DISCHARGE OF A CONTRACT

To some scholars, to discharge a contract is to end it. There are therefore as

many kinds of discharge as there are different ways of ending a contractual
obligation. The simplest form of discharge is the performance of a contract
on both sides, sometimes called discharge by performance. Conversely,
there is the "discharge by breach" since a breach may end the contractual
relationship, though of course it does not terminate the legal remedies.
Thirdly, we speak of a discharge where the deed or document containing
the agreement is fatally altered or destroyed; or where performance is
terminated by such things as impossibility, illegality or the statute of
limitations. Finally, a contract is discharged where the parties expressly
agree to this effect or agree to compose or compromise their respective
claims and remedies. Indeed, there now exist various methods by which
such a discharge can be obtained, as the parties may terminate an existing
contract either by parole or under seal, or after performance or while the
contract is still executory, or before or after a breach.

A contract is discharged when parties are released or freed from their

obligations under the contract. This freedom depends on any of the
following four modes of discharge identified above, namely:
1. By Performance
2. By Breach
3. By Express agreement
4. By Frustration

DISCHARGE OF A CONTRACT BY PERFORMANCE

The general rule is that a person who performs a contract according to the
terms of the contract is released from his obligations under the contract.
But under common law, performance must be total and complete, and
failure to complete a task is interpreted as breach. This is known as the
Perfect Tender Rule. In Cutter v Powel, 1795, 6 TR 320, Cutter was
employed as second mate on a ship that was sailing from Jamaica to
Liverpool. The agreement was that he was to receive 30 guineas when the
journey was completed. Before the ship reached Liverpool, Cutter died and
his widow sued Powell, the ship’s master, to recover a proportion of the
wages due to her husband. It was held that the widow was entitled to
nothing, as the contract required complete performance. This was unfair,
hence the intervention of equity with the doctrine of Quantum Meruit (to be
paid as much as he deserved - payment for work done).
However, the doctrine of Quantum Meruit may encourage others to avoid
performing the contract due to laziness, shortage funds or poor planning.
Thus for Quantum Meruit to apply, the following conditions must be met:
a. The contract must have included part-performance as one of the
terms. For example in Sumpter v Hedges, 1898, 1 QB 673, a builder
was hired to construct a house and stable for the horse, but could not
complete the work as he run short of money. The land owner used the
materials left to complete the work. The builder sued for the
contractual price but could only recover money spent on the materials
and not for the work done. It was held that part-performance was not
part of the contract and the builder could be paid for work done.
b. If the contract is divisible, each portion may be treated and
discharged separately. For example, in Taylor v Webb, 1937, 2 KB
283, premises were leased to a tenant and a term in the lease
required the landlord to keep premises in good condition. When the
landlord failed in this obligation, the tenant refused to pay rent. It was
held that the two were in breach of the contract and their actions
could be treated separately: the failure by the landlord was addressed
by an action for damages by the tenant and not withholding rent. The
refusal to pay rent could also be addressed on its own.

In Bolton v Mahadeva, 1972, 1 WLR 1009, the plaintiff agreed to

install a central heating system for the defendant at £560, and cost
him another £174 to correct the defect, recovered only £174 in a
quantum meruit claim because he had not substantially done the
work, and court as a matter of policy wanted to discourage bad
workmanship. It would also be unfair to allow those who breached
contracts by not completing them to be paid pro-rata for work done.
So he lost the contract price of £560 pounds.

c. If one party is prevented from performing by the other, the party

prevented from performing may claim for percentage of contract price
under quantum meruit action.

d. If parties expressly referred to time as being of essence to the

performance of the contract, failure to perform within a reasonable
time is a breach of a condition and the contract will be treated as
discharged. In Rickards v Oppenheim, 1950, 1 KB 616 (CA), the
contract for the sale of the car provided that delivery would be on
March 20, but the seller delayed. On June 29 the buyer told the seller
that he should have the car by July 25 latest. It was held that the
buyer could not refuse delivery just because the original date had not
been complied with. But he was justified in refusing delivery beyond
July 25 because he had given the seller reasonable time in which to
deliver the car.
e. Most of the work should have been done for one to claim payment on
basis of the quantum meruit. In Hoenig v Isaacs, 1952, 2 ALL ER, 176
Hoenig was employed by Isaacs to decorate his flat. The contract
price was £750, to be paid as the work progressed. Isaacs paid a total
 of £400, but refused to pay the remainder, as he objected to the
quality of the work carried out. Hoenig sued for the outstanding £350.
It was held that Isaacs had to pay the outstanding money less the cost
of putting right the defects in performance. These latter costs
amounted to just under £56.

