Contract- discharge of a contract PDF

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Contract- Discharge of a Contract 1. 2. 3. 4. 5. 6. 7.

Identify parties Is there a contract between them? What are the terms of the contract? Has the contract been discharged by agreement of performance? If not, has there been a breach? Does the defendant have a defence of frustration? Conclude

1. Is there a breach of condition or warranty? a. Cancelling contract – inevitably is a breach of condition 2. When can claimant act on it? a. As soon as notified – Hochester 3. Breach of condition a. Terminate – sue for breach of contract. Accept the breach of ending contractual obligations. i. Claimant will recover the expectation loss. Damages will reflect their loss of expectation ii. Crucially what you don’t have to do in a debt action is mitigate – secures you the whole contract price. No reduction for mitigation b. Affirm i. Limitations 1. Legitimate interest needed – C has to show, has burden. D acting wholly unreasonably. a. Damages must be proven to be inadequate 2. Cooperation issues 3. Risks a. Frustrating event between you affirming and breach of the contract – will discharge obligation - Avery v Boden b. Might breach yourself – Simona c. Rightman v Beveridge Contract discharged by agreement 

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Entering a contract, creating rights and obligations – bound by law. Cannot just walk away – otherwise can be sued for walking away from obligations. If you want to end contract you are varying it – consideration needed to end the contract. Discharge by operation of a term in the contract itself – condition subsequent or precedent o Head v Tattersall- horse and groom, has it hunted with hounds? All said it hadn’t. buyer said he liked the look of horse so he’d ignore the fact it hadn’t hunted with hounds. Entered into contract – if everything ok up to a certain day they’d confirm contract. Horse has fatal accident, returns to seller. Not the designated day yet – condition subsequent so contract invalid. o Break clauses also conditions subsequent

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Discharge by a new contract- contract is wholly executory (no one has done anything, no consideration given), mutual waiver of performance formally agreed constitutes consideration o Mutual – both parties change their mind. Agreeing to release each other from obligations to each other. o Consideration – new contract formed to release old one (waiver)  Hannah Blumenthal o Part payment of a debt never good consideration? Same applies for part performance. Law says if you let go of a debt you can come back and claim it at any time. Accord and satisfaction – Pinnel’s case – reach a new agreement  Different time, place, thing  Agreement to part ways – accord  Satisfaction – giving a different thing Equitable waiver – Brikom Investments v Carr o No consideration o Promissory estoppel – expectance to consideration

Contract discharge by performance 

Entire obligations rule – in contracts to complete a whole performance or pay a lump sum, complete performance is required (fixed price contracts – hire someone to fit kitchen, don’t pay by hour – agree fixed price: material, price, date of payment) o If you don’t carry out every last obligation in contract, you’re not entitled to any money o Default position – until you have completely entirely the obligations you have, you cannot say you’ve discharged the obligations. o Cutter v Powell- Cutter in charge of a large ship, engaged to sail from Jamaica to Liverpool. Wording of contract was for him to take position, carry out duties associated with role and continue onto Liverpool, would be paid 30 guineas 10 days after arrival there. Massive price for the job – part of what influenced court’s decision. Cutter two-thirds of way there and died. Widow waited 10 days after ship’s arrival and asked for two-thirds of way he worked. Powell said no – he had to get to Liverpool and wait ten days but he didn’t – nothing owed, entire contract. Court agreed – entire contract & fact payment was so large was compensation for him accepting risk that he wouldn’t be paid anything if he didn’t complete.

