DISCHARGE OF A CONTRACT

INTRODUCTION

When a contract is discharged, the parties to the agreement are freed from their contractual obligations. A contract is discharged in one of four ways:

• agreement;

• performance;

• frustration; or

• breach.

 DISCHARGE BY AGREEMENT

Emphasis has been placed on the consensual nature of contract law, and it follows that what has been made by agreement can be ended by agreement. The contract itself may contain provision for its discharge by either the passage of a fixed period of time or the occurrence of a particular event. Alternatively, it may provide, either expressly or by implication, that one or other of the parties can bring it to an end, as in a contract of employment.

Where there is no such provision in a contract, another contract will be required to cancel it before all of the obligations have been met. There are two possible situations, as follows:

• Where the contract is executory, the mutual exchange of promises to release one another from future performance will be sufficient consideration.

• Where the contract is executed, that is, one party has performed, or partly performed, their obligations, the other party must provide consideration in order to be released from performing their part of the contract The provision of this consideration discharges the original contract and there is said to be accord and satisfaction. This was found to have occurred in Williams v Roffey Bros  

 Tender of performance

‘Tender of performance’ simply means an offer to perform the contractual obligations. For example, if a buyer refuses to accept the goods offered, but later sues for breach of contract, the seller can rely on the fact that they tendered performance as discharging their liability under the contract. The seller would also be entitled to claim for breach of contract.

In Macdonald v Startup Macdonald promised to deliver 10 tons of oil to the defendant within the last 14 days of March. He tried to deliver on Saturday 31 March at 8.30 pm, and Startup refused to accept the oil. It was held that the tender of performance was equivalent to actual performance, and Macdonald was entitled to claim damages for breach of contract.

Section 29 of the Sale of Goods Act 1979 now provides that tender is ineffectual unless made at a reasonable hour. It is unlikely that 8.30 pm on a Saturday evening would be considered reasonable.

 The effect of frustration

At common law, the effect of frustration was to make the contract void as from the time of the frustrating event. It did not make the contract void ab initio, that is, from the beginning. The effect of this was that each party had to perform any obligation which had become due before the frustrating event, and was only excused from obligations which would arise after that event. On occasion, this could lead to injustice. For example, in Krell v Henry  the plaintiff could not claim the rent, as it was not due to be paid until after the coronation event had been cancelled. However, in Chandler v Webster the plaintiff had already paid £100 of the total rent of £141 15 s for a room from which to watch the coronation procession, before it was cancelled. He sued to recover his money. It was decided that not only could he not recover the £100, but he also had to pay the outstanding £41 15 s, as the rent had fallen due for payment before the frustrating event had taken place.