CL1.13 Discharge Flashcards
Contract may be discharged by:
(a) Performance;
(b) Expiry;
(c) Agreement;
(d) Breach; or
(e) Frustration.
Expiry and performance
Discharged by specific performance
Discharge by expiry
completed according to its own terms.
- An event
- A given time frame
Discharge by performance
The entire obligations rules - exact performance
Cannot bring a claim for payment after half the service
Cutter v Powell 1796
Cutter v Powell 1797
- Jamaica to Liverpool
- Widow got nothing as he died at sea 19 days short of Liverpool.
Exceptions to the entire obligations rule
- Acceptance of partial performance
- Substantial performance
- Divisible Obligations
- Wrongful prevention of performance
Acceptance of partial performance
- Acceptance of partial performance is discretionary of innocent party
Quantum Meruit = as much as is deserved
Court will assess on an objective basis
Sumpter v Hedges 1898
Sumpter v Hedges 1898
- Sumpter completed half of the job
- Hedges did it himself
- Not voluntary acceptance of partial performance - as had no choice but to accept benefit
- Did receive compensation for materials left on site
Substantial performance
- If substantial performance has been rendered possible to obtain contract price subject to deduction to reflect the cost of remedying the defect.
- If the defect is too serious the party will not be entitled to recover any money
Defining Substantial Performance
- Does defect go to the root of the contract
Hoenig v Isaacs [1952] / Bolton v Mahadeva [1972]
Hoenig v Isaacs [1952]
- One bedroom flat refurb = £750
- Some defects = £55
- Court held “defects and omissions” did not go to the root of the contract
- Only paid cost of remedying the defects
Bolton v Mahadeva [1972]
- £560 cost of central heating system
- Cost of remedying the defect = £174
- If CHS did not function and not safe
- Not able to recover anything under the contract
- No remedies had been offered- had he then he would have been justified
Divisible obligations
- Clear payment in parts - entitled to payment o fparts
- Payment of salary
- Depends on the intention of parties
Wrongful prevention of performance
- one party performs part of the agreed obligation
- then prevented from completing the rest by some fault of other party
- they will be entitled to payment despite not having completed the rest of the obligation
(a) To sue for damages for breach of contract; or
(b) To claim a quantum meruit.
(Planche v Colborn (1831) 131 ER 305)
Planche v Colborn 1831
The plaintiff was to write a book on ‘Costume and Ancient Armour’ for a series, and was to receive £100 on completion of the book. After he had done the necessary research but before the book had been written, the publishers abandoned the series. He claimed alternatively on the original contract and on a quantum meruit.
The court held that: (a) the original contract had been discharged by the defendants’ breach; (b) no new contract had been substituted; and (c) the plaintiff could obtain 50 guineas as reasonable remuneration on a quantum meruit.
This claim was independent of the original contract and was based on quasi-contract.
Defenses to allegations of failure to perform
Tender of performance
Good defence for the defendant to show that they “tendered performance”
- Must show that they unconditionally offered to perform their obligations
- But the Promisee refused to accept
- A plea of tender does not discharge debt - but prevents claim of interest/damages subsequent to tender of performance
Discharge by agreement
(a) By a subsequent binding contract between the parties; or
(b) Alternatively, by operation of a term of the original contract.
Discharge by agreement - mutual waiver
- New contract
- End an existing contract and achieve commercial certainty.
- Terms often to release and settle any liabilities under the original contract
Discharge contract elements
Accord - agreement that obligation will be released
Satisfaction - consideration for the promise to release a party
Difficulties with discharging obligations, the other party hasn’t produced consideration
- may release the other party by a subsequent agreement under deed.
- avoids the need for consideration - a gratuitous promise (one without any consideration) is enforceable if made in a contract in the form of a deed.
- may accept alternative consideration as obligation
Where there has been accord and satisfaction
the former obligation is discharged
Unless there is new consideration…
There can be no discharge of the previous agreement and no formation on agreement of new terms
Discharge by the operation of a term in the contract
- Condition precedent
- Condition subsequent
Condition Precedent
condition which must be satisfied before any rights come into existence.
