Transcript Discharge of A Contract - Griffith College Dublin

Discharge of A Contract
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Exam Relevance
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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 one’s side of a contract has
been completed.
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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
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Entire Contracts
• The “all or nothing” rule
• Unless you perform your side
exactly, you have not
performed and thus you can’t
claim your benefit.
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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….
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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).
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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?
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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”
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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 here…no choice, no inferred
contract
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• This may all be a bit harsh
• Mitigated by doctrine of substantial
compliance
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Hoenig v Isaacs (1952)
• Builder redecorates flat for £750 but didn’t
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!!!!
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Bolton v Mahadeva (1972)
• Install central heating - £560 – defective
installation
• Cost £130 to fix
• The whole system didn’t 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
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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
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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
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• 2. Variation
– Vary the contract to turn it into something else
– Consideration required
– NZ – Antons Trawling v Smith (2003) –
variations don’t 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
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Discharge by Breach
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• 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
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When is something a warranty?
• Where law says so
• Where parties say so
• Some law in relating to certain types of
terms / provisions
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• 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 P’s premises so badly it leaked
• Such a breach, P could treat K at an end (ct noted likelihood
of recurrence here)
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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)
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Three ways
• Breach of condition (where we know it’s a
condition)
• Breach of fundamental term
• Fundamental breach
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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.
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Athlone RDC v Campbell & Son
• P carrying out excavation of a well – dispute
arose, but P said they would carry on
• D said he didn’t 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!
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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
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• 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
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But he doesn’t 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 don’t have to wait and see
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Hochester v De La Tour
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•
•
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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
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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
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Discharge by Frustration
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• 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 onwards…no past effect
• Teaching method – do the cases, but
study it in a thematic manner…
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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)
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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
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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
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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)
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Modern Case Law
Thematic is Best (Suits
Problem Questions)
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What Constitutes Frustration?
• Neville: “significantly chang[ing] 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.”
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• General reluctance to apply liberally –
McGuill v Aer Lingus (1983) saw
McWilliam J talk about “strictly
scrutinising” claims of frustration
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• 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.
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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.
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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.)
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• 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
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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
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• Changes in the law may make a
transaction illegal
– Reilly v R
• Said to be an “elementary” proposition that this
Fr’s 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
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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”
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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?
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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. “
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• Zuphen v Kelly Technical Services
– P recruited by agency to work on a contract with Eircom – that
was discontinued
– Agency claims K’s with workers now frustrated
– Murphy J rejected – held could have made their contracts
conditional on the contract, but they didn’t
– 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.
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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
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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
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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.
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• 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.
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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 D’s task in arranging access
a bit more difficult
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• 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.
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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 circs…so no Fr
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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.
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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
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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
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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. “
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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 didn’t have to pay the
50
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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)
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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)
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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
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