Tender of performance
If the obligation under the contract is to deliver goods and services, refusal
to accept the goods and services discharges the tenderer and entitles him
to damages. If money is tendered, it must be legal tender and the exact
amount. If a debtor sends money in post and is lost, he has to pay again
unless this method was requested for by the creditor or the debtor took
reasonable care, such as registering the mail [Planche v Colburn, 1831,
EWHC KB J 56].
DISCHARGE OF THE CONTRACT BY FRUSTRATION
In the beginning, contractual duties were regarded as absolute and there
was no excuse for non-performance. If someone contracted to do
something, he was not discharged just because the task had become
burdensome or had proved impossible to perform. This common law rule
was established in Paradine v Jane, 1647, EWHC KB J5. A tenant was sued
for rent and her defence was that she was unable to take possession of the
property for two years because of war. It was held that she was bound by
the contract, and had to pay rent even if she did not occupy the property
she had leased. The court stated that if a party by his or her own contract
creates a duty upon himself or herself, he or she is bound to make it good
irrespective of an inevitable accident or necessity.
But this was unfair and this severe rule laid down in Paradine v Jane is
mitigated by the exceptions to this general rule, laid down in the doctrine of
frustration. Frustration automatically discharges the contract due to
supervening impossibility of performance due to the following and other
reasonable circumstances:
a. Where the subject matter or part of the subject matter of
contract has been destroyed: in Taylor v Caldwell, 1863, 3 B &
S 826, Caldwell agreed to let a hall to the plaintiff for several
concerts, but before the event, the hall was gutted by fire, though
the Gardens remained. It was held the destruction of the hall made
it impossible to perform and therefore the defendant was not liable
under the contract. In Asfar & Co. v Blundell, 1896, 1 QB at 128, a
cargo of dates was sunk and was affected by water and sewage, so
that the cargo became something else for business purposes,
though it was still sold for £2, 400. The cargo-owner’s liability to
pay freight was discharged because the merchantable character of
the cargo was destroyed.
 However, destruction of the subject matter will not frustrate
contracts governed by rules of risk of loss or damage. For example,
contracts for the sale of goods and building contracts.

In sale of goods contracts, the general rule is that risk of loss or

damage passes with property. It is possible for property to pass
before delivery, so that the risk in the goods remains with the
seller. If goods are destroyed after the risk has passed, the
contract is not frustrated and the buyer has to pay the price, while
the seller is discharged from his duty to deliver. If insured, then the
goods may survive the frustration due to destruction.
Under building contracts, risk of the work is, unless otherwise
agreed, on the builder until the agreed work is completed. The
contract is not frustrated by destruction of the incomplete building.

b. By a supervening law (Illegality): a new law may render the

contract illegal and therefore impossible to perform if the new law had
been in force when the contract was made. Previously lawful conduct
becomes a legal wrong and the effect of such a change may be to
frustrate existing contracts and to make future contracts illegal. 1 In Re
Shipton, Anderson and Co. 1915 3 KB 676, a contract was made for
the sale of wheat stored in a warehouse in Liverpool. Before the seller
could deliver, it was requisitioned by the Government under the
wartime emergency powers. It was held that the seller was excused
from performance.
c. Where a particular event on which the contract was based
fails to take place: in Krell v Henry, 1903, 2 KB 740, Krell let a room
to the defendant for the purpose of viewing the coronation of King
Edward VII. When the procession was cancelled, Krell sued Henry for
the due rent. It was held that the contract was discharged by
frustration since the sole purpose of the contract was cancelled.
d. Where the commercial purpose of the contract is defeated, for
example where the plaintiff’s ship that was chartered run aground,
was damaged and needed repairs for some time. It was held that the
delay had put an end to the commercial sense of the contract.
e. Certain personal contracts, such as employment and apprenticeship,
are discharged by the death or incapacitation of either party. Thus a

