Discharge of Contractual Obligations by Performance - Essay Example

Discharge of Contractual Obligations by Performance Name: Institution: Course Title: Instructor: Date: 1.0 Introduction Contractual agreements form the cornerstone of relationship building in any form of engagement within an economy. These agreements outline the contribution of each party to the relationship.1 Since most human engagements are built on relationships, contractual agreements are important to the growth of an economy. In Australian context, Clarke (2010) indicates that Australian contract law is categorised into five major classes. These are formation, scope & content, avoidance, performance & termination and lastly, remedy. The principal focus of the subsequent discourse is on performance and termination. Termination of a contract can be as a result of discharge by performance, agreement, breach and lastly, as a result of frustration. In the context of discharge by performance, she observes that contractual agreement comes to a natural when the parties have effectively met or performed their obligations. The target of this discourse is to outline what is meant by performance in the context of discharge of contractual obligations by performance as one way of terminating a contract. 2.0 Performance and Termination of a Contract 2.1 Discharge of Contract From an overall perspective, a discharge of contract normally occurs when a legally binding termination of duties agreed upon earlier is reached. However, it can also be through voluntary agreement/ act by the involved parties or through operation of law.2 Miller & Gaylord, (2011:275) defines discharge as the “termination of an obligation in contract law. This occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties or operation of law releases the parties from performance”. The issue of discharge of a contract stems from the fact that legal words cannot be equated with ordinary words spoken in the course of our daily lives. The essence of the above argument is based on the fact that contractual engagement is an indication of having legally binding agreement that can be enforced in a court of law or if not enforced then conditions set earlier must be met if they adhere to conditions of establishing a legal contract.3 The premise that contractual relationship is tied on is to be bound and reach agreement on the essential terms of relationship. This is equally pegged on non coercion.4 Apart from reaching agreement, the other critical element is reciprocal exchange relationship where there is give and take or a promise.5 These conditions once met, it means the process is legally recognised and thus, can be legally enforced.6 The major question that arises is that what gives rise to the need to discharge a contract? As established earlier, contractual agreements are binding words that are legally enforceable. In this regard two important factors arise that strengthens the concept of discharge. The first is the existence of primary obligations and secondly, secondary obligation. When two parties enter into an agreement, they have primary obligation towards each other by fulfilling what is stated in the agreement.7 However, when this primary obligation is not met, there emerges secondary obligation of paying damages as a remedial obligation as result of the breach of primary duty. Indeed it is the happenings between the two responsibilities that define the fulfilment of conditions and the subject of discharge, and between breach of contract and discharge.8 To create a vivid discussion on what constitutes a discharge of a contract through brief mention, the following comes into limelight. They include factors like impossibility of performance, breach of contract, by agreement, by performance, conditions subsequent, and based on other myriad factors like alteration, merger, arbitration, award, surrender and cancellation.9’10 Nevertheless, before singling out discharge of contract through performance, it is equally prudent to outline what does not constitute a discharge. For instance, destruction of written contract document does not discharge that party from the contract. This covers the fact that it is done deliberately or through accident.11 Corbin (1913: 516) equally outlines other parameters that do not constitute discharge. These include factors like absence of mutual agreement, non delivery in the context of deeds, fraud and duress. 2.2 Discharge of Contractual Obligations by Performance The most common path in ending one’s contractual obligations (discharge) is through performing the duties as per the expectations outlined in the agreement document. The attainment or measurement of performance is subject to the occurrence or non occurrence of a certain event. According to Miller & Gaylord, (2011:275) performance in contract law entails “fulfilment of one’s duties arising under a contract with another”. The conditions/ duties to be met in this context for discharge by performance to be considered to have happened are the express terms. Express terms are those rights and obligations that are well articulated and spelt out in the contractual agreement. These terms include issues such as responsibilities of that position and pay among others if relates to employment contracts.12 On the other side, Miller & Gaylord, (2011:275) posits that the condition for performance is based on absolute promises instead of being expressly being conditioned or being qualified. In contract law in the