DISCHARGE OF
CONTRACTS
Charles Dulo
TOPICS TO BE COVERED
• The doctrine of • Operation of law;
frustration; – Merger;
– Destruction of the – Bankruptcy;
subject matter; – Death;
– Non-occurrence of a – Unauthorized
stated event; material alteration;
– Death or personal • Other situation
incapacity;
when performance
– Change in law;
– Government
is not required;
interference; – Quantum merruit.
• Lapse of time;
READINGS
Chesire, Fifoot, & Furmston’s Law
of Contract pages 711 to 728 ;
Treitel, The Law of Contract pages
924 to 984.
Impossibility or Frustration
• The common law rule was that the parties to a
contract must perform the respective obligations
or pay damages. The parties were free to provide
in the contract that it was to terminate on its
becoming impossible or on the happening of a
specified event. But if the parties have not made
any specific provision against the contingency in
their contract, the doctrine of frustration might
be brought in as a defence by a party proving
that a supervening event has occurred beyond
the contemplation of the parties destroying the
very foundation of the contract.
• Supervening impossibility or frustration
will discharge the contract in the following
circumstances:
1. Destruction of the subject-matter:
• The first case which allowed a party to be
released from liability because of some
supervening event rendering performance
impossible was as follows:
Taylor v. Caldwell, 1863
• In this case, a music hall was agreed to be let out for
a series of concerts on certain days. The hall was
destroyed by fire before the date of the first concert.
The contract was held to have become void and the
owner of the hall was absolved from liability to let the
hall as promised.
• Blackburn J. stated the principle that:
• “In a contract in which the performance depends upon
the continued existence of a given person or thing, a
condition is implied that the impossibility of
performance arising from the perishing of the person
or thing shall excuse the performance.”
• The above decision modified the old rule in
Paradine v. Jane 1648 that contracts always
impose absolute obligations. In this case, the
defendant was a lessee of the plaintiff’s and
had agreed to pay rent. He was rudely ejected
from the house by Prince Rupert’s army, and
he was still held liable to pay the rent.
• The destruction of the subject-matter need
not be whole; it is sufficient as long as it
prevents the contract from being carried out.
Nickoll & Knight v. Ashton & Co Ltd, 1901
A sold N a cargo of cotton seeds to be shipped by a
specified ship in a named month. Before the time for
shipping arrived, the ship was so damaged by being
stranded that it was unable to load by the agreed
time. It was held that the contract was discharged.
2. Non-occurrence of a stated event:
When a contract is entered into on the basis of the
happening of a certain stated event, the contract is
discharged if such an event does not take place.
Krell v. Henry, 1903
H rented a room from K to view the
coronation of King Edward VII. Owing to
King’s illness, the coronation procession was
cancelled. The defendant refused to occupy
the flat or to pay the rent, and the plaintiff
sued him. It was held that the contract was
discharged, as the taking place of the
procession was the basis of contract.
3. Death or personal incapacity:
• In a contract for personal services, the death or illness
of a particular person whose action is vital for the
agreed performance discharges the contract. But the
personal incapacity must be serious enough, and not
self-created, to prevent the person from performing his
obligations.
Robinson v. Davison, 1871
• D, a pianist, agreed to play the piano for R at a concert
given on a specific day. D became ill on the day in
question and was unable to perform his obligation. It
was held that he was not liable for the breach as the
contract was discharged due to D’s personal incapacity.
4. Change in law:
• A contract, legal at the time of its formation, may
subsequently become illegal due to an alteration of law
or the act of some person having statutory authority.
The contract is then discharged.
Baily v. De Crespigny, 1869
• D leased land to B and agreed that he would not build
on land opposite that on which the premises stood.
Subsequently a railway company compulsorily
acquired D’s land under the statutory powers, and the
company built on it. It was held that D’s obligation
under the lease “not to build on it” had been
discharged by a change in law.
• For a contract to be discharged under this head,
there must be a change in law, and not the mere
application of an existing law.
Walton Harvey Ltd v. Walker & Homerays, 1931
• In this case, an agreement was made to exhibit an
advertisement on the roof of the defendants’ hotel
for a period of seven years. During this time,
Manchester Corporation, exercising statutory powers,
acquired the hotel and demolished it. It was held that
the contract was not discharged, as the defendant
should have been aware of the risk of compulsory
purchase and must be taken to have implicitly
accepted the risk.
5. Government interference:
• A contract is discharged by unexpected government
interference, causing a fundamental change of
circumstances from that contemplated by the parties
when the contract was made.
Metropolitan Water Board v. Dick, Kerr & Company
Ltd, 1918
• In this case, the defendant had agreed to construct a
reservoir for the plaintiff. Before the defendants had
done so, the government, acting in pursuance of war-
time powers, stopped it: It was held that the contract
was discharged through government interference.
Effect of Frustration
• According to old common law rule, if there was a
subsequent impossibility to discharge the contract, the
loss lay where it fell; that is, money not due at the time
frustration could not be claimed, but any sum due and
payable could be recovered.
