Discharge by performance occurs when one or both parties agreeing to a contract fail to perform their obligations. This is one of the more natural modes for discharging a contract. If both parties have properly completed their obligations that were set forth by the contract, they are then free from any further liability. If one party fails to perform their obligations, then the other party has the right to take action against the party that did not perform. There are three primary things to consider when determining if performance has been met.

  • Actual performance: A contract is considered to have been performed if both parties involved in the contract have made good on their promises.
  • Offer to tender or perform: Tender is a term used to refer to an offer of performance under a contract. If one of the parties to a contract offers to perform and the receiving party refuses to accept their performance, the first party is then discharged from the requirement to complete their obligations.
  • Standard of performance: The performance obligation of a contract is strict and is required to be performed precisely and completely.

Discharging a Contract by Mutual Agreement

When both parties agree to end a contract, the contract is said to have been terminated under mutual consent. An example would be when a consumer purchases an item and they find it unsatisfactory, they return it within the agreed upon return period. This would mean that the contract has been discharged by a mutual agreement.

Ways a Mutual Discharge of Contract Can Occur

There are multiple ways in which two parties can come to a mutual discharge of a contract. Some of the ways in which this can occur include:

  • Novation: This refers to the substitution of a newer contract in lieu of the previous one. When the new contract is created, the old one is discharged by mutual consent.
  • Alteration of contract: This means that the parties to a contract have agreed to change one or more of the terms in the original contract. For an alteration to be valid, both parties must consent to it.
  • Remission: This means one of the parties has accepted less than was originally contracted for.
  • Rescission: This term means that some or all of the terms of the contract have been canceled. This can occur under a variety of circumstances such as mutual consent, failure to perform obligations, or a contract that is voidable.
  • Waiver: When a waiver occurs, one of the parties has abandoned their rights to the contract. The contract is discharged, and the parties are no longer bound by the terms.
  • Merger: A merger occurs when there is a meeting of an inferior and superior right in the same person. In this event, the inferior right vanishes.

Discharge by Performance

A contract can be discharged by performance, thus ending the agreement. When a party offers to perform, this offer is referred to as a tender. If one party meets the terms and obligations of the contract and the other party fails to do so, or if one party fails to accept, then the contract can be discharged by performance. When the offer is a tender of payment for a contract, the tender must be considered legal tender such as cash, check, or wire transfer.

Lecture Notes on Discharge of a Contract

A party has the right to discharge a contract based on:

  • Performance
  • Breach
  • Frustration

An exception to the general rule is that performance can be mitigated in certain instances. These instances include:

  • Divisible contracts: In a divisible contract, one part of the party's performance is set off against a part of the performance by the other party.
  • Acceptance of partial performance: If one of the parties receives benefits from the partial performance of a contract, the other party is able to either accept or reject the work and promise to pay a set price for the benefit of the portion received.
  • Completion of performance prevented by the promisee: In this event, one of the parties to a contract is prevented in some way from performing their obligations so that they can receive payment.
  • Substantial performance: If a party fully performs their contract but there are some defects in the performance, they are still considered to have substantially fulfilled their obligations. This can allow them to receive at least a reduced price depending on the extent to which the contract was breached.

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