W8 Discharge and Frustration Flashcards
How does an agreement end?
Agreement
Performance
Breach
Frustration
What are the rules for termination by agreement?
May be supported by termination language in the contract
Must have consideration - if both parties have remaining obligations, then the waiver is the consideration for both
If only one party has outstanding obligations, then additional consideration must be provided
What is the entire obligations rule?
A contract can’t be discharged by performance until all obligations have been fulfilled - Cutter v Powell
How can one avoid the entire obligations rule?
1) Agreement for partial performance - Sumpter v Hedges
2) Substantial performance - Hoenig v Isaacs
3) Divisible obligations - Rose & Frank v Compton Bros
4) Personal obligations - Robson v Drummond
Cutter v Powell
Facts: Cutter was a sailor contracted to work on a ship. First mate. Ship sailing from Jamaica to Liverpool. Was paid significantly higher than the going rate. Would be paid 10 days afterwards. He died during the journey, 2/3 of the way through. His widow waited until 10 days after ship docked, then claimed his wages - pro rated. Court denied claim as he was required to sail the ship all the way to Liverpool. Since he didn’t complete the requirement, she was not entitled to payment.
Significance: Entire obligations rule - a contract isn’t satisfied until all obligations fulfilled.
Sumpter v Hedges
Facts: Sumpter was contracted to build 2 buildings and a stable on Hedges’ land. Part-way through, Sumpter downed tools and left. Hedges finished the work himself with Sumpters’ materials. Sumpter came back and sued for pro rated amount. Court denied claim due to entire obligations rule, but said he could recover the cost of materials he’d bought and left behind. Court also said partial performance can discharge a contract only if other party voluntarily accepted the partial performance.
Significance: Entire obligations rule. Partial performance can be OK if ofther party voluntarily accepts it.
Hoenig v Isaacs
Facts: Contract to refurbish flat. Workman said work was done and asked for money. Owner inspected it and found a faulty bookshelf and wonky wardrobe door. Owner withheld half the money, insisting on full performance. Court said that practically speaking, the flat had been refurbished. Owner has to pay full remaining price minus the price of the remaining work.
Significance: Discharging a contract through substantial performance.
Rose & Frank v Compton Bros
Facts: Framework agreement with case-by-case orders sitting underneath. Only the orders had binding obligations within them.
Significance: Discharge of a contract not prevented because the obligations were divisible.
Robson v Drummond
Facts: Contract for coach painting awarded to renowned coach painter. Coach painter retired and left his business to another. Contract could not be discharged by another’s performance due to original’s particular skill and reputation. Contract was now impossible.
Significance: Contract couldn’t be discharged by performance due to personal obligations.
What are the rules of anticipatory breach?
1) Notice of an imminent breach is taken the same as an actual breach
2) Nonbreaching party can bring a claim immediately - don’t need to wait for the breach to occur
3) Exercise with care if circumstances are unclear, so as not to fall afoul of wrongful repudiation
Authority: Hochster v De La Tour
Hochster v De La Tour
Facts: Courier company contracted to deliver goods. Other party decided they didn’t need the goods anymore. Courier company sued for both anticipatory and repudiatory breach. Other party contested saying they sued too soon, as they could have changed their mind again. Court said no, suit could be brought immediately from notice - can’t mess people about.
Significance: Anticipatory breach - notice of an impending breach is treated the same as the occurrence of the breach.
What happens in case of a breach of condition?
Non-breaching party gets a right of election - contract can end or be affirmed.
Either way, they can claim damages.
If non-breaching party is the performing party, advisable to affirm the contract and fulfill your own obligations, then sue for debt rather than damages (no mitigation requirement)
What happens in case of a breach of warranty?
Contract continues. Right to damages.
What happens in case of a breach of innominate terms?
Wait and see. Depends on effect of breach.
What are the rules on affirmation?