Rule can be avoided: 

Partial performance – no obligation to pay unless performance is voluntarily accepted by offerer. Quantum meruit payment owed, covers costs purely and is not a proportion of contract price o Walked away. Not paid until completed job – entire obligation performance, walked away half-way through and want half the money  No right to the money under entire obligation rule  Court said if the paying party voluntarily accepted partial performance then they will owe the wrongdoer a quantum meruit payment

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o Sumpter v Hedges - builder walked off site before finishing a job, owner continued work. Sumpter said he wanted money for work and he voluntarily accepted this because he finished work. Court said no – completing is not voluntary acceptance. No option but to complete – would rot away otherwise. o Quantum meruit payment – what the thing deserves/is worth. Cost price – no profit. Amount you deserve for the work you’ve put in – subjective Substantial performance – more that partial performance o Obligation to pay full contract price, less the cost of remedying defects o If you can prove substantial performance, then you have claim to full amount – minor cost of remedying defects. Payday. o Hoenig v Isaacs- H hired to refurbish I’s flat. Did all but slightly wonky bookshelf and door that was a bit difficult to open. Complete performance contract – I said he wouldn’t pay – partial performance, don’t voluntarily accept any of it. Court agreed minor defects were too minor to be anything other than substantial performance. Entitled to full money less the cost of repairing minor faults. o Bolton v Mahadeva- installation of central heating system. Whenever turned on it fills room with noxious home and has to be evacuated. Court said useless metal and dysfunctional boiler is not substantial performance. If B agreed to go back and fix it, would have been different. Court said it was partial performance, no money despite fact B did everything. Divisable contracts – where the contract allows for performance of one or more obligations separately from others. Contract lends itself to being divided into different sections – if you can prove you’ve hit those milestones as you go on, court will accept it to be paid off as individual obligations are performed o Rose & Frank v Compton Brothers - case saying two commercial entities intend to be bound. In fact, honourable pledge clause. Had to supply enough tissue paper to honour sub agreement. o £100 to paint house, you only paint two rooms – don’t get a divisable contract because language doesn’t lend itself to that o £100 to paint house, £20 per room – if you only paint two rooms you can get proportion because language lends itself to be a divisable contract. Performance by a third party – acceptable unless the contract is one for a personal service and is capable of exactly similar performance by anyone else. o Can you get out? Yes, if anyone can do it, no if its only you.  Contract for personal service – Kylie booked to perform, can’t make it, can bring in someone else instead. No – can’t change the person  Robson v Drummond – Robson hired D to paint carriage. Drummond very well known for his painting skills for personal horse-drawn carriages. D didn’t turn up to pain, it was his apprentice. R said he didn’t want apprentice. D argued apprentice could do it and didn’t have to give money back. R said only D could do it- no one else would do. Court agreed  British Waggon Co v Lea – painting railway carriages (not personal horsedrawn coaches). Doesn’t matter who paints it – as long as it gets painted. Court said it wasn’t a personal service – anyone can do the job. o If a third party can carry out contract for you then you’re discharged from obligations

Breach – condition, warranty, or innominate term? 1. Is there an anticipatory breach? Consequences. Should they affirm/terminate? 2. Does it fit within a category of frustration/do one of the limitations to frustration apply? Consequences of frustration 3. Application Breach – where a party, without lawful excuse, fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing – Trietel Anticipatory breach - Before the time for performance of the contract begins, one party informs the other that they will not fulfil their obligation to perform the contract. Once the innocent party accepts this and notifies the contract breaker, the contract is breached o Hochster v De La Tour - H hired by DLT to be a courier around Europe to go on voyages with DLT. Before DLT set to go on voyage he said H is no longer wanted. H said breach of condition, terminate, sue for damages. Able to take DLT to court and claim compensation even before contract was due to begin. Breach before contract begun gave them a right to go to court before contract even began. - If not accepted, then it is still possible for the contract-breaker to fulfil his obligations 1. Ask if it’s a breach of condition or warranty o Warranty – ask flowers to be delivered in pink limo, delivered in blue limo – breach of warranty. Still impressed but not what asked for.  

Breach of condition or serious innominate term allows claimant an immediate right of election – can choose between affirming the contract or termination and damages Breach of warranty or minor innominate term – only allows a claim for damages and contract continues o HK Fir v Kawasaki

Breach of condition: Right of election 

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For breach of condition – choice of whether to affirm the contract or treat it as repudiated o Can also claim damages if you terminate Innocent party has a reasonable amount of time to decide o Stocznia Gdanska v Latvian Shipping Co- Latvian Shipping commissioned the building of 6 ships in Stocznia Gdnaska. Latvian shipping meant to make monthly payments but were regularly late. SG put up with this for a while, but said that by being late had carried out a repudiatory breach of contract- accepted and sued.  LS said they couldn’t terminate and sue because they affirmed the contract (carrying on as if everything is ok – Long v Lloyd).

