Discharge of Contract

Discharge of Contract

DISCHARGE OF A CONTRACT Normally the completion of a contract is straightforward as parties carry out their tasks as required. There are four main different ways of ending a contract: a)Discharge by performance b)Discharge by agreement c)Discharge by breach d)Discharge by frustration DISCHARGE BY PERFORMANCE For this the courts expect performance to be exact and complete. This means that it must match contractual obligations RE MOORE AND LANDAUER (1921) If requiring a contract to be complete, it must be carried out until the end of the obligations CUTTER v POWELL (1795)

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SUBSTANTIAL PERFORMANCE This is where the work is almost finished but the court deducts the amount needed due to minor defect. This would only be possible if there is a breach of warranty as breach of a condition means the innocent party would be able to repudiate. The origins of substantial performance come from BOONE v EYRE (1779) where a plantation was sold, complete with slaves, but on transfer it was found that the slaves had gone. It was held that substantial performance had taken place as the main subject matter of the contract was there. HOENIG v ISAACS (1952)

An example of performance would be if a kitchen was fitted and all the work was complete except for one cupboard and the seller demanded payment. It would be unfair to refuse payment altogether, but the court may agree to deduct the amount in order to pay another fitter. PARTIAL PERFORMANCE This is where some work has been done but to a lesser degree than what would be required for substantial performance. There are two important differences: a)Partial performance must be accepted by the other party-in other words the innocent party really agrees not to sue for breach, but nstead to pay a lesser amount for the quantity of work done b)Payment is on a different basis than for substantial performance. It is made on a QUANTUM MERUIT basis (as much as is deserved). If half the work is completed then half of the money is due In CHRISTY v ROW (1808) this arrangement for payment was said to be based on the theory that the parties have discharged by agreement stating that if only part of the work is done then only part of the payment will be made. The party not at fault must have a genuine choice whether or not to accept partial performance SUMPTER v HEDGES (1898)

TIME OF PERFORMANCE If time is crucial to one or both of the parties then the obligations must be performed within this time and this will be considered a term of the contract. The time limit must be clear to both parties i. e. if perishable goods are to be delivered both parties know that “time is of the essence”. VICARIOUS PERFORMANCE If a third party carries out the obligations this is known as vicarious performance. If the task is not of a personal nature, e. g. supply of an item which is easily obtainable then it does not usually matter who delivers it.

However, if the act is of a personal nature e. g. painting a portrait, then vicarious performance is unlikely to be satisfactory EDWARDS v NEWLAND (1950) This was reasonable in the circumstances but in other circumstances vicarious performance may be a practical option. DISCHARGE BY AGREEMENT This occurs when the contract is abandoned, or the terms within it are changed, and both parties are in agreement over this. Really both parties have provided consideration for a new contract to end or to vary the old one. DISCHARGE BY BREACH

Where one party fails to perform their contractual obligations or performance is defective or a lie is found within a contract, the party at fault is said to have breached the contract. This can result in two main remedies, repudiation and/or damages. If the breach is of a condition then the innocent party can either repudiate or claim damages and if the breach is of a warranty the innocent party can claim damages BETTINI v GYE POUSSARD v SPIERS AND POND Similarly, where one party has lied, the remedy will depend on whether it is relating to a condition or warranty.

Breach may be actual or anticipatory (it may have happened or be about to happen). If a supplier of goods does not deliver on the agreed delivery date this is actual breach. If a supplier of goods informs the buyer some time before the due date that he has no intention to deliver this is anticipatory breach HOCHSTER v DE LA TOUR (1853) DISCHARGE BY FRUSTRATION This arises when some event occurs which is the fault of neither party, which makes the contract impossible, illegal or radically different from that originally undertaken.

It typically occurs where some natural disaster outside of the control of the parties means that one party is unable to fulfil obligations under the contract, and is then claimed as an alternative to breach. At one time obligations were seen as absolute so if total and correct performance didn’t occur, the party was in breach PARADINE v JANE (1647) Courts later began to take a less harsh approach and there followed a leading case on frustration TAYLOR v CALDWELL (1863) Frustration can arise through impossibility, illegality and a radical difference between the original agreement and the present situation IMPOSSIBILITY

A contract could be rendered impossible because the subject matter is destroyed (TAYLOR v CALDWELL) or, unavailable MORGAN v MANSER (1948) Similarly where there is genuine incapacity through illness a contract may be held as frustrated CONDOR v BARRON KNIGHTS (1966) ILLEGALITY A contract, which begins legally but then becomes illegal through the fault of neither party, may be held to be frustrated. A typical situation is where a new statute is passed or where war breaks out and a contract to supply goods, perhaps to an enemy country, then becomes illegal or where property is requisitioned METROPOLITAN WATER CO v DICK KERR (1918)

RADICAL CHANGE IN CIRCUMSTANCES This is where a contract began well but for some reason has now become pointless. The “Coronation cases” occurred in this way when Edward VII was unavailable through illness and many people claimed frustration KRELL v HENRY (1903) However, if there is still some point to the contract the court may hold that it should continue HERNE BAY STEAM BOAT CO v HUTTON (1903) LIMITS TO FRUSTRATION Because frustration is often used as a defence to breach claims, frustration cannot be claimed unless necessary.

Illness, for example, must be substantial and genuine if it forms the basis for a frustration claim. Radical change must also be just that in order to claim (HERNE BAY v HUTTON). Where a contract is more difficult and expensive than expected, this will not amount to frustration unless genuinely unforseen TSAKIROGLOU v NOBLE THORL (1962) DAVIS BUILDERS v FAREHAM UDC (1956) Where a party has some control over a contract this is self-induced and therefore not frustration MARITIME NATIONAL FISH v OCEAN TRAWLERS (1935)

LEGAL EFFECTS OF FRUSTRATION At one time when frustration occurred it would be held that the “loss lay where it fell”. This meant that all duties ended at that point. This was fair when only a small deposit or no deposit had been paid, but was harsh when money had been paid in advance, as this would not be recoverable THE FIBROSA CASE (1942) In 1943 the Law Reform (Frustrated Contracts) Act 1943 made the following provisions BP v HUNT (1982) A COMPARISON BETWEEN FRUSTRATION AND BREACH


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