Chapter 5 - Performance and Discharge of a Contract

Question 1

What is the order of performance in a contract?

Answer 1

The order of performance refers to when each party must perform their contractual obligations. This can be explicitly stated in the contract or implied by statutory provisions.

For example, the Sale of Goods Act 1979 provides that unless otherwise agreed, payment and delivery are concurrent in a sale of goods contract.

Question 2

Provide an example of how parties might agree to the order of performance in a commercial sale of goods contract.

Answer 2

The buyer pays after delivery of the goods (e.g., payment within 21 days of delivery). The buyer pays on delivery. The buyer will pay before the goods are delivered.

Question 3

What is the doctrine of complete performance?

Answer 3

The doctrine of complete performance states that a party’s obligation to perform their part of the contract may be dependent on the other party’s complete performance. If one party fails to completely perform their obligations, they may not be entitled to any payment.

Question 4

Explain the case of Cutter v Powell (1795) and how it illustrates the doctrine of complete performance.

Answer 4

Cutter, a second mate on a voyage, was promised payment upon completing the journey. He died before the ship reached its destination. The court ruled that his widow was not entitled to payment for his work because he had not completely performed his contractual obligations.

The contract stipulated payment only upon completion of the voyage.

Question 5

What are the exceptions to the doctrine of complete performance?

Answer 5

The exceptions are: Divisible Obligations, Substantial performance, Wrongful prevention of performance, Voluntary acceptance of part performance.

Question 6

What is the exception of divisible obligations?

Answer 6

When a contract is divided into distinct parts or stages, with payment agreed upon for each stage. Each part is treated as a separate contract. If a party completes a stage, they are entitled to payment for that stage, even if they do not complete the entire contract.

Question 7

Provide an example of divisible obligations.

Answer 7

A decorator agrees to paint three rooms for $900, with $300 payable upon completion of each room. The decorator paints two rooms but abandons the job. They are entitled to $600 for the two completed rooms, even though they did not finish the third room.

Question 8

What is the exception of substantial performance?

Answer 8

If a party has substantially performed their obligations, they may be able to claim payment, less the cost of remedying any minor defects. This applies when the work is mostly complete but has minor defects.

Question 9

Explain the case of Hoenig v Isaacs (1952) and how it relates to substantial performance.

Answer 9

A decorator was contracted to decorate a flat for £750. The client refused to pay the balance, claiming defective work. The court ruled that the decorator had substantially performed the contract and was entitled to the balance minus the cost of fixing the defects (£55).

Question 10

Explain the case of Bolton v Mahadeva (1972) and how it contrasts with Hoenig v Isaacs.

Answer 10

A contractor installed central heating for £560. The system was defective, with inadequate heating and fumes. The court held that the contractor had not substantially performed the contract due to the significant defects.

Unlike Hoenig v Isaacs, where defects were minor, here, they impacted the system’s primary function.

Question 11

What is the exception of wrongful prevention of performance?

Answer 11

If one party wrongfully prevents the other from fulfilling their contractual obligations, the party who was prevented from performing may be entitled to payment for the work they have done.

Question 12

Provide an example of wrongful prevention of performance.

Answer 12

A tree surgeon agrees to cut down five trees for $450. After cutting down two trees, the client tells them to stop. The client has wrongfully prevented the completion of the work.

The tree surgeon could claim damages for breach of contract or a quantum meruit for the work done.

Question 13

What is the exception of voluntary acceptance of part performance?

Answer 13

When the party who is not in breach voluntarily accepts the partial performance of the contract, the party who partially performed may be entitled to some payment. The accepting party must have a genuine choice to accept or reject the partial performance.

Question 14

Explain the case of Sumpter v Hedges (1898) and how it relates to voluntary acceptance of part performance.

Answer 14

A builder agreed to build two houses for £565 but abandoned the project after doing £333 worth of work. The client had to finish the work. The builder’s claim for work failed because the client had no choice but to accept what had been done.

