Flashcards in Performance by Breach Deck (58)
5 ways to discharge a contract
› By performance.
› By prior or subsequent agreement between parties.
› Through frustration.
› Through breach (or repudiation).
› By operation of law.
questions to ask in relation to discharge by performance
- What does ‘performing the contract’ mean?
› Sources to determine: contract terms, legislation, case law.
- What happens if contracts are not performed?
› Sources: contract terms, legislation, case law.
- Does the type of contract affect how it’s to be performed?
› Entire contract? Fixed term, periodic, of/for personal services, constructions/manufacturing, sale of real or personal property, lease or licence to use rights/property?
- How do we resolve disputes about ‘exact’ (i.e. exactly accords with agreement) performance?
› Entire contract? Time of the essence? Order of performance? Quality of performance?
when is there discharge by performance
- Parties must do as they agreed.
- The parties have fully (and exactly in accordance with their agreement) performed their contractual obligations.
- Often there is no exact deadline or no exact order of performance or it may not be necessary to fully complete to exact specifications (e.g. substantial performance suffices).
› But sometimes there are struct conditions in relation to time, order of performance and quality.
discharge by performance - general rule
The general rule is that performance of a contract must be precise and exact.
› A party that performs a contract according to its terms will be discharged from further performance and be entitled to claim contract price from the other person.
Discharge by Performance - failure to complete all work
- Generally, the contract price is only recoverable only if the party’s performance is exact.
› The performance must be performed as it was agreed to
› E.g. it may have been agreed no particular time or order of performance. In this case the performance is exact as long as its done within reasonable time. If there was a strict time or order of performance in which case the performance will be exact if it is performed in that order/within that period (Cutter v Powell (1975) 101 ER 573).
discharge by performance - substantially performed
- However, in some circumstances a party who has substantially performed the contract (but not exactly) will be able to obtain payment of the contract price, less an amount for the defective performance (Hoenig v Isaacs  2 All ER 176).
- A party who only partially performs a contract will not be entitled to the contract price but may in some circumstances be able to recover some payment for the work performed in restitution.
discharge by performance - Cutter v Powell
promise to pay 30 guineas to seaman upon completion of 10-week voyage but he died after 7 weeks. Held: completion of entire contract a condition as to payment so his estate recovered nothing.
discharge by performance - sumpter v hedges
S didn’t finish building 2 houses he was contracted to build. Claimed he ran out of money. H completed the job with someone else and S tried to sue for work done but was held to have abandoned the contract and could only recover cost of materials.
time of performance
› The parties are entitled to expressly provide for the time of performance in the contract. If time is an essential term, failure to perform by the specified date will be a breach of the contract.
Warranty – stipulated time or reasonable time – non-compliance is a non serious breach, right to damages.
Condition (exact) – time is of the essence – non-compliance is a fundamental breach, right to terminate.
› Time must clearly be ‘of the essence’.
› Where no time for performance is fixed to the contract it must be performed in reasonable time (Sale of Goods Act 1895 (WA), s 29(2)).
order of performance
› The parties obligations under a contract may be described as dependent (one must perform before the other) or independent (order of performance is immaterial), or simultaneous (parties perform at same time).
› In most contracts the sale of goods/land/employment contracts the obligations are dependent.
› E.g. the buyer of goods is not required to pay for goods until the seller delivers the goods in accordance with the contract. The seller is not entitled to sue for the contract price of the goods. If they do not accept, the seller’s only claim is for damaged for breach and not for the contract price.
quality of performance
› Parties may be required to fully completer the contract or complete it to the quality/specifications agreed (e.g. to fully complete building a house or deliver the exact amount and quality of goods ordered).
› Doctrine of Substantial Performance: Where performance is not fully complete, provided it is still substantially performed, the party who has not fully completed may still be able to enforce the contract and obtain some payment.
performance of exact contracts
- Depends on how strict contract is (exact, entire) – might depend on nature of contract (fixed, periodic, of/for services etc – usually/usually not entire).
- What is meant be an exact and entire contract:
› Stipulations as to time for performance.
› Order of performance
› Quality of performance.
- The strictness of obligations and the requirement that they be completed before the other party has to do anything.
exact contracts - stipulations to time
› General Rule – failure to comply with a stipulated time is a breach of warranty unless time is ‘of the essence’.
› A time stipulation will be of the essence where:
The contract expressly makes time ‘of the essence’.
The subject matter is such that the parties must have intended time to be of the essence.
Although time may not have been of the essence in the contract as originally agreed, one of the parties has made it so by serving a valid ‘notice to complete’ if reasonable time has elapsed.
› Contracts may/may not address timeliness.
exact contracts - order of performance
› General rule: ‘where an entitlement to claim the contract price is subject to prior fulfilment of a condition precedent, the contract is entire. In that situation, no action can be brought for part of the price even though the contact has been partly performed ‘ – Cutter v Powell.
