Chapter 6 - Discharge

Question 1

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

Answer 1

by performance, by breach, by agreement or by frustration

Question 2

How can a contract be discharged by performance?

Answer 2

If both parties have done precisely and completely what they each promised under the contract, sometimes called the ‘entire performance rule’.

Question 3

What is an entire contract and give a case law example (2 case law to choose from)?

Answer 3

An entire contract is one in which a party is unable to sue if they have not themselves fulfilled their obligations under the contract. E.g. Cutter v Powell [1795] (couldn’t sue for wages when crew died because death meant he did not fulfil obligations) or Bolton v Mahadeva [1972] (heating system installed by Bolton so ineffective it did not count as full performance)

Question 4

What are the five exceptions to the entire performance rule?

Answer 4

acceptance of partial performance / substantial performance / prevention of performance / tendered performance / severable obligations

Question 5

What is acceptance of partial performance?

Answer 5

If a party accepts part performance of a contract they are obliged to pay the other party for what they have done, which creates a new contract.

Question 6

What will stop acceptance of partial performance being an applicable exception to the entire performance rule? Give a case law example.

Answer 6

If there is no element of choice and the party has no alternative but to accept partial performance, they cannot be made to pay. (Sumpter v Hedges [1898]).

Question 7

What is substantial performance? Give a case law example.

Answer 7

If partial performance is not bad enough to amount to a failure to perform at all then the court may decide the party should be paid for the work they have done (sometimes less costs - for repair of a bad job for example) as in Hoening v Isaacs [1952]. The court will decide when part performance is sufficient to amount to performance at all based on individual case circumstances.

Question 8

Explain the exception to the entire performance rule whereby a party prevents the performance of the other and give a case law example

Answer 8

If one party prevents the performance of the other (and that party’s compliance was required to fulfil the contract), they are able to sue for payment for the work they had done up until this point. Plancé v Colburn [1831] (the book case)

Question 9

What happens if one party tenders performance of their obligation under the contract and the other party rejects it? Give a case law.

Answer 9

The party’s tender (attempt) will be viewed as full performance as they have done everything they can to perform. This will only apply when the other party’s compliance is required for the performance to occur. (Startup v Macdonald [1843]).

Question 10

What are severable obligations and how are they an exception to the entire performance rule?

Answer 10

Severable obligations are divisible contractual obligations and can be divided into parts to allow one party to claim part-payment when they have completed one part of their obligation, rather than having to complete the entire contract to receive payment.

Question 11

Time will only be of the essence when… (3)

Answer 11

The contract expresses or implies it is / After a deadline isn’t met, one party tells the other time is of the essence and sets a new deadline (which if not met can lead to termination of the contract and suing for damages) / The circumstances indicate that it is (e.g. if goods are perishable)

Question 12

If time is not of the essence, what will the court usually view the relevant clause as being? Give a case law example and the outcome

Answer 12

An innominate term. In Valilas v Januzaj [2014] V not making his monthly payment to J was not considered a repudiatory breach as it was delayed payment so J was only entitled to damages.

Question 13

What is breach of contract?

Answer 13

When one party fails to discharge the contract as agreed, allowing the injured party to claim damages and sometimes allowing them to end the contract.

Question 14

What is a termination or break clause and when are they commonly used?

Answer 14

A clause stating precisely when and how parties may discharge the agreement. Commonly used in commercial contracts.

Question 15

What is a Deed of Release and what section from which statute is relevant?

Answer 15

A binding agreement allowing a party who has completed their contractual obligation to agree to release the other party (who has not completed theirs) from the contract. If it is properly effected as required by s1 Law of Property (Miscellaneous Provisions) Act 1989 then the contract will end.

Question 16

How else can parties terminate a contract if they do not execute a deed? Name the relevant case law.

Answer 16

By creating a contractual agreement to do so which will be a separate but related contract with a legally binding agreement (accord) and valuable consideration (satisfaction). These principles stem from British Russian Gazette and Trade Outlook v Associated Newspapers [1933].

Question 17

What are the requirements for ‘accord’ of an agreement to terminate? Give the case law.

Answer 17

It must be both complete and certain in its terms and the parties must both mutually agree they intend to discharge the contract. (D & C Builders v Rees [1966]).

