discharge of contract

Document Sample
discharge of contract Powered By Docstoc
					6.      Discharge of contract and remedies

Note: Please read cases (1) – (3) in preparation for next week’s lecture.

a)      Frustration
(1)     Taylor v Caldwell (1863) 3 B & S 826


T entered into a contract with C which gave T the right to the use of the Surrey Gardens and music hall on
four separate days later that summer. After the contract was concluded, but before the date of the first
concert, the music hall was destroyed by fire.

Blackburn J

There are authorities which, as we think, establish the principle that where, from the nature of the contract,
it appears that the parties must from the beginning have known that it could not be fulfilled unless when
the time for the fulfilment of the contract arrived some particular specified thing continued to exist, so
that, when entering into the contract, they must have contemplated such continuing existence as the
foundation of what was to be done; there, in the absence of any express or implied warranty that the
thing shall exist, the contract is not to be construed as a positive contract, but as subject to an
implied condition that the parties shall be excludes in case, before breach, performance becomes
impossible from the perishing of the thing without default of the contractor.

(2)      Krell v Henry [1903] 2 KB 740 (Court of Appeal)


H agreed to hire a flat in Pall Mall from K for 26 and 27 June 1902. On these the coronation processions
of Edward VII were to take place and the windows in the flat afforded good views of the procession route.
The contract contained no express reference to the coronation processions, or to any other purpose for
which the flat was taken. A deposit was paid when the contract was entered into. Due to the King’s illness,
the processions did not take place on the proposed days. K claimed £ 50 from H, who in turn
counterclaimed for the return of the £ 25 which he had already paid under the contract.

Vaughan Williams LJ

I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties,
when the contract was made, that the coronation would not be held on the proclaimed days, or the
processions not take place on those days along the proclaimed route; and I think that the words imposing
on the defendant the obligation to accept and pay for the use of the rooms for the named days, although
general and unconditional, were not used with reference to the possibility of the particular contingency
which afterwards occurred. (...)

Each case must be judged by its own circumstances. In each case one must ask oneself, first, what, having
regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the
contract prevented? Thirdly, was the event which prevented the performance of the contract of such a
character that it cannot reasonably be said to have been in the contemplation of the parties at the date of
        Lehrstuhl Zivilrecht VIII          Prof. Dr. Ohly                     Introduction to English Law

the contract? If all these questions are answered in the affirmative (as I think they should be in this case), I
think both parties are discharged from further performance of the contract. I think that the coronation
procession was the foundation of this contract, and that the non-happening of it prevented the
performance of the contract; and, secondly, I think that the non-happening of the procession, to use the
words of Sir James Hannen in Baily v. De Crespigny, was an event "of such a character that it cannot
reasonably be supposed to have been in the contemplation of the contracting parties when the contract was
made, and that they are not to be held bound by general words which, though large enough to include,
were not used with reference to the possibility of the particular contingency which afterwards happened."

(3)   Herne Bay Steam Boat Company v Hutton [1903] 2 KB 683 (Court of Appeal)


The defendant agreed to hire the steamship “Cynthia” from the claimants for £ 250 on 28 and 29 June "for
the purpose of viewing the naval review and for a day's cruise round the fleet”. The royal naval review,
which was intended as a part of the coronation festivities, was subsequently cancelled due to the King’s
illness. However, the fleet remained anchored at Spithead. The defendant did not use the ship, the
claimant sued for the agreed sum.

Stirling LJ

It is said that, by reason of the reference in the contract to the "naval review," the existence of the review
formed the basis of the contract, and that as the review failed to take place the parties became discharged
from the further performance of the contract, in accordance with the doctrine of Taylor v. Caldwell. I am
unable to arrive at that conclusion. It seems to me that the reference in the contract to the naval review
is easily explained; it was inserted in order to define more exactly the nature of the voyage, and I am
unable to treat it as being such a reference as to constitute the naval review the foundation of the contract
so as to entitle either party to the benefit of the doctrine in Taylor v. Caldwell. I come to this conclusion
the more readily because the object of the voyage is not limited to the naval review, but also extends
to a cruise round the fleet. The fleet was there, and passengers might have been found willing to go
round it. It is true that in the event which happened the object of the voyage became limited, but, in my
opinion, that was the risk of the defendant whose venture the taking the passengers was.

