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1Copyright Guy Harley 2008
Revision
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2Copyright Guy Harley 2008
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
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3Copyright Guy Harley 2008
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
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4Copyright Guy Harley 2008
Entire Contract
Exceptions Substantial performance Partial performance Divisible contracts Tender of performance Prevention of performance
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5Copyright Guy Harley 2008
Substantial Performance
Contract discharged by completion of main part of contract
Performing party paid full price less value of shortfall
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6Copyright Guy Harley 2008
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
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7Copyright Guy Harley 2008
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
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8Copyright Guy Harley 2008
Tender of Performance
• If preforming party offers to complete contract and offer refused then performing party is discharged
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9Copyright Guy Harley 2008
Prevention of Performance
Where performing party is prevented from completing his obligations by the other party
Performing party is discharged from contract
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10Copyright Guy Harley 2008
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
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11Copyright Guy Harley 2008
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
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12Copyright Guy Harley 2008
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
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13Copyright Guy Harley 2008
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
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14Copyright Guy Harley 2008
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
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15Copyright Guy Harley 2008
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”
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16Copyright Guy Harley 2008
Discharge by Breach
Types of Breach Failure to perform contract Anticipatory breach
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17Copyright Guy Harley 2008
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
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18Copyright Guy Harley 2008
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
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19Copyright Guy Harley 2008
Remedies
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20Copyright Guy Harley 2008
Types of Remedy
Termination Rescission Recovery of Contract Price Damages Equitable Remedies
Specific Performance Injunction Rectification Restitution
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21Copyright Guy Harley 2008
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
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22Copyright Guy Harley 2008
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
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23Copyright Guy Harley 2008
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
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24Copyright Guy Harley 2008
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)
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25Copyright Guy Harley 2008
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
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26Copyright Guy Harley 2008
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
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27Copyright Guy Harley 2008
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)
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28Copyright Guy Harley 2008
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
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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
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30Copyright Guy Harley 2008
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
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31Copyright Guy Harley 2008
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
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32Copyright Guy Harley 2008
Causation
Damages must be caused by the breach The “but for” test
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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
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34Copyright Guy Harley 2008
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
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35Copyright Guy Harley 2008
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
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Equitable Remedies
Specific Performance Injunction Rescission & Restitution Equitable Damages where:
Rescission is barred or Complete restitution is not possible
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37Copyright Guy Harley 2008
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
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38Copyright Guy Harley 2008
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
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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
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40Copyright Guy Harley 2008
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