#14766 - Discharge Of A Contract - GDL Contract Law
| Agreement
| Performance GR: Entire obligation rule – contractual obligation is discharged by complete performance. There can be no discharge of a contract where the promisor is unable or unwilling to give more than partial performance. Mitigations/exceptions:
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| Breach Where a term of a contract has been breached, the claimant can elect to discharge the contract. Claimant can also sue for anticipatory breach and elect to discharge the contract. Breach of a condition or serious innominate term:
Breach of a warranty or innominate term that is not fundamental:
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Discharge by Agreement
A contract may be discharged by the operation of a term in a contract – break clauses. This may be in the form of a:
Condition precedent (Pym v Cambpell)
A condition that must be fulfilled before any rights come into existence.
Where a contract comes into existence subject to the occurrence of a specific event, the contract is to be suspended until the condition is satisfied. Where a condition precedent is not satisfied, there is no true discharge because the rights and obligations never came into existence.
Condition subsequent (Head v Tattersall)
A term providing for the discharge of outstanding obligations in the event of a specified occurrence.
A condition subsequent allows one or both parties to end the contract before complete performance.
A contract can be discharged by the creation of a subsequent binding contract. This can be done by:
Mutual waiver supported by consideration: (The Hannah Blumenthal)
If both parties have obligations which remain unperformed (wholly executory), they can agree to a new contract which waives their rights under the old contract in consideration from being released from their obligations – MUST have consideration for new contract.
Accord and satisfaction: (Pinnel’s Case; Foakes v Beer)
If A has performed his obligations but something still remains to be done by B, A may agree to release B of his obligation by a subsequent agreement under seal e.g. a deed.
Alternatively A may agree to accept something different in place of the former obligation.
Accord = subsequent agreement.
Where A only agrees to accept something different because B has threatened that he will otherwise get nothing, then no true accord and therefore the original obligation is not discharged. (D&C Builders v Rees)
Satisfaction = new consideration (sufficient, not adequate).
There must be new consideration given, otherwise no satisfaction = no new agreement = no discharge of previous agreement.
Equitable waiver unsupported by consideration: (Birmingham and District Land v London & North Western Railway; Brikom Investments v Carr)
Contract may be discharged in equity law where the conduct of one party induces the other to believe that they will not enforce their rights/waive their rights for a specified period of time.
| DISCHARGE BY AGREEMENT | |||
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| RULE | CASE | ||
| A contract can be discharged by the operation of terms in the contract.
| PYM V CAMPBELL D agreed to buy patent of a machine invented by C if engineers approved it after inspection. Engineers did not approve so D refused to buy. C sued. HELD: The condition precedent was that the engineers should approve the machine – since this event did not occur, the rights and obligations of the parties as per the contract did not come into existence therefore D was not in breach of contract. HEAD V TATTERSALL Sale of a horse – part of the description was that the horse had been hunting with the Bister Hounds. Seller said to buyer if description of horse turns out to be incorrect, he could return the horse within a week (break clause). Buyer was informed that the horse had never been hunting with the Bister Hounds, but bought it anyway. A few days later, the horse was involved in an accident which left it with a limp – buyer took it back to seller and demanded a refund since the horse had never been hunting with Bister Hounds – made use of the break clause. Seller said no, the horse has been injured. HELD: Courts held that, by including the break clause, the seller had taken the risk of the horse being injured in the interim period. Buyer was able to return the horse in the damaged condition and bring the contract to an end using the break clause. | ||
| RULE | CASE | EXCEPTION | RULE |
| THE HANNAH BLUMENTHAL Parties contracted for the sale of a ship and the agreement contained an arbitration clause. C found issues with the ship and made a complaint under the arbitration clause. However, C did not actually take the case to arbitration for another few years. D argues that C’s inaction constituted discharge of the arbitration agreement by mutual waiver. HELD: A mutual waiver must be effected by the parties therefore mere inaction did not suffice. PINNEL’S CASE FOAKES V BEER BRIKOM INVESTMENTS V CARR Landlord offered leases to tenants. He told tenants that he would undertake repairs on the roofs at his own expense and then later tried to claim payment from tenants according to the lease agreements. HELD: The oral assurance made by the landlord was enforceable because he had agreed to waive his rights in relation to repairing the roofs the lessees had relied on the promise (promissory estoppel). |
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D owed C 482 for work they had done, but told them they had to accept 300 or would receive no payment. D took the 300 then sued for the balance. HELD: There had been no accord and satisfaction because C had been pressured into accepting less and were therefore entitled to recover the outstanding balance. |
Discharge by Performance
General Rule: Entire obligation rule – a contract can only be discharged by the complete performance of contractual obligations. There can be no discharge of a contract where the promisor is unable or unwilling to give more than partial performance. (Cutter v Powell)
Exceptions:
Acceptance of partial performance: a contract can be discharged where the innocent party can accept partial performance of obligations. Acceptance of partial performance is at the discretion of the innocent party and has to be voluntarily accepted. Abandonment of a job = no claim for partial performance. Party in default will be entitled to a quantum meruit – a reasonable payment sum for work done, even without a contract. (Sumpter v Hedges; Vigers v Cook)
Substantial performance: where a contract has been substantially performed with minor defects, the party is able to obtain the contract price minus the cost of remedying the defects -- usually defect of a warranty, but not a condition. (Hoenig v Isaacs; Bolton v Mahadeva)
Divisible obligations: where a contract is divided into parts, where you pay for work done after each part rather than in total once all obligations have been fulfilled. (Rose & Frank v Crompton Bros)
Wrongful prevention of performance: where one party performs part of their obligations but is prevented from completing them because of some fault of the other party, they can sue for damages for breach or claim a quantum meruit.
Tender of performance: as a defence for breach of contract, the defendant can show that he tendered performance by offering to perform his obligations, but the promisee refused to accept. A plea of tender does not discharge payment of a debt, but prevents creditor from claiming interest or damages on that debt.
Performance by a third party: it is possible that a contract can be discharged by the performance of the service being undertaken by a third party. This applies in cases where the service is not specialist/personal. (Robson and Sharp v Drummond; British Waggon v Lea)
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