Discharge of Contracts and Remedies for breach

Discharge of a Contract
Performance Agreement Frustration Breach

Remedies
Damages Specific performance Injunction

Discharge of a Contract
Discharge occurs when the rights and obligations agreed in a contract have come to an end.

1. Performance
The most obvious way in which a contract is discharged is by both parties not performing their obligations under it. What amounts to performance? The parties must carry out precisely what they agreed under their contract. If one party does something less or different from what was agreed, he is not discharged from the contract, nor can he sue on the contract. Cutter V Powell Here the courts held that the ship captain had no obligation to pay anything because Cutter had not completely performed his contractual obligations, i.e. he only worked for three quarters of the voyage before he died. Exceptions to the general rule of performance 1. Severable/ Divisible contracts Certain contracts are designed as divisible into a no. of separate obligations, with part payment required when each obligation is performed. Whether or not a contract is divisible or entire depends upon what the parties intended when they made the contract. {Ritchie v Atkinson here the captain was paid for the tonnes he carried halfway, as the contract was divisible since price was expressed per ton rather than an entire price for the voyage} 2. Substantial performance The claimant may recover money for work done if the partial performance very nearly amounted to total performance, i.e. if the partial performance could be regarded as substantial performance then it would have to be paid for. Hoeing v Isaacs the court held that the furnishing of the flat work done amounted to substantial performance thus the 750 was to be paid, and however 56 as damages for the defects

Bolton v Mahadeva here the contract was to install heating for 560, defects in the work carried out would have cost 174 to fix, therefore the COA held that there had been no substantial performance and so the installer received no payment at all. 3. Acceptance of partial performance This arises where the performance was freely accepted by the other party. However this acceptance must arise as a matter of choice. {Sumpter v Hedgeshere the court held that the defendant did not have to pay the claimant as his act of finishing the work himself did not amount to free acceptance of the claimants partial performance} 4. Prevention of performance A person who is prevented from carrying out his side of the contract by the other party can bring an action to recover for work he has done. The party who is prevented from fully performing will be paid the amount deserved for the work done known as a quantum meruit payment. Planche v Colburn the claimant was entitled to a payment of 50 for the partially written book, as he didnt complete the book due to the def. cancelling the series.

2. Agreement
Having made an agreement the parties are then free to agree to abandon it or vary/ change/amend its terms. However an agreement to do either of these things must amount to another contract. Therefore all the requirements of a new contract are necessary, i.e. there must be an offer, acceptance, intention to create legal relations and consideration moving both ways. Charles Rickards V Oppenheim the claimant agreed to sell the def. a specially construed car that would be delivered by 20th March. This date passed and the def. then said that if the car was not delivered to him by 25th July he would not accept it, if the car was delivered before this date the def. would have to accept the delivery and pay for it, however here the claimant only tried to deliver the October which the def. didnt have to accept.

3. Frustration
If further performance of a contract is prevented because of events beyond the parties control, the contract is terminated and the parties are discharged from their obligations. This frustration of a contract may occur on three grounds, i.e. if the contract becomes impossible to perform, illegal to perform or if the contract at the time of formation was radically different from what the parties intended. Contract has become impossible to perform If a contract becomes impossible to perform then it will become frustrated and then maybe void for mistake. If a party who has contracted to perform the contract personally dies or becomes too ill to perform, the contract would be impossible to perform and therefore will become frustrated. Taylor V Caldwell a music hall on hire for four days accidently burnt down before this period was over, thus the contract was frustrated Condor V Barron Knights Ltd Here the claimant was dismissed as he refused to play more than 4 nights a week as otherwise he would end with a mental breakdown, the courts held that here the claimant was not wrongfully dismissed as the contract became frustrated since it was a long term impossibility. Contract has become illegal to perform Where a contract becomes illegal to perform it will become frustrated and therefore be void. Fibrosa Case the HOL held that the contract to supply machinery to Poland became frustrated when Germany occupied Poland, as Great Britain was at war with Germany and it is illegal to supply an enemy occupied country. Foundation of contract destroyed/ contract becomes radically different A contract will be frustrated if it becomes radically different from what the parties intended when they made the contract and thus the contract may be void for mistake Krell v Henry Here the contract to hire a flat to view the procession became frustrated as the procession was cancelled.

