PERFORMANCE AND DISCHARGE OF CONTRACTS

Precise and exact performance Partial performance Discharging the contract by agreement Discharge by operation of law

PRECISE AND EXACT PERFORMANCE

It is only precise and exact performance of the contract that discharges the obligations of a party to that contract: Union Eagle v Golden Achievement [1997] AC 514. A party must perform within the time frame set by the contract and to the standard required by it. That standard is often strict, or it may require the exercise of reasonable care (eg service contracts). The issue is one of construction. There is little room for the application of the de minimis principle in relation to contractual performance: see Arcos Ltd v EA Ronassen & Son [1933] AC 470 (timber delivered under a contract was 1/16 inch thicker than specified. The purchaser could reject the timber even though it could be used for the purpose he had intended).

PARTIAL PERFORMANCE
Where it is envisaged that one partys performance is conditional on complete performance by the other party, that party can, at common law, recover nothing for incomplete performance. That party has simply failed to perform precisely and exactly. The leading illustration is Cutter v Powell (1795), the case of the slave ship and its voyage from Jamaica to Liverpool. Compare now the law relating to frustrated contracts. See also Sumpter v Hedges (1898) where the failure to perform was a breach of contract.

A rule about entire contracts or entire obligations?

The rule illustrated in Cutter v Powell is sometimes said to be a rule about entire contracts or entire obligations (no payment until the job is done). This is misleading because most contracts contain several obligations, differing in character and importance. A contract may be entire as to one aspect, but divisible or severable in other aspects. For example, if the seafarer had completed the voyage in Cutter v Powell but had performed his duties as mate badly, he would still be able to recover his wages, subject to a cross-claim by his employer. The obligations that are most likely to be construed as entire are those where a lump sum is to be paid after completion of work: Sumpter v Hedges; Bolton v Mahadeva (1972).

The qualifications on Cutter v Powell

The doctrine of substantial performance Acceptance of partial performance by the innocent party A claim in restitution for an incontrovertible benefit Wrongful prevention of performance

Substantial performance
Where the contract has been substantially performed by one party, the injured party is not discharged from payment, but may have a counterclaim for loss suffered by the incomplete or defective performance. The leading authority is Hoenig v Isaacs (1952), where the cost of remedying the defects was about 7% of the contract price. (See also Jacob & Youngs Inc v Kent 129 NE 889 (1921)). On the other side of the line is Bolton v Mahadeva, where the cost of remedying the defects was 31% of contract price. Does this doctrine make sense given the rationale underlying the entire contracts doctrine? Does it not effectively set aside the contracts allocation of risks ie isnt it an exception that denies the rule?

Other qualifications
Acceptance of partial performance: this waives the necessity for complete performance. Consider Sumpter v Hedges (S could recover the value of materials left on the land and used by H but not the value of Hs work (the partly finished building) since he had no choice but to accept it (it had acceded to his land)). A claim for an incontrovertible benefit: (ie one that was a readily realisable financial benefit or some saved expenditure that would have had to have been incurred) would succeed today in restitution, unless there is a clear intention to the contrary. Wrongful prevention of performance: Planch v Colburn (1831).

Reform?
The reform of the law in this area is focused on the developing law of restitution: see Law Com No 121, 1983 (Pecuniary Restitution on Breach of Contract). A party who has failed to perform an entire obligation should still have a restitutionary remedy to recover a reasonable sum. Where is the unjust enrichment to support such a claim? Would it undermine the law of contract?

DISCHARGE OF CONTRACT BY AGREEMENT

The parties can agree to bring their agreement to an end, but this is itself an agreement that needs consideration there must be accord and satisfaction. Consideration will exist where the contract is executory on both sides, but not where it is executed on one side only. Here there must be fresh consideration (which, in arguably the most important practical example, cannot consist in paying and accepting a lower sum: Pinnels case (1602) 77 ER 237). A contract may be discharged by agreement without consideration where (1) the agreement is contained in a deed under seal; or (2) a term of the contract so provides eg a force majeure clause or the giving of notice of termination.

DISCHARGE BY OPERATION OF LAW

Alteration to or cancellation of a deed or written contract. Merger: - estoppel (not terminology of cause of action and issue estoppel); - a lower security merges and is extinguished in a higher security eg where parties to a contract put its contents into a deed (as where a contract for the sale of land is merged in the subsequent conveyance and transfer); - where rights and liabilities under a contract become invested in the same person.