Legal Frameworks and
Regulation
Lecture 07
Contract: Performance
Concluding a Contract

Discharge can be by




Agreement
Performance
Frustration
Breach
Agreement
Discharge is the release of a party from
his/her legal obligations or the bringing
of a contract to an end
 Remember a contract comes into
existence by agreement of the parties
therefore the parties can by agreement
bring the contract to an end

Agreement


There is a distinction between varying
an existing contract and the bringing to
an end of that contract
As a general rule contracts can be
discharged by agreement in writing
orally or by conduct,

However there must normally be some
consideration or a formal waiver to make it
enforceable
Consideration


Finding consideration to support
discharge is usually the principle
stumbling block
in executed/executory contracts bilateral discharge is required (both
parties must have something to give up)
Consideration cont..
 what if one party has fulfilled its
obligation but the other has not?
 Elton Cop. Dying Co v Broadbent &
Sons Ltd (1919) - no action is allowed
until the defendant has clearly failed to
deliver his consideration.
 Note part payment of debt is not
good consideration.
Performance

Performance must exactly match what
the parties agreed. Something less or
different means a party has not
discharged his/her obligations.


A party who has fallen short of completing
their obligations under the contract cannot
sue on the contract as their performance is
usually a condition precedent to the right
to sue
So if both parties perform their
obligations the contract is discharged
Performance cont..


What amounts to performance?
Re Moore Co and Landaur Co(1921)


30,000 tins of fruit were to be delivered in
batches of 30 which was important to the
claimant. Some were delivered in batches
of 24 and claimant was entitled to reject
them all.
Cutter v Powell (1795)

A mate on a ship died mid-voyage and his
widow could not claim part-payment since it
was an „entire contract‟
Performance – entire vs
severable obligations

Sumpter v Hedges (1898)



Contractor abandoned building work half way
through and tried to claim part-payment - failed
because contract of entire obligations and because
he abandoned the works
normally building contracts not entire contracts (refer
also HGCR Act 1996)
Roberts v Havelock (1832)

A shipwright repairing a ship was entitled to partpayment because contract made no mention of
payment terms. The courts tend to construe
contracts as severable unless it is obvious otherwise wrong to profit at expense on another.
Performance – entire vs
severable obligations cont..



Where part performance has been
accepted then payment must be made for
that part performance:
acceptance must be voluntary - contrast with
Sumpter v Hedges; and
Bolton v Mahadeva [1972] 1 WLR 358
 Concerned a £560 central heating system
with £170 defects + £15 other damages
and house was 10% colder than it should
have been. The contractor was not able to
claim substantial performance
Substantial Performance


Should a party who substantially though
not precisely, performs his/her
obligations under the contract be able
to enforce the contract?
Dakin (H) & Co Ltd v Lee [1916]

The claimant contractor was allowed to
charge the full amount for his work less an
allowance for defective work. The
defendant would only be able to withhold
payment altogether if he could show he
had gained no benefit
Substantial perf. Cont..
 Hoenig v Isaacs (1952) 2 ALL ER
176
 In a £750 decorating contract, defendant
claimed faulty work and paid £400.
Claimant sued for balance. Defendant
suggested Quantum Meruit. C of A
followed Dakin. Contrast with Bolton and
Mahadeva where the whole system failed
therefore there was no benefit.
Tender of Performance
 An offer to perform is held as entitling
the performer to damages, as in:
 Startup v McDonald (1843) 6 Man & G
593 - where the claimant was to deliver 10
tons of oil in the last 14 days of March. He
attempted delivery on 31st March
(Saturday) at 8.30pm. Defendant refused
delivery as being unreasonable, but it was
held in favour of the claimant
Tender of Performance
 This situation now covered by s.29
Sale of Goods Act 1979 and gives a
different result:
 Demand or tender of delivery may be
treated as ineffectual unless made at a
reasonable hour; and what is a reasonable
hour is a question of fact
Time for Performance
 The term “time is of the essence”
means that should performance not be
completed by a specified date this is a
breach of contract which goes to the
root of the contract - a breach of
condition.
Time of the Essence cont..
 For Time to be of the Essence it must be
shown that:
 Expressly or implicitly intention of parties; or
 Vital that agreed date kept; or
 One party is in delay and other party specifies
a date which offers a reasonable time for
completion, as in:
Richards (Charles) Ltd v Oppenheim
(1950) completion date was waived then later
given 4 weeks to complete.
 Held time of the essence because reasonable to
retrospectively impose
Prevention of Performance


If a party to a contract performs part of
the obligations under the contract and
is prevented through the fault of the
other party from finishing his/her
contractual obligations that party can
sue.
The position is the same should a party
be prevented, by the other party, from
commencing his/her obligations.
Frustration



In the past the common law took the firm
view that fulfilment of the contractual
obligations was paramount.
This meant that if a person undertook an
obligation to do something s/he was
bound to do it.
If subsequent events made it impossible
for that person to complete his/her
obligations, s/he remained in breach and
liable for damages
Frustration cont..
 Paradine v Jardine (1647) 82 ER 897
where the defendant leased some land
that was subsequently invaded by a
German prince, preventing the
defendant from profiting from the land,
and so he refused to pay the rent. It
was held that he must pay, and should
have included an exclusion clause had
he intended to be excused!
Frustration cont..