Contract is suspended until condition satisfied
Condition subsequent
A condition which if satisfied, releases a party from binding obligations
Parties can discharge a contract by agreeing to do so in a binding contract
- Mutual waiver
- This needs to be supported by consideration
- Unless it is effected by deed
Particular care needs to be taken where one party has performed the old contract in full …..
- As release will not be good consideration
Breach of contract
- Compensatory damage available for any breach of contract.
- Party does not always acquire a right to terminate the contract as a result of breach of contract.
Repudiatory breach
One party has breached a condition or inominate term to be treated as a condition
Repudiatory Breach - choice
Terminate
Affirm
Anticipatory Breach
- Party indicates they will not perform contractual obligations in advance pf the date for payment
Renounced contract
- A party who by words or contract leads a reasonable person to conclude they do not intend to perform their part of the contract
- must not be a minor breach, if performed at the time must be repudiatory
Hochster v De la Tour (1853)
The innocent party has an immediate right to ‘accept’ the renunciation and to treat the contract as terminated
Accepting renunciation
Innocent party has an immediate right to accept the renunciation and treat the contract as terminated
Hochster v De la Tour (1853)
Anticipatory breach:
Where a party indicates they will not perform their contractual obligations in advance of the date for performance.
Repudiatory breach:
Where one party has breached a term of the contract which is either a
condition, or an innominate term which is treated as a condition, entitling the other party (in principle) to treat the contract as terminated.
Effect of terminating a contract for repudiatory breach?
- Ends all primary obligations of both parties remaining unperformed
- Innocent party can claim damages from specific breach and breach of contract as a whole
- Any rights/obligations accrued before termination still enforceable
Risks of wrongful termination - Commercially disasterous
- High degree of risk
- Wrongful notice will be regarded as “renunciation” or breach
- Reverses into a damages
Categorisation of term as a condition
Depends on the Hong Kong Fir Test
Uncertainty
Uncertainty of wrongful termination, and the Hong King Fir Test often leads parties to…
Explicitly agree a list of breaches that would give rise to a right to terminate
Vitol SA v Norelf Ltd, The
Santa Clara [1996]
Must make decision to terminate known to defaulting party
The right of election - Communication
- Innocent party must make election of termination
- Must make known their decision to terminate contract
Vitol SA v Norelf Ltd, The Santa Clara [1996]
Benefits of affirmation
- Commercial reasons
- Right to contractual charges is clear and certain
- Therefore debt charge may be better than damages
Debt action
Innocent party can affirm contract after anticipatory breach - perform its obligations - and claim the sum due under the contract as a debt action
White and Carter (Councils Ltd v McGregor)
White and Carter
(Councils) Ltd v McGregor [1962]
appellants had the right to carry out the contract and claim for the entire value of the contract
Affirming a contract means
- innocent parties retain claim for damages from breach
- Cannot terminate as a result of damages
- Retain damages for breach of specific performance, but not lack of perforamance of whole contract
How a contract is affirmed
- Very clear and unequivocal commitment to continue
Limits on affirmation of a contract in response to a repudiatory breach
- cooperation of breaching party required to continue performance
- Innocent party has no “legitimate interest” in affirming
Hounslow London Borough Council v Twickenham Garden Developments Ltd [1970]
Cannot affirm if co-operation of the breaching party is required for continued performance of the
contract
The co-operation of the breaching party is required for continued performance of the
contract
Limits affirmation
Hounslow London Borough Council v Twickenham Garden Developments Ltd [1970]
The innocent party has no ‘legitimate interest, financial or otherwise’ in affirming the contract
and continuing with performance
Limits affirmation
- Damages would be adequate
- Affirmation unreasonable
Ocean Marine Navigation Ltd v Koch Carbon Inc (The
Dynamic) [2003]
Ocean Marine Navigation Ltd v Koch Carbon Inc (The
Dynamic) [2003]
Affirmation may not be reasonable if innocent party as no legitimate interest:
- Damages sufficient
- Unacceptable right to affirm
Discharge by frustration
Without default of either party a contractual party has become incapable of being performed because the circumstances would render the obligations radically different
Lord Radcliffe
Davis Contractors v Fareham Urban District Council [1956]
‘[W]here, without the default of either party, there has been an unexpected turn of events,
which renders the contract more onerous than the parties had contemplated, that is [not] by itself
a ground for relieving a party of the obligation he has undertaken.’
