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Discharge Of A Contract Notes

GDL Law Notes > GDL Contract Law Notes

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CONTRACT LAW DISCHARGE OF A CONTRACT 1

Agreement

Performance

1)

By operation of a term in the original contract (break clauses) Condition precedent Condition subsequent

GR: Entire obligation rule - contractual obligation is discharged by complete performance. There can be no discharge of a contract where the promisor is unable or unwilling to give more than partial performance.

2)

By a subsequent binding contract between the parties Mutual waiver supported by consideration (obligations are wholly executory) Accord and satisfaction (partially performed) Agreement under seal e.g. deed (partially performed) Waiver unsupported by consideration

Mitigations/exceptions: 1) Acceptance of partial performance 2) Substantial performance 3) Divisible obligations 4) Wrongful prevention of performance Defences: 1) Tender of performance 2) Performance by a third party

Breach Where a term of a contract has been breached, the claimant can elect to discharge the contract. Claimant can also sue for anticipatory breach and elect to discharge the contract. Breach of a condition or serious innominate term: 1) Innocent party can elect to terminate or affirm contract; and 2) Innocent party can claim damages Breach of a warranty or innominate term that is not fundamental: 1) Innocent party can only sue for damages.

Discharge by Agreement

1. A contract may be discharged by the operation of a term in a contract - break clauses. This may be in the form of a: Condition precedent (Pym v Cambpell) A condition that must be fulfilled before any rights come into existence. Where a contract comes into existence subject to the occurrence of a specific event, the contract is to be suspended until the condition is satisfied. Where a condition precedent is not satisfied, there is no true discharge because the rights and obligations never came into existence. Condition subsequent (Head v Tattersall) A term providing for the discharge of outstanding obligations in the event of a specified occurrence. A condition subsequent allows one or both parties to end the contract before complete performance.

2. A contract can be discharged by the creation of a subsequent binding contract. This can be done by: Mutual waiver supported by consideration: (The Hannah Blumenthal) If both parties have obligations which remain unperformed (wholly executory), they can agree to a new contract which waives their rights under the old contract in consideration from being released from their obligations - MUST have consideration for new contract. Accord and satisfaction: (Pinnel's Case; Foakes v Beer) If A has performed his obligations but something still remains to be done by B, A may agree to release B of his obligation by a subsequent agreement under seal e.g. a deed. Alternatively A may agree to accept something different in place of the former obligation. Accord = subsequent agreement. Where A only agrees to accept something different because B has threatened that he will otherwise get nothing, then no true accord and therefore the original obligation is not discharged. (D&C Builders v Rees) Satisfaction = new consideration (sufficient, not adequate). There must be new consideration given, otherwise no satisfaction = no new agreement = no discharge of previous agreement. Equitable waiver unsupported by consideration: (Birmingham and District Land v London & North Western Railway; Brikom Investments v Carr) Contract may be discharged in equity law where the conduct of one party induces the other to believe that they will not enforce their rights/waive their rights for a specified period of time.

DISCHARGE BY AGREEMENT RULE

A contract can be discharged by the operation of terms in the contract.?

If the event specified in a condition precedent does not occur, the rights and obligations of the parties do not come into existence - contract does not come into being.

A condition subsequent allows for the discharge of contractual obligations in the occurrence of a specified event.

CASE

PYM V CAMPBELL D agreed to buy patent of a machine invented by C if engineers approved it after inspection. Engineers did not approve so D refused to buy. C sued. HELD: The condition precedent was that the engineers should approve the machine - since this event did not occur, the rights and obligations of the parties as per the contract did not come into existence therefore D was not in breach of contract.

HEAD V TATTERSALL Sale of a horse - part of the description was that the horse had been hunting with the Bister Hounds. Seller said to buyer if description of horse turns out to be incorrect, he could return the horse within a week (break clause). Buyer was informed that the horse had never been hunting with the Bister Hounds, but bought it anyway. A few days later, the horse was involved in an accident which left it with a limp - buyer took it back to seller and demanded a refund since the horse had never been hunting with Bister Hounds - made use of the break clause. Seller said no, the horse has been injured. HELD: Courts held that, by including the break clause, the seller had taken the risk of the horse being injured in the interim period. Buyer was able to return the horse in the damaged condition and bring the contract to an end using the break clause.

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