Discharge of a Contract

Discharge of a Contract

Discharge of a Contract

  • Discharge of a contract means the termination of contractual obligations.
  • Types of Discharge:
    • Performance: Completion of all contractual terms.
    • Breach: Failure to perform as agreed.
    • Frustration: Unforeseen events make performance impossible.

Discharge by Performance

  • Strict Rule: Performance must be complete and exact.
  • Re Moore & Co. Ltd. [number of tins]
  • Cutter v Powell (1795): Cutter agreed to complete a voyage for a fixed fee but died before completion; his widow received nothing.
  • Exceptions to the Strict Rule:
    1. Divisible Contracts
    2. Substantial Performance
    3. Prevention of Performance
    4. Acceptance of Part-Performance

Divisible Contracts

  • Contracts that have separate parts; failure to complete one part doesn’t breach the whole contract.
  • Ritchie v Atkinson (1808):
    • A shipowner carried part of a cargo and was entitled to payment for that part but liable for breach regarding the unfulfilled portion.

Substantial Performance

  • If work is substantially completed, payment is due minus deductions for defects. - DOCTRINE OF SUBSTANTIAL PERFORMANCE
  • Dakin & Co v Lee (1916):
    • Builders were entitled to payment, less the cost of rectifying poor work.
  • Hoenig v Isaacs (1952):
    • (decorate and furnish room) Payment made minus the cost of minor defects.
  • Bolton v Mahadeva (1972):
    • (install central heating system) No payment due; substantial performance not achieved.

Prevention of Performance

  • Definition: If one party prevents the other from completing the contract, a quantum meruit (reasonable value) claim arises.
  • Planché v Colburn (1831):
    • An author was prevented from completing work and was entitled to compensation for efforts made.

Acceptance of Part-Performance

  • The innocent party may accept part-performance and agree to payment proportional to work done.
  • Sumpter v Hedges (1898):
    • A builder left work incomplete; the defendant did not voluntarily accept part-performance but had no choice - not consent to part performance

Time for Performance

  • Importance of Time:
    • Critical when stated in the contract OR
    • In the circumstances, it becomes critical OR
    • A party failed to perform and a new date of completion was given
  • Union Eagle Ltd v Golden Achievement Ltd (1997):
    • Sale of a flat - time for completion specified as 5:00 pm. Completed at 5:10 pm. Contract repudiated due to late performance.
  • Charles Rickards Ltd v Oppenheim (1950):
    • New body alteration on a Rolls Royce car. The buyer canceled after unmet deadlines; time was "of the essence."
  • If time is "of the essence," delay allows for termination.
  • Consumer Rights Act 2015:
    • Sec 52: Traders must perform within a "reasonable time" unless otherwise agreed.

Discharge by Breach

  • When a party fails to perform contractual obligations, they may be sued for breach.

  • Total failure to perform his/her obligations in a contract (e.g., Non-delivery or non-payment) or Partial failure (e.g., effective performance or incomplete work).

  • Circumstances of causing an actual breach:

    • Renunciation: Refusal to perform obligations.
    • Self-induced impossibility: Created by own actions (e.g., closing business).
    • Failure to perform fully: Delivering defective goods.

  • Repudiatory Breach: A serious breach allowing the innocent party to terminate the contract.

  • Examples:

    • Breach of condition.
    • Refusal to perform.
    • Serious breach of an innominate term.

  • Consequences:

    • The innocent party may terminate and claim damages.
    • Alternatively, they may continue the contract and seek compensation.

Types of Breach

  • Actual Breach:
    • Occurs when a party fails to perform at the time performance is due.
  • Anticipatory Breach:
    • Occurs when a party notifies in advance that they will not fulfill obligations When a party gives advance notice of non-performance.
    • Options for the Innocent Party:
      • Immediate action: Sue for damages and treat the contract as terminated.
      • Wait and see: If performance does not occur, claim damages later.
    • Hochster v de la Tour (1853) – Employee was informed in advance (May) that services were no longer needed (was to start in June), allowing immediate legal action.

