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Contract Law: Discharge 1 (Discharge by agreement; by performance; by breach) How are contracts discharged (i.e. ended)?
?????Discharge of obligations: every contractual obligation gives rise to a corresponding contractual right. Thus where the obligation of one party is discharged, the corresponding right of the other party is extinguished. Where all obligations under a contract are discharged and all rights thus extinguished, the contract is discharged.
(1) Discharge by agreementOn basis that something may be destroyed in the same manner by which it was created, a contractual obligation may be discharged by agreement. Can occur in two ways: o (1) by a subsequent binding contract between the parties. o (2) Or, by operation of a term of the original contract.
(1) Discharge by subsequent binding contract.
? The formation of a new contract, can occur in several ways.
? An agreement to discharge may be effective if supported by consideration
? (i) If wholly executory on both sides---where both parties have obligations which remain unperformed--- then mutual waiver may discharge the contract (a new contract)
? The mutual waiver = is a new contract by which each party agrees to waive their rights under the old contract, in consideration for being released from their obligations under the old contract---see Wilson (Paal) v Partenreederie Hannah Blumenthal, The Hannah Blumenthal (1983).
? (ii) If partially performed then by (a) deed or (b) accord &
? (ii) (a) Deed--where one party has performed his obligation in entirety, but something remains to be done by the other party: the party to whom the obligation is owed may release the other party by a subsequent agreement under deed.
? (ii) (b) by accord and satisfaction ? where one party is partially performed, the party to whom the obligation is owed may agree with the other party to accept something different in place of the former obligation o = accord & satisfaction---the subsequent agreement is accord; and the new consideration is the satisfaction ?
this discharges the former obligation. o However, where the subsequent agreement by which one party consents to accept something different in place of
the original obligation is obtained under a threat that he will otherwise get nothing at all ? no true accord, so the original obligation remains undischarged. o So there must be new consideration, otherwise no satisfaction. o Pinnel's Case 1602): Pinnel's -'accord and satisfaction', consideration for new agreement allowing the parties to discharge their old obligations. o Remember consideration re part payment of debt---Pinnel's case and Foakes v Beer. Accord & satisfaction was considered in the Promissory estoppel case---D&C Builders v Rees: o D owed C PS482 for work they had done. D's wife phoned C and said 'my husband will offer you PS300 in settlement. That is all you'll get. It is to be in satisfaction'. o D gave C a cheque for PS300, asking for a receipt with the words 'in completion of account'. o C brought an action to recover the balance of PS182. o On a preliminary point whether there was accord &
satisfaction, held by county court judge that taking the cheque for PS300 could not discharge the debt of PS482. o D appealed, CA HELD; no accord & satisfaction because D's wife had pressured C to accept the PS300 in settlement by threatening that nothing would be paid. So no true accord &
satisfaction---C could recover the balance. o Danckwerts lJ: 'The giving of a cheque of the debtor for a smaller amount than the sum due is very different from "the gift of a horse, hawk or robe etc" mention in Pinnel's Case . . . the debtor's own cheque for a smaller sum [cannot] be better than payment of the whole amount of the debt in cash . . . there was no true accord'.
Equitable waiver---waiver unsupported by consideration
? Equity has been more successful than the common law in the enforcement of a waiver or promise of forbearance.
? Birmingham and District Land Co v London & North Western Railway (1888): o Bowen LJ: 'If persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe that such rights will either not be enforced or will be kept in suspense or abeyance for some particular time, those persons will not be allowed by a court of equity to enforce the rights until such time has elapsed, without at all events placing the parties in the same position as they were in before'.
? It seems that a concession, waiver, variation or forbearance by one party to the other will be enforced in equity subject
2 to proper notice being given to the other party of the resumption of the strict contractual provisions.
? Proper notice will involve the honouring of any time period contained in the original concession, otherwise, equity will insist on a reasonable period of notice: Charles Rickards v Oppenheim (1950).
? ?? ? High degree of similarity between (equitable) waiver and promissory estoppel, the general view being that they are related, yet distinct doctrines which produce the same effects.
