THE DISCHARGE OF CONTRACTS

Question 1

WHAT ARE THE FOUR WAYS IN WHICH A CONTRACT MAY BE DISCHARGED?

Answer 1

1. By performance
2. By breach
3. By agreement
4. By frustration

Question 2

HOW IS A CONTRACT DISCHARGED BY PERFORMANCE?

Answer 2

When both parties have done what they promised to do, the contract is at an end.

Both parties must do precisely and completely what they promised; this is called the ‘entire performance rule’

The classic example which illustrates this rule is Cutter v Powell [1795] and a more modern example is Bolton v Mahadeva [1972].

Question 3

WHAT ARE THE FIVE EXCEPTIONS TO THE GENERAL RULE IN RESPECT OF DISCHARGING CONTRACTS BY PERFORMANCE?

Answer 3

1. Acceptance of partial performance
2. Substantial performance
3. Prevents performance
4. Tenders performance
5. Divisible or severable obligations

Question 4

WHAT IS ‘TIME OF PERFORMANCE’ IN RESPECT OF DISCHARGING CONTRACTS BY PERFORMANCE?

Answer 4

It is important to check whether time is of the essence when performing a contract.

This indicates situations when the time for the performance of a contract is a vital term, breach of which entitled the injured party to treat the contract as repudiated

Question 5

WHEN WILL ‘TIME BE OF THE ESSENCE’ IN RESPECT OF DISCHARGING CONTRACTS BY PERFORMANCE?

Answer 5

• The contract expressly or impliedly says that it is
• After an agreed date for performance of a contractual obligation has not been met, one party notifies the other that time is of the essence and sets a new deadline
• The circumstances indicate that time is of the essence

Question 6

WHAT HAPPENS WHEN ‘TIME IS NOT OF THE ESSENCE’ IN RESPECT OF DISCHARGING CONTRACTS BY PERFORMANCE?

Answer 6

The relevant clause will instead be viewed as an innominate term.

The court will decide the status of the term by considering whether the breach has gone ‘to the root of the contract’.

Question 7

WHAT IS A BREACH OF CONTRACT?

Answer 7

Breach occurs when one party fails to discharge the contract as agreed

Question 8

WHAT ARE THE REMEDIES FOR BREACH OF CONTRACT?

Answer 8

• If a condition of the contract has been breached, the innocent party can repudiate (refuse to continue with) the contract and/or claim for damages to compensate them for any losses that they have suffered
• If a warranty of the contract has been breached, the innocent party is entitled to damages, but they do not have the right to repudiate

Question 9

WHEN CAN CONTRACTS BE DISCHARGED BY AGREEMENT?

Answer 9

It is common for commercial contracts to contain termination or break clauses which outline precisely when, and how, the parties can discharge by agreement

Question 10

WHAT IS A DEED OF RELEASE IN RESPECT OF DISCHARGING CONTRACTS BY AGREEMENT?

Answer 10

Where the party who has completed all of their contractual obligations agrees to release the other party (who has not completed their entire obligations) from the contract

As long as the deed is properly effective (as required by s1 Law of Property (Miscellaneous Provisions) Act 1989) the contract will end.

Question 11

WHAT IS CONTRACTUAL TERMINATION IN RESPECT OF DISCHARGING CONTRACTS BY AGREEMENT?

Answer 11

If the parties do not execute a deed, they can terminate a contract by creating a contractual agreement to do so.

The agreement to terminate needs both a legally binding agreement and valuable consideration

Question 12

FOR CONTRACTUAL TERMINATION IN RESPECT OF DISCHARGING CONTRACTS BY AGREEMENT, WHAT IS AN ACCORD?

Answer 12

The new agreement

The accord must be complete and certain in its terms.

The accord must be a true accord: the parties must both genuinely intend to discharge the contract by mutual agreement

Question 13

FOR CONTRACTUAL TERMINATION IN RESPECT OF DISCHARGING CONTRACTS BY AGREEMENT, WHAT IS AN SATISFACTION?

Answer 13

Consideration

The satisfaction required will depend on the parties’ outstanding obligations at the time the agreement to terminate is reached.

Question 14

WHAT IS FRUSTRATION?

Answer 14

If, after a contract has been made, unforeseen circumstances – which are the fault of neither party – arise which make the contract impossible to perform; illegal; or which undermine its commercial purposes, the contract may be said to have been frustrated

Question 15

WHAT FOUR EVENTS ARE DEEMED TO BE FRUSTRATING EVENTS IN RESPECT OF DISCHARGING CONTRACTS?

Answer 15

1. When contracts depend on the personal services on someone, that person’s death, illness or absence could frustrate the contract.
2. When something essential to the contract is destroyed
3. Where an event, which must have been the sole reason for the contract, does not take place
4. Government interference
5. Supervening illegality (becoming illegal after the contract has been formed)

Question 16

WHAT FOUR EVENTS ARE DEEMED NOT TO BE FRUSTRATING EVENTS IN RESPECT OF DISCHARGING CONTRACTS?

Answer 16

1. If the parties have anticipated and provided for the event in the terms of the contract, this event will generally not frustrate that contract
2. If the contract turns out to be more difficult or expensive than the parties envisaged
3. Where the event is self-induced.
4. The current economic downturn is unlikely to frustrate the contract unless the contract becomes impossible or illegal to perform

Question 17

WHAT IS THE EFFECT OF FRUSTRATION IN RESPECT OF DISCHARGING CONTRACTS?

Answer 17

The main effect of frustration is to bring the contract to an end automatically

Question 18

WHAT ARE THE COMMON LAW RULES OF FRUSTRATION IN RESPECT OF DISCHARGING CONTRACTS?

Answer 18

The initial common law position on losses incurred under a frustrated contract was that the loss lay where it fell – any expenditure that had already incurred under a contract could not be recovered in the event of frustration.