Discharge and breach Flashcards
1
Q
What are the 4 methods of discharge?
A
- Performance
- Agreement
- Breach of a condition (or serious breach of an in-nominate term)
- Frustration
2
Q
what is a breach of contract?
A
- A failure without lawful excuse to perform a contractual obligation allows for the rightful termination of the contract
- In addition damages can be claimed
3
Q
Breach can take 3 different forms, what are they?
A
- Defective performance
- Non-performance
- Incapacitating oneself from performing
4
Q
Is breach of contract strict liability?
A
- Yes it is not usually needed to prove fault to establish existence of a breach
5
Q
Does every breach of contract give right to termination fo the contract?
A
- No, although damages can be claimed in each situation to receive any loss
6
Q
What determines whether there is a right to terminate a contract?
A
- 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
7
Q
White and carter Ltd v McGregor 1961
A
- Recognises that the innocent party may ignore a breach in order to continue with performance and claim the contract price
8
Q
An example of a failure to perform that does not mean a breach of contract
A
- 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)
9
Q
An example of a lawful excuse?
A
- defective goods being delivered and therefore the buyer refusing the pay
10
Q
Where does a contract become discharged through performance?
A
-where both parties have fully performed their contractual obligations.
11
Q
what is a discharge through full performance?
A
- Where there is an existence of an entire contract
12
Q
Moore & Co v. Landauer & Co [1921]
A
- 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
13
Q
Arcos Ltd. v. EA Ronaasen [1933]
A
- 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
14
Q
Shipton Anderson v. Weil Bros [1912]
A
- 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
15
Q
Union Eagle v Golden Achievement [1997] (Time of performance)
A
- 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.
16
Q
What is performance of a contract?
A
- 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.
17
Q
What is an entire obligation?
A
- 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
18
Q
What is a severable obligation?
A
- 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.
19
Q
Cutter v Powell (1795)
A
- 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
20
Q
Ritchie v Atkinson (1808)
A
- 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
21
Q
What is substantial performance?
A
- 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’
22
Q
Hoenig v Isaacs [1952]
A
- 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
23
Q
Hochster v De La Tour (1853)
A
- 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
24
Q
What is affirmation of a contract?
A
- 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’
25
White & Carter (Councils) Ltd v. McGregor [1962]
- 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’
26
What does vitiation mean?
- 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)
27
What is a big difference between vitiation and discharge?
- Discharge looks into the termination of a contract prospectively
- Vitiation is concerned with both prospective and retrospective
28
What is discharge by full performance?
- 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
29
What is the general principle regarding discharge by full performance?
- only full and complete performance according to the precise terms of the contract will suffice to discharge
30
what constitutes full and complete performance?
- 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
31
What is the extremely narrow exception to the general rule that each party must perform precisely to the terms of the contract ?
- 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
32
What case can be used to represent the method of the performance?
- Moore & Co v. Landauer & Co [1921]
- Some of the goods were packaged in packs of 24 instead of 30
- The method was incorrect
33
What theoretical example can be used as a breach based on the method of performance?
- 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
34
What is meant in regards to place of performance?
- 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
35
What case can be used to represent the time of the performance?
- Union Eagle v. Golden Achievement [1997]
| - Sale of flat 10 minutes late so lost deposit and contract was terminated
36
What is the justification of the rule of discharge by full performance?
- 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
37
What happens if no time performance has been set in the contract?
- 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
38
What is discharge of a contract through agreement?
- parties can agree to discharge/terminate their contract whenever they like, whether performance has commenced or not
- But there is a need for consideration
39
What is consideration?
- 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.
40
What are conditions subsequent?
- 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
41
What does rescission mean?
- Termination for breach of contract
| - such as if C avoids the contract on the basis of a misrepresentation
42
What happens if someone chooses to affirm?
- They lose the right to terminate the contract
43
What is a condition?
- 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
44
What is a warranty?
- 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
45
What is an innominate term?
| - serious and minor breaches
- 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
46
What is the general rule of contractual liability in determining whether one had breached the contract?
