Discharge and breach

Question 1

What are the 4 methods of discharge?

Answer 1

• Performance
• Agreement
• Breach of a condition (or serious breach of an in-nominate term)
• Frustration

Question 2

what is a breach of contract?

Answer 2

• A failure without lawful excuse to perform a contractual obligation allows for the rightful termination of the contract
• In addition damages can be claimed

Question 3

Breach can take 3 different forms, what are they?

Answer 3

• Defective performance
• Non-performance
• Incapacitating oneself from performing

Question 4

Is breach of contract strict liability?

Answer 4

• Yes it is not usually needed to prove fault to establish existence of a breach

Question 5

Does every breach of contract give right to termination fo the contract?

Answer 5

• No, although damages can be claimed in each situation to receive any loss

Question 6

What determines whether there is a right to terminate a contract?

Answer 6

• Depends upon the nature of the term that was breached (whether or not it is a condition)
• Also depends on the consequences of the breach

Question 7

White and carter Ltd v McGregor 1961

Answer 7

• Recognises that the innocent party may ignore a breach in order to continue with performance and claim the contract price

Question 8

An example of a failure to perform that does not mean a breach of contract

Answer 8

• Buying theatre tickets and then not picking them up or going to the performance ( The purchaser had not agreed to go to the performance but instead to pay for the tickets)

Question 9

An example of a lawful excuse?

Answer 9

• defective goods being delivered and therefore the buyer refusing the pay

Question 10

Where does a contract become discharged through performance?

Answer 10

-where both parties have fully performed their contractual obligations.

Question 11

what is a discharge through full performance?

Answer 11

• Where there is an existence of an entire contract

Question 12

Moore & Co v. Landauer & Co [1921]

Answer 12

• S contracted to sell to B just over 3000 tins of fruit
• Contract stated that tins were to be packed in cases of 30 tins each
• About half were delivered in cases of 24 tins each
• No suggestion this actually caused any significant hardship to B
• Nonetheless, clear breach
• The de minimis exception DID NOT apply

Question 13

Arcos Ltd. v. EA Ronaasen [1933]

Answer 13

• Contract for sale of staves of wood 1/2 an inch thick
• Seller delivered wood 9/16 of an inch thick
• Court held seller was in breach of contract
• Shows that the exception to the de minimis rule is extremely narrow and can not be used in this case

Question 14

Shipton Anderson v. Weil Bros [1912]

Answer 14

• S and B contracted for 4500 tons of wheat, 10% more or less
• S delivered excess of 55lbs
• Strictly, S in breach, even though he did not seek payment of the additional 4 schillings representing the contract price for the extra 55lbs
• However, court applied the maxim de minimis the discrepancy was SO TRIFLING that it was not regarded as a breach

Question 15

Union Eagle v Golden Achievement [1997] (Time of performance)

Answer 15

• Union Eagle were supposed to pay a deposit for a flat and time was said to be ‘of the essence’.
• clause 12 said failure to complete meant the deposit was forfeit and the agreement rescinded.
• They were 10 minutes late.
• certainty was needed in the business world, particularly in a volatile market. Accordingly, the contract’s terms should be strictly enforced, and Union Eagle lost its 10% deposit.

Question 16

What is performance of a contract?

Answer 16

• Doing that which is required by a contract.
• The effect of successful performance is to discharge the person bound to do the act from any future contractual liability.

Question 17

What is an entire obligation?

Answer 17

• Where the person has an entire obligation to complete the contract before they are entitled to any payment
• No payment is necessary even 3/4 through

Question 18

What is a severable obligation?

Answer 18

• A severable contract is a contract that is composed of several separate contracts between the same parties, so that failing (breaching) one part of such a ‘severable’ contract does not breach the whole contract.

Question 19

Cutter v Powell (1795)

Answer 19

• The claimant’s husband agreed by contract to act as a second mate on the ship on a voyage to Jamaica.
• He was to be paid on completion
• Six weeks into the voyage the claimant’s husband died. The claimant sought to claim a sum to represent the six weeks work undertaken.
• wife’s action failed. Payment was on condition that he worked till the end and as he did not he was entitled to nothing
• He had an ENTIRE obligation
• However he could not be held liable as he had a lawful excuse as to why he did not fully perform

Question 20

Ritchie v Atkinson (1808)

Answer 20

• A and B contracted for B to deliver a certain quantity of cargo to A, at £X per ton carried
• B delivered less than contractually required
• Court held B was entitled to payment, at the contractual rate of £X per ton, for the quantity delivered
• Fact that payment was calculated at price per ton evinced intention that obligation was to be severable

Question 21

What is substantial performance?

