under what exception a contract can be discharged even if all the obligations arising from it have not been fully and exactly
performed according to the contract?
(i) partial performance; (ii) substantial performance;
(iii) prevention of performance; (iv) tender of
performance; and (v) time of performance.
time in a contract
If the contract mentions a specific date it is considered as a condition.
=> Therefore its breach can lead to a possibility to end the contract and to claim damages for the innocent party.
If the party has accepted the delivery (ie) law considers that the party has accepted the breach and cannot terminate the contract anymore.
Agreement to end the contract
A contract can be terminated if the parties agree to release each other from their obligations;
▪ In this case, or if they mutually treat the contracts as being terminated, they renounce
to any rights arising from these contracts;
▪ In general, consideration is required to enforce
the agreement to discharge a contract.
frustration
When an unexpected event happens after the contract is made that makes it impossible or very different to perform, so the contract automatically ends and neither party has to pay damages for not performing.
Consequence
when a contract is frustrated, it automatically ends at the moment of the frustrating event, and the parties do not have to perform any future obligations, but what was already done before remains valid.
responsibility of a party
The party who breaches a contract is responsible for the damages caused to the innocent party, unless the failure was due to a supervening event which makes performance
impossible/illegal/radically different, and there was no different allocation of risk between the parties.
When does frustration is applied?
If a substantial part of the contract can still be performed, then there is no frustration.
A contract is frustrated only when the situation becomes fundamentally different from what the parties agreed.
The doctrine aims to reach a “just and reasonable result.”
helpful to better understand when frustration occur or not
Yes frustration: Destruction of the subject matter;
▪ Personal incapacity to perform a contract of
personal services
▪ Government intervention or supervening
illegality
▪ Non-occurrence of an event that was the
sole purpose of the contract
▪ Interruption that prevents performance
No frustration: Alternative performance is still possible
▪ Performance has become more expensive
▪ One party has accepted/assumed the risk
they will be unable to perform
▪ One party has induced/caused frustration by
reason of their own choices
How does court decides if frustration occurs
Multi factorial approach, looks at:
- the terms of the contract
- the context
- the parties’ expectations
- the nature of the unexpected event
- whether performance is still possible.
A force majeure clause
is a contract clause that excuses a party from liability when an unexpected event (e.g. war, strike, flood) prevents performance. It is usually expressly written in the contract.
Law Reform (Frustrated Contract)
Act (1943)
The Act does not decide if frustration exists.
It only explains what happens to the money and benefits after frustration:
- money paid can be recovered,
- money due does not need to be paid,
- expenses may be deducted,
- payment may be required for benefits already received.
breach of contract
A party without lawful excuse fails or refuses to
perform under a contract;
A party performs defectively or incapacitates
themselves from performing.
types of breach of contract
Repudiatory: serious breach during performance
Anticipatory: serious breach before performance is due
Specific Performance
Equitable remedy:
▪ order to the defaulting parties to perform as
agreed under the contract;
▪ only available for certain contracts and at the
discretion of the court.
Requirements:
1. damages do not appear sufficient to compensate
the innocent party;
2. it is fair and reasonable in all the circumstances to award the remedy of specific performance.
Specific Performance - Rejected
▪ Specific performance would cause severe
hardship on the non-performing party;
▪ The petitioning party is NOT coming with clean
hands;
▪ The contract for which specific performance is
required is a contract for personal services;
▪ Specific performance would require the constant
or prolonged supervision of the court.
Injunctions
▪ Equitable remedy:
▪ order to the defaulting parties to refrain from
performing, or to perform, a particular act:
▪ prohibitory
▪ mandatory
▪ Differences with specific performance:
1. PROHIBITORY nature (don’t do something);
2. when MANDATORY, it is NOT the enforcement of the CONTRACT.
Damages
▪ Purpose:
▪ give effect to what was voluntarily undertaken by the parties;
▪ put the parties in the position as if the contract had been performed.
▪ Other key aspects:
1. usually assessed at the time of breach, but there is flexibility;
2. damages cannot be recovered if too remote or one of the parties failed to mitigate the loss;
3. penalties and clauses for the determination of damages are valid if reasonable.
Quantum of Damages
Expetation Loss
- Put the claimant in the position as if the promise had been kept
- Looking forward
- What loss does the claimant have because his expectations are not fulfilled?
Reliance Loss
-Put the claimant in the position as if the promise has never been made
-Looking backwards
-What cost did the claimant have because he relied on the promise?
Duty to mitigate
▪ A claimant has the duty to take all reasonable steps to mitigate or reduce their loss
▪ Where the claimant has neglected to take such steps, they may be prevented from claiming any or a substantial portion of damages:
▪ duty to mitigate = commercial fairness
▪ Whether the loss is avoidable is a question of fact
Other types of damages
▪ Distress, Inconvenience and disappointment
▪ Upset/anxiety
* Discomfort
* Mental Distress
Penalty clauses
▪ Clause in a contract which states that, if a party breaches an obligation, they must pay a pre-agreed amount of money (“penalty”).
▪ Key aspects:
1. Only enforceable if amount is a genuine preestimate of the loss from breach of contract;
2. Must NOT be extravagant, unconscionable;
3. MUST be transparent, based on reasonable criteria, and there must be clear evidence as to how the amount is calculated.
