Discharge Flashcards
What happens where an obligation is discharged by one party?
The corresponding right of the other party is exhausted
What happens where all obligations under the contract are discharged?
All rights under the contract are extinguished and the contract is discharged
When will there be discharge by expiry?
A contract will expire when it is completed according to its own terms eg contracts ends on specified date or by occurrence of specific event
When will there be discharge by performance?
Where there is complete performance of all obligations.
Part performance will not result in discharge
What are the exceptions to the rule that only performance of entire obligations will lead to discharge?
- acceptance of partial performance
- substantial performance
- divisible obligations
- wrongful prevention of performance
Is there an onus on the innocent party to accept partial performance?
No - it is at their discretion
If the innocent party does accept partial performance, is the defaulting party entitled to anything?
Yes - payment of a quantum meruit basis
What does payment on quantum meruit basis mean?
It means ‘as much as deserved’ ie the claimant may be entitled to claim a reasonable sum for performance done so the defendant is not unjustly enriched
What may be available to a defaulting party who has substantially perform any contract?
They may be able to bring a claim to obtain the contract price subject to a deduction to reflect cost of remedying ‘defect’ ie aspect which has not been performed
What will the courts consider in deciding a claim of substantial performance?
They will consider the nature and extent of the defect, which is done by measuring the cost of remedying the defect against the contract price
What will happen if the defect is too serious in a claim of substantial performance?
The defaulting party will not be entitled to recover any money
What will happen if the defect is not too serious defeat a claim of substantial performance?
Then the defaulting party will be entitled to the contract price subject to a deduction
What will amount to substantial performance?
It will depend on whether or not the defect goes to the root of the contract.
If it does then will not be substantial performance.
What will happen if the contract is one which has divisible obligations?
The performing party will be entitled to payment for each part which it has performed
When will there be a contract which has divisible obligations?
When the parties intend for there to be divisible obligations eg fixed term contract of employment with payment of salary
When will the exception of wrongful prevention of performance arise?
When one party who is willing to perform agreed obligation is prevented from completing it by some fault of the other party
What will the innocent party be entitled to under the exception of wrongful prevention of performance?
They will be entitled to payment - either:
- sue for damages for breach of contract
- claim a quantum meruit
What is the defence of tender of performance for a party failing to perform obligations?
Promisor must show they unconditionally offered to perform obligations in accordance with contract terms but promisee refused to accept such performance
What are the two ways a contract can be discharged by agreement?
- by a subsequent binding contract between the parties
- by operation of a term of the original contract
What is required for discharge by a subsequent binding contract?
Each party must agree to waive their rights under the old contract in consideration for being released from their obligations under the old contract.
There must be accord and satisfaction:
- accord - there must be agreement that the obligation will be released
- satisfaction - there must be consideration for the promise to release a party from the obligation
If one party has already performed all its obligations under the old contract, meaning it cannot give consideration, but the other party still has obligations to perform, how may that party be released from its obligations?
Where satisfaction and accord are not possible, the party to whom the obligation is owed may release the other party under a deed, avoiding the need for consideration. (A gratuitous promise is enforceable under a deed)
Alternatively - party whom obligation is owed may provide consideration by agreeing to accept something different in place of the former obligation eg accelerated payment of sum payable in instalments
Where there is discharge by operation of a term in the contract, what are the two possible categories of terms?
- condition precedent
- condition subsequent
What is a condition precedent?
A condition precedent is a condition which must be satisfied before any rights come into existence
How will a contract be discharged by a condition precedent?
Essentially by the condition precedent never being met.
No true discharge - contract just never comes into existence in the first place
What is a condition subsequent?
A condition subsequent is a condition which if satisfied releases a party from binding obligations
How will a contract be discharged by a condition subsequent?
By the specified condition subsequent being met
When may a party treat a breach of contract as terminating the contract?
Where the breach is a repudiatory breach ie breach of a term which is a condition or innominate term which is treated as a condition
What choice does a party have where there has been a repudiatory breach?
They can either:
- terminate the contract or
- affirm the contract
What is an anticipatory breach?
It is where a party indicates they will not perform their contractual obligations in advance of the date for performance (they renounce the contact)
What rights does the innocent party have if there is an anticipatory breach?
If anticipatory breach would be repudiatory breach = they can terminate contract
If anticipatory breach is only minor so would not be repudiatory = they cannot terminate
What is the effect of terminating a contract for repudiatory breach?
All primary obligations of both parties that are unperformed under the contract come to an end.
The innocent party can claim damages for breach and for loss of the contract caused by termination of whole contract
Any rights and obligations which accrued before termination remain enforceable
What are the risks of terminating a contract for repudiatory breach?