1
In St. John Shipping Corp. v Joseph Rank Ltd, 1957 1 QB 267,a ship owner committed a statutory offence by
overloading his ship while performing a number of contracts to carriage of goods. It was held that he was
nonetheless entitled to freight because the object of the statute was to prevent overloading and not to prohibit
contracts. This object was achieved by imposing a fine and not by subjecting the ship owner to additional financial
loss which would result from invalidating the contracts of carriage.
 contract to write a book would be frustrated by the supervening
insanity of the author. In Jackson v Union Marine Ins Co Ltd, 1874 L.R
10 C.P 125 at 145, the plaintiff ship owner, contracted under a charter
party to proceed with all possible dispatch to Newport. He insured the
cargo. The ship ran aground before the cargo could be collected, and
was delayed. The charterers threw up the charter party and
contracted elsewhere for the delivery of the goods. The plaintiff
claimed under his insurance.
It was held that the delay had been so long as to put an end to the
contractual obligations. The charterers were therefore not obliged to
load the cargo, and the loss constituted a loss of the chartered freight
by perils of the sea. It was the happening of the event and not the fact
that the event was the result of a breach by one party of his
contractual obligations that relieved the other party from further
performance of his obligations.
f. Method of performance impossible: does onerous performance
frustrate the contract? – a contract may be discharged if it provides for
a method of performance which becomes impossible. In Nicholl &
Knight v Ashton Edridge & Co. 1901, 2 KB 126, a contract was made
for the sale of cotton seed “to be shipped per steamship Orlando from
Egypt to England. The contract specified the ship, Orlando, to carry the
cargo. This ship became damaged and was in for repairs when the
contract was due to be performed. It was held that by naming the
exact ship which was to carry the cargo, the contract was frustrated as
it was impossible for this ship to carry the cargo within the
contractually agreed period.
The Suez Cases
These arose because an agreed or contemplated method of
performance became impossible when the Suez Canal was closed as a
result of hostilities in the Middle East in 1956 and 1967. One such case
was Tsakiroglou & Co. Ltd v Noblee Thorl GmbH, 1962 A.C 93, where a
contract was made for the sale of Sudanese groundnuts at an inclusive
price to cover the cost of goods, insurance and carriage to Humburg.
Parties envisaged that the shipment would be via the Suez Canal but
the contract did not provide for this. It was held that the contract was
not frustrated by the closure of the Suez Canal and the seller ought to
have used an alternative route via the Cape of Good Hope, notwithstanding
that this would doubled the journey and carriage cost. The difference
between the two methods of performance was not sufficiently
fundamental to frustrate the contract.
Frustration will not discharge a contract in the following situations:
1. Where the frustrating event is self-induced
2. Where an alternative method of performance is still possible
3. Where the contract simply becomes expensive to perform: in Davis
Contractors v Fareham Urban District Council, 1956, AC 696, the
plaintiffs were contracted to build 78 houses in 8 months at £94.000. Due
to labour shortage, it took 22 months at £115,000. The plaintiffs sought
to set the contract aside as having been frustrated and claim on
quantum meruit basis. It was held that that the contract was not
frustrated by shortage of manpower. Plaintiffs were bound by the
contract at the agreed price.
4. Where parties have provided for a contingency, that is when they have
allocated risk.
The effect of frustration
Firstly, the frustration at common law renders the contract void from the
time of the frustrating event. This means that each party has to perform any
obligations that have become due before the frustrating event. Secondly,
the loss lies where it falls, meaning that money paid before frustration
cannot be recovered, and money pending before frustration remains
payable unless there is total failure of consideration. This rule was stated in
Fibrosa v Fairbairn, 1942, AC 32. A purchaser of machinery to be delivered
in Poland, costing £4800 paid £1000 upon order. But war broke out and
Germany occupied Poland, making it impossible to deliver the machinery.
The plaintiff was able to recover £1000 because of total failure of
consideration.
But in Zambia, the effect of frustration is controlled by statute, the Law
Reform (Frustrated contracts) Chapter 73 of the Laws of Zambia. Section 3
of that statute states that if the contract has become impossible of
performance or is frustrated, and the parties thereto have for that reason
been discharged from further performance of the contract, money paid
before the frustrating event is recoverable and money payable before the
frustrating event ceases to be payable. If a party has incurred expenses,
they can be recovered. If a party has obtained a valuable benefit from the
contract, he may pay a just amount for it.