Court said SG had a reasonable time to decide – conduct didn’t wave right to terminate  Instalments by months – every month they were late, that part of the contract was gone and affirmed. Didn’t mean that on the month they were late and SG treated it as a breach they couldn’t – new thing, right at that point. Looked at it as divisible contracts Affirmation must be ‘clear and unequivocal’ – must be clear you intend to affirm o Yukong Line v Rendsburg Investments – asking breaker to stop breaking is not an affirmation. Not sufficiently overt- must be clear you’re affirming. Obligations and rights remain on both sides o White & Carter v McGregor -Council rubbish bins with McGregor branding on them. Someone lower down affirmed contract even though management said no. McGregor saying they didn’t want contract – anticipatory breach. White said they’d continue anyway. M said they wouldn’t pay. W continued posting adverts around area for another year, fulfilling contract obligations. Able to sue M for full contract price – accepting breach and affirming.  Lord Reid came out with two limits on affirmation (below) Better for a party to affirm contract, fulfil their obligations and then sue for a debt action; rather than just claim a smaller amount in quantum meruit damages o No duty to mitigate, but the claimant electing to terminate must seek to mitigate their losses when seeking damages in order to claim for losses Innocent party has to choose whether to wait for specified date of performance and then elect, or treat the contract as immediately repudiated – Hochester v De La Tour 

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Limitations to affirmation White & Carter v McGregor – Lord Reid 1. Innocent party must not need the cooperation of the contract breaker - Hounslow LBC v Twickenham and Garden Development – garden development are landscapers. Hounslow said they didn’t want them anymore – no access. GD turned up, intending to carry on and affirm anyway. Digging up someone else’s land – trespass. GD had no right to be on land any more. Tried to argue they were affirming contract – court said you can’t affirm contract if you need other party’s consent. 2. Innocent party must have a legitimate interest in affirming the contract - Per Lord Reid – White & Carter v McGregor o White & Carter – just sticking adverts on bins, didn’t need cooperation. In HoL, after decision was made they were allowed, Lord Reid said they could have argued there was no legitimate interest in affirming – if M had run that argument he would have agreed. New test - Do you have a right? - Not defined, but no legitimate interest where affirmation is ‘wholly unreasonable’ o Alaskan Trader – ship needed repairs, was going to be out for months. C said they’d fix ship and wait for call. D said no. fixed ship, kept it fully crewed, waiting for affirmation they knew would never come until end of charter when they sued for full price. Court said no legitimate interest in affirming

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contract- should have gone and tried to find custom, fully crewed ship, should have had commercial mind-set. Legitimate interest won’t be implied unless contract breaker (D) can prove affirmation would be unreasonable and damages would be adequate remedy If damages (instead of contract price) would be adequate remedy o Dynamic states this would only be in extreme cases Landlords could have a legitimate interest in affirming because they would get a top rent that they couldn’t get post-recession – Reichman v Beveridge o Court said if shift in market means they can’t rent for price agreed, then they have every right to maintain property empty and keep claiming rent

Dangers of affirmation 

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Affirming party may themselves breach the contract o The Simona- ship hired by party, decided they didn’t want it any more before even due to be hired. Ship owners didn’t accept, affirmed, showed up on day and sued for full contract price. Owners were late, outside of delivery date of ship – in repudiatory breach. Could sue for full contract price. Frustrating event may deny right to damages o Avery v Bowden – war breaks out in middle of affirmation. Can’t get anything. Ship sailed to Crimean port (Port of Odessa), just before Crimean war. Notified that because of outbreak of war, goods won’t arrive. Avery said he’d wait and when they don’t arrive it would be a repudiatory breach and could claim for full contract breach. War arrived, ship impounded, contract frustrated and nothing owed. If they affirm the innocent party must also carry out their obligations to achieve full contract price