Risk that court may find breach was in fact not repudiatory.
Parties opens itself up to damages from other party for breach.
How can parties protect themselves from risks arising from terminating a contract for repudiatory breach?
They can specifically agree in the contract to a list of breaches which will give rise to right to terminate
What must the innocent party do if they elect to terminate the contract rather than affirm it in relation to a repudiatory breach and the other party?
They must tell the party in default they have decided to terminate the contract
What happens if an innocent party affirms a contract?
The contract survives and the rights of the innocent party will be preserved.
The innocent party will still have a claim in damages for any breach
What happens if the innocent party affirms the contract but the other party does not perform its obligations?
The innocent party can still perform its obligations under contract and claim sum due from other party under contract in a debt action
How is a contract affirmed?
There must be evidence of a very clear and unequivocal commitment to continue the contract
What two limitations are there on the innocent’s party’s right to affirm a contract in response to a repudiatory breach?
- the co-operation of the breaching party is required for continued performance of the contract
- the innocent party has no ‘legitimate interest, financial or otherwise’ in affirming the contract and continuing performance
Who must show the innocent party has no ‘legitimate interest, financial or otherwise’ in affirming the contract and continuing performance so cannot affirm the contract?
The defendant must prove it by showing:
i) damages would be an adequate remedy for the claimant and
ii) an election to keep the contract alive would be unreasonable
What is frustration?
Frustation is about:
- events that are beyond the control of either party
- events that occur after the formation of contract and
- events which render performance radically different from that which was agreed to at time contract was formed
What is the effect of frustration?
Broadly, it relieves party from further obligations under the contract so they do not have to meet these radically different obligations
The contract is brought to an end automatically - parties have no choice
May frustration be used as a defence?
Yes - for breach of contract
When might frustration be allowed?
- where performance is impossible
- where performance is illegal
- where common purpose is frustrated
What events will not normally give rise to frustration?
- merely an increase in expense/onerousness
- something caused by the default of a party
- something which the parties could reasonably have contemplated
- something provided for in the contract
What will amount to frustration on grounds of impossibility?
Where is has become impossible to perform the contract due to total or partial destruction of some object necessary to perform the contract
Could also cover death or illness of party under personal contract - where specified individual is engaged to perform particular service
What will amount to frustration on grounds of unavailability?
Common in shipping cases - where unavailability of something necessary to perform contract, even temporarily, means contract cannot be performed eg ship cannot be used for many months
Wide range of factors should be considered in deciding whether unavailability sufficient to amount to frustration
What will amount to frustration on grounds of illegality?
Change of the law or state after contracting means performance is now illegal
What will amount to frustration on grounds of purpose?
Where the common purpose for contracting can no longer be carried out due to supervening event, contract may be frustrated despite fact that it may be physically possible to carry of contract.
Must be joint purpose of both parties
Will be very rare exception
Why will contracts becoming more difficult/expensive to perform not amount to frustration?
This a risk that contracting parties must bear.
What is meant by frustration is not available where it is self-induced?
Cannot use event which was induced by one of the parties to claim frustration.
Who has the onus of proving frustration was self-induced?
The party who is alleging it was self-induced
What is meant by frustration is not available where the event is foreseeable?
If you could have foreseen the event, but failed to make provision for it in your contract, the doctrine of frustration will be less likely to apply
What is meant by frustration is not available where there is express contractual provision?
Doctrine of frustration will not override express and unambiguous contractual provision for the frustrating event
What are the consequences of frustration?
All future obligations are automatically discharge under common law
Statute (Law Reform (Frustrated Contracts) Act 1943) deals with obligations that arose prior to contract
What happens to obligations that arose prior to frustration under the statutory regime?
- money paid before frustrating event can be recovered
- money that should have been paid before frustrating event does not need to be paid
- expenses incurred by payee can be recovered out of total sum paid before event. Expenses recovery at discretion of court
What additional statutory rules are there in relation to the recovery of expenses?
- at court’s discretion
- amount retained or recovered is capped to actual expenses incurred and amount paid or payable prior to frustrating event
- for payee to establish the expenses were incurred and that it is just for court to deduct them from sums paid or payable to them before frustrating event
- if nothing was paid or payable, then no expenses recoverable
What happens if benefit conferred before frustrating event is a non-monetary benefit?
- party receiving benefit may have to pay a just sum for it determined by the court
How will the court determine what a just sum is in relation to non-monetary benefit received by one party?
- Firstly, identify and value benefit conferred
- secondly, make assessment of just sum that should be awarded
