Discharge Flashcards
(26 cards)
What is meant by discharge of a contract?
It is the point at which all rights and obligations under a contract are extinguished. This can occur through:
(a) Performance
(b) Expiry
(c) Agreement
(d) Breach
(e) Frustration
What is the general rule about discharge by performance?
A contractual obligation is discharged by complete performance. Partial or defective performance generally does not suffice
What is the ‘entire obligations’ rule?
A party must perform all their obligations to be entitled to performance from the other party.
What are the exceptions to the entire obligations rule?
Acceptance of partial performance
Substantial performance
Divisible obligations
Wrongful prevention of performance
When is a contract considered ‘substantially performed’?
When defects do not go to the root of the contract, and the contractor may recover the contract price less a deduction. If the defect is major, no recovery is allowed
What is a quantum meruit?
A claim for reasonable value of services rendered when full performance hasn’t occurred, but some value has been conferred.
What is ‘tender of performance’?
A defence to breach – the promisor offered to perform the contract, but the promisee refused.
How does discharge by expiry operate?
A contract ends when it reaches a stated date or a specific event occurs as specified in its terms.
What are the two ways a contract can be discharged by agreement?
(a) By a subsequent binding contract (mutual waiver or accord and satisfaction)
(b) By operation of a term in the original contract (e.g. condition precedent or subsequent)
What is required for discharge by mutual waiver (accord and satisfaction)?
Accord: agreement to release the obligation
Satisfaction: consideration (unless under deed)
What is a condition precedent?
A condition that must be satisfied before the contract becomes binding.
What is a condition subsequent?
A term that brings a contract to an end upon the occurrence of a specified event (e.g. notice clause).
What is a repudiatory breach?
A breach of a condition or an innominate term that deprives the innocent party of substantially the whole benefit of the contract.
What is an anticipatory breach?
When one party indicates in advance that they will not perform
What can the innocent party do upon repudiatory breach?
They have a choice (right of election) to:
Affirm the contract (continue)
Terminate the contract (and claim for loss of whole contract)
What is required to affirm a contract?
A clear and unequivocal commitment to continue. Performance must be feasible and reasonable
What are limits on affirming a contract?
(a) If co-operation of the defaulting party is needed
(b) If the innocent party lacks a legitimate interest in continuing
What is the consequence of wrongful termination?
It may amount to a repudiatory breach itself, exposing the terminating party to damages
What is the test for frustration?
Whether an event has made performance radically different from what was agreed, without fault of either party
What are recognised causes of frustration?
Impossibility
Illegality
Frustration of common purpose
What are the limits on frustration?
Self-induced frustration
Merely more difficult/expensive
Foreseeable risks
Express provision for the event (e.g. force majeure clauses)
What happens to future obligations upon frustration?
They are automatically discharged by operation of law.
What does s1(2) of the Act provide re Frustration?
Money paid before frustration can be recovered
Money payable ceases to be payable
Court may allow retention of expenses by supplier (up to amount paid/payable)
What is the test for retaining expenses?
Expenses must be incurred directly in performance and it must be just to retain them
