Discharge of Contract

Objectives:

• Explain what is meant by discharge of contract
• Explain what is meant by discharge by agreement, including bilateral and unilateral agreements
• Explain what is meant by discharge by breach, including anticipatory breach
• Explain what is meant by discharge by frustration
• Explain what is meant by discharge by performance

When a contract is ´discharged´ it is actually terminated

The contracting parties are free from further obligations under the contract

Discharge by performance
This is where all the obligations under the contract have been met (both parties have successfully performed as promised) - if there is a time stated in the contract, both parties have to perform according to the time. If there is no time stated, the contract has to be performed within reasonable time
General rule:
Cutter v Powell (1795) - if a contract requires entire performances, and a party fails to perform the contract in its entirety, they are entitled to nothing under the contract from the other party

• Where a sailor signed a contract to crew a vessel from Jamaica to Liverpool, the contract required him to complete the journey.
• When he died part way through the voyage home, his wife failed in her bid to sue for his wages under part-performance of the contract...it was an all or nothing contractual agreement

There are ways in which the harshness of this rule can be mitigated:

• Substantial performance
• Severable contracts
• Acceptance of part performance
• Prevention of performance

Substantial Performance:

• If a party has done substantially what was required under the contract, then the doctrine of substantial performance can apply
• The party can recover the amount appropriate to what has been done under the contract
• Key cases:
• Dakin & Co v Lee (1916) 
•  defendants promised to build house according to spec
• they failed to carry out exactly all the specs
• CoA held they were entitled to recover the contract price as it was a case of bad workmanship and negligence, NOT where the job had been abandoned nor the items in spec being omitted
• basically, they did a shit job, but because they still did it, it counts (bit rude but okay)
• Hoeing v Isaacs (1952) 
• Contract for redecoration (£750)
• Upon completion - £350 left to pay
• There were defects that cost £55 to repair
• Employer refused to pay claiming breach of contract
• Court held that contractual promise to complete work is NOT a condition precedent to payment 
• Employer cannot deprive contractor of any payment due to defects (basically same as above, also rude)
• Whether the entire performance of a contract is a condition precedent to payment depends on the construction of the specific contract
• Bolton v Mahadeva (1972)
• Claimant installed hearing
• Agreed price - £560
• Defects cost £174
• Claimants attempt to enforce was denied because the court held that there was no sustantial performance (that's more like it)

Severable Contracts:

• A contract is severable when payment becomes due at various stages of performance, rather than in one lump sum when performance is completed
• Major building works usually operate in this way
• The price for each stage can be claimed when that stage is completed - if you take on a childminder for six weeks and pay weekly, the childminder can claim the first week's pay even if they then refuse to work the following five weeks

Acceptance of part performance

• Where one of the parties has performed the contract, but not completely, if the other side has shown willingness to accept the part performed, then the strict rule in Cutter v Powell will usually not apply
• This may occur where there has been a shortfall in the delivery of goods or where a service is not fully carried out
• Key cases:
• Sumpter v Hedges (1898)
• Claimant agreed to build 2 houses and stables
• £565 was agreed to be payable on completion
• Claimaint commenced performance but then ran out of money and was unable to complete
• He had performed just over half of the contract
• The defendant completed the rest by himself
• Claimant wanted £333 for the work he had completed
• He argued that the defendant had accepted partial performance as he had completed the work himself
• FAILED - Court held that the defendant had no choice as he was left with a half completed house on his land

Prevention of performance

• If the other party prevents a party from carrying out his or her obligations because of some act or omission, then the rule in Cutter v Powell cannot apply
• In these circumstances, the party trying to perform may have an action for damages
• Key cases:
• Planche v Colburn (1831)
• Claimant agreed to write book for defendant
• Agreed £100
• Claimant had completed a great deal when defendant cancelled the series
• Defendant refused to pay despite the work already completed and the fact that the claimant was still willing to complete
• Claimant was entitled to recover £50 cause the defendant had prevented the performance
• Established quantum meruit?
• Startup v Macdonald (1843)
• Contract for 10 tons of oil to be delivered within last 14 days of March
• Claimant delivered oil at 8:30pm on 31st March
• Defendant refused to accept the delivery because of how late it was
• The claimant had tendered performance within the agreed contractual period and was thus entitled to damages for non-acceptance

