DISCHARGE OF A CONTRACT

 INTRODUCTION  

    Contracts can be discharged in four ways;

1. Agreement – parties are free to terminate their contract by agreement where both parties agree to end and it is supported by consideration.
2. Frustration – In some cases a contract will be brought to an end because of a supervening event that is beyond the control of the parties; for example, a contract between A and B, whereby B agrees to hire A's theatre on a particular night may be frustrated if, as a result of a terrorist act the theatre is destroyed prior to the date for performance of the contract.
3.  Performance – this is the most common method of discharge. Here the contract is discharged when the contractual obligations are completely and exactly met.
4.  Breach – breach of contract may give the non-breaching party a right to terminate the contract.

Breach of contract

Breach of contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily with their obligations under the contract.  Breach of contract may either be actual or anticipatory.

                 a)      Actual breach

Occurs where one party refuses to perform his side of the bargain on the due date or performs incompletely e.g. in  Pousard v Spiers.

            b)     Anticipatory breach

Occurs where one party announces, in advance of the due date for performance, that he intends not to perform his side of the bargain. The innocent party may sue for damages immediately the breach is announced. In Hochster v De La Tour, the Plaintiff entered int a contract with the defendant to acopmany and assist the defendant on a three months trip. Before the trip was scheduled to begin, the Defendant informed plaintiff that he no longer needed him. It was held that where one party communicates their intention not to perform the contract, the innocent party need not wait until the breach has occurred before bringing their claim. They may sue immediately or they can choose to continue with the contract and wait for the breach to occur.

Effects of breach

A breach of contract no matter what form it may take, always entitles the innocent party to maintain an action for damages. Other forms of breaches may entitle the other party to terminate a contract. Such a breach is referred to as a repudiatory breach.

A repudiatory breach is a breach that the law regards as sufficiently serious to justify the termination of the contract. The terms of the contract may also entitle a party to terminate the contract in the event of a breach that would not otherwise be regarded by law as repudiatory breach.

It should be noted that a repudiatory breach does not automatically bring the contract to an end. The innocent party has two options;

• he may treat the contract as discharged and bring an action for damages for breach of contract immediately. This is what occurred in Hochster v De La Tour; 
• he may elect to treat the contract as still valid, complete his side of the bargain and then sue for pay

i)                   Termination

If the innocent party elects to terminate the contract, he must notify the other party o his decision. This may be by way of refusal to accept defects in performance, refusal to accept further performance, or refusal to perform his own obligations. Further, he can also claim damages from the defaulter. Where the party had began to perform his contractual obligation but was prevented from completing them by the defaulter, he can claim reasonable remuneration based in quantum meruit[1].

Further the innocent party gains the right to claim damages. This right will be retained regardless of the result of the election.

The breaches which give the innocent party the option of terminating the contract are;

                    a)      Renunciation

Renunciation occurs where a party refuses to perform his obligations under the contract. It may be either express or implied. Hochster v De La Tour is a case law example of express renunciation.

                   b)     Breach of condition

The second repudiatory breach occurs where the party in default has committed a breach of condition. Thus, for example, in Poussard v Spiers the employer had a right to terminate the soprano’s employment when she failed to arrive for performances.

                   c)      Fundamental breach

The third repudiatory breach is where the party in breach has committed a serious (or fundamental) breach of an innominate term or totally fails to perform the contract.

A breach of contract therefore gives rise to a secondary obligation to pay damages to the other party. The primary obligation to perform the contract terms remains unless the party in default has repudiated the contract.

---

[1] Quantum meruit is a latin maxim which means “as much as is deserved”. This doctrine allows the injured party in a breach of contract to claim the value of his work. A claim for quantum meruit is an alternative to an action for damages.