Right of election - Termination    

Treating as repudiated Party must notify the other of their election to terminate o Can be by conduct alone – The Santa Clara Termination gives rise to an immediate right of action – Hochster v De La Tour – to claim damages occasioned by breach Claimant must take action to mitigate loss

Breach of innominate term 

Innocent party’s rights depend on the ‘seriousness of the consequences of the breach’ – deprived of substantially the whole benefit of the contract – contract worthless after beach – HK Fir v Kawasaki

Breach of warranty 

Right to innocent party to sue for damages only

Frustration 

Defence – lawful excuse for breach o Need to set up the claim first and then bring in the defence of doctrine of frustration

Definition  

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Supervening – after the contract is made but before the event is fully formed Unforeseeable – if it was foreseeable court will say it should have been put in the contract to cover it o Amalgamated Investment v John Walker – pleaded mistake and frustration. Large warehouse bought by John Walker from AI. Plans to completely redevelop. At the time of purchase, enquiries made as to whether listed (Can’t knock it down and sell it) and were correctly told it wasn’t. Two days after purchase they were told it was listed – can’t do anything.  Argued the contract was entered into under mistake – court said no, took place after contract was performed. Mistake only applies to events before  Argued frustration – court said no, was foreseen because enquiries were made so foresaw the possibility so something should have been put in the contract Not the fault of either party – if someone’s fault, you can’t argue frustration o The Eugenia – land locked ships in Suez Canal. E entered Suez Canal without consulting owners of ship. Had been chartered and one of the terms of the ship hire said that ‘at any point, if the charter enters a dangerous zone they had to consult owners’. Didn’t do this – a lot of unrest in the area. Suez canal shut and Charter shut. Penalty for not delivering the ship and for keeping it on – extra rental cost.  Frustration – everything from the point where the frustrating event occurs is gone. Very attractive prospect – tried to argue contract frustrated by the closure  Court said no – term of contract, knew Suez was subject to violence, should have consulted owner. Didn’t do that so was their fault and had to pay

Courts harsh- don’t like dissolving contracts. Effect of frustration Must render the contract: - Impossible, - Illegal, or - Radically different o Is the contract radically different from what the parties intended? Similar to mistake By operation of law, all future obligations gone

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Paradine v Jane – tenant on farm renting it, doesn’t pay rent. In court, said he didn’t pay because it was overtaken by an army (civil war). Court said no excuse. Obligations once taken are absolute – rule of absolute obligations Taylor v Caldwell – hire of hall for a musical, burnt down before it was due to start. Contract in question was the lease for the musical hall. Person renting was being sued for rent. Court agreed – implied term theory: implied term of the contract that the music hall exists. Because it doesn’t, the contract has been frustrated Radical difference theory now – not the implied term theory any more. o Davis Contractors v Fareham UDC – builder asked to build 17 houses within 6 months for council. Ended up taking over 2 years. Builder argued the contract was frustrated by delay and increased cost. Court said it is still a contract for building houses – nothing changed (intention). New contract may be more onerous but that’s too bad. Contract which has become more difficult and onerous will not be frustrated

Impossibility 

Unavailability of a thing or person necessary to the contract o Destruction of  Subject of contract; or  Taylor v Caldwell  Thing necessary to the contract  Appleby v Myers – contract for building bespoke machinery for a factory. Machinery undamaged but factory burnt down before it could be installed. Court said because of the nature of the contract (bespoke), the factory was necessary to the commissioning of the machinery so the destruction of factory frustrated the contract. No longer what was intended o Unavailability of a thing  Matter of degree- how badly contract affected?  Because of first and second world wars, a lot of ships were requisitioned by the government. Lots of hire contracts were radically different- thing not available  Jackson v Union Marine Insurance Co. – boat hired to sale from Liverpool and proceed to NY. Hit a sand bank and was grounded. General assessment was that it would take at least 8 months to repair. Court said it had been frustrated – unavailable for that specific contract  FA Tamplin v Anglo-Mexican – ship requisitioned during WW1 and British courts decided that even though it had been, the contract was not frustrated because England had just entered the war and therefore clearly the war would be over b...