Frustration is about events
beyond the control of either party
Elements of frustration
- Beyond control
- After formation of contract
- Render performance radically different
Effect of frustration
relieve a party from further obligations under the contract,
If frustrated a contract is…
brought to the end automatically
Performance might be radically different because it is:
impossible
Illegal
Common purpose is frustrated
Frustrating event is not ….
- increase in expense /onerousness
- Caused by default of a party
- Could have been reasonably contemplated
- Provided for in contract
Performance radically different:
Impossible
Total or partial destruction of some object
necessary to the performance of the contract Taylor v Caldwell (1863)
Taylor v Caldwell (1863)
- Music Hall destroyed
- Subject of contract
- Contract frustrated
Appleby v Myers (1867)
- Asset destroyed that is essential for performance of contract
- Factory destroyed by fire
- Essential to performance
Condor v The Barron Knights Ltd [1966]
- Drummer in music group was ill
- Contract was for 7 nights a week, drummer only capable of 3/4 = contract frustrated
Concept of unavailability
Frustrated
- Often shipping contracts
- Temporary unavailability may discharge a contract if the interruption is such as to make performance substantially different from what was originally undertaken
Bank Line v Arthur Capel & Co [1919]
- Ship was requisitioned for 5 months out of a year’s charterparty
- Contract was frustrated
Tamplin SS Co Ltd v Anglo-Mexican Petroleum Co [1916]
- Court had to decide whether the requisitioning of a ship (for the purposes of war) in February 1915 frustrated a five year charterparty which was to last until December 1917.
- Court held that it did not, war would soon be over and thus a considerable proportion of the charterparty
would remain. = overly optimistic,
Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage & Towage) Ltd, The Sea
Angel [2007]
- Amount of time left to run, only the starting point in establishing frustration
- Multifactorial approach
- contract; context; knowledge; assumptions; contemplations; as to risk at time of contract
Supervening illegality
- change in the law or state intervention renders performance illegal.
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943]
Facts: a contract for the sale of machinery provided for it to be shipped to a port in Poland. Port occupied by enemy during WW2
Held: contract was frustrated
Frustration of purpose
- Common purpose cannot be carried out
- Must be the purpose of both parties - not just one
Krell v Henry [1903]
Hiring room for viewing King Edward VII procession.
King fell ill
Common purpose fell away
Herne Bay Steamboat Co Ltd v Hutton [1903]
Viewing naval fleet was principal motivation for defendant but not the common foundation of the contract
Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019]
- EMA lease of Canary Warf frustrated when had to move HQ following Brexit
- No common purpose
- had bargained for the possibility that the EMA might not fulfil the full term for some reason (albeit not due to Brexit)
Limitations on the doctrine of frustration
- Very narrow limits
Viscount Simonds
Tsakiroglou Co Ltd v Noblee Thorl GmbH [1962
Tsakiroglou Co Ltd v Noblee Thorl
GmbH [1962
Lord Roskill
Pioneer Shipping Ltd and
others v BTP Tioxide Ltd, The Nema [1981] 2
‘the doctrine is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains’
Pioneer Shipping Ltd and
others v BTP Tioxide Ltd, The Nema [1981] 2
Davis Contractors v Fareham Urban District Council [1956]
- 78 houses within eight months for Fareham Council.
