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33 terms

Contract Discharge

STUDY
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Ways a contract may be discharged
Performance
Agreement
Breach
Frustration
Entire obligations rule
Entire obligations are those where the whole of each party's side of the bargain is the necessary condition for the performance of the other. Failure to perform such an obligation will always constitute a repudiatory breach.
Cutter v Powell
a sailor hired was to be paid a lump sum on completion of a voyage. Having died during the course of the voyage, no claim could be made for a proportional sum.
E.O. Rule can be avoided...
by construction of the contract as comprising a series of separate obligations. Some construction contracts will include this, being broken down into separate stages of payments for instalments of work.
Sumpter v Hedges
Partial performance may be accepted where innocent party chooses to do so, and defaulter would receive quantum meruit. Sumpter v Hedges- no quantum meruit could be found, innocent had to complete, no acceptance.
Substantial performance may also fulfil entire obligations
Damages will still be owed but the contract will not be repudiated- Hoenig v Isaacs (if the party offers to remedy the damages then the contract may be completed).
Rose & Frank v Crompton
Some contracts are intended to be severable- employment contracts- but depends on intention of parties
Defence to breach
Tender of performance- if party offers to complete performance and it is turned down, this will be a defence
However, in relation to payment of debt, it only prevents claim of interest or damages after tender
Performance by 3rd party
Acceptable unless a contract of personal service (Robson v Drummond- carriage painting)
Agreement
May be by a subsequent binding contract or by operation of a term in original contract
Requires a mutual waiver
a subsequent contract with consideration
Both parties have outstanding obligations

If only one party has not met obligations, then accord and satisfaction needed. Accord is new agreement, satisfaction is consideration for the new agreement. (Accord and satisfaction was negated by threat in D & C Builders v Rees)
Wilson & Co
Agreement to waive rights under old contract in consideration for being released from each party
Conditions precedent v conditions subsequent
Conditions precedent must be satisfied in order for the contractual rights to arise Pym v Campbell
Conditions subsequent provide for the discharge of outstanding obligations in the event of a specified occurrence Head v Tattersall
Breach- Treitel
Defaulting party "fails or refuses to perform... or performs defectively or incapacitates himself from performing"
Breach of condition- the right of election
may terminate or affirm
Decision to terminate must be made known to defaulting party Vitol v Norelf
Will only be bound by course taken if he was aware of right of election and the right existed Peyman v Lanjani
Anticipatory breach
where it is known obligations will not be performed before date of performance arrives
Right of action immediately accrues to innocent party (Hochster v De la Tour)
Breach can be implied Frost v Knight, marriage.
Hong Kong Fir test applies- no right of election if breach is a warranty
Right of election for anticipatory breach
Innocent party is allowed some time to decide course of action Stocznia No 3

If they affirm:
-There must be clear commitment to affirmation Yukong v Rendsburg
-No obligation to mitigate loss but must continue to perform own obligations White & Carter v McGregor.

There must be a legitimate interest in affirming (damages inadequate etc.- The Dynamic) but party in breach must show this is unreasonable
Hounslow v Twickenham
No co-operation must be required in order to fulfil obligations- if was needed, this would be a further limitation on right to affirm
Risk of affirming the contract
subsequent events may destroy a right of action Avery v Bowden. If the innocent party later breaches an affirmed contract they will lose ability to act on defaulter's liability The Simona.
Davis Contractors v Fareham
Frustration is where there is no default of either party, circumstances render the performance radically different from that undertaken in contract
Elements for frustration
-Supervening event (after formed, before performed) and unforeseeable (Amalgamated Investments)
-Neither parties' fault (The Eugenia)
-Renders contract radically different (Davis v Fareham)
Movement away from rule of absolute obligations
Paradine v Jane, rent arrears even after occupation by hostile army, court ruled that there should have been provisions made for situation in the contract
Impossibility examples
Taylor v Caldwell
Appleby v Myers factory destroyed by fire, contract to install machinery in the factory was frustrated
Death Stubbs v Holywell Rail, unavailability Morgan v Manser, illness Condor v The Barron Knights
Shipping contracts
Unavailability in shipping contracts (five months of a year requisitioning Bank Line v Arthur Capel)
Sea Angel- work under contract had been accomplished, this is also a factor for frustration, on facts no frustration was found
Illegality examples
Fibrosa v Fairbairn illegal to ship to enemy territory
Dick Kerr v Metropolitan Water Board government intervention will frustrate a contract
Common purpose frustrated
Krell v Henry coronation meal, frustration of purpose when King fell ill.
Must be absolute non-occurrence of event which is common purpose of contract.
Herne Bay v Hutton should be communication between both parties to clarify why contract is needed
Limitations
Where event is more onerous:
Davis Contractors v Fareham if contract is rendered more difficult to perform, that will not necessarily be frustration, just a bad bargain
Where self-induced:
If event is induced by one of parties, frustration will not apply, but burden of proof is on party alleging self-induced frustration Joseph Constantine Steamship
Superservant Two had 2 ships equipped to tow oil rigs, didn't specify which was to be used in contract, one sank, other was contracted out, self-induced frustration was found
Where foreseeable:
More unforeseeable the event, the more likely it will be a frustrating event The Sea Angel
Frustration of leases
Panalpina on facts lease was not frustrated, but possible in principle. Circumstances for frustration of a lease are rare
Reichmann v EBC
Lease can be affirmed where you can prove you wouldn't get as much money
Effect of frustration
Future obligations discharged
Accrued rights enforceable
Termination on date of frustrating events

FCA can be excluded in contract
If not, CL does not apply
CL- had to pay anyway, total failure of consideration, recoverable

s1(2) of Act- Money paid before is recoverable, debts negated (judge's discretion, proof needed Gamerco)

s1(3)- Valuable benefit, just sum may be due (BP Exploration v Hunt benefit must be an end product from services)
Answer structure
Breach- anticipatory?
Classify term (HK test)
Right of election- can you affirm?
If yes, affirm and claim contract price at end
If not, terminate, mitigate and sue

Frustration claimed
Define
Reason for frustration
Is act excluded? If no, Act
Dunlop v New Garage
A penalty clause is for intimidation of offending party
Issue is one of construction on facts of case, judged at time of forming contract, not at breach. Following may be taken into account:
-if extravagant/unconscionable, penalty
-if breach consists of non-payment and sum stipulated is greater than that non-payment, penalty
-Single lump sum on occurrence of some trifling matter, penalty
-If pre-estimation is almost an impossibility, this will not be an obstacle to the sum being a genuine pre-estimate
Frustration Act
Excluded? 2(3)
APplicable? 2(5)
s1(2) money paid before can be recovered, expenses may be set off (where can be proven Gamerco)
s1(3) a valuable benefit, just sum will be owing for it where there is an end product (BP v Hunt)

Leases s2(4) sever the contract if payments have been made