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Saturday, 19 November 2011

The Discharge of Contract


a)    “The courts are not easily convinced that a given change of circumstances is of sufficient gravity to frustrate a contract” Discuss!


Frustration of contract  is the termination of a contract as a result of an unforeseen event that makes its performance impossible or illegal.


According to (1958), “the term frustration, impossibility, or changed circumstances expresses basically the same in which in legal traditions it arises when the unforeseen circumstances subsequent to the date of contract, render performance either legally or physically impossible, or excessively difficult, impractical or expensive, or destroy the known utility which the stipulated performance had either party. “ The problem created in such a situation is, of course, whether deviation from the stipulations of the contract should be allowed, by means of the contract’s adjustment, postponement or termination (1958). This problem can be better viewed as a conflict between the principle of private autonomy, well expressed in the medieval maxim reservanda sunt pacta, and the modern need of attributing a social function to private contracts, thereby considering extra-contractual elements, such as good faith, reasonableness and practicality ( 1964).


Significantly, in the case of frustration, the balance of losses has been modified  from the common law position by the Law Reform (Frustrated Contracts) Act (1943). However, the circumstances in which the courts are prepared to find frustration have not changed, so the common law is still relevant. Particularly, in deciding whether frustration has occurred, the courts have to balance two competing requirements.


One of these competing requirements which the court consider is whether there is the desire for certainty of contract. Good business relations depend on an assumption that once a contract has been entered into, it will be performed by both parties and, if it is not, the wounded party is entitled to compensation. The courts should not lightly intervene to set aside a good contract, even if future events reveal it to be onerous for one party. It would be difficult to do business at all if money received as part of a contractual arrangement could not be spent until the contract was fully performed, in case a court acted to undo the contract.


In addition, the other requirement in which the court considers is whether there is the requirement to try to do justice in the individual case. If it becomes impossible to perform a contract owing to events beyond the control of the parties, it is not particularly just that one party should end up having to compensate the other when he is not at fault. This tension is not easy to resolve, but in general the courts will not set aside a contract that was good when it was made unless supervening events have made it essentially impossible to perform, or performance would render to one or other party none of the benefit that was anticipated.


Even though the contract is frustrated, it is deemed to be discharged since there remains the problem of how any losses should be apportioned between the parties ( 1994). The rule at common law was first definitively set out by the King’s Bench in Chandler v Webster 1904 ( 1994), although a number of earlier cases had reached the same conclusion. This rule said that the losses should `lie where they fall’. That is, any losses incurred before the supervening frustrating event could not be recovered. This was a simple rule, but a harsh one.




b)   Fred runs a plumbing business. He wins a contract with George for the installation of water systems in a housing estate being built by George. Fred agrees to complete the work by December 1990 and George promised Fred that he would be able to start the work on the 1st January 1990. As George fell behind schedule, Fred was only able to start work on the 1st March. He protested about the delay but attempted to complete the work in accordance with his contract. However, in December he abandoned the contract when he had completed three quarters of the work in order to start work on another project which he had contracted to start in December in anticipation of the work for George being completed. George has given Fred nothing in payment for the work completed. Advise Fred.


If the contractor is permitted Fred to do further work after the frustrating event, then, unless a fresh agreement is made, the contractor is not doing work pursuant to the contract. Nevertheless, the contractor must be paid a fair remuneration for any work done, on the basis of quantum meruit or restitution. This may be more or less than the contract rate.

The expression quantum meruit means “the amount he deserves” or “what the job is worth” and in most instances denotes a claim for a reasonable sum (1999).

A claim on a quantum meruit does not usually arise if there is an existing contract between the parties to pay an agreed sum. But there may be a quantum meruit claim where there is (1999):

1. an express agreement to pay a reasonable sum.

2. no price fixed. If the contractor does work under a contract express or implied, and no price is fixed by the contract, he is entitled to be paid a reasonable sum for his labor and the materials supplied.

3. a quasi-contract. This may occur where, for instance, there are failed negotiations. If work is carried out while negotiations as to the terms of the contract are proceeding but agreement is never reached upon essential terms, the contractor is entitled to be paid a reasonable sum for the work carried out .

4. work outside a contract. Where there is a contract for specified work but the contractor does work outside the contract at the Employer’s request the contractor is entitled to be paid a reasonable sum for the work outside the contract on the basis of an implied contract.





c)    Harry, who owns a sandwich bar, sells beef sandwiches to Ian, John and Kate. The meat, which he cooked himself, was contaminated and Ian, John and Kate are very ill and were forced to spend two weeks in bed. Ian is retired and spends the time resting and reading. His garden becomes a little neglected. John is an independent sales representative. In an average week he would expect to earn £500 gross. Kate is an actress and when buying sandwiches from Harry, told him that she was going to audition for a new West End Musical the following day. As a result of the illness she misses the audition. The musical is a hit and transfers to Broadway with the original cast and is now being filmed. Assuming that the illnesses are traceable to the sandwiches and the fault lies with Harry, advise him of the likely liability for damages for breach of contract.


According to  (1999), any breach of contract gives rise to a cause of action; not every breach gives a discharge from liability. This will depend whether the term breached is a condition or a warranty or whether there has been repudiatory breach.

Damages are intended to compensate the innocent party for the loss that he has suffered as a result of the breach of contract. In order to establish an entitlement to substantial damages for breach of contract the injured party must establish that ( 1999):

- actual loss has been caused by the breach; and

- the type of loss is recognized as giving an entitlement to compensation; and

- the loss is not too remote; and

- the quantification of damages to the required level of proof.

A breach of contract can be established even if there is no actual loss. In that case there will only be an entitlement to nominal damages (1999).


























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