Discharge and termination of contracts

The ‘discharge of a contract’ refers to the ways in which a contract is terminated or comes to an
end. This usually occurs when the parties that have entered into a contract together have
completed the things that were required to do. However, a contract may sometimes be
terminated before its legal obligations have been met in full.
Methods of discharging a contract
By performance:
When both parties have fulfilled, or performed, their contractual obligations, the contract is
terminated.
By Breach of contract:
This is when one party fails to perform a contractual obligation. It can be non- performance,
defective performance or late performance. It allows the affected party to claim for damages
and sometimes to terminate the contract.
By Agreement:
Both parties manually agree to end the contract before obligations are performed of before
obligations are performed completely.
By Impossibility of Frustration:
Sometimes a contractual obligation cannot be performed due to circumstances beyond the
parties’ control. If an earthquake or hurricane damages a venue that has been contracted for a
wedding, the contract will be discharged because of frustration – the supplier is unable to fulfil
the obligation due to an unforeseen circumstance.
By lapse of time:
A contract should be performed within a specified period of time known as the period of
limitation. The contract itself may specify this time period or the period of limitation specified
by laws relating to various types of contracts. Once the period of limitation has elapsed. The
contract is terminated.
By Death:
If one party dies, then the contract is terminated, as the deceased person will no longer be able
to fullfil stated obligations. However, in some cases the obligations of the contract are passed on
to the legal representatives or beneficiaries of the deceased.
Remedies for Breach of Contract
There are a number of ways that affected parties can seek remedies for breach of contract:
Remedies for breach of contract Explanation
Damages The affected party can sue for damages
Specific performance The court can order that the party fulfil its
contractual obligation by enforcing an order
for specific performance.
Injunction An injunction is a court order prohibiting a
party from performing an action
Restitution Restitution involves returning any money or
property already given in the contract, so as
to restore the affected party to their position
before the formation of the contract.
THE IMPORTANCE OF RECORDING BUSINESS TRANSACTIONS
Whenever a business exchanges or agrees to exchange goods, services or money with another
business or an individual, it is important that detailed and accurate records are created and
kept, either in paper form or electronically using computer technology The recorded
information may services involved in the exchange, when they were include the prices or value
of the goods and received or delivered, who they were received from or delivered to, the
amount of money owed or received or paid out, business names and addresses and much more.
Record Keeping
Record keeping in business is therefore defined as the process of creating, collecting and
Maintaining records or documents which act as evidence of business transactions. Full and
accurate record keeping is essential in business for a number of reasons:
Reasons Why Record Keeping Is Important

Reason Explanation
To safeguard All businesses should keep track of their sales and purchases over time. Some
and retrieve sales and purchases are made on credit, so records help to ensure that sales
information revenues are collected and payments are made in a timely manner, as specified
about in the credit arrangement. records help businesses to keep track of the volume
sales, customers and frequency of sales and purchases, to identify popular and unpopular
and suppliers products, so that stock levels can be adjusted to cater for those. Records help
ensure that businesses do not run out of materials needed for production, as
records pinpoint when s stock levels are low so stock can be reordered on time
Records are useful in helping the business develop long-term relationships with
its customers. lf there are customers who consistently make late payments the
business can consider extending the credit period o even refusing credit in the
future. The business can also use records of customer transactions to develop
special targeted promotions or deals based on customers ' buying patterns and
preferences Records will be useful in assessing supplier relationships. If suppliers
have always been late in deliveries, then the business can ensure that orders are
made earlier to cater for the lengthy delivery times or other suppliers can be
utilized instead, where possible. Also, in the event of a sales or purchases query,
business documents can be used for clarification of prices, quantities, payments
date etc.
To monitor Records help businesses to monitor their performance. Owners and managers
business will want up to date
performance information on sales, expenses and profits to determine it progress is being
made
records allow for businesses to compare their performance with previous trading
periods as well as compare
their performance with rival businesses.
To inform Record keeping promotes informed decision making. Monitoring business
 business decision performance will help to determine whether new measures are required to
making improve performance such as new marketing campaigns to increase sales, or
cost-cutting measures to reduce expenses such as switching to cheaper
suppliers, relocating to cheaper premises and reducing the number of
employees. Records can signal that a business is performing well or poorly,
depending on the decisions made and t the resulting outcomes.
To meet local Record keeping ensures that there ls evidence of transactions, which is
requirements important in ensuring that legal obligations are met. Written contracts can be
used to verify terms and conditions, so that contractual obligations are met
within the specified time frame
Legally, public limited companies must publish their financial statements.
Records are therefore necessary and must also be made public. An audit is an
objective inspection of a business's financial records to determine whether the
records are a true and fair representation of the transactions they seem to
represent. Audits can be done internally by the employees of the business or
externally by another business. Audits are a legal requirement for some
businesses, due to the possibility of persons purposefully misrepresenting
financial information in order to commit fraud. As such, record keeping is
important for audit purposes.
To reduce the risk Stock and cash records can be used to check for theft. Complete and accurate
of tax and fraud records will indicate whether discrepancies exist between the amounts of
stock/cash that the business should have and the amount that it actually has.
Records therefore help to determine whether theft has occurred. Record keeping
can discourage theft as records can be used to uncover the identity of the
thieves.

