Discharge of A Contract

1
Discharge of A Contract
2
Exam Relevance
3
Discharge?

• To be discharged means that a contract is,
  completed and no longer binding
• Practical consequence is that it is sometimes
  important to know when a contract or ones side
  of a contract has been completed.

4
Discharge by Performance - Summary

• We are really talking about when a party can be
  deemed to have completed his obligations under
  the contract such he is discharged from future
  obligations. Also, in practical terms, it is
  usually at this point he can claim the benefit
  for which he was promised under the contract.
• Two special circumstances
• Where courts view contact as entire or lump
  need entire performance of all obligations save
  those which are de minimus
• Where courts have taken view that contract is
  divisible, such that you are paid on Quantum
  Meruit for what you have done to date.
• Really talking about what it means to perform
  ones obligations under a contract such that one
  is discharged from obligations and can get the
  promised benefit

5
Entire Contracts

• The all or nothing rule
• Unless you perform your side exactly, you have
  not performed and thus you cant claim your
  benefit.

6
Cutter v Powell (1795)

• Sailor was promised 30 guineas on completion of
  journey died en route
• Widow sought payment on QM proportionate to the
  amount he had completed
• Ct held that Ct was all or nothing ob to pay
  only arose when performance complete
• One factor the 30 guineas was quite high took
  the view that this was essentially being paid by
  way of the price for full performance.

7
When is a contract entire?

• Question of fact for each case Nash Co v
  Hartland (1840)
• Vigers v Cook
• UT sued for money for carrying out funeral
• Coffin he used to mask smell burst body could
  not be taken into church
• UT sought on QM held was not entitled
  contract to provide for a funeral was an entire
  contract not capable of division into
  sub-contracts (i.e. the coffin, the embalming
  etc).

8
Advice

• Look at nature of contract
• Did the parties intend it to be entire?
• Was it a all in one i.e. whereas constituting
  many services, did one party sell himself as
  offering it all?
• Was there a premium offered for complete
  performance?

9
Building Contracts

• View where one is to be paid in lump sum, means
  that you have to complete entirely before you get
  it
• Collem v Marum (1871) builder could not part
  perform and seek part payment employer is not
  bound to pay for half or a quarter of a house

10
Sumpter v Hodges (1898)

• Lump sum building contract is an entire contract
  i.e. payment depends on completion
• Now, if one adopts a half house (i.e. accepts it)
  where one has a choice in the matter court may
  infer the existence of a new contract (i.e. to
  pay for the half house)
• Choice is key hereno choice, no inferred contract

11

• This may all be a bit harsh
• Mitigated by doctrine of substantial compliance

12
Hoenig v Isaacs (1952)

• Builder redecorates flat for 750 but didnt put
  in a bookcase as he was supposed to
• Cost of remedying was 55
• Held that defect was not substantial in terms of
  overall contract entitled to 695
• Denning pointed out that substantial compliance
  would usually be found unless breach went to root
  of contract!!!!

13
Bolton v Mahadeva (1972)

• Install central heating - 560 defective
  installation
• Cost 130 to fix
• The whole system didnt work held to be a
  substantial defect court looked at percentage
  cost of repair held substantial performance had
  not taken place so not entitled to any payment

14
Kincora Builders v Cronin (1973)

• Builder did not insulate ceiling of house
• No substantial performance of overall job
• Overall costs 6000
• Insulation probably around 350 and noted as
  very small in proportion by Pringle J

15
Discharge by Agreement

• 1. Termination through Accord and Satisfaction
• We agree to discharge (need consideration etc)
• Probably best to put it in writing
• Usually fine if executory, but really need watch
  consideration if one side has already performed

16

• 2. Variation
• Vary the contract to turn it into something else
• Consideration required
• NZ Antons Trawling v Smith (2003) variations
  dont need consideration unless specific public
  policy reasons say so
• Formalities would apply where relevant
• 3. Waiver
• Waive one term or a contractual right
• Does not have to comply with statute
• Can waive by conduct

17
Discharge by Breach
18

• Breach does not terminate a contract
• May allow one party (wronged party) to bring
  contract to an end
• We know about warranties breach only entitle to
  damages

19
When is something a warranty?

• Where law says so
• Where parties say so
• Some law in relating to certain types of terms /
  provisions

20

• So, can end a contract where it has been breached
  where the breach is a condition
• You can also end a contract where either
• Fundamental breach occurs
• Breach of the fundamental term if breach is
  fundamental (basically Hong Kong Firs)
• E.g. Dundalk Shopping Centre v Roof Spray
• D treated roof of Ps premises so badly it leaked
• Such a breach, P could treat K at an end (ct
  noted likelihood of recurrence here)

