WHAT IS DISCHARGE OF CONTRACT?
Under what circumstances will a party to a contract be freed or discharged from performing his obligations under the contract? There are several ways : Discharge by agreement, performance, breach or frustration.
DISCHARGE BY AGREEMENT
The parties to an existing contract may enter into a subsequent contract to extinguish their rights and obligations under the earlier contract. Fish & Meat Co Ltd v Ichnusa Ltd : By a written contract dated 3 December 1961 the defendant who owned a fishing vessel agreed to sell all their fish catches exclusively to the plaintiffs. The defendants were however to maintain their own vessel and crew. The same parties entered into another contract on December 29 1961 whereby the plaintiffs were to purchase the defendants’ fishing vessel. AT the trail, evidence was led to show that in the plaintiffs’ reply to a letter written by the defendants, the plaintiffs referred to some of the terms of the December 4 Contract. On May 3 1962 the plaintiff informed the defendants in a letter that they were no longer going to purchase the vessel. On the July 17 1962, the vessel arrived in Ghana and the plaintiffs nevertheless started business with it, paid for its maintenance and the salaries of its crew. They alleged that the defendants later took possession of the vessel, sold all its fish catches and threatened to remove it from Ghana. The plaintiffs therefore sued inter alia for accounts of all fish sold and payment to them of all the proceeds from the sales. The court held that an existing contract can be discharged by mutual agreement and expressly by another contract or agreement in which a clear intention to discharge the previous contract is shown. In the instant case, the December 4, 1961 contract was extinguished by the December 29, 1961 contract since the character and terms of it were different from and inconsistent with the December 4, 1961 contract. The court noted that the December 4, 1961 contract could not be said to have been revived by the plaintiff’s letter referring to the terms of the December 4, 1961 contract after execution of the December 29 1961 contract to regulate the contractual relations of the parties.
In certain cases the parties intentions may be to extinguish the former written contract and replace wit with a new and self-contained agreement. The result of such an agreement is that the earlier written contract is deemed to have been rescinded and substituted with the new agreement. In Japan Motors Trading Co. Ltd v Randolph Motors Ltd, the plaintiffs entered into an agreement to sell their motor workshop to one JKR. Subsequently, JKR floated the defendant as a limited liability company and a new agreement was entered into between the plaintiffs and the defendants on the same terms as between the plaintiffs and JKR. The plaintiffs brought an action to recover the outstanding sale price. The defendants resisted and contended, inter alia that the earlier agreement with JKR did not bind them. The court held that the parties themselves agreed to substitute the subsequent agreement for the previous one. Thus with the consent of all the parties , the transaction in the previous agreement was incorporated in the new one and the defendants were substituted for JKR, thereby discharging him from his obligation under the agreement.
DISCHARGE BY PERFORMANCE
Generally, a party must perform all his obligations under a contract completely and exactly in order to be discharged from further performance or in order to be entitled to sue to enforce the other party’s performance. As a general rule, where one party tenders defective or incomplete performance of an entire contract the other party is discharged from his liability to perform his side of the contract and the performing party cannot sue to recover payment for partial or defective work done. In Cutter v Powell, the defendant agreed to pay Cutter 30 guineas if he performed his duties as a second mate on a ship sailing from Jamaica to Liverpool. Cutter proceeded to act as mate on the ship, but died 19 days before the ship arrived at Liverpool. Cutter’s widow brought an action to recover a portion of the agreed sum.
In Sumpter v Hedges, the plaintiff had agreed to erect on the defendant’s land two houses and stables for a fixed sum. Plaintiff did part of the work and abandoned the contract and the defendant had to complete the buildings himself. The plaintiff sued to recover the value of the work he had done. It was held that the plaintiff could not recover the value of the work done. He had failed to perform completely and , therefore , was not entitled to payment.
In Re Moore v Landauer, the defendants agreed to buy from the plaintiffs 3,000 tins of canned fruit from Australia to be packed in cases containing 30 tins. When the goods were delivered it was found that a substantial part of the consignment was packed in cases containing 24 tins, even though the agreed number of tins was delivered. The court held that the defendants were entitled to treat themselves as discharged from their obligation to accept the goods or to pay for them i.e. the defendants were entitled to reject the whole consignment on the ground that the plaintiffs failed to perform their obligations in accordance with the terms of the contract. Also in Bolton v Mahadeva, the plaintiff contracted to install a central heating system in the defendant’s house for the sum of 800 pounds. He installed the system but it did not work well and the defendant refused to pay for it. The court held that the plaintiff could recover nothing.
As cold be noticed above, the application of the general principle could lead to the unjust enrichment of one party to the contract. A number of principles have therefore been developed to deal with such situations.
WHAT IS THE DOCTRINE OF SUBSTANTIAL PERFORMANCE?
According to the principle of substantial performance, if the performance tendered falls short of the required performance only in some relatively trivial respect, the party not at fault is not completely discharged from performance. He must pay the price agreed upon for the work done or the services rendered , but may counterclaim for the loss he has suffered by reason of the incomplete or defective performance.
What constitutes substantial performance of a contract depends on the nature of the contract and all the circumstances. The courts look at the nature of the defects in performance and the proportion between the cost of rectifying the defects and the total contract price. Generally, where the cost of rectifying the defects in performance is relatively small proportion of the total contract price, the courts are likely to consider the contract as substantially performed.
