discharge of contract

discharge by performance

a contract is discharged only by complete performance, all the obligations of the contract must have been carried out. A parties failure to perform may make him/her vulnerable to an action for breach off contract by the other party, who may also be entitled to withhold payment.

Cutter v Powell (1795)

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.

what are some exceptions that have been developed to prevent injustices

divisible contracts

if one party prevents the other from completing performance

acceptance of part performance

substantial performance

divisible contracts and relevant case

the contract consists of a number of distinct obligations and payment must be made for as many as are properly performed

Ritchie vs Atkinson:

A contract stated that goods would be shipped at a cost of £5 per tonne. When only part of the agreed cargo was transported, the owners claimed that they were not bound to pay.

Held: since the obligation was divisible, payment was owed for each tonne of the cargo which had been carried.

one party prevents the other from completing performance’s relevant case

Planché v Colburn (1831):

The claimant entered into a contract to write a book for the defendant publisher and was to be paid £100 when the book was completed. He had researched and written part of the book when the defendant told him that it would not be required.

Held: he was entitled to a sum to represent the value of the work he had done towards completion of the contract.

acceptance of part performance

Must be accepted by the party it is offered to, in order to release the party frommthe remaining obligations, and accepting party must pay a certain price.

Sumpter v Hedges (1898)

part performance case

The claimant contracted to build a barn for the defendant, but then abandoned the project when it was only half completed.

Held: no payment was due since the defendant, who had completed the barn himself, had no choice but to accept part performance and make the building safe by finishing the work. The defendant did have to pay for materials which the claimant had left behind and which the defendant had chosen to use to complete the building.

substantial performance

almost complete performance which must be accepted

Bolton v Mahadeva (1972, substantial performance)

Held: a contract to install a central heating system was not substantially completed: fumes escaped into the house, which was also substantially less warm than was promised as a condition of the contract.

Hoenig v Isaacs (1952, substantial performance)

Held: a contract to decorate and furnish a flat had been substantially performed since the defects (repairs to a bookcase and replacement of a wardrobe door) were superficial and easily remedied. The total cost of the contract was £750 and the cost of the defects £55.

Types of Discharge by agreement

Bilateral discharge

unilateral discharge: accord and satisfaction

Bilateral discharge

Where the first contract is still wholly or partially executory consideration will consist of each party’s promise not to insist on the other party’s performance of those obligations. Each party is giving up legal rights under the first contract.

unilateral discharge

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.

discharge by frustration

events outside of the parties’ control render further performance impossible or futile

eg: 1. destruction or unavailability of the subject matter;

2. the death or illness of one of the parties;

3. supervening illegality;

4. government intervention;

5. the event on which the contract is based fails to occur;

6. delay in performance.

Taylor V Caldwell (1863) - destruction/ unavailability of the subject matter

Held: a contract to let a music hall was found to be frustrated when the hall was destroyed by an arsonist.

Gamerco SA v ICM/Fair Warning Ltd (1995) - destruction/ unavailability of the subject matter

Held: a contract under which the Guns N’ Roses band was going to perform was frustrated when the stadium where the concert was supposed to take place became unsafe and it was impossible to find another suitable venue in time.

Condor v The Barron Knights (1966) - death / illness of one of the parties

Condor, drummer with the Barron Knights pop group, became ill with nervous strain. His doctor said that he should perform no more than four nights a week.

Held: the contract was frustrated, since such limited performance was incompatible with the nature of the work. In the music business, performance dates might not arise at regular intervals. It might involve performance seven nights a week at busy periods.

Warner v Armfield Retail & Leisure Eat (2014) - death / illness of one of the parties

Mr Warner had worked for some years as a carpenter for Armfield. He then suffered a minor stroke which made him unable to use his left hand or pick up heavy objects. He received discretionary sick pay from Armfield for several months, until his entitlement ran out. Armfield then sent him his P45 and dismissed him, arguing that the contract was frustrated because he could no longer perform his job. Mr Warner argued that Armfield had discriminated against him by failing to perform its duty to investigate whether reasonable adjustments could be made to enable him to return to work. The employment tribunal agreed with the employer that the contract was frustrated because there were no reasonable adjustments that could have been made in the circumstances and dismissed the case. The EAT affirmed the employment tribunal’s decision. The contract was frustrated by the claimant’s disability: there was nothing the employer could reasonably have done to get Mr Warner back to work even if it had carried out an investigation into possible adjustments. The doctrine of frustration could never discharge the contract where disability discrimination was relevant unless reasonable adjustment was not practicable.

Atwal v Rochester (2010) - death / illness of one of the parties

Mr Rochester, a sole trader, became very ill with heart disease while carrying out a building contract for Mr and Mrs Atwal. After bypass surgery he was advised by his doctor to give up work. The Atwals had to get their work completed by another builder at a greatly increased price which they tried to recover by claiming that Mr Rochester had wrongfully repudiated the contract.

Held: the contract was frustrated not breached. It was in effect a personal service contract. He had no members of staff who could carry out the work on his behalf. He did much of the work personally, assisted by casual labourers and subcontracted out the specialist work.

supervening illegality

A contract which is completely legal when formed may become illegal by a change in the law occurring before performance.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943, HL) a contract by a British firm to sell machinery to a Polish firm was frustrated when Germany, with whom Britain was at war, annexed Poland in 1939.

Government intervention

This has often arisen in wartime due to the internment or conscription of personnel and requisitioning of property. In Morgan v Manser (1947) the conscription in wartime of a comedian frustrated his contract. At the point when he received his call-up papers there was no indication of how long hostilities would last.