21
Revision

• Discharge by Breach
• I.e. certain breaches allow one side to treat
  contract as at end thus discharging their
  obligations
• E.g. hirer of ship has 5 years of payments to
  make, but the ship after 1 year proves to be of
  terrible quality. He may want to treat the
  contract as ended (discharged) and thus not be
  bound to pay the rest (subject to his right to
  recover in damages)

22
Three ways

• Breach of condition (where we know its a
  condition)
• Breach of fundamental term
• Fundamental breach

23
Now one more way

• Repudiatory breach
• Where the other party has decided not to perform
  its obligations under the contract.
• Where one party has made a clear decision not to
  perform its obligations, it cannot be fair to
  expect the other party to perform its
  obligations. In these circumstances, therefore,
  the innocent party can treat the contract as
  having come to an end.

24
Athlone RDC v Campbell Son

• P carrying out excavation of a well dispute
  arose, but P said they would carry on
• D said he didnt want that
• P said this was a breach of K (i.e. the D has no
  intention of paying us)
• P could rely on this anticipatory repudiation of
  the contract to bring it to an end
• Practical consequence could sue for damages
  without having to perform the contract itself!

25
Two rules for Repud Breach to Occur

• 1. Rep Breach Must be Serious
• Decro Wall International v Practitioners in
  Marketing
• Consistent and deliberate late payment no
  sufficiently serious when delay was ultimately
  minor
• 2. Breach must be deliberate
• Nottingham BS v Eurodynamics
• Refused to pay disputed invoices not a breach
  since dispute was bona fide
• Woodar Investment v Wimpey Construction
• Where one party believes in good faith that they
  are abiding by contract, but, in fact, breaching
  or announcing intention to breach it, no repud
  breach will be made out.
• Continental Oil v Moynihan same principle as
  Woodar

26

• Anticipating a Repudiation
• Situation A
• The breach actually occurs
• Situation B
• John tells Mick he has no intention of paying him
  when Mick finishes the work he is doing Mick
  therefore anticipates the breach can repudiate
  the contract on that basis and sue for Damages

27
But he doesnt have to

• If you anticipate a breach by the other side
  i.e. they declare intention to breach you can
  accept the declared intention, bring contract to
  an end, and sue for damages
• Or you can ignore it, and wait and see
• But you dont have to wait and see

28
Hochester v De La Tour

• P hired as courier in April, was to start in June
• May D said he would not be required in June
• P sued, D said no breach had yet taken place
• Ct held was UnR to expect P to wait and see if
  the intention would actually be carried out
  could accept the breach as happening at the time
  it was expressed

29
Leeson v North British Oil

• D contracted to supply parafin oil to P
• Indicated could not do it because of a strike
• P sued
• Ct held he was entitled to sue i.e. intention
  of breach had been communicated and he could then
  treat the breach as complete

30
Discharge by Frustration
31

• Frustration is about acts that occur after
  contract has been formed. This is crucial.
• If it operates, it operates such that contract
  ceases to have effect from date of frustration
  onwardsno past effect
• Teaching method do the cases, but study it in a
  thematic manner

32
Introduction - Definition

• External factors which so radically alter the
  basic assumptions on which a contract is founded
  such that its performance is impossible of futile
  Friel (1995)
• Also a good definition in Neville v Guardian Bros
  and in Zuphen case (to follow)

33
Old View

• Common law once very opposed
• Paradine v Jane (1647)
• Tenants occupation interrupted by lands
  requisitioned by army during English Civil War
• Still liable to pay his rent court said tenant
  should have attempted to guard against this in
  his lease laissez faire

34
Gamble v Accident Assurance

• Insurance policy said insured need notify
  insurance company of accident in 7 days
• Died by drowning no notification
• Company did not have to pay said he should have
  made arrangements in the policy to cover such
  situations.
• Not a Fr case but about laissez faire attitude
  underlying hostility to frustration

35
Taylor v Caldwell

• Shift begins music hall burns down shortly
  before P to take lease
• P sued for breach of K
• Failed held K subject to implied term that K
  would be discharged if it became impossible to
  perform.
• Implied term theory is not really the basis of it
  now. (but bear this in mind for recent Irish
  Zuphen case)

36

• Modern Case Law
• Thematic is Best (Suits Problem Questions)

37
What Constitutes Frustration?

• Neville significantly changing the nature of
  the outstanding contractual rights and
  obligations from what the parties could
  reasonably have contemplated at the time of the
  contract's execution that it would be unjust to
  hold them to its stipulations in the new
  circumstances
• Zuphen when something occurs after the
  formation of the contract which renders it
  impossible to fulfil the contract or transforms
  the obligation to perform into a radically
  different obligation from that undertaken at the
  moment of entry into the contract.

