5 a law and ethics discharge of contract, remedies and injunctions

Law and Ethics

5. Discharge of Contract

Slides available on:

slideshare.net/msstephaniel

ord/presentations

Class

08.50 - 10.00 - discharge of contract

10.00 - 10.10 - break

10.10 - 10.50 - overview of contract law

10.50 - 11.00 - break

11.00 - 12.00 - begin employment law

At the end of this lecture you will be able to

● Identify the main methods of discharge.

● Understand what is meant by breach of contract.

● Discuss the available remedies.

● Distinguish between common law remedies and equitable

remedies.

● Identify the main types of equitable remedies

What is

discharge

of

contract?

5 Methods of Discharge

1. Performance

2. Agreement

3. Notice

4. Breach of Contract

5. Operation of the Law including frustration

Some cases of discharge may give rise to claims for

compensation damages or other equitable remedy.

1. Performance

Each party has

performed their

rights and

obligations.

They must be

performed precisely

and exactly as per

the terms.

CASE: Cutter v Powell 1795

Seaman employed on ship

travelling from Jamaica to

Liverpool died before the

ship docked. The Court held

the widow wasn’t entitled to

recover wages.

Contract required entire

performance, and he died

before completing the

journey.

2. Agreement

Contract can be discharged by agreement -

bilateral or unilateral.

Bilateral - where both parties have not completed

obligations

Unilateral - where one party has completed but

other side dissatisfied.

Unilateral

Discharge

In unilateral

discharges, the party

who has failed to

comply with all their

obligations must give

fresh consideration

to the other party

for agreeing to

discharge the

contract early.

3. Notice

Contract may contain clause

allowing one or both to bring

contract to an end by giving a

period of notice.

Legislation can also establish

notice periods or the court can

decide an appropriate period.

4. Breach of

Contract

Where one party fails

to perform at least

one obligation

through:

- Non-performance

- Partial

performance

- Defective

performance

Breach doesn’t automatically discharge!

It will depend on how serious the breach is.

Remember the difference between a breach of warranty and a

breach of condition?

It will depend on whether it is a condition or a warranty.

Where it is less serious, the contract will continue but the

injured party will have a right to claim damages.

Can you

remember the

difference

between a

warranty and a

condition?

Difference

between

conditions and

warranties

A condition is always a

condition. E.g. the

bathroom exists

A warranty is always a

warranty. E.g. the colour

of the bathroom

Innominate term depends on

the consequence of the

breach.

CASE: Dundalk Shopping Centre v Roof

Spray Ltd 1979

In a serious breach, the injured party may

terminate.

Defendant roofer failed to seal a roof so

that it would be watertight in reasonable

time.

Fundamental breach

Plaintiff allowed to repudiate the contract

Repudiatory or Anticipatory Breaches

Repudiatory:

Where breach is serious

enough to warrant

repudiation.

Doesn’t give automatic

repudiation but injured

party has right to choose

whether to terminate the

contract.

Anticipatory:

Where a party tells another

person in advance of

commencing their

obligations under the

contract that they cannot

perform it.

5. Operation of Law

Sometimes law will provide for discharge of contract.

For example where a person becomes ill or incapacitated.

Also in cases of insolvency or bankruptcy.

EG - where a company director is declared personally bankrupt

he is required by law to resign his position. Failure to do

so results in liability.

6. FrustrationContract can be discharged where action or event beyond the

parties control makes it impossible to complete the terms

agreed after the contract is agreed.

It must:

- Be an unforeseeable event

- Causes a radical change

- Make completion impossible

- Not be caused by either party

CASE: Maritime National Fish Ltd v Ocean

Trawlers 1935

NOT FRUSTRATION

Maritime owned 3 vessels and rented

another from Ocean. Applied for fishing

licenses but were only granted 3 and

claimed frustration because licence

issue beyond their control.

Court said that it wasn’t because they

made a decision not to register the 4th

vessel.

CASE: Mulligan v Browne 1977

Unforeseeable aspect v. important

Doctor’s employment contract

contingent on additional funding.

