Discharge & Frustration Flashcards

Question

How is a contract affirmed?

Answer 1

To affirm a contract, there must be evidence of a clear and unequivocal commitment to continue with the contract. This commitment is typically demonstrated by the innocent party's actions or statements.

Answer 2

A contract can be discharged by agreement in two ways: (a) By a subsequent binding contract between the parties; or (b) By operation of a term of the original contract.

Answer 3

If a promisor only performs part of their obligation, they are not discharged from that obligation. The promisee is entitled to the benefit of complete performance exactly according to the promisor's 'undertaking'.

Answer 4

Repudiatory breach of contract occurs when one party breaches a term of the contract that is either a condition or an innominate term treated as such. The innocent party may treat the contract as terminated for repudiatory breach.

Answer 5

Accord and satisfaction refers to the situation where there is an agreement to release an obligation (accord) and consideration for the promise to release a party from the obligation (satisfaction). It is a way to discharge a former obligation and form a new agreement in new terms.

Answer 6

The three categories of frustration mentioned in the lecture are performance becoming impossible, performance becoming illegal or prevented by government intervention, and frustration of a common purpose.

Answer 7

There are two important limitations on the innocent party's right to affirm a contract in response to a repudiatory breach. First, the cooperation of the breaching party is required for continued performance of the contract. Second, the innocent party must have a legitimate interest, financial or otherwise, in affirming the contract and continuing with performance.

Answer 8

The entire obligations rule states that a contractual obligation is discharged by a complete performance of the obligation. If a promisor only performs part of their obligation, they are not discharged from that obligation. The promisee is entitled to the benefit of complete performance exactly according to the promisor's 'undertaking'

Answer 9

A condition precedent is a condition that must be satisfied before any rights come into existence. It suspends the contract until the condition is satisfied. On the other hand, a condition subsequent is a term providing for the termination of the contract and the discharge of outstanding obligations in the event of a specified occurrence.

Answer 10

Terminating a contract for repudiatory breach puts an end to all primary obligations of both parties that remain unperformed. The innocent party can claim damages not only for the specific breach but also for the loss of the contract caused by its termination. However, any rights and obligations that have accrued before termination remain enforceable.

Answer 11

The consequences of frustration in a contract are that the party affected by the frustration is relieved from further obligations under the contract. However, there are rules and limitations regarding the return of payments and other matters.

Answer 12

Terminating a contract for repudiatory breach puts an end to all primary obligations of both parties that remain unperformed. The innocent party can claim damages not only for the specific breach but also for the loss of the contract caused by its termination.

Answer 13

Terminating a contract for repudiatory breach involves a high degree of risk, particularly the risks of wrongful termination. If the termination is found to be wrongful, it can lead to counterclaims and damages against the terminating party.

Answer 14

The Law Reform (Frustrated Contracts) Act 1943 introduced changes to the law that help deal with issues arising from frustration in contracts, such as the return of payments and other matters.

Answer 15

A condition subsequent is a term that provides for the termination of the contract and the discharge of outstanding obligations if a specified occurrence happens. When the condition subsequent is fulfilled, the remaining obligations under the contract are discharged.

Answer 16

Anticipatory breach refers to a situation where a party indicates in advance that they will not perform their contractual obligations. This gives the innocent party an immediate right to accept the renunciation and treat the contract as terminated.

Answer 17

There are several exceptions to the entire obligations rule that mitigate its potentially harsh effect. These exceptions include acceptance of partial performance, substantial performance, divisible obligations, and wrongful prevention of performance.

Answer 18

Mutual waiver refers to a new contract formed by both parties agreeing to waive their rights under the old contract in consideration for being released from their obligations under the old contract. This type of arrangement is common in commercial situations where parties wish to end an existing contract and achieve commercial certainty.

Answer 19

Acceptance of partial performance occurs when the innocent party, instead of rejecting the work done, accepts that part of the performance. However, such acceptance is at the discretion of the innocent party. If the innocent party voluntarily accepts partial performance, the party in default will be entitled to payment on a quantum meruit basis.

