5. What rights would an assignee have? Can an assignor relieve himself of his liability under a contract by making an assign ment? 6. Why should an assignee notify the other party to the contract promptly? 7. What is novation? How many parties to a novation? 8. Distinguish a novation from an assignment. 9. Write an assignment of an account. CHAPTER X DISCHARGE OF CONTRACTS § 66. Discharge by Performance The usual way to discharge a contract is by performance or fulfilment. This means performance by both of the parties. Performance by only one of the parties releases that party from liability on the contract, but does not discharge the contract or release the other party from his obligation. Under the old common law rule, the performance must be strictly in accordance with the provisions of the contract. This has worked so much hardship and real injustice that equity has modified the doctrine, and allows a substantial performance with damages to compensate the other party for any loss he has sustained. Substantial Performance in Construction Contracts. If the variations in performance of an agreement were intentional, they would amount to breach of the contract. Where they were not intentional, the other party is entitled to deduct from the price the value of any such omissions as there may have been, and to have them repaired himself if he desires. This rule applies especially to construction contracts, and even in an action at law substantial performance will be sufficient. In Heckman v. Pinkney, Heckman had a contract to do the carpentry work on a house that was being built for Pinkney. He failed to make cornices and to put centerpieces in some of the rooms according to the agreement; and the material for deadening the floors did not have hair in it, as had been stipulated. The court said that the variations were not intentional or material, and that the contract had been substantially performed.1 At law, time is of the essence of a contract; that is, performance must be within the time specified, or the party guilty of delay will be liable for damages for non-performance. If, however, the injured party accepts performance after it is due, he must pay the fair value of what is done, though he is allowed to deduct damages for the delay. In equity, time is not of the essence of the contract unless it has been expressly agreed that it shall be. That is, a court of equity will often enforce the contract in favor of the party who has delayed, unless in fact or by express agreement failure to perform on time amounts to failure to perform at all. Where the parties agree that the contract must be performed to the satisfaction of one of them, nothing which does not satisfy him will be performance. At the same time, he must be honest about his dissatisfaction and not pretend to be dissatisfied when he is not really so. Sometimes there is an agreement that the judgment of a third person shall be the test as to whether the contract is performed or not. In such case, the contracting parties must abide by his judgment, unless he is mistaken or fraud is shown. Notes: 1. Performance must be substantially in accordance with the terms of the contract. 2. Where time is material to the contract, the performance must be within the time set. 3. Where the parties agree that the performance must be to the satisfaction of one of them, or to the satisfaction of a third party, the honest judgment of that party is the test of whether or not the contract has been performed. 181 N. Y. 211. § 67. Discharge by Agreement An agreement between the parties to rescind a contract, or a later agreement between the same parties with regard to the same subject matter, the provisions of which later agreement are inconsistent with the contract, will discharge the original contract. The agreement to rescind the contract must, like all other agreements, conform to all the rules governing contracts. The release of one party from his obligations is the consideration for the release of the other from his. But, where one party has performed his part of the contract, there must be some new consideration to him for releasing the other, or the agreement to rescind will not be enforceable. There is only one case in which the parties may not agree to cancel a contract, and that is when it was made for the benefit of a third person and the third person has notified them that he accepts it. At any time before he accepts they may declare the contract void. For instance, a farmer might come into town and tell a storekeeper to send away and get a suit of overalls for his hired man and he would pay for them. He informs the hired man of what he has done and the hired man tells the storekeeper that he will call for the overalls when they are expected. At any time before the hired man told either the farmer or the storekeeper that he would take the overalls, they might have cancelled the contract, but not afterwards. In all the states, with the exception of Massachusetts, Michigan, New Hampshire and Vermont, a third person may maintain an action for the breach of a contract for his benefit. If two parties to an agreement make a new agreement about the same subject matter which is inconsistent with the old agreement in any way, the old agreement will be discharged to that extent. For instance, in an agreement of novation (see § 65), by accepting the substituted party, the other party discharges the party making the novation from his obligations under the contract. If the parties put an oral agreement into writing or instead of a written agreement make a new contract under seal, the old contract is discharged and they are bound only by the new agreement. Notes: I. The parties may agree together to rescind a contract, except that where it was made for the benefit of a third party, they may not rescind it after he has given notice of acceptance. A later agreement, between the same parties and with regard to the same subject matter, the terms of which are wholly or partly inconsistent with a prior agreement, revokes that agreement so far as it is inconsistent with it. 3. An oral agreement is superseded and discharged by a later written agreement, and a contract in writing but not sealed is superseded by a sealed in strument. § 68. Discharge by Various Other Causes Operation of Law. A contract may be discharged by the operation of law. When a contract is discharged by the making of a new written or sealed contract, as has already been explained (§ 67), it is discharged by the operation of the law which declares that a written instrument is of greater value than an oral agreement, a sealed instrument than a written contract. When a person goes into bankruptcy, the law discharges all of his contracts with a few exceptions. Impossibility of Performance. There are some cases in which impossibility of performance discharges a contract. If it were for some particular article which could not be replaced and the article were destroyed, or if it were a contract for |