Contract - termination

Question 1

Two scenarios in which right of termination will arise?
Terminology?

Answer 1

1. Where there is a breach of a condition
2. Where there is a serious breach of an innominate term
   Known as a ‘repudiatory’ breach

Question 2

What is a repudiatory breach?

Answer 2

One which allows the non-defaulting party to treat the breach as having brought the contract to an end

Question 3

Options of a non-defaulting party in response to a repudiatory breach?
Automatic?

Answer 3

1. affirm the contract
2. discharge the contract
   Contract won’t automatically be terminated - up to innocent party to decide whether to affirm or terminate.

Question 4

Remedy for breach of:
a) a warranty?
b) innominate term
c) innominate term (very serious breach)
d) condition

Answer 4

a) damages
b) damages
c) damages, and possible termination
d) damages, and possible termination

Question 5

How does termination operate?

Answer 5

Only to discharge parties from future contractual obligations - if there are none, then termination will not be possible

Question 6

Frustration

What constitutes frustration? (3)

Answer 6

An unforseen supervening event/ change of circumstances must:
a) make performance of the contract impossible, or radically different; and
b) be something unexpected (i.e. beyond ordinary risks that parties can be considered to have taken on board); and
c) be something that was outside the control of either party

Question 7

Frustration

Categories of ‘radically different’? (5)

Answer 7

a) government intervention
b) unavailability of individual crucial to the contract
c) illegality
d) destruction of subject matter
e) non-occurence of a fundamental event

Question 8

Frustration

Example of non-occurence of fundamental event?

Answer 8

Room hired for the sole purpose of watching procession of a celebrity. Procession is cancelled because of the illness of the celebrity.

Question 9

Frustration

Example where 10 year lease of a warehouse will not be frustrated?

Answer 9

Local authority closes the street for 18 months of the 10 year term.
Relative length of the interruption not sufficiently grave to amount to a frustrating event.

Question 10

Frustration

Example of something that wasn’t frustration - Naval Review

Answer 10

• Ship hired for two days to take people out to view naval review, and have a day’s cruise
• Naval review is cancelled because of King’s illness
• Naval review was not the sole purpose of the contract. Day’s cruise around the fleet is still possible, so performance has not become radically different

Question 11

Frustration

Factors to be taken into account when considering whether delay frustrates a contract?

Answer 11

• Whether there are any provisions in the contract for consequences of the delay
• Likely length of delay relative to the duration of the contract
• Times set in the contract for obligations to be performed
• Whether the performance resumed is radically different

Question 12

Frustration

General principles re. delay and frustration?

Answer 12

• Performance of the contract must be rendered impossible, or radically different
• A delay won’t cause contract to have been frustrated simply because the contract becomes more difficult or less proiftable to perform
• e.g. closure of the Suez canal led to many voyages being re-routed. Courts were reluctant to say that contracts were frustrated unless a Suez canal route had been specified, or a precise date agreed

Question 13

Frustration

What does ‘something unexpected’ mean?

Answer 13

Could the parties have foreseen the event?
Something like a road closure is entirely foreseeable

Question 14

Frustration

Ways in which parties can seek to avoid a contract being frustrated i.e. in relation to ‘something unexpected’?

Answer 14

By providing for what happens in particular circumstances in the contract - once that is done, it ceases to be ‘unexpected’ and is dealt with in the contract.

Question 15

Frustration

Effect of a ‘force majeure’ clause?

Answer 15

Means that a defendant doesn’t need to rely on establishing the doctrine of frustration - D’s defence is that it was agreed in the contract that they don’t need to perform the contract under certain circumstances.

Question 16

Frustration

Can illegality ever be provided for in the contract?

Answer 16

No

Question 17

Frustration

Limits on a force majeure clause?

Answer 17

They’ll be governed by UCTA, and will need to satisfy the reasonableness test

Question 18

Frustration

Case law on ‘something beyond the control of either party’?

Answer 18

D intended to use Ship 2 to perform a contract. They could have used Ship 1, but they were already using it for other contracts. Their decision to use Ship 1 for other contracts was within their control, so no frustration.

Question 19

Frustration

Legislation governing the consequences of frustrating events?

Answer 19

Law Reform (Frustrated Contracts) Act

Question 20

Frustration

Consequences of frustration?

