Discharge of contract Flashcards
What is the ‘entire obligation rule’?
A contractual obligation is discharged by complete performance of the obligation. Until the obligation is completely performed, the performing party is not entitled to payment.
If the contract was said to be entire none of the exceptions would apply.
What are 5 ways to discharge a contract?
- performance
- expiry
- agreement
- breach
- frustration
Exceptions to entire obligation rule
1- acceptance of partial performance
2- substantial performance
3- divisible obligations
4- wrongful prevention of performance
Substantial performance
If substantially performed, it is possible for the breaching party to obtain the contract price after deduction reflecting the cost of remedying the ‘defect’ .
Defence to failure to perform
Tender of performance
○ Promisor shows that they unconditionally offered to perform, but other party said no
○ plea of tender- to be successful they must unconditionally offer the performance accordingly to the terms but promisee/or refuses
Ways of discharging contract by an agreement?
(i) subsequent binding contract (mutual waiver)
(ii) operation of original Contract
What do mutual waiver need to satisfy to be effective?
ACCORD AND SATISFACTION
- Accord= obligation will be released
- Satisfaction = consideration for the promise to release a party from obligation.
if part A releases B by mutual waiver but Party B has remained obligations to be done.
What happens to the remaining obligation?
They may release the other party by a subsequent agreement under a deed which avoids necessity of consideration because a gratuitous promise is enforceable if made in a contract in the form of a deed.
Is accord and satisfaction necessary for every subsequent binding contract to discharge the contract?
No - Deed exception AND instead of a deed, parties can accept something different in place of a former obligations.
what is a condition precedent?
a condition must be satisfied before any rights come into existence.
what is a condition subsequent?
a term providing for the termination of the contract and the discharge of obligations outstanding under the contract upon the happening of a specific event.
What is a repudiatory breach?
party can treat the contract as terminated + claim compensatory damages.
● Termination prospective only (rights accrued remain enforceable)
● The party has a choice whether to terminate or affirm.
● All primary obligations are released & innocent party can claim damages for both damages arising from the breach and for loss of contract.
What is an anticipatory breach?
if a party by words or conduct leads a reasonable person to conclude that they do not intend to perform their part of the contract, the innocent party can accept that renunciation and terminate.
Party terminating must show that the breach occurred at the time of performance & would have been repudiatory.
Carries a risk of wrongful termination.
Can a party still affirm if other party indicated not to perform its obligation?
YES - but they must still perform their oblihation and then claim the sum due under the contract in a debt action.
What are conditions to affirm a contract when the contre-party indicates that they will not perform their obligations and later claim the sum in debt action?
Affirmation:
● Must be unequivocal and clear commitment to continue
● Contractual obligations remain
● Must mitigate loss
● Entitled to damages
● affirming party must perform its obligations
Limits to affirmation
(i) if requires the cooperation of the counterparty to continue performing - nor possible
(ii) if the innocent party has ‘no legitimate interest, financial or otherwise’, in affirming and continuing with performance - not possible
=> D must show:
■ Damages would have been adequate
■ Affirmation would be unreasonable
If D can show this, innocent party cannot affirm.
How can a party terminate a contract due to breach?
● must Notify other party
● be entitled to damages
● Must mitigate loss
What is the preliminary condition to terminate or affirm a contract in case of breach of term?
Term must be a condition or innominate term treated as condition.
What is frustration?
Discharges the contract.
These are events that are beyond the control of either party which occur after the formation of the contract and which render performance radically different from that which was agreed.
Conditions for frustration?
- without the default of any party
- due to circumstances/occurrence of an event beyond parties’ control – so cannot be reasonably foreseen
- after the contract was formed
- rendered the performance radically different
What are the events that DO amount to frustration?
1- performance is illegal.
2- performance is impossible or unavailable.
3- illness or death.
4- common purpose is frustrated
Can temporary unavailability discharge a contract by frustration?
Yes. IF the interruption is such as to make performance substantially different from what was originally undertaken.
eg. Shipping contracts.
Events that do NOT amount to frustration
1- caused by default of a party
2- self-induced
3- express contractual provision
4- reasonably contemplated/foreseeable events
Consequence of frustration for future obligations
1- Parties released from remaining/future obligations
2- Contract is terminated automatically (at the date the frustrating event occured)
What sum/money can be requested after frustration?
● Money paid before a frustrating event can be recovered
● Money that should have been paid before an event no longer needs to be paid
● Expenses incurred by a payee (receiver of payment) can be recovered out of the total sum payable/paid before the event (at discretion of the court).
In case of discharge by frustration, amount to be recovered will be capped:
Recovered sum cannot exceed:
■ actual expenses incurred (in the case of expense recovery); or
■ amount paid or payable prior to event (in the case of recovery of such)
■ Expenses may be off set against the advance payment
