Discharge of contract

Discharge by performance

A contract will be discharged when it has been performed, or carried out. After it has been performed, the party doing the performing need not do anything else

The complete performance rule

The general rule is that performance of the contract must be complete/ finished, not half-done. This has the potential to cause injustice, so courts have developed several ways to mitigate harshness

Cutter v Powell

C was a sailor who died during the voyage. when C’s wife sued for unpaid wages, her claim was rejected as C technically had not completed his performance.

Acceptance of part performance

if a party has only partly performed the contract, the contract will be discharged only if the other party chooses to accept it

Sumpter v Hedges

H was a builder who left a house half-finished. S had to complete the building himself. H claimed S had accepted part-performance by completing the work himself. This argument was rejected, S could claim damages from H

Substantial performance

If a party has substantially completed what he or she was supposed to do under a contract, substantially performance may apply. This means that performing the rest need not be insisted on. payment is made or work done

Hoenig v Isaacs

C, a decorator was hired to refurbish a flat for £750. D moved in and paid £400 in instalments, but then refused to pay the rest due to defects in a bookcase and wardrobe. the court agreed that the cost of putting this right would only be £56, so that’s what C was entitled to

Bolton v Mahadeva

A builder agreed to install a central heating system for £560, that didn’t work properly. the court decided the builder wasn’t entitled to be paid as there had not been substantial performance of the contract.

Divisible contracts

if a contract can be divided into different parts which are separate and can be separately performed, then the strict rule on complete performance of the whole contract need not apply

Ritchie v Atkinson

A shipowner agreed to carry cargo at an agreed rate per ton, but he carried only part of the cargo. He was entitled to be paid for the part of the cargo he had carried at the agreed price, but was liable for not carrying the whole cargo.

Tender of performance

if one party prevents the other from completing the contract, then the innocent party can claim to be paid for the work done

Planche v Colburn

A publisher hired an author to write one of a series of books. When the publisher decided to abandon the whole series, the author was prevented from completing the work, and was entitled to recover a fee for his wasted work

Startup v McDonald

S sold linseed oil, to be delivered by the end of march. S delivered at 8:30pm on march 31 which was a Saturday. M refused to accept it. S was entitled to damages for non-acceptance and could treat his obligations as at an end

Delayed performance

In many contracts it is useful to insert a term stipulating time. The effect of delay to performance is to be treated as a conditions if:

• The parties have expressly stated in the contract that performance o the contract is time-critical,

• In the circumstance, time for completion of the contract is critical

• one party has failed to perform on time and the other has insisted on a new date

Union Eagle v Golden Achievement

In a contract for the sale of a flat, the time for completion specified 5pm and the time was expressly stated to be “of the essence”. The buyer delivered the purchase price 10 minutes late and the seller repudiated the contract. The court decided the seller was entitled to do so

Charles Rickards v Oppenheim

A buyer of a Rolls Royce car chassis contracted for some bodywork to be done on the car by a fixed date. The work was not completed by that date. The buyer kept pushing for delivery, and gave notice that unless the delivery was ready within 4 weeks, he would cancel. The could held that the buyer was entitled to cancel the contract.

Discharge by Frustration

Frustration occurs where through no fault of the parties the contract can no longer be performed. This leads to automatic discharge of the contract

Taylor v Caldwell

C agreed to rent a music hall from T. before the planned date of the first concert, the building burnt down. C’s claim for breach of contract failed as performance by the owners became impossible

What will amount to frustration

Frustration can occur from 3 main categories:

1. intervening events make performance impossible

2. Where performance becomes illegal

3. Where there is a radical change of circumstances

Intervening events which make peformance impossible

• Destruction of the subject matter e.g. (Taylor v Caldwell)

• Death or unavailability of either party e.g. (Robinson v Davidson) where a piano player was booked to perform but was ill on the day

• The specific method of performance becomes impossible e.g. (Nickoll & Knight v Ashton Eldridge) where a contract name a specific ship for cargo which ran aground

Where performance becomes illegal

A contract may be frustrated as the result of a change in the law that makes the contract illegal to perform in the manner anticipated

Fibrosa v Fairbairn

The outbreak of war frustrated a contract for the shipping of machinery to a port in Poland (under enemy occupation)

Where there is a radical change of circumstances

Frustration may also occur where further performance, though technically possible, would become something radically different from that originally envisaged by both parties. The purpose of the contract must be destroyed, making the contract pointless for both parties

Krell v Henry

D agreed to hire a room from C to view the coronation procession of Edward VII. The coronation was cancelled due to the kings illness. the court held that the contract was of hire was frustrated since the viewing of the procession was the contract’s foundation for both parties

