Tuesday, 16 July 2013

performance and discharge of contract


DISCHARGE OF A CONTRACT

  • Discharge by performance
  • Discharge by agreement or consent
  • Discharge by impossibility of performance
  • Discharge by lapse of time
  • Discharge by operation of law
  • Discharge by breach of contract


DISCHARGE BY PERFORMANCE

Actual Performance
When both parties perform their promises & there is nothing remaining to perform.

Attempted Performance
When the promisor offers to perform his obligation, but promisee refuses to accept the performance. It is also known as tender.

DISCHARGE BY AGREEMENT OR CONSENT

  • NOVATION: New contract substituted for old contract with the same or different parties.
  • RESCISSION: When some or all terms of a contract are cancelled.
  • ALTERATION: When one or more terms of a contract is/are altered by the mutual consent of the parties to the contract.
  • REMISSION: Acceptance of a lesser fulfillment of the promise made.
  • WAIVER: Mutual abandonment of the right by the parties to contract.
  • MERGER: When an inferior right accruing to a party to contract  merges into a superior right accruing to the same party.


DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
  • Known to the Parties
  • Unknown to the Parties
          Subsequent impossibility
          Supervening Impossibility (doctrine of frustration in English Law)
                 Destruction of subject matter
                 Non-existence of state of things (Failure of Ultimate Purpose – frustration of the contract)
                 Krell v Henry (1903) (Case of hiring a flat to witness coronation procession of King Edward VII)
  • Death or incapacity of personal services
  • Change of law
  • Outbreak of war


When Impossibility of performance is not an excuse:
  • Difficulty of performance – due to some uncontemplated events or delays
  • Commercial impossibility – e.g. expectations of higher profits not realised, sudden depreciation of currency etc
  • Impossibility due to failure of a third person on whose work the promisor relied
  • Strikes, lock-outs & civil disturbances; unless the parties have specifically agreed in this regard at the formation of the contract.
  • Failure of one of the objects, where there are several objects, does the discharge the contract


DISCHARGE BY LAPSE OF TIME
The Limitation Act 1963, clearly states that a contract should be performed within a specified time called period of limitation. If it is not performed and if the promisee takes no action within the limitation time, then he is deprived of his remedy at law.

DISCHARGE BY OPERATION OF LAW
  • Death
  • Merger
  • Insolvency
  • Unauthorised alteration of the terms of a written agreement
  • Rights & liabilities becoming vested in the same person
  • (e.g. bill of exchange gets into the hands of the acceptor)


DISCHARGE BY BREACH OF CONTRACT

ACTUAL BREACH
  • At the time when the performance is due
  • During the performance of the contract


ANTICIPATORY BREACH
Declaration of not performing the contract before the performance is due
TERMINATION, DISCHARGE,
PERFORMANCE, AND TENDER

����� Discharge [4326]: The termination of a party�s obligations arising under a contract.

����� Discharge occurs either when:


������������� (1)�� Both parties have fully performed their contractual obligations; or

������������� (2)�� Events, conduct of the parties, and/or operation of law release the parties from their obligations to perform.

����� Performance: Fulfilling one�s contractual duties.

����� A party�s obligations to perform under a contract may be either absolute or conditioned on the occurrence or nonoccurrence of one or more event(s).

����� Tender: An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

CONDITIONAL PERFORMANCE [4326.02]

����� Condition: A contractual qualification, provision, or clause which creates, suspends, or terminates the obligations of one or both parties to the contract, depending on the occurrence or nonoccurrence of some event(s).


����� Condition Precedent: A condition that must be satisfied before a party�s contractual obligation to perform becomes absolute (e.g., Bob promises to Hire Terry as a driver as soon as Terry gets his license).

����� Condition Subsequent: A condition the occurrence or nonoccurrence of which will terminate a party�s absolute obligation to perform (e.g., Mary agrees to let Sue stay in Mary�s spare room for as long as Sue remains unmarried).

