Discharge

Ways a contract can be discharged

There are 3 ways:

Performance- if both parties have performed the contract then it will naturally be complete and come to an end.

Breach of contract- if one party has broken the terms of contract, the innocent party may treat the contract as over and sue for damages.

Frustration- where the contract becomes “impossible” to perform, it will come to an end.

1. Performance

Performance must be complete and exact - meaning that you have to do exactly what you said you would do under the contract (Cutter v Powell).

There are 4 exceptions:

Divisible contracts

Substantial performance

Prevention of full performance

Acceptance of part performance

Divisible contracts

Where a contract can be seen as being separate part, non-completion of one part is not a breach of the whole contract (Ritchie v Atkinson) (numbers).

Substantial performance

If a party has done substantially what was required under the contract, there must be payment for what has been done. Substantial performance often occurs in large contracts where little things are not performed exactly (Dakin & Co Ltd) (percentages).

Prevention of full performance

If one party prevents the other from carrying out his contract, the contract will end (Planche v Colburn).

Acceptance or part performance

If one party has agreed the other party need not complete the entire contract then you can claim for the part done. However, the agreement must be gained without pressure (Sumpter v Hedges).

2. Breach of contract

If one party has breached (broken) the contract, then the innocent party may be able to treat the contract as over and sue for damages. There are two types of breach:

1) actual breach - when a party fails to perform their obligations under a contract, that party may be sued for breach of contract.

2) anticipatory breach - when a party to a contract gives notice in advance that they will not be performing or completing the contract.

Remedies for actual breach

For breach of a condition or a serious inmominate: repudiate (end) the contract or carry on and sue for damages (Poussard v Spiers).

For breach of a warranty or not serious innominate: carry on with the contract and sue for damages (Bettini v Gye).

Remedies for anticipatory breach

Option 1: sue immediately for a breach of condition or a warranty.

Option 2: wait for the time of performance of the contract and see whether damages would increase.

3. Frustration

The contract between (name & name) may have been frustrated due to (frustrating event).

Frustration is where a contract becomes impossible to perform, due to a frustrating event that was outside the parties control.

Grounds for frustration

Exam tip- identify the possible ground for frustration but only apply the relevant grounds.

Impossibility of performance

The contract will be frustrated if the subject matter of the contract is impossible to perform - if the contract is about a “thing” (e.g a watch) and that thing gets destroyed - Taylor v Caldwell.

SR - in a contract for services, the frustrating event may be the unavailability of the party who is to perform the service (Robinson v Davidson).

Subsequent illegality

The contract will be frustrated if a change in the law makes the contact illegal to perform (Denny mott & Dickinson).

Radical change in circumstances

The contract will be frustrated if the essential commercial purpose of the contract cannot be achieved - Krell v Henry.

Exam tip - this means that if the contract is based on a particular event, and that event doesn’t happen, the contract will be frustrated.

Counter-arguments for frustration

Exam tip - identify the possible counter-arguments for frustration but only apply the relevant counter-arguments.

Self-induced frustration

The contract will not be frustrated when the frustrating event is within the control of one party.

Contract becoming less profitable

A contract becoming less profitable or more difficult to complete is not a reason for frustration of that contract - Davis Contractors Ltd.

Foreseeable risk

The event being a foreseeable risk or the event was mentioned in the contact will mean the contact isn’t frustrated - Amalgamated Investment v Walker & Sons.

Exam tip - if any of the counter-arguments apply, don’t forget to add breach to the end of the answer.

Remedies available for frustration

At common law, the frustrating event automatically terminates the contract and any obligations already existing must be completed but future obligations are terminated.

Under Law Reform (frustrated contracts) act 1943, section 1

Money already paid is recoverable and money isn’t payable.

The court can use its discretion to order compensation to be paid for work done and expenses incurred under the contract before the frustrating event.

The court may order compensation to be paid for any valuable benefit one party may acquire under the frustrated contract.

Consider whether the contact has been breached

If the court decides the contract isn’t frustrated due to the above counter-arguments, the contract may have been breached.