Discharge of contract A contract may come to

Discharge of contract A contract may come to an end by virtue of: i. performance ii. agreement iii. breach or iv. Operation of law, especially frustration

Performance Most contracts come to an end by the very fact that both sides have performed what they agreed to perform – though performance must be precisely in accordance with the terms of the contract, both express terms and implied terms. It is only the minority of contracts where something goes wrong.

‘Entire’ and ‘severable’ obligations Most CONSUMER CONTRACTS give rise to an ‘entire’ obligation on the business person to perform his side of the contract, usually, though not always, for a lump sum payment at the end. Thus, unless the entire contract is performed, the consumer does not have to pay anything. This is based on the case of Cutter v Powell 1795.

There are 2 ways in which the harshness of the Cutter v Powell rule may be mitigated First, where the innocent party [the consumer] has a CHOICE to accept the work done and does so - see Sumpter v Hedges 1898 and Bolton v Mahadeva 1972

The second way to avoid the rule in Cutter v Powell Where the party in breach of a contract regarded as an entire obligation contract is only ‘slightly’ in breach - see Hoenig v Isaacs 1952

Severable obligations Regent OHG Aisestadt v Francesco of Jermyn Street Ltd 1981.

Agreement Although the parties could just agree to end the original contract with no further agreement, this could be risky if one party then alleges that the other has not performed the original contract. Thus, it is prudent to end a contract by agreement by the creation of a second legally binding agreement to this effect.

Breach of contract A breach of contract occurs where one side: • fails to perform his obligation under a contract • refuses to perform his obligations under the contract or where one side • performs his contractual obligations defectively

Breach of a condition Where a condition is breached (because the term goes to the root of the contract) the breach is said to be REPUDIATORY. This entitles the innocent party to either: • Terminate the contract or • Affirm it.

Breach of warranty or innominate term • Where a warranty is breached (because the term is not as essential to the contract) the breach is not repudiatory and so the innocent party can only claim damages • Where an innominate terms is breached if the effect of the breach is serious then the breach is said to be repudiatory and the innocent party can elect to terminate or affirm the contract and claim damages. If the effect of the breach is less serious, it is not repudiatory, and the innocent party can only claim damages

Terms relating to ‘time’ For ‘commercial’ contracts, it is generally accepted that stipulations as to time of performance are regarded as very important, as conditions, and breach of a time stipulation is regarded as a repudiatory breach. In ‘non-commercial’ contracts a time term is not normally regarded as a condition unless it is expressly stated to be such by the parties.

Anticipatory breach Hochster v De La Tour 1853.

Photo Production Ltd v Securicor Transport Ltd 1980 The question as to whether Securicor was responsible for the fire arose because on the Sunday night when the fire occurred, the duty employee of Securicor, Musgrove, deliberately started a fire by throwing a match onto some cartons. The fire got out of control and a large part of the Photo Production factory was burnt down. Though what he did was deliberate, it was not established that he intended to destroy the factory.

The House of Lords allowed the appeal by Securicor There was no rule of law by which an exception clause in a contract could be eliminated from a consideration of the parties' position when there was a breach of contract (whether fundamental or not) or by which an exception clause could be deprived of effect regardless of the terms of the contract

Second finding of the House of Lords That, although the defendants were in breach of their implied obligation to operate their service with due and proper regard to the safety and security of the plaintiffs' premises, the exception clause was clear and unambiguous and protected the defendants from liability.

Third point held The third point held was that in commercial matters generally, when the parties are not of unequal bargaining power and when the risks are normally borne by insurance, the parties should be left free to apportion the risks as they think fit.

Fourth point held The Securicor employee had not acted negligently but deliberately. Had he acted negligently then Securicor’s exemption clause would have made them liable because, by express words, they had agreed that the exemption clause would ‘not’ protect them against negligent acts of their employees. Because the words in the exemption clause made no reference to deliberate acts, the exemption clause protected Securicor from liability for the fire.

Lord Wilbeforce ‘These words [in the exclusion clause] have to be approached with the aid of the cardinal rules of construction that they must be read contra proferentum and that in order to escape from the consequences of one’s own wrongdoing, or that of one’s servant, clear words are necessary. I think these words are clear. ’

Lord Diplock ‘Breaches of primary obligations give rise to substituted or secondary obligations on the part of the party in default, and, in some cases, may entitle the other party to be relieved from further performance of his own primary obligations. ’

Discharge by ‘operation of law’. The contract may be discharged as a result of • a ‘merger’, • by a ‘judgment of the court’, • by ‘alteration or cancellation of a written instrument’, • by ‘bankruptcy’ or • by ‘frustration’.