| Introduction | | | | wrongly treats the contract as repudiated by the |
| A contract is usually discharged when both parties | | | | party in breach, and purports to terminate the |
| have performed all of their obligations under the | | | | contract. This is repudiation of the contract by the |
| agreement and thus both parties have fulfilled | | | | innocent party for non-repudiatory breach and is a |
| what they promised to do at the very outset of | | | | breach of contract in its own right, entitling the |
| the contract. There is a distinction to be drawn | | | | other party to treat the contract as discharged. |
| between the discharge of a valid contract and the | | | | This was demonstrated in the case of Federal |
| ways in which invalid contracts come to and end. | | | | Commerce and Navigation v Molena Alpha (1979) |
| This article assumes that a commercial contract | | | | where the owners of a ship wrongly believed |
| has been properly formed and one of the parties | | | | they were entitled to repudiate the contract. The |
| wishes to terminate the contractual relationship. | | | | court held that the repudiation was wrongful and |
| Bring a Contract to an End | | | | therefore the other party could treat the |
| There are four ways in which a contract may be | | | | contract as discharged. |
| discharged. | | | | Where a contract is treated as discharged, the |
| 1. Discharge by performance | | | | performance obligations under that contract are |
| Discharge by performance is where both parties | | | | discharged at the date of termination. However, |
| to a contract have performed all their primary | | | | performance of secondary obligations, namely the |
| obligations under the contract, including all express | | | | obligation to pay damages for any losses caused |
| and implied terms. There are three elements | | | | to the innocent party, are not discharged and |
| required to be satisfied to say, at law, that | | | | continue in force. |
| performance is complete. | | | | Anticipatory Breach |
| Each of the parties is required to perform their | | | | An anticipatory breach of contract may be either |
| obligations under the contract with perfect | | | | explicit or implicit. Such takes place where one |
| precision. Any deviation from the contractual | | | | party expresses an intention by either not |
| obligations will amount to a breach of contract. In | | | | performing their obligations under the contract or |
| the case of Bolton v Mahadeva (1972), it was | | | | performing them in a way in which is inconsistent |
| held that a contractor could not claim payment | | | | with the original contractual terms. In these |
| for a central heating system which did not work | | | | circumstances there are a number of options |
| properly as it did not fulfil the primary obligation of | | | | available to the innocent party. They may sue for |
| heating the house. On the other hand, sometimes | | | | damages as soon as the anticipatory repudiation |
| performance is not strict and the obligation is not | | | | occurs, there do not need to wait for the date of |
| to achieve a specific result, but merely to | | | | performance. |
| exercise reasonable care and skill. | | | | The innocent party also has the option of either |
| Where a contract requires strict performance | | | | accepting the repudiation by the other party, |
| there are circumstances in which the law will allow | | | | thereby terminating the contract, or affirming the |
| payment for part performance of a contract or | | | | contract by performing their obligations under it. In |
| incomplete contracts on a quantum meruit basis | | | | the case of White and Carter Limited v McGregor |
| which enables the party performing to get paid | | | | (1962), the defendants cancelled the contract, but |
| fair and reasonable remuneration for their work | | | | the claimants refused to accept the termination |
| where: | | | | and continued with performance under the |
| (i) the contractual obligations are divisible, payment | | | | contract, later suing the defendants for the full |
| can be recovered for the obligations completed. | | | | contract price. It was held that the claimants |
| (ii) partial performance has been accepted by the | | | | were entitled to do this. |
| other party. | | | | The option of accepting the repudiation or |
| (iii) the other party prevents complete | | | | terminating the contract is not available where the |
| performance by a party ready willing and able to | | | | innocent party requires the cooperation of the |
| perform. | | | | other party to perform the contract or if they |
| (iv) a substantial part of the contract has been | | | | have no real interest at all in performance of the |
| completed. | | | | contract. |
| Tender of performance takes place when a party | | | | 4. Discharge by frustration |
| attempts to perform their primary obligations | | | | Discharge by frustration occurs where it is |
| under the contract and is prevented from doing | | | | impossible to perform the obligations under a |
| so by the other party. It is this that discharges | | | | contract due to a subsequent change in |
| the parties' obligations. Where a party tenders | | | | circumstances. It is the nature of the obligations |
| performance which is refused by the other party, | | | | which must have changed. |
| they may sue for breach of contract. Where a | | | | The modern test for frustration is outlined in the |
| party tenders payment, the obligation to tender | | | | case of National Carriers v Panalpina (1981). |
| payment is discharged, but the debt itself is not, | | | | Frustration occurs when " .. there supervenes an |
