Discharge of Contract

Discharge Of Contract in United States

Practical Information

The release of the parties to a contract from the obligations under it. Contracts may be discharged by the following methods:

  • Performance, or the carrying out of the terms of the contract.
  • Agreement. The parties may agree to discharge one another from further liability under the contract. There must be sufficient consideration for the agreement.
  • Impossibility of performance. When a contract is based on an implied condition that certain factors shall continue to exist and performance is impossible, the contract is discharged.
  • Operation of law. A change in the law in effect at the time the contract was made may bring about a discharge of the contract, or a law itself may operate as a discharge. Thus, a contract to build a garage on a certain site would be discharged by a zoning ordinance forbidding the erection of a garage within that zone.
  • Breach. If one party breaches a contract the other may be discharged. (See breach (in U.S. law) of Contract.)

(Revised by Ann De Vries, 1982)

What is Discharge Of Contract?

For a meaning of it, read Discharge Of Contract in the Legal Dictionary here. Browse and search more U.S. and international free legal definitions and legal terms related to Discharge Of Contract.

Contract, party, performance, breach, held, perform and parties

1. Discharge by breach.—The failure of one party to a contract to perform his part or undertaking is a breach of the contract, and gives rise to an action by the other party for damages that he may have sustained. The breach may also discharge the other party from the performance of his obligation. Whether the breach will have the effect of discharging the other party will depend upon the circumstances of the particular case. A creditor may in certain cases demand specific performance of the obligation, or he may be authorized to execute it at the debtor’s expense, or the contract be set aside. There are exceptions to the rule, however. For ex ample, the seller of a chattel cannot demand the dissolution of the sale because the buyer fails to pay the price, unless there is a special stipulation to that effect in the contract. But a party to a contract may be estopped from seeking a recision of it for non performance, when he has himself done something that makes it impossible to restore the debtor to his former position. It has been held in Quebec that perform ance after action brought to rescind a contract is not a valid ground of defence, and that no notice of failure to perform the undertakings of a contract is required as a condition precedent to an action to rescind the contract for non-performance.

Under the following circumstances there will be a breach of contract and the contract be discharged: 1. Where one of the parties does not perform his obligation or promise; 2. Where one of the parties renounces his liabili ties under the contract; 3. ‘Where one of the parties does something which renders performance of the contract impossible.

2. Breach thru failure of one party to a contract has failed in performance, as we have already said, the injured party may or may not be discharged from the performance of his part of the contract. He may merely have a right of action-for damages. The distinction depends upon whether the contract is divigible or indivisible, or whether the promises in the contract are independent of one another or mutually dependent. Thus, if a contract is divisible and the promises are independent of one another, as, for example, if the contract as a whole is made up of a series of contracts, a breach of one of them need not discharge the others : but if the contract cannot be broken up into parts, and the promises contained in it depend upon one another, so that if one is broken all are broken, a breach of performance by one party will discharge the other, and also give that other an action in damages, if he has suffered damages.

The courts differ in their interpretation as to whether given contracts are divisible or indivisible.

The Supreme Court of the United States has held that if A contracts to sell to B 600 bushels of corn in three monthly instalments of 200 bushels each, the con tract is indivisible, and that if A fails to deliver one instalment, ,the whole contract is discharged. In England, the contrary is held to be law. The Su of Canada has held that an agreement between the parties to several transactions involving litigation, to do a series of acts in settlement of their differences, is divisible, and a performance of part of them will be held binding and effective, notwithstand ing the failure to perform the whole, more particularly as against the party thru whom such failure appears.

A person sold a restaurant to another, and part of the price was to be paid at the time of the contract, part when the license should be transferred, and the balance in monthly payments; the vendor turned over the restaurant to the purchaser, but later re-took pos session. The purchaser, on the other hand, made no attempt to get the license transferred, and the vendor did not offer to assist him. Later, the purchaser asked that the contract of sale be set aside and that he be re imbursed what he had paid, alleging that he had dis possessed himself. It was held that, as both parties had failed to execute their promises and apparently did not wish to carry out the contract entered into be tween them, there was no need to pronounce it dis solved.

