Discharge Flashcards
Discharging a contract
Releases parties from their contractual obligations and can occur through
- Acceptance
- Performance
- Breach (Repudiatory Breach, Breach of fundamental terms, Anticipatory Repudiatory breach)
- Frustration
Hannah Blumenthal
Contract can be terminated by agreement for valid consideration
Mutual release exception
The exception to this rule is the ‘mutual release exception’ where the contract is discharged with mutual abandonment of the contractual obligations under a separate contract, amounting to valid
consideration. The requirements are that
(i) the discharge is mutual; and (ii) the consent is free.
Performance
Both express and implied obligations need to be performed. The performance is
either:
(i) of the strict contractual obligations; or
(ii) of the qualified contractual obligations. ‘Qualified’ means they will not result in a specific outcome, but the obligation will be performed to a certain standard.
Cutter v Powell
Complete performance is required. Plaintiff was executor of an estate of a man to whom the defendant had promised 30 guineas to be paid after the man had performed all his duties in return
for services rendered on his ship. The man failed to abide by his contractual obligations for the entire journey and the p sought money from d on a quantum meruit (QM) basis for the services discharged
up to that point. Held: contract for services was to be performed for the duration of the voyage and this condition was no met.
Quantum Meruit
QM means ‘what he has earned/entitled to’. A claim for QM cannot arise if the parties have a contract to pay an agreed sum.
Where can a claim of quantum meruit not arise?
A claim for QM cannot arise
if the parties have a contract to pay an agreed sum. In such circumstances, the parties’ relationship is governed by the law of contract. However, a claim for QM may arise where the parties:
(i) have not agreed a contract, or there is a so-called quasi-contract e.g. have failed to reach an agreement on an essential term, such as price;
(ii) have not fixed a price for the services or goods supplied;
(iii) have an agreement to pay a reasonable sum for the services or goods supplied; or (iv) have agreed a scope of
work under the original contract and the work carried out falls outside that scope.
Bolton v Mahadeva
Equity intervenes
in certain circumstances and will accept substantial performance with minor deviations.
Planche v Colburn
Plaintiff is entitled to payment on a QM basis where defendant attempts to prevent the completion of performance
Startup v MacDonald
If a party tender’s performance which is subsequently rejected, they
are entitled to terminate the contract
Coughlan v Moroney
Plaintiff agreed to build a house for the defendant before a deadline for a lump sum. House was no completed by the deadline and defendant took possession of the unfinished building and refused plaintiff access and refused to pay plaintiff the balance. Plaintiff could not recover on a QM basis because d had received the benefits of part performance unless the existence of a contract to pay for the work done could be inferred from the circumstances which in
this case there wasn’t. This case was argued on the basis that d could recover from the original contract not on the ground that a new contract existed and no such contract existed.
Sumpter v Hedges
If voluntarily acceded to some level of part / incomplete performance that can be binding. where the contract is to do something for a lump sum, the price cannot be recovered until the work is done. In the absence of a fresh contract, p cannot recover from p on a QM basis.
Taylor v Laird
Payment for part
performance can also be due if contract is a divisible contract
Startup v MacDonald
or if an attempt has
been made to perform
Breach
Where there is a failure or refusal by one or both parties to perform one or all of the
obligations imposed by a contract, breach occurs. Breach and termination are related as early termination can occur for breach as well as other circumstances as specified in the contract.
A. Termination for breach
Express term of the contract. National Power plc v United Gas: for a breach to be ‘material’ it does not have to be ‘repudiatory’. Where a breach is capable of being remedied, the defaulting party is to be given a specified time period in which to remedy the breach before the right to terminate arises.
B. Termination for convenience
Right to terminate on giving notice without having a reason to justify the termination such as default. There will normally be a defined notice period and the method by which the notice is to be communicated.
Other types of breach
c. Termination for insolvency.
d. Termination for change of control.
e. Termination for force majeure.
Repudiatory breach
Outside of the contract, there can be common law termination i.e. a repudiatory
breach which goes to the root of the contract. Repudiatory breach is a breach of contract that gives the aggrieved party the right to choose either to end the contract (terminate) or affirm it, either way
they may also claim for damages.
Breach of condition may be repudiatory
A breach of condition would be repudiatory as it goes to the heart
or the root of the contract, as is the breach of an intermediate term that deprives the other party substantially the whole benefit of the contract. A contract may also be repudiated before the time for performance has arrived.
