English Law of Contract

Discharge I

September 28th 2007

Research Fellow Herman Bruserud

I. Introduction

• Discharge – Different instances which may discharge a

contract• Performance• Agreement• Realization of condition subsequent• Breach• Frustration

Today

Oct. 12th

II. Generally on Discharge

• What does discharge mean?– Primary obligations

– Secondary obligations

– Distinguishing discharge from void and voidable contracts

Comes to an end

Whether they come to an end depends on what is the basis of discharge

Void: Automatically of no effect

Voidable: Valid until recinded

(if recinded – treated as having no effect from beginning)

Dischage: brings

obligations to end

III. Discharge by Performance

• Both parties obligations are discharged where both parties perform their obligations

• What are the key issues?– The performance carried out must meet the

standard of performance laid down in the contract to discharge

Standard of performance laid down by the contract

Performance actually carried out

– Alt. 1

Performance actually carried

out – Alt. 1

MatchMismatch

Breach of contract Discharge

III. Discharge by Performance (cont.)

– The performance carried out must meet the standard of performance laid down in the contract to discharge (cont.)

• The question thus depends on the determination of the obligations and of their content

– Strict obligations – must achieve a result» Only exception – de minimis rule

– Qualified obligations – no requirement to achieve a result

» Must exercise reasonable skill and care

IV. Discharge by Agreement

• A contract may be discharged by a legally enforceable agreement (contract)

• The special key issue: Consideration– Mutual abandonment – both parties have

remaining obligations to be performed under the contract

Party A Party B

Consideration

Consideration

Obligations owed by A to B

Obligations owed by B to A

IV. Discharge by Agreement (cont.)

• The special key issue: Consideration (cont.)– One party’s obligations are executed – the other

party owes future performance

• Release and replacement– Mutual release and mutual promises may be

sufficient consideration

Party A Party B

Obligations owed by B to A

What will constitutesufficient consideration

for A’s promise?

IV. Discharge by Agreement (cont.)

– One party’s obligations are executed – the other party owes future performance (cont.)

• Accord and satisfaction– Separate agreement supported by new

consideration to discharge a (or several) obligation(s)

– The consideration can however not be a lesser form of what was due under the contract

» The principle in Williams v. Roffey applies only to alteration promises to pay more

• Estoppel or waiver?

V. Discharge by realization of condition subsequent

• A contract may stipulate that obligations will terminate on a certain state of affairs (condition subsequent)– It may be outside or within the control of the

parties– Termination by notice

• Express or implied

VI. Discharge by Breach

• A repudiatory breach by one party may be a basis for discharge of both parties’ future obligations

Party A Party BRepudiatory

breach

Choice

Accept the repudiatory breach as terminating

the contract Affirm the contract

Both parties’ future obligations are discharged

Both parties’ future obligations remain

VI. Discharge by Breach (cont.)

– What constitutes a repudiatory breach?• Dependent on what kind of term which is

breached:

ConditionInnominate

termsWarranty

Classification of terms:

Every breach repudiatory

No breach repudiatory

Whether the breach amounts to a repudiatory

breach depends on the seriousness of the

consequences of the breach

VI. Discharge by Breach (cont.)

– The choice• Treating the repudiatory breach as

terminating the contract– A non-performance by the aggrieved party may

under certain circumstances be sufficient • Affirming the contract

– Must be unequivocal• Loss of the right to accept the repudiatory

breach as terminating the contract– Estoppel– Acceptance of goods in a sale of goods contract

» Where the buyer has accepted the goods sold – expressly, by conduct or lapse of reasonable time

VI. Discharge by Breach (cont.)

• A(n) (breach by) anticipatory repudiation from one party may be a basis for discharge of both parties’ future obligations– Indication from a party in advance of an intention

not to perform or not to perform in accordance with the contract

”A renunciation of the contract by one party, prior to the time for performance is not in itself a breach but it gives the other party, the injured party, the right to treat it as a breach in anticipation and thus to treat the contract as discharges immediately. In other words, if a person says he will not perform, the law allows the other to take him at his word and act accordingly.”(More-Bick J in Yukong Line of Korea v Rendsburg Investment Corporation of Liberia)

VI. Discharge by Breach (cont.)

Party A Party BAnticipatoryrepudiation

Choice

Accept the repudiation as terminating

the contract Affirm the contract

Both parties’ future obligations are discharged

Both parties’ future obligations remain

Choice however subject to limitations

VI. Discharge by Breach (cont.)

– The choice• Limitations

– An element of the distinction as that between conditions and warranties seems to apply

– Limitation on the ability to elect to affirm – “no legitimate interest”

» Exception applies only in extreme cases

”The burden is on the contract-breaker to show that the innocent party has no legitimate interest in performing the contract rather than claiming damages. (…) This burden is not discharged merely by showing that the benefit to the other party is small in comparison to the loss to the contract-breaker.”(Ocean Marine Navigation Ltd v Kock Carbon Inc, The Dynamic)

VI. Discharge by Breach (cont.)

– The choice• Limitations (cont.)

– Limitation on the ability to claim the contract price having affirmed

» The non-breaching party has to be able to continue performance of the contract without the cooperation of the breaching party to be able to claim the contract price – applies only where the performance which has been prevented was a pre-condition to the payment obligation

VI. Discharge by Breach (cont.)

– The choice (cont.)• The same basic principles apply to the choice

between affirmation and accepting termination as where there is a repudiatory breach

– Is the election to affirm irrevocable?GENERALLY:“(…) there is no third choice (…) to affirm the contract and yet be absolved from tendering further performance unless and until [the party in breach] gives reasonable notice that he is once again able and willing to perform.”(Fercometal v Meditterranean Shipping)

VI. Discharge by Breach (cont.)

– Is the election to affirm irrevocable? (cont.)» Where the breach is a continuing breach

– Risks of the non-breaching party after affirmation• Own breach• Frustration of contract before performance is

due

“To require an innocent party, who has by pressing for the contract affirmed it, to wait until there is an actual breach by the party in breach before he can bring the contract to an end might well (…() have required that innocent party to engage in performance that is entirely pointless and wasteful as the party in breach would, when he became under an obligation to accept performance, refuse to do so.” (Stocznia Gdanska SA v Latvian Shipping Co.)

VI. Discharge by Breach (cont.)

– The risk of the choice – over-reacting to a breach (See Poole pp. 331-332)