DISCHARGE OF CONTRACT including breach of contract, performance and frustration

Objectives Explain what is meant by discharge of contract. Explain what is mean 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.

Discharge by performance This is where all the obligations under the contract have been met. General Rule: Cutter v Powell (1795) - if a contract requires entire performance, and a party fails to perform the contract in its entirety, they are entitled to nothing under the contract from the other party. There are ways in which the harshness of this rule can be mitigated: Substantial performance Severable contracts Acceptance of part performance Prevention of performance

Discharge by 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) Hoeing v Isaacs (1952) Bolton v Mahadeva (1972)

Discharge by performance 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.

Discharge by performance Partial 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)

Discharge by performance 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) Startup v Macdonald (1843)

Discharge by performance Breaches of terms concerning time If the other party performs all 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: 1. Where the parties have made an express stipulation in the contract that time is of the essence. 2. Where the surrounding circumstances show that time of performance is critical, as would be the case with the delivery of perishable goods. 3. 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) United Scientific Holdings Ltd v Burnley Borough Council (1978)

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

Discharge by frustration 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) Death of either party. Unavailability of the party: Robinson v Davidson (1871) Method of performance is impossible: Nickoll and Knight v Ashton Edridge & Co (1901)

Discharge by frustration 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) Metropolitan Water Board v Dick Kerr & Co Ltd (1918)

Discharge by frustration Commercial 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) Herne Bay Steamboat Co v Hutton (1903)

Activity Which of the following involve frustrating events and which do not? A famous comedian dies just before he is due to appear on stage. A plumber is contracted to fit central heating in a house. He underestimates the days needed to complete the work and as a result he will lose profit on the price agreed. A car I had contracted to buy is destroyed when an explosion sets fire to it. As a lecturer, I have contracted to personally take 15 students on a trip to court. An Act is passed requiring teaching and lecturing staff to take no more than ten students per one member of staff on educational visits. In a contract to supply a Far Eastern state with machinery, one clause in the contract stipulates what happens in the event of war. In fact war is declared after the making of the contract.

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 Actual 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) Pilbrow v Pearless de Rougemont & Co (1999) Modahl v British Athletic Federation Ltd (1999) Abramova v Oxford Institute of Legal Practice (2011)

Discharge by Breach 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) Avery v Bowden (1855) Fercometal Sarl v Mediterranean Shipping Co (1989) [The Simona] White and Carter Ltd v McGregor (1962)

Activity Research the following case: Martin-Smith v Williams (1999) This concerned the singer Robbie Williams following the break up of the band, Take That. Consider the following questions: What breach of contract occurred in this case? Why did Robbie Williams fail in his quest for damages? What did the Court of Appeal say about implied terms in the management contract?