However, the client was ordered to pay for materials left behind, as they had a choice in using them.

Question 15

How is voluntary acceptance of part performance reflected in consumer protection law?

Answer 15

Both the Consumer Rights Act 2015 and the Sale of Goods Act 1979 address this. If a trader delivers fewer goods than agreed, the consumer can choose to accept them and pay at the contract rate.

Question 16

What is discharge by agreement?

Answer 16

Parties to a contract can mutually agree to release each other from their obligations. This agreement must meet the requirements of a valid contract, including offer, acceptance, consideration, and contractual intention.

Question 17

Provide an example of a situation where discharge by agreement might be difficult to establish.

Answer 17

A debtor owes £2,000. The creditor agrees to accept £1,600 as full payment. Later, the creditor demands the balance.

The agreement to accept the lesser amount might not be binding because the debtor provided no consideration for the creditor’s promise to forgo the balance.

Question 18

What is discharge by frustration?

Answer 18

Frustration occurs when an unforeseen event, after the contract formation, makes performance impossible, illegal, or radically different from what was agreed upon, without the fault of either party. It automatically terminates the contract.

Question 19

What are the requirements for an event to frustrate a contract?

Answer 19

The supervening event must: make performance impossible or radically different, be beyond the ordinary risks assumed by the parties, and be outside the control of either party.

Question 20

What are the categories of circumstances that can render a contract ‘radically different’ and lead to frustration?

Answer 20

Government intervention, Unavailability of a crucial person, Illegality, Destruction of subject matter, Non-occurrence of a fundamental event.

Question 21

Provide an example of frustration due to the destruction of the subject matter.

Answer 21

A dramatic group hires a community center for a play. The center is destroyed by fire before the performance date.

The contract is frustrated as the subject matter (the center) is no longer available.

Question 22

Provide an example of frustration due to the unavailability of a crucial person.

Answer 22

An author is contracted to write a book in six months. The author falls ill and is unable to work for at least a year.

The contract is frustrated as the author’s availability was crucial to its completion.

Question 23

Provide an example of frustration due to the non-occurrence of a fundamental event.

Answer 23

A room is hired specifically to view a king’s coronation procession. The procession is canceled because the king is ill.

The contract is frustrated as the sole purpose of hiring the room, viewing the procession, is no longer possible.

Question 24

Explain why a 10-year warehouse lease would likely not be frustrated if the only access road was closed for 18 months.

Answer 24

While frustration can apply to leases, the 18-month closure is not sufficiently grave compared to the 10-year lease term.

The interruption is not long enough to make the contract radically different from what was agreed upon.

Question 25

Explain why a contract for house decoration would not be frustrated if the assigned employee falls ill and is replaced by another employee from the same company.

Answer 25

The contract can still be performed using a substitute employee. The identity of the specific employee is not crucial to the contract, as long as the company can fulfill its obligations.

The contract has not become radically different.

Question 26

What was the original common law rule regarding frustration?

Answer 26

The original common law rule was strict. If a party assumed an absolute obligation, they were liable even if circumstances made performance impossible.

Parties were expected to protect themselves by including relevant provisions in the contract.

Question 27

Explain the case of Paradine v Jane (1647) and its relation to the original common law rule on frustration.

Answer 27

A tenant was sued for unpaid rent. They argued that they were forced off the land by an invading army and should not have to pay. The court ruled against the tenant, holding that the obligation to pay rent was absolute, despite the unforeseen event.

Question 28

Explain the significance of Taylor v Caldwell (1863) in the development of the modern law of frustration.

Answer 28

In this case, a music hall hired for concerts was destroyed by fire. The court ruled that the contract was discharged by frustration, implying a condition that excused the parties from performance if the hall’s existence was no longer possible.

This case marked a shift from the strict common law rule.

Question 29

How did the House of Lords in Davis Contractors Ltd v Fareham Urban District Council (1956) refine the understanding of frustration?

