Discharge and Breach Flashcards
Discharge by a new contract
where the contract is wholly executory (no one has done anything; no consideration has been given), a mutual waiver of performance formally agreed constitutes consideration
(The Hannah Blumenthal)
Discharge by operation of a term in the contract itself
By condition subsequent or precedent,
Head v Tatersall
Entire Obligations Rule
In contracts to complete a whole performance or pay a lump sum, complete performance is required
(Cutter v Powell)
Partial Performance
No obligation to pay unless performance is voluntarily accepted by the offeror.
A Quantum Meruit is owed - this purely covers costs and is not a proportion of the contract price
(Sumpter v Hedges)
A Substantial Performance
i.e. more than a partial performance
Obligation to pay the full contract price, less the cost of remedying defects.
(hoenig v Isaacs)
There may be a failure of substantial performance where the work performed by one party is not objectively poor
The Liddesdale
Tender of Performance:
One party may be wrongfully prevented from performing by the default of the other
(Startup v MacDonald)
Divisible Contract
Where the contract allows for performance of one or more obligations separately from others
(Rose and Frank v Crompton Bros)
Performance by a 3rd Party
Acceptable unless the contract is one for a personal service and is incapable of exactly similar performance by anyone else
(Robson v Drummond)
c.f.
(British Waggon Co v Lea)
Breach
Where a party, without lawful excuse, fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing
(Treitel)
Anticipatory Breach
Before the time for performance of the contract, one party informs the other unequivocally that they will not fulfil their obligation to perform the contract.
Once the innocent party accepts this and notifies the contract-breaker, the the contract is breached.
(Hochster v De La Tour)
If it is not accepted then it is still possible for the contract-breaker to fulfil.
With an Anticipatory Breach it is the innocent party’s freedom to accept or reject the other’s repudiation
Frost v Knight.
Breach of a Condition
Gives the party a right of election
They can choose whether to affirm the contract or treat it as repuiated
The right of election: the innocent party as a reasonable amount of time to decide
Latvian Shipping Co
The right of election: affirmation must be ‘clear and unequivocal’
Rendsburg Investments
The right of election: obligations and rights remain on both sides until the innocent party has made a decision.
White and Carter v McGregor
The right of election: the innocent party can choose whether to wait for the specified date of performance and then elect, or to treat the contract as immediately repudiated
Hochster v De La Tour
- in most circumstance it is better to fulfil the contract and claim damages rather than to claim smaller quantum meruit damages.
Limits to affirmation
- must not need the co-operation of the contract breaker (Twickenham)
- the innocent party must have a ‘legitimate interest’ in affirming the contract (McGregor
Limits to affirmation: the innocent party must not need the cooperation of the contract breaker
Twickenham and Garden Development
Limits to affirmation: The innocent party must have a ‘legitimate interest’ in affirming the contract
White and Carter v McGregor
There will be no ‘legitimate interest’ where the affirmation is ‘wholly unreasonable’
- Wholly unreasonable (The Alaskan Trader)
Court can hold that there is no option to affirm following a breach
MSC Mediterranean Shipping Co v Conttonex
- the commercial adventure envisaged by the contract had become frustrated and so the question of whether MSC had any legitimate interest in affirming the contract did not even arise.
Dangers of affirmation
- The affirming party may themselves breach the contract (The Simona)
- A frustrating event may deny any right to damages
(Avery v Bowden)
Termination of a contract
The party must notify the other of their election to terminate clearly and unequivocally (Vitol v Norelf)
- This can be done by conduct alone (The Santa Clara)
Termination gives rise to an immediate right of action to claim damages (Hochster v De La Tour)
Breach of an innominate Term
The innocent party’s rights depend upon the seriousness of the breach
- A serious breach is one which deprives the innocent party of ‘substantially the whole benefit of the contract’
(Hong Kong Fir)
Frustration
A frustrating event is a supervening event that is the fault of nether party, and renders the contract impossible, illegal or radically different.
From the date of the frustrating event, all future obligations are discharged by operation of law
The more foreseeable the event, the less likely it is to frustrate.
Frustration: supervening
between the agreement and the promise
Frustration: Unforeseeable
Amalgamated Investment
Frustration: Neither Party’s fault
The Euginia
Frustration: ‘radical difference’
Dais Contractors v Fareham UDC
Four types of Frustration
- Impossibility
- Frustration of Purpose
- Illegality
- Government Intervention
Frustration: Impossiblity
- Destruction
- Unavailability of thing
- Unavailability of Person
Impossibility:
The destruction of a thing necessary to perform the contract
Music Hall burnt down, and the license to use it was frustrated (though a lease probably wouldn’t have been)
Taylor v Caldwell
A contract to install machinery was frustrated when the factory in which they were to be installed burnt down
Appleby v Myers
Unavailability of a thing necessary to perform the contract
A question of degree: has the majority of the contract been taken away?
