CHAPTER 16.

DISCHARGE OF CONTRACTS BY OTHER MEANS THAN PERFORMANCE OR BREACH.

Sec. 138. DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE. If an event transpires rendering performance impossible this will discharge the contract where it may be said to have been the mutual intent of the parties that the contractual obligation was not to endure if such event did transpire.

Impossibility of performance will not always discharge a contract. Very often one is held liable upon his contracts when it had become utterly impossible for him to perform. Yet, whenever the impossibility springs from the occurrence of an event which we must from the nature of the case look upon as having been in the minds of the parties as an event which should put an end to the contract, such event will discharge. Thus it comes down to a question of intention. We may say as a general rule that where the contract is to operate on a particular subject-matter and that subject-matter is destroyed, the contract becomes impossible of performance in a way that will discharge any further liability upon it. Thus, if one were to deliver coal of a certain quantity out of his mine, the exhaustion of the mine would excuse him.179 So where the contract calls for personal services, obviously the continued existence and fit condition of health of the party is contemplated. Thus, A

179. Walker v. Tucker, 70 Ill. 527.

agrees to work for B for one year, and one month thereafter A dies; B cannot sue A's estate for breach of contract.

But in cases where there cannot be said to be this mutual intention there is no discharge, though there is as a matter of fact impossibility. Thus, if one's employees strike or he cannot obtain necessary workmen, or secure the necessary funds, or material, these are matters which will not discharge, unless it was so stipulated in the contract. And mere hardship is never impossibility,180

Sec. 139. DISCHARGE BY ALTERATION OF WRITTEN INSTRUMENT. Where one of the parties to a contract expressed in a written instrument purposely alters it in a material part, this will discharge the other party of his liability upon it.

Where an instrument is intentionally altered in any material part without the consent of the other party, this operates to relieve the other party of his liability upon the instrument. A material alteration is any alteration which changes any material or substantial part of the contract and changes its effect.

The rule is the same whether the alteration was innocent or fraudulent, so far as the effect on the instrument is concerned. Yet it is held in many cases that if there was an alteration by one without any fraudulent intention he may sue the other for benefits received where there would have been a right to sue independently of the written instrument, in spite of the alteration, for instance, where there is a debt.

Where an instrument is altered by some third party this cannot destroy the rights of the parties.

180. Id.

Sec. 140. DISCHARGE BY NOVATION. Discharge by novation is discharge of a party to a contract by agreement of all the parties whereby some other party supersedes him, or discharge of a provision in a contract by an agreement eliminating it or superseding it by another.

There are two sorts of novation: novation of parties, and novation of terms. The word "novation" signifies a change. It is generally used to describe those cases in which a person to a contract is by agreement superseded by another who assumes his place therein; or those cases in which a term in a contract becomes discharged by its elimination in favor of another one.

Novation of parties signifies the agreement of all concerned that one may be substituted for another. It differs from assignment materially. Assignment may be in many cases with or without the consent of the other party to the contract, and whether with or without consent it does not discharge the assignor of his liability for the payment of indebtedness if the assignee does not pay it. But novation assumes an agreement by all parties to the contract that another may be substituted for him and that he be let out entirely from then on.

Sec. 141. DISCHARGE BY MERGER. By merger is meant the cessation of one contract by its inclusion in a subsequent one, whether to the same effect or to another, which was meant to supersede it.

If one is sued upon a contract or sues upon it himself, he may claim, or the other side may claim, that while such a contract once existed, it was merged into another made later, and meant to supersede it. This is a species of discharge by agreement.

Sec. 142. DISCHARGE BY AGREEMENT. The parties may at any time before or during the performance of the contract discharge it by agreement.

What parties have agreed to do, they may of course thereafter agree not to do. If they mutually abandon the contract by agreeing to giving up their undertaking, or put a new one in its place, this will discharge the abandoned agreement. It has no longer any force. A written contract may be discharged by an oral agreement; but by the old common law and even now in some states, a contract under seal could only be altered by agreement under seal,181 although if the alteration were carried out as agreed upon the courts would not disturb it. The safest plan is to put any new agreement changing an old agreement under seal also under seal.182

Sec. 143. DISCHARGE IN BANKRUPTCY. Indebtedness arising out of contracts may be discharged in bankruptcy whether due or not.

The National Bankruptcy law provides that one may by conforming to its provisions and by surrendering his assets for the benefit of his creditors, discharge his indebtedness which arises out of his contracts. Thus liability on a note would be discharged whether the note were mature or not.

One's executory contracts, as an agreement to perform services, etc., are not dischargeable in bankruptcy.

A new promise, made after the bankruptcy, to pay the debt, will revive it. In some states this new promise must be in writing. See Bankruptcy in this series.

Sec. 144. DISCHARGE BY STATUTE OF LIMITATIONS. The various states have statutes providing that a debt cannot be sued upon after a certain length of time from its maturity. The period varies in different states. And in the same state is usually longer for written than for oral contracts. Making a new promise, or a part payment or a payment of interest revives the debt and the statute begins to run again as of that date.

The statute of limitations may be considered at this point, although perhaps in strict theory it does not belong here. For the statute of limitations does not really operate to discharge a contract or indebtedness arising out of the contract or the breach thereof. It only creates a bar, so that the defendant can say, "What you claim in reference to the existence of a contract may be true, but you have waited too long to maintain your suit." The policy of this statute is to prevent the putting forward of stale claims as to which the evidence may have become lost by lapse of time. The law considers that if a man has a claim he ought to assert it in some reasonable time.

If a payment is made after a statute runs, or after it has begun to run, this stops the running and it will not be a bar until the full period after that payment. This refers to payment of the principal or interest. So a new promise operates in the same way to revive the debt. But usually such new promise is not valid unless in writing.

If the statute is not pleaded in defense, the promise is enforceable.