����� Concurrent Conditions: Mutually dependent con�ditions that must occur or be performed at the same time in order to give rise to any absolute obligation to perform (e.g., Nikki offers to pay Tma $100 in exchange for Tina�s class ring).

����� Courts recognize and enforce both express and implied conditions.



CONTRACTUAL PERFORMANCE

����� Discharge by Performance: A contract terminates when both parties perform the acts they have promised.

����� Complete vs. Substantial Performance: When a party fails to completely perform his or her contractual duties, the question arises whether the performance was nonetheless sufficiently substantial to discharge the contractual obligation. If so, then the party is said to have substantially performed.

������ Substantial performance must not vary greatly from that promised in the contract, and must createsubstantially the same benefits as those promised.

������ If one party substantially performs, the other party�s duty to perform remains absolute --although the other party may be entitled to recover damages, if any, for the substantially performing party�s failure to fully perform.

������ If a party fails to either substantially or fully perform, the other party�s remaining obligations, if any, under the contract are discharged.

����� Time for Performance: If no time is stated in the contract, performance is due within a reasonable time.




BREACH AND REPUDIATION 4325



Material Breach of Contract: A party�s failure, without legal excuse, to substantially perform the obligations he or she has promised to perform.

����� If a party�s breach is non-material, the non-breaching party�s duty to perform may be suspended until the breach is remedied, or �cured.� However, a non-material breach will not excuse performance by the non-breaching party. Only a material breach will excuse the non-breaching party from its contractual obligations.

����� If time is not �of the essence,� failure to perform by the time specified in the contract is not a material breach.


����� Anticipatory Repudiation: An action by a party to a contract that indicates that he or she will not perform a contractual obligation due to be performed in the future.

����� Such a repudiation will excuse the non-repudiating party from performing under the contract.

����� However, until the non-repudiating party treats the repudiation as a material breach, the repudiating party can retract his or her repudiation and restore the parties� contractual rights and obligations.


DISCHARGE BY AGREEMENT 4326.05/.06/.07


        Recission:� the process by which the parties cancel a contract and return one another to their pre-contract status.


����� Novation 4326.05: Substituting, by agreement, a new contract for an old one, and thereby terminating the parties� rights and duties under the old contract.

>���� Novation differs from assignment or delegation because novation requires a new agreement.

����� Novation requires

(1)�� a valid, prior agreement, for which

(2)�� all parties agree to substitute a new contract;

(3)�� discharge of the prior obligation; and

(4)�� a valid, new agreement.


����� Accord and Satisfaction: An agreement between the parties to accept different performance than that promised in the contract.




DISCHARGE BY OPERATION OF LAW 4361.10



����� Material Alteration: If the material terms of a contract are altered, an innocent party (i.e., one who neither altered nor consented to the alteration of the contract) may be discharged from their contractual obligations.

����� Statutes Of Limitations: The running of limitations -- in the case of U.C.C. contract claims, four years from the date of the breach, regardless of the injured party�s knowledge of the breach -- does not technically discharge the parties, but it prevents the wronged party from seeking judicial remedies.


����� Bankruptcy: A discharge in bankruptcy, afforded to a debtor after its liquidation or reorganization plan is approved, bars subsequent enforcement against the debtor of any contracts that pre-date the discharge.

>���� Unlike promises to pay or partial payment of a debt barred by limitations, promises to pay or partial payment of a debt following discharge does not revive the debt.



IMPOSSIBILITY OF PERFORMANCE 4326.07


����� A party may be relieved of his contractual duties when performance becomes either impossible or impracticable through no fault of either party. The following will generally excuse performance as objectively impossible or impracticable:

(1)�� Death or incapacitation prior to performance of a personal services contract;

(2)�� Destruction of the subject matter of the contract prior to performance;

(3)�� A change in the applicable law which renders performance illegal;

(4)�� Changing market conditions make performance commercially impracticable; and

(5)�� Frustration of Purpose -- supervening circumstances making it impossible for both parties to achieve the purpose of the contract.


����� Temporary Impossibility: A change in circumstances that makes performance temporarily impossible will act to suspend, but not excuse performance.

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