Contract Law - Discharge of the Contract

By the end of the lecture, you should be able to:

Understand the ways in which a contract may be discharged.
Appreciate the concept of complete performance and the exceptions to it.
Describe how a contract may be discharged by agreement.
Provide examples of when a contract may be frustrated.
Explain the rights of parties to a frustrated contract.
Recognize when a breach is capable of discharging the contract.
Apply the rules regarding the remoteness of damage.
Distinguish between different types of damages available for breach of contract.
Be aware of when the court may impose an equitable remedy for breach of contract.

Complete performance of contractual obligations is typically required for a contract to be discharged.
Example: Fred agrees to sell his car to Bert. Once Fred gives the car to Bert and Bert pays the cash, the contract is discharged.
If either party fails to perform, they may be in breach of contract.
In the event of a breach, the non-breaching party might be entitled to withhold payment or seek other remedies.

Divisible Contracts
- Contracts can sometimes be divided into parts. Payment may be due at various stages.
- Case: Ritchie v Atkinson (1808)
  - Goods were shipped at £5 per tonne. The contract was deemed divisible since payment was per tonne shipped. Thus, payment was owed for the part performed.
Prevention of Performance by the Other Party
- If a party prevents the other from fulfilling obligations, they may be liable for breach.
- Case: Planche v Colburn (1831)
  - The claimant partially performed a contract to write a book before being instructed to stop. He was entitled to payment for the work done.
Acceptance of Part Performance
- A party may accept a partly performed contract, agreeing to pay for the work completed.
- Example: If you order 10 cartons of juice and receive only 5, you may accept the 5 and pay for just those.
Substantial Performance
- Occurs when the majority of a contract is performed, with minor tasks remaining. The injured party must pay a reduced amount for incomplete performance.
- Case: Bolton v Mahadeva (1972)
  - The installation of a heating system was held to be incomplete due to substantial defects; thus, no payment was awarded for work done.
- Case: Hoenig v Isaacs (1952)
  - Minor defects were present in the completion of decoration for a flat; court granted a slight payment reduction due to substantial performance.

Performance must be exactly as promised in the contract.
Exceptions:
- Substantial performance
- Divisible contracts
- Prevention by the other party
- Acceptance of part performance

This occurs when parties agree not to perform the contract, creating a new legally binding agreement.
- Requirements for Validity:
- All elements of a valid contract must be present in the second agreement.

A contract becomes frustrated when performance becomes impossible or futile due to events beyond the control of the parties.
Onus of Proof: The burden of proof lies on the party claiming frustration.

Destruction or Unavailability of Subject Matter
- Case: Taylor v Caldwell (1863)
  - A music hall burnt down prior to scheduled concerts, leading to frustration of contract.
Death or Illness of Contracting Parties
- Case: Condor v Barron Knights (1966)
  - A drummer's health restriction led to contract frustration.
Supervening Illegality
- A contract may become frustrated if legislation makes performance illegal, e.g., wartime regulations.
- Case: Fibrosa Spolka v Fairbairn Lawson (1943)
  - A machinery sale contract was frustrated due to war.
Government Intervention
- Government requisition of goods can frustrate contracts.
- Case: Morgan v Manser (1947)
  - A comedian’s contract was frustrated when he was drafted into military service.
Failure of Event on Which Contract is Based
- Case: Krell v Henry (1903)
  - A rental contract was frustrated when the event that justified the rental (coronation) was canceled.
- Contrast Case: Herne Bay Steam Boat v Hutton (1903)
  - The contract for a steamship hire was not frustrated as it had multiple purposes.
Delayed Performance
- Case: Davis Contractors v Fareham District Council (1956)
  - A construction contract delayed due to unforeseen circumstances was held not to be frustrated.

Actual Breach
- Cases where a party fails to perform at all or performs below acceptable standards.
- Note: Anticipatory breach is not covered here.
Condition vs Warranty
- Breach of a condition or an innominate term that deprives a party of the substantial benefit of the contract may discharge the contract.
- Breach of a warranty does not discharge a contract.

Purpose: Financial compensation for loss due to breach.
Limitation Act 1980: Six-year limitation period for breach claims, starting from when the breach occurs.
Aim: Restore the injured party to the position they would have been in had the contract been performed.

Loss must be financially quantifiable.
- Case: Ruxley Electronics & Construction Ltd v Forsyth (1995): Damages awarded for an incomplete swimming pool.
Agreed damages vs. penalty sums.
- Liquidated damages must be a genuine pre-estimate of loss to be enforceable.
- Case: Dunlop Pneumatic Tyre Co Ltd v New Garage Motor Co (1915): Established parameter for liquidated damages.
Duty to mitigate loss.
- Case: Brace v Calder (1895): Claimant had a duty to accept reasonable re-employment to mitigate losses.
Contributory negligence may reduce damages.

Rescission
- A court cancels the contract, restoring parties to their pre-contract positions.
Specific Performance
- Court mandates a party to fulfill their contractual obligations; rarely awarded in employment contracts.
Injunctions
- Court orders to prevent a party from acting contrary to the contract terms.
- Case: Warner Bros v Nelson (1936): Injunction awarded to prevent breach, but not enforced as specific performance.

Understanding the nuances of contract discharge, types of damages, and equitable remedies is vital for effective legal practices and rights enforcement.