1) Nonbreaching party may have reasonable amount of time to decide, commensurate with size of contract (Stocznia Gdanska v Latvian Shipping No 2)
2) Must be clear and unequivocal - Yukong Line v Rendsburg
3) Once affirmed, obligations remain on both sides - White & Carter v McGregor
Stocznia Gdanksa v Latvian Shipping No 2
Facts: Sale of 6 ships. Condition that payment would be made on time. Purchasers were late paying by 1 day, twice. Sellers didn’t do anything. Then a few months later, purchasers were late again. Sellers exercised their right by terminating the contract. Buyers said they had lost that right by not terminating the first instance of late payment. Court ruled that, due to size of contract, sellers could be afforded reasonable time to decide whether to end the contract or not.
Significance: Affirmation - non-breaching party is allowed reasonable time to decide.
Yukong Line v Rendsburg
Facts: Lessors didn’t want the ship anymore. Owners replied saying they strongly suggested continuing with the contract. Ruled not clear enough to be an affirmation of the contract.
Significance: Affirmation - must be clear.
White & Carter v McGregor
Facts: Advertising company were placing posters around an area on bins, etc. Contract was with local authority. Annual and renewable arrangement. LA and company agreed to do it for another year, then company changed their mind. LA affirmed the contract without the company’s consent. HoL ruled that if it had been argued that there was no legitimate interest in affirming it, they wouldn’t have allowed it. Since they left that out, they did allow it.
Significance: Affirmation - must be legitimate interest in affirming/not unreasonable to affirm.
What are the limits to affirmation?
1) Requires other party’s co-operation - Hounslow v Twickenham Garden
2) Must be a legitimate interest in keeping the contract alive/must not be unreasonable to affirm - White & Carter v McGregor
3) Subsequent breach
4) Subsequent frustration
Note: Legitimate interest is presumed unless damages would be insufficient or affirmation would be unreasonable.
Hounslow v Twickenham Gardens
Facts: Construction company. Local authority were in breach. Construction company looked to affirm. Court ruled impossible since they needed access to the local authority’s land. Not Court’s job to police/enforce contracts on an ongoing basis.
Significance: Affirmation requires other party’s co-operation.
What are the rules on termination for breach?
1) Immediate right - Hochster v De La Tour
2) Notification required - The Santa Clara
3) Claimant will also sue for damages but must mitigate losses
What is frustration?
It is a defence against a breach of contract claim, making the argument that it would be unfair to hold the breaching party responsible.
Must first identify the breach of contract prior to arguing frustration.
The Santa Clara
Facts: Buyer telegrammed seller cancelling the contract as the goods in question were being loaded onto the ship (deemed anticipatory breach). Seller finished loading but did nothing further to perform the contract. Seller sued for breach of contract and tried to claim damages. Dispute over whether seller’s lack of further performance was accepting buyer’s cancellation or not. Ruled that action or inaction can be acceptance if they unequivocally convey acceptance of cancellation.
Significance: Termination for breach requires notice. Notice to accept cancellation or affirm can be words, actions, or inaction, as long as unequivocal.
What are the elements which must be satisfied for frustration?
Supervening event - after contract made, before performance completed
Unforeseeable - Amalgamated Investment v John Walker
No fault of either party - The Eugenia
Impossible, illegal, or radically different contract
**Always decided on its facts
Authority: Davies Contractors v Fareham
Amalgamated Investment v John Walker
Facts: AIP was a property developer buying a building from JW. Near conclusion of contract, asked JW if the building was a listed building. JW said no, which was true at the time. Before the contract was finalized, the government added the building to a list of potential listed buildings. Purchase went through ~£1.7M. A few days later, government wrote to the owners to say the building had been listed, dropping the value by £1.5M. AIP wanted to get out of the contract, tried a number of arguments, including mistake. Court denied plea of mistake, because the facts were true at the time the contract was made. Was too foreseeable to be frustration.
Significance: Mistake requires the mistake to have occurred at time of contracting. Frustration must be unforeseeable.
The Eugenia
Facts: Ship carrying steel via Suez Canal. Was in breach of a war restriction via charter. Pulled into a port before getting to the canal to try and get into canal before the war closed it. Ship didn’t get through in time and was impounded. Shipping company argued frustration due to the war. Court denied claim and said it was their fault, as could have taken the long way round. Shipping company said it was commercially impractical - Court was not persuaded. They chose to take the riskier route so assumed those consequences.
Significance: Frustration - not frustration if the contract is merely inconvenient or commercially impractical. Must be impossible, illegal, or radically different.
Davies Contractors v Fareham
Facts: Post war building contract. Shortage of materials. Construction was going to be more expensive than orignally planned and take longer. Builders tried to get more money, court denied this. Court ruled it’s just less of a good deal - the contract can still go ahead. By not allowing for price variation in the contract, they assumed this risk.
Significance: Defined the test for frustration (SUNI). Includes the milkmaid and tiger anecdote.
What is the effect of successfully arguing frustration?
If the contract explicitly excludes the Law Reform (Frustrated Contracts Act) 1943:
- From the time of the frustrating event, all future obligations of both parties are discharged.
- If nothing has been given in return of payment, then can get full refund. If some benefit has been obtained/some service performed, then no refund.
If contract does not exclude the Act:
- From the time of the frustrating event, all future obligations of both parties are discharged.
- S1(2) Performing party can recover expenses up to limit of advanced payment
- S1(3) If either party received a valuable benefit, then court may award a “just sum”
Likely causes of frustration
Government Intervention - Metropolitan Water Board v Dick Kerr
Illegality - Fibrosa v Fairbairn
Destruction of Subject Matter - Appleby v Myers
Unavailability of a Person - Morgan v Manser
Unavailability of Subject Matter - Jackson v Union Marine
Removal of Common Purpose (must be whole common purpose) - the Coronation cases
Metropolitan Water Board v Dick Kerr
Facts: building a dam. Materials were designated important war resources and government funneled away from contract. Not possible to continue building dam.
Significance: Example of government intervention.
Fibrosa v Fairbairn
Facts: Polish and English company. After contracting, Poland was invaded by Germany. By performing the contract, English company would have been serving the enemy - illegal.
Significance: Example of frustration by illegality.
Appleby v Myers
Facts: Machinery contracted to install in a factory. Factory burnt down. Machinery was undamaged. Contract was frustrated as something closely connected was destroyed.
Significance: Frustration - Destruction of Subject Matter
Morgan v Manser
Facts: Comedian called up for national service, so was unavailable.
Significance: Frustration by incapacity
Jackson v Union Marine
Facts: Chartered for a specific voyage. Ship ran aground in the middle of the journey and was unavailable for 8 months. Court ruled it depended on whether it was unavailable for a reasonable time - if unreasonable, was essentially a different voyage.
Significance: Frustration for unavailability of subject matter. Doesn’t need to be wholly unavailable, just an unreasonable amount of time.
Herne Bay Steamboat v Hutton
Facts: Huttons rented a steamboat to sail around the royal fleet and see the King. Court did not allow. Entirety of the common purpose hadn’t been frustrated - family could still look at the boats, even if they wouldn’t also be seeing the King.
Signficance: Frustration of common purpose - must be entire purpose for both parties.
When is frustration an ineffective defence?
Commercial impracticality - Noblee Thori
Self-induced frustration - Maritime National Fish v Ocean Trawlers
Event foreseeable - The Sea Angel
Force majeure clauses
Noblee Thori
Facts: Ship carrying nuts got stuck in Suez Canal. Ruled not frustration as could have gone the long way around, chose to chance the canal (fault, foreseeability, etc). Stability of goods played a role.
Significance: Frustration - doesn’t work in cases of commercial impracticality.
Maritime National Fish v Ocean Trawlers
Facts: Ships hired for fishing. Owners needed a licence to operate the specific net needed. Government only granted 3/5 licences so had to cancel 2 contracts due to frustration. Court didn’t allow, since ship owners chose which customers got the ships.
Significance: Frustration - self-induced. If you have choices to make, unlikely to be frustration.
The Sea Angel
Facts: 20 day charter for a salvage vessel to retrieve oil from a stricken vessel. Ship went out, did its job, returned to harbour with time left. Ship was impounded upon return by port authorities for at least 10 days. Court ruled the time calculation is only a starting point but is overall a holistic view - ship was no longer needed.
Significance: Frustration - unavailability of subject matter
Facts: Cutter was a sailor contracted to work on a ship. First mate. Ship sailing from Jamaica to Liverpool. Was paid significantly higher than the going rate. Would be paid 10 days afterwards. He died during the journey, 2/3 of the way through. His widow waited until 10 days after ship docked, then claimed his wages - pro rated. Court denied claim as he was required to sail the ship all the way to Liverpool. Since he didn’t complete the requirement, she was not entitled to payment.
Significance: Entire obligations rule - a contract isn’t satisfied until all obligations fulfilled.
Cutter v Powell
Facts: Sumpter was contracted to build 2 buildings and a stable on Hedges’ land. Part-way through, Sumpter downed tools and left. Hedges finished the work himself with Sumpters’ materials. Sumpter came back and sued for pro rated amount. Court denied claim due to entire obligations rule, but said he could recover the cost of materials he’d bought and left behind. Court also said partial performance can discharge a contract only if other party voluntarily accepted the partial performance.
Significance: Entire obligations rule. Partial performance can be OK if ofther party voluntarily accepts it.
Sumpter v Hedges
Facts: Contract to refurbish flat. Workman said work was done and asked for money. Owner inspected it and found a faulty bookshelf and wonky wardrobe door. Owner withheld half the money, insisting on full performance. Court said that practically speaking, the flat had been refurbished. Owner has to pay full remaining price minus the price of the remaining work.
Significance: Discharging a contract through substantial performance.
Hoenig v Isaacs
Facts: Framework agreement with case-by-case orders sitting underneath. Only the orders had binding obligations within them.
Significance: Discharge of a contract not prevented because the obligations were divisible.
Rose & Frank v Compton Bros
Facts: Contract for coach painting awarded to renowned coach painter. Coach painter retired and left his business to another. Contract could not be discharged by another’s performance due to original’s particular skill and reputation. Contract was now impossible.
Significance: Contract couldn’t be discharged by performance due to personal obligations.
Robson v Drummond
Facts: Courier company contracted to deliver goods. Other party decided they didn’t need the goods anymore. Courier company sued for both anticipatory and repudiatory breach. Other party contested saying they sued too soon, as they could have changed their mind again. Court said no, suit could be brought immediately from notice - can’t mess people about.
Significance: Anticipatory breach - notice of an impending breach is treated the same as the occurrence of the breach.
Hochster v De La Tour
Facts: Sale of 6 ships. Condition that payment would be made on time. Purchasers were late paying by 1 day, twice. Sellers didn’t do anything. Then a few months later, purchasers were late again. Sellers exercised their right by terminating the contract. Buyers said they had lost that right by not terminating the first instance of late payment. Court ruled that, due to size of contract, sellers could be afforded reasonable time to decide whether to end the contract or not.
Significance: Affirmation - non-breaching party is allowed reasonable time to decide.
Stocznia Gdanksa v Latvian Shipping No 2
Facts: Lessors didn’t want the ship anymore. Owners replied saying they strongly suggested continuing with the contract. Ruled not clear enough to be an affirmation of the contract.
Significance: Affirmation - must be clear.
Yukong Line v Rendsburg
Facts: Advertising company were placing posters around an area on bins, etc. Contract was with local authority. Annual and renewable arrangement. LA and company agreed to do it for another year, then company changed their mind. LA affirmed the contract without the company’s consent. HoL ruled that if it had been argued that there was no legitimate interest in affirming it, they wouldn’t have allowed it. Since they left that out, they did allow it.
Significance: Affirmation - must be legitimate interest in affirming/not unreasonable to affirm.
White & Carter v McGregor
Facts: Construction company. Local authority were in breach. Construction company looked to affirm. Court ruled impossible since they needed access to the local authority’s land. Not Court’s job to police/enforce contracts on an ongoing basis.
Significance: Affirmation requires other party’s co-operation.
Hounslow v Twickenham Gardens
Facts: Buyer telegrammed seller cancelling the contract as the goods in question were being loaded onto the ship (deemed anticipatory breach). Seller finished loading but did nothing further to perform the contract. Seller sued for breach of contract and tried to claim damages. Dispute over whether seller’s lack of further performance was accepting buyer’s cancellation or not. Ruled that action or inaction can be acceptance if they unequivocally convey acceptance of cancellation.
Significance: Termination for breach requires notice. Notice to accept cancellation or affirm can be words, actions, or inaction, as long as unequivocal.
The Santa Clara
Facts: AIP was a property developer buying a building from JW. Near conclusion of contract, asked JW if the building was a listed building. JW said no, which was true at the time. Before the contract was finalized, the government added the building to a list of potential listed buildings. Purchase went through ~£1.7M. A few days later, government wrote to the owners to say the building had been listed, dropping the value by £1.5M. AIP wanted to get out of the contract, tried a number of arguments, including mistake. Court denied plea of mistake, because the facts were true at the time the contract was made. Was too foreseeable to be frustration.
Significance: Mistake requires the mistake to have occurred at time of contracting. Frustration must be unforeseeable.
Amalgamated Investment v John Walker
Facts: Ship carrying steel via Suez Canal. Was in breach of a war restriction via charter. Pulled into a port before getting to the canal to try and get into canal before the war closed it. Ship didn’t get through in time and was impounded. Shipping company argued frustration due to the war. Court denied claim and said it was their fault, as could have taken the long way round. Shipping company said it was commercially impractical - Court was not persuaded. They chose to take the riskier route so assumed those consequences.
Significance: Frustration - not frustration if the contract is merely inconvenient or commercially impractical. Must be impossible, illegal, or radically different.
The Eugenia
Facts: Post war building contract. Shortage of materials. Construction was going to be more expensive than orignally planned and take longer. Builders tried to get more money, court denied this. Court ruled it’s just less of a good deal - the contract can still go ahead. By not allowing for price variation in the contract, they assumed this risk.
Significance: Defined the test for frustration (SUNI). Includes the milkmaid and tiger anecdote.
Davies Contractors v Fareham
Facts: building a dam. Materials were designated important war resources and government funneled away from contract. Not possible to continue building dam.
Significance: Example of government intervention.
Metropolitan Water Board v Dick Kerr
Facts: Polish and English company. After contracting, Poland was invaded by Germany. By performing the contract, English company would have been serving the enemy - illegal.
Significance: Example of frustration by illegality.
Fibrosa v Fairbairn
Facts: Machinery contracted to install in a factory. Factory burnt down. Machinery was undamaged. Contract was frustrated as something closely connected was destroyed.
Significance: Frustration - Destruction of Subject Matter
Appleby v Myers
Facts: Comedian called up for national service, so was unavailable.
Significance: Frustration by incapacity
Morgan v Manser
Facts: Chartered for a specific voyage. Ship ran aground in the middle of the journey and was unavailable for 8 months. Court ruled it depended on whether it was unavailable for a reasonable time - if unreasonable, was essentially a different voyage.
Significance: Frustration for unavailability of subject matter. Doesn’t need to be wholly unavailable, just an unreasonable amount of time.
Jackson v Union Marine
Facts: Huttons rented a steamboat to sail around the royal fleet and see the King. Court did not allow. Entirety of the common purpose hadn’t been frustrated - family could still look at the boats, even if they wouldn’t also be seeing the King.
Signficance: Frustration of common purpose - must be entire purpose for both parties.
Herne Bay Steamboat v Hutton
Facts: Ship carrying nuts got stuck in Suez Canal. Ruled not frustration as could have gone the long way around, chose to chance the canal (fault, foreseeability, etc). Stability of goods played a role.
Significance: Frustration - doesn’t work in cases of commercial impracticality.
Noblee Thori
Facts: Ships hired for fishing. Owners needed a licence to operate the specific net needed. Government only granted 3/5 licences so had to cancel 2 contracts due to frustration. Court didn’t allow, since ship owners chose which customers got the ships.
Significance: Frustration - self-induced. If you have choices to make, unlikely to be frustration.
Maritime National Fish v Ocean Trawlers
Facts: 20 day charter for a salvage vessel to retrieve oil from a stricken vessel. Ship went out, did its job, returned to harbour with time left. Ship was impounded upon return by port authorities for at least 10 days. Court ruled the time calculation is only a starting point but is overall a holistic view - ship was no longer needed.
Significance: Frustration - unavailability of subject matter
The Sea Angel
