Contract - Discharge

What happens to the rights of the other party where the obligation of the one party is discharged?

The corresponding right of the other party is extinguished

What happens when all obligations under a contract are discharged?

All rights are extinguished, the contract is discharged

How might a contract be discharged?

Performance

Expiry

Agreement

Breach

Frustration

How can a contract be discharged by expiry or performance?

It may be terminated in accordance with the agreement on the occurrence of a stipulated event such as the expiry of a fixed term or through performance

How may a contract be discharged by performance?

It may be terminated in accordance with the agreement on the occurrence of a stipulated event

How may a contract be discharged by expiry?

When it is completed according to its own terms

e.g. by date, based on the occurrence of an event

What is the entire obligations rule for discharge by performance?

A contractual obligation is discharged by a complete performance of the obligation

What is a promisee entitled to under the entire obligations rule?

The benefit of complete performance exactly according to the promisor's undertaking

Is a promisor who performs part of their obligation discharged?

NO

Can a claim for half payment be brought after half of a service has been supplied?

No - complete performance must be done if the contract has an entire obligation

C agreed to serve on a ship from Jamaica to Liverpool, D agreed to pay him provided he does his duty from Jamaica to the port of Liverpool. C died part way into the voyage, 2 weeks short of liverpool. C's widow brough a claim to recover a proportion of the agreed contract price.

Was this claim successful?

No - the contract was entire and the contract had not been completely performed

What are the exceptions to the entire obligations rule?

Acceptance of partial performance

Substantial performance

Divisible obligations

Wrongful prevention of performance

What is the acceptance of partial performance exception to the entire obligations rule?

If one party has given partial performance of the contractual obligations, the innocent party may accept that part of the performance, rather than reject the work done

This is at the discretion of the innocent party

On what basis will payment be awarded for the acceptance of partial performance exception to the entire obligations rule?

Quantum meruit - as much as is deserved

Court will asses a reasonable sum on an objective basis based on available info e.g. usual market price for goods or services

What must acceptance of partial performance be?

Voluntary - the innocent party should not have no other option but to accept

What is the substantial performance exception to the entire obligations rule?

Where a contract has been substantially performed, the party who provided this substantial performance may be able to obtain the contract price with a deduction to reflect the cost of remedying the defect (aspect not performed)

What does the court consider when considering a plea for substantial performance?

Nature & extent of the defect (aspect not performed)

Measures the cost of remedying the defect against the contract price

Defect too serious = party who provided this defective performance cannot recover any money

If substantial performance found = party can recover contract price less deduction

What is 'substantial performance'?

Occurs when one party fulfills enough of its contract obligations to warrant payment

What is the divisible obligations exception to the entire obligations rule?

Some contracts are intended to be divided into parts - if so, the performing party is entitled to payment for each part which is performed

What is the wrongful prevention or performance exception to the entire obligations rule?

Where one party performs part of the agreed obligation & is then prevented from completing the rest by some fault of the other party - they are entitled to payment despite not completing the rest

What are the options for the innocent party who has been prevented from performing their obligation in a contract?

Sue for damages for breach of contract

Claim a quantum meruit

What is the potential defence for a party accused of failure to perform their obligations?

Tender of performance

D can show that they tendered performance - they unconditionally offered to perform their obligations in accordance with the terms of the contract, but the promisee refused to accept performance

How may a contractual obligation be discharged by agreement?

By a subsequent binding contract between the parties

By operation of a term of the original contract

How can an existing obligation be discharged by subsequent binding contract?

Essentially formation of a new contract

e.g. By mutual waiver where both parties have unperformed obligations - discharge (contract agreeing to waive rights of old contract in consideration for being released from their obligations under the old contract)

Termination Agreement - to release & settle liabilities under OG contract

Which 2 elements must be present for a discharge by subsequent binding contract to be effective?

Accord - agreement to release obligation

Satisfaction - consideration for the promise to release

Give an example of an accord & satisfaction

A agrees to release B from its obligations under the old contract

B agrees to release A from its obligations under the old contract

When is there a problem with the discharge by subsequent binding contract?

When one party has performed their obligations in their entirety but something remains to be done by the other party - one party cannot meaningfully agree to release the other from obligations as it has already performed them

How can discharge by agreement occur when one party has performed their obligations in their entirety but something still remains to be done by the other party ?

By agreement under a deed - no need for consideration as a gratuitous promise is enforceable if made the form of a deed

By agreeing to accept something in place of the former obligation e.g. accelerated payment of a sum

What is the essential point regarding accord & satisfaction by discharging by subsequent agreement?

There must be new consideration for there to be satisfaction

What can a term providing for the discharge of obligations be? Either a...

Condition precedent

Condition subsequent

What is a condition precedent?

- A condition that must be satisfied before any contractual rights come into existence

- The contract remains suspended until the condition is met

- If the condition is not fulfilled, there is no true discharge since the rights never existed

How may a condition precedent discharge obligations in a contract?

Where the contract's existence is subject to the occurrence of a specific event, it is subject to a condition precedent.

Contract is suspended until the condition is satisfied

If a condition precedent is not fulfilled, the rights/obligations never came into existence in the first place

What is a condition subsequent?

A term that terminates the contract when a specified event occurs

- e.g., date specific termination

What is the usual remedy for any breach of contract?

- damages

- but cannot gain a right to terminate the contract for breach if the term breached is just a warranty

When will breach of contract mean the contract has been repudiated?