Hospital didn’t get money.

No job.

Court said this outcome had been

contemplated by the parties.

CASE: Davis Contractors v Fareham UDC 1956

Building contract agreed 8 months

for work

Took 22 due to materials shortage

and labour issues

Increased costs for contractor

who attempted to claim

frustration

“There must be as well

such a change in the

significance of the

obligation that the thing

undertaken would, if

performed, be a different

thing from that contracted

for.”

NOT FRUSTRATION:

1)Industrial disputes

2)labour/material shortage

3)Self-induced breach

Examples of Frustration of Contract

1. Impossibility

Taylor v Caldwell (1863)

Contract frustrated due to

destruction of essential part of

contract or death of party. In

Taylor case, def rented a music hall

but it was destroyed by fire.

Plaintiff sued for breach but court

held no breach because it was

frustrated because of event beyond

control.

2. Illegality or Government Intervention

Frustration if new law makes performance

illegal.

Avery v Bowden (1856)

Defendant chartered a ship and was contracted

to collect cargo from Odessa. On arrival the

cargo wasn’t ready. By the time it was, the

Crimean war had happened and it became

illegal to load in enemy port.

Fibrosa v Fairbairn Lawson Combe 1943

- Contract between an English firm and Polish firm deemed

frustrated when Poland was invaded by Germany and it

became illegal to deal with an enemy state.

Ross v Shaw 1917

- Contract to purchase yarn from a mill in Belgium was

deemed frustrated, as the yarn couldn’t be lawfully

obtained when Belgium was invaded by Germany.

3. Non-Occurrence

Contract can be frustrated by non-

occurrence of an event, which was

sole reason for contract in first

place.

Krell v Henry 1903

Henry rented room to view coronation

paid £25 with promise of further £50

but it was postponed.

Court held frustration.

4. Death or

Incapacity

Robinson v Davison 1871

Piano player contract

frustrated by serious

illness

Flynn v Great Northern

Railway Company 1953

Employment contract of van

driver frustrated by

illness

Legal Effect of Frustration

Under common law, discharge due to frustration ends contract.

Rights and obligations from before frustration remain but

anything from afterwards are extinguished.

Payments made from before cannot be recovered but payments

from after are no longer owed.

Rule now relaxed - payment recoverable if nothing received in

return.

Fibrosa v Fairbairn Lawson Combe 1943

Plaintiff ordered machinery at cost of £4800 and gave £1000

deposit. Balance was to be paid on delivery to Poland.

WWII made delivery impossible.

Defendants claimed contract was frustrated and monies paid

before event couldn’t be recovered.

Court said that as the defendants had done nothing in return

for the deposit, the plaintiff was entitled to money back.

Remedies

Remedies

When party breaches a contract, injured

party is entitled to remedy for loss or

damage.

Common law or equitable remedies.

Injured parties entitled to common law

remedy as a right where breach

established (damages).

Equitable remedies are discretionary

Quantum Meruit

Award

Award based on the amount a court

thinks ought to be awarded.

Distinct from what plaintiff

claims.

Most frequently applied common law

remedy.

“As much as one has earned.”

Common Law

Remedies

Damages

They are compensation not punishment.

Purpose is to put party in position they would be had

contract actually been performed.

What damage can the injured party be

compensated for?

Doctrine of Remoteness of Damages

Parties can’t be compensated for all the loss as some will be

considered too remote from the breach.

Court will ask:

1) What damage arises naturally as a consequence?

2) What damages were within the contemplation of the

parties?

Victoria Laundry v Newman Industries

1949

- Plaintiffs operated laundry and

ordered a boiler from Newman ASAP.

6 month delay. During delay

plaintiffs had to turn down

lucrative contract.

- Plaintiffs sued for loss of profit.

- Court held defendants were liable

for normal losses but not lucrative

contract

Lee and Donoghue v Rowan 1981

- Defendants failed to finish a shed

for the plaintiffs to use as

storage for potatoes.