Answer 20

Quantum meruit, meaning 'as much as is deserved', is a remedy whereby the party in default, who has given only partial performance of the contractual obligations, may be able to claim a reasonable sum so that the innocent party is not unjustly enriched. The court assesses the value of a quantum meruit award on an objective basis using available information, such as the usual market price for goods or services.

Answer 21

If one party has performed its obligations in their entirety but something remains to be done by the other party, the party to whom the obligation is owed may release the other party by a subsequent agreement under deed. This avoids the need for consideration because a gratuitous promise made in a contract in the form of a deed is enforceable without consideration.

Answer 22

When a condition precedent is not fulfilled, there is no true discharge because the rights and obligations under the contract were contingent upon an event that did not occur. In other words, the rights and obligations never came into existence in the first place.

Answer 23

Substantial performance occurs when a contract has been mostly performed, with only minor defects or aspects remaining. In such cases, the party who rendered substantial performance may be entitled to the contract price, subject to a deduction to reflect the cost of remedying the remaining defects. The court determines whether the defect goes 'to the root of the contract' and assesses the cost of remedying the defect against the contract price.

Answer 24

The remedy of quantum meruit allows the party in default, who has given only partial performance of the contractual obligations, to claim a reasonable sum so that the innocent party is not unjustly enriched. It prevents the party in default from receiving full payment without having fully performed their obligations.

Answer 25

Assessing substantial performance based on the 'root of the contract' allows the court to determine whether the defect or aspect that has not been performed goes to the core purpose of the contract. If the defect is too serious and goes to the root of the contract, the party who rendered the defective performance will not be entitled to recover any money.

Answer 26

The usual remedy for breach of contract is an award of compensatory damages, which is monetary compensation.

Answer 27

The Hong Kong Fir test refers to the uncertainty surrounding the test for determining whether a breach of contract is repudiatory. To inject certainty into their contracts, commercial parties often explicitly agree on a list of breaches that will give rise to a right to terminate.

Answer 28

Terminating a commercial contract for repudiatory breach often involves a high degree of risk for the terminating party. If a court later finds that the breach was not repudiatory, the terminating party's notice to terminate may be considered wrongful. This can lead to a damages claim against the terminating party and potential reputational damage.

Answer 29

When a contract is affirmed, there are two options: elect to affirm or elect to terminate. Electing to affirm requires a clear and unequivocal commitment to continue with the contract, while electing to terminate requires notification and entitles the innocent party to damages.

Answer 30

The risks of wrongful termination in cases of repudiatory breach are exacerbated by the fact that the categorization of the breached term as a condition or warranty depends on the application of the Hong Kong Fir test. This test sets a high bar and can be difficult to establish. Additionally, terminating a contract without proper justification can turn the terminating party into the party in repudiatory breach, leading to potential damages claims.

Answer 31

The right of election refers to the choice given to the innocent party to either terminate the contract or affirm it. The innocent party must make their decision known to the party in default, and they are allowed a period of time to decide between these two alternatives.

Answer 32

Affirmation of a contract after a repudiatory breach requires clear and unequivocal commitment to continue with the contract. The innocent party must make their decision to affirm the contract known to the party in default. Affirmation preserves the contract and the rights of the innocent party, but does not waive damages from the relevant breach.

Answer 33

Commercial parties can explicitly agree on a list of breaches that will give rise to a right to terminate. This helps inject certainty into their contracts and provides clarity on the circumstances under which termination is justified.

Answer 34

If a party affirms a contract despite an indication of non-performance by the other party, the innocent party can still perform their own obligations and claim the sum due under the contract in a debt action. However, the innocent party retains a claim for damages arising from the breach and cannot terminate the contract as a result of it.

Answer 35

Performance of a contract may be radically different if it becomes impossible, illegal, or if the common purpose of the contract is frustrated. These events occur after the formation of the contract and render performance different from what was agreed upon.

Answer 36

If a contract becomes impossible to perform due to the total or partial destruction of an object necessary for performance, the contract may be frustrated. The innocent party is relieved from further obligations under the contract.

Answer 37

If a customer owes fees for services provided prior to termination of a contract for repudiatory breach, they would still be obliged to pay those fees. However, they would no longer be obliged to accept and pay for services going forward.