Answer 29

The House of Lords dismissed the implied term theory, stating that frustration arises not from the parties’ intention but from the objective view of whether performance would be radically different due to unforeseen circumstances.

The court determines what reasonable parties would have agreed upon if they had considered the frustrating event.

Question 30

What factors determine whether the unavailability of a specific person leads to frustration of a contract?

Answer 30

The factors include: the length of the contract, the length of the absence, whether a substitute can perform the work.

Question 31

Provide examples of when the unavailability of a person might, or might not, lead to frustration.

Answer 31

A two-day absence due to a cold in a five-year employment contract would likely not frustrate the contract. However, a nine-month illness in a six-month contract would likely frustrate the contract.

Question 32

Explain the principle of frustration due to the non-occurrence of a fundamental event, using the coronation cases of Krell v Henry and Herne Bay Steamboat Co v Hutton as examples.

Answer 32

In Krell v Henry, a room was hired solely to view a coronation procession that was canceled. The contract was frustrated because the fundamental event was essential to the contract’s purpose. In Herne Bay, a boat was hired to view a naval review and for other activities.

The review’s cancelation did not frustrate the contract because it was not the sole basis of the agreement.

Question 33

How does government intervention potentially lead to frustration of a contract?

Answer 33

Government actions, like requisitioning resources, can cause significant disruptions unforeseen by the parties. If such intervention makes performance radically different, the contract may be frustrated.

The case of Metropolitan Water Board v Dick Kerr, where the government requisitioned resources during World War I, exemplifies this.

Question 34

What factors are considered when determining if a delay frustrates a contract?

Answer 34

The factors include: Contractual provisions for delay consequences, Likely length of the delay, Timeframes specified in the contract, Whether performance after the delay would be radically different.

Question 35

Explain the principle established in Tsakiroglou & Co Ltd v Noblee Thorl (1962) regarding frustration due to delay.

Answer 35

The case involved a shipment route change due to the Suez Canal closure. The court ruled that the contract was not frustrated because performance was still possible, even though it became more difficult and expensive.

The case highlights that mere inconvenience or increased cost does not usually constitute frustration.

Question 36

Why does mere increased difficulty or expense in performing a contract typically not lead to frustration?

Answer 36

Allowing frustration for such reasons would create uncertainty in contracts and open the door to excessive litigation.

Parties are expected to anticipate potential difficulties and include provisions, such as price escalation clauses, to address them.

Question 37

Explain the significance of Davis Contractors Ltd v Fareham Urban District Council (1956) in the context of frustration due to delay.

Answer 37

A construction project was delayed due to labor and material shortages, making it more expensive and time-consuming. The House of Lords ruled that the contract was not frustrated, as the delays were foreseeable and could have been addressed through specific contractual provisions.

The case emphasizes that frustration requires a radical change in the nature of the obligation, not just increased difficulty.

Question 38

How can a change in law or the outbreak of war lead to frustration?

Answer 38

If a change in the law makes performance illegal, the contract is frustrated. Similarly, contracts with parties in enemy territory become impossible to perform during war due to the illegality of trading with the enemy.

The case of Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943), where a contract became impossible due to war, illustrates this.

Question 39

What are the two main restrictions on the doctrine of frustration?

Answer 39

The restrictions are: The frustrating event must not be foreseen by the parties. The frustrating event must be beyond the control of the parties (not self-induced).

Question 40

What is a force majeure clause and why is it important in relation to frustration?

Answer 40

A force majeure clause is a provision in a contract that relieves parties from performing their contractual obligations due to unforeseen events. It is important because it outlines specific circumstances under which a party may be excused from performance, potentially preventing disputes over frustration.

Question 41

What are the two main restrictions on the doctrine of frustration?

Answer 41

The restrictions are:
- The frustrating event must not be foreseen by the parties.
- The frustrating event must be beyond the control of the parties (not self-induced).

Question 42

What is a force majeure clause and why is it important in relation to frustration?