TYPES OF BUSINESS DOCUMENT

Recording information about business transactions can often involve significant writing or
inputting data into a computer. Businesses have therefore developed special paper or
computerized documents for record keeping to make the process less time-consuming and to
ensure that the relevant information is recorded in the same format for each transaction,
regardless of who records it. Some of the most frequently used documents in business to record
transactions are purchase requisitions, Pro forma invoices, purchase orders, invoices, credit
notes, debit notes, statement of accounts and stock cards. The style and layout of business
documents will vary from one business to the next, but the key general information included
should be the same.
1. Within a business, materials may be running out. The production department sends a
purchase requisition to the purchasing department requesting that particular materials
need to be purchased.
2. The purchasing department requests information from the supplier about the materials
needed.
 3. The supplier sends a pro forma invoice showing the quantities and prices of the
materials required.
4. The purchasing department reviews the pro forma invoice and sends a purchase order,
specifying the items they wish to purchase from the supplier.
5. After the supplier agrees to supply the order, the goods are delivered with an invoice
showing the cost of the order.
6. If the buyer returns goods to the supplier, perhaps because they were faulty or the
wrong color, then a credit note is sent by the seller to the buyer to document this.
7. If the seller realizes that the buyer was previously undercharged for goods already
bought, a debit note is sent by the seller to inform the buyer.
8. The supplier sends a statement of account to the buyer, summarizing all the transactions
which occurred over a period-items purchased. Payments made and payments due.
9. Whenever purchases and sales of stock occur. Stock cards are updated so that the
correct quantity and value of stock can be known.
Purchase Requisition
A purchase requisition is an internal business document used to inform the relevant persons
purchasing staff, managers, finance personnel) in a business that a purchase is being requested.
These relevant persons have purchasing authority or responsibility for how money is allocated
or used so, their approval is necessary before purchases can be made. Purchase requisitions
should state the items and quantities being requested, the expected price and supplier/s of the
items, the department requesting the purchase, the objectives hoped to be achieved by the
purchase and which department is paying for the purchase, etc. Once approved, the purchase
requisition leads to the next stage of the purchasing process which is the purchase order.
Pro Forma Invoices
The Purchases Department will request information from the potential supplier about products,
quantities and prices. The supplier will send back a pro forma invoice in response. A pro forma
invoice is an estimate or quotation, also known as a preliminary bill of sale. It itemizes the
products Or services a supplier is willing to deliver to a customer at a specific price. The pro
forma invoice is sent to the buyer before goods are actually delivered, so it allows the buyer to
determine whether they agree to purchase the items at the prices specified. A pro forma
invoice will also often include details regarding the shipping process, such as packaging, weight
and delivery charges. It is therefore useful document to have for declaration of the value of
goods to Customs. In situations where the buyer is new or the seller does not trust that the
buyer will pay for goods after they have been delivered the pro forma invoice seeks to request
payment before goods are delivered. For accounting and recordkeeping purposes, a pro forma
invoice is not treated as an actual sale. Only when the buyer agrees to purchase the products at
the prices specified in the pro forma invoice, and the goods are delivered, has a sale been
made.
Purchase Order
A purchase order is the document issued to a supplier that stipulates what is being purchased.
The purchase orders typically have the supplier ‘s and buyer's names, date product or service
description, payment terms, freight terms, delivery address, delivery date and contractual
references. A purchase order is generally accepted as a legal offer which can be accepted by the
seller by supplying the requested goods/services. To help with recordkeeping, the purchase
order tends to carry the same reference number as the preceding purchase requisition.

