Discharge by Performance

The discharge of a contract means that the contractual relationship has come to an end. There are four major ways through which this happens, which includes by performance, by agreement, by breach and by frustration. There are some other modes of discharge which do not need to be explained because they are peculiar to some particular forms of transactions, such as summary dismissal in agency, mergers, and discharge by judgment of the court.

Generally, performance of obligations under a contract will bring the contractual relationship to an end. However, it will sometimes happen that one party was prevented from performing by the other party, or that a party that alleges to have performed their contractual obligation has only partially performed.

As a general rule, the performance must be just as stipulated in the contract. A part performance of an indivisible contract is not sufficient performance. However, unimportant deviations will be ignored where the performance is divisible. Sometimes the obligations of each party is independent of the obligations of the other, sometimes it is to run concurrently, and at other times it is necessary that one party fulfills a condition to let the other party perform. Whatever the case, it is necessary for a party to show that he has performed or is willing to perform to sue.

Substantial and Partial Performance

Performance may be full, substantial or partial. Where performance is full, the party who has performed is discharged. However, questions might arise as to whether substantial performance and partial performance can discharge a party.

Substantial performance

In all contractual obligations, the parties would have envisaged some level of performance before they can be discharged from liability under the contract. The court had established the rule that the entire performance of a contract was a necessary condition precedent to payment. This rule was established with a qualification that if the contract has been substantially performed, though some part of it had been badly done, the contractor is entitled to the stipulated price less deduction to serve as remedy for the defects. In Darkin & Co. Ltd. v Lee, the plaintiffs contracted to execute certain repairs on the defendant’s premises. They carried out the repairs substantially, but failed to perform the contract in all respects. It was initially held that the contractors were not entitled to the contract price. On appeal, it was held that the contract had been substantially performed, and so the plaintiffs were entitled to the price minus reduction for the defective work.

The interpretation of what will constitute substantial performance will depend on the facts of each case and it is always one of construction. Where the defects in the performance of the contracts are relatively minor, the court will hold that there has been substantial performance.

Partial performance

The rule regarding partial performance is that a party who only performs partly is not entitled to payment. Where the party has not completely performed his duty, he is not entitled to remuneration, In Cutter v Powell, the defendant agreed to pay 30 guineas to Cutter provided he served as mate in sailing the ship from Jamaica until it arrived at Liverpool. Cutter died on 20th September, and the ship arrived in Liverpool on 9th October after Cutter’s death. Cutter’s wife claimed payment on quantum meruit, but the action failed as it was only partial performance.

Similarly, in Sumpter v Hedges, the plaintiff contracted to build two houses and a stable for a lump sum, but ran out of money before he completed it. The defendant completed the buildings with some materials left behind on the construction site by the plaintiff. The plaintiff unsuccessfully tried to sue for payment on quantum meruit, and the court held that there was no payment for partial performance, although he could recover the money for the materials used by the defendant in the completion of the building.

Acceptance of partial performance

The general rule is that a party whose performance falls below the substantial performance level cannot claim any remuneration for his labour or materials used in executing the contract. However, the position is different if the innocent party accepts the partial performance. In such a scenario, the party who has partially performed may sue to recover payment on quantum meruit basis.

Acceptance of partial performance is recognized in the Sales of Goods Act. It provides that where the seller delivers to the buyer a quantity of goods less than what he contracted to sell, the buyer may reject them, but the buyer must pay for the goods at the contract rate if he decides to accept them.

In Omoleye v Okeowo, the plaintiff agreed to supply 6,000 yards of textile materials to the defendant at the rate of 41 shillings per yard. The defendant deposited 2,500 pounds for this purpose. The plaintiff was unable to obtain the stipulated material and unilaterally supplied 2,910 ½ yards of a different and more expensive material at 50 shillings per yard. The defendant was entitled to reject the goods, but he took delivery of the substituted material and went ahead to resell it. The court held that the plaintiff was obligated to pay for the material accepted from the defendant at the contractual rate of 41 shillings per yard.

Prevention and Tender of Performance

Where A is prevented by B from performing after A has begun performance, A will be entitled to sue B for payment on a quantum meruit basis, or for damages. This principle was upheld in Planche v Colburn.

Tender of performance may seem similar to prevention of performance, because they both involve one party being prevented from performing contractual obligations by the other party. However, while prevention of performance is applicable where the prevented party has already begun performance, tender also applies to a situation where the party has not begun performance. If A requires the co-operation of B to perform his obligations under a contract, but B does not give the co-operation, A shall be deemed at law to have performed his obligation and may sue for breach of contract.

In Startup v Macdonald, the plaintiffs agreed to sell and deliver to the defendant a certain quantity of oil “within the last 14 days of March.” At 8:30pm on March 31, a Saturday, the plaintiffs tendered delivery. It was refused by the defendant on the ground that the hour was late. It was held by the court that the tender was in accordance with the contract, and so the plaintiff was entitled to recover damages for non-compliance.

Where it is money tendered and not goods, the debt shall not be regarded as discharged because it is refused. However, it shall be a good defence for an action of non-payment. Such a tender of payment must be in legal currency and the debt must be paid in full.

Time of Performance

In a contractual agreement, the parties may fix a time which the contract is to be performed. Under common law, where the time is fixed, the contract may be repudiated by the innocent party who may sue the other party for damages for not performing at the appointed time. Where the time is not fixed, it should be performed within a reasonable time.

However, the approach is less rigid under common law. Where the date is fixed, the court will look into the intention of the parties in fixing the date, and will hold that the contract is not broken if the party performs outside the stipulated time but within reasonable time.

Equity will not intervene in the following cases.

• Where the contract expressly states that time is of essence in the contract.
• Where time was not ordinarily of essence in the contract, but was made so by one party giving reasonable notice to the other who has failed to perform the contract with sufficient promptitude.
• Where from the nature of the contract, time must be taken to be of essence in the agreement.

Place of Performance

If the place of performance is specified in a contract, it must be strictly complied with unless strict compliance is waived or an alternate place of delivery and payment is specified. Where no place of performance is specified and the performance requires the presence of both parties, the promisor is to seek out the promise to perform.