Contract 3.2: Discharge and Variation

Question 1

How can a contract be discharged (general)?

Answer 1

• By Agreement
• By expiry of fixed term contract
• By breach of a condition/imp inanimate term
• Complete performance
• Frustration
• Total failure of consideration
• Unjust enrichment

Question 2

How can a contract be discharged or varied by agreement?

Answer 2

A. By a waiver entered into by both parties which cancels contract.
- A partially performed/completely performed, and B performed no obligations under contract (part payment of debt) = B must be released from performing their obligations by a deed (no consideration needed) OR B can be released by giving some new consideration (part payment of debt rules and Pinnel’s case)

B. Discharge by operation of a term in contract
- A term providing for termination of contract by specified action (e.g. serving notice) or after a certain time (a contractual end date), OR
- “Material Breach” term

Question 3

What is waiver and what are its effect?

Answer 3

• If a party promises not to enforce an obligation court may conclude that they have waived their rights in respect of the non-performance
• However party can change their mind and reinstate the original terms by giving reasonable notice
• Implied Variation or waiver

Question 4

When can implied variation or waiver take place?

Answer 4

Parties to proceed as if there were a new understanding between them even though nothing has been said

Implied Variation:
- all parties have acquiesced in new understanding
- there is consideration

Implied Waiver
- If there is no consideration there may still be an implied waiver

Question 5

When can a contract be terminated by performance?

Answer 5

Generally needs full performance

Exception:
- Substantial performance (complete LESS defects- look at whether primary purpose affected and expense in fixing)
- Divisible contracts (party paid for part done)
- Partial performance accepted by other party (quantum meruit basis)
- Performance is prevented (claim breach of contract + quantum meruit + may terminate future perm if condt)
- E. S15A SoGA (breach of ss13, 14 or 15 SGA but breach is so slight it would be unreasonable to repudiate contract- other party can accept goods but claim damages under a breach of warranty

Question 6

What happens if a party breaches a contract?

Answer 6

If breaches condition or repudiates contract altogether
- contract can be terminated by communication termination to party in breach
- should not affirm contract or lose right to terminate

Question 7

What is the effect of terminating a contract?

Answer 7

• Rights and obligations which have accrued before termination remain in place
• IP may be able to claim damages for breach

Question 8

What happens if a contract is terminated due to breach of condition in relation to goods delivered?

Answer 8

• Must communicate termination to party in breach
• Buyer is not obliged to pay for them but must return them (otherwise affirm contract)
• Buyer can also claim damages

Question 9

What can you do if party indicates they are not going to fulfil their obligations under contract?

Answer 9

Can be indicated expressly or impliedly

• IP can choose to accept breach, terminate and claim damages, or
• Can wait until performance is due (preserving their rights under the contract) (Waiting is risky as there may be an intervening act (such as frustration))

Question 10

What is the effect of frustration of a contact?

Answer 10

• Contract ends from moment the frustrating event occurred
• Releases parties from any further liability to each other
• No breach of contract is committed and no remedies

Question 11

Define Frustration

Answer 11

• Contract formed
• Unforeseen event occurs/not dealt with in contract
• Which not fault either party &
• Make contract impossible to perform, or makes perfm of contract radically different

Question 12

How are losses assessed/recovered after contract is frustrated?

Answer 12

LRFCA sets out rules to apportion losses between parties but this is at discretion of court:

1. Money paid before frustrating event can be recovered
2. Money that should have been paid before the frustrating event no longer needs to be paid
3. if party incurred expenses before discharge, court may allow restitution of sums paid to account for this
4. Where one party has gained a valuable benefit under the contract before the frustrating event may be liable to pay a just sum for it

Question 13

When do LRFCA rules for losses after frustration not apply?

Answer 13

1. If express term in contract overrides it
2. For charter-parties (hire of ship and deliver of cargo) for goods carried by sea

3.Insurance contract

4. Sale of goods contracts if frustration is that goods perished

Question 14

What types of frustrations are there in contract?

Answer 14

(a) Govt intervention/illegality

(b) Unavailability of specific thing or person crucial for contract

(c) Destruction of subject matter

(d) Non-occurrence of fundamental event

(e) Delay

(f) Change in circms (Purpose of contract incapable of being performed- supervening event makes commercial purpose of contract, shared by parties impossible to perform- frustration wont apply if some comm benefit from contract can be gained)

Question 15

When is something not a frustrating event?

Answer 15

• If frustration has been caused by one of the parties then it will be breach of contract
• If either party was aware of the possibility of the frustrating event occurring
• Burdon of proof in on party alleging frustration

Question 16

What in a contract may prevent frustration being an issue?

Answer 16

Force Majeure

B2B force majeure clause limiting/excluding liability subject to s3 UCTA- needs to be reasonable to be upheld

Question 17

What are limitations to frustration?

Answer 17

A. If a Job becomes more expensive to perform due to unexpected events but it is still capable of being performed = must still be performed

B. Unexpected event/change in circumstances is an inherent risk in industry or at time contract was entered into was foreseeable

C. Event that caused the frustration was actually caused by fault of party trying to rely on that event to frustrate the contract.

D. Express contractual provision (B2B force majeure clause limiting/excluding liability subject to s3 UCTA- needs to be reasonable to be upheld)

Question 18

What are the options when a breach of condition or important innominate term occurs?

Answer 18

IP can either:
- Terminate the contract and claim damages.
- Affirm the contract and claim damages (must mitigate) (cannot change mind after decided)

Question 19

What is a repudiatory breach?

Answer 19

A repudiatory breach involves breaches of conditions or important innominate terms. IP can:
- Repudiate the contract and claim damages.
- Affirm the contract, continue obligations, and claim damages.

Question 20

What is anticipatory breach, and what are the options available?

Answer 20

Anticipatory breach occurs when one party indicates they won’t perform obligations before the breach. IP has two options:
- Terminate the contract and claim damages from the date of notice.
- Affirm the contract and continue performance (if cooperation is not needed) and sue for the contract price as a debt action.