Discharge

There are four ways in which the parties themselves can discharge contractual obligations.

The first is by mutual rescission, which means that, if two parties enter into a contract and neither party has completed performance, both parties can get together and agree to call off the contract.

However, the contract can only be discharged by mutual rescission if both parties have not yet performed. If one party has completed performance, it is no longer possible to mutually rescind the contract.

Second, a contract may be discharged by release. This is where one party who has rights under the contract forgives the party who is obligated to perform. However, the forgiveness of the party who is obligated to perform must be supported by adequate consideration. For example:

Ramon Garcia and the Red Sox enter into a contract under which Garcia will play for the Red Sox and the team will pay Garcia $1.5 million. After the first season, Garcia no longer wants to play for the Red Sox. However, the team has the right to Garcia’s services for two more years under the contract. The team may release Garcia from his contractual obligations so long as Garcia gives the team adequate consideration. So, for example, Garcia may pay the team $50,000 in exchange for the team releasing him from the final two years of his contract. This would be a legally binding release because the team has given up their rights under the contract in exchange for adequate consideration.

Third, a contract can be discharged by accord and satisfaction, where one contract is substituted for a second, different, contract.

Finally, a contract can be discharged by a check marked “payment in full” even though the check is for an amount less than what the recipient of the check claims he is owed. However, the contract will only be discharged by a “paid in full” check if the recipient actually cashes the check.