Question 18

What will be considered good satisfaction when a) both parties have outstanding obligations under the original agreement? and b) one party has completed their obligations and the other hasn’t? (+ case law for b)

Answer 18

a) When both parties have obligations the promise not to enforce these against each other is good consideration
b) When one party has outstanding obligations, fresh consideration is required. It can be executed or executory but a smaller sum in substitution of a larger sum owed is insufficient satisfaction as there is no additional benefit received. (D & C Builders v Rees [1966])

Question 19

What is an exception to the rule that a smaller sum in substitution for a larger one is not sufficient satisfaction for a discharge agreement? Give the case law.

Answer 19

If the part payment is made in a different form or is paid at an earlier time or different place to the original obligations. (Vanbergen v St Edmund’s Properties [1933])

Question 20

What does it mean if a contract is ‘frustrated’?

Answer 20

That unforeseen circumstances have arisen after a contract has been made which then make the contract impossible or illegal to perform, or which undermine its commercial purpose. Neither party can sue for breach as neither will be at fault.

Question 21

What frustrating event is Condor v The Barron Knights Ltd [1966] an example of? (drummer)

Answer 21

When a contract depends on the personal services of someone and that person is ill, absent or dies. In this case the drummer of a band had an illness and was told he could only perform 4 nights a week instead of his required 7.

Question 22

What frustrating event is Taylor v Caldwell [1863] an example of? (burnt hall)

Answer 22

When something essential to a contract is destroyed. In this case, a hall hired by one party from the other to hold concerts in was burned down before the first concert.

Question 23

What frustrating event is Krell v Henry [1903] an example of? (coronation)

Answer 23

When an event that is the sole purpose of the contract does not take place. In this case a room was hired to watch the coronation from the window, which was then cancelled due to the King’s illness.

Question 24

Why was the contract not frustrated in the matter of Herne Bay Steamboat Co v Hutton [1903] when the coronation was cancelled?

Answer 24

Because the coronation was not the sole purpose of the contract and the defendant was still able to take passengers for trips to see the fleet (which was one of the two reasons the boat was hired)

Question 25

What is the requisitioning of the plant or materials used in a contract by the government an example of in relation to frustration of contracts?

Answer 25

Frustration by government interference

Question 26

What does supervening illegality mean and give a case law example

Answer 26

When something becomes illegal after the formation of a contract. Fibrosa Spolka Akcyjna v Fairbarn Lawson Combe Barbour [1943])

Question 27

What four things WILL NOT frustrate a contract?

Answer 27

If the parties have anticipated and provided for the event in the contract / If the contract turns out to be more expensive or difficult than the parties envisaged / If the event is “self-induced” / The current economic downturn

Question 28

What is an example case law of when a contract was frustrated even though the parties had provided for delay in the contract and why was this?

Answer 28

Metropolitan Water Board v Dick Kerr [1918]. Even though delay was provided for, war broke out and the government requisitioned the plant and so this was serious and prolonged enough to make the resumed contract completely different to that which was agreed.

Question 29

What is a case law example of when a contract was not frustrated by it being more difficult and expensive than anticipated?

Answer 29

Davis Contractors v Fareham Urban District Council [1956]

Question 30

In which case did the court hold that the frustration of a contract was self-induced?

Answer 30

The “Super Servant 2” [1990]

Question 31

What case law suggested that current economic downturn would not frustrate a contract?

Answer 31

Gold Group Properties Ltd v B D W Trading Ltd [2010]

Question 32

What are the two common law rules on losses incurred under frustrated contracts (which has since been modified by statute)? Give the case law example for each.

Answer 32

That expenditure already incurred under a contract before frustration could not be recovered (Appleby v Myers [1867]) and that where there is a total failure of consideration and party has not received anything under the agreed promise, money already paid out can be recovered (Fibrosa [1943]).

Question 33

What is the payer rule and what section of the Law Reform (Frustrated Contracts) Act 1943 states it?

Answer 33

That any money paid before the frustrating event is recoverable by the payer and they do not have to pay any money due that was not paid before the frustrating event. (s1(2) LR(FC)A 1943)

Question 34

What is the payee rule and what section of the Law Reform (Frustrated Contracts) Act 1943 states it?

Answer 34

That if a payee has incurred expenses in the performance of the contract before the frustrating event, the court may allow them to retain or recover some or all of the money paid or owed to them under the contract. (s1(2) LR(FC)A 1943)

Question 35

In which case was s1(2) LR(FC)A 1943 applied?

Answer 35

Gamerco SA v ICM [1995]