Herne bay steamboat v Hutton

D hired a steamboat from C to take passengers to see a naval review by the king and cruise for a day. The coronation was cancelled. The contract wasn’t frustrated since the review was not the foundation of the contract and the cruise was still possible

Limits on frustration

1. where the parties have made express provision in the contract for the event

2. where performance becomes more difficult for only one party

3. If the event was foreseeable to the parties, frustration will not apply

4. Frustration will not apply where self-induced/ within one parties control

Where the aprties made express provision

• if the potentially frustrating event if dealt with by an express term of the contract, then the impact will be determined by applying the term

• The parties can agree what types of events to include within the clause and what impact should be of that event

Where performance becomes more difficult

a contract will not be frustrated simply because one party suffers hardship or inconvenience, or the contract less profitable to perform

Davis contractors v Fareham

C’s agreed to build houses for D over a period of 8 months. there was a shortage of workers and materials at this time and the cost of building the houses turned out to be a lot more expensive. The court agreed that the contract was not frustrated.

National carriers v Panalpina

A lease of the warehouse for 10 years was not frustrated when the local authority closed the street for 20 months. The interruption wasn’t for long enough to disrupt the contract

If the event was foreseeable

The contract will not be frustrated if the event was in the contemplation of the parties at the time the contract was made

Amalgamated investment v John Walker

Cs agreed to buy a property for 1.7m. after the contract was signed, the department for the environment listed the property dropping the value by 1.5m. The contract hadn’t been frustrated as this risk was foreseen by C who had inquired beforehand

Self-induced frustration

If the frustrating event if brought about by the fault of one of the parties, that party may be in breach and frustration will not apply

The super servant 2

D owned two ships. C contracted to have D use either to move an oil rig. D chose SS2 and made other contracts for SS1. When SS2 sank, D claimed frustration. The court disagreed as the contract provided for either ship, it was D’s choice

Consequence of Frustration

once a court holds that a contract is frustrated, it is automatically discharged from the moment at which the frustrating event occurs. The Law reform (frustrated contracts) act 1943 sets out rules on settling contracts that were frustrated

S.1(2) LR(FC) act

Money which had already been paid is recoverable and money due under the contract is not payable. However the court has discretion to allow a party to keep some or all the advance payment for work done and expenses incurred.

Gamerco v ICM/Fair warning

A rock concert was cancelled for safety concerns. C had paid £412k and were due to pay another £362. C had also incurred £450k of expenses whist D had incurred £50k. the judge held that C was entitled to recover the £412k and not pay the rest. No deduction was made as C had lost so much money

S.1(3) LR(FC) act

where one party gains a valuable benefit before the time of frustration, then the court can order that party to pay a just sum in return for it.

BP v Hunt

H was given permission by the Libyan GOV to look or oil in the desert. H hired BP to carry out the exploration and share profits. the Libyan GOV claimed ownership of the oil, frustrating the contract, paying off H but not BP. the court decided BP was entitled to a just sum as it’s work benefited H.

Breach of contract

where one party fails to comply with a term under the contract, either express or implied, it is a breach of the contract. every breach of contract gives rise to the right to claim damages. But unless it is a repudiatory breach, the contract remains in force

Actual breach

An actual breach of contract occurs when one party fails to perform effectively, performing differently from the agreement or not at all

Anticipatory breach

an anticipatory breach of contract will occur where one party indicates before the date of performance that they will not be performing the contract as agreed

Hochester v De La Tour

H was hired as a tour guide for the holiday season. Two months before being due to start work, he was told he was no longer needed. H could choose to sue for breach of contract immediately, even though the date of performance had not yet arrived

Avery v Bowden

B hired A’s ship and agreed to load his cargo onto the ship within 45 days. B later told A he had no cargo and advised him to take the ship away, an anticipatory breach. A kept the ship available though, and when the contract later became frustrated A couldn’t claim as they had affirmed the contract

Repudiation

Not every breach gives rise to termination of the contract. it is dependant on the term that has been breached. Conditions do lead to repudiatory breaches, Warranties only lead to claims of damages, and innominate terms can be either depending on the severity of the breach

Choice to affirm or terminate

the innocent party, in the event of a repudiatory breach, has to option to either:

• accept the breach as terminating the contract

• affirm the contract

The the innocent party wishes to terminate, it must be communicated to the other party in a clear matter

Vitol v Norelf

N’s silence and failure to carry out any more obligations under a shipping contract demonstrated that it intended to treat the contract as at an end