- if one party has breached a term of the contract which is either a condition or an innominate term which is to be treated as a condition.

- in this case, the innocent party can treat the contract as being repudiated by the breach (if they wish)

What is an anticipatory breach?

1. a party indicates they will not perform their contractual obligations in advance of the date for performance

- must be more than a minor breach, must be a breach that would have been repudiatory if it had occurred at the time of performance

2, the innocent party has an immediate right to 'accept' the renunciation and to treat the contract as terminated

What is the effect of terminating a contract for repudiatory breach?

- ends all primary obligations for each party that have not been performed

- but any rights/obligations accrued before termination are still enforceable (eg still must pay debts owed, but does not have to pay for services going forward)

- innocent party can claim damages for the specific breach and the loss of the contract caused by the termination of the contract as a whole

What is the effect of giving notice to terminate a contract for what seems to be a repudiatory breach, but is actually not?

- A gives notice to terminate for a breach by B that it incorrectly believes to be a repudiatory breach

- if it is not in fact a repudiatory breach, A's wrongful notice will be regarded as a 'renunciation' of future performance of the contract, and can itself be take to repudiate the contract by giving this notice

- no excuse for A to claim they acted in good faith

- to avoid this, many contracts include a list of breaches that give the right to terminate

Does the innocent party have to end the contract if there has been a repudiatory breach?

No

- can affirm the contract instead, if it would still be best for them

Can innocent party still claim damages after affirming the contract?

Yes

- but damages would only be for the breach of that clause, and would not include the loss of the contract as a whole

What should the innocent party do if the defaulting party has announced its intentions not to continue with the contract, but the innocent party still wants to continue?

can still affirm the contract, perform its own obligations and claim the sum due under the contract in a debt action

What are the two limits on whether innocent party can affirm the contract?

1. must not require co-operation of the breaching party for continued performance of the contract by the innocent party

2. cannot affirm if the innocent party has no 'legitimate interest, financial or otherwise' in affirming the contract and continuing with performance

What is frustration of a contract?

- when events occur after the formation of the contract which render performance radically different from that which was agreed to

- can be used as a defence to breach of contract claims

What are frustrating events?

- makes performance impossible or illegal

- common purpose is frustrated

What are not frustrating events?

- events that merely make the obligations more expensive/onerous

- something which the parties could reasonably have contemplated

- something provided for in the contract

- something caused by the default of a party

What is the effect of frustration?

- contract brought to an end automatically, parties have no choice in this

- future obligations are discharged

What is the effect of frustration on money already paid and money to be paid?

- Money paid before the frustrating event can be recovered

- Money that should have been paid before the frustrating event no longer needs to be paid.

When does performance of a contract become impossible?

1. due to partial/total destruction of the subject of the contract

- (eg contract for use of music hall that was destroyed, destruction not contemplated in the contract)

2. due to partial/total destruction of the something else essential for the contract

3. due to death or illness of one of the parties in a personal contract

4. when something important becomes unavailable (e.g., ship is requisitioned for way and cannot be used by parties)

Will unavailability always frustrate a contract by impossibility?

- courts have discretion, and will look at different factors inc. amount of time left to run in the contract as a starting point

- e.g., not frustrated for impossibility when the ship was detained but most of the contract had already been performed

How does frustration of common purpose work to frustrate the contract?

- may be frustrated even where it is still possible to carry out the contract, when the common purpose of the contract no longer exists

Krell v Henry - hiring a room to view the coronation procession, procession was postponed, contract was frustrated as both parties understood that the only purpose in hiring the rooms was to have a view of the procession (unusual decision)

Herne Bay Steamboat Co - hired a steamboat for a day's cruise and to view the Naval Fleet Review, review cancelled by contract was not frustrated as it was not the common foundation of the contract for both parties

Can frustration validly be self-induced?

will not apply where the event was induced by one of the parties, on purpose or by accident

- if the other party proves that the person alleging frustration induced it themselves, the defence of frustration fails, and D will be in breach of contract.

- e.g., D has 2 boats, decides to use Boat 1 for contract and makes other contracts for Boat 2. Boat 1 sinks, D could not use Boat 2 as it was tied up in other contracts = self-induced frustration

What is the relationship between foreseeability and frustration?

- foreseeability does not necessarily bar frustration

- but if you could have foreseen an event, but failed to make provision for it in your contract, the doctrine of frustration will be less likely to apply

- being a mere theoretical possibility does not mean it is foreseeable

Can the doctrine of frustration override express contractual provision for the frustrating event?

No, the express provision will apply

- eg force majeure clauses will make provisions

Who pays expenses incurred before the contract is frustrated?

If the supplier has already spent money trying to perform, the court can allow them to:

- Keep some (or all) of the advance payment, or

- Recover expenses from money that was due but unpaid

But ONLY IF:

- The expenses were directly linked to performing the contract, and

- It is "just" to let them keep it.

How much can a supplier recover for expenses incurred before frustration?

The supplier can NEVER recover more than:

- Their actual expenses incurred

- The amount paid or payable before frustration

If nothing was paid and nothing was due before frustration → they get NOTHING, even if they spent money.

What could the court order if one party received a valuable non-money benefit before frustration?

the court MAY order them to pay a just sum for it

- the value of the benefit is the value that the other party actually received, not how much the other party incurred

- If the frustrating event wipes out the value of the benefit, the provider may recover NOTHING