How to determine if a breach is repudiatory
For repudiatory breach look at
(i) the type of the term which has been
breached;
(ii) what obligations are ‘entire’; and (iii) has the party who breached the contract indicated an intention to abandon its contractual obligations. Conduct must be clear and unequivocal. Time of
performance is not essential unless the contract considers it so.
Fundamental terms
Usually, only breach of a condition, or a fundamental term constitutes a breach
of contract whereas breach of warranties or non-fundamental terms do not give right of action. The breach must be sufficiently serious so as to allow the right of election i.e. to choose to end the contract
and sue: the Simona.
Allows right of election under the Simona
These are: (a) breach of condition: Re Moore, (b) repudiatory breach: serious
and deliberate and must go to root of contract: Decro Wall
Decro Wall
where deliberate late payments are not
sufficiently serious for a deliberate breach
Dundalk Shopping Centre
Fundamental breach goes to root but does not need to be
intentional
Clayton Love
This case deals with fundamental breach in Ireland and was heard by the Supreme Court. This case established a rule of law approach to clauses which seek to exclude liability for fundamental breach. It was held that no matter how clear the contract is, if the breach is fundamental in nature, liability cannot be excluded.
Photo Production Limited
The UK position
In the UK, position is contrasted, as long as the contract is drafted in clear
enough terms, there is no objection to an exclusion clause for fundamental breach, This case was cited positively in Western Meats, interestingly Clayton Love was not mentioned.
Considered also in Ireland: ESL Consulting v Verizon
As to what constituted a fundamental
breach and whether the position remains that liability cannot be excluded under Irish law. Noted because it is always possible that a service could be suspended under a contract, the service which was actually provided by d was not so radically different from that which the parties had contracted
that the breach could be considered fundamental in nature- therefore a narrow reading. Interestingly, the court held whilst it was of the view that Photo Productions represented the correct statement of the law, they were bound by SC in Clayton Love. The right of the innocent party to damages accelerates the obligation of the party who has committed the anticipatory breach because the time for performance
of the contract has itself not yet arisen.
Hochester v De La Tour
Courier due to start work, before he
could, d indicated he would not need him. Date on which the obligation commenced had not yet passed, and the courier was entitled to discharge for breach of contract. There is also a positive duty to mitigate losses if you accept the cancellation which you might incur due to the breach.
Athlone Rural DC v Campbell
Plaintiff contracted defendant to carry out works on a well and there was a dispute while they were doing this. Plaintiff wanted to complete the works, but defendant wanted them gone. This was repudiation by
defendant so they could sue for damages.
Nottingham BS
Further, the breach must be deliberate. This involved a genuine dispute over payment and was not repudiatory.
Woodar investment
no intention to
breach contract and was not repudiatory
Continental Oil v Moynihan
request to be released from a
contract does not amount to repudiation
Leeson v North British Oil
Breach related to the supply of
paraffin where d contracted to deliver same at a future date and due to a strike was unable to do so. Plaintiff sued as turned away orders from other suppliers. P could sue once on notice that the contract would
be breached.
Dundalk Shopping Centre
It was noted that the seriousness and likelihood of recurrence would be examined i.e. .here there was leakage onto premises- p could walk away from the contract given the gravity of the breach.
Breach of condition: Union Eagle v Golden Achievement
Where time was of the essence; and no prejudice need be caused. Consequences of breach is that the innocent party may:
(i) choose to discharge the contract (prospective effect);
(ii) affirm the contract or
(iii) may lose the right to treat the contract as discharged where there is delay.
Anticipatory repudiatory breach
Communication that there will be a repudiatory breach i.e. when counterparty says /displays an intention that they will not complete in advance of compliance as seen in Hochester v De La Tour. An actual repudiatory breach occurs when the obligation has not been met.
Universal Cargo
A ship arrived in a port and could not find the cargo to load, the cargo assignment had
actually been cancelled as the ship owner not thing the ship could fill the load in time. If an anticipatory breach occurs, innocent party can either affirm the contract and demand the performance of the obligation; or accept the anticipatory breach and claim for damages.
Frustration
As seen in David Contractors, frustration occurs without fault of either side the contract is incapable of being performed because the circumstances in which performance will be taken are radically different from that which was undertaken by the contract.