Remedies for Breach

  • For Anticipatory Breach:
    • Claim damages immediately (damages are to put the victim in the same position he/she would be if the contract was completed - victim must take reasonable steps to mitigate loss).
    • Alternatively, wait till actual breach to sue (damages assessed at the time when performance should occur).
    • Also repudiate the contract.
  • For Breach of Condition:
    • Terminate the contract and claim damages.
  • For Breach of Warranty:
    • Claim damages but cannot terminate the contract.

Discharge by Frustration

  • DOCTRINE OF FRUSTRATION: When unforeseen events make contract performance impossible.
  • Historical Perspective:
    • Strict liability for contract performance.
    • Paradine v Jane (1647): liable to pay rent, though forced out of the land by an invading army.
    • Recognized frustration as a legal doctrine. If a party was prevented from performing a contract because of an unseeable intervening act, he is not liable for breach of contract.
  • Taylor v Caldwell (1863): rent out a music hall which burned down - doctrine of frustration.

Force Majeure Clause

  • A clause in commercial contracts.
  • It excludes the liability for the parties for delay in performance or the non-performance if there are extraordinary events.

Causes of Frustration

  • Supervening impossibility (not the fault of either party) which results in:
    1. Destruction of subject matter:
      • E.g., fire destroying a concert hall (Taylor v Caldwell) or death of parties etc.
    2. Subsequent illegality:
      • Denny and Dickson Ltd. v. James B Fraser & Co. Ltd. a law banning imported goods.
    3. Frustration of purpose: Where commercial value is lost, even if physical performance is possible.
      • Jackson v Union Marine (1874): ship was to lead cargo from San Francisco but couldn’t. Delay due to unforeseen events (‘the perils of the sea’) frustrated the contract.
      • Krell v. Henry Hired hotel room to view Edward VII’s coronation process. Prince became ill and it was postponed – frustration.

Frustration Doesn't Apply

  1. Self-induced frustration
  2. Contract becoming less profitable
  3. Event being a foreseeable risk

Self-Induced Frustration

  • When the frustrating event is within the control of one party - it is breach and not frustration.
  • Gamerco SA v ICM Fair Warning (Agency) Ltd and Missouri Storm Inc. (1995) – A concert was canceled due to an unsafe stadium, leading to frustration (beyond def’s control)
  • Maritime National Fish Ltd. V. Ocean Trawlers Ltd. Fishing company owned 2 boats and hired one. But had only 2 licences which it allocated to their boat and later claimed frustration - its breach
  • Lauritzen AS v Wijsmuller BV (The Super Servant Two) (1990) A contract to transport an oil rig failed after the chosen ship sank (among the two). Frustration was rejected because the other ship could have been used - its breach

Frustration Due to Increased Costs or Economic Changes

  • A contract becoming less profitable is not grounds for frustration.
  • Davis Contractors Ltd v Fareham Urban District Council (1956) A builder argued frustration due to increased costs and labor shortage. The court ruled that the contract was harder but not impossible, so frustration did not apply.
  • An extreme example:
    • Tsakiroglou Ltd. V. Noblee Thorl
    • Agreed to ship peanuts from Sudan to Hamburg but did not specify the route. The Suez canal was closed but was possible through the cape of good hope which was 4 times longer and increased cost. So no frustration of contract.

Event Being a Foreseeable Risk

  • Amalgamated Investment & Property Co Ltd v John Walker & Sons Ltd (1977) A building's listing reduced its redevelopment value. The court held frustration did not apply as the risk was foreseeable.

Remedies for Frustration

  • Common Law: Frustration automatically terminates the contract.
  • The Law Reform (Frustrated Contracts) Act 1943 governs remedies:
    • Sec 1(2) to Sec 1(4):
      • Money paid or Expenses incurred before frustration can be recovered.
      • No obligations to pay or do service under a frustrated contract.
  • The court allowed the recovery of expenses to prevent unjust enrichment.

Frustration and Justice

  • It will be unjust to hold the parties to the literal sense of the contract, so courts require an external event beyond the parties’ control.
  • Armchair Answercall v People in Mind (2016) A business contract was affected by third-party decisions. Court ruled no frustration as the event was not unforeseeable.
  • National Carriers Ltd v Panalpina (Northern) Ltd (1980) Courts consider fairness and justice in frustration cases.

What is Meant by Justice?

