Please enable JavaScript.
Coggle requires JavaScript to display documents.
Law of Contract (3) - Discharge & Remedies (Discharge can be by: (4)…
Law of Contract (3) - Discharge & Remedies
Discharge of a contract:
- when a contract is 'discharged', it means it has come to an end
when parties are no longer required to fulfill their obligations under the contract
Discharge can be by:
1)
Performance
A contract is performed when all the parties have carried out their respective promises and obligations under the contract.
The following conditions apply to discharge by performance:
a) performance must be strictly in accordance with the terms of the contract cannot be any variation from agreed details eg. 'english mustard confused with french mustard'
b) performance must be within specific time eg. 'by midnight 27 July 2015' 'within 5 week of signing contact'
c) performance is complete eg. sales of goods/completion of task.
2)
Agreement
A contract is said to be discharged by agreement if the contract itself contains a term which sets out the method by which the contract is to be discharged.
Can happen in several ways:
a) by automatic termination upon event.
eg. failure to pay 3 months rent.
b) By expiry of time
. eg. 2 year tenancy
c) By prescribed method.
eg. giving one month's notice
d) By mutual release.
eg. both parties agree to end the contract
3) Acceptance of Breach
A breach of contract takes place when a party does not comply with the terms of a contract.
A contract can be discharged when one party breaches the contract, and other party accepts the breach.
Note this applies only where the term breached is a
condition
- in this case, the innocent party can treat the contract as
discharged
and can sue for damages.
- Applies only to breach of condition :
- innocent party can discharge contract and claim damages
- Does not apply to breach of warranty:
- innocent party cannot discharge
must continue, but can sue for damages
If the Breach of Contract (BOC) happens before performance is due?
Called an
Anticipatory Breach
Innocent party can:
1) Accept the breach and sue for damages
2) Reject breach and sue for specific performance
3) Wait till performance date, see if other party performs
4) Frustration
A contract becomes frustrated when it becomes impossible to perform due to circumstances beyond the control of the parties. When this happens, the contract is discharged.
Examples
:
Subject matter destroyed
Death/disability of performer
Change of law
Not frustration:
More expensive to perform
Delibrate act
Under the FCA, future obligations cease:
Can recover money paid before frustration
Money owed before frustration need not be paid
Can recover expenses incurred
if one party has partly performed his side of the contract before the frustrating event which gave the other party some valuable benefit, then a
reasonable sum
must be paid to the first party as compensation.
Effect of frustration
When a contract is frustrated, the contract is discharged. This means that at Common Law, the parties do not have to perform anything under the contract
after the date of the frustration.
but under Common Law rules, frustration would not affect anything which takes place before the date of the frustration:
a) any sum of money paid on the contract before the frustrating event remains paid and cannot be recovered.
b) any money which was due to be paid before the frustrating event must still be paid.
The FCA applies to all contracts except:
a) chaterparties (ie. contracts for the hire of ships)
b) contract of insurance
c) contracts for sale of goods where the goods have perished
Remedies for BOC
Where contract breached, innocent party can claim remedies:
1) Legal or Common Law Remedies
a) Damages
1)
Put injured party in same position
he would have been in if the contract had been performed. So, a Plaintiff can recover the profits lost due to the breach as damages.
Monetary compensation awarded to the injured/aggrieved party when there has been a breach of contract.
2) The court will only award damages for those losses which arise naturally from the particular breach.
3) Even if the damage does not arise naturally from the breach, the court will allow damages if both the parties could have
reasonably foreseen
(at the time they made the contract)
this loss as a proabable result of the breach.
4) It is the duty of the injured party to take reasonable steps to
mitigate
or minimise his losses.
Parties to agree on a
fixed sum
before the BOC. Parties may agree beforehand to fix a sum as a
pre-estimated monetary compensation of the loss
caused by a breach. This sum is called
liquidated damages
. Cannot be a penalty ie. a heavier amount meant to act as a punishment if contract not performed.
b) Quantum Meruit
If a party has done some work but not completely fulfilled his own obligations under the contract, he may not be able to sue but he can claim a reasonable amount which is proportional to the amount of work he has done. This reasonable sum is calculated on a
quantum meruit
basis and is awarded
as an alternative
to damages.
Quantum Meruit means 'as much as has been earned'.
2) Equitable Remedies
Unlike, legal/common law remedies, are not granted as of right to every Plaintiff who has suffered loss. Equity means fairness.
a) Injuction
Is a court order to a party who is in breach to stop doing something which he had promised NOT to do in the contract.
Not usually suitable for contracts for personal service.
b) Specific Performance
Court order which orders the party who has breached the contract to perform what he has promised to do so. Failure to do so would amount to contempt of court.
This remedy is only awarded if damages are not the best remedy to compensate the loss. Consequently, if a Plaintiff is awarded damages for the breach, he cannot also claim specific performance. The result must be either specific performance OR damages.
c) Rescission
Means the
cancellation of a contract
ie. the contract is terminated from the start, as if it had never existed.
Applies to all
voidable contracts
Parties are returned to
original positions