Rules about frustration 1. Performance required in a particular way if a contract states that it should be performed in a particular way it will become frustrated if it becomes impossible to perform in that way 2. Contract becomes more difficult to perform The fact that a contract became more difficult/ expensive to carry out does not excuse the parties as seen in the case {Davis Contractors Ltd. v Fareham UDC 22 months instead of 8 months to build did not lead to frustration of the contract} 3. Force majeure clauses If the parties to the contract foresee that there might be difficulties which they cannot control and set out in the contract what should happen if difficulties arise, the courts will give effect to what was agreed. These clauses which make such provisions are known as force majeure clauses. 4. Frustrating event is foreseen If one of the parties knows that the frustrating event might happen (or should have known this) then that party cannot claim frustration. {Walton Harvey Ltd V Walker & Homfrays a hotel owner allowed the claimant to put advertisements on his hotel, but the hotel was demolished and the hotel owner was in breach of contract as he knew that the hotel might be compulsorily demolished and the advertisers didnt know this} 5. One party took the risk If the interpretation of the contract and the surrounding circumstances indicate that one of the parties took the risk of the frustrating event happening, then the contract will not be frustrated. {Henry Bay Steam Boat Co v Hutton the court thought that the commercial venture of hiring the steamboat was at the defs risk and this was a factor in deciding that the contract was not frustrated} 6. Self induced frustration A party to the contract who has brought about a certain event cannot claim that this event frustrates the contract. Self induced frustration is no frustration. {Maritime National Fish Ltd v Ocean Trawlers Ltd contract with the claimants was not frustrated as the defendants were the ones who has caused the chartered boat to not have a licence} 7. Leases of land the lease of a land contract cannot be frustrated.

Consequences of frustration As soon as the frustrating event occurs the contract comes to an end. The Law Reform (Frustrated Contracts) Act 1943 then makes the following rules: Money owing under the contract ceases to be payable Money which has already been paid under the contract before frustration can be recovered. However, the court has discretion to allow some of this money to be kept to cover expenses incurred. A party who has carried out acts of part performance can recover compensation for any benefit he has conferred on the other party (not exceeding the amount of the benefit).

4. Breach
Not every breach of contract has the effect of discharging the parties from their contractual obligations. Breach of condition entitles the innocent party to damages and the option to treat the contract as discharged (repudiate/end the contract). Breach of warranty only entitles the innocent party to damages. If a party shows an intention to not be bound by the contract it is known as repudiation of the contract. When one of the parties repudiates the contract before the time for performance of the contract is due, it is known as an anticipatory breach. The injured party can then sue immediately for the breach, or, alternatively wait for the time of performance to arrive to see if the other party is prepared to carry out the contract. Hochester v De La Tour The claimant sued for damages as he had accepted the anticipatory breach when the defendant stated that he would not be employing him as contracted. The claimant did not have to wait till it became an actual breach (i.e. 1 st June when the contract was due to start) However with regard to an anticipatory breach it can be risky to wait until the breach actually occurs as in the case below. Avery v Bowden Here the claimant waited for the 45 days to expire expecting the defendant to supply the cargo though he informed him otherwise, nevertheless war broke out in Odessa and this frustrated the contract as Odessa was controlled by an enemy, and therefore the right to sue had been permanently lost.

Remedies for a Breach of Contract

Every breach of contract will give the injured party the common law right to recover damages (most common remedy sought) intended to put the injured party into the same position as if the contract had been performed. Other remedies like specific performance and injunction may be granted at the discretion of the court as part of its equitable jurisdiction. Equitable remedies are granted where damages are inadequate/ inappropriate to compensate the injured party.

COMMON LAW REMEDIES DAMAGES

Any breach of contract allows the injured party to sue for damages. Damages are an award of money that aims to compensate the innocent party for the financial loss suffered as a result of the breach. The innocent party is entitled to damages that would put him in the position he would have been in if the contract was performed. If the injured party has suffered no loss as a result of the breach only nominal damages would be available. Damages are awarded for pecuniary losses (damages for financial loss including physical harm to claimant/property/ injury to economic position, and in certain cases for non pecuniary losses (mental distress such as humiliation, hurt feelings or disappointment). Previously as laid down in Addis V Gramophone Co Ltd. (the wrongfully sacked employee was awarded damages only for loss of salary and commission and not for injury to feelings), non pecuniary losses were not awarded damages. However, where the whole object of the contract or even where the major purpose of the contract is for pleasure, relaxation and peace of mind the courts award damages for injury to feeling and loss of amenity. This was demonstrated in the foll cases: Javis v Swans Tours Ltd the solicitor booked a holiday but there was no house party. Whole purpose Jackson V Horizon affirmed the Javis case Diesen v Samson wedding photos Heywood v Wellers stalking, solicitors held liable Rexley Electronics v Forsyth swimming pool : loss of amenity Farley v Skinner country side, close to Gatwick airport where there was aircraft noise and therefore the surveyor was liable as there was a loss of amenity. (major purpose) Non pecuniary losses are also compensated for where mental suffering is caused by physical inconvenience as in the cases of Sidney Phillips and sons {defective house} and Bailey V Bullock {solicitor was negligent in failing to obtain house on lease}

