................................................................... 12
7. References: .................................................................................................... 13

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 Principles of Business Law (BLW203)

1. Introduction:

Men are social animals who live in the so called societies. It is a predictable course of
nature that every animal such as us who live in clusters are bound to have
misunderstandings. But unlike other beings, we humans solve them more morally and
ethically. Law and order created by we men have tamed us and bound us within the
walls. Any actions against law are punished accordingly. Hence, social order and
predictability are the gifts of law.

Contract:

If a person promised to pay you for the work done, or someone promised to deliver
goods for you to another state: how are you to know if those works will be done as
promised, uncertainty arises in every phase of our life. Hence, to deal with such
uncertainties, concepts of contracts have been developed. (The terms of contract are
enforceable just within the boundary it was created in.)

So, what is contract? “An agreement between two or more competent parties in which
an offer is made and accepted, and each party benefits. The agreement can be formal,
informal, written, oral or just plain understood.”

Discharge of contract:

When two parties are relieved from their contractual obligations and they are no
longer bound by contractual relations, it is termed as discharge of contract. The
elements of discharge of contract are mentioned below which will be dealt in detail
later.

 discharge by performance- both the parties fulfill the terms of contract and do
what they have agreed to do
 discharge by agreement-Both the parties jointly put an end to contract
 Anticipatory breach- one party refuses to do his part of contract
 Frustration- without the fault of any party the contract is impossible to be
carried out

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 Principles of Business Law (BLW203)

Modes of Discharge of
contract

By
By agreement By breach By frustration
performance

Actual
Novation Actual Change of law
performance

Tender Rescission Anticipatory Illegality

Alteration Death

Destruction of
remission
subject matter

Ceasation of
Waiver
stat of things

Figure: Modes of discharge of contract

2. Performance:

When parties fulfill what they promised to do, contracts get discharged.

Tender of performance:

When a party has unconditionally offered to perform a contract and such tender is
accomplished, the contract gets discharged. If the party refuses to perform the task,
the party making the tender has the right to sue.

Types of performance:

Complete Performance

When the contractual obligations are fulfilled exactly, the performance is complete.

Contract note: “Ten days after the ship Governor Parry,

myself master, arrives at liverpool, I promise to pay to
Fact Mr. T. Cutter the sum of thirty guineas, provided he
proceeds, continues and does his duty as second mate in
Cutter v Powell the said ship from hence to the port of Liverpool.
(1795) Kingston, July 31st, 1793.”

Mr. T. Cutter died when three- quarter journey

completed.
Held Cutter’s widow could claim nothing because of
incomplete performance.

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However, there are some exceptions to this law. They are mentioned below:

2.1.Substantial performance
Insignificant defects can be ignored being `de minimis’.

When there is only slight difference for what is done and what is agreed to,
the contract cannot be considered breached. However, compensations can be
claimed accordingly.

Mr. Isaacs had to decorate and furnish Mr.

Hoenig’s flat for £750. When the work
Fact completed, problem arose with a wardrobe and
bookcase which would cost £55 to fix.
Hoenig v Isaacs (1952). £350 was outstanding which Mr. Hoenig
refused to pay.
The work was done with merely bits of
Held damages. Therefore compensation for damage
could be claimed.

2.2.Partial performance
If the contractual terms have been partially fulfilled and the other party agrees
upon it then, the defaulting party will be entitled to claim his share for the work
accomplished.

Fact Christy had earlier promised that he would carry Row’s

coal from Shields to Hamburg. Due to war, Christy could
Christy v Row not. Row asked Christy to send it to another destination.
(1808)

Held Christy was able to claim for partial performance

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2.3.Quantum Meruit:
If a party creates hindrance and stops the other party from fulfilling the
contractual liabilities, other party is entitled to claim for compensation.

Fact Planche was to write a book 'Costume and Ancient

Armour' for a series and he was to receive £100 on
completion. He had completed the necessary research but
Planche v Colburn the book was yet to be written. The publisher decided to
(1831) abandon the series. Planche sued the publisher for breach
of original contract.

Held Original contract was discharged by the defendant and no

other contract was there to substitute it. Plaintiff obtained
50 guineas for reasonable remuneration on a quantum
meruit.

