Terms of a contract, discharge and remedies
Terms are conditions or warranties, express or implied. A contract is discharged by performance, agreement, frustration, breach or operation of law.
Terms of a contract
The terms are the promises that make up the contract. Express terms are stated orally or in writing. Implied terms are added by statute (the Sale of Goods Ordinance implies terms about title and quality), by the custom of a trade, or by the courts to give the contract business sense (The Moorcock). Terms differ in importance. A condition goes to the root of the contract; a warranty is a less important, collateral term. Some terms are innominate: the effect of breaking them depends on how serious the consequences are (Hong Kong Fir Shipping).
Condition and warranty
Exclusion clauses
- An exclusion clause limits or removes a party's liability.
- A signed document binds the signer even if unread (L'Estrange v Graucob).
- Notice must be given before or at the time of contracting, not after (Olley v Marlborough Court Hotel).
- Unclear clauses are read against the party relying on them (contra proferentem).
- A party cannot exclude liability for his own fraud.
How a contract is discharged
| Method | Meaning | Example or case |
|---|---|---|
| Performance | Both parties do exactly what they promised; a valid tender of performance also counts | A supplier delivers 1,000 kg of tea and the buyer pays |
| Agreement | The parties agree to end or replace it: rescission, novation, waiver, accord and satisfaction | A new contract replaces the old one (novation) |
| Frustration | After the contract is made, an event that is no one's fault makes performance impossible or radically different | Taylor v Caldwell (hall burnt down); Krell v Henry (coronation procession cancelled) |
| Breach | Actual (failure to perform when due) or anticipatory (refusal in advance) | Hochster v De la Tour: employer cancelled before the start date |
| Operation of law | Death in personal contracts, insolvency, merger, prescription | A claim becomes time-barred under the Prescription Ordinance |
Remedies for breach
| Remedy | What it does | Note |
|---|---|---|
| Damages | Money to put the innocent party where performance would have put it | Only losses arising naturally or within the parties' contemplation (Hadley v Baxendale); duty to mitigate |
| Specific performance | Court orders the party to perform | A normal remedy in Roman-Dutch law, but the court may refuse, e.g. for personal services |
| Injunction | Court orders a party not to do something | E.g. to stop breach of a restraint clause |
| Rescission or termination | The innocent party ends the contract | After breach of a condition or repudiation |
| Quantum meruit | Payment for work already done | When the contract is ended part-way |
If a Bentota hotel's wedding hall burns down before the booked date, the booking is frustrated, as in Taylor v Caldwell. If a fabric supplier to a Katunayake garment exporter misses a time-critical delivery date, the exporter may treat it as breach of a condition, cancel and claim damages.
Short answer: “Distinguish a condition from a warranty.” A condition is vital; breach allows ending the contract and damages (Poussard v Spiers). A warranty is minor; breach gives damages only (Bettini v Gye).
Structured question: “Explain the doctrine of frustration with decided cases.” Define; later event, no fault, impossible or radically different; Taylor v Caldwell, Krell v Henry; effect: contract ends for the future.
Essay: “Explain the ways in which a contract may be discharged.” Performance, agreement, frustration, breach (actual and anticipatory) and operation of law, each with a case or example; then remedies for breach; close.
Discharge by P-A-F-B-O: Performance, Agreement, Frustration, Breach, Operation of law. Remedies: D-S-I-R-Q: Damages, Specific performance, Injunction, Rescission, Quantum meruit.