Breaches of terms concerning time

• If the other party performs all of their obligations, but not within the time stipulated, this will give rise to damages because a breach has occurred, but not repudiation of the contract
• Three occasions where time will be considered "of the essence" and a repudiation of the contract will be available:
• Where the parties have made an express stipulation in the contract that time is of the essence
• Where the surrounding circumstances show that time of performance is critical, as would be the case with the delivery of perishable goods
• Where one party has already failed to perform their obligations under the contract. In this case, the other party is able to confirm that unless performance is then completed within a stated period repudiation will occur
• Key cases:
• Charles Rickards Ltd v Oppenheimer (1950)
• Oppenheimer bought a Rolls Royce Chassis and agreed a body to be built upon it by a fixed date 
• The body was not completed by that date
• After pressing for delivery, he gave a notice that unless the work was completed and the car delivered within four weeks, he would cancel the contract
• Car still not delivered
• When the claimant then tried to deliver the car, it was rejected
• They tried to sue
• Held: The defendant was entitled to cancel the contract
• United Scientific Holdings Ltd v Burnley Borough Council (1978)
• PRINCIPLE - If a contract is not specific about a time when something has to happen, then the time that the event must occur has to be 'reasonable'
• The landlord leased the premises to the tenant for 15 years. This lease contained two rent review provisions. The first rent review was at the end of the fifth year and the second review was at the end of the fifth year and the second review was at the end of the tenth year of the lease. The landlord, however, failed to provide notice by the first rent review date
• ISSUE - was time of the essence or was the landlord obliged to wait until the tenth year of the lease to provide the rent review notice to the tenant?
• HELD - On appeal, the HoL held that time was not of the essence. This was because there was nothing in the lease to displace the presumption that strict adherence to the time-tables specified in their respective rent-review was not of the essence of the contract. Therefore, the landlord was allowed to provide notice to the tenant before the tenth year of the lease

Discharge by frustration

If after a contract is made, something happens, through no fault of the parties, to make its performance impossible, the contract is said to be 'frustrated'

General Rule:

Taylor v Caldwell (1863) - action failed because performance of the contract had become impossible due to a building where a concert was due to take place, burning down.

The doctrine will operate in three main types of circumstance:

• Impossibility
• Illegality
• Commercial sterilisation

Impossibility

This is where the contract is frustrated because performance has become impossible, for example:

• Destruction or unavailability of something essential for the contract's performance: 
• Taylor v Caldwell (1863)
• Claimant hired a hall to throw some concerts
• He went to great expense and effort
• A week before the first concert the hall was destroyed by a fire
• Claimant said it was breach of contract
• Claim failed - the contract had been frustrated as the fire meant that the contract was impossible to perform
• Death of either party
• Unavailability of the party: 
• Robinson v Davidson (1871)
• A contract by a pianist to perform on a specific day was held to be frustrated when the pianist became too ill to perform
• Method of performance is impossible: 
• Nicholl and Knight v Ashton Edridge & Co (1901)
• Agreed by contract that a cargo of cotton seed was to be shipped from Egypt to England
• The contract specified the ship, The Orlando
• This ship became damaged and was being repaired when the contract was to take place
• The contract was frustrated as they had named the ship, and it was impossible for that ship to carry the cargo within the contractually agreed period

Illegality

• This is where after the contract is formed, a change in the law makes its performance illegal
• This can often happen in times of war when laws may change rapidly and cause a contract to be frustrated
• Key cases:
• Pioneer Shipping Ltd v BTP Tioxide Ltd (1981)
• A charter body was contracted to make six voyages in nine months, but this was halved due to a strike at the port
• Although performance was possible, it wasn't what they originally contracted for
• Metropolitan Water Board v Dick Kerr & Co (1918)
• There was a contract to build a reservoir
• The contract accounted for possible delay
• Policy caused the project to be delayed indefinitely
• The contract was frustrated because although delay was accounted for, permanent delay was not

