Chapter 6 - Discharge of a Contract (Part 1)

Question 1

What are the four ways a contract can be discharge?

Answer 1

Discharge by performance, frustration, agreement or repudiation

Question 2

What is discharge by performance?

Answer 2

Discharge of performance is whereby both parties perform their respective obligations according to the terms of the contract.

Question 3

Explain on the “time of performance” for discharge by performance.

Answer 3

How soon a contract is to be performed depends on the terms of the contact. If the contract states that the time of performance is to be of the essence, then the contract must be performed by the stated time.

E.g. sale of houses or apartments, there is a agreed specific date. The sale or purchase must be completed by that date.

If contract does not specify the time of performance, then the contract must be performed within a reasonable time.

Question 4

What is the general rule for discharge by performance?

Answer 4

A party must completely perform exactly what he agreed to perform in order to discharge his contractual liability and claim his contractual benefit under the contract.

The contractual benefit is usually the payment of the contract price or the performance of the service as the case may be.

Question 5

What if one party is unable to fulfil his obligations under the contract? (discharge by performance)

Answer 5

He is said to have breached the contract for which he is liable to be sued by the other party.

Question 6

What is 4 exceptions to the general rule under discharge by performance? (Incomplete performance)

Answer 6

1. Part performance is voluntarily accepted.
2. Divisible Contracts
3. Substantial Performance
4. Complete performance prevented

Question 7

Explain more on “ Part performance is voluntarily accepted.” (discharge by performance)

Answer 7

When one party (but not substantially) performs his obligation under the contract.

Note - This exception does not apply if the innocent party has no choice but to accept the part performance. Acceptance must be voluntary.

Question 8

What is Divisible Contracts under discharge by performance?

Answer 8

A divisible contract is a contract that provides for performance by installments or stages with separate payment for each installment/stage.

Even if the contract is not completed, payment can still be claimed for each part of the divisible contract that has been completed.

In contrast, an invisible contract or otherwise called a lump sum contract or entire contract, provides for full payment on the completion of the entire contract.

Question 9

What is substantial Performance under discharge by performance?

Answer 9

If the contractor has completed a major part of the renovation works leaving only minor outstanding work, he could claim payment for the work done minus the amount to make good the defects. It is a question of fact whether the performance is substantial and the breach is not a material breach.

Question 10

What is complete performance prevented by the other party under discharge by performance?

Answer 10

Under this exception, the plaintiff is ready and willing to complete the contract but for some reasons the defendant stops the contract.

This is in fact a breach of contract by the defendant. The plaintiff can

1) Sue for breach of contract (may not want to save costs and time)
2) Claim compensation on a quantum meruit basis for the value of the work completed.

Question 11

An example of a case study for Complete performance prevented by the other party under discharge by performance?

Answer 11

Planch v Colburn

Planche had a contract to write a volume in a series to be published by Colburn.
Planche has started on the book when Colburn subsequently cancelled the series.
It was held that Planche could recover reasonable remuneration for the hard work done on a quantum basis.

Question 12

What is discharge by frustration?

Answer 12

A contract is discharged by frustration when after the contract has been entered into, through no fault of the parties, an unexpected or unforeseen event that is beyond the control of the parties to the contract, occurs rendering the contract either impossible or illegal to perform.

Once a contract is deemed frustrated, the contract will be automatically discharged and the parties to the contract are relieved of their obligations under the contract.

Question 13

What are the two types under discharge by frustration?

Answer 13

illegality and impossibility

Question 14

Explain more on impossibility under discharge by frustration?

Answer 14

A contract becomes impossible to perform if

1) in a personal service contract, the provider of the service dies or suffers from physical incapacity (i.e. unable to perform due to physical injury)
2) Where the subject matter of the contract no longer exists (i.e. subject matter of the contract is destroyed)

Question 15

Name a case example on impossibility under discharge by frustration?

Answer 15

Taylor v Caldwell

A music hall was hired for a series of concerts.
An accidental fire destroyed the hall before the first concert.
It was held that the hire contract was discharged.

Distinguish this case with a case of arson or negligence where the owner either deliberately sets the property on fire or through his own negligence caused the property to be burned down.

Question 16

Explain more on illegality under discharge by frustration?

Answer 16

A contract becomes illegal to perform if there is a change in the law of the state intervenes or there are trade restrictions.

For example, if the government imposes a ban on the import or export of a particular commodity, the parties would not be able to perform the contract.

Question 17

What are exceptions to frustration?

Answer 17

Meer inconvenience or higher expenses does not constitute frustration.

It should be noted that if circumstances beyond the parties’ control merely make the performance of the contract more difficult or inconvenient or more costly, the court does not consider the contract frustrated.

Example, if contract can be fulfilled by looking to other sources.

Question 18

What is the force majeure clause?

Answer 18

The parties may actively take steps to provide in their contract how they intend to deal with the occurrence of certain events that they have no control over.

E.g. parties may include a force majeure “superior force” clause into the contract.

Generally, force majeure clauses deals with natural disasters and acts of natures. It could also include labor disputes resulting in strikes and lockouts. In such cases the parties would be relieved from liability under the contract.

Question 19

What happens under the frustrated contracts Acts?

Answer 19

1. Money paid before frustration may be recovered
2. Money payable at time of frustration cease to be payable
3. Must pay a reasonable sum for valuable benefit enjoyed
4. Expenses incurred before frustration is recoverable if the court considers it just.