CH3 Termination of Contract Flashcards
- Recognise when a legally binding contract exists between two parties and how a contract may be enforced - Identify the circumstances under which a contract can be terminated and possible remedies for breach of contract - Explain the role of arbitration as a means of alternative dispute resolution
What are the three ways that a contract can be discharged?
Performance
Frustration
Breach
What are the three ways of discharging a contract through performance?
Complete and exact
Substantial
Partial
What does discharging a contract by complete and exact performance mean?
Both parties have carried out what was agreed.
E.g. you ordered coffee and paid and the coffee was given to you
What does discharging a contract through substantial performance mean?
The other party has done the vast majority of what they agreed to.
E.g. a builder has built the house but not painted the final wall.
Damages may be payable.
What does discharging a contract through partial performance mean? When could the contract be discharghed?
The other party has only done part of what they said they would.
E.g. built only one of three houses.
Can only be discharged if the contract is severable.
What does it mean when a contract is discharged through frustration?
It becomes impossible to perform a contract through no fault of either party
What does it mean when a contract is discharged through breach?
One of the parties has failed to perform
If one party prevents performance, what can the other party do to discharge their obligations? What two actions can they take to resolve the issue?
The offer by the other party is sufficient discharge of his obligations and he can sue for damages for breach of contract OR bring a quantum meruit action (claim for the amount of work completed)
What Act applies if a contract is frustrated?
The Law reform (Frustrated Contracts) Act 1943
What are the key points of the the Law Reform (Frustrated Contracts) Act 1943?
- Money paid to be repaid
- Money due is no longer due
- Expenses may be recovered if incurred in the performance of the contract before it was frustrated
- Valuable benefit may be shared
What are lawful excuses for breach of contract? ORIA
- Performance offered but rejected
- Other party make performance impossible
- Agree to not perform
What are the two types of breach of contract?
Repudiatory
Anticipatory
What is a repudiatory breach?
The term breached is fundamentally important
E.g. Contract to run a course and you do not turn up to run it
What is an anticipatory breach?
One party tells you they will not perform.
E.g. contract to run a course and you tell me in advance you will not turn up
With an anticipatory breach, what are the two courses of action possible?
- Treat as discharged immediately and sue for damages
- Allow contract to continue until actually breached and then sue
With respect to anticipatory breach, when does the duty to mitigate losses arise?
When the injured party accepts the breach
For repudiatory breach, what must the innocent party do if they elect to treat the contract as discharged by doing what or what?
Notify the other party of their decision
Either by refusal to accept further performance OR
Refusal to perform their own obligations
Repudiatory breach: if the innocent party elects to treat the contract as discharged, what key points apply?
When discharged from obligaitons?
Future performance?
Partial/defective prior performance?
Damages claimable?
- NOT discharged from contractual obligations at time of termination, but IS discharged from future contractual obligations and cannot be sued for them.
- Need not accept nor pay for FUTURE PERFORMANCE
- May refuse to pay for PARTIAL/DEFECTIVE performance already received, unless contract is severable
- Can RECLAIM money already paid for defective performance
- Can still claim DAMAGES from the defaulter
What is the two part test that must be satisfied in order to claim damages?
- Remoteness of damages: how far down the chain of causation?
- Measure of damages: how much? ££
Remoteness of damages: damages may only be awarded in respect of those losses which may fairly and reasonably be considered as either what or what?
- Arising naturally from the breach
- If losses are not reasonably foreseeable - if they had known what was going to happen, what would they have foreseen as being the probable result of that breach? Do they KNOW?
What is the purpose of damages?
To put the person in the position that they would have been in had the contract been performed
In terms of measure of damages, what is aim of ‘expectation interest’ and what is the aim of ‘reliance interest’?
Expectation interest: put person in position that they would have been in had the contract been performed
Reliance interest: put claimant in position they would have been in had they not relied on the contract (i.e. if you can work out the costs that you have incurred because you relied on the contract, then those are the damages)
What is mitigation of loss?
When assessing the amount of damages, it is assumed that the claimant will take all reasonable steps to reduce/mitigate loss
What are liquidated damages? Where are they recorded? What must they be?
A pre-estimate of potential damages
Written into contract
Must be a genuine attempt
What is a penalty clause?
Where liquidated damages are excessive
Not enforceable
In terms of remedies for breach of contract, what are the two types?
Damages
Equitable (only when damages will not fix the problem; discretionary)
What is specific performance? When is it available? What two things does it not apply to?
The court makes you do something
Discretionary
Only available if damages are not adequate remedy
Not where supervision of performance required
Not for personal service
What is an injunction?
The court makes you stop doing something
Discretionary
What are the three types of injunction?
- Mandatory: take positive steps to undo something you have done
- Prohibitory: observe a negative promise in a contract
- Asset freezing
When is an exclusion clause enforceable?
When it is an integral part of the contract (i.e. if the contract has been signed)
If a contract with an exclusion clause is unsigned, what needs to be considered?
- Timing
- Communication
- More onerous terms - more done to make party aware
What is the Unfair Contract Terms Act 1977 and who/what is it between?
The Act restricts the effectiveness of exclusion clauses in contracts between businesses by declaring them void or void unless reasonable
What does the Unfair Contract Terms Act 1977 NOT apply to? 3 things
- Insurance or land transfer contracts
- Private individuals
- Business and consumer (Consumer Rights Act)
What are the key provisions of the Unfair Contract Terms Act 1977?
- Clauses attempting to exclude/restrict liability for death/personal injury through negligence = VOID
- Clauses attempting to restrict liability for any other loss/damage arising from negligence = VOID unless shown reasonable
- Contracts of sale/hire purchase: clauses that exclude/limit ownership = VOID
What are the key points of the Consumer Rights Act 2015?
- Provisions excluding liability for death/personal injury arising from negligence or which restrict consumers’ legal rights under the Act = VOID = UNENFORCEABLE
- Other clauses: only enforceable if FAIR
- Consumers can rely on UNFAIR clauses
- Ambiguity interpreted against trader
