DISCHARGE OF CONTRACTS

B. Where fully performed on one side: If the contract has been fully performed on one side (either because it was originally a unilateral contract or because it was a bilateral contract that has subsequently been performed fully by one party), a mutual rescission will not be effective. The reason for this is that there is no mutual consideration; the party who has fully performed is giving up his rights to the other party’s performance, and is not getting anything in return. However, he may give up his rights through what is called a release, infra, p. 498. But unlike a mutual rescission, a release must normally be supported by separate consideration (i.e., a payment), or must meet some statutory substitute for separate consideration (e.g., be in writing).

C. Writing not necessary: A mutual rescission does not normally have to be in writing. Although older cases held that if the original contract was within the Statute of Frauds, a rescission of it had to be in writing, the modern view is that an oral rescission of the unperformed duties under a contract is always valid, notwithstanding the Statute. Rest. 2d, § 148.

D. Duty to pay for benefits received: Often a mutual rescission will occur after one of the parties has partly performed. Is a party who has received the benefit of the other’s part performance obligated to pay for it?

1. General view: Most courts take the view that neither party to a mutual rescission is obligated to pay for benefits she has already received, unless there is some affirmative evidence that the parties intended her to be so obligated. In other words, the question is what the parties intended, but the presumption is that they intended no obligation to pay. See Murray, p. 511. See also C&P, p. 796.

E. Unilateral rescission: Where one of the parties to a contract has been the victim of fraud, duress, mistake, or breach by the other party, he will often be allowed to cancel the contract, terminating his obligations under it. If he does so, some courts say that he has “unilaterally rescinded” the contract. Because the term “rescission” is usually used to mean a mutual agreement to discharge an executory bilateral contract, it is probably a good idea to avoid the term “unilateral rescission” and instead to say that the victim of fraud, mistake, etc. may “cancel” or “terminate” the contract.

II. EXECUTORY ACCORDS AND “ACCORD AND SATISFACTION”

A. Executory accord: An executory accord is an agreement by the parties to a contract by which one promises to render a substitute performance in the future, and the other promises to accept that substitute performance in discharge of the existing duty. See Rest. 2d, § 281(1).

Example: Debtor has a contractual duty to pay Creditor $1,000 in 30 days. Creditor promises Debtor that if Debtor will pay $1,100 in 60 days, Creditor will accept this payment in discharge; Debtor promises to make the $1,100 payment in 60 days. The new agreement is an executory accord.