198.

CHAPTER XVII.

DISCHARGE BY PERFORMANCE.

Performance.-When a contract has been fully performed by both sides and according to its terms, it is thereby discharged. Similarly, where a promise is given upon an executed consideration, performance by the promisor discharges the contract, for all has been done on both sides that could be required to be done under the contract. But where the contract is executory, that is, where one promise is given in consideration of another, performance of his promise by A does not discharge the contract, although it may discharge him from further liability. The contract is still in existence.*

46

It is well to distinguish between performance and discharge, in that while performance is a mode of. discharge, discharge is not performance.

Furthermore, discharge by performance is to be distinguished from discharge by breach of performance. Thus, A and B by performance discharge their contract. But if A performs and B does not, B has broken the contract by failure to perform. Although as suggested, A may be excused from further performance, the contract is not necessarily discharged. A right of action arises, which is treated in a subsequent chapter.

199. Payment.-Payment is a common mode of

46 Anson, Contracts (Huffcut 's 2d ed.), § 36.

discharging a contract by performance. Thus, the contract may contemplate the payment of a certain sum at a specified time. Payment of that sum at that time will discharge the obligation and will constitute a performance of the contract, whether as the performance of an original or of a substituted contract.

Substituted performance. If in an agreement between A and B, the liability of B consists in the payment of a sum of money in a certain way or at a certain time, a payment in that way and at that time discharges B. Or, if B, who is liable under a contract to perform various acts, wishes to pay a sum of money, or, having to pay a sum, wishes to pay it at different times, A's agreement to B's wishes will create a new contract, which discharges the original agreement. Then, payment is a performance of B's duties under the new contract, and, for him, a consequent discharge.48 This is substituted performance.

Conditional performance. When a negotiable instrument is given in payment of a contract claim, or in satisfaction of a breach, if the parties agree that it shall be a discharge of the existing liabilities, the note alone may be sued on. Whether or not such an instrument is always taken as absolute payment, is a question of the intent of the parties. The presumption, in absence of proof to the contrary, is that the instrument is taken as a conditional payment. Then the rules of accord and satisfaction apply; that is, a suit may be filed on the contract, unless the note is paid.49 A distinction is made between notes given

47 Marvin v. Vedder, 5 Cow. 671 (N. Y.).

48 Bickle v. Beseke, 23 Ind. 18; see Brewer v. Thorp, 3 Ind. 262. 49 Harriman, Contracts (2d ed.), § 500.

for precedent debts, and those given for contemporaneous debts. Where the note of a third person is given for a debt contracted at the time, the inference is that the note is in payment of the indebtedness. But this is not the case if the debt is a precedent one, or the note of the debtor is given for a present debt. If, however, the debtor indorses the note of the third party, it operates as a conditional payment.50

"Payment then consists in the performance either of an original or substituted contract by the delivery of money, or of negotiable instruments conferring the right to receive money; and in this last event the payee may have taken the instrument in discharge of his right absolutely, or subject to a condition (which will be presumed in the absence of expressions to the contrary) that, if payment be not made when the instrument falls due, the parties revert to their original rights, whether those rights are, so far as the payee is concerned, rights to the performance of a contract, or rights to satisfaction for the breach of

200. Tender. A mere tender, whether of payment or of performance of an act, may discharge the person tendering from further obligation under the contract. Tender is attempted performance, and the word is applied both (1) to the performance of a promise to do something, and (2) to the performance of a promise to pay something.52

50 Ford v. Mitchell, 15 Wis. 304; Gillespie Tool Co. v. Wilson, 123 Pa. St. 19, LEADING ILLUSTRATIVE CASES.

51 Anson, Contracts (Huffcut's 2d ed.), § 350.

52 Cleveland & Co. v. Sterrett, 70 Pa. St. 204; Knight v. Abbott, 30 Vt. 577, LEADING ILLUSTRATIVE CASES.

Thus, where A, in a contract for the sale of goods, satisfies all of its requirements, and B, the purchaser, nevertheless refuses to accept the goods, A is discharged from the obligations of the contract when he tenders the goods to B. Should B sue him, A may set up the tender as a defense."

But if the performance consists of the payment of money, a tender by the debtor will not discharge the contract. Thus, if A by the terms of a contract must pay B a sum of money, A must find the creditor (B) and pay him the debt when due. If B refuses to accept the tendered payment, A must nevertheless continue always ready and willing to make payment. Then should B sue him, he may plead that he tendered the debt, but he must also plead his readiness to pay.54 In case of suit, the plaintiff recovers the sum, but must pay the costs.

To constitute a valid performance, tender must comply strictly with the terms of the contract. Ordinarily, the exact sum should be offered. The requisites of the legal tender of money are regulated by statutes.55 In the absence of provisions by the parties, the debtor may offer such legal tender in payment.

201. Strict and substantial performance.-At common law, in order to discharge the contract, the performance must be in strict accordance with its terms. This rule was enforced, even if the performance which took place was more advantageous to the promisee.56 Where A agreed to sell 200 acres of

53 See Hambel v. Tower, 14 Iowa 530.

54 Werner v. Tuch, 127 N. Y. 217.

55 U. S. Rev. Stats., title 39; 4 Fed. Stats. Ann., §§ 3584-3590.

56 Dauchy v. Drake, 85 N. Y. 407.

land, and it turned out that the tract contained but 199 acres, there was no strict performance, and no recovery was allowed on the contract.

Through the influence of the principles of equity, the doctrine of substantial performance has been generally adopted by the courts of common law. Thus, in the illustration just given, a court of equity within its discretion could order either party specifically to perform the contract, and deduct the value of the one acre. The theory is that if the purchaser gets substantially what he contracts for, he must take it and accept compensation for the deficiency.57

This equitable doctrine of substantial performance is most often applied to suits of law on building contracts. Where the builder has in good faith substantially complied with the terms of the agreement, he may recover the contract price, less such an amount as will cover the omission and defects.58 If A agrees to make a carriage just like a certain model, he is held to have performed when he makes a carriage substantially like the model.59 Sometimes substantial performance permits a large sum to constitute the deficiency. In Philip Hiss Co. v. Pitcairn,60 a contractor agreed to decorate the walls, ceiling and woodwork of a room, and equip it with furniture. The price agreed upon was $5,200. Later, defects in the quality of the woodwork appeared. These reduced

57 Anson, Contracts (Huffeut's 2d ed.), § 352; see cases collected in 9 Cyclopedia Law & Procedure, p. 602; see subject, EQUITY.

58 Palmer v. Meriden Britannia Co., 188 Ill. 508; see Crouch v. Gutmann, 134 N. Y. 45, where the dissenting opinion considers that courts are making new contracts for the parties by means of the doctrine.

59 Meincke v. Falk, 61 Wis. 623.

60 107 Fed. 425.