In Howenig v Isaacs, the parties entered into a contract for the decoration of a one-roomed flat. The plaintiff, the decorator, had completed the work but there were certain defects, which would cost 56 pounds to repair. The total contract price was 750 pounds. The court held that looking at all the relevant circumstances, the contract had been substantially performed and, therefore, the plaintiff could sue for the contract price, subject to a counterclaim by the defendant for damages for the cost of repairing or rectifying the work done.
ACCEPTANCE OF PARTIAL PERFORMANCE
The second exception to the rule of exact and precise performance is partial performance. Eve though a promisor has only partially performed his obligations under the contract, he will be entitled to payment for his part performance if it can be inferred from the circumstances that there was a fresh agreement between the parties , under which the promise agreed to pay for het partial performance tendered. This inference is made when the other party having the option either to accept or reject the partial performance , chooses to accept and keep the benefit of eth partial performance. In this case the party who tendered the partial performance can sue on quantum meruit (for a reasonable price for work done) or quantum valebat (reasonable sum for goods actually supplied) to recover payment that is commensurate with the benefit bestowed on the other party. The principle is clearly illustrated in section 14(1) of the Ghanaian Sale of Goods Act, which states : ‘Where the seller delivers to the buyer a quantity of goods less than he contracted to sell the byer may reject them but if he accepts the goods so delivered , he must pay for them at the contract rate.”
In Mabsout v Fara Bros (Ghana) Ltd , On the basis of an oral agreement, the appellant performed managerial duties for the respondents as their representative in Kumasi. Upon being summarily dismissed he brought an action claiming 6000 Gh pounds being reasonable remuneration for work done for the respondents. It was dismissed by the HC judge but on appeal, it was held that the acceptance by the respondents of het services rendered by the appellant at the request of the respondents raise a presumption in law of a promise to pay a quantum meruit basis for the services rendered.
it should be noted that the performing party will only be entitled to sue on quantum meruit if the party not in default had the option either to accept or reject the partial performance, not if it was forced on him against his will.
PREVENTION OF PREFORMANCE BY PROMISEE
The third exceptional situation arises where a party who has only partially performed his obligations under an entire contract is prevented through the fault of the other party from completing his obligations under the contract. In such a case the law allows the performing party two options : (a) He can either sue to recover damages for breach of contract; or (b) He may sue to recover reasonable remuneration on quantum meruit for the work he has done. The leading authority for this principle is Planche v Colburn, the plaintiff had agreed to write a book on costume and ancient armor for publication by the defendant as part of a series being published by the defendants. It was agreed that the plaintiff would receive 100 pounds on the completion of the book. He collected material and wrote part of the book, but the defendant abandoned the series altogether before the plaintiff finished writing the book. The plaintiff brought the action claiming payment on quantm meruit.
See also the Supreme court case of Skanska Jensen International v Klimatechnik Engineering Ltd
WHAT ARE DIVISIBLE CONTRACTS?
Generally, a contract is divisible when the obligation to pay for one part of the contract is independent of performance of the other parts. Where the contract is divisible, completion of each distinct part or each stage entitles the performing party to payment and the obligation to pay arises independently of performance of the whole contract.
DISCHARGE BY BREACH: Another ground for the discharge of contract is the breach of the contract by one party. In certain cases, a breach by one party releases or discharges the other party from his duty to perform his obligations under the contract. The first point to note is that a breach of contract, no matter what form it takes, always entitles the innocent party to maintain an action for damages. However, it is not every breach which discharges the innocent party from his liability or obligation to perform.
The right of a party to treat a contract as discharged arises only in two kinds of cases :
1. Firstly, where the party in default has repudiated the contract before performance is due or before the contract has been fully performed. Where the party in default repudiates the contract before performance is due, such repudiation amounts to anticipatory breach.
2. Secondly, where the party in default has committed what is described as a fundamental breach of the contract. A breach is said to be fundamental if, having regard to the contract as a whole, the promise which has been violated is of relatively major importance to the contract.
ANTICIPATORY BREACH: Repudiation occurs when a party by his words or conduct demonstrates that he does not intend to perform his obligations under the contract. It is an absolute refusal to perform communicated either by words or by conduct. Such repudiation amounts to anticipatory breach where the party in default renounces his obligation under the contract even before the time fixed for performance. Repudiation may be explicit or implicit. It is explicit where the defendant expressly declares that he will not perform the contract when the time for performance arrives. Repudiation is implicit where the reasonable inference that can be made from the defendant’s conduct is that he no longer intends to perform his side of het contract.
In Frost v Knight , the defendant promised to marry the plaintiff after het death of the father. the defendant then broke off the engagement during his father’s lifetime and the plaintiff brought the action for damages for breach of promise to marry. The plaintiff succeeded
Before the other party can treat himself as discharged, it has to be established that the defaulting party made his intention clear beyond reasonable doubt that he did not intend to perform his side of the contract. In other words, there must be an absolute refusal to perform before there can be said to be repudiation. To prove such an intention the courts look at the nature of the contract the surrounding circumstances and the motives which prompted the alleged repudiation.
it must be noted that even if one party repudiates the contract or commits an anticipatory breach, the contract does not end automatically. Since the parties voluntarily agreed to enter into the contract they must also both agree or consent to its termination. Thus where one party to a contract commits an anticipatory breach of the contract, the party not in default has the following options : (a) he may treat the contract as at an end or as conclusively discharged and sue for damages immediately; or (b) He may affirm the contract and treat it as still being in force in spite of the other party’s breach until the date fixed for performance arrives .