  • Basic explanation of possible meanings of justice.
  • Basic explanation of various philosophical approaches to justice.
  • Analysis of varying levels of complexity of approaches to the meaning of justice, from the simple ‘fairness’ approach to more sophisticated philosophical treatment, for example, distributive justice, utilitarianism, social justice, using examples from any area of law, whether civil or criminal.
  • Perhaps particular reference to achieving justice in resolving disputes between private individuals and/or business organizations.

Justice and Contract Law

[15 marks, Nov 2021]

  • Examine what is meant by ‘justice’ and discuss the extent to which the legal rules on privity of contract may achieve justice for everyone concerned.

Part 1: Justice

  • Basic explanation of possible meanings of justice.
  • Basic explanation of various philosophical approaches to justice.
  • Analysis of varying levels of complexity of approaches to the meaning of justice, from the simple ‘fairness’ approach to more sophisticated philosophical treatment, for example, distributive justice, utilitarianism, social justice, using examples from any area of law, whether civil or criminal.
  • Perhaps particular reference to achieving justice in resolving disputes between private individuals and/or business organizations.

Part 2: Privity of Contract

What is privity of contract? Purpose of this is…Explain Dunlop ‘s case.

  • Privity of contract means: Only a party to the contract is bound by it (obligations) and can benefit from it (rights).
  • Purpose: To ensure parties are only bound by agreements they agreed upon.
  • In the case of Dunlop Pneumatic tire Co. Ltd. v. Selfridge (1915), Dunlop sued Selfridge for breaching a term between dew and Selfridge, but as he was not a party to the contract, it was not successful.
  • Based on the rule that consideration must move from the promisee. Is it just to seek to enable a person to take advantage of the benefits of agreements without bearing any responsibilities/obligations? In the case of Tweedle v. Atkinson
  • Sometimes the rule causes injustice, so courts find ways in which it could be avoided. Is it just to exclude persons from benefits where contracts are known to be made on behalf of, though not by, particular persons and do the exceptions sufficiently account for this? In the case of Jackson v. Holidays…explain
  • There are other statutory and common law exceptions to ensure justice. EXPLAIN THE EXCEPTIONS: Agency, collateral agreements, Contracts (Rights of Third Parties) Act 1999.

Other Concepts of Contract Law That Ensure Justice

Doctrine of Estoppel

  • The doctrine of estoppel prevents a party from going back on a promise they have made when another party has relied on it.
  • It ensures fairness by holding parties accountable for their words or conduct, even if no consideration exist.
  • Developed in Central London Property Trust v High Trees House Ltd (1947):
    • If a landlord agrees to temporarily reduce rent during wartime and the tenant relies on it, the landlord cannot suddenly demand full payment for that period. Promissory estoppel upheld reduced rent during wartime.
  • Promotes Good Faith by encourages ethical behavior in business and personal agreements.
  • Avoids Unjust Enrichment by unfairly benefiting at another’s expense.

Frustration of Contract

  • Doctrine of frustration means if a party was prevented from performing a contract because of an unseeable intervening act, he is not liable for breach of contract. It may be due to the destruction of the subject matter, purpose, or a subsequent illegality.
  • As in the case of Taylor v Caldwell…EXPLAIN
  • It will be unjust to hold the parties to the literal sense of the contract for no fault of their own, so courts require an external event beyond the parties’ control.
    • Denny and Dickson Ltd. v. James B Fraser & Co. Ltd. (a law banning imported goods.)
  • Court consider fairness and justice in frustration cases. There are situations where frustration does not apply… EXPLAIN THE 3 SITUATIONS. [Self-induced frustration, a Contract becoming less profitable, Event being a foreseeable risk]

Remedies - Contract Law

  • Remedy under contract law:

    • Legal remedies: damages or remedies against goods.
    • Equitable remedies: discretionary court orders.
    • Statutory remedies: provided under Acts - CRA 2015 & Law Reform (frustrated contracts) Act of 1943

  • Types of Damages

    • Compensatory damages: Main type of remedy.
    • Liquidated damages:

Compensatory Damages

  • A claim for damages is always available if a contractual term is broken.
  • So even if the claimant hasn’t suffered a loss, still the court has to make an award of damages.
  • Purpose: To restore the claimant to their pre-breach position.
  • Types of loss include: Expectation loss (loss of a bargain) and Reliance loss (wasted expenditure).

