Module 10 Summary Notes: Discharge of Contracts

Module 10 Summary Notes: Discharge of Contracts

This module focuses on the discharge of contracts, covering discharge by performance and discharge by frustration. The required readings are Chapter 22 (Discharge by Performance) and Chapter 25 (Discharge by Frustration) of the textbook and casebook.

Learning Objectives

Upon completion of this module, students should understand:

• General ways contracts may be discharged by performance and frustration.

• Exceptions to these general rules.

• Types of breach.

• Effect of breach.

• Conditions of frustration.

• Four categories of acceptable impossibility.

• Examples of non-frustrating events.

Topic 1: Discharge of Contracts by Performance

Contractual disputes often arise from disagreements over whether a contract has been performed or completed according to its terms. Therefore, clear and specific terms regarding time, place, quality, price, and other relevant issues are crucial.

Stipulations as to Time

Disputes related to time provisions are relatively rare, but they can occur due to delays caused by one party's behavior or because of uncertainty or frustration.

• Formal Contracts: Time for performance is specifically noted, e.g., ‘by Wednesday 10th June 20xx at 4 PM’ or ‘on arrival at the wharf at Brisbane’.

• Informal Contracts: Greater chance of disputes.

Order of Performance

Rules of construction regarding the order of performance include:

1. Dependent Promises: If one event has to occur before another, the promises are dependent. An example is a condition precedent, such as a contract for purchasing a house property subject to obtaining bank finance.

2. Sequential Obligations: A conventional example is payment under a contract of employment.

3. Concurrent Obligations: In a contract for the sale of a house, settlement (completion) occurs concurrently when the title document, released Bill of Mortgage, transfer documents, and bank cheques are exchanged at the same moment.

Method of Performance

The contract typically stipulates how performance is to be executed.

Sub-contracting Performance

Subject to the contract terms, a party (A) may enter a second contract with another party (Z) to perform the obligations in the original contract between A and B. If the subcontractor Z does not perform, party A remains liable for the breach under the original contract.

Performance in Good Faith

The law requires each party to perform its obligations so that the other party will ‘have the benefit of the contract’.

Discharge by Performance

Generally, each party’s performance must precisely match what was required by the contract for it to be discharged. However, there are several exceptions to this rule:

1. Severable Contracts: If a contract is divisible into discrete parts, performing one part may entitle the performing party to demand at least partial performance from the other party.

2. The de minimis rule: Trivial breaches will be disregarded.

3. Substantial Performance: Unless the contract specifies otherwise, if a contract is ‘substantially’ performed, the contract price is recoverable, though not necessarily in full.

4. Acceptance of Partial Performance: Partial performance may be sufficient if the other party has accepted it.

5. Obstruction of Performance: If one party prevents the other from performing, the obstructed party may be able to bring a restitutionary claim.

Topic 2: Discharge of Contracts by Frustration

A contract may become frustrated and impossible to perform due to various reasons. For example:

• An event may occur that renders performance impossible, irrespective of good intentions.

• The contract may have become illegal.

One of the leading Australian cases regarding discharge by frustration is Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.