WEEK 3 Discharge of contract

WEEK 3 Discharge of contract

Discharge of the contract
Contracts may be discharged or brought to an end in four principal ways. We shall
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19.4
deal with three forms of discharge in this chapter. They are discharge by performance
(Section 19.3), by agreement (Section 19.4) and by operation of law (Section 19.5).
Contracts can also be discharged by breach, but breach is a sufficiently important
topic to deserve a chapter in its own right (see Chapter 20).
Discharge by performance
A contract is discharged by performance where the performance by both parties
complies fully with the terms of the contract. The vast majority of contracts are
discharged by performance. We do not read about such contracts in textbooks
because, when the contract is discharged by performance, no legal problems arise.
Indeed, the discussion of ‘performance’ in most contract textbooks is, in fact, a
discussion of breach of contract because the point which is being made is that
performance which fails to comply fully with the terms of the contract is a breach of
contract. We shall deal with such issues in the chapter on breach of contract (see
Chapter 20).
It is, however, extremely important to realise that, in the real world, most contracts
are discharged by performance. Students who read contract textbooks tend to get a
distorted view of reality because they believe that all contracts go wrong for one
reason or another. In fact, most contracts are performed according to their terms and
the role of the lawyer is confined to giving advice on the formation or the drafting of
the contract. It is only in the minority of cases that contracts go wrong and a dispute
breaks out between the parties and, even when such a dispute does occur, empirical
studies show us that the rules of contract law are often but one factor among many to
be taken into account in the resolution of the dispute (see Section 1.5).
Discharge by agreement
The parties can agree to abandon or to discharge the contract. The limiting factor here
is that an agreement to discharge a contract must be supported by consideration
(Section 5.20). Where performance has not been completed by either party to the
contract, there is generally no difficulty in finding consideration because, in giving up
their rights to compel each other to perform, each party is giving something to the
bargain and so consideration is given. But where the contract is wholly executed on
one side, an agreement to abandon the contract (unless the agreement to abandon the
contract is itself supported by fresh consideration) will not be supported by
consideration and will be unenforceable unless (i) the agreement is in the form of a
deed, (ii) the party who has fully performed his obligations under the contract is
estopped from going back upon his representation that he will not enforce the original
contract or (iii) he is held to have waived his rights under that contract (see Sections
5.24 and 5.25).
Finally, a contract may be discharged by the operation of a condition subsequent
which has been incorporated into the contract. A condition subsequent states that a
previously binding contract shall come to an end on the occurrence of a stipulated
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19.2
19.3
19.5
event (see Section 10.2). The effect of the occurrence of the stipulated event is to
discharge the contract, without either party being in breach of contract.
Discharge by operation of law
A contract may be discharged by operation of law. The principal example of a
contract which is brought to an end by the operation of a rule of law is a contract
which is frustrated. Frustration, it will be remembered, automatically brings a
contract to an end by the operation of a rule of law, irrespective of the wishes of the
parties (Section 14.8). Other examples of the discharge of a contract by operation of
law are discussed by Anson (2016, chapter 16).