Answer 21

• when [B] fully performs his contract in the sense that he supplies all that he agreed to supply but what he supplies is subject to defects of so minor a character that he can be said to have substantially performed his promise’

Question 22

Hoenig v Isaacs [1952]

Answer 22

• A contracted w/B for B to refurbish A’s flat for £750
• B substantially completed the work, w/some, minor defects
• These could have been remedied for about £55
• CA held that the obligation was an entire one
• Nonetheless, their Lordships held B was entitled to full payment less the value by which the work was diminished by reason of the breach
• Case of substantial performance

Question 23

Hochster v De La Tour (1853)

Answer 23

• In April 1852, B employed A as a courier to work for him for 3 months from 1st June
• On 11th May, B told A that A’s services would no longer be required
• On 22nd May, A sued B for damages
• B accepted he was in breach but claimed A should not be able to sue until B had committed a “performance” breach (i.e., 1st June or after)
• Court held A could bring action any time after anticipatory breach committed, even before contract performance was due
• And he was entitled to damages from the time of the breach
• Therefore anticipatory breach

Question 24

What is affirmation of a contract?

Answer 24

• Where a party wishes to keep a contract alive
• if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself’

Question 25

White & Carter (Councils) Ltd v. McGregor [1962]

Answer 25

• A contracted w/B for A to manufacture and display material advertising B’s business for 3 years
• B committed anticipatory breach, stating that he would not perform
• A refused to accept the breach and commenced performance of the contract
• Under the contract, if B defaulted on any payment, the whole price became due
• B defaulted, and A claimed the whole of the contract price
• The majority held that A was entitled to elect to affirm or terminate the contract
• As he elected to affirm it, the contract remained alive
• B was, therefore, obliged to pay the full price upon defaulting in relation to any instalment
• The minority in this case said specific performance should not have been allowed as damages would have been sufficient
• A unreasonably increased his loss (by manufacturing materials he had been informed B no longer wanted) so could not claim damages to the extent that he had unreasonably increased his loss
• if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself’

Question 26

What does vitiation mean?

Answer 26

• Rendering a contract legally invalid
• It has to be as if the contract never happened so all transactions have to be reversed (give money back and other give product back)

Question 27

What is a big difference between vitiation and discharge?

Answer 27

• Discharge looks into the termination of a contract prospectively
• Vitiation is concerned with both prospective and retrospective

Question 28

What is discharge by full performance?

Answer 28

• Where the parties fulfil all of their obligations under the contract, the contract is at an end
• the general principle is that that only full and complete performance according to the precise terms of the contract will suffice to discharge

Question 29

What is the general principle regarding discharge by full performance?

Answer 29

• only full and complete performance according to the precise terms of the contract will suffice to discharge

Question 30

what constitutes full and complete performance?

Answer 30

• Looks into the compliance with
  - Time
  - Place
  - Method
• If all these are followed to the terms of the contract the contract will consequently come to an end

Question 31

What is the extremely narrow exception to the general rule that each party must perform precisely to the terms of the contract ?

Answer 31

• That the law does not concern itself with trifling matters
• If the difference between the required performance and that actually rendered is so minor as to be trifling, the law will not regard it as amounting to a breach.
• De minimis non curat lex

Question 32

What case can be used to represent the method of the performance?

Answer 32

• Moore & Co v. Landauer & Co [1921]
• Some of the goods were packaged in packs of 24 instead of 30
• The method was incorrect

Question 33

What theoretical example can be used as a breach based on the method of performance?

Answer 33

• if in the contract it is stated that the cargo should be transported by sea and then it is instead transported by air
• Breach based on method of full performance

Question 34

What is meant in regards to place of performance?

Answer 34

• If they stipulate performance is to take place at location X, it must take place at location X
• However, usually a place is not noted in contract
• for example ordering on-line you would give a delivery address so even if it is not an express term of the contract, there is clear evidence of intention that S is to deliver to B

Question 35

What case can be used to represent the time of the performance?

Answer 35

• Union Eagle v. Golden Achievement [1997]

- Sale of flat 10 minutes late so lost deposit and contract was terminated

Question 36

What is the justification of the rule of discharge by full performance?

Answer 36

• Rule is concerned with certainty, yes a mere 10 minutes is harsh but there has to be a line drawn
• if it depended upon whether the innocent party had suffered a loss, we would have to become involved in investigation and the amount of litigation would increase therefore increasing costs for each party

Question 37

What happens if no time performance has been set in the contract?

