A contract is discharged when the obligations thereunder are in some way extinguished, so that no liability on the contract furthermore exists.
Having considered the formation of contracts, and its operation, we may now consider how it shall be discharged, that is to say, how its obligation shall be extinguished. Assuming, then, that a contract has been entered into, and binds the parties, let us consider how it may come about that a party thereto may claim that his obligations thereunder are gone. This discharge may arise in a number of ways. Naturally we think first of discharge by performance, for the performance was the purpose of the contract. But there are a number of other means. We may state them here and then consider them separately. Discharge of contract may arise (a) by performance; (b) by tender of performance; (c) by breach; (d) by impossibility of performance; (e) by alteration of a written instrument; (f) by agreement; (g) by operation of law, as by bankruptcy.
Generally speaking, only literal compliance with the terms of a contract will operate to discharge it. Yet in some contracts, where details are numerous and complex, and there is substantial compliance in good faith, this will be a discharge.
As a general rule it may be stated that a contract must be strictly performed according to its terms, and such performance certainly will always operate as a discharge, thus constituting a good cause of action for the party performing if he brings suit, or a good defense if he is sued. For where one engages with another that he will supply certain goods or perform certain services, he cannot claim that he has performed until those very goods have been supplied, at the time and place and in the manner stipulated, or that those services have been rendered as agreed upon. Yet the modern decisions allow one in many cases to aver a substantial performance made by him in good faith, that is to say, in an attempt to perform literally, in order to bring suit upon the contract, or defend against a charge of breaking his contract, allowing an amount from the contract price to compensate the other party for the slight defect. Thus, in a building contract, the building contractor may sue to recover the contract price if he has in all things substantially though not literally complied.171 But a sum will be deducted from such contract price to the extent necessary to make the building entirely conform to the plans. This rule is considered more just, as it allows one to sue for the price which is due according to his contract and permits the other to have a reduction on account of the departure. Under this rule there cannot be any material departure and the departure must not have been purposeful.
171. Fitzgerald v. La Porte, 64 Ark. 34
Occasionally one in his zeal to make a bargain, or because he has so great faith in his skill, undertakes to perform his contract to the other's "satisfaction." Suppose then that the other says that he is not satisfied; is this final? The terms of the contract so indicate. Yet most courts make a distinction. Where the contract is to furnish something that chiefly appeals to one's fancy or personal taste and is entered into for the purpose of pleasing that personal taste and fancy, then one can say finally without respect to the merits of the performance that he is not satisfied. This is true where one orders a suit of clothes, a portrait, a bust, or other work of art.172 Bear in mind, however, that even in such a case there must have been an agreement to perform to one's satisfaction. Otherwise, even in such cases, one would have no right to be dissatisfied where, judged as a reasonable man, he ought to be satisfied.
Where one claims he is not satisfied, he cannot at the same time accept and retain the goods.
But in cases where the element of personal taste and fancy does not enter, he cannot assert breach where the performance is such that a reasonable man ought to be satisfied. If a reasonable man ought to be satisfied, as determined by the jury, the court will say that this particular man is satisfied. This is true of all contracts whose performance involves mechanical execution, such as grading a dock, putting in a furnace, etc.173
172. Brown v. Foster, 113 Mass. 136.
173. Duplex Safety Boiler Co. v. Garden, 101 N. Y. 387.
A performance is not even substantial and in good faith, or, if there is no performance, this constitutes breach, unless - 1st, - there is impossibility of performance in those cases where that will discharge, or unless 2nd, - there is acceptance of the incomplete performance in lieu of full performance, or, unless 3rd, - there is some other mode of discharge which excuses performance.
If the performance is not even substantial in the manner that has been discussed, then the party alleging performance must either admit breach, or else rely on some fact that discharges contract besides performance, or else he must show, that although the performance was defective, nevertheless it had been received and accepted as full performance.