| so even if payment is rejected, the party is still | | | | event (without default of either party and for |
| obliged to pay. | | | | which the contract makes no sufficient provision) |
| 2. Discharge by agreement | | | | which so significantly changes the nature (not |
| A contract may be discharged by agreement in | | | | merely the expense or onerousness) of the |
| various situations: | | | | outstanding contractual rights and / or obligations |
| Where both parties consent, the mutual obligations | | | | from what the parties could reasonably have |
| to perform contractual obligations will come to an | | | | contemplated at the time of its execution that it |
| end. Where a contract is discharged in this way, | | | | would be unjust to hold them to the literal sense |
| as with any contract, the agreement must be | | | | of its stipulation in the new circumstances." |
| supported by consideration be legally binding. | | | | Frustration may occur in a number of situations: |
| Where both parties have performance obligations | | | | |
| outstanding under a contract, an agreement | | | | 1. Where the subject matter of the contract has |
| between the parties to discharge those obligations | | | | been destroyed, or it is unavailable and was |
| will be enough to satisfy the requirement for | | | | intended by both parties to be the subject |
| consideration, making it legally binding. | | | | matter. In the case of Taylor v Caldwell(1863), a |
| However, where one party still has performance | | | | contract to hire a music hall was frustrated when |
| obligations under the contract, for the agreement | | | | the hall was destroyed by a fire. |
| to be legally binding there must be either: | | | | 2. Where a party to the contract, who is |
| (i) A deed releasing the other party from their | | | | considered important, dies or is incapacitated |
| obligations; or | | | | somehow. |
| (ii) A separate agreement supported by new | | | | 3. Where the contract has become illegal to |
| consideration ('accord and satisfaction'); or | | | | perform due to a change in the law or the out |
| (iii) The Doctrine of Promisory Estoppel must | | | | break of war. |
| apply, that is to say where a promise is made, | | | | 4. The commercial purpose of the contract has |
| intended to be binding and acted upon, the court | | | | failed, which includes failure of an event which the |
| will uphold the promise. | | | | contract was based upon, and where there has |
| It is always open to parties to agree to variations | | | | been government interference or delay. |
| of a their contractuals arrangements. This is put in | | | | The Doctrine of Frustration will not apply when:a. |
| place by executing a new agreement which | | | | simply because an inconvenience has been caused, |
| supplements the first (rather than entirely | | | | there has been an increase in expense or loss of |
| replacing it). In some circumstances, the original | | | | profit. In Davis Contractors Limited v Fareham |
| contract may be discharged in its entirety and | | | | UDC (1956), it was agreed that a council estate |
| replaced with a completely new contract. In either | | | | would be built at a fixed price, but due to bad |
| of these circumstances though, the existence of | | | | whether, strikes and shortages there were delays |
| a separate agreement must be proved. | | | | and the estate was built at a loss. However, it |
| Accordingly, it should be in writing. | | | | was held that the contract was not frustrated.b. |
| A contract may be discharged by a condition | | | | the contract contains an express provision (force |
| subsequent which is a stipulation of a state of | | | | majeure clause), dealing with such eventualities.c. |
| affairs which causes existing contractual | | | | frustration is self-induced and one of the parties |
| obligations to come to an end. The state of | | | | had a choice regarding performance.d. the event |
| affairs does not necessarily have to be out of the | | | | was reasonably foreseeable by either party as at |
| control of the parties. | | | | the date of the agreement. |
| 3. Discharge by breach | | | | Conclusions |
| When a breach of contract takes place, it does | | | | We have set out the fundamental ways and |
| not automatically discharge a contract. If the | | | | means by which a contract may be brought to an |
| breach amounts to a breach of a condition of the | | | | end. Professionally drawn contracts may contain |
| contract, the innocent party has the option of | | | | other means by which the contract may be |
| either accepting the breach, terminating the | | | | brought to an end without suffering loss, such |
| contract (which has the effect of discharging the | | | | removing any rights to damages or recovery for |
| parties from any further obligations under the | | | | loss, providing for termination for convenience of |
| contract) and suing for damages; alternately | | | | a party, warranties that presuppose a state of |
| simply sue for damages caused by the loss | | | | affairs as at the time of the contract that has |
| caused by the breach, this allowing the contract | | | | not eventuated. Moreover, damages claims may |
| to continue in force. Where the failure to perform | | | | be limited to specified sums or avoided in their |
| amounts to a breach of warranty, the innocent | | | | entirety provided the innocent party does not |
| party is not entitled to terminate the contract, but | | | | fulfill their duty to mitigate their loss in the |
| simply sue for damages. | | | | circumstances. |
| There are situations in which the innocent party | | | | |