Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Discharge of Contract A contract can be brought to an end by: 1.Performance 2.Agreement.

1Copyright Guy Harley 2008

Revision


Discharge of Contract

A contract can be brought to an end by:

1. Performance

2. Agreement

3. Frustration

4. Breach

5. A Term of the Contract

6. Operation of Law


Entire Contract

If contract requires entire performance then obligations must be strictly completed

Entire performance required where anything less than full performance would significantly devalue the worth of the contract to the other party


Entire Contract

Exceptions Substantial performance Partial performance Divisible contracts Tender of performance Prevention of performance


Substantial Performance

Contract discharged by completion of main part of contract

Performing party paid full price less value of shortfall


Partial Performance

Innocent party accepts incomplete work Quantum meruit paid to performing party for

reasonable cost of completed work Acceptance must be a genuine choice


Divisible Contracts

Contract split into divisible parts for purposes of payment

Performance of each part requires party to pay for that part

Treated as several separate contracts


Tender of Performance

• If preforming party offers to complete contract and offer refused then performing party is discharged


Prevention of Performance

Where performing party is prevented from completing his obligations by the other party

Performing party is discharged from contract


Discharge by Agreement

Parties to the contract agree to discharge their obligations to one another

This latter agreement will only be binding if: It is a valid contract; or Promissory estoppel arises


Termination by Frustration

Contract is automatically terminated where: An intervening event; Not contemplated by the parties; Makes performance

impossible; or Radically different to that originally

contemplated


Termination by Frustration (Cont.)

Frustration does not apply where: The event was caused by the party seeking to

rely on the frustration Contract makes specific provision for the event The party seeking to rely on frustration foresaw

the event


Effect of Frustration

Contract is void from date of frustration (not ab initio)

Parties released from all further obligations All contractual obligations owed before date of

frustration must be performed Prepayments can be recovered where a

compete failure of consideration


Frustrated Contracts Act 1988

Court may order a refund of monies paid under a frustrated

contract Compensation for any performance that

occurred prior to frustration


Discharge by Breach

Cannot terminate for any breach no matter how slight

Can only terminate for breach of a condition

Other terms are called “warranties”


Discharge by Breach

Types of Breach Failure to perform contract Anticipatory breach


Anticipatory Breach

Before time for performance, one party indicates intention not to perform contract Anticipatory breach

Contract not automatically discharged Innocent party may:

Treat contract as repudiated and claim damages, or

Perform the contract and claim contract price


Restraint of Trade

A restraint of trade clause is only enforceable to the extent that it is reasonable

It will only be reasonable if it is In the public interest (having regard to

protection of competition), and no wider than is reasonably necessary to

protect the legitimate interests of the party relying on it


Remedies


Types of Remedy

Termination Rescission Recovery of Contract Price Damages Equitable Remedies

Specific Performance Injunction Rectification Restitution


Damages

Every breach of a contract gives a right to damages

However, sometimes there will be no damage caused by the breach

2 Types Liquidated Damages Unliquidated damages


Liquidated Damages

Available where price, or mechanism for fixing price, is stated in the contract

Called “liquidated damages” Preferable to damages because there are no

problems with establishing the amount claimed Can claim if there has been substantial

performance of the contract unless there is a term in the contract to the contrary


Agreed Damages

The contract may provide for agreed damages Saves an expensive assessment of damages by

a court Party cannot recover sum greater than agreed

amount even if actual losses greater Cellulose Acetate Silk v Widnes Foundry

Agreed damages must be a genuine pre-estimate of damages

Courts will not enforce a penalty


Penalty

An agreed damages clause will be a penalty if It is extravagant Where breach is failure to pay money and

clause provides for a greater payment Applies to several different types of breach

Ford Motor Co v Armstrong

(Dunlop Pneumatic Tyre v New Garage & Motor

Co)


Unliquidated Damages

Amount fixed by the court Aim is to

Put plaintiff in same position as if breach had not happened

Not to punish (Addis v Gramaphone Co Ltd) The losses must be caused by the breach of

contract Reg Glass v Rivers Locking Systems


Calculating Damages

The amount of damages should place the innocent party in the same position that he would have been in had the contract been properly performed

The court cannot refuse to award damages just because they are difficult to calculate

Damages can include Expectation loses Personal injuries Disappointment, distress and discomfort


Expectation Losses

Expectation losses include loss of profits Loss of a promised chance or commercial

opportunity may be claimed Damages will be awarded by “reference to the

degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance which the contract promised” – Sellars v Adelaide Petroleum (S&O p275)


Expectation Losses

If loss of a bargain cannot be calculated then plaintiff can claim reliance expenditure McRae v Commonwealth Disposals

Commission Commonwealth v Amann Aviation


Expectation Losses

Can include loss of a chance Chaplin v Hicks Howe v Teefy

If there is a market for the goods then the expectation losses will be the difference between the market price and the contract price

If there is no market then specific performance is a better option


Damages for Disappointment etc

Courts have been reluctant to award damages for disappointment, distress and injured feelings

Not awarded for breach of most commercial contracts


Damages for Disappointment

Two cases where may be awarded; Distress flows from physical inconvenience Where enjoyment or entertainment or freedom

from molestation is an essential feature of the bargain

Cases Jarvis v Swann Tours Baltic Shipping v Dillon


Causation

Damages must be caused by the breach The “but for” test


Remoteness of Damage

Damages must not be too remote Such losses “as may fairly and reasonably be

considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time the contract was made, as the probable result of the breach of it” - Hadley v Baxendale


Remoteness of Damage (cont.)

A two part test Losses that flow ”according to the usual course

of things” from the breach Koufos v Czarnikow Ltd Hadley v Baxendale

Losses within the actual contemplation of the parties at the time the contract was made Victoria Laundry v Newman Industries


Mitigation of Damages

Plaintiff has a duty to mitigate losses Cannot claim losses which could have been

reduced or avoided by the taking of reasonable steps

Brace v Calder


Equitable Remedies

Specific Performance Injunction Rescission & Restitution Equitable Damages where:

Rescission is barred or Complete restitution is not possible


Specific Performance

Court orders a party to carry out their contractual obligations

Not available if: Damages would be an adequate remedy Court has to continually monitor performance Used to enforce a contract for personal services Against a minor

Often used in land contracts If order disobeyed, can be imprisoned for

contempt of court


Injunction

Court orders a party to a contract to refrain from breaching their contractual duty

Not available if damages would be an adequate remedy

There must be evidence that the breach will continue or will occur again

If order disobeyed, can be imprisoned for contempt of court

Can award damages & and injunction Warner Bros v Nelson


Non-Contractual Remedies

Action for Money Had and Received Where Total failure of consideration

Unjust Enrichment Where a party obtains a benefit at the

detriment of the other party Quantum Meruit


Quantum Meruit

Where one party requests goods and\or services without specifying a price

Implied promise to pay a reasonable amount Need not show loss by plaintiff only benefit by

defendant Applies where

Contract formed but no agreed price Partial performance of a contract has been accepted Contract is void Contract is breached

Copyright Guy Harley 2008 1 Revision. Copyright Guy Harley 2008 2 Discharge of Contract A contract can be brought to an end by: 1.Performance 2.Agreement.

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