Discharge of contract

What is discharge of performance

Questions on this often state “Advise whether D is obliged to pay ….”

Contract is discharged when it has been performed or carried out

What is the complete performance rule + cases

• Contract must be complete not half-done

• (Cutter v Powell where wife could not claim dead husband's wages as his performance was incomplete)

• Court developed exceptions to avoid harsh outcomes

What is acceptance of part performance

• If party has only partly performed contract, the contract will only be discharged if the other party chooses to accept it 

• (Sumpter v Hedges where innocent party must choose to accept partial performance, S had no alternative other than to finish the house

What is substantial performance + case

• Contract only discharged if a party has substantially completed what they were supposed to do, payment is made for the work done. Often occurs in large contracts where little things are not performed exactly. Only applies if breach of warranty not condition

• (Hoenig v Issacs where most of work was done and only cost £53 to repair defects)

• Substantial is defined on a case by case basis and depends on what remains unfinished and its value in comparison to the whole contract (Bolton v Mahadeva where the contract was £560 but cost £174 to fix his defects)

What is divisible contracts + case

• If a contract can be divided into different parts which can be separately performed then complete performance of the whole contract will not apply

• (Ritchie v Atkinson where ship owner agreed a rate per ton so could be payed for weight of cargo he transported, but liable for cargo he did not carry)

What is tender of performance + case

• If one party prevents the other from completing it the innocent party can claim to be paid for the work done

• (Planche v Colburn where author was entitled to a fee for wasted work when publisher hired them and then abandoned they series they wrote

What is delayed performance + case

The effect of delay to performance is treated as a condition if:

• The parties have expressed performance in the contract is time critical

• Time for completion is critical

• One party has failed to perform on time and the other has insisted on a new date for completion (Making time of the essence)

If none of these are present then late performance is an innominate term and repudiation depends on severity of the consequence

(Union Eagle v Golden Achievement where the court decided the seller was entitled to repudiate the contract as time for completing was a condition )

What is frustration + case

• Contract is discharged because through no fault of the parties it can no longer be performed 

• (Taylor v Caldwell where owners of a music hall could not complete contract as it burnt down)

What would be frustration

• Intervening event which makes the performance impossible

• Performance becomes illegal

• Radical change of circumstances#

• Not enough if purpose of only one party destroyed

What is Intervening event which makes the performance impossible +cases

Eg. destruction of the subject matter (Taylor v Caldwell), Death or unavailability of the party

(Robinson v Davison where piano player was ill),

Specific method of performance becomes impossible (Nickoll & Knight v Ashton Eldridge where the specifically named ship in contract ran aground)

What is performance becomes illegal + case

Performance becomes illegal due to a change in the law performing the contract would be illegal

(Fibrosa v Fairbairn where shipping a contract of machinery to a port in Poland was illegal)

What is radical change of circumstances + case

The event changes the main purpose of the contract for both parties

(Krell v Henry where D agreed to hire room from C to view coronation but was frustrated as the king was ill and the viewing was the foundation of contract)

What is Not enough if purpose of only one party destroyed case

(Herne Bay Steamboat v Hutton where the naval review by the king was not the main foundation of the contract and the cruise around the fleet was still possible)

What would not be frustration

• Where parties have made express provision in the contract for the event

• Performing a contract becomes more difficult or less profitable to perform

•  If the event was foreseeable when the parties contracted

• The event is in control of one party (Self-induced)

What is where parties have made express provision in the contract for the event

If an event (such as a flood or war) is dealt with by a Force Majeure (Expressed term) stating what to in that situation such as suspend or  terminate the contract

Case for Performing a contract becomes more difficult or less profitable to perform

Davis Contractors v Fareham the cost of building houses becoming more expensive was not frustration as the main reason to contract was still present

Case for If the event was foreseeable when the parties contracted 

Amalgamated  Investment v John Walker where the risk that the property could be listed was foreseen by C who inquired before

Case for The event is in control of one party (Self-induced)

The Super Servant 2, if D had not contracted with other ship in the contract he could have given it to C when the other one sank

What is consequences of frustration

The contract is automatically discharged from the moment the event occurs, existing obligations must be completed but futures ones terminated

When is the Law Reform (Frustrated Contracts) Act 1943 used

Law Reform (Frustrated Contracts) Act 1943 used unless parties have own terms

S.1(2) money paid in advance 

is recoverable but money already due is not, however D is usually allowed to keep money for work done and expenses before

(Gamerco v ICM/Fair Warning where C was able to claim deposit back for stadium after safety concerns)

S.1(3) Performance which provides a valuable benefit

Where one party gains benefit before the contract is frustrated the court may order a just sum in return

(BP v Hunt where BP were entitled for a just sum as they helped H with valuable benefit)

What is breach of contract

• Where one party fails to comply with a term of the contract either expressed or implied 

• Each breach of contract will give a right to claim damages

• Unless breach is repudiatory (Serious) the contract will continue 

• Repudiatory breach gives innocent party option to discharge the contract it is not automatic

What is actual breach + case

When on party performs defectively, differently from agreed, or not at all on the date agreed (Poussard v Spiers where singer failed to turn up for 6 nights so the contract was due to be completed in the past)

What is anticipatory breach

• When one party indicates before the date of performance they will not be performing the contract as agreed 

• Where an anticipatory breach occurs the other party can sue for break immediately, it is not necessary to wait (Hochster v De La Tour where tour guide was told 2 months before he was not needed)

• Party may choose to wait until performance fails to see whether the party keeps the contract. Once they choose to wait they cannot change their mind (Avery v Bowden where contract was frustrated before date of performance so A lost his right to sue)

Can the contract be repudiated explained

• Was the term clearly a condition 

  • Can be by statute, precedent or parties

  • Time of performance not usually a condition unless a time of completion is critical (The Mihalis Angelos where in shipping the time a ship can be expected ready to load cargo is a condition) or the parties make it (Lombard v Butterworth where it was stated that time was of the essence)

  • Parties classification is not conclusive (Schuler v Wickman where the term was innominate even though stated to be “condition”)

If the term is not clearly a condition  explained

• If the term is not clearly a condition 

  • Is innocent party deprived of substantially whole whole benefit of contracting(Hong Kong Fir Shipping v Kawasaki Kisen Kaisha where it was stated if a term is not clearly a condition it is an innominate term, in this case the effects of breach were not sufficiently serious)

  • If serious condition

  • If minor warranty