Contract Law: Discharge of Contract & contractual remedies Flashcards
There are four ways contractual obligations may be discharged:
- Performance
- Agreement
- Frustration
- Breach
If a contract is breached, the injured party may seek remedies for the damage they have suffered.
- Performance
- In general, parties to a bilateral contract must fully carry out what they agreed
Exceptions to entire performance rule:
A. Substantial Performance
- Still paid for performance minus the minor defects
B. Severable contracts
- Contract is split into multiple parts
C. Voluntary acceptance of partial performance
- Partial performance must be freely accepted - the party making the promise must have genuine choice in order for a contract to be discharged
D. Prevention of performance by the other party
- Where one party performs part of the agreed obligation, and is then prevented from completing the rest by some fault of the party, a quantum meruit can be used to claim the cost of the work done
- Agreement
In some cases, the parties will simply agree to terminate a contract so that one or both parties are released from their obligations
A distinction is generally made between:
- Bilateral discharge = both parties receive a benefit from the discharge
- Unilateral discharge = where the discharge of the contract is made for the benefit of one party only - usually involves issues of consideration & formalities
- Frustration
If after the contract is made, through no fault of either party, a change of circumstances may make the contract either:
A. Impossible to perform
1. Destruction or unavailability of something essential/ fundamental for contract’s performance
2. Contracts requiring personal performance will be frustrated if either party falls ill or is imprisoned, providing that the non-availability of that party substantially affects the performance
B. Illegal to perform
If after a contract is formed, a change in the law makes its performance illegal, then the contract will be frustrated
C. Contact becomes radically different
A contract can be frustrated where there has been such a drastic change in circumstances that the contract becomes essentially different from that which was originally agreed.
Limits to frustration
A particular event will not frustrate a contract if:
- The event occurs before the contract has been entered into
- The contract make provisions for such an event
- The event merely renders the contract more onerous or expensive
- It was foreseen of foreseeable
- It was due to the fault of one of the parties (‘self-induced frustration’)
- Breach
Actual breach = A contract is said to be breached when one party performs defectively from the agreement, or not at all
Anticipatory breach = One party indicates in advance that they will not be performing as agreed. In this case the other party can sue for breach straight away. It is not necessary to wait until performance falls due
Effect of breach
Any breach of contract will entitle the innocent party to sue for damages, but not every breach allows the wronged party to choose the discharge the contract. If the contract is not discharged, it will still need to be performed.
- Breach of condition = the innocent party may treat the contract as a substantial failure to perform. He may then claim damages and regard the contract as discharged
- Breach of warranty = the innocent party can claim damages for loss suffered but must continue with the contract
- Serious breach of an innominate term = the impact is the same as a breach of a condition
- Not serious breach of an innominate term (it does not undermine the benefit of the contract) = the impact is the same as a breach of warranty
Classification of Remedies - 1. Common Law (available as of right)(once there has been a breach)
Most common remedy sought is damages
- Aim to put the injured party (claimant) in the same position as if the contract had been performed. This is often described as the protection of the claimant’s expectation on performance interest.
When a contract has been breached a party may suffer financial pecuniary loss and damages aim to compensate the innocent party for their financial losses that result from not receiving the performance bargained for.
Damages for non-pecuniary loss (eg. feelings) are generally not recoverable unless the contract has the major object of pleasure, relaxation and peace of mind
Awarding damages
2 key questions to be addressed when awarding damages:
- Is the damage too remote?
- Can the damage be quantifiable?
1. Remoteness of Damage (how obvious were the damages going to be)
Injured party can recover damages for:
- Loss which would arise naturally, ‘according to the usual course of things’, from the breach
- Loss ‘as may reasonably be supposed to have been in the contemplation of the parties at the time when they made the contract, as the probable results of the breach of it’.
2. Quantification of damages
Expectation loss = aim to put the claimant in the position they would have been in if the contract had been performed
Reliance loss = aim to put the claimant in the position they were before the contract was made
The duty to mitigate:
The claimant must take steps to reduce his losses. He cannot claim damages for losses which he could have reasonably have avoided. The burden of proving the claimant did not mitigate his loss is on the defendant.
Classification of Remedies - 2. Equitable Remedies
Damages not always adequate remedy
Most important of these include:
A. Specific Performance
- An order to force a party to carry out their contractual obligations
- Is only granted when damages alone would be an inadequate remedy
- A court will not order specific performance to cases where it could cause hardship or unfairness
- Specific performance will be refused where a contract has been obtained by unfair means
- Specific performance is never available for contract of employment
B. Injunction:
An injunction normally orders the defendant NOT to do a particular thing