Answer 20

Future performance of the contract is automatically terminated without further action from either party - both parties released from future obligations

Question 21

Frustration

Three key points re. money already paid prior to the frustrating event?

Answer 21

• money paid before the event can be recovered
• money that should have been paid before the event need not be paid
• at court’s wide discretion, expenses incurred by payee can be recovered out of the total sums paid and payable before the event

Question 22

Frustration

How much can be recovered by the payee for expenses they incurred prior to the event?

Answer 22

The lower of:
a) the amount actually incurred; or
b) a sum equal to the amount paid or payable by the time of the frustrating event

Note that court has a wide dicretion

Question 23

Frustration

Position if one party has conferred a valuable benefit on the other prior to the frustrating event?

Answer 23

• Court may order a ‘just sum’ to be paid by the recipient
• What is a ‘just sum’ will depend on the circumstances, incl. effect the frustrating event had on the benefit

Question 24

Frustration

Effect if a supervening event/ change of circumstances falls outside the doctrine of frustration?

Answer 24

It’s a breach of contract and/ or is governed by the contract itself.
Whether a force majeure clause is valid will be a matter of construction

Question 25

# Discharge by performance What's the doctrine of complete performance?

Answer 25

**Performance of contractual obligations must be precise and exact** - if one party has to pay only after the other has performed their obligations, then payer won't have to pay the price.

Question 26

# Discharge by performance Exceptions to the doctrine of complete performance? Effect?

Answer 26

If an exception applies then **some payment** can be recovered, even though the contractual obligations haven't been performed exactly. a) divisible obligations b) substantial performance c) wrongful prevention d) voluntary acceptance of part performance

Question 27

# Discharge by performance- exceptions to doctrine of complete performance Divisible obligations

Answer 27

Obligations divisible **if parties have agreed specific payments for each distinct part or stage of the contract**. Once each part is completed, contractor is entitled to be paid in full.

Question 28

# Discharge by performance- exceptions to doctrine of complete performance Meaning of substantial performance

Answer 28

If contractor has completed agreed work but it is 'slightly defective', they will be **entitled to the price** **less the cost of putting right the defect**.

Question 29

# Discharge by performance- exceptions to doctrine of complete performance Substantial performance - general rule for something being 'slightly defective'? Outside the general rule?

Answer 29

General rule: will be slightly defective as long as cost of rectifying the problem is not more than **1/14** of the contract price. Beyond that proportion, **court will exercise discretion**. Case where it would have cost **a third of the contract** price to rectify was not substantial performance.

Question 30

# Discharge by performance- exceptions to doctrine of complete performance Wrongful prevention

Answer 30

If a party is **wrongfully prevented** from completing their contractual obligations, will be entitled to **either** damages, or a reasonable sum in restitution, for what has already been done.

Question 31

# Discharge by performance- exceptions to doctrine of complete performance When will something **not** be 'wrongful prevention'?

Answer 31

Essentially, **work needs to be poor enough to constitute a repudiatory breach**, such that the **other party has the right to terminate the contract**. If this is the case, it **won't be 'wrongful prevention'** to ask the other party to stop performing the service.

Question 32

# Discharge by performance- exceptions to doctrine of complete performance Effect if a contract brought to an end by wrongful prevention?

Answer 32

The party who was wrongfully prevented from performance will be entitled to damages/ a reasonable sum for what they have done

Question 33

What sort of term is the implied term of reasonable care and skill in the SGSA?

Answer 33

Innominate

Question 34

# Discharge by performance- exceptions to doctrine of complete performance Voluntary acceptance of part performance - effect?

Answer 34

Where supplier of goods/ services partly performs and the other party voluntarily accepts partial performance, supplier is entitled to a **reasonable sum**

Question 35

# Discharge by performance- exceptions to doctrine of complete performance Voluntary acceptance of part performance - requirement?

Answer 35

Non-defaulting party must have a **genuine choice**, i.e. won't be a choice if the defaulting party abandoned the job

Question 36

# Discharge by performance- exceptions to doctrine of complete performance Voluntary acceptance of part performance - case law re. construction of two houses and a stable?

Answer 36

Builder completed £333 worth of a £565 contract, and then abandoned it. Non-defaulting party had no choice but to complete it themselves, so no voluntary acceptance and no payment due for the work. BUT The non-defaulting party did have a choice over whether to use the builder's leftover materials (which they did), so was ordered to pay a reasonable sum for those.