Methods of Discharging Contracts: Conditions, Breach & Agreement

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  • 0:06 Contract Basics
  • 1:14 Methods of Contract Discharge
  • 4:12 Lesson Summary
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Lesson Transcript
Instructor: Kat Kadian-Baumeyer

Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.

For the most part, a contract is discharged or no longer valid once the promises of both parties have been fulfilled. A contract may be discharged because one party did not fulfill the promises or both parties agree that it's no longer necessary.

Contract Basics: A Quick Overview

A contract is a legally binding agreement between two or more parties that sets out certain agreed upon promises in exchange for something of value, like money.

There are six elements that make a contract valid:

  • An offeror
  • An offeree
  • Consideration
  • Capacity of all parties
  • Mutuality
  • Legal object

To simplify this, the offeror is the party that makes the proposal or offer to another person. The offeree accepts the offer to enter into the contract. Consideration is something of value given up by both parties as part of the agreement, like money or performance of promises.

Both parties must also have capacity, meaning each party to the contract must be 18 years of age or older, free of mental illness, intoxication or addiction. Mutuality means both parties agree to the terms of the contract of their own free will and without duress. And, of course, legal object of the contract is that terms must be legal and do not break any laws, policies or rules.

That sums up contract basics. Now, let's take a look at a few ways in which a contract ends.

Methods of Contract Discharge

Generally speaking, a contract remains valid until complete performance occurs. This means until the promises of the contract have been fulfilled.

Say you hired a painter to stain your outdoor deck. You offer him a certain amount of money to perform the job. He accepts and promises his best work to be completed in a certain amount of time. Once the deck is stained and you pay the worker, the contract ends. It is discharged.

There are times when the law allows for substantial performance to discharge a contract. This means most of the promises have been met with only a slight change or variance from the original terms.

Suppose the painter promised to complete the deck stain by July 15, but it rained for an entire week, making it impossible to complete the work until the following week. The court would look at this as substantial performance because although the painter was unable to complete the job on time due to the weather conditions, he was able to complete the task in a reasonable timeframe. It's that simple. But not every contract ends in two satisfied parties going their separate ways.

A breach of contract happens when one party fails to adhere to the terms of the contract without a legal reason to do so. This is the most popular type of case in civil courts. A breach that affects the entire agreement is a material breach and involves changes in details of the contract that change the main agreements in the contract. Had the painter never showed up to stain the deck or showed up and started the work but never completed it, it would represent a material breach because it had a serious impact on the promise.

Sometimes, the breach is not that complicated. In these instances, it's called a non-material breach and only involves smaller details of the contract that do not affect the overall contract between the parties. Generally, a court will force performance on the breaching party.

Say the painter fell on a banana peel the night before starting the job. If he asks his nephew, also a professional, to step in and stain the deck, the contract promises remain intact. The only change is the painter.

It is important to know that when there is a breach of contract, the courts have a right to require specific performance by the breaching party. This means the breaching party will be legally forced to keep up his end of the promises in the contract exactly as stated in the original agreement. This is a way to make a non-breaching party whole again without forcing compensation for the loss.

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