UNIT 7

DISCHARGE OF CONTRACTS A party who fails to perform his obligations under the contract may seek to justify his failure on the grounds that he is discharged from his obigations under the contract. There are 4 ways by which rights and obligations of the parties come to an end: performance, agreement to discharge, frustration and breach. I. Performance When both parties have performed their obligations, the contract is extinguished. There are 6 exceptions to this rule: a) severable contracts (severability). Where a contract may be divided into several parts, payments for parts that have been completed can be claimed. b) acceptance of part performance. Where A has accepted the partial performance of B, having an option to reject, a promise to pay is implied and a claim for percentage of the contract price in direct proportion to the percentage of work done (quantum meruit) may be claimed by B. c) prevention of performance.Where one party is prevented by the other from completely performing the contract he may bring an action (a claim for percentage of the contract price) to claim for the work done. d) substantial performance. Where a contract has been substantially performed an action lies for the contract price less a reduction for the deficiencies. e) time of performance. A party who failed to perform his obligations within a given time was in breach of contract. Time is only the essence of the contract. f) where the Law Reform Act 1943 applies (in the English Law). II. Agreement to discharge Contractual obligations are created by agreement; they can be discharged by agreement. An agreement will only discharge a partys contractual obligations if it constitutes an enforceable contract. An agreement to discharge a contract is binding only if it is under seal, or if it is supported by consideration. The legal position depends on whether the discharge is bilateral or unilateral. a) Bilateral discharge. The contract is executory or partly executory on both sides.

b) Unilateral discharge. Only one party has rights to surrender. c) Novation. A ows to B, B ows to C; A agrees to pay C, if C releases B from his obligation to pay him. All 3 parties must agree to the arrangement. d) Condition Subsequent. Sometimes a clause in a contract will provide for its discharge if a aprticular event occurs in the future (subsequent to the formation of the contract). III. Frustration A contract is frustrated if performance becomes impossible/ illegal/ if circumstances so change that the commercial purpose of the parties is frustrated. The general rule is that if a person contracts to do something he is not discharged if performance proves to be impossible. Frustration appears: a) if the whole basis of the contract is the continued existence of a specific thing which is destroyed. b) if either party to a contract of personal serivce dies, becomes seriously ill, or is called up for military service. c) if the whole basis of the contract is the occurence of an event which does not occur. d) if the government prohibits performance of the contract for so long that to maintain it would impose on the parties fundamentally different obligations from those bargained for. e) if the performance of the main object of the contract subsequently becomes illegal. IV. Breach Breach appears: -if a party fails to perform one of his obligations under a contract, for ex. he does not perform on the agreed date, or he delivers goods of inferior quality; -if a party, before the date fixed for performance, indicates that he will not perform on the agreed date.. This is an anticipatory breach. Effect of Breach. Breach does not automatically discharge the contract. It entitles the innocent party to damages. Affirmation of the breach. If the innocent party elects to treat the contract as still subsisting, and can complete his side without the co-operation of the other, he is entitled to do so, and claim the whole sum due under the contract. Termination. If the innocent party elects to end the contract he is not bound to accept further performance, and he may sue for damages at once. Anticipatory Breach. Where there is an anticipatory breach, and the innocent

party elects to treat the contract as discharged, he can sue for damages at once. If the innocent party elects to treat the contract as still subsisting, he keeps it alive for the benefit of both parties, so that frustration may intervene to release the party at fault from further laibility. Contractual civil liability arises from the violation of some contractual terms because of the nonfullfilment, unsuitable fullfilment or the delayed fullfiment of the agreement/ a clause of the agreement. Contractual civil liability conditions: -the existence of a void agreement between the parties; -the illicit fact; -the tort; -the causality report bet. tort/illicit fact; -the offender guilt; -the delaying.