Discharge Flashcards
What is discharge?
Under a contract, each contractual obligation gives rise to a corresponding right. When an obligation is discharged, the right is extinguished.
What are the methods of terminating a contract?
1) By expiry
2) By agreement
3) By performance
4) By breach (repudiatory)
5) By frustration
What is discharge by expiry?
A contract will expire when it is completed according to its own terms, e.g by date or by occurrence of event.
What is the rule of complete performance?
A’s obligation under the contract must be fully completed before B’s corresponding obligation will be triggered (e.g service fully performed before right to pay, cannot perform half and demand half pay).
What is discharge by performance?
Where obligation is discharged by COMPLETE performance of the obligation.
e.g partial payment or partial completion of the works will not discharge the obligation.
What are the exceptions to the rule of complete performance?
1) Partial Acceptance = innocent party has discretion to accept part performance, entitling defaulting party to quantum meruit payment (reasonable sum so C not unjustly enriched).
- innocent party must have a CHOICE to accept or reject the work, having partially completed work on the land did not leave C with a choice because he would have to complete the work.
2) Substantial performance = where contract substantially performed, contract price subject to deduction to reflect cost of remedying defect.
* Court considers nature & extent of defect, if it is too serious, no recovery. Question is whether the defect goes to the root of the contract.
3) Divisible contracts = where contracts clearly meant to be split into parts, entitled to payment for each part. Depends upon parties’ intentions.
4) Wrongful prevention of performance = where party prevented from completing ob by fault of the other party, entitled to sue for damages or claim quantum meruit.
What is the defence to an allegation of a failure to perform?
Tender of performance = party shows it unconditionally offered to perform their obs in accordance with the terms of the contract but the other party refused to accept it.
For debts, would not discharge debt but would prevent creditor from claiming interest or damages.
What is discharge by agreement?
Contract can be destroyed in same manner it was made: by agreement. Either by:
- subsequent binding contract between parties;
- operation of original term of the contract.
How can a contract be discharged by agreement?
Where both parties have obs which remain unperformed, contract discharged by mutual waiver.
Must have (A) accord + (b) Satisfaction. Accord = A agrees to release B from ob under contract. Satisfaction = consideration for the promise e.g B agrees to release A from obs under old contract.
HOWEVER, where A has performed obs in entirety but B has not, may be no consideration. B cannot release A from obligations A has already performed.
Solution = A may release B from obligation by agreement under deed.
OR
A agrees to release B by receiving some other benefit, e.g accelerated payment instead of paying instalments.
Discharge by Agreement (term in existing contract)
Term permitting the discharge of obligations or the contract as a whole may be a condition precedent or a condition subsequent.
Condition precedent = must be satisfied before rights come into existence. Contract suspended until condition satisfied. Not real discharge because if condition not fulfilled, right never comes into existence.
Condition subsequent = term providing for termination of contract + discharge of obligations outstanding in event of particular occurrence.
What is discharge by breach?
Where a specific breach of contract gives rise to a right for the innocent party to terminate the contract. This is called repudiatory breach and occurs only where the breach is a breach of a condition (or innominate term treated as a condition). For breaches of warranty = only remedy is damages.
On repudiatory breach, innocent party may terminate or affirm the contract.
What is an anticipatory breach?
Only in relation to breaches which would be repudiatory if breached at the time of due performance.
Party indicates that they will not perform their contractual obligations in advance of the date for performance. May do this by words or conduct which would lead the reasonable person to anticipate this. That person renounces the contract and innocent party has immediate right to accept renunciation and treat contract as terminated.
Effect of Repudiatory Breach
Puts an end to all primary obligations of both parties remaining unperformed. Innocent party may claim damages arising from specific breach + general loss of the contract. Accrued rights and obligations remain enforceable.
If there was in fact no entitlement to repudiation and the innocent party was mistaken, their act of repudiation is treated as renunciation, entitling the other party to repudiate.
Election and Affirmation
Affirmation = clear and unequivocal commitment to continuing with the contract.
Party terminated only if innocent party makes choice to repudiate + communicates this to other party. Allowed a period of time in order to decide.
If innocent party elects to affirm, contract survives and obligations continue as they were. Innocent party who affirms can still claim for damages arising from breach but cannot terminate contract.
Limits on Affirmation
Cannot affirm where co-operation of breaching party required for continued performance or innocent party has “no legitimate interest, financial or otherwise, in affirming the contract and continuing with performance”, e.g that damages adequate remedy + election to affirm would be unreasonable.
