10. Discharge and Variation of Contract

Question 1

What are the five ways in which a contract can be discharged?

Answer 1

1. Agreement
2. Variation
3. Performance
4. Breach
5. Frustration

Question 2

How is a contract discharged by agreement?

Answer 2

All parties essentially form a new agreement (which must be supported by consideration) to end the old agreement

Question 3

How can obligations amount to consideration for the new contract to end the previous one by agreement?

Answer 3

If both parties have unperformed obligations, each will be suffering a detriment, and the acceptance by both of this detriment is valid consideration

Question 4

How can a contract be discharged by agreement, if one party has performed the contract in full and the other party has unperformed obligations under the contract?

Answer 4

As an agreement to accept part payment of a debt is not binding, because the creditor has given no consideration for their promise, the agreement will need to be entered into by deed as it will be unsupported by consideration. If there is no deed, then some new consideration will be required for the release.

Question 5

How is a contract discharged by variation?

Answer 5

All parties agree to vary the original agreement, and this must be supported by consideration

Question 6

How does the equitable doctrine of waiver apply in the context of variation?

Answer 6

If a party promises not to enforce another party’s obligations under a contract, the court may conclude that the first party has waived its rights in respect of non-performance

Question 7

Where a party promises not to enforce another party’s obligations, how can the first party reinstate the original terms?

Answer 7

By giving reasonable notice

Question 8

When will the implied variation or waiver arise?

Answer 8

When the parties have proceeded as if there is a varied agreement between them but nothing is actually said.

Question 9

Is consideration required for implied variation?

Answer 9

Yes

Question 10

Is consideration required for implied waiver?

Answer 10

No

Question 11

Why is consideration not required for implied waiver?

Answer 11

In the same way it is not required for waiver generally, the courts are applying an equitable remedy to get around the legal requirement of consideration

Question 12

What is the entire obligations rule in the context of performance?

Answer 12

Generally, only full, exact, and precise performance will discharge a contract.

Question 13

What is an exception to the general entire obligations rule?

Answer 13

Substantial but imprecise performance can be sufficient to discharge a contract, and any minor breaches would be considered breaches of warranty only.

Question 14

Does the substantial performance exception to the entire obligations rule apply to divisible contracts?

Answer 14

No, each component is deemed its own contract

Question 15

Is partial performance generally sufficient to discharge a contract?

Answer 15

No

Question 16

What will the court conclude if partial performance is voluntarily agreed?

Answer 16

That the parties have agreed a new contract on revised terms, as long as there is consideration

Question 17

In the context of voluntary agreement of partial performance, what generally serves as the fresh consideration?

Answer 17

Revision of the price to be paid.

Question 18

If a revised price is not agreed, how is payment determined under a partially performed contract?

Answer 18

On a quantum meruit (amount deserved) basis, i.e. pro rata to the work done

Question 19

What is the situation if the other party is given no choice but to accept partial performance?

Answer 19

This will not be enough to constitute agreement on the new terms

Question 20

What happens if one party prevents the other from performing their obligations under a contract?

Answer 20

The first party’s conduct may amount to a breach of contract

Question 21

What is a breach of contract and what are the main categories of breach?

Answer 21

When one party does not fulfil its obligations under the contract, through either:

1. Non-performance or defective performance (actual breach), or
2. Indicating it will not perform in future (anticipatory breach)

Question 22

What are the different options available to the innocent party depending on whether a contract is repudiated totally, a condition is breached, or a warranty is breached?

Answer 22

Repudiation/breach of condition:

May terminate the contract, and claim damages

Breach of warranty:

Damages only

Question 23

How does termination differ from rescission in the context of previously accrued rights and obligations?

Answer 23

Termination:
Prior rights and obligations remain in place

Rescission:
Prior rights and obligations disappear

Question 24

What is the innocent buyer’s option if goods have been delivered under the contract but there has been a breach because the goods do not conform to the contract?

Answer 24

The buyer is not obliged to pay, but must return the goods. The buyer may also claim damages.

Question 25

What happens to the right to terminate once a contract is affirmed?

Answer 25

It is lost

Question 26

What is an actual breach?

Answer 26

A breach taking place at the time of performance with no prior indication. (non-performance or defective performance).

Question 27

What is an anticipatory breach?

Answer 27

Before performance, one party indicates (expressly or impliedly) that they are not going to fulfil their obligations under a contract

Question 28

What are the innocent party’s three options in the context of an anticipatory breach?

Answer 28

1. Accept the breach immediately
2. Terminate and claim damages immediately
3. Wait until contract due date

Question 29

What must be true of the anticipatory breach for the three options to be available to the innocent party?

Answer 29

The breach must be of a condition or be otherwise fundamental to the contract.

Question 30

What is required for a contract to be discharged by frustration?

Answer 30

Performance is now either impossible, or radically difference from what was envisaged under the contract (even though technically still possible)

Question 31

What is an example of how a contract might be impossible to perform?

Answer 31

Subject matter no longer exists because it was destroyed or has become unavailable through no fault of the parties

Question 32

How do the courts view illness in the context of frustration for inability to perform?

Answer 32

The longer-term the illness, the more likely the court is to conclude a contract has been frustrated

Question 33

What is supervening illegality in the context of frustration of contract?

Answer 33

The conduct expected under a contract, whilst legal at formation, has now become illegal

Question 34

What are two requirements for frustration through radical difference?

Answer 34

1. Radical difference must be fundamental to the contract
2. Supervening event must not have been in the contemplation of the parties when the contract was formed.

Question 35

Is a contract frustrated just because it is more difficult to perform?

Answer 35

No

Question 36

Is a contract frustrated if it has been caused by one of the parties?

Answer 36

No. This is just a breach by the offending party.

Question 37

What is the effect of either or both of the parties foreseeing the frustrating event?

Answer 37

The contract is not frustrated

Question 38

What is the likely way in which frustration will be tested on the exam?

Answer 38

The classic Krell v. Henry case where someone has hired a venue for a specific purpose known to the owner and a subsequent event occurs removing the reason for which the venue was hired

Question 39

If frustration applies, at what point is the contract deemed discharged?

Answer 39

From the moment the frustrating event occurred.

Question 40

If a contract is deemed frustrated, what two things does the Law Reform (Frustrated Contracts) Act 1943 require?

Answer 40

1. All sums paid in respect of the contract before discharge will be recoverable, and all sums payable before discharge cease to be payable, and
2. Any valuable, non-monetary benefit obtained before the discharge may have to be paid for
   * According to the Law Reform (Frustrated Contracts) Act 1943, a court may allow a party who has incurred expenses in performing the contract to recover some or all of these from the total money paid and payable before the frustrating event. E.g., if a tenant pays £12,000 p.a. rent and pays 3,000 upfront and the rest at the end of the lease term, then a court might award the landlord 3,000 if the flat was flooded at the beginning of April.

Question 41

How can parties override these requirements of the Law Reform (Frustrated Contracts) Act 1943?

Answer 41

Express term in the contract, agreed by the parties

Question 42

In addition to expressly overriding the application of the Law Reform (Frustrated Contracts) Act 1943, to which three types of contracts will it not apply?

Answer 42

1. Charterparties (contract for hire of ship and delivery of cargo)
2. Contracts of insurance
3. Contracts for the sale of goods where the reason for the frustration is the destruction/perishing of the goods