Termination

Question 1

When does a party have a right to terminate the future performance of a contract?

Answer 1

Where there is breach of a condition or where there is a serious breach of a term classed as an innominate term. These are called repudiotry breaches.

Question 2

Does the breach terminate the contract automatically?

Answer 2

The innocent party will have a choice to affirm the contract or discharge the contract.

If they affirm the contract, they cannot then change their mind. Affirmation is a bar to terminating a contract and by affirming the contract the innocent party could then limit themselves to a claim for damages for the breach.

Question 3

What effect does a party discharging the contract have in the event of a breach

Answer 3

Termination only operates to discharge parties from future contractual obligations. If there are none because the contract has not been performed termination will be impossible.

Question 4

What happens when a contract is frustrated?

Answer 4

It is when the contract is automatically brought to an end and both parties are excused from future performance.

This is on the basis, that a party can no longer perform a contractual obligation due to an unforeseen event beyond its control.

The law determines how any losses should be borne by the parties.

Question 5

What constitutes as frustration

Answer 5

The supervening event or changes of circumstances must:

• Make performance of the contract impossible, or radically different.
• Be something beyond the ordinary risks that the parties can be treated as having taken on board when entering into their contract (ie something unexpected)
• Be something that was beyond the control of either party.

Question 6

What circumstances render performance of the contract ‘radically different’?

Answer 6

*Government intervention
* Unavailability of a specific person crucial to the contract
* Illegality
* Destruction of the subject matter
*Non-occurence of a fundamental event

Question 7

Does delay amount to frustration?

Answer 7

Delay is not a category of frustrating event in itself, as not every case of delay will frustrate a contract.

In fact a delay is more likely to mean that a party is in breach of contract.

Question 8

What are the relevant factors to include when deciding whether delay frustrates a contract?

Answer 8

• Whether there are contract provisions for the consequences of delay?
• The likely length of delay relative to the duration of the contract
• Any time set in the contract for the obligations to be performed
• Whether the performance resumed is radically different from the contract.

Question 9

How can Something beyond the ordinary risks that the parties can be treated as having taken on board when entering into their contract (ie something unexpected) frustrate a contract?

Answer 9

It is important, when considering the event that may have caused frustration, to decide whether the parties could have foreseen the event.

If the reason a party cannot perform the contract is due to see entirely predictable common event, the they will not generally be able to plead the doctrine of frustration.

Question 10

What is a force majeure clause?

Answer 10

It effectively excuses a party from non performance in specified circumstances, they will be governed by s 3 UCTA 1977 and as such will have to satisfy the reasonableness test to be upheld.

Therefore the defendants defence to non performance arises because it was agreed that the defendant need not perform in the specified circumstances.

Question 11

How can Something beyond the control of either party frustrate a contract?

Answer 11

The supervening event or change of circumstances must be beyond the control of either party means that if it arises because of the fault or choice of the party alleging frustration, then that party will not be successful in defending an action for breach.

In essence the law takes the view that you should not be excused from what is your own fault.

Question 12

What is the consequence of a contract being frustrated

Answer 12

Both parties are released from all future obligations and neither party will be in breach of contract in respect of the frustrating event.

Question 13

What happens If the contract is frustrated but one party has already paid money to the other or has incurred expenses in preforming the contract, or has received a benefit under the contract?

Answer 13

S1(2) The Law Reform (Frustrated Contracts) Act 1943 sets out

• Money paid before the event can be recovered
• Money that should have been paid before the event need not be paid.
• At the courts discretion, expenses incurred by the payee can be recovered out of the total sums paid/payable before the event.

BUT the maximum the court can award for expenses incurred by the payee is a sum equal to the total paid and payable before the frustrating event or the amount of expenses incurred whichever is lower sum.

Question 14

What does S1(3) The Law Reform (Frustrated Contracts) Act 1943 sets out if one party has conferred a valuable benefit on the other party before the frustrating event?

Answer 14

The Court may order a just sum to be paid by the recipient for that benefit, what is a just sum depends will depend on the circumstances including the effect the frustrating event may have had on the benefit any any sum forfeited by the benefitting party.

A court would be reluctant to award a just sum if the frustrating event compeltly wiped out the work done by one party before the other party could benefit from it.

Question 15

What is the doctrine of complete performance

Answer 15

It is a general rule that performance of contractual obligations must be precise and exact.

If one party has to pay only after the other has performed their obligations under the contract, then if performance is not precise and exact, the payer does not have to pay any part of the price.

Although they will not be able to recover money already paid unless there has been a total failure of the consideration.

Question 16

What are the exceptions to the doctrine of complete performance?

Answer 16

• Divisible obligations
• Substantial performance
• Wrongful prevention
• Voluntary acceptance of part performance.

If an exception applies then some payment can be recovered, even though the contractural obligations have not been perfumed precisely and exactly.

Question 17

What is the exception of Divisible obligations to the doctrine of complete performance

Answer 17

Contractural obligations are divisible if the parties have agreed specific payments for each distinct part or stage of the contract.

Each part or stage is then treated like a separate contract and so once it has been completed the contractor is entitled to be paid in full for it.

Question 18

What is the exception of Substantial performance to the doctrine of complete performance

Answer 18

If a contractor has completed the agreed work but it is slightly defective they may not be entitled to the price, but they will be entitled to the price less the cost of putting right the defect.

Question 19

What consists work being slightly defective?

Answer 19

As a general rule, as long as the cost of rectifying the problem is not more than 1/4 of the contract price a court is likely to accept that the work has been substantially performed.

Question 20

What is the exception of Wrongful prevention to the doctrine of complete performance

Answer 20

If a party is wrongfully prevented from completing their contractural obligations they will be entitled to either damages or a reasonable sum in restitution for what has already been done. If the employer terminates in circumstances falling short of a serious breach, then that will be wrongful prevention and a repudiator breach by the employer.

You are more likely to see this with s13 SGSA 1982 in business to business contracts that service/work will be carried out with reasonable care and skill. As this is an innominate term, it may be difficult to ascertain how bad the work has to be before the employer is justified in terminating the contract.

Question 21

What is the exception of Voluntary acceptance of part performance to the doctrine of complete performance

Answer 21

Where a supplier of goods or services partly performs their contractural obligations and the other party voluntary accepts the partial performance then the supplier is entitled to a reasonable sum for what they have done.

Important to note that the non-defaulting party must have a genuine choice whether, or not, to accept the part performance. If they have no choice because the supplier built something on the non-defaulting party’s land and the abandoned the job, the non-defaulting party will not have to pay anything for what was done.