? Brikom Investments v Carr (1979): o Landlords of certain flats offered leases to sitting tenants. By these leases, the landlords undertook to maintain the structure of the blocks and the tenants undertook to contribute to the cost. o Before the leases were executed, the landlords stated orally to the tenants' association and to some individual tenants that they would repair the roofs at their own expense. At this time the roofs were in need of repair. The landlords carried out the repairs and claimed payment according to the terms of the leases. o The first D was an original lessee who admitted that she would have taken the lease regardless of the landlords' statement. o The second and third Ds were assignees from original lessees. o Held, CA: the claim against the first D failed because the principle of promissory estoppel applied to all cases where a party to whom a representation or promise had been made had in fact relied on it, eg by going ahead with a transaction under discussion. o The claim against second and third Ds failed because the estoppel raised against the landlords was an equity intended to be for the benefit of those from time to time holding the leases (Lord Denning). o Per Roskill and Cumming-Bruce LJJ (with whom Denning also concurred): the claim against all 3 Ds failed because the landlords had waived their right to claim the cost of repairs from the tenants and their assignees. In case of first D, there was a collateral contract since she had given consideration for the landlords' promise by entering the lease in reliance on that promise. (2) Discharge by operation of a term of the original contract
? Contract can contain a term providing for discharge of contractual obligations.
? Could either by a (1) condition precedent; or (2) a condition subsequent. It might give one or both parties the right to end the agreement by giving notice to the other party.
3 ?Condition precedent (not a true discharge): o A condition which must be satisfied before any rights come into existence. o Where the coming into existence of a contract is subject to a condition precedent. o The contract is suspended until the condition is satisfied. o Where a condition precedent is not fulfilled, there is no true discharge because the rights & obligations under the contract were contingent upon an event which did not occur, i.e. they never came into existence---Pym v Campbell (1856). Condition subsequent: a term providing for the discharge of outstanding contractual obligations, in the event of a specified occurrence: Head v Tattersall (1871). o Common in certain commercial contracts, eg building and engineering contracts, to include clauses enabling one party to bring the contract to an end before completion---usually allow one party to determine the contract on the serious default of the other. o Some government contracts allow the gov department to determine without showing fault and without giving compensation. o Contracts of employment generally contain clauses providing for terminating of employment by notice given by either party. o There is no presumption that a commercial contract with no express power of determination is intended to be perpetual. In appropriate cases the court will imply a term to empower a party to determine the contract on giving reasonable notice to the other party.
(2) Discharge by performance The Entire obligations rule:
? Complete performance is required to discharge a contractual obligation.
? The promisee is entitled to the benefit of complete performance exactly according to the promisor's undertaking. Where promisor is unable or unwilling to give more than partial partial performance---
general rule that there is no discharge of contract.
? So; where a contract provides for payment by one party after performance by the other, no action to recover payment may be maintained until the performance is complete. Nor will an action for proportional payment be available on basis of quantum meruit.
? i.e. entire or 'lump sum' contracts.
? Cutter v Powell (1795): o Cutter agreed to serve on a ship from Jamaica to Liverpool.
4 o D, Powell, agreed in return to pay Cutter 30 guineas, 'provided he proceeds, continues and does his duty . . . from hence to the part of Liverpool'. o Cutter died at sea seven weeks into the voyage, and 19 days short of Liverpool. o Cutter's widow brought an action to recover a proportion of the agreed contract price---failed. o HELD: the contract was said to be entire. Cutter failed to fully perform the given duty fully before he could demand payment---as contract had not been completely performed, widow was entitled to nothing. Mitigation of entire obligations rule--ways around it:
? (1) Accept of partial performance (often comes up in construction)---quantum meruit, no profit o Where one party has given only partial performance of the contractual obligations, it is possible that the innocent party, rather than reject the work done, might accept that part of the performance. o Idea that, if you only do part of an entire obligations contract, you get nothing, under the entire obligations rule, unless your partial performance is voluntarily accepted by the other party. They will then owe the party in default a quantum meruit ('as much as he deserves').---i.e. compensation for the value of the work one. o Sumpter v Hedges? if no real choice, then no voluntary acceptance of partial performance o HELD: there had not been a voluntary acceptance of partial performance. o Sumpter a builder; contracts with Hedges to build two houses with stables on Hedges' land, in return for 565l. After completing work worth around 33l, Sumpter didn't finish the job (told Hedges he didn't have enough money to finish the job). Does about half the work. He builds about half of them, then doesn't finish the job. o To have voluntary acceptance, the innocent party must have had the option to take or not to take the benefit of the work done. o In this case, because the work had been done in the innocent party's land, the court felt that the innocent party had no choice but to finish the work. He was in possession of what he could not fail to keep. o However, if the court had found otherwise, the build would have been entitled to a quantum meruit to compensation him for the value of the work done o In the event, he was compensation only for the value of the materials which he had left on site, which had not been incorporated into the building which the innocent party used to complete the work. Because the innocent party had 5
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