Contracting parties frequently disagree over whether the contract has been finalised. Contract law deals with the problem of recognising the finalisation or completion of a contract through the concept of discharge. Discharge is the extinguishment or release of obligations under a contract, and thus a contract will effectively be completed for a contracting party if that party is discharged from any further obligations under the contract. Of course, that party may have certain rights under the contract if the other party has not fully discharged their contractual obligations.

Contractual obligations may be discharged by:

• performance;

• agreement;

• breach; and

• frustration.

Contracting parties may discharge their obligations primarily by performing the agreed terms of the contract. Disputes most commonly arise over whether the terms have been performed to the required level or standard, in the correct order or at the right time.

Generally, contractual obligations are indivisible and must be performed in exact compliance with the terms. However, courts have recognised exceptions to the general rule where:

• deviation from exact performance is trivial;

• the contract can be divided into several parts, each capable of performance independently of the others;

• there has been obstruction or partial performance; and

• there has been substantial performance, in which event a court may allow payment for work done even if partly defective.

Whether a contracting party needs to perform first will depend on a proper construction of the contract, although default rules exist that govern the order of performance. This may depend on whether contractual obligations are independent, dependent or concurrent. Principles governing the situations where performance of any particular contractual obligation depends on cooperation between the parties should also be noted.

The time for performance will depend on a proper construction of the contractual terms. However, where no time has been expressly agreed, default rules apply to determine the reasonableness of the time.

See Discharge by performance.

Parties may discharge their obligations by way of agreement. This may be done by providing for such agreement in the contract itself, such as an express term providing for termination upon breach by either party, or by way of a condition precedent or a condition subsequent. A condition precedent is a condition that must be fulfilled before one of the parties becomes subject to a contractual obligation, while a condition subsequent is a condition, being a future event upon the occurrence of which the parties agree to terminate their obligations and the relations created by the contract.

If parties effectively abandon their contractual obligations by failing to attend to performance over an inordinate length of time or by indicating a mutual lack of intention to perform, courts may consider this to amount to agreement to discharge.

Parties are also free to agree to discharge their obligations at any time after contracting. This may involve termination of the original contract, variation of the contract’s terms, or termination and substitution of a new contract. The new contract may be by way of a novation agreement or by merger. Particular principles apply in deciding whether any agreed variation, termination or new contract require consideration and writing to be valid. This in turn may depend on whether the contract is executory or executed. In the latter case, the recognition by a court of any new agreement may be dependent on whether it amounts to an accord and satisfaction, conditional accord and satisfaction or an accord executory.

Finally, note should be taken of the doctrine of waiver, which may apply in determining whether a party has lost their right to sue for breach of contract.

See Discharge by agreement.

Contractual obligations may be discharged when the contract is breached. This takes place when a party terminates due to breach by the other. However, whether termination is available or justified will depend on the circumstances and the nature of the breach.

Prima facie, termination will be an available option to a party where the other party has failed to perform the contract as agreed, or where they have repudiated the contract in the sense of manifesting an absence of readiness or willingness to perform as agreed. Discharge for breach, either of a general or specific kind, may be provided for in the original contract.

Otherwise it will be activated by a failure to perform, but only where the “innocent” (non-breaching) party elects to terminate because of the breach. Whether that party is entitled to terminate depends on the nature of the term that has been breached. This will in turn require satisfying the requirements of breach of a condition or a serious breach of an intermediate term. Breach of a warranty will generally not be sufficient to ground termination.

Breach of a time provision in a contract will generally be regarded as a breach of intermediate term at common law and under statute. The right to terminate for breach of a time provision will generally be available only where there has been at least a serious breach of intermediate term and a valid notice to complete has been served upon the party at fault.

This is true of intermediate or innominate terms generally. Depending on the severity of the breach, the in-nominate term is treated either as a warranty or as a condition.

A contract may be breached by its repudiation, which may take place in a variety of ways. Repudiation means one of the parties displays an unwillingness or inability to perform. Where notice in advance is given of repudiation, this may amount to anticipatory breach, which gives the innocent party the right to terminate immediately (subject to the restrictions on termination).

The act of termination must be clear and unequivocal and manifested by a conscious election. Both parties are thereafter discharged from further contractual obligations and the party not at fault may be able to sue for damages. However, regard should be had to situations where a party with a prima facie right to terminate for actual breach or repudiation may be precluded from terminating the contract.

Finally, a party that is aggrieved by termination and suffers the loss of property (such as a deposit on the purchase of land) may qualify for protection through the equitable doctrine of relief against forfeiture. This generally requires the terminating party to have acted in an unconscientious way.

See Discharge by breach.

Frustration means the contract is no longer capable of being performed as agreed because an intervening event outside of the parties’ control has rendered performance of the contract on its intended terms impossible or unjust in the circumstances. It requires evidence of an intervening event that significantly changes the nature of the outstanding obligations and rights that:

• was not caused by either of the contracting parties;

• was not anticipated by the contract or “reasonably contemplated” by the parties; and

• would render performance of the contract unjust in the circumstances.

Certain kinds of intervening events have been recognised by courts as amounting to frustration, although the objective circumstances will be decisive. The consequences of a frustrated contract will depend on whether the jurisdiction in which the contractual dispute is tried is governed by common law or statute.

See Discharge by frustration.