Answer 37

• The law implies a term that performance is to take place w/in a reasonable time
• What is reasonable depends on the particular contract and its surrounding circumstances

Question 38

What is discharge of a contract through agreement?

Answer 38

• parties can agree to discharge/terminate their contract whenever they like, whether performance has commenced or not
• But there is a need for consideration

Question 39

What is consideration?

Answer 39

• A contract is based on an exchange of promises.
• Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffer a detriment. This benefit or detriment is referred to as consideration.
• Consideration must be something of value in the eyes of the law and a one sided promise which is not supported by consideration is a gift.

Question 40

What are conditions subsequent?

Answer 40

• Where a contract can be brought to an end when something namely happens to which there has been an agreement that this will bring the contract to an end.
• Example - S promises to deliver a ton of grain to B per month for 10 years, for £X, unless and until the market price of grain drops below £Y per ton
• After this has happened the contract is terminated and does not restart when the price goes back above £Y per ton
• The contract could also state that after a certain period of time either party has the right to terminate the contract

Question 41

What does rescission mean?

Answer 41

• Termination for breach of contract

- such as if C avoids the contract on the basis of a misrepresentation

Question 42

What happens if someone chooses to affirm?

Answer 42

• They lose the right to terminate the contract

Question 43

What is a condition?

Answer 43

• A condition is a major term of the contract which goes to the root of the contract.
• If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages

Question 44

What is a warranty?

Answer 44

• Warranties are minor terms of a contract which are not central to the existence of the contract.
• If a warranty is breached the innocent party may claim damages but can not end the contract

Question 45

What is an innominate term?

- serious and minor breaches

Answer 45

• Rather than classifying the terms themselves as conditions or warranties, the innominate term approach looks to the effect of the breach
• questions whether the innocent party to the breach was deprived of substantially the whole benefit of the contract.
• Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end

Question 46

What is the general rule of contractual liability in determining whether one had breached the contract?

Answer 46

• Strict liability
• It does not matter why one has not performed properly , whether she has done so intentionally, negligently or wholly innocently

Question 47

An example of an agreement made by parties for one to make best or reasonable endeavours in sticking to the contract.

Answer 47

• Estate agents

- They do not necessarily have to sell the house as long as they make the best or reasonable endeavours to do so

Question 48

What three things can Contractual obligations be?

Answer 48

• Independent,
• Interdependent/concurrent,
• Dependent

Question 49

What happens if an obligation is independent?

Answer 49

• she is obliged to perform regardless of whether B has performed (or ever does perform)
• Therefore is in breach if she does not properly perform

Question 50

What happens if an obligation is interdependent?

Answer 50

• Both parties must be willing and able to perform at the same time
• However, neither party will actually have to begin performance until the other is willing and able to perform

Question 51

What happens if an obligation is Dependant?

Answer 51

• A’s obligation is dependent upon B’s obligation
• Therefore, until B has properly performed, A is not obliged to perform
• B’s obligation is said to be a promissory condition precedent to A’s obligation

Question 52

Example of an independent obligation

Answer 52

• A lease, under which T’s obligation to pay rent and L’s obligation to effect repairs are generally independent obligations
• T cannot refuse to pay rent even if L has not properly effected repairs she is required under the lease to effect and vise versa

Question 53

Why will the courts be slow to infer that a contractual obligation is an independent one?

Answer 53

• Because it is harsh to compel one to perform when the other has not

Question 54

Example of interdependent obligations

Answer 54

• sale, delivery and payment are interdependent obligations
• B cannot demand the goods before she is willing and able to pay
• S cannot demand payment before he is willing and able to release possession

Question 55

An example of a dependant obligation?

Answer 55

• contract of employment: generally, an employee is to be paid in arrears
• One must work before they are entitled to be paid

Question 56

Which case is an example of a dependant obligation?

Answer 56

• Trans Trust SPRL v. Danubian Trading Co [1952]

Question 57

Trans Trust SPRL v. Danubian Trading Co [1952]

Answer 57

• Contract for sale of steel between S and B
• S to purchase from X, then sell on to B
• B to pay by letter of credit
• B did not keep the letter of credit
• CA held that S’s obligation to deliver was dependent upon B’s obligation to open the letter of credit
• This was inferred from the fact that there was no way S would have been able to obtain the funds to purchase the goods from X w/out payment from B
• Therefore, S not obliged to deliver the steel
• A case of dependant obligation

Question 58

What is an entire obligation?

Answer 58

• If B’s obligation is an entire obligation, it must be fully performed before A’s obligation arises
• Does not matter if it was not the persons fault why they could not fully perform

Question 59

What two cases demonstrate an entire obligation?

