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Discharge of Contract and Case Study
Discharge of Contract and Case Study
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This assignment consists of two parts. One part of the assignment is about a case study of Arun and Prakash V Beach Hotel. The case study mainly shows
that Arun took the benefit of his age by not paying expenses of the hotel. The case study refers to the concept i.e. Capacity to contract. This part of the
assignment will show Arun and Prakash capacity to the contract and rules under which the hotel has to recover its losses itself and also appropriate case
laws will be given to understand it perfectly.
Second part of assignment comprises discharge of contract. In this part of the assignment I m going to elaborate on the four ways of contract that
results in its discharge in which the most important way to discharge a contract is by breach of contract.
CAPACITY TO CONTRACT:
The law protects some vulnerable classes of person by limiting the types of contract which fully bind them.
Case refers to the term Capacity to contract. According to the case Arun is under age and is incompetent
to contract, so capacity of contract says:
A valid contract may be made by any person recognised by law as having legal personality, that is:
Natural persons:
In general, anybody over the age of 18, who, at the time, is sober and mentally unimpaired, is capable of contracting.
Companies:
It is now generally possible to sue the Crown as of right for breach of contract.
Contract between the hotel and two friends is invalid as Arun is below 18 and does not mention his age.
INCOMPETANT TO CONTRACT:
The following classes of persons in law are incompetent to contract, or are only capable of contracting to a limited extent or in a particular manner:
Insolvent companies
Minors
Alien enemies
Companies
Partnerships
Receivers of companies
Provision
Drunkards
According to the case study, Arun who booked the hotel is 16 years old which means that Arun comes
under Minor capacity to contract.
MINOR:
A person under the age of 18years (s1 Family Reform Act 1969). He becomes adult at the beginning of his 18th birthday i.e. at one minute past midnight.
Most contract with a minor are voidable at his option. This is to say, a minor –but not the other party –has the right not to be bound by the contract.
A ‘voidable contract’ is one which is initially valid, but where one or more of the parties (i.e. minor) has a right of election to avoid or to continue and so
validate it. Unless and until a right of avoidance is exercised, a voidable contract remains valid; but, whilst the right of avoidance remains, it may be
exercised whether the contract is executory or executed.
He did not understand the general nature of what he was doing, and
Case study illustrates that Prakash is a drunker. He does not state this fact to the hotel and agreed with
his minor friend Arun to stay in the hotel for two days.
According to the rule, the contract is void as Prakash does not prove his impairment to the other party
before his friend booked the hotel. The following case law will describe it clearly.
Hart v O’Connor [1985] 1 AC 1000:
Facts: Place Order
Vendor sold trust property (a farm) to Hart. Vendor was 83 and of unsound mind, but Hart did not know this and was fair in his negotiations with
Vendor’s solicitors. Hart occupied and improved the land. When one of the Vendor’s brothers (O’Connor) took over as trustee of the estate he sought
to set aside the contract, according to the ‘Australian contract law’.
Held:
The Court noted that if a person lacking mental capacity subsequently regains capacity (even temporarily) they may ratify a contract entered into when
insane.
The Privy Council said in relation to above case Hart v. O’Connor (1985) that an insane person who appears sane can rely on the independent and
separate ground of unconscionability which relieves abnormal mental weakness even short of incapacity.
Contracts to purchase necessaries are capable of binding a minor. According to the s 3 of the Sale of Goods Act 1979, ‘Necessaries’ are defined as ‘goods
suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery’.
Necessaries are those things a person immediately needs, such as food; drink; clothing; accommodation; medicines. Necessaries are not confined to
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those things which are absolutely required to keep him alive but they extend to all such things as are reasonably necessary for him in the station in life to
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which he belongs. They exclude luxuries, and also a surplus of- necessary items; e.g. a contract to buy two shirts would, probably, be binding but one for
a dozen would not be.
The claimant supplied clothing to the defendant minor, a Cambridge undergraduate. The clothing included 11 fancy waistcoats.
Held:
As the defendant was already amply supplied with clothing appropriate to his station in life the clothing purchased could not amount to necessaries and
the action must fail.
(Adams, 2008:163)
So, there is a clear advice for Beach Hotel that they could not sue Arun and Prakash because hotel did not establish that the bills were necessaries.
In this case Arun has an advantage of minor age as he hides his age from the hotel during paying deposit. On the other hand, Prakash also enjoys the
benefits by hiding his habit of drinking. Therefore, Beach Hotel has to recover its losses itself despite the fact that Arun and Prakash have enough money
to cover all debts and the hotel does not have a right according to the law to enforce Arun and Prakash to pay.
