Discharge & Remedies of Contracts

1
◗ Discharge: The contract comes to an end, and
the parties are released from any further
obligations under the contract.

◗ Ways that a contract may be discharged:

◦ By performance;
◦ By agreement;
◦ By frustration;
◦ By breach of contract.
◗ Discharge by performance
◦ All parties to the contract have completed their
contractual obligations.
◗ Discharge by agreement
◦ Parties agree in the contract that it would be
discharged under some event or
conditions.
◦ Parties form another contract to discharge
the original contract.
◗ Generally, if any party is not able to perform the
contract, this party will be liable for breach of
contract
◗ What if certain event which is not responsible by
either party makes the contract fail?
E.g. natural disaster
◗ Frustration offers a defense in such a situation
◗ Frustration – purpose of the contract is defeated
◗ Caldwell agreed to let a music hall to the plaintiff
for four days at £100 a day.
◗ After the contract was made, but before the four
days were reached, the music hall was accidentally
burnt down.
◗ Held: Caldwell was not liable for his failure to let
the music hall. The contract was frustrated.

There is no innocent party/breaching party

under frustration.
◗ there occurs a supervening (i.e. unexpected) event;
◗ The event must occur between the formation of the contract
and the date fixed for its performance;
◗ The event must cause a fundamental or radical change to
the nature of the contractual rights and obligations;
◦ The court will not frustrate a contract if it only becomes more difficult or
more costly to perform : Tsakiroglou & Co. Ltd v. Noblee Thorl [1962]
◗ neither party should be the responsible for the event;
 The event must be such that it was not contemplated by the
parties when they entered the contract; it follows,
therefore, that there must be no provision in the contract
designed to deal with it; and
◗ it must be unjust to hold the parties to the contract as agreed
upon.
◗ In October 1956 D agreed to ship a cargo of
peanuts from Sudan to P in Germany.
◗ No route was specified in the contract, but the
normal, obvious route would have been via the
Suez Canal.
◗ In November 1956 the Suez Canal was closed by
Egypt.
◗ The defendants therefore refused to deliver the
peanuts, claiming that the contract was frustrated.
◗ Held: The peanuts could have been shipped by
another longer route. There was no reason
to frustrate the contract.
◗ Subsequent change of law
◦ After the contract is formed, it becomes illegal to perform the
contract. Baily v DeCrespigny (1869)
◗ When there is a destruction of a specific thing
necessary for the performance of a contract
◦ Taylor v. Caldwell (1863)
◗ Where the contract depends on the happening of a
event, but the event does not occur
◦ Krell v Henry (1903)
• A contract hiring a flat to watch King’s coronation procession.
◗ Law Amendment and Reform (Consolidation)
Ordinance, s.16-s.18
◦ all moneys still owed under the contract cease to be
payable; (buyer - $100K)
◦ moneys already paid under the contract are
recoverable; (buyer - $10K)
◦ expenses incurred before the frustration are
recoverable provided they do not exceed the amount
paid or payable at the time of the frustrating event;
and (seller – spent $20 K)
◦ a party who receives any valuable benefit before the
frustration can be ordered to pay a reasonable
amount to the other party. (share the samples)
◗ A contract was formed to sell some goods.
The buyer paid $10K on Day 1 as deposit.
The manufacturer gave the buyer some
samples.
◗ On Day 2, the seller incurred reasonable
expenses under the contract amounting to
$20K.
◗ The buyer needs to pay $100K on Day 4.
◗ But the contract was frustrated on Day 3.
◗ where a contract contains special provisions
in the event of frustration
◗ to any charter party
◗ to any contract of insurance
◗ to any contract of sale of specific goods
which have perished under s.8 of the Sale of
Goods Ordinance
◗ If any party fails to perform his contractual
obligations, the contract is breached.
◦ Repudiatory breach
• Failure to perform contract obligations which are due
to perform
◦ Anticipatory breach
• A party expresses its intention not to perform
contract obligations before the due day; or
• A party acts in such a way that it will breach the
contract when the performance is due.
◗ Damages
◦ The common form of remedy under contract law
◦ To place the innocent party in the same position as if the contract had
been performed
◦ The breaching party is not liable for unforeseeable losses (see
remoteness of damage)
◗ Rescission
◦ Awarded when a condition is breached
◗ Specific performance
◦ To require actual performance by the breaching party
◦ Awarded when damages cannot be adequate compensation
◗ Injunction: an order to restrain a person from doing sth.
◗ Not all types of losses caused by the breach are
compensated.
◗ Compensatory losses;
◦ All foreseeable losses flowing from the breach;
◦ Losses known to the parties at the time the contract was
made.

◗ Some losses might be regarded as too remote

from the breach, hence not compensatory.
Hadley v. Baxendale (1854)
Victoria Laundry v. Newman Industries Ltd. [1949]
◗ A miller sent a broken crankshaft by a carrier to an engineer to
make a new one.
◗ The miller informed the carrier that the matter was urgent and that

there should be no delay, but did not inform the carrier that the mill
would be idle without the crankshaft.
 The carrier delayed delivery of the crankshaft to the miller, and,
as a consequence, the mill was idle for longer than it needed
have been.
◗ The miller lost profits that he could otherwise have made.

◗ Held: The miller could not recover for his lost profits because

the information given to the carrier did not show that delay
would result in such a loss.
 V, required another boiler to expand their business as they
had a contract with the Ministry of Supply.
◗ N agreed to sell to V a second-hand boiler and to deliver in
June. The boiler was not delivered till November.
◗ N was aware of the nature of V’s business and was
informed that the boiler would be put to immediate use.
◗ V claimed for (i) loss of profits on laundry business which
would have been earned had the boiler been delivered on
time, and (ii) loss of exceptional profits on contract from the
Ministry of Supply.
◗ The party suffering damage as a result of breach
must do all in his power to minimize his losses.

◗ Brace v. Calder (1895)

◦ B was employed by a partnership.
◦ He was dismissed due to the dissolution of the
partnership.
◦ Two partners offered to re-employ him on the same terms but
was declined by him.
◦ He sued for wrongful dismissal.
◦ Held: He was only entitled to nominal damages.