38

• General reluctance to apply liberally McGuill v
  Aer Lingus (1983) saw McWilliam J talk about
  strictly scrutinising claims of frustration

39

• Advice Fr not made out simply where unforseen
  consequences arise making contract less (or not)
  profitable
• Tsakirooglou Co v Noble and Thorl
• Suez canal closed made it impossible to ship
  cargo at original costs needed now go around
  the Cape of Good Hope
• Not Fr extra costs was not enough would have
  needed to show that the Canal closure meant
  something very special for cargo i.e. it was
  perishable etc.

40
Davis Contractors v Foreham UDC

• Building Contract for 8 months 94K
• Took 2 years and costs 114K
• Labour probs and materials shortages were the
  cause
• HL held no frustration all that occurred were
  that ordinary commercial risks materialised.

41
Congimex v Tradax

• Goods to be shipped to country which stopped
  issuing import licences
• Donaldson MR no frustration
• Frustrated expectations and intentions of one
  party to a contract do not necessarily or indeed
  often lead to the frustration of that contract
• (that case was about how certain goods could not
  be purchased in Portugal without certain licences
  those licences then stopped being issued so
  purchase at Lisbon was not possible.)

42

• What happens where contract can still be
  performed, but reason for it has been lost?
• Frustration of purpose?
• Krell v Henry
• R rented a flat to watch coronation procession of
  Edward VII was cancelled
• Could still rent the flat, but reason for it was
  gone
• Vaughan Williams LJ CA held that court had to
  look at substance of what contract was for i.e.
  to view the procession once that was gone, so
  was the substance of the contract frustrated as
  it could not be achieved

43
Herne Bay Steam Boat v Hutton

• Chartered boat to watch naval review and sail
  around it review cancelled, fleet remained
• Held that the K was not simply to watch the
  review, but to sail around the fleet hence not
  Fr

44

• Changes in the law may make a transaction illegal
• Reilly v R
• Said to be an elementary proposition that this
  Frs a contract
• Also applies where foreign law changes
• Rally Bros v Compania Naviera Soto Y Anzar
• Based on implied term theory term implied into
  K that the thing to be done in other country is
  not a violation of the law

45
One major Rule

• Must be substantial and entire F not simply a
  set back
• National Carriers v Palapina
• Lease of 10 years for warehouse
• Street giving access closed for 2 years
• Not sufficiently substantial in terms of K to be
  a Fr event
• Similar holding in Congimex
• the fact that some minor aspect of performance
  became impossible did not necessarily frustrate
  the contract

46
Whether Fr Events Are Foreseen by Parties?

• Has been said (see para 8-34) that if parties
  foresee Fr event, it cannot operate see McGuill
  v Aer Lingus per McWilliam J must be an
  unexpected event
• Claimed in that case that strike of employees was
  a Fr event rejected because Ct held that the D
  were aware of the possibility of a strike
• Logic? What do you think?

47
Just a note McWilliam J

• If one party anticipated or should have
  anticipated the possibility of the event which is
  alleged to cause the frustration and did not
  incorporated a clause in the contract to deal
  with it, he should not be permitted to rely on
  the happening of the event as causing
  frustration.

48

• Zuphen v Kelly Technical Services
• P recruited by agency to work on a contract with
  Eircom that was discontinued
• Agency claims Ks with workers now frustrated
• Murphy J rejected held could have made their
  contracts conditional on the contract, but they
  didnt
• Needed such a change in the significance of the
  obligation that the thing undertaken would, if
  performed, be a different thing than that
  contracted for
• Also note that D had continued to try and get
  work for P so contract still capable of being
  performed?
• Note also
• The general agreement of the Defendant companies
  with Eircom as to work being "allocated as the
  need arises" points to the possibility of such
  work not arising. It was certainly not so
  unexpected as to be beyond the contemplation of
  the parties, even as a possibility.

49
But

• The Eugenia
• Risk that Suez was to be closed was obvious to
  all parties actually discussed it here
• When it was closed, Court still held that it
  could frustrate in this case
• Denning MR para 8-36 held it simply not the
  case that the event must be unforeseen

50
Better viewed as question of degree?

• The more foreseeable it is, the less likely a
  claim in Fr will be
• Neville and Sons v Guardian Builders - complex

51

• SUPREME COURT Principles of Frustration
• Frustration of a contract takes place when a
  supervening event occurs without the default of
  either party and for which the contract makes no
  sufficient provision.
• This event must so significantly change the
  nature of the outstanding contractual rights and
  obligations from what the parties could
  reasonably have contemplated at the time of the
  contract's execution that it would be unjust to
  hold them to its stipulations in the new
  circumstances.
• In such a case the law declares that both parties
  be discharged from further performance of the
  contract. The court has the power to declare the
  contract at an end.