3. Independent may be difficult to decide whether or not the promises are independent of one another. It will be sought to discover what was the intention of the parties, and that intention may be disclosed by the order in which the several promises are to be performed. It was held in an English case that “whether covenants are or are not independent of each other must depend on the good sense of the case, and the order in which the several things are to be done.” Suppose that several different articles are bought at different prices and at the same time. If it could be shown that the purchaser intended to take all or none, then the contract would fail if all the articles could not be delivered. If it could be shown, however, that this was not the intention, then the contract would be severable as to each article.

4. Conditional contract is said to be conditional when it is made to depend upon some event, future and uncertain, by suspending it until the event happens, or by dissolving it according as the event does or does not happen. Generally speaking, if the contract depends upon some event which, unknown to the parties, has actually happened when the contract is made, the contract is not conditional, but takes effect or is defeated from the time when it is made.

The condition must not be contrary to law, or in consistent with good morals, and the contract is void if it. is made to depend upon the doing or happening of something which is impossible. Thus if A con tracts, promising to pay B $100 if C shall climb to the moon, the condition is an impossibility and the promise void. An obligation must not be conditioned merely on the will of the party promising. Thus a promise by A to go to Toronto on a certain day if he feels in the mood to do so, is conditional purely on the will of A; tho A may validly promise to pay B $100 if he should go to Toronto on a certain day. If no time is fixed for the fulfilment of the condition, it may be carried out at any time.

The condition will not be deemed to have failed un til it becomes certain that it will not be fulfilled. The condition may be merely suspensory or floating in its nature, and non-performance will not discharge the promisor. The actual carrying out of the promise is merely suspended. Thus in a fire insurance policy the liability of the insurer is _conjectural, and fulfilment of the insurer’s promises is suspended until the event insured against takes place. But if A contracts that

he will buy a horse from C if B will buy one from C, then A’s promise is conditional upon B’s promise, and if B does not perform his contract, A need not per form his. These are examples of the condition prece dent. An action in damages may lie for breach of a condition precedent, which is vital in its nature and not merely suspensory. The injured party may also as a result be discharged from his promise.

If the parties to a contract agree conditionally that they each must do something simultaneously (concur rent conditions), then in order that one shall have an action in damages for non-performance, against the other, he must have been ready and willing, at the time fixed for performance, to do what he had undertaken.

If either party is not ready and willing at that time, the other is discharged.

If a company employs an agent under a contract by which it can dismiss him by giving him one week’s no tice, the condition is fulfilled by the giving of the no tice, and the contract is thereby definitely terminated. This is a condition subsequent.

It is a well-recognized principle of law that a con tract for personal services which can be performed only during the lifetime of the party contracting is subject to the implied condition that he shall be alive to perform them; if he dies, his executor is not liable to an action for breach of contract occasioned by his death.’ If an employer dies, his servant is dis charged and cannot treat the contract as in force against the master’s personal representatives.’ Thus it has been laid down that “a contract by an author to write a book or by a painter to paint a picture within a reasonable time would be deemed subject to the condition that if the author became insane or the painter paralytic, and so rendered incapable by an act of God, of performing the contract, he would not be personally liable in damages, any more than his executors would be if he had been prevented by death.” In an English case, the father of a boy entered into a con tract with a firm that his son should serve as an apprentice for a number of years. The boy fell ill and the employer sued the father for breach of the con tract. It was held that “it must be taken to have been in the contemplation of the parties when they entered into this covenant that the prevention of performance by the act of God should be an excuse for non-performance,” and the action was dismissed.

5. Breach of a subsidiary some subsidiary promise in a contract is broken, the contract may not be discharged, but an action for damages may arise. The parties may consider that the subsidiary promise is of such importance that its literal fulfilment is a condition precedent, and if this is so it will be treated as a condition precedent. If, on the other hand, it is clear from the surrounding circumstances that some subsidiary promise, tho apparently of first importance and on its face a condition precedent, is not really vital, and that its non-fulfilment might be adequately compensated for in damages, then, if such an intention or understanding is sufficiently expressed, such a, condition will not be treated as a condition precedent.

