Discharge

Question 1

What are the 4 ways to discharge a contract?

Answer 1

1) Performance
2) Breach
3) Agreement
4) Frustration

Question 2

What is an entire contract?

Answer 2

One that payment depends on the performance of the whole contract.

The other party cannot sue if they’ve not fulfilled their obligations to the other party.

Question 3

What is the ‘entire performance rule’?

Answer 3

Where the whole of the contract needs to have been fulfilled before any payment (or other consideration) is paid.

Question 4

What are the exceptions to the entire performance rule?

Answer 4

1) acceptance of partial performance (paying what they’ve done so far)
N.B. Must have an element of choice!

2) substantial performance (where a job was done badly, but still has been done - e.g. £750 for painting walls, minus £56 to rectify the problems)

3) prevents the performance (when someone stops you from fulfilling your performance, you can sue for the work done so far)

Question 5

What are the exceptions to the entire performance rule?

Answer 5

1) acceptance of partial performance (paying what they’ve done so far)
N.B. Must have an element of choice!

2) substantial performance (where a job was done badly, but still has been done - e.g. £750 for painting walls, minus £56 to rectify the problems)

3) prevents the performance (when someone stops you from fulfilling your performance, you can sue for the work done so far)

4) tenders/attempts performance that gets rejected (you try to perform, but other party’s compliance is needed for performance to occur, e.g. delivery van not let in)

5) severable obligations (when you can claim part-payment for part of the obligation, e.g. rolling contract for delivery of cloth).

Question 6

When is ‘time of the essence’ in a contract?

Answer 6

1) When the contract expressly or impliedly says it is.

2) When circumstances indicate that time is of the essence (e.g. food expiring dates, or shares fluctuating)

Question 6

When is ‘time of the essence’ in a contract?

Answer 6

1) When the contract expressly or impliedly says it is.

2) When circumstances indicate that time is of the essence (e.g. food expiring dates, or shares fluctuating)

3) After agreed date of performance passes, party notifies other with new deadline and that time is of the essence. If performance is still not done by second deadline, injured party may be able to terminate the contract and sue for damages.

Question 7

When time is not of the essence, what kind of term would that be seen as?

Answer 7

An innominate term, one to be decided in the courts whether it goes to the root of the contract.

Question 8

What are the remedies for a breach of condition and breach of a warranty?

Answer 8

Breach of a condition: can repudiate contract and/or claim damages

Breach of a warranty: can claim damages

Question 9

What if one party totally refuses to perform their side of the contract?

Answer 9

This amounts to a repudiation of the contract and allows the innocent party to treat the contract as discharged.

Question 10

What if one party refuses to comply with one of the contract terms?

Answer 10

The innocent party will need to find out the classification of the breached term, i.e. condition, warranty or innominate term.

Question 11

What is a repudiatory breach of contract?

Answer 11

A total refusal to perform or a breach of a primary contract term which is either a breach of condition or a serious breach of an innominate term.

Question 12

What is an anticipatory breach of contract?

Answer 12

When a party, before performance, is confronted with words or actions that make it clear the other party will either not perform the contract at all or will commit a repudiatory breach.

The innocent party may decide to treat the contract as at an end and claim damages immediately, based on the other party’s anticipatory renunciation of performance. This is called the ‘right to elect’.

Question 13

What is the ‘right to elect’?

Answer 13

When an anticipatory breach is clear, the innocent party can either end the contract and claim damages or press for performance and perform its own contractual obligations too.

Question 14

What is a deed of release?

Answer 14

If there is no termination clause in the contract, parties can create a binding agreement to allow them to terminate the contract, called a deed of release. Done when a party who has done all their obligations release the other party from performing theirs. Deed needs to be properly effected.

Question 15

What happens if parties do not execute a deed of release, but still want to be released from the contract?

Answer 15

They can create a new contractual agreement, that has both legally binding agreement (accord) and valuable consideration (satisfaction).

Question 16

What is accord?

Answer 16

Accord is when a new contract is made to end another contract - it is the mutual agreement of the parties to discharge the previous contract. It it good practice to have the agreement in writing.

Question 17

What is satisfaction?

Answer 17

Satisfaction is required as consideration when a new contract is made to end another contract. It depends on the parties’ outstanding obligations at the time the parties agree to terminate their contract.

Question 18

What is satisfaction when both parties still have outstanding obligations?

Answer 18

Good consideration (satisfaction) for the discharge agreement can be for each party not to enforce each other’s obligations.

Question 19

What is satisfaction when only one party still has outstanding obligations?

Answer 19

Fresh consideration will be required. It can be executed or executory, but part-payment of a small sum instead of a large sum owed is insufficient satisfaction, due to no additional benefit being received.

The exception to this is if the consideration is paid in a different form, at an earlier time or in a different place to that originally obligated.

Question 20

What is common for commercial contracts to contain in order to end contracts early?

Answer 20

Termination or break clauses, which have details on when they can be used.

Question 21

What is frustration?

Answer 21

A frustrated contract is one that is:

• incapable of being performance (without fault from either party),
• due to an unforeseen event,
• resulting in obligations being impossible or illegal to perform or being radically different to those originally agreed.

Question 22

What is the remedy to a frustrated contract?

Answer 22

There is none - the contract is automatically terminated at the point of frustration.

Question 23

What are some common situations which might frustrate a contract?

Answer 23

1) Unavailability of a person or subject matter of contract

2) Cancellation of an event

3) Government intereference

4) Supervening illegality

5) Delay

Question 24

When might cancellation of an event end in frustration?

Answer 24

When the event, which must have been the SOLE reason for the contract, does not take place. E.g. King procession and seeing boats, not frustrated because they could still see boats.

Question 25

When would supervening illegality be grounds for frustration?

Answer 25

When an act becomes illegal after the contract is formed. E.g. getting into war and making it illegal to trade with the enemy.

Question 26

When would delay be grounds for frustration?

Answer 26

Only when the delay makes the obligations become impossible, illegal or changes the contract to be radically different. E.g. Ship hired to help in July, captured, returned in September - ship was no longer able to be used in the way in which the contract had outlined. Frustrated contract.

Question 27

In what circumstances would a contract not be frustated?

Answer 27

1) Event is foreseen: If the parties had anticipated and provided for the 'unforeseen' event in the contract. 2) Provision in contract/force majeure clause: If the contract turns out to be more difficult or expensive than the parties envisaged due to unforeseen issues. 3) Self-induced frustration: Where the event is 'self-induced', meaning a result of a deliberate act of the party claiming frustration. E.g. Super Servant 2, contract said either 1 or 2, SS1 was elsewhere and SS2 sank. Not frustrated - perhaps if they'd specified SS2, it may have been frustrated.

Question 28

What is a Force Majeure clause?

Answer 28

A clause to suspend or terminate performance obligations under a contract when an event outside of a party's control arises, e.g. an act of God.

Question 29

Can one party sue the other for breach of contract through frustration?

Answer 29

No, but any deposits paid in advance are refundable.

Question 30

What was the initial common law position on losses under a frustrated contract?

Answer 30

The loss lay where it fell - expenditure cannot be recovered in the event of frustration. Pretty harsh and caused the Law Reform (Frustration Contracts) Act 1943 to come in and modify the law.

Question 31

What are the main provisions of the Law Reform (Frustrated Contracts) Act 1943?

Answer 31

S1(2) - Money paid or money which has become payable before a frustrating event is recoverable. Expenses for tasks already carried out are recoverable if courts consider it just. s1(3) - Valuable benefits obtained by either party: courts may order the party who received the benefit to pay such sum as the court considers just.