Type of Damages

  • When no actual loss is suffered.
    1. Nominal damages:
      • Staniforth v. Lyall
      • Lyall had a duty to load Staniforth’s boat by a certain date but failed to do so. However, Staniforth did not suffer any actual financial loss because he was able to hire the boat to someone else. Despite this, the court awarded nominal damages to acknowledge that a breach of contract had occurred.

“Wrotham Park Award”

  • Type of damages awarded when a party breaches a contractual obligation, but the innocent party does not suffer a direct financial loss.
  • Instead of compensating for actual loss, the court awards a sum that represents the amount the innocent party might have reasonably charged for allowing the breach to occur.
  • This concept originates from Wrotham Park Estate Co. Ltd v Parkside Homes Ltd (1974).
  • A developer built houses in violation of a restrictive covenant. Instead of ordering demolition, the court awarded damages based on what the landowner could have negotiated in exchange for releasing the restriction.

Type of Damages

  • Awarded when nominal damages are inappropriate
    1. Speculative damages:
      • Chaplin v. Hicks
      • The claimant, Chaplin, entered a beauty contest where the winners would receive auditions for acting roles. She was selected as one of the finalists but was not given the opportunity to attend the audition due to the defendant’s breach.
      • The court ruled that she was entitled to damages for the lost chance of being selected for an acting role, even though it was uncertain whether she would have won.
      • Courts usually avoid this.

Causation and Remoteness

  • Causation: Losses must be caused by the breach.
  • The 'but for' test: Would the loss have occurred without the breach?
  • Remoteness determines which losses are recoverable.
  • Test of Remoteness: Hadley v. Baxendale

Hadley v Baxendale (1854)

  • A mill owner sued a carrier for late delivery of a crankshaft, which caused business losses.
  • Established 2 part test for remoteness:
    1. Loss must be a natural consequence of the breach. - objective
    2. It must be in the contemplation of both parties at contract formation. - subjective

Duty to Mitigate the Loss

  • Mitigation of loss means: The injured party should take reasonable steps to minimize the effects of the breach.
  • Westinghouse Electric v. Underground Electric Railways.
  • The railway ordered alternative goods for the defective goods supplied, which brought them profit. So the court looked into the gain and the loss that happened as a part of the breach before ordering damages.

Liquidated Damages

  • Where the amount of damages has been fixed by the terms of a contract.
  • Courts will only accept this if it is accurate and has a proper assessment of the loss.

Right Against the Goods

  • Eg: Lien: right to retain possession of the goods of the debtor until paid.
  • Rejecting the goods.
  • Rejecting the delivery of goods etc.

Equitable Remedies

  • When damages are an inadequate remedy and justice won’t be served with it.
  • They are not a right but at the discretion of the court.
  • So providing a remedy that is appropriate and just
  • “Equity mitigates rigours of strict law”

Examples

  • Injunction: ordering a party to do something, which helps to prevent a breach of contract.
  • Rescission: Parties are returned in a position they were when the contract started.
  • Specific Performance: Ordering one party to perform her part of a contractual obligation.
  • Judges doesn’t exercise their discretion in all circumstances. Page One Records v. Britton.
  • [Troggs agreed Page One as their agent for 5 years, not to appoint any other in between , but relationship broke. Court ordered damages and not specific performance]

Statutory Remedies

  • Consumer Rights Act 2015
  • Law Reform (frustrated contracts) Act of 1943
  • Sale of Goods Act
  • Write down the various remedies available under CRA 2015 & Law Reform (frustrated contracts) Act of 1943.

CRA 2015

  • Supply of Goods:
    • Right to reject (sec 20)
    • Right to repair/ replacement (sec 23)
    • Right to price reduction (sec 24)
  • Supply of Services:
    • Section 55: Right to Repeat Performance
    • Section 56: Right to a Price Reduction

Sale of Goods Act

  • 3 RIGHTS:
    1. Lien: right to retain possession of the goods of the debtor until paid.
    2. Insolvency of buyer, seller can stop the goods from delivery.
    3. Right of resale

Balancing of Interest and Contract Law

What Does ‘Balancing Conflicting Interests’ Mean?