Invoice
An invoice is a document showing the details of goods bought or sold. A seller sends an invoice
to the customer. To the seller, it is a sales invoice, but to the buyer itis a purchases invoice, an
invoice typically has:

 the name of the seller

 the contact information of the seller
 the name of the buyer
 the contact information of the buyer
 the date the goods/services were bought/used
 the date the invoice was sent
 invoice number
 the items and relevant quantities purchased
 the unit price and total cost of each item
 the total amount owed
 the terms of payment (30 days, discounts etc.)
For accounting and record keeping purposes, an invoice represents that a sale has been made.
Credit Note
A credit note is a document sent by the seller to the buyer indicating that the buyer's
outstanding balance to the seller has been credited or reduced. A credit note is used when:

 goods are returned by the buyer to the supplier perhaps because they were the wrong
type or they were faulty
 the price on an invoice sent to the buyer was overstated
 discount rates were not applied or applied incorrectly on an invoice sent to the buyer.

Debit Note
A debit note can be sent by the seller to the buyer indicating that the buyer's outstanding
balance has been debited or increased. A debit note is used when:

 the buyer was previously undercharged

 the discount rate applied on the invoice was too high
 the tax rate applied on the invoice was too low.
A Statement of Account
A statement of account is a document sent by the seller to the buyer showing details of
transactions that occurred over a specified period. This includes purchases made by the buyer
payments made during the period returned goods, any outstanding balance owed at the end of
period and payment terms. A bank statement is an example of a statement of account that all
account holders receive periodically
Stock Card
A stock card is an internal business document used for recording the movement of stock. Also
referred to as an inventory card. The stock control card typically shows the maximum and
minimum stock levels, purchases and sales of stock and the corresponding balance of stock. A
stock card is a simple system for recording stock that even small businesses can use. It can be
done manually or it can be computerized. The stock card provides the information needed for
effective stock control. It is important for a business to monitor and record change in stock
levels to ensure it does not run out of goods to meet customer demand or materials needed for
production, as well as to minimize storage requirements and cost.
Pooling of Risk
Insurance can be viewed as the pooling of risk since many individuals and businesses pay a
relatively small sum of money (premium) into a pool of funds' that will be used by the insurance
company to compensate the insured party in the event a loss is incurred. The risk is therefore
spread over all those individuals or businesses that have contributed to the pool of funds.
Utmost Good Faith
The principle of utmost good faith means that both parties (the insurer and the insured) must
enter into the insurance contract with utmost good faith (in other words, in belief, trust and
honesty). Utmost good faith means that both parties disclose all relevant facts and issues
related to the insurance contract.
Insurable Interest
Any individual or company wanting an insurance policy must have an 'insurable interest'.
Insurable interest is monetary interest in what is being insured. This means that an insured
person will lose money if the event they have insured against occurs.
Indemnity
The principle of indemnity means that in the event of a loss, the insured person should not be
better off or worse off than before the loss. Indemnity restores you to the same financial
position before the loss occurred. There should be no profit-making from the compensation.
The amount of compensation is limited to the value of the insurance policy or the amount of
the loss incurred (whichever is less). If the item/asset has been overinsured, then you will only
be compensated for the actual value. If the item/asset has been underinsured, then the
compensation will reflect the proportion of the value
Contribution
Sometimes you may take out more than one insurance policy with different insurance
companies for the same risk. The 'principle of contribution applies here. This means that if there
is a claim of $ 10000 the different insurance companies will contribute money towards the
claim. Each insurance company will pay only a portion of the$10000. However, you will not get
more than$10000 in total from the insurance companies, as then you will have profited from
the event
Subrogation
When you make an insurance claim for compensation to replace damaged items (such as
machinery, computer equipment, a vehicle or any other valuable asset), their ownership passes
to the insurance company once it has paid the compensation This is the principle of
'subrogation'. Subrogation means that the insurance party will be able to sell the damaged
assets for their scrap value; or, if it can be proved that the damage was party, it can recover its
costs caused by another from them.
Loss Minimization
If you are the insured party, you must take all steps necessary to minimize your losses. For
example, in a fire, you must first try to put out the fire, or call the fire services, to reduce
potential damages. Just because the property is insured, it does not mean that you should make
no attempt to put out the fire, unless itis too dangerous to do so. Loss minimization is
important. This is because if an insurance company can prove that you have been irresponsible
or negligent (by failing to take proper security or safety precautions) then it can refuse to pay.
Proximate cause
Several factors can contribute to damages or injury in a financial loss, and some factors may be
insured, and others not. So, it is important to establish the ‘proximate cause’ of a loss. This
identifies whether or not it is covered within an insurance policy. Proximate cause is the main or
primary cause of an injury or damages that give rise to a financial loss.