#4597 - Discharge - GDL Contract Law

• Contracts give rise to ‘rights’ and ‘obligations’ – these can be discharged

Four ways of discharging a contract:

1. Performance

Entire Obligations Rule

• Where parties have agreed payment on completion, complete performance is required –i.e. entire/lump sum contracts

• Cuttler v Powel - Cuttler died mid-performance – as he was required to perform the duty fully before he could demand payment, his widow was entitled to nothing

Trying to avoid the entire obligations rule:

1. Partial performance of ‘entire contract’

   • Innocent party may choose to accept partial performance (discretionary)

   • Where innocent party accepts the defaulting party is entitled to a quantum meruit – i.e. how much the thing is worth

   • Sumpter v Hedges: innocent party did not accept voluntarily so entire obligation rule was not avoided also authority for the fact that the court decides how much the work is worth

2. Substantial performance of ‘entire contract’

   • Obligation to pay the full contract price less the cost of remedying any defects

   • Hoenig v Isaacs – H was refurbishing flat for I, when H finished there was a wonky wardrobe door, and wonky bookshelf. H was able to prove that defects were only minor – there had been substantial performance

   • Bolton v Mahadeva – No substantial performance – looked at purpose. B hired by M to fix gas central heating system. B fitted boiler, pipes, radiator. Unfortunately, it didn’t heat up, filled rooms with noxious fumes. M refused to pay, substantial performance not found

3. Divisible obligations

   • Where contract allows for performance of certain obligations separately from others

   • Rose & Frank v Crompton Bros: headnote said ‘this is not a contract’ – but each order could be treated separately as valid contracts

4. Wrongful prevention of performance

   • Where one party performs part of their obligations and is prevented from completing by some fault of the other party – the innocent party may either (i) sue for damages for breach of contract or (ii) claim a quantum meruit

Defences to discharge by performance

1. Tender of performance

   • D can show that he in fact tendered performance – must show that he unconditionally offered to perform his obligations in accordance with the terms of the contract

2. Performance by a third party

   • This will be acceptable unless the contract is one for ‘personal services’

   • Robson v Drummond: unable to delegate performance to another as was for personal services – in contrast to British Waggon v Lea which was a contract to let out railway systems and which could be performed by a 3^rd party

2. Agreement

   • You can both walk away from a contract so long as there is trust that neither party is going to reverse their position and bring the contract back into force

Discharge by fresh consideration

• Can happen in several ways

• E.g. discharge by mutual waiver – new contract where each party agrees to waive their rights under the old contract in consideration for being released from their old obligations – The Hannah Blumenthal

• Accord and satisfaction – e.g. in Pinnel’s Case – a former obligation can be discharged where there is a subsequent agreement (accord) and new considerations (satisfaction)

Waiver unsupported by consideration

• Birmingham and District Land Co v London & North W Railway – a waive/forbearance by one party may be enforced in equity (not at the common law) where proper notice has been given to the other party of resumption of the strict contractual provisions -

• Notice – must be reasonable (Charles Rickards v Oppenhein)

Discharge by operation of a term in the contract

• Can be either:

  • Condition precedent: needs to be satisfied before any rights come into existence – here a contract will be suspended until performance of the condition precedent – if it is not, then the contract (rights and obligations) will not come into force (Pym v Campbell)

  • Condition subsequent: a term which provides for the discharge of obligations in the event of certain things occurring (Head v Tattersall)

3. Breach

   • Sometimes an innocent party to a breach of contract may treat the contract as repudiated – they are discharged from further liability under the contract and may sue for damages

Anticipatory breach and right of election

Right of election: where there has been a breach of a condition or an innominate term the innocent party has the right of election – innocent party may choose whether to affirm the contract or to terminate it (but can always claim damages)

• Innocent party must make his decision known to the defaulting party (The Santa Clara) – must be clear and unequivocal

• Innocent party will only be bound by his decision where he knows of the right of election (Peyman v Lanjani)

• Innocent party given time to decide (Stoczbia Gdanska v Latvian Shipping Co)