  • It means 2/ more parties have conflicting / competing goals.
  • The law aims to mediate between competing interests in society.
  • Judges have to balance competing interests in judgements.
  • Parliament balances rights in the legislations.

Theorists on Balancing Interests

  • 📌 Legal Theories
    • ✅ Jhering – Law protects social interests, not just individual rights
    • ✅ Roscoe Pound – Law must balance private and public interests
    • ✅ John Rawls – Fairness as a key principle in law

Examples of Conflicting Interests in Law

  • 📌 General Legal Conflicts

    • ✅ Individual rights vs. public policy
    • ✅ Business interests vs. consumer protection
    • ✅ Freedom of contract vs. fairness

  • In contract law, conflicts arise between individual/private interests and public/social interests, e.g.: seller and buyer.

  • The law must ensure fairness and justice while maintaining certainty in commercial relations.

In Contract Law: What Interests Exist?

  1. The court has to balance between the interest of 2 innocent parties.
    • Each party wants to get the best deal possible.
    • Seller vs. Buyer
    • Employer vs. Employee
    • Consumer vs. Business
  2. Third parties can also have an interest in a contract.

What is the Conflict Between These Interests?

  1. The desire of a stronger party to dictate the terms of a contract creates conflict (party with more bargaining power).
    • This is where freedom of contract is compromised for fairness.
  2. Conflict also arises from the concept of privity of contract: only a party to a contract can take legal action upon it.

Legal Rules Balancing Conflicts in Contract Law

  • ✅ Regulation of exclusion clauses in contracts. Unfair Contract Terms Act (UCTA) 1977: Test of reasonableness
  • ✅ Implied terms in contracts - Consumer Rights Act 2015 – Ensures fair treatment of consumers
  • ✅ Right of third parties – Contracts act of 1999.
  • ✅ Judicial creativity with respect to remedies - equitable remedies.
  • ✅ Vitiating factors like Duress & Undue Influence – Prevents abuse of power in contracts

Conclusion

  • How Effective is Contract Law in Balancing Interests?
    • ✅ Strikes a balance between freedom and fairness
    • ✅ Protects weaker parties while maintaining business confidence
    • ✅ Courts play a key role in resolving conflicts
    • ✅ Ongoing development through case law and legislation

Mechanisms for Balancing Interests in Law

  • 📌 How does the law balance interests?
    • ✅ Substantive Law (Rules that govern contracts)
      • Terms must be clear and fair (e.g., Unfair Contract Terms Act 1977)
      • Remedies ensure fairness (e.g., damages, rescission)
    • ✅ Procedural Law (Legal process and access to justice)
      • Courts provide dispute resolution
      • Alternative Dispute Resolution (ADR) methods like arbitration and mediation
    • ✅ Access to Justice
      • Legal aid for vulnerable parties
      • Consumer protection laws

Case Law Examples

  • 📌 Key Cases Demonstrating Balancing Interests

    • ✅ Carlill v Carbolic Smoke Ball Co (1893) – Protecting consumer reliance
    • ✅ Partridge v Crittenden (1968) – Balancing business liability
    • ✅ Williams v Roffey Bros (1990) – Protecting weaker parties in contract negotiations
    • ✅ Lloyds Bank v Bundy (1975) – Limiting unfair bargaining power

  • Examine the suggestion that the law has an important role to play in balancing conflicting interests. Discuss the extent to which this role is evident in the context of the Law of Contract.

    • ANSWER SCHEME: law as operating to balance conflicting interests - meaning and kinds of interests that may be in conflict in issues that arise in law.
    • Simple illustration drawn from any area(s) of law. Analysis of the mechanisms by which law may seek to balance interests, including substantive and procedural rules of law, and access to justice
    • Identification of the interests involved in contract – generally private/individual but perhaps with some public or social component, possible reference to groups such as business, trader, consumer.
    • Possible reference to the views of theorists, for example, Jhering, Pound.
    • Identification of appropriate areas of the law and supporting legal authority to illustrate specifically an assessment of the extent to which rules of law in contract may play a role in balancing conflicting interests.