Termination of Contracts

TERMINATION OF CONTRACT
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Discharge of a contract means that the parties are released from their obligations stated in the contract. they no longer have to do what they have agreed.
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Discharge of Contracts
A contract can be discharged in 4 ways
I. II. III. IV. Performance Agreement Frustration Breach

I-Discharge by Performance
once the parties have done what they promised to do, then the contract is discharged The parties no longer have any obligations left Performance is the most common way that a contract is discharged

Discharge by Performance
For example, a man entered into a contract to work on a boat which was making a journey to the UK He was to be paid when the boat arrived in the UK Unfortunately, he died before the boat arrived The court held that his widow could not collect his money because he did not 5 complete the contract

Discharge by Performance
Usually, the parties have to perform all of their obligations in the exact way stated in the contract However, there are 4 exceptions to this
A. Where the contract is divisible B. Where the contract can be completed by substantial performance C. Where performance has been prevented by the other party D. Where partial performance has been accepted by the other party 6

A-The Contract Is Divisible

A court may decide that parts of the contract are separate from other parts Eg 1: Employees are usually paid each month. Therefore, in our previous example, if the worker on the boat was paid monthly, his widow could have claimed the money for the months before he died.
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The Contract Is Divisible

Eg 2: John makes a contract with Jane to carry out improvements to her home. He installs new heaters and a new bath. If the heaters are defective but the bath is ok, then Jane can refuse to pay for the heaters but she must pay for the bath.
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B-Substantial Performance
A contract may be discharged by substantial performance of what was agreed In other words, the most important part is completed and only a small part has not been done (or a small part needs to be fixed) For example, Rolando has a contract with Liza to decorate her house for P7500 by painting it and making some furniture. 9

Substantial Performance
Liza is to pay Rolando in installment basis as he does the work. Liza pays Rolando several installments totaling P4000. However, when Rolando finishes, she refuses to pay the remaining P3500 as she is not satisfied with the quality of the furniture.
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Substantial Performance
The court decides that there substantial performance which enough to discharge the contract. is is

C-Performance Prevented
If one party prevents the other from performing their obligations under the contract then the contract is discharged If some work has been done before this, then the party may claim payment for the work which has been done
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Liza must pay the full price less an amount for fixing the faulty furniture. This also shows that although substantial performance is enough to discharge a contract, only complete performance can get a complete 11 payment.

Performance Prevented
Eg: JD has a contract with April to paint her house. He starts the work, but after two days, April asks him not to come back because her pet Arra, a cat, is scared of him. JD can claim payment from April for the two days work which he has rendered.
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D-Partial Performance Accepted

The contract can be discharged if one party accepts partial performance by the other party Eg: Jim places an order with Fred for 12 sets of sensor. However, Fred can only supply 10 sets of sensors. Jim could refuse to accept the 10 sets of sensors. However, he could accept the 10 sets of sensors and reduce the price he would be paying. That would be accepting partial performance by Fred. 14

II-Discharge by Agreement
A contract is an agreement Therefore, the parties can make a new agreement to end the contract The contract itself may contain a clause which states that the contract will end at a certain time
Example: lease
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Discharge by Agreement
Or the contract may allow the parties to end the contract on giving notice to the other party Eg 1 months notice in contracts of employment If there is no clause in the contract then another contract is needed to end the first contract
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III-Discharge by Frustration
If, from the very beginning, it is impossible to carry out what has been agreed then the contract is void Frustration applies where it becomes impossible to perform the contract after it has been made This discharges the contract
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Discharge by Frustration
Frustration applies situations: in the following
1. Destruction of the subject matter of the contract 2. Government interference or illegality 3. An event does not take place 4. The commercial reason for the contract is defeated 5. Death or incapacity of a party in a contract of 18 personal service

1-Destruction of the Subject

If the subject matter of the contract is destroyed after the contract is made then the contract is discharged For example, a contract was made for a concert. After the contract was made the building where the concert was to be held burned down. The court held that the contract was frustrated
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2-Government Interference/Illegality
After the contract has been made, the government may take some action which frustrates the contract Or the law may change and the contract becomes illegal
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3-An Event Does Not Take Place

Where a contract is made only because of some event which will take place, but then the event does not take place, then the contract is frustrated Ex: Walas is from Davao. He rented an apartment so that he could watch the concert of Spice Girls (1998) in Manila.
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4-Contract Of Personal Service

Where a contract is made with a person because of that persons skill or knowledge, then if the person dies or becomes incapacitated, then the contract is frustrated Eg: a musician who is hurt in an accident and cannot play an instrument anymore.
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IV-Discharge by Breach
When a party breaches a contract, he or she violates some contractual duty. The parties are free to negotiate the possible remedies for a breach of a contract, and even to stipulate what types of actions will be considered a breach.
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