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discharging a contract - Coggle Diagram

- - - - A contractual obligation is discharged by a complete performance of the obligation.
    - - No payment is due until the other party entirely fulfils its obligations. Cutter v Powell (1796)
        
        key case: Cutter v Powell (1796): the widow bringing claim for a portion of the wage of his husband that had worked 7 weeks on the ship before dying on it. --- Held: As the contract had not been completely performed the widow was entitled to nothing.
      - Exception to the general rule
        
        1/ Acceptance of partial performance
        
        definition: on a partial completion of the contract the innocent party may accept voluntary the part of the performance rather than reject it. if he does so, he is entitled to a Quantum Meruit (a remedy whereby the claimant may be able to claim a reasonable sum so that the defendant is not unjustly enriched). the amount of the Quantum mereuit is objectively defined at the discretion of the court.
        
        key case: Sumpter v Hedges (1898): C abandoned building two houses after completing half the project. D finished the building using C's materials. C claimed payment for work and materials. C was only awarded payment for the materials used because he had not VOLUNTARILY accepted the partial completion of the houses (he had no other choice than completing the house himself). However, the material were on the grand and he had the choice between using them or returning them.
        
        2/ acceptance by substantial performance
        
        Definition: Where a contract has been substantially performed, it may be possible to obtain the contract price subject to a deduction to reflect the cost of remedying the ‘defect’ (the part that have not been performed).
        
        how the court decide whether the contract is substantially performed (or not breached): Does the defect goes ‘to the root of the contract’?
        
        successful application
        
        Hoenig v Isaacs [1952]: the claimant agreed to furnish the defendant's house and the outcome had defects (like changing a door). --- The court held that the contract had been substantially performed, and all that was left were ‘defects and omissions’. These did not go to the root of the contract. Hoenig was therefore entitled to the contract price, less a deduction for the defects (probably calculated as the cost of remedying the defects).
        
        unsuccessful application
        
        Bolton v Mahadeva [1972]: The claimant undertook to install a central heating system in the defendant’s house at a cost of £560. the system did not work but the claimant want the amount of the contract. he had not even proposed to repair it. ---- It was held that whether or not the contract had been substantially performed should be viewed with regard to the purpose of the contract and the circumstances as a whole. it was not possible to say that the contract had been substantially performed in this case as the system does not work. Accordingly, the claimant was not entitled to recover any of the contract price but, had he offered to remedy the defects, and had then done so, he would be justified in claiming the contract price.
        
        3/Divisible obligations
        
        like employment contract, etc. the question of whether the contract is entire or divisible depends upon the intention of the parties.
        
        4/ Wrongful prevention of performance (Planche v Colborn (1831))
        
        the other party: is entitled to the entire payment despite not having completed the rest of the obligations.
        
        the innocent party: has two option
        
        To sue for damages for breach of contract
        
        To claim a quantum meruit.
  - - - the promisor must show that they unconditionally offered to perform their obligations in accordance with the terms of the contract, but that the promisee refused to accept such performance
        
        for example when a delivery has been refused by the promisee
        
        this defence cannot discharge the debt but it can discharge the interests and damages on that debt.
- - - - definition: in a new contract, each party agrees to waive their rights under the old contract in consideration for being released from their obligations under the old contract.
      - requirement
        
        accord and satisfaction
        
        three scenarios
        
        1/when both parties have not respect their obligation, by agreeing to release each other from obligation, the accord and satisfaction requirement is fulfilled
        
        2/ when one of the party has already done its obligation, then there is no consideration to be able to mutually discharge obligations. solution: the party to whom the obligation is owed may release the other party by a subsequent agreement under deed.
        
        the party to whom the obligation is owed may provide consideration by agreeing with the other party to accept something different in place of the former obligation, for example the accelerated payment of a sum payable in instalments
        
        accord = (agreement to release obligation)
        
        satisfaction = Satisfaction (consideration for the promise)
        
        the key point to take is that there must be a consideration. if there is no consideration then there is no new contract and the old contract is valid unless obligation discharged by a deed.
    - - obligations arising from the contract can be discharged by incorporating a term in the contract.
        
        2 type of terms
        
        1/condition precedent
        
        definition: A condition which must be satisfied before any rights come into existence.
        
        example: Certain companies are required by law to obtain approval from shareholders before carrying out high value contracts. When agreeing the high value contract, the company could include a clause stipulating that it is a ‘condition precedent’ of the contract that approval is provided by the shareholders. Until that approval is provided, the remaining rights and obligations in the contract are not binding.
        