Answer 38

The co-operation of the breaching party is required for continued performance of the contract. If the innocent party requires the co-operation of the other contracting party to fulfill their obligations under the contract, this will prevent the innocent party from claiming the contract price.

Answer 39

Yes, frustration can be raised as a defense to an action for breach of contract. It relieves the party from further obligations under the contract.

Answer 40

The innocent party must communicate their decision to terminate the contract to the party in default. This ensures that the termination is legally effective.

Answer 41

When assessing whether unavailability is sufficient to amount to frustration, a multifactorial approach should be adopted. The factors to be considered include the terms of the contract itself, its matrix or context, the parties' knowledge, expectations, assumptions, and contemplations, as well as the nature of the supervening event and the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.

Answer 42

The key test is whether the event would have informed the manner in which the parties assessed the risk of entering into the contract. Highly theoretical risks that the parties would not have taken into account are not relevant.

Answer 43

Frustration of purpose occurs when the common purpose for which a contract was entered into can no longer be carried out due to some supervening event. This can lead to the contract being frustrated, even if it is still physically possible to perform the contract.

Answer 44

A force majeure clause is a contractual provision that states what will happen to the contractual relationship between the parties should a particular set of circumstances, which could otherwise amount to frustrating events, materialize. The inclusion of a force majeure clause allows the parties to allocate risks in relation to these events at the outset and may allow for the continuance of the contractual relationship in circumstances that would otherwise amount to frustration of the contract.

Answer 45

In the case of Krell v Henry, the defendant agreed to hire a room to view a coronation procession, but the procession did not take place due to the illness of King Edward VII. The Court of Appeal held that the common foundation of the contract was frustrated because the purpose of hiring the room was to view the procession. This case is an example of frustration of purpose.

Answer 46

An example of a contract that was not frustrated despite a change in circumstances is Herne Bay Steamboat Co Ltd v Hutton [1903] 2 KB 683. In this case, the plaintiff hired their steamboat to the defendant 'for the purpose of viewing the Naval Review and for a day's cruise round the fleet. The naval review was cancelled, but the cruise could still go ahead. The court held that the contract was not frustrated because viewing the naval fleet might have been the principal motivation for the defendant, but it was not the common foundation of the contract.

Answer 47

Under the Law Reform (Frustrated Contracts) Act 1943, money paid before the frustrating event can be recovered even if failure of consideration is only partial.

Answer 48

In cases of frustration of purpose, it is important that there is a joint purpose of the parties. It is not enough for it to be the purpose of just one party. The common foundation of the contract must be frustrated for the doctrine of frustration to apply.

Answer 49

Under the Law Reform (Frustrated Contracts) Act 1943, money payable but not yet paid ceases to be payable.

Answer 50

The doctrine of frustration must be applied within very narrow limits. It is not lightly invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains. Additionally, frustration will not apply where the event was induced by one of the parties, meaning that self-induced frustration is not a valid defense. Furthermore, the doctrine of frustration is a means of allocating unforeseen risks, and it is unlikely that a contract will be frustrated merely because an event has occurred that renders the contracted-for performance worth less or more expensive.

Answer 51

Performance may be considered impossible if the contract becomes impossible to perform due to the total or partial destruction of some object necessary for performance. For example, if the subject matter of the contract is destroyed or an essential asset for performance is destroyed.

Answer 52

Under the Law Reform (Frustrated Contracts) Act 1943, the court has a discretionary power within specified limits to allow the party returning the money to retain a sum for expenses incurred in attempting to perform the contract.

Answer 53

Section 1(2) of the Act allows for the recovery of money paid before the frustrating event and the non-payment of money that should have been paid before the event. Expenses incurred by the payee can be recovered out of the total sum paid or payable before the event, subject to the court's discretion.

Answer 54

Contracts that become more difficult or expensive to perform due to unexpected events are not automatically frustrated. The fact that a contract becomes more onerous than anticipated is not by itself a ground for relieving a party of their obligations under the contract.

Answer 55

Self-induced frustration occurs when an event is induced by one of the parties, meaning it was their fault or choice. In such cases, the doctrine of frustration does not apply. If a party successfully proves that the frustrating event is self-induced, the defense of frustration fails and the party will be in breach of contract.