(4)   Sale of Goods Act 1979

s 7 Goods perishing before sale but after agreement to sell.

Where there is an agreement to sell specific goods and subsequently the goods, without any fault on the
part of the seller or buyer, perish before the risk passes to the buyer, the agreement is avoided.

(5) Law Reform (Frustrated Contracts) Act 1943

s 1 Adjustment of rights and liabilities of parties to frustrated contracts.

(1) Where a contract governed by English law has become impossible of performance or been otherwise
frustrated, and the parties thereto have for that reason been discharged from the further performance of the
contract, the following provisions of this section shall, subject to the provisions of section two of this Act,
have effect in relation thereto.
        Lehrstuhl Zivilrecht VIII           Prof. Dr. Ohly                     Introduction to English Law

(2) All sums paid or payable to any party in pursuance of the contract before the time when the parties
were so discharged (in this Act referred to as "the time of discharge") shall, in the case of sums so paid, be
recoverable from him as money received by him for the use of the party by whom the sums were paid,
and, in the case of sums so payable, cease to be so payable:
Provided that, if the party to whom the sums were so paid or payable incurred expenses before the time of
discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to
do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover
the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so
(3) Where any party to the contract has, by reason of anything done by any other party thereto in, or for
the purpose of, the performance of the contract, obtained a valuable benefit (other than a payment of
money to which the last foregoing subsection applies) before the time of discharge, there shall be
recoverable from him by the said other party such sum (if any), not exceeding the value of the said benefit
to the party obtaining it, as the court considers just, having regard to all the circumstances of the case and,
in particular,--
(a) the amount of any expenses incurred before the time of discharge by the benefited party in, or for the
purpose of, the performance of the contract, including any sums paid or payable by him to any other party
in pursuance of the contract and retained or recoverable by that party under the last foregoing subsection,
(b) the effect, in relation to the said benefit, of the circumstances giving rise to the frustration of the

b)      Breach and remedies
(1)     Victoria Laundry v Newman Industries [1949] 2 KB 528 (Court of Appeal)
        (expectation loss)


The claimants (C) were launderers and dyers who wished to extend their business. For that purpose they
concluded a contract with the defendants (D) for purchase and installation of a larger boiler. Delivery was
arranged to take place on 5 June 1946. Before installation, however, the boiler was damaged and could
only be delivered on 8 November, although D knew that C urgently required the boiler. C sued for breach
of contact and included into their damages their loss of business profits. At trial, C could show that (1)
they could have taken on a very large number of new customers in the course of their laundry business and
(2) that they could and would have accepted a number of highly lucrative dyeing contracts for the Ministry
of Supply.

Asquith LJ

We should first recall the memorable sentence in Hadley v. Baxendale in which the main principles laid
down in this case are enshrined: "Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in respect of such breach of contract
should be such as may fairly and reasonably be considered as either arising naturally, i.e. according
to the usual course of things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties, at the time they made the contract, as
the probable result of the breach of it." The limb of this sentence prefaced by "either" embodies the so-
called "first" rule; that prefaced by "or" the "second."

        Lehrstuhl Zivilrecht VIII           Prof. Dr. Ohly                    Introduction to English Law

What propositions applicable to the present case emerge from the authorities as a whole? We think they
include the following:-
(1.) It is well settled that the governing purpose of damages is to put the party whose rights have been
violated in the same position, so far as money can do so, as if his rights had been observed. This
purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto
resulting from a particular breach, however improbable, however unpredictable. This, in contract at least,
is recognized as too harsh a rule
(2.) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss
actually resulting as was at the time of the contract reasonably forseeable as liable to result from the
(3.) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the
parties or, at all events, by the party who later commits the breach.
For this purpose, knowledge "possessed" is of two kinds; one imputed, the other actual. Everyone, as a
reasonable person, is taken to know the "ordinary course of things" and consequently what loss is
liable to result from a breach of contract in that ordinary course. This is the subject matter of the "first
rule" in Hadley v. Baxendale. But to this knowledge, which a contract-breaker is assumed to possess
whether he actually possesses it or not, there may have to be added in a particular case knowledge which
he actually possesses, of special circumstances outside the "ordinary course of things," of such a kind
that a breach in those special circumstances would be liable to cause more loss. Such a case attracts the
operation of the "second rule" so as to make additional loss also recoverable.

