3: Termination of Contract

Question 1

3 ways a contract can be brought to an end?

Answer 1

Performance

Frustration

Breach

Question 2

What is ‘performance’ of the contract?

Answer 2

Contract is usually discharged by the performance by both parties of their duties

Performance must be exact and complete

Partial performance is no performance
- unless substantial performance

Partial performance may discharge contract if freely accepted by other party

Question 3

What is substantial performance?

Answer 3

If performance is ‘substantial’ that will be sufficient discharge.

If a contractor has substantially performed the contract with only minor defects they are entitled to the contract price less remedy

Question 4

What are severable contracts!?

Answer 4

When contracts are divisible

If several points, things can be paid in reference to different periods

Question 5

What is quantum meruit?

Answer 5

If one party is presented from performing his or her duties under a contract due to the other party

Offer of performance is sufficient to discharge contractual obligations

Party can bring on quantum meruit - order for defendant to pay damaged for proportion

Question 6

What is frustration of the contract?

Answer 6

When a contract is made and then the performance becomes impossible due to a matter for which neither party is responsible

Performance MUST be impossible

Question 7

What does the Frustrated Contracts Act 1943 regulate?

Answer 7

The rights of each party following a frustration:

• Amounts paid by parties is to be refunded
• Amounts still outstanding are no longer due
• any expenses prior to the frustration may be repaid
• court can order payment of all or part of value of ‘other benefit’ that is sees as just

Question 8

What is a breach and what are the two types?

Answer 8

Contractual duties not properly performed

Actual breach
Anticipatory breach

Question 9

What is an actual breach

Answer 9

Happens when the performance of the contract was due. Either:

• one party doesnt do any performance
• performance is so inadequate the injured party is substantially deprived of the whole benefit

Question 10

What is an anticipatory breach?

Answer 10

Before the due date, one party states or shows by actions that they will not be performing the contract

• express: party declares that they have no intention of carrying out the duty
• implied: one of the parties does something that makes performance of the contract impossible

Question 11

What are the two options available to a party with anticipatory brreach?

Answer 11

• contract can be treated as discharged immediately and injury party can sue
• injured party may continue with obligations until an actual breach happens

Question 12

What is the effect of breach?

Answer 12

Damages may always be sought in breach

But only if the breach goes to root of the contract can contracted by ended

If repudiatory breach (very serious breach), injured party can end or affirm the contract.

Question 13

What is a lawful excuse?

Answer 13

One party has offered to perform, but other party has refused

One party makes it impossible for other to perform their obligations

Parties have agreed that certain obligations shall not be performed

Question 14

What are the key procedures of alternative dispute resolution?

Answer 14

Arbitration
- settled by independent person chosen by parties, acts like a judge
- arbitration agreement submitted into at start of relationship

Meditation and concilliation
- independent party assisting the parties in coming up with their own solution.
- solutions are not automatically legally binding

Question 15

Ads of alternative dispute resolution?

Answer 15

An expert in the field

Cheaper

Private

Not limited to damages

Quicker

Question 16

Dis of alternative dispute resolution?

Answer 16

Decision lacks legal authoriry

Cost advantage is lost if dispute lasts ages

Solutions not immediately legally enforceable

No impetus to keep to timescale

Question 17

What are damages? Three types?

Answer 17

They are a common law remedy, the main remedy for breach of contract - available as a right

Put both parties in the position they have would have been in had the contract been properly performed

Unliquidated
Liquidated
Penalty clause

Question 18

What are unliquidated damages? On what ways are they judged?

Answer 18

The court determined the damages payable as there is no provision in the contract

• remoteness
• measure
• loss of enjoyment
• loss of bargain
• reliance losses
• mitigation of loss

Question 19

Unliquidated: how is remoteness judged?

Answer 19

You cant blame the party for ALL of the consequences of their actions - only the ones which are a natural consequence

Also can get damages if both parties know it could be a possible consequence at the time of agreement

Question 20

Unliquidated: how is loss of enjoyment judged?

Answer 20

Very rare occasions - award for mental distress

• courts can recognise ‘peace of mind’ obligations, especially in terms of pleasure and leisure

Question 21

Unliquidated: how is measure judged?

Answer 21

Cost to put the claimant back in the position they would have been in if the contract has been properly performed

Protecting expectation interest of claimant

Question 22

Unliquidated: how is loss of bargain judged?

Answer 22

If the claimant has suffered no actual loss, buyer will be awarded nominal value

Question 23

Unliquidated: how is reliance judged?

Answer 23

Claimant can recover compensation for expenses incurred before breach

May be claimed where such losses exceed any likely profit

Question 24

Unliquidated: how is mitigation judged?

Answer 24

Court will assume that the claimant had taken all the steps that could be reasonably expected to mitigate loss

Otherwise nominal only damages

Question 25

What are liquidated damages?

Answer 25

A genuine pre-estimate of the expected loss

Enforceable by court

Fixed sum as part of the contract

Question 26

What is a penalty clause?

Answer 26

Another kind of fixed sum in contract, but this is excessive or arbitrary, and is not enforceable

Court would rather deem as unliquidated!

Question 27

What are the tests for penalty clauses?

Answer 27

• is the amount out of proportion to the potential losses
• is the same amount given for a number of potential losses
• is it an obligation that imposes a detriment out of all proportion to any legitimate interest of the innocent party

Question 28

When can penalty clauses be awarded?

Answer 28

If felt excess in proportion to losses suffered

Question 29

What are equitable remedies and when will they NOT be granted?

Three types?

Answer 29

Discretionary remedy. Court can decide, unlike damages which must be paid

Not granted if:
- damages are adequate
- claimant acted unfairly
- claimant has been unduly delayed bringing action to court

Specific performance
Rescission
Injunctions

Question 30

What is specific performance?

Answer 30

An order for the defendant to perform his or her part of the contract

Only granted in sale of land - too unique, cant get damages!
- sale of goods similar, if unique

• not for personal services, unfair to force someone to work for another after court.
• must be mutually enforceable

Question 31

What is an injunction and the three types?

Answer 31

Order for person to do or not do something

Mandatory
- party should take positive steps to undo something

Prohibitory
- observe a negative promise in a contract
- dont do something!
- not granted if it causes undue hardship

Asset-freezing
- prevents defendant dealing with assets
- if injunction not awarded, asset might disappear

Question 32

What are exclusion clauses? The tests?

Answer 32

Terms written in contracts in an attempt to exclude or limit liability

Clause is interpreted against the person who is trying to rely on them

Common law tests
- incorporation
- interpretation

Statutory rules

Question 33

What are the common law tests?

Answer 33

Incorporation
- wording of clause must cover loss
- must be integral part of contract
- signature - if signed, they are bound!
- notice - defendant must take reasonable steps to being clause to claimant’s attention, at time of agreement or before

Interpretation
- can only rely if it covers the loss the claimant has suffered

Question 34

Two statutory rules on exclusion clauses

Answer 34

Unfair Contract Terms Act 1977

Consumer Rights Act 2015

Question 35

What does the Unfair Contract Terms Act 1977 consider?

Answer 35

Clause exempting liability is void when:
- death of injury due to negligence
- other loss due to negligence

Party has to prove it is reasonable

Strength of bargaining parties

Inducement to agree to term?

Question 36

What does the Consumer Right Act 2015 consider?

Answer 36

Is the contract fair

Is the term automatically unenforceable? If so, void

Factors to consider if fair:
- consumer at disadvantage?
- relevant circumstances?
- nature of contract?
- plain and intelligible clause?
- terms prominent?
- would an average consumer be aware of the term?

If unfair, not binding