Discharge by Agreement

Just as contracts come into existence through the agreement of the parties, they can also be terminated by the agreement of the parties even though each party has not completely performed their contractual obligations. An agreement for a contract to be discharged may either be in executed contracts, where one party has completed performance but the other has not, or executory contracts, where both parties still have outstanding obligations.

To obtain a valid discharge by agreement, the party who has not completely performed after the other party has performed must obtain an agreement under seal or furnish consideration for the agreement to discharge. Where, however, both parties still have outstanding obligations, a contract under seal is not necessary as the consideration furnished by each party is letting go of their right to not enforce the promise of the other party.

Discharge of a contract through agreement may be by rescission, variation, waiver or accord and satisfaction.

Rescission

Rescission is possible where both parties still have some obligations under the contract to perform. A contract may be rescinded by mutual agreement to make it effective. Rescission is based on the consent of both parties usually manifested by their express words or through implied conduct. Where a contract is rescinded, money paid under the contract and property transferred must be returned. Rescission may be considered under the following cases.

1. In executory contracts

Where both parties still have outstanding obligations under the contract to make the contract an executory one, the contract may be rescinded bilaterally through a mutual agreement. If A and B enter a contract for A to build a house for B in exchange for a fee, and they both agree to terminate the agreement before the house is built, they both would have been discharged by agreement. The consideration furnished by each party for the agreement to be discharged is not enforcing the other party’s promise. If either party has paid any money or transferred any property under the contract, it would be returned.

2. In contrcats under seal

The former position of the law under common law was that a contract under seal could only be rescinded by another contract under seal. However, under equity, a contract under seal may be rescinded by a written or oral contract. In Berry v Berry, a husband agreed under a deed of separation to pay his wife 18 pounds a month. Eight years later, the agreement was varied by a written agreement not under seal where he agreed to pay her nine pounds a month and 30 percent of his earnings if they exceeded 350 pounds. The court held that the contract was validly varied.

3. Rescission of contracts required to be in writing

A contract which is required be in writing may be rescinded by an oral agreement. This was done in UAC v Argo where the defendant, employed in a written agreement as a storekeeper, undertook not to take goods on credit and to take personal responsibility for any debt or losses incurred where he was in breach of the undertaking. The employers later told him that he could sell on credit. When he sold on credit and there were losses as a result, the court held that the oral agreement validly rescinded the written agreement.

Variation

A contract can be varied at any time before it is completely performed. However, a contract in writing can only be varied by an agreement in writing. So where a contract is required by law to be in writing, it can only be varied by another written agreement. This principle was applied in Goss v Nugent where there was a written contract for the sale of land and the defendant refused to pay for the land when the plaintiff’s title turned out to be defective. The defendant pleaded the defective title, but the plaintiff replied that the defendant had orally agreed to waive the defect and accept the title. The court held that since a contract for the sale of land was required to be in writing, an oral variation was not permissible. However, a written contract may be orally rescinded.

The difference between a variation and a rescission was stated by Lord Summer when he said the following.

The question is whether the common intention of the parties at the date of the oral agreement was to abrogate, rescind, supercede, or extinguish the old contract by a substitution of a completely new and self-contained or self-subsisting agreement containing in entirety the old terms modified by the new terms.

Where the new oral agreement only cancels the previous agreement, it is rescission, while it is variation where the agreement is modified or replaced with a new one.

The position of the law that a written agreement may not be varied by an oral one is derived from common law. In equity, such oral variations are admissible in some instances. Section 131(1) of the Evidence Act also provides some instances where an oral variation of a written agreement shall be permissible.

Waiver

A waiver occurs when one party to a contract voluntary lets go of his rights under a contract. A waiver involves the renunciation of a claim or privilege to take advantage of some defect or wrong. It is usually unilateral, with the party for whose benefit the waiver is made furnishing no consideration. It was regarded by Lord Denning to be a form of promissory estoppel, when he said the following in Charles Richards Ltd v Opprenheim.

Whether it is called waiver or forbearance or an agreed variation or substituted performance does not matter, it is a kind of estoppel. By his conduct, he evinced an intention to affect their legal relations. He made, in effect, a promise not to insist on his legal right. Once the promise is acted upon, he cannot afterwards go back on it.

However, in effect, most waivers are usually one party not exercising their right to insist on a particular mode of performance, and this usually comes into practice most often when the time of performance is extended.

A waiver may be oral, written, or inferred from conduct. However, it is necessary, as stated in Enavharo v Edosomwa, that the act of waiving must be an intentional act done with the knowledge of the breach which shows an intention to forfeit the right to sue. In Mbeledogu v Aneto, the waiver was inferred from the defendant’s conduct by accepting a late payment without complaints.

It is important to note that if the right to have a particular contract performed at a particular time is waived, it does not mean that the waiving party cannot sue for subsequent breach. In Enavharo v Edosomwa, the plaintiff engaged the defendant to build a house for him. When the defendant did not deliver within the stipulated time, the plaintiff stretched the time, and it happened again. The plaintiff sued the third time when the defendant still did not perform his contractual obligation, and the defendant tried to rely on the fact that the plaintiff’s right to prompt performance had already been waived. The court held that because he waived the right once did not make it forever extinguished.

Accord and satisfaction

Accord and satisfaction is the purchase of a release from an obligation whether arising under contract or tort by means of any valuable consideration, not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.

This above statement was made in British-Russian Gazette and Trade Outlook Ltd. v Associated Newspapers Ltd. Where one party to a contract has failed to perform his own part of the agreement, he can get a valid release from such performance if he furnishes some other consideration which is accepted by the other party. Where the party does not furnish any consideration and the agreement is not under seal, then it shall not be binding.

Once there has been accord and satisfaction, the parties are bound by such an agreement and cannot go back on it. In Adekunle v A.C.B., the appellant was the respondent’s former solicitor. Dispute arose over the interpretation of an agreement between the parties. While the parties were still in dispute, the respondents offered the appellant 150 pounds in full satisfaction of the appellant’s claim of 349 pounds and 4 shillings. The appellant accepted the amount, and then tried to sue once more for the original amount. The court held that the new agreement of accord and satisfaction had discharged obligations under the former contract.

For an accord and satisfaction to discharge an agreement, it is necessary that there is both an accord, which is an agreement between the parties, and satisfaction, which is the consideration. The court held that there was no discharge by accord and satisfaction in Alhaji Sanusi Dere v Pacific Insurance Co. (Nig.) Ltd. where there was no agreement as to the sum to be paid. There must also be consideration.