Answer 42

A force majeure clause allocates risks for events outside the parties’ control. It specifies the consequences of such events, such as delays or impossibility of performance. It provides more certainty and flexibility than relying on the doctrine of frustration alone.

Question 43

What are some of the advantages of including a force majeure clause in a contract?

Answer 43

It provides greater flexibility than the doctrine of frustration. The parties can include events that would not typically frustrate a contract. They can specify what should happen if an event occurs and how the loss should be allocated. It offers greater certainty, reducing potential disputes.

Question 44

Can a contract still be frustrated if the frustrating event was foreseen but not expressly provided for in the contract?

Answer 44

There is legal debate on this issue. Lord Radcliffe in Davis Contractors v Fareham UDC suggested that foreseeability would prevent frustration. Conversely, Lord Denning MR in The Eugenia suggested frustration is possible even if the event was foreseeable, as long as it was not contractually provided for.

Question 45

What is ‘self-induced frustration’?

Answer 45

Self-induced frustration occurs when a party’s own actions cause the frustrating event. It is not a true frustration and amounts to a breach of contract. The party cannot rely on the doctrine of frustration to escape liability.

Question 46

Explain the case of Maritime Fish Ltd v Ocean Trawlers Ltd (1935) in the context of self-induced frustration.

Answer 46

A company hired a trawler requiring a license, but chose not to use one of their available licenses for that trawler. The court held that the contract was not frustrated because the company’s own choice, not an external event, created the impossibility of performance.

Question 47

Explain the case of The Super Servant Two (1990) and its relation to self-induced frustration.

Answer 47

A company contracted to transport a rig using one of its two vessels. One vessel sank, and the company, having allocated the other vessel to different contracts, claimed frustration. The court ruled that the frustration was self-induced because the company’s own allocation decisions created the impossibility.

Question 48

Can frustration apply to leases of land?

Answer 48

Traditionally, frustration was thought not to apply to leases because they create an interest in land, not a perishable commodity. However, the House of Lords in National Carriers Ltd v Panalpina (Northern) Ltd (1981) recognized that frustration could apply to leases in rare circumstances, though the threshold is high.

Question 49

Summarize the case of National Carriers Ltd v Panalpina (Northern) Ltd (1981) regarding frustration of leases.

Answer 49

A warehouse lease was affected by a street closure, limiting access. The House of Lords held that while frustration was possible for leases, the closure, though disruptive, did not make performance radically different enough to frustrate the lease, especially given the remaining lease term after the anticipated reopening.

Question 50

What are the key effects of frustration at common law?

Answer 50

Frustration automatically terminates the contract. Both parties are released from future obligations arising after the frustrating event, and neither party is in breach regarding the frustrating event.

Question 51

What were the limitations of the common law approach to the consequences of frustration, particularly regarding payments and expenses?

Answer 51

The common law was rigid. Money paid before the frustrating event was generally not recoverable, and money due before the event remained payable. This created unfair outcomes, as seen in Krell v Henry and Chandler v Webster, where parties lost money despite the contract’s frustration.

Question 52

How did the House of Lords’ decision in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943) modify the common law rules on the effect of frustration?

Answer 52

The House of Lords introduced the concept of ‘total failure of consideration.’ If a party received no benefit under the contract before the frustrating event, they could recover money paid and were not obligated to make payments due before the event. However, the decision did not address expenses incurred before frustration.

Question 53

What are the key provisions of the Law Reform (Frustrated Contracts) Act 1943 regarding the effects of frustration?

Answer 53

The Act addresses money paid or payable before the frustrating event, expenses incurred by the payee, and benefits received by either party. It allows for recovery of prepayments and relieves parties from making payments due before the frustrating event. It also allows the court to, at its discretion, order payment for expenses incurred by the payee.

Question 54

Explain the main points of Section 1(2) of the Law Reform (Frustrated Contracts) Act 1943.

Answer 54

Money paid before the frustrating event is recoverable.
Money due before the frustrating event does not need to be paid.
The court has discretion to allow the payee to recover expenses from the total sum paid or payable before the event.