Answer 59

• Cutter v. Powell (1795)

- Sumpter v. Hedges [1898]

Question 60

Sumpter v. Hedges [1898]

Answer 60

• A contracted w/B for B to build 2 houses on A’s land for £565
• B did a substantial amount of work, the value of which was around £333
• However, he did not finish performance
• B claimed entitlement to the full contract price (accepting that he would be liable to damages for the incomplete performance)
• Or, alternatively, entitlement to payment for the proportion of the work completed
• Court rejected both claims, because B’s obligation was an entire obligation

Question 61

What are the three orders of performance?

Answer 61

• Independent
• Interdependent
• Dependant

Question 62

What is a severable obligation?

Answer 62

• If B’s obligation is severable, then she is entitled to that part of A’s performance which corresponds to the part she has performed
• There is still a breach in the fact B has not fully performed and They will still have to pay damages for this

Question 63

How is it determined whether an obligation is entire or severable?

Answer 63

• If the parties make it clear the contract is one or the other
• ## If there are clear stages that arise upon completion of each stage, it is likely the court will infer that B’s obligation is severable (employment and wages)

Question 64

What case demonstrates a severable obligation?

Answer 64

Ritchie v. Atkinson (1808)

Question 65

What is meant by part payment for substantial performance for an entire obligation?

Answer 65

• When an entire obligation has been substantially done, they are entitled to the full/entire price but then have to pay the value of the work that was diminished by the breach.
• when [B] fully performs his contract in the sense that he supplies all that he agreed to supply but what he supplies is subject to defects of so minor a character that he can be said to have substantially performed his promise

Question 66

Which case demonstrates Substantial performance being used?

Answer 66

Hoenig v. Isaacs [1952]

Question 67

Why is substantial performance controversial?

Answer 67

• Contradicts the principle of entire obligation
• Because it allows for obligations to not be Fully performed as they are defective
• ALSO how do was practically define substantial, it is a matter of personal opinion

Question 68

Why does substantial performance exist?

Answer 68

• It would be unfair to allow B to get nothing under the contract when he has substantially performed

Question 69

What is an anticipatory breach?

Answer 69

• before performance is due from B, she tells A that she will not perform
• Where B clearly and unequivocally indicates that she will not perform
• This might be an indication that she will not perform at all
• Or an indication that she will not perform a particular term

Question 70

anticipatory breach can be expressed or implied, give an example of both

Answer 70

• B tells A that she will not mow his lawn (Express)
• B flies to Australia on Friday, telling A that she will return in a fortnight (implied she will not be able to mow his lawn)

Question 71

What can a A do in the case of an anticipatory breach?

Answer 71

• Accept the breach of contract

- Affirm the contract

Question 72

What happens if one accepts the breach of contract in anticipatory breach?

Answer 72

• A can terminate the contract
• A can claim damages
• From the moment of acceptance of the breach and termination by A, B cannot revoke the anticipatory breach and compel A to accept the contractual performance
• Nor can A change her mind and affirm the contract
• Cannot seek to keep any part of the contract alive

Question 73

What happens if one affirms the contract in anticipatory breach?

Answer 73

• B remains bound, and will be in breach if she does not perform as originally agreed
• A loses the right to terminate for the anticipatory breach
• But if B commits a new anticipatory breach (which can be a clear restatement of the original anticipatory breach) or commits a “performance” breach, A’s original affirmation of the contract does not affect her rights in relation to the new (anticipatory or “performance”) breach
• Can not affirm part of the contract has to be the whole

Question 74

When, in anticipatory breach, can A sue for the breach and claim the damages?

Answer 74

• The rule is that A can sue for breach, and be paid damages, as and from the time of accepting the anticipatory breach

Question 75

Which case can be used to demonstrate anticipatory breach?

Answer 75

• Hochster v. De La Tour (1853)

Question 76

What is the practical issue with anticipatory breach?

Answer 76

• Damages are still assessed at the time of performance so how can damages be assessed if the breach did not actually occur at that time ( For example loss of value on grain as prices fluctuate with time)
• ## The court, therefore, must speculate as to the likely market price of the fluctuating product which is not necessarily fair

Question 77

What is the theoretical issue with anticipatory breach?

Answer 77

• B’s primary obligation is to perform the contract
• B’s secondary obligation is to pay damages for breach of any primary obligation
• The date for performance of the primary obligation has not arrived
• Yet the secondary obligation is being enforced against B
• The answer to this is that B’s secondary obligation arises upon breach
• Therefore, if we accept anticipatory breach as a breach, then there is no theoretical conflict

Question 78

What are the benefits of anticipatory breach?

