Discharge Flashcards
What are the ways in which a contract might be discharged?
Performance
Expiry
Agreement
Breach
Frustration
What is discharge by expiry?
A contract expires when it is completed according to its own terms e.g. time frame, completion of an action
What is the entire obligations rule regarding discharge by performance?
A promisor who only performs part of their obligation is not discharged from that obligation; you have to perform the entire of undertakings
What are the exceptions to the harsh operation of the entire obligations rule?
Acceptance of partial performance
Substantial performance
Divisible obligations
Wrongful prevention of performance
If the innocent party accepts partial performance, how does the court assess payment?
Court considers how much is deserved; a reasonable sum calculated on an objective basis looking at the available information.
What can the party who has ‘substantially’ completed a contract claim?
The contract price, subject to a deduction reflecting the cost of remedying the defect.
How does a court define substantial performance?
Does the remaining defect ‘go to the root of the contract’?
E.g. small defects and omissions do not, but a contract for installing a heating system which never works does.
What can happen if obligations are divisible?
Performing party is entitled to payment for each party which is performed. e.g. employment –> but this still depends on the intention of the parties.
How is wrongful prevention defined?
When one party performs part of the agreed obligation, and is then prevented from completing the rest by some fault of the other party.
What options does the innocent party have if there has been wrongful prevention of performance?
Sue for damages for breach
Accept a quantum meruit
What defence can the party in default use?
Tender of performance: showing that they unconditionally offered to perform their obligations in accordance with the terms of the contract, but that the promisee refused to accept.
Through which two ways can a contract be discharged by agreement?
By a subsequent binding contract between the parties (mutual waiver)
OR
Operation of a term of the original contract
How can consideration issues in mutual waivers be circumvented?
Using a deed (gratuitous promises are enforceable by deed)
Or, changing the structure of previous payment e.g. accelerating payment
This achieves “accord and satisfaction”
What is a condition precedent?
A condition which must be satisfied before any rights come into existence. E.g. approval of the shareholders.
What is a condition subsequent?
A term providing for the termination of the contract and its obligations in the event of a specified occurrence.
How can the innocent party treat a breach if of a warranty?
They will get damages only
How can the innocent party treat a breach if of a condition?
They get damages and also the right of election - meaning that they can treat the contract as terminated for repudiatory breach, or affirm the contract.
What is an anticipatory breach?
When a party indicates that they will not perform their contractual obligations in advance of the date for performance - this can be done by words or conduct
What rights does the innocent party acquire if someone commits an anticipatory breach?
Innocent party has an immediate right to accept the renunciation and treat the contract as terminated.
How can someone judge whether the anticipatory breach will be significant enough to give the innocent party the right of election?
Innocent party would need to be able to demonstrate that the expected breach would be repudiatory.
What happens once an innocent party terminates a contract for repudiatory breach?
They get damages arising from both the specific breach and also the loss of the contract as a whole.
Prior obligations are still enforceable.
How do commerical parties often mitigate the risks that come with the application of the Hong Kong Fir test?
Include in contracts the list of breaches that will give rise to the right to terminate.
What are some of the benefits of affirming a contract which you have the right to repudiate?
Issues of finding an alternative provider
More certain financially to perform the contract and gain the right to the contractual charges, as opposed to terminating the contract and bringing a claim for unliquidated damages.
What can an innocent party do if it would like security of payments?
Affirm the contract, perform its own obligations and claim the sum due under the contract in a debt action.
How is a contract affirmed?
There must be a clear and unequivocal commitment to continuing with the contract
What are the two key limitations on the affirmation of a contract?
The breaching party must co-operate in order for the continuing performance of the contract
If the innocent party has no legitimate interest, financial or otherwise in affirmation
- This will only operate if the defendant can show that a) damages would be an adequate remedy and b) election is unreasonable
What does the frustration of a contract mean?
That events beyond the control of either party, occur after the formation of the contract and render performance radically different from that which was agreed to at the time of the contract
What three categories of frustration are there?
Performance is impossible
Performance is illegal
Common purpose is frustrated
What are four categories which are NOT frustrating events?
An increase in expense / burdens
Caused by the default of a party
Something which the parties could have reasonably contemplated
Provided for in the contract
What happens to a contract if it has been frustrated?
It is brought to an end automatically; no choice in the matter
Give an example of impossibility frustrating a contract
Contract for a licence in a music hall - it burns down
Drummer only able to play 3 nights a week - and contract was for 7
Give an example of unavailability frustrating a contract
A ship being made unavailable for 5 months of a 1 year contract - but there are issues with court reaching conclusions here
How does a court consider frustration?
Amount of time left to run in a contract is only the starting point: also consider the following:
- Terms of the contract itself
- Matrix or context
- Parties’ knowledge
-Expectations, assumptions and contemplations in particular as to risk - Nature of the supervening event
- Parties’ calculations as to the possibility of future performance
Give an example of a contract being frustrated by illegality:
Shipping to a port in Poland when Poland becomes enemy territory
What is a frustration of purpose?
It is still physically possible to carry out the event but the purpose has been frustrated - it has to be the common foundation of the contract though
A very narrow ground; more commonly dstinguished than followed
How are foreseeability and frustration connected?
The more foreseeable an event, the less likely that the doctrine of frustration would apply and should have been included in an express contractual provision.
Test: would the event have informed the manner in which the parties assessed the risk of entering into the contract
What are the legal consequences of frustration?
All future obligations are automatically discharged
What does the Law Reform (Frustrated Contracts) Act say about costs arising before
Money paid before the frustrating event can be recovered
Money that should have been paid before event no longer needs to be paid
Any expenses incurred by the payee can be recovered out of the total sum paid / payable before the event. [discretion of the court]
How are the expenses incurred by the payee for a frustrated contract capped?
Must be directly related to an attempt to perform the contract
Amount retained or recovered cannot exceed i) actual expenses incurred and ii) amount paid / payable prior to the event.
Payee must prove that the expenses were incurred and then court deducts from amount owed to them.
It also must be just for the supplier to retain the expenses.
If a supplier has expenses exceeding the amount of advance payments actually paid / invoiced can it claim them back?
No
What if a benefit incurred before the frustrating act is a non monetary benefit?
Court can require you to pay a just sum for it. Amount awarded cannot exceed the value of the benefit obtained.
BP v Hunt: what does benefit mean?
The end product of the claimant’s services, not the services themselves. This means that if the value of the benefit has been reduced to nothing, the provider of the benefit has no claim.