CONCLUSION:
I have concluded that before signing a contract both parties must understand each and every term of the contract. If the contract is between two parties,
then both parties should be aware of the concept ‘Capacity to Contract’ in order to avoid loss in the future. Like in Beach Hotel v Arun and Prakash case
where the hotel was not aware of the fact that Arun was underage and Praksah was a drunker and recover their losses itself. Therefore, it is better to look
at the capacity of the person to contract before entering into it.
Discharge of Contract
Contents:
Discharge of contract
Conclusion
Bibliography
DISCHARGE OF CONTRACT:
Turner, (2001:98) says that “Discharge refers to the point where the contract is ended. This should be when all obligations are satisfactorily performed.
However, in some circumstances not all obligations are performed but the contract is still considered to be discharged. When the contract is breached by
one party the other party can consider their obligations discharged, and the party breaching the contract is then bound by new secondary obligations.”
According to the Adams (2008:171) there are four ways in which a contract can be discharged:
Performance
Agreement
Frustration
Breach
DISCHARGE BY PERFORMANCE:
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The general rule: parties must perform precisely all the terms of the contract in order to discharge their obligations. ×
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The defendant, Captain Powell, engaged Lieutenant Cutter as part of his crew for a voyage from Jamaica to Liverpool. The contract stated that payment
was due only on completion of the voyage, but the Lieutenant died 19 days before the ship reached Liverpool.
Held:
His widow, who sued on behalf of his estate, could not claim any part of his salary since payment of it was not due until the voyage had been completed
when the entire obligation would have been discharged. Adams (2008:172)
In contracts for the sale of goods, s 13 Sale of Goods Act 1979 imposes the condition that goods must match with the description. The precise
requirement of s 13 was shown in the following case:
Law teacher 2010 provides evidence to show that; There was an agreement for the sale of 3,000 tins of canned fruit packed in cases of 30 tins. When
delivered it was discovered that half the cases contained only 24 tins although the total number of tins was still 3,000. The market value was not affected.
Held:
The Court of Appeal held that notwithstanding that there was no loss to the buyer; he could reject the whole consignment because of the breach of s 13
of the Sale of Goods Act (goods must correspond with the description).
SUBSTANTIAL PERFORMANCE:
Substantial performance also discharges a contract like a party who has substantially (though not precisely) performed his obligations can recover the
contract price, reduced by damages awarded to the other party in respect of defects:
Law teacher 2010 states that; The defendants promised to build a house according to specification and failed to carry out exactly all the specifications,
for example, concrete not four feet deep as specified, wrong joining of certain rolled steel joists and concrete not properly mixed.
Held:
The Court of Appeal held that the builders were entitled to recover the contract price, less so much as ought to be allowed in respect of the items found
to be defective. The case was one of negligence and bad workmanship and not a case where items in the specification had been omitted or the job
abandoned.
DISCHARGE BY AGREEMENT:
Adams (2008:174) says that “Having formed a contract, the parties to it may agree not to go through with it. This agreement (which is in effect a
secondary contract) will be binding as long as the necessary requirements of a valid contract are satisfied. The issue most likely to be problematic is
consideration.”
Unilateral discharge
Bilateral discharge
UNILATERAL DISCHARGE:
Unilateral discharge takes place where only one party has rights to surrender. Where one party has entirely performed his part of the agreement, he is no
longer under obligations but has rights to compel the performance of the agreement by the other party.
For unilateral discharge, unless the agreement is under seal, consideration must be furnished in order to make the agreement enforceable, i.e. accord and
satisfaction:
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Satisfaction is the consideration which makes the agreement operative. ×
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Where one party has completely performed his or her obligations under the original contract and the other party wants to be released from their
obligations, a promise by the first party to allow this is binding only if the other party promises some material benefit (consideration) in return. Such a
transaction is described as accord and satisfaction.
A promise, to pay a sum of money, or to provide some other consideration in return for the other party giving up his or her rights, will immediately
discharge the contract.
BILATERAL DISCHARGE:
Bilateral discharge occurs whenever both parties to the contract have some right to surrender, e.g. where there has been non –performance by either
party, or is partly performed by one or both parties.
The bilateral agreement by the parties to discharge their contract may be designed to have one of several effects:
Variation
Wavier
Where there is an agreement mutually to release the other form the obligations under the first agreement, there is an accord and satisfaction.
Law essays 2003-2010 provides details that: In this case High Trees House Ltd leased a block of flats for a rate of £25, 00 per year from the Central
London Property Trust Ltd. Due to the war and the resultant heavy bombing of London, occupancy rates in the cite were drastically lower than normal. In
January of 1940, High Trees made an agreement with Central London Property in writing to reduce the rent by 50%.
However, neither party stipulated the period for which this reduced was to apply. Over the next five years, High Trees paid the reduced rate while the
flats began to fill and by 1945 the flats were full. Central London Property then sued for payment of the full rental costs from June 1945 onwards.