- Strict liability
- It does not matter why one has not performed properly , whether she has done so intentionally, negligently or wholly innocently
47
An example of an agreement made by parties for one to make best or reasonable endeavours in sticking to the contract.
- Estate agents
| - They do not necessarily have to sell the house as long as they make the best or reasonable endeavours to do so
48
What three things can Contractual obligations be?
- Independent,
- Interdependent/concurrent,
- Dependent
49
What happens if an obligation is independent?
- 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
50
What happens if an obligation is interdependent?
- 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
51
What happens if an obligation is Dependant?
- 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
52
Example of an independent obligation
- 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
53
Why will the courts be slow to infer that a contractual obligation is an independent one?
- Because it is harsh to compel one to perform when the other has not
54
Example of interdependent obligations
- 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
55
An example of a dependant obligation?
- contract of employment: generally, an employee is to be paid in arrears
- One must work before they are entitled to be paid
56
Which case is an example of a dependant obligation?
- Trans Trust SPRL v. Danubian Trading Co [1952]
57
Trans Trust SPRL v. Danubian Trading Co [1952]
- 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
58
What is an entire obligation?
- 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
59
What two cases demonstrate an entire obligation?
- Cutter v. Powell (1795)
| - Sumpter v. Hedges [1898]
60
Sumpter v. Hedges [1898]
- 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
61
What are the three orders of performance?
- Independent
- Interdependent
- Dependant
62
What is a severable obligation?
- 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
63
How is it determined whether an obligation is entire or severable?
- 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)
-
64
What case demonstrates a severable obligation?
Ritchie v. Atkinson (1808)
65
What is meant by part payment for substantial performance for an entire obligation?
- 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
66
Which case demonstrates Substantial performance being used?
Hoenig v. Isaacs [1952]
67
Why is substantial performance controversial?
- 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
68
Why does substantial performance exist?
- It would be unfair to allow B to get nothing under the contract when he has substantially performed
69
What is an anticipatory breach?
- 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
70
anticipatory breach can be expressed or implied, give an example of both
- 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)
71
What can a A do in the case of an anticipatory breach?
- Accept the breach of contract
| - Affirm the contract
72
What happens if one accepts the breach of contract in anticipatory breach?
- 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
73
What happens if one affirms the contract in anticipatory breach?
- 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
74
When, in anticipatory breach, can A sue for the breach and claim the damages?
- The rule is that A can sue for breach, and be paid damages, as and from the time of accepting the anticipatory breach
75
Which case can be used to demonstrate anticipatory breach?
- Hochster v. De La Tour (1853)
76
What is the practical issue with anticipatory breach?
- 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
-
77
What is the theoretical issue with anticipatory breach?
- 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
78
What are the benefits of anticipatory breach?
- 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
79
What is a disadvantage of affirming a contract in anticipatory breach?
- 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
80
Broadly speaking, what is frustration?
- 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
81
what is the limitation on A’s right to affirm?
- 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
82
Which case shows there are limitations as to when someone may affirm a contract?
- White & Carter (Councils) Ltd v. McGregor [1962]
83
Anglo-African Shipping Co v. J Mortner Ltd [1962]
- Applied the ratio set out by White & Carter (Councils) Ltd v. McGregor [1962]
- Did not focus on legitimate interest
84
Attica Sea Carriers v. Ferrostaal Poseidon (The “Puerto Buitrago”) [1976]
- 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]
85
What case shows that legitimate interest can be the focus of a reason not to allow affirmation of a contract in anticipatory breach?
- Attica Sea Carriers v. Ferrostaal Poseidon (The “Puerto Buitrago”) [1976]
86
MSC Mediterranean Shipping v. Cottonex Anstalt [2015]
- 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)
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?
- 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
88
What is the uncertainty's left regarding who can affirm a contract in regards to anticipatory breach?
- What constitutes legitimate interest?
| - when is A being wholly unreasonable in seeking to affirm the contract?
89
What is the argument against the doctrine of when someone cannot affirm in regards to anticipatory breach?
- 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)