This situation was changed by Taylor v
Caldwell 3 B&S 826 - Where Taylor rented a
music hall and gardens for a concert, but the
music hall burned down before the concert.
Taylor sued for the non supply of the music
hall!
Since neither party was to blame, both
parties were excused
Frustration cont..

This case (Taylor v Caldwell)
developed the doctrine of frustration


contract automatically discharged
provided without fault of either party the
event renders performance of the contract



impossible;
illegal; or
substantially different
Frustration - Impossibility

Subject matter destroyed


Taylor v Caldwell - music hall
Subject matter unavailable


Jackson v Union Marine Insurance Co
Ltd (1874) - a damaged ship had to return
to Liverpool for 8 months repair. Cargo
was not delivered, and both parties were
discharged due to non availability.
Morgan v Manser (1947) a variety artist
was called up for 2nd WW. The claimant
sued for non performance but contract was
frustrated because of non availability.
Frustration – Impossibility
cont..
 Party dead
 Method
 Tsakirogglou Co Ltd v Noblee Thol Gm
bH (1961) held that a ship having to travel
round the cape rather than through the
Suez was NOT commercially fundamentally
different, therefore the contract was not
frustrated.
 The method must be crucial to the contract
in order to effect frustration.
Frustration – Radically
Different
 Frustration may occur where events
make performance of the contract still
possible but radically different from that
envisaged
 Krell v Henry (1903) - a room was hired
for the coronation. The coronation
procession took place on a different day so
the defendant refused to pay.
 Held that contract was frustrated because
“the state of things essential to the
contract failed to come into existence” and
both parties knew the purpose of the hire.
Frustration – Radically
Different

More onerous is not radically different:



Davis Contractors Ltd v UDC (1956) where an
8 month project took 22 months plus £17000
expenses – the builder wanted frustration and to
claim quantum meruit, BUT:
… it is no hardship or inconvenience or material
loss itself which calls the principle of frustration
into play. There must be as well such a change in
the significance of the obligation that a thing
undertaken would if performed be a different
thing from that contracted for….”
cf Tsakirroglou
Frustration – Radically
Different

This illustrates how narrowly defined
the principle of frustration in the Krell
case is


Frustration only applies if the event comes
about without the fault of either party.
See Maritime National Fish Ltd v
Ocean Trawlers Ltd (1953) AC 524:

The appellant applied for 5 trawler licences and
was granted 3. He failed to allocate one to the
respondent‟s boat. Frustration was therefore
self induced and was not allowed.
Frustration – Radically
Different
What if contract deals with event?
 Metropolitan Water Board v Dick
Kerr & Co (1918) AC 119
 Contractor was to build a reservoir in 6
years with no extension of time allowed at
all. However, the minister for munitions
ordered him to stop work and sell his
plant. The contract was frustrated.
 The „No extension‟ clause was to the
protect a party from liability, not to protect
the contract from frustration!
Frustration - Illegal

As in a contract with the enemy Fibrosa
SA v Fairbairn Lawson Combe Barbour
Ltd [1943] AC 32

Or a change in the law making
performance illegal as in Denny Mott &
DicksonLtd v James B Fraser &Co Ltd
[1944] AC 265
Effects of Frustration


When event occurs contract ended from
that point onwards - note contract not
void.
The rights and obligations of the parties
crystallised at that point.


At common law loss lies where it falls
Money paid before is not recoverable and
money payable before remains payable
(Chandler v Webster and Krell v Henry)
Effects of Frustration cont
 This was modified by Fibrosa v
Fairbairn where it was stated that
total failure of consideration by one
party did entitle the other to
repayment of any deposit.
Law Reform (Frustrated
Contracts) Act 1943

The main implications of the Act are


Money paid before the frustrating event can
be recovered whether or not there is a total
failure of consideration
Money payable before the frustrating event
ceases to be payable
Law Reform (Frustrated
Contracts) Act 1943

On the face of it, this is no different
from Fibrosa v Fairbairn, but:

The courts may allow the deduction of
expenses incurred from any repayment,
and the charging of expenses incurred
where money is due.
Law Reform (Frustrated
Contracts) Act 1943 cont..
 A party who has incurred expenses may be
awarded them up to a limit of the sums paid or
payable before the frustrating event.
 If nothing is paid or payable before the
frustrating event then no expenses will be
allowed
 A party who has gained a valuable benefit under
the contract before the frustrating event may be
required to pay a just sum for that benefit
Breach

Breach of contract



A breach of contract occurs when one party
fails to fulfil or carry out one or more of
their obligations under the contract
To be a repudiatory breach it must be
breach of a condition NOT breach of
warranty
Breach classification


Actual
Anticipatory
Actual Breach

This can take one of three forms



non performance
defective performance
non truth of a statement forming a term of
the contract
Anticipatory Breach


This covers the situation where the
breach „occurs‟ before the stated date
for performance in the contract
Two forms this breach can take


explicit - this occurs when the defaulting
party states they have no intention of
fulfilling the obligation
implicit - where (indirect) act or statement
makes clear that no intention to perform in
future
Effect of Breach


sue for damages
For breach of a condition the innocent party
can consider themselves discharged from
future performance and can also sue for
damages.


Note the contract is not at an end.


A repudiatory breach
It is the employment of the contractor that is
terminated
In this case wronged party has a choice.