52

• While various theories have been expressed to
  justify the doctrine of frustration, it was now
  part of the law of contract and like all
  judicially evolved doctrines it should be
  flexible and capable of new application.

53
Neville - Facts

• Developers (D) own plot of land. To develop it
  need access over plot owned by County Council.
• Negotiations for transfer stumbled on certain
  points (CC wanted D not to alter a particular
  exit from a hotel car park) (compensation issues
  also arose)
• Thus it made Ds task in arranging access a bit
  more difficult

54

• It was clear that had the defendant completed its
  agreements with the county council for the
  acquisition of the strip of land it would have
  been in a position to construct the access road
  and therefore comply with its obligation to give
  the plaintiff access to the development.
• The only unexpected problem for the defendant was
  that the county council insisted that the
  position of the exit from the hotel car park
  should not be altered.
• This could not be termed a supervening event
  which significantly changed the nature of the
  defendant's obligation under the licence
  agreement.
• While it made the performance of the contract
  more onerous, it was impossible to say that
  performance had been frustrated.

55
If Contract Deals with the Fr Event?

• So, how can you say its frustrating then?
• Brown v Mulligan Kenny J
• If its dealt with in the K cannot claim Fr if
  it happens!
• Claimed that contract with Dr was frustrated by
  insufficient funds K itself said could give 3
  months notice in such circsso no Fr

56
But

• Jackson v Union Marine Insurance (1874)
• Ship to proceed with all possible speed from
  Liverpool to Newport to pick up cargo to go to
  San Franciso
• K of carriage was to proceed with all possible
  disptach dangers and accidents of navigation
  excepted
• Ship ran aground, docked for 6 months
• Argument was that delay was contemplated by the
  contact
• Question put to JURY simply whether delay was
  so long as to put an end to the commercial sense
  in the contract
• Decision suggests that even if contract deals
  with frustrating event, if that event changes the
  nature of the contract, it can still frustrate.

57
Metropolitan Water Board v Dick Kerr Co

• Reservoir to be built in 6 years subject to
  extension of time for (see para 8-42)
• WW1 occurs two years into it, they are told to
  cease by Ministerial Order
• Q was whether the clause operated
• Ct held was frustrated
• Interruption vitally and fundamentally changed
  the conditions of the contract

58
Self Induced Frustration

• Cannot rely on it
• Constantine Line v Imperial Smelting
• Neg of shipowners lead to ship sinking they
  could not claim Fr, but the other party could
• Herman v SS Vicia
• P were crew on ship going between US and England
  owners did not have proper permits for them
  pleaded it Fr the contract of employment
• Their default, they could not plead it

59
Per Murphy J in Zuphen - FAULT

• Notwithstanding the uncertainty as to its
  theoretical basis, the doctrine itself is
  straightforward. A contract may be discharged on
  the grounds of frustration when something occurs
  after the formation of the contract which renders
  it impossible to fulfil the contract or
  transforms the obligation to perform into a
  radically different obligation from that
  undertaken at the moment of entry into the
  contract. The doctrine is subject to the
  limitation that the frustrating circumstances
  must arise without fault of either party
  (Maritime National Fish Limited -v- Ocean
  Trawlers 1935 AC 5  24 and Constantine Lion -v-
  Imperial Smelting Corporation 1941 2 All ER
  165.

60
Effect of Frustration

• All past obs remain intact
• Frustration operates from event
• Means loss falls where lies on date of
  Frustration
• Krell v Henry
• Paid 25 upfront, with 50 on the day
• Could not get back the 25, but didnt have to pay
  the 50

61
Can be unfair

• If contract is entire its frustrated, no need
  to pay even if goods handed over etc.
• Appelby v Myers (1867)
• K to install and maintain machines total sum
  agreed
• Fire destroyed premises and machines
• P sought payment for machines and installing
• Could not ob to pay kicked in at future date
  (when all obs had been performed)

62
Restitution May have a Role

• If you could say that the consideration has
  totally failed, you seek restitution for monies
  paid out on foot of it (i.e. you gave over
  monies, and got nothing you gave over goods,
  and got nothing)

63
Fibrosa v Fairbain Lawson Combe Barbour

• K to sell and deliver machines to Poland 4800,
  with 1600 payable in advance
• War fr
• Polish Co seeks the money it paid in advance back
  refused said had carried out work in prepping
  the machines
• HL held P had obtained no tangible benefit under
  the K even though D had spent money prepping the
  machine P could get back