- Plaintiffs could not find another

shed to house potatoes.

- Court held natural losses included

cost of shed and transporting them

but could not be compensated for

whole crop.

- Failure to find storage was

reasonably contemplated

How much compensation should the injured party

receive?

Courts will calculate damages based on ‘expectation’ loss or

‘reliance’ loss.

Expectation loss is the loss the injured party was expected

to gain had contract been completed. Purpose to reinstate the

financial position.

Reliance loss is the money spent by the injured party as a

result of having entered the contract. Actual financial loss

experienced.

Hawkins v Rogers 1951

- Breach of contract

prevented a successful

racehorse from competing

in further races .

- Irish court estimated

probable loss by

examining the general

performance of the horse

in previous races and

awarded damages for

‘expectation loss’ based

on calculations.

Anglia Television Ltd v Reed

1972

- =Actor was contracted to

star in a tv programme

being made by plaintiffs

- Actor pulled out and

couldn’t be replaced so

film abandoned

- Court held plaintiffs

entitled to damages for

the amount spent prepping

for film

- Loss impossible to

calculate

Afton v Film Studios of

Ireland 1971

Irish court held that the

plaintiffs could not claim

for expectation loss when it

wasn’t clear whether the

film would have made a

profit or not

Limitations to the award of damages

Award for damages to the injured party can be reduced

where the injured party has failed to mitigate their

losses.

The injured party has duty to mitigate loss as much as

possible.

They only need to take reasonable steps following a

breach.

Failure = reduced losses.

Burden on defendant to prove the reasonable steps weren’t

taken.

Bord Iascaigh Mhara v

Scallon 1973

Owner of a ship could not

recover the value of the

damages that were caused by

persons who hired and

abandoned it.

Court said losses could have

been reduced if owners took

steps to rescue.

Equitable remedies

- Discretionary

- Only granted if

damages are unsuitable

Remedy: Specific Performance

If there’s a breach, court might order the party to perform

their specific obligations under the contract.

Empowers the Court to enforce the due performance of the

contract.

Courts will do this where damages are inadequate and where

the order would not cause undue hardship on party in breach.

Patel v Ali 1984

Sale of house

Vendor declared bankrupt,

wife gave birth, diagnosed

with cancer and had leg

amputated.

Relied on neighbours.

Purchaser sought SP but

court said it would cause

hardship amounting to

“injustice”

Court won’t grant specific performance….

A) Contracts for personal services (including employment

contracts or contracts to perform)

B) Contracts to advance money

C) Where the Court cannot supervise performance of a

contract

D) Where one party is an infant/minor

E) Where the contract is neither fair nor just - and where

the conduct of party seeking performance is questionable

Remedy: Injunctions

An injunction is

an order

instructing the

party to rectify the

effects of the

breach

Two types of injunctions

Mandatory Injunction

Order directing the party

to undertake a specific

course of action.

Prohibitory Injunction

Order directing the party

in breach restrain from

taking a specific course of

action

Lumley v Wagner 1852

Defendant agreed to sing at the

plaintiff’s theatre for a certain

period and not sing elsewhere, but

did anyway.

Court granted a prohibitory

injunction preventing plaintiff

working elsewhere but didn’t order

specific performance.

Remedy: Rescission

Applies where one party seeks to

have contract set aside.

Where this happens, any money

paid may be transferrable.

Damages can’t be claimed -

purpose is to return contracting

party to pre-contract position.

Remedy: Rectification

Where dispute arises pertaining

to terms the Court might opt to

“rectify” the terms.

Only permitted where party can

prove the contract wasn’t the

intention of parties.

Not where burdensome injury

will happen.

What is a burdensome injury?

EXAMPLE:

Where a contract made in Ireland

between two Irish individuals

inadvertently refers to $100,000 as

the consideration of the contract

instead of euros, a court may look

at this and “rectify” the contract

by replacing the $ with €.

Limits to action for breach

Statute of Limitations Act 1957

imposes time limits on right to sue

for breach.

Proceedings must be initiated 6

years from breach.

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