Taylor v Laird
Something essential to the contract is destroyed
Robinson v Davison
Where one of the parties is unavailable
Fibrosa
Where the contract becomes illegal
The Nema
A temporary unavailability may frustrate
Tsakiroglou v Noblee Thorl
It must be impossible as opposed to impractical
Mulligan v Brown
If frustration is dealt with in the contract the approach taken in the contract will be used
SS Vicia
Self induced frustration is also not a ground for frustration
Fibrosa
In exceptional circumstances, courts may allow recovery of property passed in the contract before the frustrating event. This doctrine discharges both parties from their contractual obligations where following the formation of a contract, performance of the contractual obligations become either impossible or radically different.
Test for frustration
(i) has the contract allocated risk of the particular event occurring;
(ii) has there been a radical change in obligations; and
(iii) was the radical change due to the fault of one of the parties?
Radical change in obligations would means i.e. the non-occurrence of an event, increased expenses, delay or interruption, the outbreak of war, illegality or the destructions of the subject matter
McGuill v Aer Lingus
It must have been genuinely an unforeseen event. Here the defendant claimed that a strike from employees amounted to frustration and were aware of the possibility.
Ocean Tramp Tankers Corp
Foreseeability per se does not rule out frustration.
Neville v Guardian Builders
Risk obvious to both parties but not provided for in contract- this limits McGuill to a situation where one party has particular knowledge of the potential frustrating event but choses to neither share information or insert a clause around it in the contract. Neville also authority that a lease can be frustrated although this is difficult to show (Canary Wharf v European Medicines Agency: when you cannot use the property as intended).
Classic examples of frustration
- Non occurrence of an event (frustration of purpose)
- Increased expense
- Destruction of subject matter
- Illegality
- Delay or interruption
- Paradine v Jane
Paradine sued Jane for unpaid rent for three years. Defendant defends his liability on the basis of frustration of purpose, lost and had to pay rent. Also usually look to the coronation cases i.e. people booked accommodation specifically to view a coronation which was cancelled: if some aspect of the contract can be performed (like in Krell getting a taxi or in Hearne, being still able to use the boat for a cruise), there is no frustration.
- Krell v Henry + Hearne Bay
(deposit of 25 pound paid up front on a flat to be rented for one day to overlook a procession of the coronation but this was postponed frustrating the substance of the contract, balance of 50 to be paid on day of procession didn’t have to be paid but the deposit was not recoverable) and Hearne Bay.
- Davis Contractors
Increased expense for one party cannot frustrate a contract
- Taylor v Caldwell
Somewhat a relaxation to avoid harsh results-music hall burnt, and was held not at the fault of both parties and therefore the contract was impossible to perform.
- Appleby v Myers
Where money is paid on completion where there was an unfair effect on the party who have partially completed their obligations. Here both parties made the assumption that the subject matter will exist at the time of the contract.
- Denny, Mott and Dickson
Where parties form a contract and during performance it becomes illegal. This needs to be serious enough and not only minimal and partial. The most common example is legislation.
- Sea Angel
Needs to be impossible to avoid. Test was in the Sea Angel:
(i) how did the delay arise;
(ii) was the delay foreseeable; and
(iii) how does the contract distribute the risk in similar circumstances.
Look to see if radical change was due to the fault of one party: fault has a loose definition in this context: DGM Commodities.
Does not need to be breach or negligence, can be a positive action. Legal effect of frustration:
(1) effects the contract and has a financial effect like in Fibrosa:
(2) circumstances i.e. when money paid in advance and when money paid on completion. When money paid in advance the advance payments could be recovered if there was a total failure of consideration by one party. Where money is paid on completion where there was an unfair effect on the party who have partially completed their obligations.
Effect of frustration
Frustration discharges a contract and operates to render the contract ineffective from a particular date onwards although it does not render a contract void ab inito. This does not mean that the payer of the money is entirely without remedy, the law will give a remedy for restitution. Rights and obligations under the control remain intact. Doctrine has evolved to deal with scenarios where obligations can no longer be performed as a result of circumstances outside the control of either party. Discharges parties from future obligations (Krell v Henry, Chandler v Webster; Appelby v Myers). Fibrosa was an exception where no tangible benefit i.e. a total failure of consideration. Here p is entitled to restitution of any sums paid out as a result of the total failure of consideration. P’s were based in Poland agreed to purchase machinery from d who failed to deliver following the invasion of Poland by the Germans.`
