In the coming months we will be publishing a series of 'module reviews', providing a brief outline of our first-year modules at Newcastle University to help students get a basic understanding of each topic. In the month of October, we will be looking at contract law, which is one of the seven required modules to obtain a qualifying law degree.
In this final review, we will be looking at how contracts may be discharged and the possible remedies available. Within this there is a strong focus on case law so some cases will also be explained to help describe some more complicated principles, if not explained there will be links to an explanation from another source.
DISCLAIMER: all information in these module reviews are taken from our own notes and research so please do not cite this in your work.
DISCHARGE OF CONTRACT
There a four ways a contract may be discharged: through performance, agreement, frustration or breach.
Performance
Under performance, contracts will be discharged when both parties have fulfilled all their obligations, following the 'entire performance rule' which necessitates performance matches exactly what the contract laid out. For instance in Cutter v Powell (1975), C agreed to serve on a ship from Jamaica to Liverpool for 30 guineas but he died two weeks before the end of the journey so his widow couldn't sue for his wages as he didn't perform the entire contract.
There are some exceptions to this rule however, such as in contracts where payment is due at various stages of performance, when performance is prevented by the other party or if partial performance is voluntarily accepted. Furthermore, substantial performance of a contract will allow any money owed to be collected minus any amount that must be spent by the other party as a result of incomplete performance, for instance in Hoenig v Isaacs (1952).
Agreement
In some cases, parties may simply agree to terminate their contract so one or both parties benefit, dependant on if it is a unilateral or bilateral contract.
Frustration
Under frustration, a contract may be discharged when an unforeseen event occurs after the formation of the contract which renders it physically or legally impossible to fulfil or changes the performances into something radically different than was agreed. Under the doctrine of absolute contracts, this does not apply to contracts that have simply become harder as responsibilities are regarded as absolute and subsequent events cannot justify non-performance unless it is physically impossible.
Impossibility would likely be due to the destruction/unavailability of something fundamental to the contract's performance, for instance in Taylor v Caldwell (1863), the building they were contracted to perform in burnt down days before through not fault of either party so the contract was frustrated. Additionally, if contracts require personal performance, they may be frustrated under impossibility if the party falls ill or is imprisoned, provided this substantially affects the performance. Furthermore contracts that lay down a particular method of performance can be frustrated if this becomes impossible. In addition to impossibility, if a contract performance becomes illegal after it was performed due to a change in the law then this may be frustrated.
Frustration is limited however by a number of factors:
Timing - the frustrating event must occur after the contract was made
There are provisions for such an event in the contract (force majeure clauses)
The event only makes the contract more onerous
The event was foreseen/foreseeable
The event was the fault of one of the parties
Frustration will terminate a contract from the point the frustrating event occured and consequential matters are regulated by the Law Reform (Frustrated Contracts) Act 1943.
Breach
There are two types of breach which may discharge a contract: actual breach, where one parties performs defectively or not at all, and anticipatory breach, where one party indicates in advance they will not be performing as agreed. Either breach will allow the innocent party to sue for damages but not all will allow them to discharge the contract. If a condition is breached, the contract can be substantially failed so the innocent party may claim damages and discharge the contract, whereas if a warranty is breached, damages can be claimed for any loss but the contract must continue. In the case of late performance, a contract may only be terminated if the delay leads to a substantial failure to perform or the time was 'of the essence.
REMEDIES
Damages
Damages are the most commonly sought remedy and aim to put the claimant into the same position as if the contract had been performed. For instance where a contract is breached a party may suffer financial pecuniary loss so damages would compensate the party for their losses that result from not receiving the performance bargained for.
Hadley v Baxendale (1854) laid out that parties can recover damages for 'loss which would arise naturally according to the usual course of things' or 'loss as may reasonably be supposed to have been in the contemplation of the parties at the time when they made the contract as the probable result of the breach of it'. These losses may be calculated in two main ways: expectation loss, where the courts put the claimants in the position they would have been if the contract had been performed (most common), or reliance loss, where damages put the claimants in the position they were in before the contract was made.
Equitable Remedies
Equitable remedies will be used when damages are inadequate. The most common of these are specific performance, in which a party is forced to carry out their contractual obligations, and injunctions, which generally orders the defendant not to do a particular thing. There are also common law remedies which may be applied instead of damages which are mentioned below.
Restitution - restitution is the chosen remedy when there has been unjust enrichment or a contract is rendered void (e.g. due to mistake or illegality).
Action on a Quantum Meruit - quantum meruit means a party should be awarded a sum representing 'as much as he has earned' (or a reasonable amount for his performance), for instance if someone agrees to write a book for £100 but don't finish it they may be able to claim some money for the work they have done.
Action for an Agreed Sum - a party may sue for non-payment of the price agreed in the contract rather than damages, usually only if he has completed his own obligations under the contract however.
I hope you have found this contract mini-series helpful however if you have any questions please feel free to get in touch either through our website or any of our socials! Keep an eye out for next months modules reviews which will look at land law, another required module for a qualifying law degree.
Comments