Commercial Sterility

• This is where the commercial purpose of the contract has disappeared as a result of the intervening event, the contract may be frustrated
• It is also sometimes known as 'pointless' - performance of the contract becomes pointless, even though it is still technically possible
• Key Cases:
• Krell v Henry (1903)
• A flat was rented for the purpose of viewing the King's coronation procession
• The procession was cancelled due to the King's illness and the contract was discharged as the sole reason for which it was rented ceased to exist
• Herne Bay Steamboat Co v Hutton (1903)
• Defendant hired out claimant's steamship
• The purpose was to take paying passengers to view the Naval Review (part of the King's coronation celebrations)
• The defendant was also offering a day's cruise for the passengers
• The Naval Review was cancelled cause the King was ill
• The defendant didn't use the steamship
• Claimant brought an action for the agreed price
• Defendant argued that the contract had become frustrated due to the cancellation of the Naval Review
• Held: Contract not frustrated as it had not been deprived of its sole commercial purpose as it was still possible to do the day cruise

Discharge by agreement

In some cases, the parties themselves will agree to terminate a contract, so that one or both parties are released from their obligations

Bilateral discharge - here the assumption is that both parties are to gain a fresh but different benefit from the new agreement

Unilateral discharge - the benefit is only to be gained by one party, who is therefore trying to convince the other party to let them off the obligations arising under the original agreement

Discharge by breach

Whenever a party fails to perform an obligation, or performs defectively an obligation, or indicates in advance that they will not be performing as agreed an obligation arising under a contract then that party can be said to be in breach of contract

Actual Breach

• This is where a party to a contract does not perform their obligations under the contract at all
• Key cases:
• Platform Funding Ltd v Bank of Scotland PLC (2008)
• Surveyor was meant to inspect and value 1 Bakers Yard for a mortgage lender
• Surveyed 5 Bakers Yard by mistake
• Mortgage lender sued the surveyor for breach of contract
• Held - even though the surveyor exercised reasonable care and skill in inspecting and valuating the property, it was the wrong house
• He may have done the work, but on the wrong house, so he lost
• Pilbrow v Pearless de Rougemont & Co (1999)
• Claimant asked to see a solicitor, but instead saw someone who was experienced, but unqualified - his status was not made clear
• He later refused to pay the bill
• Held - the firm had broken the practice rules
• He was contracted to see a solicitor, as he didn't, he didn't have to pay
• Modahl v British Athletic Federation Ltd (1999)
• Athlete accused of doping
• Found guilty by disciplinary committee appointed by defendant
• She appealed and it was lifted
• She tried to claim damages because the lab was unaccredited and she was not given a fair trial
• Held - though there was no written contract between her and the defendant, they had accepted an obligation to appoint a panel in accordance with their rules
• However, they were not  liable for breach of rules of natural justice by individual panel members because they had provided the appeal
• Abramova v Oxford Institute of Legal Practice (2011)
• Claimant sought damages saying that the defendant had failed to provide her with the Legal Practice Course promised
• The complaints included one of the practice of having students mark their own mock exam papers
• Held - in such claims expert evidence must be produced that the Bolam Standard had not been met - she was unable to do this and so the claim failed

Anticipatory Breach

• This is where a party indicates in advance that they will not be performing their obligations as agreed
• Key cases:
• Frost v Knight (1872)
• Knight promised to marry Frost after Knight's father's death
• While his father was still alive, Knight told Frost that he was not going to marry her after his father's death
• Frost brought an action for breach of promise
• Held - Frost was deemed entitled to accept Knight's repudiation of the contract to marry her, and sue him
• Avery v Bowden (1855)
• Claimant was to carry cargo for defendant
• Claimant arrived early and was told by defendant to sail on as they had no cargo and wouldn't by the agreed date
• Claimant decided to wait around in the hope that the defendant would be able to supply some cargo
• However, before the initial agreed date, the Crimean War broke out
• This meant that the contract became frustrated
• The claimant therefore lost their right to sue for breach
• Had they brought their action immediately, they would have had a valid claim
• Fercometal Sarl v Mediterranean Shipping Co (1989)
• A contract for the hire of  a ship contained a clause stating that the hirer would be entitled to end the contract if it was not loaded by 9th June. On the 2nd of June - and within the contractual time limit - the ship owners asked for an extension of time. At that point, the hirers unilaterally decided to hire a different ship, thereby breaking the original contract
• Instead of ending the contract of  hire at that point, the ship owners decided to carry on the contract. Meanwhile the hirers themselves carried on using the other ship that they had hired
• The ship owners then decided to sue the hirers for anticipatory breach of contract - because they had tried to get out of the contract before it was due to be performed on the 9th June
• HELD - since the ship owners had chosen to continue with the hire contract, instead of ending it when the hirers chose a different boat, they were still bound by the original terms...which were that the boat had to be ready to hire by 9th June
• The ship owners couldn't stick to the 9th of June and therefore were themselves in breach of the original contract
• PRINCIPLE - It is often much better to discharge a contract BEFORE a repudiatory breach actually happens, as soon as you get notice that this is what the other side intends to do because that way you keep your losses to a minimum
• White and Carter Ltd v McGregor (1962)
• Claimant supplied bins and was allowed to display adverts on them
  