Answer 78

• Minimisation of loss. The earlier that A is aware that B will not perform, that she, A, will not be obliged to accept B’s performance, the earlier A can begin to mitigate her loss. This reduces any economic waste that might be inherent in the breach
• A can find substitute performance to fill the gap to reduce the damage caused
• Any advanced payments that have been made can be returned immediately rather than waiting after the performance breach

Question 79

What is a disadvantage of affirming a contract in anticipatory breach?

Answer 79

• If A affirms the contract and then B has a supervening act (Frustration) that leads to a lawful excuse as to why they can not continue the contract they cannot be held liable
• A should charge the breach immediately when the B did not have chance to claim lawful excuse

Question 80

Broadly speaking, what is frustration?

Answer 80

• if, after the contract has been made, circumstances change so drastically (Frustration) that performance in the new circumstances would be radically different from the intended performance
• (e.g., the goods to be sold are destroyed by fire),
• Then, provided the change is not due to the fault or election of either party and has not been allocated by the contract, the contract is terminated by operation of law

Question 81

what is the limitation on A’s right to affirm?

Answer 81

• If A has no LEGITIMATE INTEREST in electing to affirm, rather than accepting the breach and terminating the contract, she might not be able to affirm
• Affirmation would place an additional burden on B, whilst bringing no benefit to A and would therefore be wholly unreasonable
• Damages would be an adequate remedy

Question 82

Which case shows there are limitations as to when someone may affirm a contract?

Answer 82

• White & Carter (Councils) Ltd v. McGregor [1962]

Question 83

Anglo-African Shipping Co v. J Mortner Ltd [1962]

Answer 83

• Applied the ratio set out by White & Carter (Councils) Ltd v. McGregor [1962]
• Did not focus on legitimate interest

Question 84

Attica Sea Carriers v. Ferrostaal Poseidon (The “Puerto Buitrago”) [1976]

Answer 84

• A and B contracted for B to charter (hire) A’s ship
• Contract provided that B obliged to effect full repairs before returning ship
• B refused to repair, because it would cost it $2M, when the value of the ship after repairs would be $1M
• B therefore informed A that it would not be effecting the repairs, sought to redeliver the ship and repudiated the contract before the hire period had come to an end
• A refused to accept redelivery and sought to compel B to effect repairs
• A also claimed to be entitled to charge B for the hire of the vessel until B had fully repaired (and was thus entitled to return) the ship
• CA held that A was not entitled to affirm the contract
• A was obliged to accept redelivery, from which point, it could not charge B for the hire of the vessel
• Looked at legitimate interest going against the decision in White & Carter (Councils) Ltd v. McGregor [1962]

Question 85

What case shows that legitimate interest can be the focus of a reason not to allow affirmation of a contract in anticipatory breach?

Answer 85

• Attica Sea Carriers v. Ferrostaal Poseidon (The “Puerto Buitrago”) [1976]

Question 86

MSC Mediterranean Shipping v. Cottonex Anstalt [2015]

Answer 86

• Another case showing the limitations of affirming a contract after anticipatory breach
• C gave containers to D to deliver to x and charged D for the time he had them
• D told C x had not picked them up and C should have claimed a breach but instead affirmed in order to keep claiming money from D for the containers usage
• It was ruled wholly unreasonable for C to act in this way and so affirmation was not allowed
• Damages were an adequate remedy
• Facts virtually similar to White & Carter (Councils) Ltd v. McGregor yet the complete opposite decision to bring it full circle and follow the view made by LORD REID (Wholly unreasonable)

Question 87

What was the ‘Thing’ blamed for the variation in decision between MSC Mediterranean Shipping v. Cottonex Anstalt [2015] and White & Carter (Councils) Ltd v. McGregor?

Answer 87

• In White and carter it was a one of full payment that the c was aiming to gain
• In MSC there were multiple payments that would accrue until the containers where delivered which was rendered unfair and wholly unreasonable

Question 88

What is the uncertainty’s left regarding who can affirm a contract in regards to anticipatory breach?

Answer 88

• What constitutes legitimate interest?

- when is A being wholly unreasonable in seeking to affirm the contract?

Question 89

What is the argument against the doctrine of when someone cannot affirm in regards to anticipatory breach?

Answer 89

• Fetters the innocent party’s right of free choice whether to affirm or terminate
• central notion of security of contracts
• the idea that, if we have a binding contract, the parties should generally be entitled to enforce their contractual rights, except in extreme circumstances (such as frustration, mistake, misrepresentation, duress, undue influence)