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In some of these ways, other rights and liabilities may arise in place of those under the original contract; but that contract is absolutely at an end, subject to certain exceptions referred to hereafter.
Discharge of Contract by Agreement.
There are three ways by which an agreement can discharge
(a) By substitution of a fresh agreement for the original. (b) By simple agreement to rescind before breach.
(c) By release after breach.
If the original contract was under seal, the release must be by deed; and, in other cases also, unless supported by valuable consideration, the release of a cause of action already accrued must be by deed. But, if consideration is given, a parol release is effective by way of accord and satisfaction (see under PERFORMANCE). Ordinarily, a release of one of several joint debtors releases all; similarly, a release by one of several creditors to one contract is good against all, but the courts will look to the intention of the parties.
A contract may contain the elements of its own discharge. For instance, it is deemed to be discharged by agreement when it is terminated by the occurrence of an event on the happening of which it had previously been agreed that all rights and liabilities thereunder should cease, e.g., in the case of an ordinary bond. For instance, A binds himself by deed to pay B £500, but if he does a certain act the bond is to be void. Upon the performance of the act the contract comes to an end-A and B are freed from one another.
In the case of bills of exchange and promissory notes no consideration is required for their cancellation.
Another method of performance may be mutually agreed to be substituted for the original one and, if carried out, it is a satisfaction of the contract. For instance, a creditor agrees to accept services for money and the services are rendered; then the contract is discharged by accord and satisfaction. It is possible for such a substituted agreement to be a good accord and satisfaction. even if unperformed, providing the creditor had accepted the new contract in discharge of the original liability. He would, of course, have his remedy for breach of the new agreement.
Discharge of Contract by Performance.
Performance is the fulfilment of the terms of a contract according to their real effect. The parties have the right to demand performance and, on the other hand, must perform their part. Where a time limit is fixed for performance, that time must be observed. If no time is fixed, there is an implied undertaking that it shall be performed within a reasonable time.
If one party has a debt due by him to the other, he may set against it any sum due to him by that other party and so reduce or extinguish the other's claim. This is known as set-off. But only liquidated amounts may be set-off, and they must be debts between the same parties and in the same right. Claims that do not fall under this head may, nevertheless, as a rule be made the subject of a counter-claim on an action being brought. Liquidated amounts, and likewise "liquidated damages," are moneys which are capable of ascertainment with precision.
Payment. One of the principal methods of performance is payment, which is the handing over of money or of a negotiable instrument. Payment may be either absolute or conditional. If legal tender or a bill be accepted in payment, the satisfaction is absolute. If, however, the bill be taken subject to its being honoured, the payment is conditional. It is not necessary for the creditor to demand payment; the debtor must, in the absence of contrary agreement, seek him out on the due date and offer to pay. If, however, it is otherwise agreed, then the debtor, on demand being made, is entitled to time to enable him to fetch the money. If the agreement is to pay a sum of money, it is not performed by a mere readiness to pay; there must be an actual offer. If the tender is to perform an act, if that tender is not accepted the contract is thereby discharged. The tender of the money does not, however, operate as a discharge of the contract; but, if it is not accepted, the debtor should pay the money into court, if proceedings are taken against him, and plead tender. Then if the creditor recovers no more than the amount tendered he has to pay the debtor's costs. The full amount must be tendered and without any condition being attached; but if a tender be made "under protest," it will reserve the right to dispute the amount. Further, the exact amount must be tendered, as the creditor cannot be compelled to give change.
Legal Tender.-Tender must be what is known as legal tender, that is
(a) Gold coin of the realm up to any amount; silver up to forty shillings; and copper up to one shilling, under the Coinage Act, 1870.
(b) Bank of England Notes (in England), except by the Bank
itself, for all sums above £5, under the Bank of England Act, 1833.
(c) Treasury Notes for one pound and ten shillings to the same extent as sovereigns and half-sovereigns, by the Currency and Bank Notes Act, 1914.
Of course it is open to the creditor to waive as is usually done-any of the rights above referred to, and the courts will infer on very slender evidence that he has done so.
How payment should be made.-Payment should be made as directed by the creditor and, if so made, the debtor is not liable if the money is lost as, for instance, if the creditor directed payment to be made to a certain bank, and after the debtor had paid in the amount the bank failed, the debt would be discharged. The debtor would, in effect, have paid the creditor himself. If the creditor, expressly or impliedly, authorises the use of the post for making payments the debtor is safe in following that course, and then, if the money is lost in transit and never reaches the creditor, this will amount to payment. But unless there is such authority at any rate implied-the debtor will have to pay again if the money is lost. Even if authorised, however, it is assumed that ordinary precautions will be taken such as a prudent business man would take. In Pennington v. Crossley (1897), a merchant in Bradford had for many years sent cheques to a merchant in Halifax. At last one was stolen, the endorsement forged and the cheque cashed by a stranger. It was decided by the Court of Appeal that a direction to send through the post will not be inferred solely from the fact of the debtor having for many years been in the habit of making payments by cheque in that way.
