Contract - Frustration & Discharging Liability Flashcards
What are 5 common ways for a contract to expire / be discharged.
- Discharge by FULL performance.
EG: Sailor is contracted to take ship to Liverpool but dies en-route - his wife cannot claim for part of the payment because he did not fully perform the contract (Cutter v Powell).
- Discharge by expiry (date specified)
- Discharge by agreement
- Discharge by breach
- Discharge by frustration
Are there exceptions where, despite not having FULLY performed your obligations, the other party might accept discharge of the contract?
- ACCEPTANCE OF PART PERFORMANCE.
- wholly at discretion of innocent party).
- if exercised, the court will determine what amount of money the defendant (defaulting party) gets (“quantum meruit” award). - SUBSTANTIAL PERFORMANCE.
- defaulting party can get paid the full amount under the contract, subject to a deduction for any defect (assuming the defect is not ESSENTIAL/goes to the heart of the contract or its purpose, e.g. to repair the boiler to heat the home). - DIVISIBLE OBLIGATIONS.
- e.g. payment under a fixed term contract; depends on intentions of the parties. - WRONGFUL PREVENTION OF PERFORMANCE.
- e.g. a writer who is hired to write a screenplay for an upcoming series where the series is cancelled 6 months into writing.
Innocent party has 2 options:
(a) sue for breach of contract;
(b) claim a quantum meruit award, i.e. court decides what you deserve for your efforts.
What is “substantial performance” and when can it be claimed or refused?
Defaulting party can get paid the full amount under the contract, subject to a deduction for any defect, e.g value of work was £750 but repair costs were £55 and they did not go TO THE ROOT of the contract.
Contrast this with a situation where the work was so poor it did not meet the purpose of the contract, e.g. repairing a heating system/boiler but the work finished and the boiler still didn’t work. The defaulting party is not entitled to any of the contract price unless he remedies the defects.
Can a defendant have a defence if the other party prevents him from discharging his performance?
Yes, e.g. if buyer refuses to accept delivery and then sues the seller - the seller has a defence.
If a creditor does not accept the debtor’s money, they can still claim the debt but they cannot claim interest on it over time.
What is required for parties to validly discharge a contract by agreement?
What is the difference between a Conditions Precedent vs Conditions Subsequent?
A new contract is required, with fresh consideration (UNLESS the agreement is made by DEED). This is often done to end disputes amicably (mutual waiver of contractual rights), e.g. where one party is injured and cannot, say, continue with their role as supplier to the customer.
If one party has already completed their obligation, merely being “released” from the contract is NOT good consideration.
Conditions Precedent - can be used to ensure that the contract only comes into being (binding) when X, Y and Z has happened, e.g credit checks or references.
Conditions Subsequent - can be used to ensure that the contract comes to an end on X/Y/Z event.
When can you discharge a contract for termination?
Only when a party fails to perform entirely / there is a breach of condition (i.e. a repudiatory breach that goes “to the heart” of the contract).
You can elect to affirm the breach (must be unequivocal) and have the obligations remain, or you can elect to terminate the contract.
When terminating a contract for repudiatory breach, what must you do?
Notify the other party.
When you are entitled to damages, whether for breach of condition, warranty, or innominate term, what is the overriding duty on the claimant?
DUTY TO MITIGATE YOUR LOSSES (e.g. contract with another supplier, instead of expecting to recoup all of your losses in the case - you’ll get the difference between the original and new supply contract - to put you back in the position as if the contract HAD BEEN PERFORMED).
What is anticipatory breach; when is it available, and what is its effect?
Anticipatory breach is where, in advance of performance, the party by words or conduct confirms / leads the reasonable person to believe that they WILL NOT perform their contractual obligation.
The other party can immediately accept the renunciation and treat the contract as terminated.
What are the risks in notifying the other party that you are walking away from the contract based on repudiatory breach.
If the alleged condition that is breached is not DEFINED as a “condition” within the contract, this is a big gamble, as the term will need to satisfy the high-bar of the HongKong Fir Shipping test.
It is generally no defence that the notifying party was acting in good faith, believing that the other party’s actions constituted a repudiatory breach.
This is why most commercial parties define what terms & conditions lead to a [repudiatory] breach.
What are 3 key limitations on affirmation / affirming the contract?
- The co-operation of the defaulting party is required for the continued performance of the contract to be workable.
- The innocent party cannot affirm where they have NO legitimate interest (financial or otherwise) in continuing the contract.
- If the party waits too long to terminate the contract via repudiation, there is a risk that affirmation will be deemed by the other party by lapse of time.
When a party chooses to affirm a contract after a repudiatory breach (breach of condition or innominate term treated as a condition), is the affirming party required to mitigate their losses?
No, the affirming party is NOT under a duty to mitigate their losses (White & Carter).
When affirming, the ENTIRE contract and all obligations remain intact, e.g. to pay the full purchase price, to deliver all of the goods.
Where a party chooses to repudiate the contract, what right(s) do they have to sue for damages
Standard compensation damages for the specific breach.
Right to sue for damages due to loss of contract as a whole (as the contract was terminated!).
What is the definition of frustration?
- The contract has become incapable of being performed due to the circumstances being RADICALLY DIFFERENT:
A. —> makes performance illegal.
(incl. change in the law), e.g. shipping to a Nazi-controlled port in Poland (1943).
B. —-> makes performance is impossible
C. —-> makes COMMON PURPOSE of the contract frustrated
(e.g. contract for room hired for sole commercial purpose of viewing a Royal coronation (Krell v Henry)); this will be stronger where the contract’s purpose is shared BY BOTH parties in common.
Modern Example: You agreed with a house owner to rent a large house for the sole purpose of attending a week-long summer festival which was to be held on land adjacent to the house. Due to bad weather, the event was cancelled and this discharges liability under the contract. Where a contract depends on the happening of a certain event—here the summer festival—which the client says was his sole reason for renting the property, and the event does not occur, the contract is discharged.
- Out of parties’ control / neither were at fault
- Occurs AFTER FORMATION.
How high a bar is frustration in contract law? Give examples of what will NOT constitute frustration.
Frustration is rare and sets a high bar to be met; it is not to be used to relieve parties of imprudent commercial bargains (The Nema, Lord Roskill).
- Events which make performance more onerous or expensive.
- Self-induced frustration / Events caused by the default of the party
- Events which the parties could have reasonably contemplated [and should have contracted for!], c.f. highly theoretical risks.
- During the Greek financial crash, a contract was NOT frustrated because at the time of contracting, there were already signs of unrest (Flying Music Company Ltd case). - Events the parties have provided for in the contract.
- frustration cannot override express contractual provisions and how they choose to allocate risk, e.g. force majeure clauses (terrorism, war, “acts of God”). - Unforeseen delays are NOT ENOUGH (for example):
Weather conditions and labour shortages meant that the construction of 78 homes took an additional 22 months and £17,000 extra. This was NOT ENOUGH for the contracts to be frustrated (Davis Contractors v Fareham UDC).
- Wartime (a ship being requisitioned for war WAS NOT ENOUGH, as the court deemed that the war would soon be over and thus a considerable portion of the charterparty [contract to let out a cargo ship] would remain (Tamplin SS case, 1916).