If these, indeed, are the principles applicable, what is the effect of their application to the facts of this
case? The defendants were an engineering company supplying a boiler to a laundry. We reject the
submission for the defendants that an engineering company knows no more than the plain man about
boilers or the purposes to which they are commonly put by different classes of purchasers, including
laundries. Again, they knew they were supplying the boiler to a company carrying on the business of
laundrymen and dyers, for use in that business. The obvious use of a boiler, in such a business, is surely to
boil water for the purpose of washing or dyeing. A laundry might conceivably buy a boiler for some other
purpose; for instance, to work radiators or warm bath water for the comfort of its employees or directors,
or to use for research, or to exhibit in a museum. All these purposes are possible, but the first is the
obvious purpose which, in the case of a laundry, leaps to the average eye. If the purpose then be to wash
or dye, why does the company want to wash or dye, unless for purposes of business advantage, in which
term we, for the purposes of the rest of this judgment, include maintenance or increase of profit, or
reduction of loss.

As to the lucrative dyeing contracts to which the plaintiffs looked: We agree that in order that the
plaintiffs should recover specifically and as such the profits expected on these contracts, the defendants
would have had to know, at the time of their agreement with the plaintiffs, of the prospect and terms of
such contracts. We also agree that they did not in fact know these things. It does not, however, follow that
the plaintiffs are precluded from recovering some general sum for loss of business in respect of dyeing
contracts to be reasonably expected, any more than in respect of laundering contracts to be reasonably

(2)    Anglia Television Ltd v Reed [1971] All ER 690 (Court of Appeal)
       (reliance loss)

Lord Denning MR

Anglia Television Ltd., the plaintiffs, were minded in 1968 to make a film of a play for television entitled
      Lehrstuhl Zivilrecht VIII            Prof. Dr. Ohly                    Introduction to English Law

"The Man in the Wood." It portrayed an American man married to an English woman. The American has
an adventure in an English wood. The film was to last for 90 minutes. Anglia Television made many
arrangements in advance. They arranged for a place where the play was to be filmed. They employed a
director, a designer and a stage manager, and so forth. They involved themselves in much expense. All
this was done before they got the leading man. They required a strong actor capable of holding the play
together. He was to be on the scene the whole time. Anglia Television eventually found the man. He was
Mr. Robert Reed, the defendant, an American who has a very high reputation as an actor. He was very
suitable for this part. By telephone conversation on August 30, 1968, it was agreed by Mr. Reed through
his agent that he would come to England and be available between September 9 and October 11, 1968, to
rehearse and play in this film. He was to get a performance fee of £1,050, living expenses of £100 a week,
his first class fares to and from the United States, and so forth. It was all subject to the permit of the
Ministry of Labour for him to come here. That was duly given on September 2, 1968. So the contract was
concluded. But unfortunately there was some muddle with the bookings. It appears that Mr. Reed's agents
had already booked him in America for some other play. So on September 3, 1968, the agent said that Mr.
Reed would not come to England to perform in this play. He repudiated his contract. Anglia Television
tried hard to find a substitute but could not do so. So on September 11 they accepted his repudiation. They
abandoned the proposed film. They gave notice to the people whom they had engaged and so forth.
Anglia Television then sued Mr. Reed for damages. He did not dispute his liability, but a question arose as
to the damages. Anglia Television do not claim their profit. They cannot say what their profit would have
been on this contract if Mr. Reed had come here and performed it. So. instead of claim for loss of profits,
they claim for the wasted expenditure. They had incurred the director's fees. the designer's fees, the stage
manager's and assistant manager's fees, and so on. It comes in all to £2,750. Anglia Television say that all
that money was wasted because Mr. Reed did not perform his contract.