        2/ conditions subsequent
        
        definition: A condition which, if satisfied, releases a party from binding obligations.
        
        common examples
        
        a clause which entitles a party to give notice to terminate the contract if the other party commits a breach of contract of a specified seriousness.
        
        the inclusion of a termination clause specifying that the contract will come to an end upon the occurrence of specified events, such when a particular date occurs.
        
        normally a term which enables one party to terminate the contract by giving a notice.
        
        the court can also imply such a clause to the other party to terminate a contract by giving a reasonable notice.
- - - - Repudiatory breach: Where one party has breached a term of the contract which is either a condition, or an innominate term which is treated as a condition, entitling the other party (in principle) to treat the contract as terminated.
      - Anticipatory breach: Where a party indicates they will not perform their contractual obligations in advance of the date for performance.
        Hochster v De la Tour (1853)
    - - 1/prospective discharge from remaining rights and obligations
        
        For example, if a customer owes fees for services provided prior to termination then it would still be obliged to pay them. However, it would no longer be obliged to accept and pay for services going forward.
      - 2/damages
        
        for a specific breach
        
        for the loss of the contract caused by the termination of the contract as a whole.
    - - the risk in terminating the contract by notice is that party A believes that party B has breached a condition. However, if the court then founds that it was just a warranty (if it is not expressly qualified in the contract, the court decide on the matter by applying Hong Kong fire test), the termination is wrongful. This means that the notice is now seen as a ‘renunciation’ of future performance of the contract and/or a serious breach of contract and may be accepted by party B as repudiating the contract!
    - - The innocent party must make their decision to terminate the contract known to the party in default - Vitol SA v Norelf Ltd, The Santa Clara [1996]
      - if it affirms, even of the other party does not respect its obligation, the innocent party should perform its obligation and claim the sum due under the contract in a debt action White and Carter (Councils) Ltd v McGregor [1962]
      - The election to affirm is not a waiver of damages from the relevant breach.
      - how to affirm?
        
        There must be evidence of a very clear and unequivocal commitment to continuing with the contract.
      - Limits on the affirmation of the contract
        
        Hounslow London Borough Council v Twickenham Garden Developments Ltd [1970]: The co-operation of the breaching party is required for continued performance of the contract
        
        Ocean Marine Navigation Ltd v Koch Carbon Inc (The Dynamic) [2003]: The innocent party has no ‘legitimate interest, financial or otherwise’ in affirming the contract and continuing with performance (The Alaskan Trader [1984])
        
        defendant must show that
        
        damages would be an adequate remedy for the claimant
        
        an election to keep the contract alive would be unreasonable.
- - - - because
        
        1/the performance is impossible (also because of unavailability)
        
        définition: the total or partial destruction of some object necessary to the performance of the contract
        
        examples
        
        destruction of the subject matter of the contract ---- Taylor v Caldwell (1863): the concert hall was destroyed after the contract of using it against some sum of money. the contract was held to be frustrated as the subject matter of the contract had been destroyed.
        
        destruction of something essential to the performance (but not the subject matter) --- Appleby v Myers (1867): a contract to install and maintain machinery in a factory was frustrated when the factory was destroyed by fire. The factory was not the subject matter of the contract, but was nevertheless essential to its performance.
        
        death or illness of one of the parties in a personal contract --- Condor v The Barron Knights Ltd [1966]: the group had engagements for seven nights a week, the drummer became sick and could perform only 3 nights a week. the contract was frustrated because the drummer was not capable of performing the contract in the way intended.
        
        shipping contract (even if the unavailability is temporary): Bank Line v Arthur Capel & Co [1919]: a ship was requisitioned for a period of five months out of a year’s charterparty, the contract was frustrated.
        also, Tamplin SS Co Ltd v Anglo-Mexican Petroleum Co [1916]: if there are possibilities of future performance in the new circumstances, then the contract is not frustrated.
        facts: ship was used fot eh war, the court held that the war will end soon thus a considerable proportion of the charterparty would remain.
        
        the amount of time left to run in the contract is the starting point only in establishing frustration. Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The Sea Angel [2007]
        
        2/performance is illegal
        
        definition: when a change in law or state renders performance illegal.
        
        example: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]: the contract of shipping machinery to Poland when it has been occupied recently by the enemy has been frustrated.
        
