Topic 5 Discharge and Conclusion of a Contract

Topic 5 Discharge and Conclusion of a Contract - TOPIC 5...

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Readings: Arjunan & Majid, Business Law in Hong Kong , chap. 18. A contract is said to be ‘discharged’ or ‘concluded’ when it is brought to an end or dissolved or terminated. Four of the ways in which obligations under a contract can be terminated are: (1) by performance of the contract; (2) by agreement; (3) by the doctrine of frustration, and (4) by breach of the contract. Each of the foregoing is discussed in turn below. 1 Discharge by Performance By entering into a contract, each party acquires rights as well as obligations. Every contractual right carries with it a corresponding obligation. For instance, one party might want to purchase certain goods from a vendor who is willing to sell them at a given price . If the parties enter into a contract for the sale and purchase of the goods, the purchaser has the right to have the goods transferred to him upon payment of the agreed price and the obligation to pay for the goods. The vendor has the right to payment and the obligation to effect the transfer on receiving the agreed payment. When the seller delivers the goods in exchange for payment by the purchaser, each party has performed or discharged his obligations under the contract. There is nothing else left to do under the contract. The discharge or performance of the mutual obligations assumed by the parties under the contract discharges or terminates the contract. 2. Agreement Between Parties Obligations created by agreement may be extinguished by agreement between the parties. Such an agreement may be contained in the original contract or the parties may agree to release each other from the original agreement by entering into a subsequent agreement. If the parties enter into a subsequent agreement to extinguish the first, all the elements necessary to create a valid contract – agreement, consideration, intention and capacity – must be present. 3. Doctrine of Frustration The general rule is that if a party undertakes a contractual obligation, he is absolutely bound to do it. This is known as the absolute contract rule. Under this rule, if a subsequent event makes it impossible for a contracting party to perform his obligations, he is in breach of contract and liable in damages to the other party. The rule can be traced to the decision, in the seventeenth century, in Paradine v Jane (1647) Aleyn 26; 82 ER 897. The injustice of absolute contract rule was addressed by the doctrine of frustration. The doctrine of frustration holds that if, without fault of either party, after the formation of the contract and before it is due to be performed, there occurs some unforeseeable event (‘the frustrating event’) which so alters the circumstances in which the contract has to be performed as to make the contract impossible or illegal to perform or radically different from what the parties had contemplated when they made the contract, then the contract is at an end and the parties shall be relieved from further performance. 86
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This note was uploaded on 10/20/2010 for the course AFS abs002 taught by Professor Cat during the Summer '09 term at American Indian College.

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Topic 5 Discharge and Conclusion of a Contract - TOPIC 5...

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