DISCHARGE OF A CONTRACT & REMEDIES FOR
BREACH OF CONTRACT
Objectives:
1.
Discharge of a Contract.
2.
Remedies for Breach of Contract.
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Discharge of a Contract
1.
When a contract is discharged, the parties to the
agreement are freed from their contractual
obligations.
2.
A contract can be discharged by:
i.
Agreement.
ii. Performance.
iii. Frustration.
iv. Breach.
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3.
Discharge by Agreement
i. A contact is made by agreement so can be
ended by agreement.
ii. Discharge by agreement is usually provided for
in the contract via a term allowing for
discharge by the:
i.
ii.
iii.
passage of a fixed period of time.
occurrence of a particular event.
parties giving notice of their intention to
discharge.
 Where there is no such provision, another
contract would be required to discharge the
parties from their original obligations.
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Discharge by Performance
4.
i.
This occurs where the parties perform their
obligations under the contract (most
common method).
ii.
Generally, discharge by performance
requires COMPLETE and EXACT performance
by the parties of ALL their contractual
obligations.
iii. Cutter v Powell [1795] For the injustice the
application of this general rule can cause.
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iv. Complete and exact performance may not be
necessary if any one of the following can be
proved:
i.
The contact is divisible – Taylor v Webb
[1937]
ii.
The contract is capable of being fulfilled by
substantial performance – Hoenig v Isaacs
[1952].
iii.
Performance has been prevented by the
other party.
iv.
Partial performance has been accepted by
the other party.
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5. Discharge by Frustration
i.
This occurs where it is impossible for the
parties to perform their contractual obligations.
ii. A contract will be discharged by reason of
frustration in the following circumstances:
i.
Destruction of contractual subject matter has
occurred. Taylor v Caldwell [1863].
ii.
Government interference, or supervening
illegality prevents performance. Re
Shipton, Anderson & Co [1915].
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iii. A particular event, which was the sole
reason for the contract, fails to take
place. Krell v Henry [1903] but note
Herne Bay Steamboat Co v Hutton
[1903].
iv. The commercial purpose of the contract
no longer exists. Jackson v Union
Marine Insurance Co [1874].
v. One of the parties dies or becomes
otherwise incapacitated. Condor v
Barron Knights [1966]
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iii.
However a contract will NOT be discharged
by reason of frustration in the following
circumstances:
i.
The parties have made express provision
in the contract for the event which has
occurred.
ii. The frustrating event was self-induced i.e.
could have been avoided. Maritime
National Fish Ltd v Ocean Trawlers Ltd
[1935].
iii. An alternative method of performance is
still possible.
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iv. The contract simply becomes more expensive
to perform i.e. cannot use frustration to
escape from a bad bargain. Davis Contractors
v Fareham UDC [1956].
iv.
Effect of Frustration
i.
Law Reform (Frustrated Contracts) Act 1943.
The position is as follows in relation to a
contract discharged by reason of frustration:
i.
Any money paid is recoverable.
ii.
Any money due to be paid ceases to be
payable.
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iii.
The courts may allow the parties to:
i. Cover expenses incurred from any money
received; or
ii. Recover those expenses from money due to
be paid before the frustrating event.
Expenses cannot be retained or recovered if
no money was paid or due to be paid before
the frustrating event.
ii. Law Reform (Frustrated Contracts) Act 1943
does NOT apply to contracts:
i.
ii.
For the carriage of goods by sea.
Of insurance and / or perishable goods.
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6.
Discharge by Breach
i. One of the parties fails to comply with
its contractual obligations. Breach of
contract may occur in three ways:
i.
Prior to performing contractual
obligations, one of the parties states
that it will not perform its
obligations.
ii.
One of the parties fails to perform
obligations.
iii.
One of the parties performs its
contractual obligations defectively.
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ii. Effect of Breach
i. All three types of breaches will allow innocent
party to sue for damages.
ii.
In the following instances, in addition to
damages, the innocent party would also be able
to treat the contract as discharged and
therefore refuse either to (i) perform their part
of the contract or (ii) accept further
performance from the party in breach:
i. Where the other party has repudiated the
contract before performance is due or fully
complete;
ii. Where the other party has committed a
fundamental breach of contract.
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iii.
Anticipatory Breach
i.
Arises when one of the parties, prior to the
actual date of performance, demonstrates an
intention not to perform their contractual
obligations.
ii. Intention can be demonstrated expressly or
impliedly:
i.
Expressly – One of the parties actually
states that they will not perform their
contractual obligations.
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ii. Impliedly – One of the parties carries
out some act which makes
performance impossible.
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Remedies for Breach of Contract
1.
Main remedies are:
i. Damages.
ii. Quantum Meruit.
iii. Specific Performance.
iv. Injunction.
2.
Damages
i. Amounts to monetary compensation.
Lord Diplock in Photo Productions Ltd
v Securicor Transport Ltd [1980].
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ii. Two tests used to determine a claim for
damages:
i. Remoteness of damage.
ii. Measure of damages.
iii. Remoteness of Damages
i.
Damages will only be awarded in respect
of losses which:
i. Are the natural consequence of any
breach; or which
ii. Both parties would reasonably have
contemplated when the contract was
made as a probable result of any
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ii. Hadley v Baxendale [1854].
iii. Victoria Laundry Ltd v Newham
Industries Ltd [1949].
iv.
Measure of Damages
i. Aim is to put injured party in the same
position they would have been in, had
the contract been properly performed.
ii. So amount of damages awarded can
never be greater than actual loss
suffered. Aim is not to punish party in
breach.
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iii. Value of damages decided upon by reference
to following principles:
i.
Market Rule.
i. Damages will be valued at market price
of goods in question.
ii.
Duty to Mitigate/Minimise Losses.
i. Injured party under a duty to take all
reasonable steps to minimise its loss.
Pilkington v Wood [1953]
iii.
Non-Pecuniary Loss.
i. Non-financial loss can be recovered.
Jarvis v Swan Tours Ltd [1973].
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v. Liquidated Damages and Penalties
i. Liquidated Damages
i. Where parties incorporate provision(s) in
contract agreeing the amount of damages
that will be paid in the event of any breach.
ii. Only enforced by courts if damages agreed
upon represent a genuine pre-estimate of
loss.
ii. Penalties
i. If courts adjudge damages do NOT
represent a genuine pre-estimate but
instead a penalty against the party in
breach, courts will ignore agreed provision
and award damages normally.
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3.
Quantum Meruit
i.
A party may occasionally claim for payment on
a quantum meruit basis, i.e. for work done,
paying the amount that is deserved.
ii. Can only be claimed in the following
circumstances:
i. If the other prevented completion of the
contract.
ii. If work has been done and accepted under a
void or partially performed contract.
iii. If the contract did not expressly provide
what the remuneration should be.
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4.
Specific Performance
i. Party in breach instructed to complete
their part of the contract, providing
following rules adhered to:
Only granted where damages
inadequate.
ii. Will not be granted if courts cannot
supervise enforcement.
iii. Specific performance an equitable
discretionary remedy, so will not be
granted for instance where plaintiff
acted improperly.
Injunction
i. Court order directing a party not to
break its contractual obligations.
i.
5.
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6.
Time Limits on Remedies
i. Limitation Act 1980.
ii. A simple contract (i.e. not made by
deed) cannot be sued upon after six
years have expired from date of breach.
(S.5)
iii. Three years if claim for personal injury.
iv. These limits do not apply to the
equitable remedies of injunction and
specific performance. These remedies
lost more quickly through concept of
“unreasonable delay.”
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