The termination of a contractual obligation, known as discharge of a contract, can be by agreement, performance, frustration (supervening impossibility) or breach. An example of this is when Aaron a company owner decides to terminate an employment contract of Mike due to reasons.
Discharge by Agreement
Parries may agree to terminate the agreement and release each other from their contractual obligations. This can take several forms:
- Where both parties agree to release one another from what was agreed upon, a waiver by one party constitutes consideration for the waiver by the other party, making this transaction binding. Where one party has already performed their obligations, that party cannot be bound by another party promising a waiver – this type of waiver is only valid if supported by an independent consideration.
- Where parties mutually agree to discharge the contract and enter into a new one.
- By failure to meet a condition precedent or condition subsequent.
- Discharge by Accord and Satisfaction
Discharge by Performance
When the parties fulfil their obligations within the time and in the manner prescribed by the contract, the contract is discharged by performance. Discharge by performance can also occur when a party makes a valid offer (a “tender”) or performance, even if it is rejected by the other party.
Discharge by Frustration
Where a change in circumstances arises, after the contract was made, which makes the contract impossible to perform or voids the contract’s practical purpose, and which is not the fault of either of the parties, the contract is said to become frustrated and can be discharged. Examples include war, acts of God, sickness, accidents, changes in legislation among others.
Discharge by Breach
Where one party fails to meet a condition of their contract, the other party will be discharged of their obligations and has the right to repudiate the contract and seek damages. For example, Sarah offers to buy Janes dress for £40. However, Sarah fails to pay the amount and therefore breaches the agreement that she had with Jane.