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 is a contract discharged by variation?

Answer 4

All parties agree to vary the original agreement, and this must be supported by consideration, unless deed is used.

Question 5

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

Answer 5

By giving reasonable notice

Question 6

When will the implied variation or waiver arise?

Answer 6

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

Question 7

Is consideration required for implied variation?

Answer 7

Yes

Question 8

Why is consideration not required for implied waiver?

Answer 8

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 9

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

Answer 9

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

Question 10

What is an exception to the general entire obligations rule?

Answer 10

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

Question 11

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

Answer 11

No, each component is deemed its own contract

Question 12

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

Answer 12

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

Question 13

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

Answer 13

Revision to the price to be paid.
* if not agreed then determined by court on quantum merium basis.

Question 14

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

Answer 14

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

Question 15

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

Answer 15

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

Question 16

What is a breach of contract?

Answer 16

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

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

Question 17

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

Answer 17

Termination:
Prior rights and obligations remain in place

Rescission:
Prior rights and obligations disappear

Question 18

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 18

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

Question 19

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

Answer 19

It is lost

Question 20

What options are available where a party announces an anticipatory (repudiatory) breach of contract?

Answer 20

1) discharge; or
2) Affirm

Question 21

What is an actual breach?

Answer 21

A breach taking place at the time of performance with no prior indication

Question 22

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

Answer 22

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

Question 23

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

Answer 23

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

Question 24

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

Answer 24

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

Question 25

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

Answer 25

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

Question 26

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

Answer 26

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

Question 27

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

Answer 27

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

Question 28

What are two requirements for frustration through radical difference?

Answer 28

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

Question 29

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

Answer 29

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 30

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

Answer 30

From the moment the event occurred

Question 31

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

Answer 31

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
   * includes any expesnes incurred in an attempt to perform the contract.
2. Any valuable, non-monetary benefit obtained before the discharge may have to be paid for.
   * court will - (i) identify the benefit; (ii) exercise discretion that a “just” sum be paid over.

Question 32

Where a performance under a contract is not fully completed due to a frustrating event, will renumeration be granted for semi-completed work, and how is this calculated?

Answer 32

• Court can use its discretion to award such a sum as is reasonable prior to the frustrating event, but under s 1(2) of Law Reform (Frustrated Contracts) Act 1943, this is limited to no more than such sums paid prior to the frustrating event (ie. initial deposit).