Question 55

Explain the court’s approach to awarding expenses under Section 1(2) of the Law Reform (Frustrated Contracts) Act 1943, using Gamerco SA v ICM/Fair Warning (Agency) Ltd (1995) as an example.

Answer 55

The court has broad discretion and aims to do justice in a situation not anticipated by the parties. It is not obligated to award the full amount of expenses. In Gamerco, while the payee had incurred expenses, the court chose not to make an award under Section 1(2), considering that the payer’s expenses were significantly higher.

Question 56

Explain the purpose and application of Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943.

Answer 56

Section 1(3) addresses situations where one party has conferred a valuable benefit on the other before the frustrating event. The court can order the party receiving the benefit to pay a just sum, not exceeding the benefit’s value. It considers all circumstances, especially expenses incurred by both parties and the impact of the frustrating event.

Question 57

How did the court interpret and apply Section 1(3) in BP Exploration Co (Libya) Ltd v Hunt (1979)?

Answer 57

The court established a two-stage process. First, the benefit is identified and valued, forming the upper limit of the award. Expenses incurred by the benefiting party are deducted. Second, the court assesses a just sum, considering factors like the contract’s consideration. Importantly, the benefit under Section 1(3) is the end product of the claimant’s performance, factoring in the frustrating event’s impact, not just the value of work done.

Question 58

What are some limitations or uncertainties associated with the Law Reform (Frustrated Contracts) Act 1943?

Answer 58

Section 1(2) limits expense recovery to the total paid or payable before the frustrating event, potentially leaving parties with unrecoverable expenses if those exceed the pre-payments.
The Act lacks clear guidelines for calculating expense awards, leading to potential inconsistencies.
Determining the ‘valuable benefit’ under Section 1(3) can be subjective, and focusing on the end product, as in BP Exploration, might lead to unfair outcomes where work was done but the benefit was wiped out by the frustrating event.

Question 59

Provide a hypothetical example illustrating the application of the common law and the Law Reform (Frustrated Contracts) Act 1943 in a frustrated contract scenario.

Answer 59

In a boat rental contract frustrated by fire, the renter who had made pre-payments would seek to recover them. The boat owner, having incurred expenses for modifications, would seek compensation. The court would apply the Act to determine the appropriate allocation of funds, considering the payments made, expenses incurred, and whether any benefit was received before the fire.

Question 60

What are the key steps in approaching a problem question involving potential frustration of a contract?

Answer 60

Identify the party alleging frustration.
Start with the general rule of absolute obligations (Paradine v Jane) and explain that frustration is an exception.
Define frustration and analyze whether the event meets the requirements for frustration, considering foreseeability, self-inducement, and contractual provisions.
Explain the effects of frustration, including termination, discharge of obligations, and the absence of damages.
If the contract is not frustrated, address the potential breach and available remedies.

Question 61

Outline a possible structure for an essay discussing the Law Reform (Frustrated Contracts) Act 1943’s impact on the law of frustration.

Answer 61

The essay should:
- Define frustration and explain how it operates as an exception to absolute contractual obligations.
- Analyze the limitations of the common law approach using cases like Krell v Henry and Chandler v Webster.
- Explain the modification introduced by Fibrosa and its limitations.
- Discuss the provisions of the 1943 Act, analyzing Sections 1(2) and 1(3) using relevant case law.
- Critically evaluate whether the Act effectively addresses the problems of the common law, highlighting strengths, limitations, and potential uncertainties.
- Conclude by summarizing the Act’s overall impact and suggesting potential areas for improvement.

Question 62

What are the key takeaways from the chapter on Performance and Discharge of a Contract?

Answer 62

Understand the importance of specifying the order of performance and the consequences of incomplete performance.
Recognize the different ways a contract can be discharged, including performance, agreement, breach, and frustration.
Appreciate the complexities of frustration and the advantages of using force majeure clauses for greater certainty and flexibility.