Other exercise of power by government agencies may have the same effect. In Shepherd v Jerrom (1987) the imposition of a prison sentence was held to frustrate a contract of apprenticeship. Compulsory purchase of land may invalidate a contract of sale.

Krell v Henry (1903) - the event on which the contract is based fails to occur

Held: a contract for the one-day hire of a room for the purpose of viewing Edward VII’s coronation procession was frustrated when the coronation was postponed due to the King’s illness. While it would have been possible for the hirer and his party to have sat and watched the traffic on the booked date, this clearly was not what the parties had intended.

Herne Bay Steam Boat Co. V Hutton (1903) - the event on which the contract is based fails to occur

Hutton hired a boat to take a party of guests to view the fleet and watch the naval review on Edward VII’s coronation day but due to the postponement of the coronation the review was also cancelled.

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.

Delayed performance

Delay, caused by some supervening event which suspends or unreasonably delays performance of a contract, may lead to frustration of the contract, if it makes the outcome radically different from what the parties originally planned.

Davis Contractors v Fareham District Council (1956) - delayed performance

Davis agreed to build 78 houses for Fareham Council. Due to bad
weather and a shortage of labour and materials, the houses
took much longer to build than anticipated and cost more
than at first thought. It was held the contract was not
frustrated, it had only become more costly and difficult to
perform, neither of which were frustrating events. The
contract could still be performed, and it was not radically
different from what was originally agreed.

Amalgamated Investment & Property Co. Ltd v John Walker & Sons (1977) - delayed performance

Held: applying Davis (above), a contract to buy a property with a view to development was not frustrated by the building later being listed by the local authority, which in effect prevented any real development taking place. The listing did not prevent the contract being carried out. Listing was an inherent risk that would certainly drastically reduce the price but there was no express or implied term in the contract that the property would continue to be capable of development. The listing therefore did not make the contract radically different.

Force majeure clauses

a contract term that states the rights of the parties in the event of a specified problem

How can a force majeure clause be used?

1. To exempt a party from, or limit its liability for, breach of contract to cover situations where failure to perform arises from circumstances which are unlikely to be treated as frustrating the contract. Hazards which commonly prevent performance are deemed by the courts to be foreseeable and therefore incapable of frustrating the contract.

2. To avoid the contract being discharged by events which would otherwise frustrate it. This will be effective only if the court is satisfied that the parties really intended to keep the contract alive in the circumstances which are now threatening its existence.

Metropolitan Water Board v Dick Kerr & Co. Ltd (1918)

A contract made in July 1914 for the construction of a reservoir within six years contained a provision that the time limit could be extended in the event of delay arising from difficulties, delays or impediments, however caused. On the outbreak of war the following September, the work was halted by government order.

Held: the clause did not prevent the contract being frustrated, since the delay occasioned by interruption of the work appeared likely to be much more lengthy than the parties could have contemplated when they made the contract.

are courts sympathetic to self induced frustration?

No as in Maritime National Fish Ltd v Ocean Trawlers Ltd (1935), The defendants hired a trawler equipped with a type of net which required a licence. The defendants applied for five licences, to cover their own ships and the hired ship, but only four were granted. The defendants, therefore, used these to license their own ships. They claimed that the lack of a licence for the claimant’s ship frustrated the contract of hire by making its performance illegal.

Held: the contract was not frustrated as the defendants had chosen which ships to license and could have licensed the hired ship instead of one of their own.

what are the consequences of a contracting frustrated?

When a contract is discharged by frustration, it ceases to exist from that moment on. Rights that have already arisen with regard to a party remain that party’s property, but the party loses any rights which are due to arise later

Appleby v Myers (1867)

The claimants contracted to install machinery on the defendant’s premises. Payment was to be made on completion of the work. The defendant’s premises were destroyed by fire prior to completion. It was held that the claimants were unable to recover any of the cost of their labour and materials.

The law reform act 1943

Payer’s right to recover prepaid sums (s 1(2))

Any money paid in advance is recoverable subject to s 1(2). Any sum due to be paid is no longer payable.

Payee’s right to recover expenses (s 1(2))

A proviso protects the payee. If the payee has incurred expenses in performance of the contract before the frustrating event they may, at the discretion of the court, retain or claim up to the maximum of any prepaid or prepayable sum to cover those expenses, if with regard to all the circumstances it is fair and just to do so.

Discharge by breach

Breach of warranty. The innocent part has the rights to claim damages if they have suffered any actionable damage or loss. The breach is not capable of bringing the ontract to an end.

Bettini v Gye (1876)

Bettini had a three-month contract to perform as an opera singer. Bettini was ill for six days of the rehearsal period and his employer terminated his contract and replaced him with another performer.

Held: Bettini was in breach of a warranty and consequently the employer was not entitled to terminate the contract. Failure to attend some rehearsals did not go to the root of the contract.

Breach of condition

Where a term has the status of a condition and, therefore, is crucial to the contract, the innocent party is entitled to repudiate (refuse further performance of his or her obligations); he or she may recover any property transferred under the contract and obtain damages.

Poussard vs Spiers & Pond (1876)

Madame Poussard had a contract to perform as an opera singer for three months. During that time she was ill, five days before the opening night and was unable to sing for the first four nights of the opera. Spiers replaced her with another opera singer.

Held: Madame Poussard was in breach of a condition of her contract. Failure to attend on the opening night went to the root of the contract, as the critics were there and reviews were written on that basis. Spiers was entitled to repudiate/terminate the contract.

actual breach

failure to perform at all or properly once performance is due or if a party does perform the contract but the performance is below that expected