• Defendant's sales manager entered into a contract with the claimant for them to place adverts on the bins for three years
• Agreed price was payable by three annual installments, and if one was late, the full sum would become immediately due
• Defendant had not authorised it and phoned the claimant on the same day, saying that he did not want the advertising
• Claimant ignored this and went ahead anyway
• Defendant refused to pay
• Claimant submitted bill for full three years
• Held - Claimant not obliged to accept breach of contract - thus entitled to payment
• This case seems to ignore the general rule of the duty to mitigate loss applicable to claims for damages
• Under this case the court laid down certain restrictions on when an unwanted contractual performance could be seen as legitimate in the eyes of the court
• You can't recover fully consequential damages for a breach when the other side simply refuses to co-operate with the contractual performance
• You can't seek to regard a contract as legitimate if all you are going to do is use it as an excuse to claim damages
• PRINCIPLE - when there is a contract that both sides have agreed but one party decides not to co-operate with it, the innocent party can choose to sue for damages for breach, or can regard the contract as continuing and then sue at the end of teh contractual performance for all the losses that have arisen as a result

Martin-Smith v Williams (1999)

• Where all band members had signed a recording agreement. Robbie Williams had decided unilaterally to breach that agreement in order to carve out a solo recording career. He tried to say that one of the reasons that he did this was that the claimant had threatened to withhold royalties from him...for songs that the whole band had recorded
• HELD - Robbie Willians was alleging a 'repudiatory breach' of contract by the manager, that justified his own subsequent breach
• This is not the case. Williams had simply decided to no longer perform the contract for personal reasons and this was a straightforward example of a contractual breach by him...that went right to the heart of the band's recording agreement

Problems with Discharge of Contract

Performance

• Problematic because of its definition. There is statutory protection in the form of implied terms in contracts, so we know if any attempt is made to reduce those then the court will act
• The issue arises when parties have to confront the fact that the contract has not wholly been performed.
• The issue however is probably incapable of adequate clarity because by necessity performance must be assessed on a case by case basis
• More problems arise when you consider what damages/remedies will be recoverable

Discharge by Agreement

• Agreement is usually hard to achieve without going through mediation etc. There are also formal requirements for entering a new agreement where both sides have agreed to suspend the present contractual arrangements - this is called a Deed of Variation and is often an expensive option to take. If complete renegotiation of a contract is decided against the process is costly and complicated

Frustration itself as a principle

• The issue of loss protection can arise - what would be reasonable to attribute to frustration in terms of loss? There is also the matter of applying rules of damages awarded under Caparo
• Frustration will still only be interpreted in strictly limited circumstances...the courts are more than happy to see if there is an opportunity to circumvent a so-called frustrating event
• Frustration will NOT apply:
• Where a change only results in a loss of profit to one side
• If there is actually an alternative way to perform the contract
• If there is actually something in the contract dealing specifically with frustration
• Where the frustrating event is actually self inflicted

Any statutory protection given by Law Reform (Frustrated Contracts) Act 1943

• The Act States:
• Any money paid before the frustrating event can be recovered
• Any money payable after the frustrating event is not payable
• Expenses incurred before the frustrating event can be recovered as long as they don't exceed what would have been payable to you before the frustration occurred
• It may be possible for the court to award a sum representing a valuable benefit that you would have received had the frustrating event not occurred