TOPIC 5

DISCHARGE OF A CONTRACT
 TERMINATION/DISCHARGE OF CONTRACTS
• A contract imposes certain obligations on the part of the two parties.
• These obligations may be discharged (got rid of) in the following events;
which are normal means of termination:
1. By Performance: If both parties fulfil their obligations, the contract
naturally comes to an end. If only one of the parties fulfils his
obligations and the other party does not, the party who fulfilled his
obligations can sue. This right to sue can be waived by a fresh
agreement
i.e the contract has served its purpose
E.G A sale is completed by the delivery of the goods by the seller and the
payment of the price by the buyer.
• Some obligations can only be performed at a particular place. However,
parties may expressly or impliedly agree on a place for performance
• A debtor who fails to perform in time where a definite time for payment
has been fixed is in Mora.
• Performance must be made by a person competent to deliver .e.g a
famous opera singer cannot perform by sending somebody to sing for
her.
• There are contracts, however, in which it is a matter of indifference to the
creditor whether performance(especially if it is payment of money) is
made by the debtor or his agent or even a stranger
• Payment to the right person is as important as payment by the right
person.
• Performance by one party is conditional on performance by the other. E.g
for a cash sale, the intention is that the seller should deliver and the
buyer should pay at the same time-concurrent delivery/dependent
condition.
• On the otherhand, in a contract to perform work-the work must be
performed before payment can be claimed; the reciprocity is then
described as consecutive
• It is a general rule in bilateral contracts that both parties have
obligations, as opposed to unilateral contract where only one of the
parties has any obligations.
• The principle of quantum meruit-the party who has done incomplete or
defective performance is liable to some amount(it may not be a full
amount but a fair amount, Unless the contract has been specified as “all
or nothing contract”
2. By Agreement: A contract comes into existence by mutual agreement. In
the same way, it can also be ended by mutual agreement before performance
has begun or restore what has been delivered in part performance, unless the
parties agree to the contrary.
The parties already in a contract may agree to replace their existing contract
with a new one. The old contract falls away and the parties rights and duties
are governed by the new contract and its fresh obligations
Two parties may enter into a compromise to avoid the inconvenience and
expense of litigation, or to put to an end any uncertainty with respect to
their rights and obligations
If any one party has any obligations to perform, then release by the other
discharges him from further performance
A mutual release brings the contract to an end.e.g if a seller and a buyer of
a motor vehicle agreed to cancel its sale, each party tacitly agrees to restore
whatever he has received in terms of the contract
3. By Operation of Law:
A contract may be discharged in certain events by the operation of the law, E.G
declared bankrupt; business run by an individual taken over by the government
(nationalised).
IN SOME EVENTS, IT MAY BE DISCHARGED ON ACCOUNTS OF IMPOSSIBILITY OF
PERFORMANCE
• In a contract, a party voluntarily, of his own free will, binds himself to do or not to do
something. Later on, he cannot escape liability by pleading that performance is
impossible or useless. As a reasonable man, he should guard himself against all
future contingencies by inserting a clause in the contract about these possibilities.
• CASE: Bloemfontein Municipality vs Adler
• NB: HOWEVER, The general rule of impossibility is modified by the doctrine of
Frustration or the doctrine of implied term
• According to this rule, the courts will add a clause to the contract discharging the
parties of their contractual liabilities if the foundation of the contract is destroyed by
the events that have happened. Such a term will be implied in the following
circumstances.
1. Destruction of the subject matter of the contract.
• A contract can become impossible to perform due to a supervening
impossibility
• Must be a result of vis major (an act of God/superior power) or causus
fortuitous(unfortunate event);exceptional, unforeseen and uncontrollable
event e.g a building by earthquake, Tsunami,flooding etc
• CASE: Taylor vs Cadwell
• Law treats supervening impossibility in the same way as initial
impossibility
• In what case would a contract of employment be discharged under
SI??????
• Effects of supervening impossibility; contract terminates without liability
on anyone of the parties for breach of contract
The following don’t qualify as supervening impossibility
• Subjective impossibility-impossible to you only.E.G Inability to raise
money to pay for a car price
• Speculative contracts-based on estimation/no human foresight could
have foreseen, thus performance might prove impossible
• A deliberate or negligent act of one of the parties e.g setting own house
on fire contracted to be used for dance before the date of the dance
cannot be seen as impossibility
• Temporary impossibility-does not discharge the contract by operation of
law, but entitles either party to cancel the contract, without liability to
each other if the impossibility continues for an unreasonably long time.
• Unprofitability does not amount to impossibility
• 2. Where performance becomes illegal due to an amendment or due to a
new law.
• 3. Non-existence or non-occurrence of a particular event forming the
basis of the contract.