Mr. Reed's advisers take a point of law. They submit that Anglia Television cannot recover for
expenditure incurred before the contract was concluded with Mr. Reed. They can only recover the
expenditure after the contract was concluded. They say that the expenditure after the contract was only
£854.65, and that is all that Anglia Television can recover.
The master rejected that contention: he held that Anglia Television could recover the whole £2,750; and
now Mr. Reed appeals to this court.

It seems to me that a plaintiff in such a case as this has an election: he can either claim for loss of
profits; or for his wasted expenditure. But he must elect between them. He cannot claim both. If he
has not suffered any loss of profits - or if he cannot prove what his profits would have been - he can
claim in the alternative the expenditure which has been thrown away, that is, wasted, by reason of
the breach.

If the plaintiff claims the wasted expenditure, he is not limited to the expenditure incurred after the
contract was concluded. He can claim also the expenditure incurred before the contract, provided that it
was such as would reasonably be in the contemplation of the parties as likely to be wasted if the contract
was broken. Applying that principle here, it is plain that, when Mr. Reed entered into this contract, he
must have known perfectly well that much expenditure had already been incurred on director's fees and
the like. He must have contemplated - or, at any rate, it is reasonably to be imputed to him - that if he
broke his contract, all that expenditure would be wasted, whether or not it was incurred before or after the
contract. He must pay damages for all the expenditure so wasted and thrown away.

(3)     Rainbow Estates Ltd v Tokenhold Ltd [1998] 2 All ER 860 (Chancery Division)
        (specific performance)

        Lehrstuhl Zivilrecht VIII          Prof. Dr. Ohly                    Introduction to English Law

The claimant (C) was the freeholder of a listed building of which the defendants were lessees. The
defendants (D) had covenanted to keep and maintain the property in good and tenant-like repair
throughout the term, and to permit the landlord access to examine the condition of the property. There was
no provision in the leases permitting the landlord to enter the premises to carry out any repairs and no
forfeiture clause or proviso for re-entry. The property was in a serious state of disrepair and its condition
was deteriorating.

Specific performance of landlord's repairing covenant

Until relatively recently it was generally accepted that repairing covenants could not be specifically
enforced. But today there is little or no life in these reasons.
First, as regards the requirement of mutuality, it is now clear that it does not follow from the fact that
specific performance is not available to one party that it is not available to the other: want of mutuality is a
discretionary, and not an absolute, bar to specific performance.
Second, as regards the need for precision in the terms of the order, it is "a question of degree and the
courts have shown themselves willing to cope with a certain degree of imprecision in cases of orders
requiring the achievement of a result in which the plaintiffs' merits appeared strong . . . it is, taken alone,
merely a discretionary matter to be taken into account . . .
Third, the objection to an order for specific performance based on the need for the court's constant
supervision is designed to avoid repeated applications for committal which are likely to be expensive in
terms of cost to the parties and the resources of the judicial system, but as regards orders to achieve a
result, Lord Hoffmann said: "Even if the achievement of the result is a complicated matter which will take
some time, the court, if called upon to rule, only has to examine the finished work and say whether it
complies with the order . . . This distinction between orders to carry on activities and orders to achieve
results explains why the courts have in appropriate circumstances ordered specific performance of
building contracts and repairing covenants . . ."
Subject to the overriding need to avoid injustice or oppression, the remedy should be available when
damages are not an adequate remedy or, in the more modern formulation, when specific
performance is the appropriate remedy. This will be particularly important if there is substantial
difficulty in the way of the landlord effecting repairs: the landlord may not have a right of access to the
property to effect necessary repairs, since (in the absence of contrary agreement) a landlord has no right to
enter the premises, and the condition of the premises may be deteriorating.

In particular, it became settled that the court will order specific performance of an agreement to build if (a)
the building work is sufficiently defined; (b) damages would not compensate the plaintiff for the
defendant's failure to build; and (it seems) (c) the defendant is in possession of the land so that the plaintiff
cannot employ another person to build without committing a trespass

The present case has the following unusual feature. As regards the appropriateness of the remedy of
specific performance, there is no adequate alternative remedy. The leases, unusually, contain no forfeiture
clause or proviso for re-entry; consequently breach of a repairing covenant will not entitle the landlord to
forfeit the leases. Nor do the leases contain a term allowing the landlord access to the premises other than
for the purpose of examining their condition: consequently the landlord cannot enter the premises, carry
out the works and recover the cost from the tenants.