        3/ the common purpose of the contract is frustrated (not just one party)
        
        example: Krell v Henry [1903]: a room on a flat was hired out of the day only for the purpose of wathcing king Edward's coronation. he became sick and did not pass from that street. The Court of Appeal held that the common foundation of the contract was that the room was hired to view the king’s procession and this purpose had been frustrated. this case is normally distinguished rather than followed.
        
        Herne Bay Steamboat Co Ltd v Hutton [1903]: hiring a boat for the day to also view the naval review. the naval review was cancelled. 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.
        
        Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019]: A argued the lease of its headquarters premises was frustrated because of the Brexit. A has rented the premises because of flexibility as to exit and a low rent but B wanted a secure long term cash flow opportunity. There was no common purpose which had been frustrated. Additionally, Brexit was a possibility and the parties could have taken it into account and still agreed an adjusted commercial arrangement. The nature of the bargain had therefore not fundamentally changed for both parties.
      - Limitations on the doctrine of frustration
        
        1/Contract is not frustrated only because it has become more difficult or expensive to perform
        
        Davis Contractors v Fareham Urban District Council [1956]: contractors had agreed to provide 80 houses within 8 month but the situation changed radically and the price of the material went up and they finished 10 month later. they then demanded additional sum. if the contract had been frustrated, they were entitled to this additional sum.
        Held: ‘[W]here, without the default of either party, there has been an unexpected turn of events, which renders the contract more onerous than the parties had contemplated, that is [not] by itself a ground for relieving a party of the obligation he has undertaken.’
        
        2/contract is not frustrated if it self-induced frustration
        
        AS v Wijsmuller BV (‘Super Servant Two’) [1990]: The court held that it was the defendants choice to allocate one of the two barges he had to other contracts making it impossible to perform their contract with the claimants (because on of the barges sank). This choice meant the defence of frustration failed – it was self induced.
        
        3/Foreseeable events
        
        Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The Sea Angel [2007]: If you could have foreseen an event, but failed to make provision for it in your contract, the doctrine of frustration will be less likely to apply.
        
        Flying Music Company Limited v Theater Entertainment SA [2017]: at the time the contract concluded there were already signs of unrest. therefore, the parties were deemed to have had the opportunity to deal with this risk and allocate responsibility for it in the terms of the contract that was eventually concluded. No frustration.
        
        Canary Wharf (BP4) T1 Ltd v European Medicines Agency: the key test is whether the event would have informed the manner in which the parties assessed the risk of entering into the contract.
        
        4/ Express contractual provision
        
        It is very unlikely that a party would be allowed to rely on the doctrine of frustration in relation to a particular event when the risk has already been provided for by the parties through a force majeure clause.
        
        Force majeure clauses often refer to acts of terrorism, war and ‘Acts of God’
  - - - all future obligations are automatically discharged by the common law
    - - Law Reform (Frustrated Contracts) Act 1943
        
        section 1(2)
        
        Money paid before the frustrating event can be recovered.
        
        Money that should have been paid before the frustrating event no longer needs to be paid.
        
        Expenses incurred by the payee (usually the supplier) can be recovered out of the total sum paid/payable before the event. The recovery of expenses is at the discretion of the court.
        
        application
        
        Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995]: the burden or proof is on the payee (the party seeking to retain or recover their expenses from the sum of money paid or payable in advance) to show that it is ‘just’ for him so to do. As to how much, the court has a ‘broad discretion’.
        
        S1(3)
        
        Where the benefit conferred before the frustrating event occurs is a non-monetary benefit
        
        application
        
        BP Exploration Co (Libya) Ltd v Hunt (No.2) [1982]: agreement between Hunt and BP to extract oil. the revolution occurred and the oil site was expropriated however hunt continued still for two years to use the oil site. A key question was whether the valuable benefit gained by Hunt was the value of the work carried out by BP (ie the value of finding and developing the oilfield) or the value of the end benefit received by Hunt (significantly less, because the oil field was significantly devalued by having been expropriated by the Libyan Government).
        on the wording of the legislation it was clear that ‘benefit’ meant the end product of the claimant’s services, not the services themselves. So in this case, the lesser of the two options.
        
        generally, The task for the court when applying this subsection is, firstly, to identify and value the benefit conferred, and then, secondly, to make an assessment of the just sum that should be awarded. The amount awarded cannot exceed the value of the benefit obtained.