Contract Law - Discharge

Question 1

In what ways can a contract be brought to an end?

Answer 1

• Agreement
• Performance
• Breach
• Frustration

Question 2

Discharge by agreement

Answer 2

• Parties can agree to end the contract before it has been performed
• Constitutes an agreement to change the original agreement
• Needs to be supported by consideration

Question 3

Two types of agreement

Answer 3

• Bilateral: both in agreement
• Unilateral: one party discharges the other

Question 4

Bilateral discharge

Answer 4

• Neither party performs its part
• Both agree to discharge the contract
• Needs agreement, consideration and ITCLR (reflecting freedom to contract)

Question 5

Bilateral Discharge Case

Answer 5

Berry v Berry 1929: Parties discharged the previous contract to end a new one due to new terms.

Question 6

Unilateral Discharge

Answer 6

• One party performs the act, in turn discharging the other

Question 7

Unilateral Discharge Case

Answer 7

MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016]: Licence agreement had a standard clause ‘all variations to this licence must be agreed, set out in writing and signed on behalf of both parties before taking effect’

Question 8

Discharge by Performance

Answer 8

• Can be discharged if parties have performed their obligation
• Entire Obligations Rule

Question 9

Entire Obligations Rule

Answer 9

Contracts must be performed strictly in accordance with their terms. If only one party performs, they are able to bring an action against the other for breach.

Question 10

Discharge by Performance Case

Answer 10

Cutter v Powell 1795: Widow could not sue for late husbands wages as he died before completing contractual obligations

Question 11

Entire Obligation Rule: Exceptations

Answer 11

• Substantial performance
• Divisible contracts
• Part performance: ‘quantum meruit’

Question 12

Substantial Performance

Answer 12

• If a party offered substantial performance under the contract, courts can hold that they discharged their obligations
• Failure to perform terms must be a breach of warranty or non-fundamental breach of an innominate term
• Party can sue and recover appropriate amount

Question 13

Substantial Performance Case

Answer 13

Hoenig v Issacs 1952: Contract was substantially performed, differed from the contract in minor aspects, court ordered the outstanding amount to be paid to the decorator, minus costs of the defects

Question 14

Divisible Contracts

Answer 14

• Contracts can be broken into smaller unities
• In an entire contract: person has completed obligations (e.g. Cutter)
• In divisible: person paid in instalments, payments on selected dates, failure to perform entire obligation on one of the parties does not lead to a non-payment.

Question 15

Part Performance

Answer 15

• One party accepts part performance (voluntarily) then the other is discharged from the contract.
• Innocent party must have a genuine choice as to whether or not to accept part performance

Question 16

Part Performance Case

Answer 16

Sumpter v Hedges 1898: payment for part performance was refused, D had been left with a half built house and had no choice but to accept. Sumpter not entitled to payment for the work, however was awarded values of materials as they could’ve been returned but Hedges kept them.

Question 17

quantum meruit

Answer 17

‘What one has earned’
- If performance was started but been prevented by the other party, quantum meruit may be entitled (payment for work done)
- Equitable doctrine based on the premise that no party should be unjustly enriched
- No damages but ‘refund’ due

Question 18

Discharge by Breach

Answer 18

• A breach can allow the innocent party to discharge the contract
• If the term is a warranty, the innocent part can only claim damages

Question 19

Anticipatory breach

Answer 19

• D realises they are unable to perform contractual obligations before due date, informing the other party of breach of contract
• Innocent party can accept breach and discharge the contract or refuse to accept breach and insist it is performed anyways.

Question 20

Discharge by Breach Case

Answer 20

White v Carter Ltd v McGregor 1962: Party may have legitimate interest in the contract being performed rather than accepting the anticipatory breach

Question 21

Discharge by Breach Remedy

Answer 21

• Repudiation: refusal to perform a duty of obligation owed to the other party
• Terminate the contract - but only if breach is a condition
• Common law remedy (damages)
• Equitable remedies (recission; specific performance; injunction).

Question 22

Discharge by Frustration

Answer 22

• Contract is discharged by an intervening event outside of the parties control
• When a contract is frustrated there is no longer an obligation to perform, ending the contract
• Doctrine is interpreted narrowly to avoid interfering with freedom of contract

Question 23

Frustration (three types)

Answer 23

• Illegal to be carried out
• Impossible to be carried out
• Radically different from what the parties agreed

Question 24

Discharge by Frustration Case

Answer 24

Paradine v Jane 1647: Contract was not discharged by the intervening event (army invasion). Courts stated if Jane wanted to reduce liability they should’ve made an express provision in the lease.

Question 25

Frustration and Force Majeure

Answer 25

A clause which frees the parties from liability or obligation when there is an extraordinary event or circumstance beyond the control of the parties which prevents one or both parties from fulfilling their obligation under the contract

Question 26

Force Majeure Case

Answer 26

Jackson v Union Marine Insurance 1874: Contract had an FM clause but court ruled that it was not designed to cover a length delay (which had occurred (8 months)).
- FM clause did not apply - contract frustrated by the long delay.

Question 27

Frustration Impossible

Answer 27

Becomes impossible for a party to perform an obligation
Taylor v Caldwell 1863: Fire made the performance impossible, contract discharged

Question 28

Frustration: Illegal

Answer 28

Circumstances may change so that it becomes illegal to carry out a particular contract
Denny, Mott and Dickinson Ltd v James B Fraser & Co Ltd 1944: sale and purchase of timber was made illegal in 1939

Question 29

Illegality (Lord Macmillan)

Answer 29

“It is plain that a contract to do what it has become illegal to do cannot be legally enforceable”

Question 30

Frustration: radically different

Answer 30

Radically different than what the parties originally contracted for
Davis Contractors Ltd v Fareham Urban District Council 1956: a contract will not be frustrated because it has become more expensive to perform

Question 31

Frustration: death, illness or imprisonment

Answer 31

In contracts for personal service - death or personal injury may be sufficient
Condor v The Barron Knights Ltd: personal circumstances led to frustration of contract rather than wrongful dismissal (would be wrong to force the drummer to work, unfair to penalise the band).

Question 32

Frustration: Limitations

Answer 32

Only applicable to unforeseen events
Self-induced frustration: the event must not be induced by the party who seeks to rely on frustration
Maritime National Fish Ltd v Ocean Trawlers Ltd [1935]: Not been awarded a licence (tried to rely on the frustration)

Question 33

Frustration Consequence

Answer 33

Contract comes to an end, both parties are relieved of further obligations
Law Reform (Frustrated Contracts) Act 1943

Question 34

Law Reform (Frustrated Contracts) Act 1943

Answer 34

s.1(2): any money which is payable before the date of the frustrating event should be recoverable, if it is due to be paid, it will cease to be paid
s.1(3): courts have the discretion to award the other party a sum of money fi they consider the contract to be frustrated just by looking at the facts.