Discharge Of Contract: Performance, Substituted Agreement, Lapse Of Time, Impossibility And Breach

Discharge by performance

Discharge of a contract refers to the termination of a contract that subsisted between parties. Where a contract no longer operates or is being performed, the parties are said to have been discharged from their obligations under the contract (Lim, 2013).

Discharge of contract occurs in different ways as discussed below.

Where the contracting parties have carried out all their obligations in the contract agreement, the contract stands discharged through performance. No liability remains and the parties are freed from the contract.

Where an earlier contractual agreement is abandoned, its terms altered or amended, the parties stand discharged from their obligations in the contract.

For instance, if two parties enter into an agreement, and one party has decided to change his mind and no longer interested in carrying out his part of the contract, he can approach the other party and state that he is no longer interested and that he would like to be released from the liabilities under the contract. If the parties then agree, the stands discharged through a bilateral agreement (Xavier, 1998).

Discharge through agreement arises in circumstances such as;

Novation – Novation refers to the act of substituting an initial contract with a new one. The parties to the substituted contract can either be totally new or those of the initial contract. Novation only occurs after agreement by all parties, and the agreement must be legally binding and no reference is made to the original contract

Rescission – Rescission is the cancellation of a substantive or all the terms of a contract. It is done by mutual agreement between the parties. The mutual agreement therefore discharges the obligations of the parties arising from the contract.

Alteration – Alteration refers to the change in the terms of a contract with the parties consent. The alteration yields a new contract with the same parties.

Waiver – Waiver occurs where a party gives away or abandon a right under a contract which in turn releases him or her from the obligations arising from the contract.

Discharge of a contract occurs if the terms of the said contract are not enforced within a specified period of time. Various contracts have specified limits within which they have to enforced. For instance, enforcing a right to recover immovable property is limited to 12 years and that of recovering a debt is three years. Contracts therefore become unenforceable after the lapse of a specified period (Lim, 2013).

If for instance a contract of a debt owed exists between person A and B, B’s limitation period is only 3 years. After the lapse of the third year, the parties are discharged from their obligations under the contract. The debtor – creditor relationship cease to exist.  The debt becomes time barred and cannot therefore be recovered through institution of legal process.

A contract can be discharged after establishment if something material occurs which renders the contract illegal, impossible to perform or totally different from the intention of the parties to the contract.

Discharge through a Substituted Agreement

(Xavier, 1998), for a contract to be discharged through impossibility of being performed, the change must not have been caused by either party, was not foreseeable and it totally destroys the basis of the contract.

A contract is said to have been breached where one or all the parties fails to undertake and perform their respective parts in the contract agreement. Failure to perform the contract by either party renders such contract defective. However, a breach does not necessarily lead to the termination of a contract per se. it gives the innocent party, the party not in default the right to terminate the contract on the basis the breach by the other party.

The innocent party has the right to elect whether to terminate the contract or to continue performance the breach notwithstanding. A decision taken by the innocent party on the fate of the contract is irrevocable.

Breach can either be actual or anticipatory. A breach is said to be actual when it occurs on the date when the contract was supposed to be performed while anticipatory is that breach occurring before the appointed date of performance.

Where a contract which has been entered into between parties is personal in character or it involves the use or exercise of personal skill or knowledge, the demise of a party through death discharge and terminate the contract Tan, 1991).

For instance, if person A promises person B to deliver certain goods on a specific day and unfortunately person A dies before the appointed day, the contract stands terminated. The parties are said to have been discharged through death. A’s personal representatives or B in that case cannot therefore purport to continue the performance of the contract.  

Ahmad Mira

76 kg Sg Ramal Luar

Selangor

Malaysia 

Afiq Ain

43000 Kajang

Ipoh

Malaysia.

Dear Sir,

RE: NOTICE OF DEFAULT

We bring to your attention that you have breached clause 25.1 of the PAM Standard conditions of Contract, 2006 particularly clause 25.1 (b) as you have without any reasonable cause suspended the works for no genuine cause.

Take notice that if you continue with the said default after fourteen (14) days upon service of this notice to yourself, we shall be constrained to take further action against you including but not limited to the determination of your employment under the contract.

Be advised accordingly.

Sincerely,

Ahmad Mira – For Employer 

Rights and Liabilities of the Contractor

A liability refers to a duty or responsibility imposed on an individual by law or through a contract (Tan, 1991).