2.4.Severable Contracts
If a contract requires specific payments different stages of performance, the
party can acquire payments due when each stages of job is accomplished
else the party can sue the other.

Roberts v Havelock Fact The contract between the two parties did not expressly
(1832) state when the payment was to be made. The shipwright
who agreed to repair the ship chose not to work later.

Held The shipwright was not legally bound to perform his job
until he claims some payment.

3. Agreement:
Parties are free to enter into a contract. Similarly, they are free to negotiate their way
out by releasing themselves from contractual obligations. In such cases they form a
new contract of mutual release which in turn terminates the old contract. However,
parties should not have any outstanding obligations that must be fulfilled from the old
contract else valuable considerations are required to be made. Alternatively, release
can be executed under seal.

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 Principles of Business Law (BLW203)

Fact Employment contract “Sack me!”

Edgar v Lawler Bros
Held contract terminated by mutual agreement

Discharge by Mutual Agreement

3.1.Novation:

When a new contract substitutes the old contract, the consideration for new
contract automatically discharges the original one. It can even involve the
substitution of new party who was not involved in contractual obligation.
However, Novation cannot be compulsory. It should be done by mutual
consent. The new contract must be a valid one else the old contract revives.
For example:
A owes money to B under a contract. A, B and C form another contract
which makes C the debtor. Thus the old contract between A and B gets
cancelled and a new contract is formed between B and C.

3.2.Rescission:

Rescission means cancellation. When any party or all the parties cancel the
contract, it gets discharged.
Contract may be cancelled before the date of performance by mutual
agreement. Thus the two parties will no longer be bound by contractual
obligations.
For example:
X promises to sell and deliver goods on 7th September to Y. Y promises to
pay the money on 30th September. X does not deliver the goods. Y may
rescind the contract.

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3.3.Alteration:

The term itself suggests that there occurs change in the terms of the contract
with mutual agreement. Alteration of contract discharges the original contract
but the parties performing the contract remain unaltered.
For example:
X promises Y to sell and deliver goods to in his warehouse. Later X and Y
mutually come to an agreement that the goods should be delivered to Z’s
warehouse. This terminates the old contract and the new contract comes into
effect.

3.4.Remission:

Remission means acceptance of lesser amount of money than that was first
decided for lesser fulfillment of contractual obligations.
For example:
Y promises to paint Z’s house. Z promises to give him $100. Later when the
work was completed, they reached to an agreement for $75. This payment is
the discharge of the contract.

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4. Breach:
Any Failure to fulfill the terms in a contract can be termed as breach of
contract. A contract can be breached if:

 A party does not fulfill terms he agreed to fulfill

 A party does only a part of what he agreed to
 The task is badly done.

A breach of contract may occur in two ways.

4.1.Anticipatory breach of contract:
Either party may by words or action before the performance is due may show
no intention to perform his part of the legal obligation.
Party may declare his intention of not performing in the following ways:
 When a party bound by contract refuses to perform his duty.
 When a party disables himself from performing his promise.

However, only breach of condition will discharge the innocent party.

Hochster v De La Fact Before the time of performance, the employer told the
Tour (1853) employee that he would not require performing any
service. The courier sued for damage immediately.

Held The court held that he was entitled to do so

A charter party provided that ship be sent to Odessa and then

take a cargo from charter agent. When the ship arrived, the
charter’s agent could not provide. The ship master demanded
Avery v Bowden but then war broke out. The charter sued the ship.
(1855)
The agent’s action amounted to anticipatory repudiation, but
the ship master kept the contract alive until

4.2.Actual breach of contract:

A party may break a condition or in fact break every terms of the contract
resulting in subsequent failure of continuation of the contract. Actual breach
may occur in following circumstances.
 On Due date of performance- if party fails or refuses to perform
at given time for performance

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 During the course of performance- If half of the work is done

while the party fails to complete the rest.

Advertising contractor had a contract with the garage

proprietor to display advertisements for his garage for three
years. The proprietor repudiated the agreement and cancelled
on the dame day. The advertising contractor refused and
White & Carter v performed their obligation. They sued for contract price.
McGregor [1961]
The House of Lords held, by a majority of 3:2 that
advertising contractor was entitled to the full contract price.