- Lack of skilled labour, bad weather
- Not frustrated due to more onerous performance
Self induced frustration
- Frustration not apply where event was induced by fault or choice..
- Up to party alleging self-induced frustration to prove this
- If held, defendant will be in breach of contract
Lauritzen AS v Wijsmuller BV (‘Super Servant Two’) [1990]
J Lauritzen AS v Wijsmuller BV (‘Super Servant Two’) [1990]
- Super Servant 1 occupied with other contract
- Super Servant 2 sank
- Defense of frustration failed as was choice to use SS1
Forseeable Events
- Goes beyond risk assumed and contracted for
- The less forseeable then the more likely frustration will apply
The Sea Angel [2007]
- General risk of detention by port authorities was a foreseeable risk of the industry,
- Even though its particular manifestation in this case was unforeseen and even unprecedented,
- charterer assumed the risk of delay,
- would be inconsistent with doctrine of frustration , to reverse this contractual risk.
Flying Music Company Limited v Theater Entertainment SA [2017]
- Greek civil unrest and economic crisis
- Not frustration as signs at the time of contracting
- Opportunity to reallocate risk at time of contracting
Canary Wharf (BP4) T1 Ltd v European Medicines Agency
Smith J
key test = whether the event would have informed the manner in which the parties assessed the risk of entering into the contract.
Highly theoretical risks which the parties would not have taken into account would not be relevant
Express contractual provision
- Frustration cannot override contractual provision
eg force majeure clause
Inclusion of force majeure clause
- Allocates risks in relation to evenets
- Continuance of contractual relationship when otherwise would be frustrated.
Consequences of frustration
- Future obligations automatically discharged
- The Law Reform (Frustrated Contracts) Act 1943 deals with obligations arising prior frustrating event.
The Law Reform (Frustrated Contracts) Act 1943
Act deals with obligations arising prior to the
frustrating event.
Section 1(2) of The Law Reform (Frustrated Contracts) Act 1943
- Money paid before the frustrating event can be recovered.
- Money that should have been paid before the frustrating event no longer needs to be paid.
- Expenses incurred by the payee (usually the supplier) can be recovered out of the total sum paid/payable before the event. T
Recovery of expenses is at the discretion of the court.
Discretionary Power - Section 1(2) of The Law Reform (Frustrated Contracts) Act 1943
- Court have discretionary power to order retention or recovery of expenses incurred by payee directly related to attempts to perform the contract
Expenses incurred -
Section 1(2) of The Law Reform (Frustrated Contracts) Act 1943
Amount is capped and cannot exceed
(i) the actual expenses incurred
(ii) the amount paid or payable prior to the frustrating event
Expenses to be a just sum
Court considers a just sum, having regard to all circumstances
Not the actual expenses necessarily
Gamerco SA v ICM/Fair Warning (Agency) Ltd [1995]
- burden or proof is on the payee seeking expenses to show that it is ‘just’
for him so to do.
Court has “broad discretion”
Section 1(3) of The Law Reform (Frustrated Contracts) Act 1943
- Benefit incurred before frustrating event is non-monetary
- May be required to pay a just sum for it.
- Provided that amount does not exceed the amount of the benefit obtained.
Leading case - Section 1(3) of The Law Reform (Frustrated Contracts) Act 1943
BP Exploration Co (Libya) Ltd v Hunt (No.2) [1982]
BP Exploration Co (Libya) Ltd v Hunt (No.2) [1982]
- Hunt owned right to Libyan oil field
- Struck a deal with BP about finding and pumping oil.
- Libya expropriated BP’s half; and Hunt’s 2 years later.
- BP brought a claim against Hunt
- Benefit held to mean end product - not services of BP
(significantly less value)
Benefit under s1(3)
- Not necessarily the value of the claimant’s performance.
- Where value of benefit has been reduced to nil the provider of the ‘benefit’ has no claim.
s1(3) non-monetary benefit
court must
(a) identify and value the benefit conferred; and
(b) make an assessment of a just sum to be paid by that party for the benefit.