› Who’s turn first? Depends on wording of the contract or intention of the parties where wording is not clear.
› Simultaneous performance
Being ‘ready willing and able’ is a key pre-requisite to a claim
› Independent v dependent obligations.
Dependent obligation can be seen as condition precedent – Cutter v Powell.
Independent means that it does not matter who goes first.
exact contracts - quality of performance
› General rule: if the contract is fully performed by one party before the other party does anything then the contract is exact.
› Could refer to completeness or specifications or both.
› Usually, a plaintiff can enforce the contract if the performance is substantial (doctrine of substantial performance.
summary discharge by performance
› Performance must be exact
I f there is a strict time for performance, then it must be performed on time.
If there is a strict order of performance, then it must be performed in that order.
If there is a strict quality, then it must be performed to that quality.
› If any of the above obligations apply but are not complied with. There is no obligation on the other party.
There are some exceptions.
discharge by performance - recovery of contract price
- Where a party to a contract wishes to recover the contract price, this is a separate and alternative claim to one for damages for breach of the contract, which allows recovery of the loss suffered and not the price to be paid.
- The party wishing to recover the price nay have performed the contract:
› Substantially, but there are some defects in performance; or
› Only in a partial way.
recovery of contract price were contract has been performed or substantially performed
- If a party has performed/substantially performed they may:
› Sue for breach (failure to pay).
› Recover the contract sum (or part thereof) as a debt.
› Seek to show that the contract is not entire or that an exception applies.
two types of contract
- The different types of possible performance should be examined in the context of the different types of contracts and obligations that could exist under the contract. There are 2 types of contract:
› Lump sum/entire. In addition to independent and dependent obligations, there are also obligations that may be entire obligations.
exceptions to cutter v powell rule
1. Divisible/severable contracts
2. De Minimus
3. Substantial Performance
4. Acceptance of part performance
5. Obstruction of performance.
what is a divisible or severable contract
A contract where the consideration and the payment thereof is apportioned or is capable of apportionment according to the work to be done.
divisible contracts and payment of contract price
- Where a contract is divisible, the court will consider each divisible part of the contract separately, as though they were separate agreements. Instead court considering all of the party’s obligations of performance under the contract, the court will only consider the obligations relating to the particular divisible part of the contract.
› Result in the party performing the contract being able to recover after each party of the contract is performed notwithstanding the whole contract has not been completed.
- Whether a contract is divisible or not may affect a courts ultimate decision concerning the payment of contract price.
divisible contracts and nature of obligations
- After identifying a divisible contract, court will generally proceed to considering nature of parties obligations either as a whole or for each divisible part. The first issue will be whether contract is dependent or independent.
› Where price is dependent on performance the court will give consideration to whether the obligation is entire. If entire the contract will only be payable in exchange for exact performance. If the obligation is not entire the party will not be entitled to claim the contract in exchange for substantial performance of the contract.
an entire obligation exists where:
i) Complete performance is a condition precedent to payment of the contract price;
ii) The benefit expected by the defendant is to result from the enjoyment of every part of the work jointly; and
iii) The consideration is not apportioned by the contract and capable of apportionment.
- The mere fact contract provides the contract price payable in lump sum or ‘payable on completion’ is not enough for the obligation to be entire.
› The contract must indicate that complete performance of the obligation to provide services or goods is a condition precedent to payment.
- A party who has completed their obligations save for a difference that is deemed to be negligible or trivial may seek recovery of the full contract price on the basis had the difference in performance has no real effect.
- law does not concern itself with trifles.
Shipton, Anderson & Co v Weill Bros & Co
Payment for whole quantity of goods supplied required to be made even if different to amount previously ordered, if difference is only trivial
- de minimus
what is substantial performance
- Where the contract does not clearly and expressly provide that exact performance is condition precedent to payment of the contract price, the courts will lean against a construction which would deprive the party of any payment simply because of defects.
- If the obligation to perform is not entire in nature, the fulfilment of every part of the obligation will not necessarily be essential to payment of the contract price even though the obligations of the parties are dependent.
- If a contract or part of a divisible contract is substantially performed the party will be entitled to the contract price less an amount for rectifying the defects in the performance.
› Hoenig v Isaacs.
determining substantial performance
- A party will usually be considered to have substantially performed a contract where the defects in the services or goods are of a minor nature. Usually a determination of whether the performance is substantial will be a question of degree to be determined by the court after consideration of all relevant facts. The court will take into account:
1. The nature of the defect; and
2. The cost of rectifying the defect compared to the contract price.
› Bolton v Mahadeva  WLR 1009.
substantial performance in divisible contracts
› Principle of substantial performance will apply to each part of a divisible contract as if it were a separate contract. Therefore, a person who has substantially performed a part of the contract is entitled to be paid for that part, minus the damages for defective performance.