Answer 56

The doctrine of frustration is a means of allocating unforeseen risks. While most events are to some degree foreseeable, that does not mean they cannot lead to frustration. Even events that are not merely foreseen but made the subject of express contractual provision may lead to frustration if they go beyond the risk assumed under the contract and render performance radically different from what was contracted for. However, the less foreseeable an event is in its type and impact, the more likely it is to be a factor that may lead to frustration.

Answer 57

The purpose of a force majeure clause is to state what will happen to the contractual relationship between the parties should a particular set of circumstances, which could otherwise amount to frustrating events, materialize. It allows the parties to allocate risks in relation to these events at the outset and may allow for the continuance of the contractual relationship in circumstances that would otherwise amount to frustration of the contract.

Answer 58

The doctrine of frustration cannot override express and unambiguous contractual provision for the frustrating event. Commercial contracts often contain force majeure clauses, which state what will happen to the contractual relationship if specific circumstances, which could otherwise amount to frustrating events, occur. These clauses allow the parties to allocate risks and may allow for the continuance of the contractual relationship in circumstances that would otherwise frustrate the contract.

Answer 59

According to the Law Reform (Frustrated Contracts) Act 1943, when a party receives a non-monetary benefit prior to the frustrating event, the court must identify and value the benefit conferred, and make an assessment of a just sum to be paid by that party for the benefit.

Answer 60

The court has a discretionary power to order the retention or recovery of money as it thinks just in all the circumstances to account for expenses incurred by the payee (normally the supplier).

Answer 61

The amount retained or recovered by the court cannot exceed (i) the actual expenses incurred nor (ii) the amount paid or payable by the paying party.

Answer 62

Substantial performance This is the correct answer. A contractual obligation is discharged by a complete performance of the obligation. The effect of this is that a party is entitled to payment only after he has completed performance. However, an exception arises where a contract has been substantially performed. The party who rendered substantial performance may be awarded the contract price subject to a deduction to reflect the proportion of the obligation not performed. The other exceptions to the entire obligations rule are acceptance of partial performance, divisible obligations and wrongful prevention of performance.

Answer 63

An obligation is discharged by complete performance of the obligation. Until the obligation is completely performed, the performing party is not entitled to payment

Answer 64

It is a condition in a contract that must be fulfilled before the contract itself or certain contractual rights or obligations become binding

Answer 65

The dress maker and customer can enter a new contract in which they waive their rights under the old contract in consideration for being released from their obligations under the old contract This is the correct answer. This is known as mutual waiver. The other options are problematic for various reasons: only one party is released from their obligation, no consideration has been provided in the new contract, and in the case of Jenny suing Cathy for breach of contract, litigation is normally not an amicable means of resolving a problem

Answer 66

This is where one party breaches a term of the contract which is either a condition or an innominate term which is to be treated as a condition

Answer 67

Defend the action on the ground that the contract has become frustrated as performance is impossible This is the correct answer. Frustration due to impossibility can extend to illness and other reasons. In Condor v Barron Knights, the contract was frustrated when the drummer in a pop group was taken ill and only capable of performing 3 or 4 nights a week. The dressmaker should therefore run frustration as a defence to the action

Answer 68

two steps involved in a s.1(3) claim: (i) identification and valuation of the benefit and (ii) the assessment of a ‘just sum’. The court examined these two steps in detail in the decision. Regarding the other answers, Gamerco SA v ICM/Fair Warning (Agency) Ltd is the leading case on s.1(2) of the Act, and Appleby v Myers and Taylor v Caldwell are common law decisions that pre-date the Act.

Answer 69

The decision clarified that the court has a broad discretion under s 1(2) Law Reform (Frustrated Contracts) Act 1943 to order such retention or recovery of money as it thinks just in all the circumstances to account for expenses incurred by the payee.

Answer 70

(a) Government intervention (b) Unavailability of a specific person crucial to the contract (c) Illegality (d) Destruction of the subject matter (e) Non- occurrence of a fundamental event

Answer 71

Yes, they can put a force majeure clause in the contract Force majeure clauses will be upheld provided they satisfy the reasonableness test in the UCTA 1977. If there is a valid force majeure clause the contract will not be frustrated.

Discharge & Frustration Flashcards

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