A ship was needed ‘with all possible dispatch’ (i.e. very quickly) so the contract was frustrated when it ran aground and needed 8 months of repairs
Jackson v Union Marine Insurance
Ship was requisitioned for 5 months of a 12 month charter - found that the contract was frustrated
Bank line v Arthur Capel
c.f. Tamplin
Requisitioned in 1915 after 3 years of a 5 year charter - found that the contract was not frustrated because the court thought the war would end soon.
Tamplin v Anglo-Mexican
No frustration where the purpose has been fulfilled.
The Sea Angel
- The commercial purpose had been fulfilled by the time that the ship was impounded on the 17th day of a 20 day hire.
The unavailability of a person necessary to perform the contract due to incapacity of death, unless self-induced is a frustrating event
e.g. conscription or illness
Conscription was a frustrating event
Morgan v Manser
The inability to perform due to illness was frustating
The Barron Knights
Frustration of Purpose
Non- Occurrence of and event can be a frustrating even if the contract was the specific common purpose of both parties.
If the ‘common object’ of such a contract, found in the exchange of services for payment is found impossible by an interruption, it is deemed to affect the interest of both parties
Bank Line v Arthur Capel
Inference could be drawn from the circumstances that the room in the flat was fired solely to view the coronation, so this was frustrated when the king fell ill
Knell v Henry
c.f.
Herne Bay Steam Boat
The king fell ill, but the boat had also been hired to view the Navy and to relax.
These aims could still be met and so was not a frustration of purpose.
Herne Bay Steam Boat v Hutton
Frustration from Illegality
A contract to do what has become illegal to do cannot be legally enforceable
(Fibrosa v Fairbairn)
Illegality cannot create legal rights, even where that illegality is not as a result of a criminal offence
RTA v Bracewell
- an estate agent could not charge fees and commission because it was not properly registered under the Money Laundering Regulations
Frustration due to Government Intervention
Government Intervention that is unforeseeable and amounts to a long-term intervention may be a frustrating event.
Frustration can occur from a custodial sentence
FC Shepherd v Jerrom
Limitations of Frustration
- onerous
- self-induced
- foreseeable
- War
The frustration of leases
In theory, if the property is unavailable for a significant proportion of the lease, though there has never been an example
National Carriers v Panalpina
- access road to the land as closed for 20 months out of a 10 year lease was not frustrated.
No frustration where the contract is merely made more onerous or commercially impractical
Davis Contractors v Fareham
- lots of problems in building houses such as a bad winter, no frustration.
Self-induced Frustration?
No frustration
National Fish v Ocean Trawlers
- The defendant chose not to apply for a fishing licence, so could not argue that ship was useless for fishing.
Contracted to carry an oil rig on either ships SS1 or SS2, but SS2 sank and SS1 had been contracted out elsewhere
The Super Servant Two
- court held that SS1 was still available, so the sinking was not frustration
If you are not obviously at fault then it will not be self-induced
Constantine Steamship v Imperial Smelting
Foreseeability and frustration?
No frustration where the event is foreseeable
Buyers were aware of the possibility of being denied planning permission.
The event was foreseeable and so not frustrated
Amalgamated Investment
The mere incidence of expense of delay of onerousness is not sufficient. There has to be a break in identity.
The more foreseeable the event, the less likely to frustrate
(The Sea Angel)
An act passed through ordinary Parliamentary procedure would not be a frustrating event, as it would be foreseeabel
Metropolitan Water Board
- only emergency legislation can be frustrating
The necessity of proceeding round the Cape, as opposed to the Suez Canal, did not have such an impact on the contract as to frustrate it.
The Eugenia
Frustration and War
A declaration of war did not automatically frustrate affected contracts
(The Chrysalis)
The Law Reform (Frustrated Contract) Act 1943
Details items recoverable in the event of a frustrated contract
Money paid before a frustrating event is recoverable, and money payable before a frustrating event ceases to be payable
S. 1
A ‘just sum’ for expenses is recoverable up to the limit of money paid or payable before the event, whichever is less
s. 1
The Party seeking to recover their expenses has the burden of proof (Gamerco)
A party who has gained a non-monetary valuable benefit may be required to pay a just sum for it. The court determines what this just sum is
S. 1
BP Exploration v Hunt
Past rent will not be frustrated, but future rent could be
S. 2
Sums Payable on Breach
Lord Dunedin gave guidelines for distinguishing between penalties and genuine pre-estimates of loss
(Dunlop Tire v New Garage )
Total Failure of consideration
s. 2
Fibrosa v Fairbairn
- all money paid is recoverable, and any money payable no longer needs to be paid
Partial Failure of consideration
S. 2
Chandler v Webster
At the date of the frustrating event any rights and liability that have already occurred are enforceable, but any that are not yet enforceable never will be.
Calculating ‘sums payable on breach’
Dunlop Pneumatic Tire Co: gave guidelines for distinguishing between penalties and genuine pre-estimates of loss.
- The sum payable is a penalty if it is extravagantly large in comparison with the greatest loss which the breach could possibly cause.
