What are the three ways a contract may be terminated?
- Discharge following a repudiatory breach (can choose to terminate)
- Frustration (automatically terminates)
- By performance
When can the breach of a term in a contract result in termination?
Breach of a condition
or
Very serious breach of an innominate term
→ The innocent party can choose to affirm & claim damages or terminate & claim damages (ie. termination is not automatic)
- Once have affirmed, cannot terminate
- Must be an ongoing contract (ie. there are future obligations that can be terminated)
If a contract is frustrated, when is it terminated?
At the moment of frustration - automatically comes to an end
What constitutes frustration?
An event or change of circumstances which:
a) Makes performance impossible or radically different
and
b) Is unforeseen (ie something unexpected beyond the ordinary risks the parties can be treated as having taken on board when entering into their contract)
and
c) Is not the fault of either party (beyond their control)
What amounts to an event being ‘radically different’ for the purposes of frustration?
Categories of frustrating event include:
(a) Government intervention
(b) Unavailability of a specific person vital to the contract
(c) Illegality
(d) Destruction of the subject matter
(e) Non-occurrence of a fundamental event
(In all cases, will be a matter of degree)
Will delay be a frustrating event?
Not a category of frustrating event itself (not every delay frustrates & delay generally more likely to mean that a party is in breach)
When deciding if delay frustrates the contract, factors to consider include:
- Whether there are contract provisions for the consequences of the delay
- The likely length of delay relative to the duration of the contract
- Any time set in the contract for the obligations to be performed
- Whether the performance when resumed is radically different from the contract
What are the consequences of frustration of a contract?
The contract automatically comes to an end
- Both parties are released from all future obligations
- Neither party is deemed in breach of contract
Money paid by one party to another under the contract before the event can be recovered
Money that should have been paid under the contract before the event (money payable) does not need to be paid
At the court’s discretion, expenses incurred by the payee can be recovered out of the total sums paid / payable before the event
ie. payee never gets more than what is incurred - the total ‘pot’ of £ available is the sum of money paid & payable before the frustrating event
If one party has conferred a valuable benefit on the other party before the frustrating event, the court may order a just sum be paid by the recipient for that benefit
- What is a just sum depends on all the circumstances including expenses incurred by benefitted party, effect of frustration on the benefit
If money has been paid as part of the contract before the frustrating event, can it be recovered?
Yes
Nb. Money payable before the frustrating event (ie. money which should have been paid) is not recoverable
If expenses have been incurred by the payee before the frustrating event, can they be recovered?
Court has wide discretion to allow the payee to recover their expenses out of the ‘pot’ of total money paid / payable before the frustrating event
What happens if one party has conferred a ‘valuable benefit’ on the other party before the frustrating event?
The court may order a just sum to be paid by the recipient of the benefit
What is ‘just’ will depend on circumstances including expenses incurred by the benefitted party & the effect the frustration has had on the benefit (eg. if frustration wiped out the benefit, just sum might be nothing)
What is the doctrine of complete performance?
Performance of contractual obligations must be precise & exact - if it is not, the contractor is not entitled to be paid
→ but there are exceptions where some payment can be recovered even though contractual obligations have not been performed precisely & exactly
What are the 4 exceptions to the doctrine of complete performance?
Some payment can be recovered even though contractual obligations have not been performed precisely & exactly if:
I. Divisible contracts
- Contract is divided into discrete parts & certain amounts payable on the completion of each part
II. Substantial performance
- Contractor has completed the agreed work but it is slightly defective
- Slightly defective = where the cost of rectifying the problem is not more than 1/14 of the contract price
- Contractor will be entitled to the price less the cost of putting right the defect
III. Wrongful prevention
- Wrongful prevention occurs if the customer is not justified in terminating the contract (eg. terminating for a minor breach of an innominate term)
- If a party is wrongfully prevented from completing their contractual obligations, are entitled to damages or a reasonable sum in restitution for what they have already done
IV. Voluntary acceptance of part performance
- Supplier of goods or services partly performs their contractual obligations & the other party voluntarily accepts the partial performance –> supplier is entitled to a reasonable sum for what they done
- Non-defaulting party must have a genuine choice whether to accept (eg. if building half-built something on their land & then abandoned, don’t have a real choice!)
