Business/commercial law revision kit question and answer

(a) How may a contract be discharged by
(i) Breach
(ii) Frustration
ANSWER
• Breaching a contract a party does not discharge it at all. It only gives the innocent party an opportunity either to treat the contract as repudiated or as existing.
• If the innocent party treats the contract as existing, it is bound to honour its part of the contract but has an action in damages.
• If the innocent party treats the contract as repudiated the contract is terminated and the party is not bound to perform its part.
• A party can only treat a contract as repudiated if the breach is fundamental as was the case in Poussard V. Spiers and Pond.
• Breach of contract may be anticipatory or actual
• Anticipatory breach takes place if a party to a contract expressly or impliedly intimates to the other in advance its intention not to perform at the due date in which case the innocent party may, sue in damages for the breach or wait for the date of performance or sue for the decree of specific performance.
• Actual breach takes place if the party fails to perform or tender an unsatisfactory performance.

(ii)

• A contract is frustrated when performance of the obligations becomes impossible reason of unforeseen or extraneous circumstances for which neither party is to blame.
• This common law doctrine is an exception to the doctrine of absolute contractual obligations.
• A contract may be discharged frustration in the following circumstances:
o Destruction of subject matter: a contract is frustrated if the subject matter,the basis of the contract is destroyed without the fault of either party. As was the case in Taylor V. Caldwell.
o Non-occurrence of event: a contract based on a particular event or state of affairs obtaining at a particular time may be frustrated, if the event or state of affairs fall to materialize. As was the case in Krell V. Henry. However, it must be evident that the event or state of affairs was the sole foundation of the contract.

o Illegality: if performance of contractual obligations becomes illegal reason of change of law the contract is frustrated and the parties discharged as there is no obligation to perform what has become illegal.
o Death or permanent incapacitation: a contract of personal service or employment for example employment is frustrated if the person dies or becomes permanently incapacitated.
o Government or state intervention: if state policies, acts or proclamations render the performance of a contract impossible, it is frustrated and the parties discharged. As was the case in Metropolitan Water Board V. Dick Kerr & Co.
o Supervening events: these are events which delay performance and therechange the commercial characteristics of the contract. In such a case the contract is frustrated.



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