CASE Knell vs Henry.
4. Incapacity of personal services. Where the contract is for the
performance of personal services and if this becomes impossible due to ill
health or death, the contract is automatically discharged.
• 5. Discontinuance of a fundamental state of things: Discontinuance of
peace and declaration of war between countries may cause contracts to
be discharged.
 CONTRACTS OF UTMOST GOOD FAITH-UBERRIMAI
FIDEI
• In contracts we have discussed so far, the duty imposed on the parties is
a negative duty, i.e. not to use fraud or deceit to induce the other party to
enter into the contract.
• In contacts of uberrimae fidei there is a positive duty on all parties to
disclose all the facts that can affect the contract. In this type of contract
one party has knowledge of all material facts which affect the contract,
and which facts are not available to the other party.
• The party who has this information must truthfully and honestly disclose
all those facts to the other party. If there is non-disclosure, the other
party can set aside the contract
• Insurance contracts fall under this category. Also contracts of sale of
shares in companies.
 TERMINATION BY BREACH
• Breach of contract means to break a contract
Obligations imposed by the terms of a contract are meant to be performed,
and a breach of contract occurs when any of the following happen:
Delay (Mora)
Defective/incomplete performance
Non-performance
REMEDIES FOR BREACH OF CONTRACT
1. ORDINARY DAMAGES
• An amount of money which the defaulting party is ordered to pay to the
innocent party in order to put him in a position that he would have been if
the contract was properly performed.
• The damages awarded will only be NOMINAL (small sum of token money),
say one Loti if the plaintiff cannot prove that he suffered financial losses
as a result of the breach of the contract.
• The loss to which the innocent party is entitled to compensation must be
monetary (financial loss) e.g expenditure or liability incurred, gain or
profit not made
• Under the law of contract, no damages are awarded for sentimental loss,
injured feelings, discomfort, pain etc
• The loss must result from breach-there has to be a causal link between
the breach and the loss suffered
• E.G If A agrees to sell B one tonne of beans for M100, and the value of
beans in the open market is M150 per tonne, B’s loss is M50 if the beans
are not delivered. This loss is direct and natural result of A’s breach of
contract
• Thus, losses which flow naturally, in the course of things, from the
breach of the contract are taken as general damages
• To avoid difficulty of claiming damages in court, the parties at the time of
the contract agree on the sum of money that is to be paid to the innocent
party in the event of breach.
• Such a provision is valid and enforceable
2. SPECIAL DAMAGES
• Special damages will be awarded as a result of special circumstances
known to the parties at the time they made the contract
• They are losses which, although did not flow naturally from the breach,
were reasonably supposed to have been within the contemplation of the
parties when the contract was entered into
• E.G A agreeing to repair B’s tractor, and B making him aware that should
he delay, he would not be able to harvest his crops in time and would
suffer financial loss.
• A causing unnecessary delay broke the contract. The loss of the crops
was not a natural result but because A knew of the special circumstances
at the time of the contract, he is liable for the loss.
• CASE: Victoria Falls and Transvaal Power Co. Ltd. vs Consolidated
Langlaagte Mines Ltd.
3. QUANTUM MERUIT
• Where part of the work in the contract has been completed by the time
the breach occurs quantum meruit can be claimed.
• Quantum meruit is a reasonable payment for what has been done.
4. INTERDICTS
• An interdict is an order of the court prohibiting a person from doing
something.
• An order of court which is issued to prevent a breach or threatened
breach of contract
CASE: Lumley vs Warner Bros
CASE: Warner Brothers vs Nelson
5. SPECIFIC PERFORMANCE
• Specific performance is the court order requiring somebody to do some
specific thing according to the contractual terms.
• The court may compel the defaulting party to perform a specified act or to
pay money in pursuance of a contractual obligation
• It is a discretionary remedy, which means that a court of law exercises its
judgement on whether specific performance should be ordered or not
Thus, Specific performance will not be granted by the courts where
• Damages are sufficient
• The court cannot supervise the execution of the contract
• The contract is fair, certain and just
• The contract is for special services such as those of an artist or singer,
• CASE: Farmers Cooperative Society vs Berry
• CASE: Haynes vs King Williams Town Municipality
• NB: Where specific performance cannot be granted, remedy is an action for
damages
Where a contract does not contain a forfeiture clause, it may only be
terminated where there has been either;
o Repudiation or,
o There has been breach of a term that goes to the root or foundation of the
contract.
NB: Cancellation is a drastic remedy which the law allows only when the
breach is sufficiently serious to warrant it.
Operation of a forfeiture clause, delay when time is of essence, a material
breach of a vital term and repudiation all entitle the other party to cancel the
contract.