Discharging a contract Flashcards
definition of discharging
Means bringing a valid and enforceable contract to an end, or terminating a contractual relationship.
Parties are released from further obligations, anything accrued before must still be paid.
Discharge by subsequent agreement
By novation: substitution of a new contract for an old one.
By accord and satisfaction: when a lesser sum is paid and accepted in settlement of a debt.
Doctrine of absolute liability
“A party, having voluntarily taken an absolute and unconditional obligation, cannot escape liability for damages just because, as events have turned out, performance is impossible or futile.”
Paradine v Jane
Plaintiff sued defendant under a lease for unpaid rent. Defendant pleaded that as a result of the invasion of an enemy of the King. Defendant was forced out and refused to pay Plaintiff.
Held: defendant must pay the required rent as he bound himself to the agreement.
Taylor v Caldwell principle
The court established the principle that, in contracts which the performance depends on the continued existence of a given person or thing, if performance because impossible without fault by either party, there should be an automatic mutual discharge.
Doctrine of frustration
Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.
Davis Contractors Ltd v Fareham Urban District Council
Plaintiffs agreed to build 78 houses within 8 months. Due to unexpected lag in demobilization after the war, supplies were not available and it took 22 months to complete. Plaintiff contended that the contract was frustrated by the unavailability.
Held: the contract had not been frustrated. The fault was of neither party but the delay was a risk they had voluntarily taken.
Essence of frustration
- event happens after the contract was entered into
- arises at no fault of either party
- was not reasonably contemplated at the time of entering the contract
- significantly changes the nature of the outstanding rights and/or obligations
-it would be unjust to hold the parties to the literal sense of its contractual rights and/or obligations in the new circumstances
Frustration will not succeed
- allegedly frustrating event is self-induced
- frustrating event should have been foreseen
- where specific provisions had been made for the event
- where the contract is merely delayed or interrupted
Maritime national fish v ocean trawlers
Maritime national hired a trawler from ocean trawlers. To use it as intended it needed to be licensed. Government issued 3 licenses but they had 5 that needed licenses so they allocated them to their own boats. Then tried to get ocean trawlers to take it back, claiming it has been frustrated by lack of a license.
Held: the contract was not frustrated as maritime had inflicted it on themselves.
The Power Co Ltd v Gore National District Council
Entered into an agreement to supply electricity to respondent (council) at one penny per unit for its own use and use of its consumers. The contract was expressed to be binding “for all time hereafter.” The wholesale price increased substantially due to high inflation and the company purported to terminate due to the supervening event
Held: the contract was not frustrated. It had changed in various ways but not sufficient to be frustrated.
Frustration by absolute impossibility
Situations where the supervening event makes future performance physically impossible.
Taylor v Caldwell
Defendant owned a music hall and agreed to rent it out to Plaintiff. A week before, the music hall burnt to the ground. Plaintiff sued for breach of contract.
Held: failed as the contract was frustrated due to the fire.
Radical difference
A contract is frustrated if performance is not impossible but radically different to what was contemplated
Codelfa construction pty ltd v state rail authority of NSW
The state rail authority accepted a tender to excavate tunnels with certain dated and completion within 130 weeks. They worked 3 shifts a day, 7 days a week but received many complaints so they reduced to 2 shifts, 6 days a week.
Held: the contract was frustrated as the performance was radically different and Codelfa needed additional sums.
futility
Situations where performance is possible but would be futile because the mutually understood purpose underlying the contract no longer can be achieved.
Krell v Henry
Defendant agreed to rent a flat from plaintiff to watch the coronation procession. Defendant paid the desposit. Due to illness the coronation was cancelled and defendant did not use the flat. Plaintiff cought for the remaining balance.
held: the contract was frustrated as both parties were aware of the object of the agreement.
effects of frustration at common law
- when contract is frustrated it automatically discharges all future performance
- payment for work after the frustration cannot be governed
- payments already made cannot be recovered, payments which may have accrued remain payable
- where there has been a total failure of consideration pre-payments are recoverable
chandler v webster
chandler rented a room from Webster to watch the coronation procession. The price was payable before the procession. Chandler had partially paid when the king fell ill and the procession was cancelled. Chandler sought to recover the deposit, whilst Webster demanded the balance
held: Chandler was not entitled to recovery and had to pay Webster as his right to the payment had accrued before.
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
Appellants entered into a contract with respondents to purchase machinery. They had paid part of the deposit. Due to the war, they sought the money back. Respondents argued that the contract had been frustrated and they had no right to the return.
Held: Overruling Chandler v Webster, appellants could recover sum from respondents having been a total failure of consideration.
s60(1) confinement
“A contract governed by NZ law has become impossible of performance or otherwise frustrated, the parties thereto have been discharged from further performance.”
s61+62 money paid before discharge of contract recoverable
s63 benefit conferred before discharge of contract receivable