Maize buyers rejected maize on a ground that was considered

insufficient.Three years later, they found out that the maize
was not shipped in the given time. They therefore sought
Panchaud Freres SA v rejection in this ground. It was stated that the buyers sought
Establissments late delivery as a reason for rejection of contract though they
General Grain Co did not lead the sellers to believe so.
[1970]

The court of Appeal held that they were not entitled to do so.

5. Frustration:
When the failure to perform the contractual obligation is the result of events beyond
one’s control, the contract is frustrated. In such a case, even advance payments made
are easily refundable and the advance work done in preparation for performance of
contract can be reimbursed.

For frustration of contract to occur, frustration events must satisfy some conditions.

a) The terms of contract cannot be carried out because it has become

illegal due to changes in the law.
Fact The two parties had signed a contract for sales of wheat.
Due to wartime emergency, government requisitioned the
Re Shipton, wheat for control of food supplies. The goods was yet to
Anderson and be delivered and ownership had yet to be passed on to the
Harrison Brothers buyer under the terms of contract
[1915]
held Seller was excused from further performance of contract.
It was impossible to deal with goods that are now owned
by the government.

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b) Essential elements to perform the contract has been destroyed

Fact The concert hall that was booked for performance got burned
Taylor v. down by the fire. The claimant sued for the expenses
Caldwell incurred in advertising the concert
(1863) Held The court held that the contract was frustrated by the incident.

c) The person performing the contract is unavailable due to illness or

any other reasons
Fact The doctor certified that the drummer (claimant) could no
Condor v. The longer play for seven nights a week instead he should opt
Barron Knights for four nights a week.
(1966) Held The contract was frustrated due to his illness, therefore it
properly terminated.

d) Certain circumstances have now changed. Therefore, it is impossible for

the contract to be carried out.
Tsakiroglou & Co. Ltd. Was supposed to ship groundnuts
from Sudan to Hamburg, Germany via Suez Canal. But,
Fact the defendant did not ship the groundnuts making an
excuse that the canal was closed because the canal was
Tsakiroglou & Co. closed.
Ltd v. Noblee Thorl
(1962) Held The contract is not frustrated because it is not the only
route used for transport of goods. The ship could go via
Cape of Good hope, though this may increase the
expenses. But, the contract cannot be termed frustrated
just because the task got harder.

e) Commercial frustration
Fact Jackson (charterer) hired a ship for immediate load of
cargo as he had to set off to san Francisco. The ship was
damaged so it had to send for repair. Jackson cancelled to
Jackson v Union contract due to delay in work. Hirer took actions claiming
Marine Insurance breach of contract
1874

Held There was commercial frustration therefore Jackson was

relieved.

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 Principles of Business Law (BLW203)

The contract will not be held to be frustrated if:

a) There is a possibility to perform the contract but the circumstances

become more difficult and expensive.
b) Due to individuals action, the contract has become impossible to be
carried out i.e. self-induced frustration;
c) If a clause has been included in the contract to cover any frustration
that may occur; Wong Lai Ying v Chinachem Investment Co (1979)
d) The parties have foreseen that the contract may become impossible
to be carried out.

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6. Conclusion:

A contract has always been considered a compact between two or more

parties. Till date many contracts have been made and many have been broken.
Law has always stood to help the innocent. But the law too had problems,
pragmatic and theoretical. Many complications have aroused through these
years and exceptional cases have puzzled judges. And we see some landmark
cases to justify that solutions have been discovered and will continue.

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7. References:

P C Tulsian,(2007). Business Law. Tata McGraw-Hill Publishing Company Limited:

New Delhi

Website: “Cutter v Powell. Available at:http://en.wikipedia.org/wiki/Cutter_v_Powell

[modified on 24 July 2010 at 08:12] [Accessed on 15 October]

Website: “Discharge of contract. Available at: http://legal-

dictionary.thefreedictionary.com/Discharge+of+a+contract [Accessed on 20 October]

Website: “Lectlaw.com. Contract. Available at:

http://lectlaw2.securesites.net/def/c123.htm [Accessed on: 19 October 2010]

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