The contractor therefore has the following duties under the contract;

The contractor has the duty to undertake works with the required standard of care or skill or as commonly stated ‘in a manner that is workmanship’ and which any other contractor working under similar circumstances would have done work of same quality.

A contractor is under a duty to employ and use materials of good quality. In most cases, contractors do the purchase of materials they would use in the works (Lim, 2013). They are required to purchase those of good quality and not the cheapest in the market so as to put other monies in their personal use.

Discharge by lapse of time

Where the terms of the contract does not expressly prohibit, a contractor has a duty that the workmanship and materials are reasonably fit for building purposes. The terms of the contract may at times specify the type and quality of material required but where it is silent, the materials should be fit for purpose.

A contractor is obligated to comply with all the instructions given to him by the architect. He should work diligently and regularly when the work subsists.

A contractor just as any other person in employment has rights and obligations owed to him by the employer.

A contractor has the right to timely, commensurate and fair remuneration. The payment to a contractor should not be delayed arbitrarily or be withheld without any due course. He has a right to receive the said payment promptly (Xavier, 1998).

A contractor has a right to take action to enforce the payment of a debt owed to him by the employer. Such action may include a court case or arbitration depending with the terms of the contract.

A contractor has a right to work in an environment that is fit and safe. The place of work should be well secured so that work is not interrupted through fear of insecurity.

Assuming that I was the contractor, first, I would not withhold the contractor’s payment. The contractual agreement does not allow for withholding payment meant for the contractor for works he has undertaken. When, as a contractor and circumstances have changed such that payment would be delayed, I would consult and inform the contractor of the said changes and make a commitment on the time when such payment would be completed. Such period however shall not be unreasonable in the circumstances.

On the part of the contractor, I would have enquired from the employer why payment was not effected during the first payment certificate. I would then proceed especially after failure to pay during the second payment certificate to give a notice to the employer to give a detailed explanation why payment has been withheld and where the employer fails to respond, I would exercise my options under the contract either to stop works, sue for payment of outstanding salaries or refer the matter to an arbitration tribunal.

D (i) where the contractor has submitted a notice to suspend work

The contractor was within his rights to notify the contractor of his intention to suspend the works. However, such notice should be given at least fourteen days before a suspension is effected. (Xavier, 1998), clause 26.2 requires the  notice to be served on the employer though hand delivery or registered post to ensure that he receives the communication contained therein.

The fourteen day period given in the notice is to enable the employer remedy the breach by either paying the monies owed to the contractor in full, partially, or for registering consent on the period and/or methodology of offsetting the outstanding payments owed to the contractor.

Where no response is received from the employer after the lapse of fourteen days after receipt of the notice to suspend works, a widow of about 10 days is given and within those 10 days give the employer another written notice delivered to him by hand or registered post the contents of which determines the contract between the parties (Lim, 2013). The contractor should follow the procedure stated under clause 26.2 of the PAM Conditions in determining the contract. A single notice was not sufficient in the circumstances.

Discharge through Impossibility of Performance

(ii) the contractor working at a much slower pace and reducing resources

Clause 23.6 of the PAM Standard Conditions for contract requires contractors to strive and use all methods within their possession to reduce delay of works. The contractor by continuing works but on a slow pace is in contravention of the aforementioned clause. Though the breach is on the part of the employer, slowing works is not necessary in the circumstances. Instead, he should pursue the determination of the contract. Non-payment of dues is a matter that materially affects the regular progress of works. Such matter when not remedied in time is enough ground for the contractor to determine the contract so that he is discharged from the contract instead of delaying works.

(iii) that the determination is valid since the employer had breach the contract first

The determination by the contractor is invalid. The act of the employer committing the breach first does not justify a determination of the contract with total disregard to the rules of determination set out under clause 26.2 of the PAM Standard Conditions of Contract.

The contractor had to follow the procedure, such breach by the employer notwithstanding. The determination is therefore invalid and cannot be enforced against the employer.

The contractor was under an obligation to give notice of intention to stop works if payment is not effected. Such notice as required by law was to be written and delivered to the employer by hand or through registered post, giving the employer fourteen days from the date of receipt of the notice to remedy the breach or a determination of the employment be determined upon the expiry of the said period (Thian, 2011).

Failure to follow those steps is a breach of the laid down rules and the contractor’s claim is unfounded, bad in law and unenforceable.

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