context of performance, there are two scenarios that can be experienced by the engaged parties for the same to be considered absolute. This situation is considered to have been attained when there is no question about the performance of the parties’ involved. This is when a perfect situation is attained as agreed.13 For instance, this kind of framework is applicable in building industry where one is contracted to develop the house up to certain level for payment to be released. The second aspect is substantial performance. In this regard, “a party who in good faith performs substantially all of the terms can enforce the contract against the other party”.14 In this regard, the party seeking consent for termination can invoke this close if he or she believes he has done his best to meet the conditions specified even though he was not able to deliver the actual or what was agreed upon as a result of unforeseen challenges or frustrations. In discussing discharge by performance, three integral concepts arise since they will predetermine weather the duty that the parties were obliged to perform have been attained. The first context is within the concept of condition precedent. Under this framework, for a party to be considered to have attained their absolute duty to perform, they should meet certain prior conditions.15 For instance, if party X tells party Z that he will buy clothes from him so long as the lender approves his loan before 30th of March 2013 and then the lender fails to do so, the contract would be absolute and thus, the contract will be discharged. This is because, the actualization of the contract was based on the premise that X is paid before 30th of March. The best example of such conditions would be collateral contract. Collateral contract is kind of contractual agreement where before the two parties sign their main agreement, there is a promise that one involved party will meet certain conditions or promises.16 The observation is that collateral contract has to be done before the main contract or simultaneously. Gillies (2004:215) note that “collateral doctrine operates to locate a term outside the main contract. It is convenient in that it can overcome problems which would or could result were the collateral promise sought to be located in the main contract”. The second condition to be met for contractual agreement to be considered to have been dissolved through performance is condition subsequent. In this regard, for contractual agreement to be considered complete, the expectations/ duties outlined thereof follows or is subsequent to absolute duty to perform.17 For instance, if an employer enters into agreement with employee that he will be promoted to the immediate higher position subject to him attaining masters degree. If the employee doesn’t attain the said, then the agreement becomes absolute. The last condition is known as concurrent conditions. This situation arises when two parties expressly or impliedly are to attain their duties simultaneously.18 A case example is a promise by buyer to make payment of delivery once the goods are delivered. 3.0 Conclusion The core of this discourse was to assess what is meant by performance in the context of discharge of contractual obligations by performance as one way of rendering a contract complete. Based on this thesis statement framework, the paper firs examined what is discharge in general. In this regard the paper established it is the process of dissolving a contractual agreement through various approaches either through performance or through invocation of legal provisions like frustration, fraud and bad faith among others. The next phase of the engagement was to outline what constitutes performance in the context of discharge of contractual obligations by performance. In this regard the paper established that performance is the meeting of duties by involved by the parties as outlined in the contract document. Performance can either be complete or substantial. This duty (parameter for establishing performance) is subject to factors/ conditions like concurrent conditions, conditions subsequent and conditions precedent. In a nutshell, the overall observation is that performance is the natural way of ending a contractual engagement by attaining all the duties outlined thereof. References Blum, A. Brian. Contracts: Examples & Explanations. New York: Aspen Publishers, 2007. Camen, Carolina, Patrik Gottfridsson and Bo Rundh, “To trust or not to trust? Formal contracts and the building of long-term relationships.” Management Decision 49, no 3 (2011): 365- 383. Clarke, Julie (2010). Australia contract law: overview of Australia contract law. available at: http://www.australiancontractlaw.com/law.html. Corbin , Arthur. “Discharge of Contracts.” The Yale Law Journal 22, no 7 (1913): 513-530. Evans, Don Alan. Texas Business Law.Gretna, Louisiana: Pelican Publishing Company, 1995. Gillies, Peter. Business Law 12 th edition. Sydney: The Federation Press, 2004. J. J. Spigelman A. C. “Contractual Interpretation: A Comparative Perspective”, A Paper Presented to the Third Judicial Seminar on Commercial Litigation (Sydney, 23 March 2011), 1-75. Middlemiss, S. “The psychological contract and implied contractual terms: synchronous or asynchronous models?” International Journal of Law and Management 53, no1 (2011): 32-50. Miller, Roger LeRoy & Gaylord A. Jentz, Cengage advantage books:business law today: the essentials.Mason, OH: Cengage Learning, 2011. Read More