Four Ways A Contract Can Be Discharged

There are four ways in which a contract can be discharged. They are by performance, agreement, repudiation and frustration. When a contract is deemed to be discharged by performance what it means is that the parties to the contract have fulfilled their legal obligation and there is no further need to continue the contract. For instance, Ben offered his expensive watch to Sam for $5000. Sam accepted the offer and Ben delivered the watch to Sam and in return Sam paid him the agreed amount of money. In this case the contract has been concluded as both parties have performed their contractual obligation. Unfortunately, life is not as simple as this as there are circumstances where the parties to the contract might have difficulty fulfilling their contractual obligations. In such situation there may be partial performance only and the question is whether this is acceptable.

Let's say that Simon is a math tutor and he agrees with Mary to teach her math tuition for 10 lessons at $100 per lesson. Simon completes 6 lessons and is unable to continue teaching Mary as he has some personal problems that he needs to settle. The question is whether Mary has to pay for the 6 lessons that Simon already conducted. At one time, the court were of the view that if a party to a contract has not completely fulfilled his/her obligation there is no need to compensate them. However, over a period of time the court have reconsidered this and now there is a possibility that Simon might be able to claim for the 6 lessons on what is called a 'quantum meruit' basis. This is a Latin phrase which means 'payment for work done'. But Simon's ability to claim the partial payment is based on whether Mary has in anyway benefited from the contract. In this case Mary may have benefited from the contract and might have to pay. However, if Simon only conducted one lesson and gave up teaching her, perhaps Mary might refuse to pay as she can claim that she has not benefited from the contract. This is relatively subjective and something the court might have to decide based on the merits of the case, if ever such a case goes to court.

There are circumstances however where part performance need not be compensated. What if you were to order a chicken chop in a restaurant and it turned out to be half cooked. Can you pay half price for this? Obviously not!

Another way a contract is discharged is by agreement. This is when both parties agree before the contract is made that when a certain event occurs that the contract will be discharged or that if either party wants to terminate the contract they should give the other party a period of notice. Discharge by agreement is a common feature in employment contract where the parties might agree before hand that if the employee wants to resign, he/she must give a period of notice and vice versa for the employer as well. Another example is the pre-nuptial agreement that couples enter into before marriage.

The third way in which a contract is discharged is by Repudiation. This is where one party deliberately breach the agreement. For instance, Michael agreed to sell his piano to Susie for $3000. Susie agrees to buy the piano and tells Michael that she will pay him the money the following the day. Afterwards, Brad comes along and agrees to buy the piano from Michael for $5000. Michael sells the piano to Brad. By doing this he is in breach of his agreement with Susie as the contract has already been decided between Michael and Susie. Susie is within her right to sue Michael for the breach of contract. There is a possibility that the court might order Michael to buy the piano back from Brad and sell it to Susie at the price agreed or to give some form of compensation to Susie.

The last method of a contract being discharged in by frustration. This means that one or both parties cannot fulfill their contractual obligation owing to some unforeseen event that prevents them from continuing with the contractual relationship. You bought a ticket to watch a famous pop group concert. Before the concert the lead singer of the pop group members died of a drug overdose. Therefore the concert is cancelled as it would be impossible to continue the concert. Therefore the contract is deemed to be frustrated. So you can get a refund on the ticket that you bought. It is possible too for a contract to be discharged when the contract becomes illegal to perform. For instance if there is a product on sale and subsequently the government passes a legislation that ban the product then further sales of the product is considered as illegal.

Once the contract is discharged it brings the contract to an end.