Contract 7: Discharge and Variation

Question 1

How can a contract be discharged (general)?

Answer 1

By Agreement

By expiry of fixed term contract

Full performance

Breach

Frustration

Question 2

How can a contract be discharged or varied by agreement?

Answer 2

All parties have unperformed obligations
- consideration good as each suffering detriment and gaining benefit

One party has performed obligation in full
- consideration must be given; or
- agreement done by deed

Question 3

What is waiver and what are its effect?

Answer 3

Waiver
- 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 if:
- all parties have acquiesced in the 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
- divisible contracts
- partial performance accepted by other party
- performance is prevented

Question 6

How can a contract be terminated by substantial performance? (effects)

Answer 6

• If there is substantial but imprecise performance this may be enough to discharge obligations
• Minor breaches would simply be a breach of warranty and can be reclaimed (in practice offset from price payable)

Question 7

How can a contract be terminated by partial performance? (effects)

Answer 7

If partial performance has been agreed voluntarily by other party
- court will generally conclude that the parties have agreed a new contract on revised terms (essentially variation)

Consideration
- normally revised price
- otherwise courts will determine reasonable renumeration for work done (quantum meruit basis)

Question 8

What happens if performance is prevented?

Answer 8

If prevented by other party
- from performing their obligation under contract which would otherwise be capable of being performed
- The other parties conduct may be a breach of condition
- Innocent party can terminate contract and claim damages

If prevented by outside events
- then frustration

Question 9

What happens if a party breaches a contract?

Answer 9

If breaches condition or repudiates contract altogether

• contract can be terminated by communication termination to party in breach
• should not affirm the contract or lose right to terminate

Question 10

What is the effect of terminating a contract?

Answer 10

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

Question 11

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

Answer 11

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 12

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

Answer 12

Can be indicated expressly or impliedly

• Innocent party 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 13

What is the effect of frustration of a contact?

Answer 13

• Automatically discharges contract
• Releases partied from any further liability to each other
• No breach of contract is committed
• Contract effectively discharged from moment the frustrating event occurred

Question 14

How are losses assessed/recovered after contract is frustrated?

Answer 14

LRFCA sets out rules to apportion losses between parties but this is at discretion of court
1. Money paid before the 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 15

When do LRFCA rules for losses after frustration not apply?

Answer 15

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 16

What types of frustrations are there in contract?

Answer 16

Impossible
- Subject matter no longer exists through no fault of parties
- Subject matter is unavailable
- Parties are unavailable through death or illness (more likely if illness is long term or permanent or may be breach of contract)

Supervening Illegal
- law changes after contract is formed
- if illegal from get go then void

Radically Different
- Radical difference must be fundamental to the contract and supervening event must not have been in contemplation of the parties at the time the contract was formed

Question 17

When is something not a frustrating event?

Answer 17

• 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 18

What in a contract may prevent frustration being an issue?

Answer 18

Force Majeure

• In practice frustration not an issue as most contracts include clause anticipating such events and apportioning liability for them