Chapter 11: Discharge & Breach of Contract
How Contracts Come to an End?
• Some contracts end in avoidance or rescission (Chapters 9-10).
• Most contracts end in discharge.
• A contract is discharged when parties are relieved of the need to do anything more.
• Grounds for discharge:
o Performance: parties have fulfilled all of their obligations.
o Agreement: parties agree to terminate the contract.
o Operation of Law: either statute or common law.
o Breach: where one party does not perform as promised.
Discharge by Performance (Pg.251)
• Performance = fulfillment of obligations.
• Time of performance: time is usually NOT of the essence (damages for lateness).
• Tender of payment:
o General rule: creditor can insist on legal tender.
o Debtor has primary obligation to locate creditor and tender payment.
o Reasonable tender needs to be made only once.
o Interest will not accrue on a payment once reasonable tender has been made.
o If creditor indicates that it intends to reject, debtor does not have to make the
• Payment by debit card:
o a plastic card that allows a person to debt or to withdraw funds from a bank
o payment is final.
• Payment by credit card:
o It operates by allowing the cardholder to obtain credit, or a loan, for the purpose
of paying for goods or services.
• Payment by Cheque:
o Payment by cheque conditionally discharges a contractual debt.
• Tender of Performance:
o Tender will be effective only if it conforms precisely to the terms of the contract.
o Substantial performance is sufficient.
If debit card is stolen, the cardholder is liable. If they didn’t do anything wrong, the bank
If stated in the contract that they can pay in pennies than that is fine. Other than that,
they can choose not to accept it. E.g. you buy a car and require it on Monday. The car was delivered on a Friday. Since
you didn’t have the car that was promised to you, you had to take a taxi, bus, etc. You
can sue for the expenses but you cannot sue because they delivered the car late.
o Should state that time is important in the contract so if the delivery is late, you
don’t have to pay for it because it is no use to you now.
Discharge by Agreement (Pg. 258)
• Parties may agree to discharge contract:
o Option to terminate (clause in agreement)
o Condition precedent or subsequent
o Accord and satisfaction
• Option to terminate – unilateral right to discharge:
o Option inserted into contract at outset;
o One party allowed to terminate contract;
o Often subject to restrictions (e.g. employment contract – reasonable notice).
• Conditional contract – the parties agree that contract is affected by event:
o Condition subsequent: a contractual term stating that the agreement will end if
a certain event occurs.
o True condition precedent: contract exists only if a certain event occurs.
Rescission by the Parties (Pg. 260)
• Rescission = agreement to terminate:
o Arises after contract created;
o Distinguish rescinded contract (Chapter 9).
• Consideration is required for enforcement.
• Executory contract = where the party obliged has not fulfilled his/her expectations.
• Executed contract = where parties have fully performed their obligations.
• If contract is executory on both sides, it can be discharged by rescission, which is the
parties agreement to bring contract to an end. Consideration is provided (each party
gives up right to other’s performance).
• If contract is executed – difficulty with consideration.
Cannot use rescission if one party already fulfilled their obligation. Accord and Satisfaction (Pg. 260)
• Accord = new agreement.
• Satisfaction = new consideration.
• Used to discharge obligations where one party has fully performed under the contract:
o Executed party gives up right to full performance;
o Executory party gives new consideration.
Release (Pg. 261)
• Release = discharge under seal.
• If the parties wish to discharge a contract and there is no fresh consideration, this must
be done under seal.
• The contract is enforceable.
Variation and Novation (Pg. 261)
• Variation is used for small changes to an existing contract and technically requires
consideration (each party gives up right to original performance).
• Novation = replacement of old contract with new.
• Novation applies where there are substantial changes that go to the root of the
• It may involve different obligations for the same parties,