Remoteness of damage
When a contract is breached, substantial damages can be claimed only in respect of losses which fall within one the two rules laid out in the Hadley v Baxendale (1854) case. 1. Damages allowed if the loss arose naturally from the breach of contract, in the usual course of things. 2. Damages allowed if the loss can reasonably supposed to have been within the contemplation of the parties when they made the contract. The rules on remoteness of damage provide an important limit on the amount of contract damages. If there were no rules on remoteness, then the person in breach of contract would always be liable for the consequences making people unwilling to enter into a contract. Victora Laundry v Newman Industries Here the defendant delivered the boiler 20 weeks late to the claimants, who then sued for the loss of profit of 16 per week which they lost due to the late delivery, and they sued for 262 that they lost as they didnt have the sufficient capacity to accept the government order since the boiler was delivered late. The courts granted the 16 per week under the first rule, however stated that the 262 cannot be granted under either rule, as the claimants were unaware that such a profitable contract would be lost if the boiler wasnt delivered on time.

Amount of damages
Having satisfied that the loss is within one of the two rules laid down in the Hadley case, the amount of damages to be awarded must then be decided. The damages must be an amount that would put right the defects caused by the breach of contract. E.g. Loss of profit which would have been made if not for the breach, cost of achieving the agreed performance, losses incurred in reliance on the contract, cost of damages the injured party may have to pay a 3rd party.

Mitigation
The injured party has the duty to mitigate (minimise/ reduce) loss upon breach, the injured party cannot stand back and allow the loss to worsen. No substantial damages can be claimed in respect of a loss which could have been mitigated by taking reasonable steps. Brace v Calder - here there had been a breach of contract as the four partners had not employed the claimant for the full two year period; however the claimant was only entitled to nominal damages as he should have mitigated his loss by accepting the alternative employment. Agreed (Liquidated) Damages Liquidated damages or agreed damages are damages (monetary compensation) that the parties have agreed in advance will be payable in the event of a breach of contract. The courts will accept the figure agreed on by the parties as the amount of damages payable (no matter what the actual loss turned out to be) provided the parties have made a genuine attempt to estimate the likely loss. There could however be an issue with liquidated damages clauses, as a party with stronger bargaining power may be tempted to impose a clause distinguished as liquidated damages which is really designed as a threat to secure performance! Such clauses are not valid liquidated damages clauses also known as penalty clauses If the sum laid down is extravagantly greater than any loss which might conceivably result from the breach, it can be identified as a penalty clause. If a single sum is made payable on the occurrence of a certain event, when instead a range of figures on an increasing scale based on the severity of damages would have been more appropriate, it can also be identified as a penalty clause.

EQUITABLE REMEDIES SPECIFIC PERFORMANCE

Specific performance is an equitable remedy which arises when a court orders a person to actually perform the contractual obligations undertaken. This is a discretionary remedy, awarded at the discretion of the court within well established principles. Not normally awarded where damages prove to be an adequate remedy of the breach. It is usually awarded where the subject matter of the contract is unique (e.g. land) Specific performance not awarded in the foll. Cases It will not be granted if the claimant can easily purchase replacement goods If it being granted would cause excessive hardship to the def. (leaf v international galleries) If the plaintiff has behaved inequitably (he who comes to equity must come with clean hands) Contracts for personal services (e.g. contract of employment) Will not be ordered against a minor

EQUITABLE REMEDIES INJUNCTION

An injunction is a court order which requires a person to do or not do a certain thing. An injunction can be ordered as an equitable remedy to prevent a party from breaching a contract. However an injunction will not be ordered where an award of damages would be a satisfactory remedy. Examples: Mandatory injunction Prohibitory injunction : Warner Bros v Nelson { an injunction prevented the actress from breaching her contract by acting for another contract, different from SP as she didnt have to perform the contract, she could have made a living another way} Mareva injunction: Mareva Compania Naivera v Intl Bulk Carriers Anton Piller injunction: Anton Piller v Manufacturing Processes