discharge and variation of contract

Question 1

4

discharge

Answer 1

A contract can also be discharged
1. because of an** agreement** by the parties to end or vary the contract,

2. because the parties’ respective obligations under the contract have been performed or come to an end
3. because the contract becomes incapable of being performed (known as ‘frustration’), or
4. because one of the parties to the contract has committed a** breach **of it.

Question 2

2

discharge vs. recission

Answer 2

1. discharge differs from rescission
   of a voidable contract because the rights and obligations which have accrued before termination remain in place after discharge.
2. Conversely, rescission destroys all rights under the contract because it treats the contract as never having existed, and the parties are put into the position they were in before the contract was made.

Question 3

4

discharge by agreement

Answer 3

1. A contract can be discharged by the agreement of the parties. Some contracts will contain terms allowing for discharge before full performance, perhaps if there is a breach by one of the parties, or if a party gives notice (such as in employment contracts).
2. If the contract does not make provision for discharge, then it can still be discharged by agreement between the parties.
3. Effectively, the parties areforming a new contract to end the old one (or vary it), so all the parties must agree and there must be consideration for the new agreement.
4. any party has already performed their obligations in full, any release of the other parties from their obligations is akin to allowing them to walk away from a debt. As an agreement to accept part payment of a debt is not binding, because the creditor has given no consideration for their promise, the agreement will need to be entered into by deed as it will be unsupported by consideration. If there is no deed, then some new consideration will be required for the release.

Question 4

2

variation

Answer 4

1. If the parties wish to vary an existing contract, the legal position is the same as for discharge:** all the parties must agree**, and the agreement must be supported by consideration.
2. The requirement for consideration will be met if all the parties are giving up rights under the contract. Otherwise, the variation must be by deed in order to be binding.

Question 5

waiver

Answer 5

1. The equitable doctrine of waiver may provide a way around the requirement for consideration. If a party promises not to enforce another party’s obligations under the contract, the courts may conclude that the first party has waived its rights in respect of the non-performance.
   2.

Question 6

Implied Variation or Waiver

Answer 6

1. In practice, it is common for the parties to proceed** as though there were a new understanding** between them, even though nothing is actually said.
2. In that situation, the courts will often find that there is an implied variation to the contract, if all the parties have acquiesced in the new understanding and there is consideration. If there is no consideration, then there may still be an implied waiver

Question 7

3

performance

Answer 7

1. In the normal course of events, a contract will be discharged by way of performance. The general rule, known as the ‘entire obligations rule’, is that** only full (exact and precise) performance **will discharge the contract. Partial performance will therefore not operate as a discharge of contract.
2. in some cases, **substantial but imprecise performance **has been held to be sufficient to discharge obligations under a contract.
3. Another way of putting this is to say that substantial performance is one of the main conditions of the contract, so that any minor breaches are therefore breaches of warranty

Question 8

3

divisible contracts

Answer 8

1. The ‘substantial performance’ rule applies to** lump sum contracts**, where the whole contract has to be performed in order to trigger payment.
2. Different rules apply to ‘divisible’ contracts, where the contract is drafted in such a way that the court can subdivide the obligation to perform into components.
3. Failure to substantially perform one part of the contract does not prevent enforcement of the other parts.The most obvious example is a contract to deliver goods byinstalments.

Question 9

Partial Performance Accepted by the Other
Party

Answer 9

If partial performance has been agreed voluntarily, a court will normally conclude that the parties have agreed a new contract on revised terms. This is a variation, so it will be binding only if there is consideration.

Question 10

3

breach

Answer 10

1. A breach of contract occurs when one party does not fulfilits obligations under the contract, through either non-performance or defective performance (actual breach), or whenit indicates it will not fulfil its obligations under the contract (anticipatory breach).
2. The innocentparty has the choice to terminate (which must be communicated to the party in breach) or carry on with the contract,**that is, to affirm it.
3. A breach of a warranty will give rise only to a claim for damage

Question 11

3

termination vs. recission

Answer 11

a. Termination for Breach
If a contract is terminated for breach, rights and obligations which have **accrued **before termination remain in place, and the innocent party may be able to claim damages for breach.
b. Goods Delivered Under the Contract
If goods have been delivered under the contract but there has been a breach of contract because the goods do not
conform to the contract, and the buyer terminates the contract:
* The buyer is not obliged to pay for them; but
* The buyer must return them; and
* They can also claim damages for failure to supply goods in conformity with the contract.
c. Rescission of a Voidable Contract
In contrast, if a voidable contract is rescinded, it is treated asthough it was never effective.

Question 12

affirmation for breach

Answer 12

Once a contract has been affirmed, the right to terminate is lost. The innocent party must therefore take great care not to take steps to carry on with the contract or affirm it (for example, by retaining defective goods delivered under a sale of goods contract, after the innocent party has discovered the
defect).

Question 13

3

frustration

Answer 13

1. Impossible
   A contract may become frustrated because the subject matter no longer exists because it has been destroyed or has otherwise become unavailable through no fault of the parties

2.Illegal
Supervening illegality can frustrate a contract.
Supervening illegality arises if, after a contract is concluded, a change in the law makes continued performance illegal.

3. Radically Different
   Usually there is no frustration unless performance is** impossible or illegal**, but in certain circumstances frustration might occur because a supervening event makes performance radically different from what was envisaged, even though performance is technically possible. The radical difference must be fundamental to the contract, and the supervening event must not have been in the contemplation of the parties at the time the contract was formed

Question 14

3

What Does Not Constitute Frustration

Answer 14

a. More Difficult or Expensive to Perform
b. Self-Induced Frustration
c.Events that Could Be Foreseen

Question 15

effect of frustration

Answer 15

The effect of frustration is to release the parties from any
further liability to each other

Question 16

4

Law Reform (Frustrated Contracts) Act 1943
(‘LRFCA’)

Answer 16

1. The LRFCA sets out rules to apportion loss as between the parties.
2. Under the LRFCA, if a contract has become frustrated and the parties have been discharged from further performance, all sums paid in respect of the contract before discharge will be recoverable, and all sums payable before discharge cease to be payable.
3. If any expenses have been incurred before the time of discharge, the court may allow** retention of sums paid** to account for expenses incurred.
4. If any party has obtained a valuable (non-monetary) benefit before the time of discharge, the party who benefited may have to pay for it