There is a distinction to be made between a war ranty which gives rise to an action in damages, and a condition the fulfilment or non-fulfilment of which is of the essence of the contract, in that it strikes at the foundation of the contract. Thus if A sells a horse to B, and he believes it to be sound and warrants that it has not the heaves, and B could discover by having the horse examined by a veterinary surgeon whether it has or has not the heaves, in some jurisdictions B would have an action in damages against A, if after the sale the horse proved to have this wealmess. If, however, A sold a horse to B on the condition that it should, with training and within three months, de velop a certain speed as a racehorse, this would be a condition precedent, upon the non-fulfilment of which B could ask to have his contract canceled, and demand the return of the price upon his handing back the horse.

6. Breach by before or at the time that a contract is to be performed, a party may declare that he repudiates or renounces the con tract and will not perform his part of it. If he so renounces before the time of performance, the contract may or may not be discharged, accordingly as the other party does or does not treat it as discharged. The other party may treat the contract as discharged and take action at once for any damages, or he may wait until after the time for performance, in which case he is entitled meanwhile to insist that the relation created by the contract shall persist up to the time fixed for performance. In an English case, it was held that “the promisee has an inchoate right to the performance of the bargain, which becomes complete when the time for the performance has arrived. In the meantime he has a right to have the contract kept open as a subsisting and effective contract; its unimpaired and unimpeached efficacy may be essential to his interests.” The mere intention of one of the parties to renounce is not sufficient. The renunciation must be express, positive and unqualified. The contract may be in the course of performance, and then it being renounced, the other party may immediately take action for dam ages. Thus it was held in an English case, that “when

there is an executory contract for the manufacture and supply of goods from time to time, to be paid for after delivery, if the purchaser, having accepted and paid for a portion of the goods contracted for, gives notice to the vendor not to manufacture any more as he has no occasion for them and will not ac cept or pay for them, the vendor being desirous and able to complete the contract, he may, without manufacturing and tendering the rest of the goods, maintain an action against the purchaser for breach of contract.” It has been held in a Quebec case that, where a person contracts for the manufacture of machinery, and afterwards notifies the manufacturer that lie will not accept delivery of it unless certain guarantees respecting it, not mentioned in the con tract, be given to him, he is thereby held to repudiate the contract and he becomes liable for the price of the machinery, less whatever value it may have for the manufacturer.’ So also if a person contracts to give his services to a company, and his personal services are the foundation of the contract, his refusal to give his services entitles the other party to rescind the agreement.

If the parties to a contract abandon it by mutual consent after it has been partly performed by one party, the latter is entitled to receive a reasonable price for the work he has done. If, however, a board of school commissioners employs a teacher for eight months, and before the school opens informs him that his services will not be required, the teacher may treat the contract as discharged and sue the board for dam ages; or he may wait until the expiry of the eight months and sue on the contract for his salary. Of course, meanwhile he must not refuse other work, and what he may earn in the meantime under another contract will go toward reducing the amount that he may claim under his original contract.

A enters into a contract with B for the purchase of B’s farm. Payment is to be made in several in stalments, and upon payment of the last one B is to deliver to A the deed of the farm. A refuses to pay the second instalment when due, and B sues him for it. B may recover. A’s promise to pay each instalment, other than the last one, is independent of the covenant to convey; hence B may sue him for each instalment other than the last without offering to convey the farm. But in order that one party may demand the rescission of a contract which is in the course of being performed, the other party must be actually in default to fulfil his contract. It is not sufficient for the other party to allege merely that under the circumstances it is impossible for the party performing to fulfil or complete his contract within the delay specified. [1]

Resources

Notes

  1. Walter Johnson, “Commercial Law” (New York, 1917)

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