Chandler v. Webster, 1904
• C agreed to rent his flat to W to view the coronation
procession of King Edward VII. The rent was £41 payable
in advance. W paid £100, but he still owed the balance
when the contract was frustrated due to the cancellation
of the coronation. It was held that W could not recover
what he had already paid, and was liable to C for £41 still
going.
• In 1943, the Fibrosa Case tempered the harshness of
the above rule, but even so, covered only those cases
where there was a total failure of consideration, and
not merely partial failure of consideration.
Fibrosa v. Fairbairn, 1943
• In this case, the defendant, an English seller, agreed to
sell machinery to the plaintiff, a Polish buyer, part of
the price to be paid in advance. The plaintiff paid
£1,000. The performance of the contract became
impossible because before the delivery was due,
Germany occupied Poland. It was held that the contract
was discharged, and the plaintiff could recover £1,000
and was not liable to pay the balance.
• The Law Reform (Frustrated Contracts) Act
1943 England, which is applicable to
Kenya, has amended the common law rule
and provides what shall happen if the
contract is discharged by frustration:
– All money paid before discharge is
recoverable.
– Money which became payable before
frustration ceases to be payable.
– The court will allow the parties to recover
sums of money paid out on expenses incurred
in connection with the contract, or to retain
such sums from money already received under
the contract.
– Where one party has received any benefit,
other than the money payment, the court may
permit the other party to recover a reasonable
sum as compensation for such benefit on a
quantum meruit.
• The Act has no application to:
i. Contracts of insurance.
ii. Charter parties and contracts for the carriage of goods by
sea.
iii. Where the contract expressly provides for the contingency
which arose or where frustration is self-induced.
iv. Where there is a contract of sale or an agreement to sell
specific goods.
v. Where there is a contract of lease.
vi. Where one of the parties relies on the work done by the
third party.
vii. Where the performance of the contract becomes more
difficult or expensive or less profitable than it was
contemplated when the contract was made .
Davies Contractors Ltd v. Fareham U.D.C, 1956
• The plaintiff company agreed with the defendant to build
78 houses for a lump sum within eight months. Due to
the shortage of labour and materials the houses were not
completed until 22 months had elapsed, and this delay
added some £ 17,000 to the plaintiff’s expenses over and
above the agreed sum. The plaintiff claimed the contract
was frustrated and that he was entitled to a higher sum
than agreed on the basis of quantum meruit. It was held
that the shortage of labour and the increased costs made
the contract more expensive, but these factors did not
render it a thing radically different from that which was
undertaken by the plaintiff and did not frustrate.
Lapse of Time
• A contract formed for a specified time is discharged
when that period of time has elapsed. Where no
specified time is laid down, the lapse of reasonable
time may render the contract unenforceable in a
court of 1aw.
• The Limitation of Actions Act 1968 in some cases
provides a good defence to claims for the breach of
contract and in fact terminates the contract without
providing any remedy to the innocent party. Where a
person does not pursue his legal claim under the
contract within six years, he will be barred from
enforcing his claim and the other party is discharged
from his liability.
• The limitation period for simple and
under deed contracts is six years.
Under English law, the period of
limitation for simple contract is six
years, and for contract under deed is
twelve years.
Provisions of Limitation of
Actions Act 1968
• The Act provides that action on simple or under
deed contracts are barred after six years from the
date upon which the plaintiff could first have
brought his action. Where the plaintiff is an infant
or person of unsound mind, the period limitation
does not run until his contractual disability has
ceased to exist. Once time has started to run, any
subsequent incapacity will not stop it running.
• Where a right of action has become statute-
barred, a written acknowledgement by the person
liable revives a fresh cause of action in favour of
the plaintiff.
• A part-payment of a statute-barred
debt has the same effect as that of
written acknowledgement. In both
cases, the plaintiff obtains an extra six
years to bring action against the
defendant to enforce his contractual
rights against him.
Operation of Law
• Discharge under this head may take place
as follows.
– By merger: This takes place when the parties
embody the simple contract into a contract
under deed and in such circumstances an
action lies only on the deed.
– By bankruptcy: When a person becomes
bankrupt, all his rights and obligations pass to
his trustee in bankruptcy. But a trustee is not
liable on contracts of personal services to be
rendered by the bankrupt.
– By death: The death of either party will
discharge a contract for personal services but
other contractual rights and obligations are not
affected and survive for the benefit of or
against the estate of the deceased.
– By unauthorized material alteration: Where a
party to a contract in writing or under deed
makes any material alteration in it without the
knowledge and consent of the other, the
contract can be avoided at the discretion of the
other party. An alteration is material which
varies the legal effect of contract.
Quantum Merruit
• Restitutionary claim based on principle of
unjust enrichment.
• Available only where there is no subsisting
contract between the parties, i.e.
– No contract
– Void or unenforceable contract
– Contract with no price stipulated
• Elements
– Plaintiff must have provided a benefit to
the defendant;
– Benefit must be provided at the expense of
the plaintiff;
– Unjust for defendant to retain that benefit;
– Defendant must have a choice;
– Plaintiff must not be in breach.
Q & A
Thank
you
Presenter Name: Charles Dulo
Designation: Senior Lecturer
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