Anticipatory Breach: before the time of performance – where one party informs the other that they will not fulfil their obligations under the contract

• Right of action given immediately to the innocent party (Hochster v De la Tour)

• Breach may be express or implied – implied anticipatory breach in Frost v Knight , where the D broke off his engagement during his father’s lifetime, preventing performance of his promise to marry the C when his father died

• Where the breach is of a warranty – the aggrieved party may receive damages only – if they mistakenly treat the contract as repudiated and fail to fulfil their own obligations then they themselves will have committed a serious breach (Hong Kong Fir) - even if acting in good faith!

• If innocent party affirms – there is no duty on them to vary the terms of the contract – and they may carry out their own obligations (White and Carter v McGregor) – once the due date for performance arrives, the injured party may then accept the repudiatory breach as terminating the contract and seek the contract price

  • Here the innocent party were able to continue their own obligations, and then sue for the whole contract price – rather than accepting the breach (which would have required them to mitigate their loss)

  • Criticism of White v McGregor in that it appears to encourage wasteful performance and cause unnecessary hardship to the repudiating party (no duty to mitigate)

• Following The Alaskan Trader the innocent party must have a ‘legitimate interest’ in affirming the contract – but unclear what this means

• Ocean Maring v Kock – Simon K said it is only in extreme cases that the innocent party will be deemed not to have a legitimate interest in affirming

• Innocent party will be prevented from affirming if they require the co-operation of the other contracting party (White and Carter v McGregor) – this involves passive cooperation (Hounslow LBC v Twickenham Garden Developments)

• Risk of affirmation – the contract may be frustrated between the date of affirmation and the due date for performance (Avery v Bowden(

• Equally – where the innocent party proceeds to commit his own breach, this may allow the repudiating party to evade liability (The SImona) (HL) – the innocent party who elects to affirm is NOT absolved of their own obligations under the contract!

4. Frustration

A doctrine of excuse

• Development of the doctrine of frustration as the courts moved away from the harsh position of absolute obligations - (governed by decision in Paradine v Jane

• Taylor v Caldwell – change – the implied term theory – courts implied a term into the contract – (that the rent must be paid ‘so long as the music hall exists’

• Current position is the ‘radical difference’ theory – contract is frustrated whenever performance would now be ‘radically different’ from what was contracted for

  • Davis Contractors v Fareham UDC: frustrating event is something which renders performance ‘radically different’

  • Frustration will discharge all future obligations - from the date of the frustrating event

  • The more unforeseeable the more likely it will frustrate the contract

  • Can be raised as a defence to an action for breach of contract – e.g. Taylor v Caldwell

Broad categories of frustration

1. Impossibility

1. Destruction of thing

   • Taylor v Caldwell – Music hall destroyed

   • Appleby v Myers– installation of machinery, but the factory building burned down – the machinery became irrelevant because it had been purpose built. The court said that the contract was frustrated because something necessary to the contract had been destroyed

2. Unavailability of thing – a matter of degree:

   • Jackson v Union Marine Insurance Co – the relevant term was that a ship was supposed to precede from Newport to San Francisco – one day later it ran aground on a sand bank – they went to collect, it was estimated that it would take at least 8 months to get it going again – the contract was ‘as fast as possible’ – the courts said the contract was frustrated.

   • FA Tamplin v Anglo-Mexican – a charter party into its 3^rd year already was requisitioned for the war effort – requisitioned in 1915, contract set to last until 1917 – if the party that has hired the ship can’t deliver it to the owners it has to keep paying the rent. So they wanted the contract declared frustrated – the court said that the war would be over by Christmas so no frustration!

   • Bank Line v Arthur Capel - ship requisitioned before it was even handed over to the hiring party – in this case the court agreed there was frustration

   • The Sea Angel – a charter party in the area of Karachi, a ship that had been hired for just 20 days – the purpose was for the ship to go out to a stricken vessel and take up some oil – a salvage operation. Just before the charter party was up – the Karachi authorities impounded...