Held:
Because it was understood between the parties that the reduction in rent was only a temporary measure because of rental difficulties brought about by
war-time conditions, the lessor was so entitled to its claim. The full rent was payable from the time that the flats became fully occupied in mid-1945. It
was also stated that if Central London had tried to claim for the full rent from 1940 onwards, they would not have been able to.
The parties may intend rescission of the original contract and substitution of a new contract. Case law is given below to understand rescission and
substitution.
Turner, (2001:102) shows that; A husband and wife decided to go for divorce. At that time husband was working in some company and was earning a
good salary and his wife claimed for maintenance which he agreed. After some period of time his salary dropped and was unable to pay the amount.
Held:
An agreement was made that husband will reduce the amount as he pay before to her wife.
VARIATION:
The parties may agree on the variation of an existing contract, i.e. modifying or altering the terms of the original agreement.
WAVIER:
Where one party voluntarily accedes to a request by another to forebear his right to strict performance of the contract, or where he represents to
another that he will not insist upon his right to strict performance of the contract, the court may held that he has waived his right to performance as
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initially contemplated by the parties. Usually there is no consideration. ×
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DISCHARGE BY FRUSTRATION:
Frustration in situations where it is established that due to subsequent change in circumstances, the contract is rendered impossible to perform, or it has
become deprived of its commercial purpose by an event not due to the act or default of either party
Personal incapacity
Supervening Illegality
Delay
The destruction of the specific object essential for performance of the contract will frustrate it.
Held: The claim for breach of contract must fail since it had become impossible to fulfil. The contractual obligation was dependent upon the continued
existence of a particular object.
PERSONAL INCAPACITY:
Personal incapacity where the personality of one of the parties is significant may frustrate the contract:
Held: The claimant’s action was unsuccessful as his medical condition made it impossible for him to perform his contractual obligations and the contract
was thus frustrated.
INTERFERENCE BY GOVERNMENT:
This has often arisen in wartime due to the internment or conscription of personnel and requisitioning of property.
Here the letter of the contract can usually still be performed, but performance has become futile and in no way reflects the object which the parties
intended to achieve.
Held: the contract was not frustrated since it was for two purposes only one of which had failed to happen. The fleet could still be toured.
SUPERVENING ILLEGALITY:
A contract which is completely legal when formed may become illegal by a change in the law occurring before performance.
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Held: the order had frustrated the contract so the option could not be exercised.
DELAY:
Inordinate and unexpected delay may frustrate a contract. The problem is to know how long a party must wait before the delay can be said to be
frustrating.
Held: The contract was not frustrated. The fact that a contract becomes more difficult to perform or not so profitable is not sufficient to amount to
frustration. It was still possible to perform the contract.
DISCHARGE BY BREACH:
Breach of contract occurs where one of the parties of the agreement fails to comply, either completely or satisfactorily, with their obligations under it.
Actual breach
Anticipatory breach
ACTUAL BREACH:
Actual breach is where the breach occurs on the due date for performance.
ANTICIPATORY BREACH:
Anticipatory breach occurs where, before the due date for performance, a party shows an intention not to perform his contractual obligations.
Express anticipatory breach occurs where one of the parties declares, before the due date for performance, that they have no intention of carrying out
their contractual obligations.
Held: The claimant could sue for damages immediately and he did not have to wait for the performance date. (Adams, 2008:184)
Implied anticipatory breach occurs where one of the parties does something which makes subsequent performance of their contractual undertaking
impossible.
Held: The sale of the ship amounted to a clear repudiation of the contract. The claimant could sue for breach from that date. (Adams 2008:183)
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EFFECTS OF BREACH:
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Anticipatory breach does not automatically bring the contract to an end. The innocent party has two options:
Treat the contract as discharged and bring an action for damages immediately, without waiting for the contractual date of performance as in Hochster v
De La Tour (1853)
Elect to treat the contract as still valid, complete his side of the bargain and then sue for payment by the other side as in White & Carter (Councils) v
McGregor (1961).
Held: the company, having performed its obligations, was unable to claim full sum. As the company had not chosen to repudiate the contract, no duty to
mitigate arose, i.e. the company was under no obligation to look for another advertiser so as to avoid losing money.
CONCLUSION:
At the end, I would say that the best way of discharging a contract is based on performance. As in this way both parties follow all the terms of the
contract and afterwards go for its discharge. On the other hand discharge by breach is the most unpleasant way to release yourself from duties.
Therefore, discharge by breach results in damages too.
All Answers ltd, 'Discharge of Contract and Case Study' (Lawteacher.net, August 2019) <https://www.lawteacher.net/free-law-essays/contract-
law/discharge-of-contract-and-case-study-contract-law-essay.php?vref=1> accessed 26 August 2019
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