A payment must be accepted according to the stated wishes of the payer and, if a payment be made under express conditions, the creditor will, as a rule, be estopped from repudiating the terms upon which payment was made; but it was held in Day v. McLea, cited before, (e) that, where a cheque was sent "in full payment of all demands" and accepted on account," whether or not it was a full payment was a question of fact and that there was no presumption of law adverse to the creditor.
If a debtor should authorise a third party to pay the creditor and the creditor agreed to special terms with the third party and the money thereby was lost, the payment would be complete ; and the payment of a less amount by a third party was held, in Hirachand Punamchand v. Temple (1911), to discharge a debt. Should a third party pay for the debtor, the debtor must either authorise or ratify the act, otherwise the money could be repaid to the third party and the original debt revived; but such authorisation or ratification may be implied from the facts.
(e) See ante, p. 23.
A bill of exchange or other negotiable security may operate as payment, but it is presumed to be conditional and upon dishonour the original remedy revives, unless the instrument is in the hands of a third person for value. The creditor may sue either on the instrument or on the original debt. If, before such an instrument is due for payment, the debtor commits an act of bankruptcy, the original remedy revives. Should, however, the creditor prefer a bill when offered cash, the payment is absolute and the creditor can only sue on the bill. So also if a bill has been taken and it becomes valueless by the negligence of the creditor, e.g., if when it is dishonoured he fails to give the proper notice of dishonour and the drawer and indorsers are thereby released, the payment is absolute.
Payment must be made to the creditor or his agent. If made to the agent, it must be in and according to the usual course of business and also before the principal gives notice that he requires payment to be made to himself; but in this case, however, if the agent has a lien on goods payment may still be made to him, e.g., a factor.
Giving of Receipts.—It is usual for a receipt to be given on the payment of money and, where a receipt is given if the amount is £2 or over, it must bear a twopenny stamp affixed at the time of signing, otherwise the receipt is valueless. If the creditor should refuse to stamp the receipt or should fail or refuse to give a receipt where a receipt would be liable to stamp duty, or in any way attempt to evade the stamp duty, he is liable to a fine of £10. But it would appear that no receipt can be demanded for a payment of under £2. If the receipt should not be stamped at the time of giving, it may be stamped afterwards by impressed stamp on payment of certain penalties, but in no case after a month from the date of payment. Certain payments are exempt from stamp duty on the receipt, i.e., for taxes, or for payment of seamen's wages.
Appropriation of Payments.-A rather important matter is the rule as to appropriation of payments. If a debtor owes several debts to one creditor and makes payment of a sum not sufficient to satisfy the whole amount owing, the money paid is appropriated, according to what is known as the rule in Clayton's Case (1816), as follows
(a) To whichever debt the debtor desires, provided he exercises his option at the time of payment. (b) If he makes no election, the creditor may do so at any time.
(c) If both fail to do so, the law considers the payment to be in respect of that actionable contract or debt which is
earliest in point of date, commencing with the liquidation of any interest that may be due.
If the party to whom money is offered does not agree to apply it according to the expressed will of the party offering it, he must refuse it and stand upon the rights which the law affords him. When the debtor has made no appropriation, after having had the opportunity of doing so, the creditor may appropriate. Therefore, if money belonging to the debtor should come into the hands of the creditor, as happened in Waller v. Lacey (1840), the debtor must first have knowledge of it before the creditor can appropriate to any particular debt. When the creditor has made a particular appropriation he can, at any time afterwards, alter his intention unless he has disclosed the account. He can appropriate to either a specialty or simple contract debt or even to a debt barred by the Statute of Limitations. Where, under this rule, he appropriates to a debt barred by the Statute of Limitations, this does not revive the right to sue for any balance of such debt.
In the case of a general running account between the parties, e.g., a banking account, the presumption is that payments extinguish the earlier items of debt, but a particular mode of dealing, or any stipulation between the parties, may entirely alter the case.
It was held in Re Hallett's Estate (1880) that the rule in Clayton's Case will not be applied against a cestui que trust where a trustee has mixed trust money with his own moneys in his banking account, and it is therefore presumed that in drawing from the account he drew his own money first and not the trust money.
Payment of Interest.—It is a general rule that interest on a debt cannot be claimed by the creditor unless, in the contract from which the debt arises, it has been provided that interest shall be payable. This rule is, however, subject to a few exceptions, and, even without an agreement to pay interest, it will be allowed in the following cases:
(a) Where allowed by usage of the particular trade
(b) On money due on awards and payable on a certain day, if properly demanded
(e) On a bond with a penalty
(d) On money paid by a surety against the principal
(e) On money obtained or retained by fraud
virtue of a written instrument; or, if payable other-