(4)    Sale of Goods Act 1979, ss 51, 52

s 51 Damages for non-delivery

       Lehrstuhl Zivilrecht VIII            Prof. Dr. Ohly                      Introduction to English Law

(1) Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may
maintain an action against the seller for damages for non-delivery.
(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of
events, from the seller's breach of contract.
(3) Where there is an available market for the goods in question the measure of damages is prima facie to
be ascertained by the difference between the contract price and the market or current price of the goods at
the time or times when they ought to have been delivered or (if no time was fixed) at the time of the
refusal to deliver.

s 52 Specific performance

(1) In any action for breach of contract to deliver specific or ascertained goods the court may, if it thinks
fit, on the plaintiff's application, by its judgment or decree direct that the contract shall be performed
specifically, without giving the defendant the option of retaining the goods on payment of damages.
(2) ...

(5)      Behnke v Bede Shipping Company [1927] 1 KB 649 (King's Bench Division)


The plaintiff, a German shipowner, brought an action against the defendants, the owners of the British
steamship City, claiming a declaration that he purchased the City by contract from the defendants, and an
order for specific performance of that contract, an injunction restraining the defendants from parting with
the steamship to any one but himself, and, in the alternative, damages for breach of contract.

Wright J

In the present case there is evidence that the City was of peculiar and practically unique value to the
plaintiff. She was a cheap vessel, being old, having been built in 1892, but her engines and boilers were
practically new and such as to satisfy the German regulations, and hence the plaintiff could, as a German
shipowner, have her at once put on the German register. A very experienced ship valuer has said that he
knew of only one other comparable ship, but that may now have been sold. The plaintiff wants the ship for
immediate use, and I do not think damages would be an adequate compensation. I think he is entitled to
the ship and a decree of specific performance in order that justice may be done.

(6)      Trade Union and Labour Relations (Consolidation) Act 1992

s 236 No compulsion to work

No court shall, whether by way of--
(a) an order for specific performance or specific implement of a contract of employment, or
(b) an injunction or interdict restraining a breach or threatened breach of such a contract,
compel an employee to do any work or attend at any place for the doing of any work.

         Lehrstuhl Zivilrecht VIII          Prof. Dr. Ohly                     Introduction to English Law

(7)     Warner Brothers Pictures, Inc v. Nelson [1937] 1 KB 209 (King's Bench Division)


Mrs Nelson, who was professionally known as Bette Davis, had contracted to render her services as an
actress exclusively for Warner Bros for a number of years and, during taht time, not to perform for anyone
else. In breach of that contract she agreed to act for a third party.

Branson J

The conclusion to be drawn from the authorities is that, where a contract of personal service contains
negative covenants the enforcement of which will not amount either to a decree of specific performance of
the positive covenants of the contract or to the giving of a decree under which the defendant must either
remain idle or perform those positive covenants, the Court will enforce those negative covenants; but this
is subject to a further consideration. An injunction is a discretionary remedy (equitable remedy), and
the Court in granting it may limit it to what the Court considers reasonable in all the circumstances of the

The case before me is, therefore, one in which it would be proper to grant an injunction unless to do so
would in the circumstances be tantamount to ordering the defendant to perform her contract or
remain idle or unless damages would be the more appropriate remedy. With regard to the first of
these considerations, it would, of course, be impossible to grant an injunction covering all the negative
covenants in the contract. That would, indeed, force the defendant to perform her contract or remain idle;
but this objection is removed by the restricted form in which the injunction is sought. It is confined to
forbidding the defendant, without the consent of the plaintiffs, to render any services for or in any motion
picture or stage production for any one other than the plaintiffs. With regard to the question whether
damages is not the more appropriate remedy, I have the uncontradicted evidence of the plaintiffs as to the
difficulty of estimating the damages which they may suffer from the breach by the defendant of her

        Lehrstuhl Zivilrecht VIII          Prof. Dr. Ohly                   Introduction to English Law

Shared By: