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
