Topic 3

🟢 Lite — Quick Review (1h–1d)

Rapid summary for last-minute revision before your exam.

Topic 3 addresses the discharge of contracts and the remedies available when a contract is breached. A contract is discharged when the obligations between parties come to an end. Understanding how contracts are discharged and what remedies flow from breach is essential for any practising accountant advising clients on commercial arrangements.

Methods of Discharge:

1. Performance — parties fulfil their obligations completely and exactly
2. Agreement — mutual release, novation, or substitution of a new contract
3. Breach — one party fails to perform their obligations
4. Frustration — an unforeseen event makes performance impossible or radically different
5. Operation of law — merger, alteration of contract, rescission

⚡ Exam tip: Frustration is frequently examined in ICAN — students must distinguish between mere inconvenience and true legal frustration (the event must not have been foreseen or provided for by the contract).

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🟡 Standard — Regular Study (2d–2mo)

Standard content for students with a few days to months.

Discharge by Performance:

Performance must be:

• Exact and complete — the “entirety doctrine” means each party’s obligation to perform is dependent on the other’s performance (Cutter v. Powell [1795] — sailor engaged for a voyage; died before voyage completed; his widow could not recover wages because the entire voyage was not completed; no apportionment)
• In the manner agreed — substituted performance is not discharge unless accepted

Divisible Contracts: Where a contract is divided into distinct parts with a separate price for each part (e.g., a monthly salary), performance of each part can be treated separately. A party who has substantially performed their part may sue for the price of that part (the other party cannot retain money for incomplete performance of their own obligations).

Time of Performance:

• If no time is stated, performance is within a reasonable time
• If time is “of the essence” (material), late performance is a breach allowing rescission (United Dominions Corporation v.利息; B粤-Barat v. Louis Dreyfus)
• If time is not of the essence, late performance is a breach giving rise to damages but not rescission

Discharge by Agreement:

Parties may discharge their obligations by mutual agreement:

• Mutual release: Both parties agree to abandon the contract
• Accord and satisfaction: One party agrees to accept different performance in full settlement; the new agreement must have consideration to be binding
• Novation: The original contract is replaced by a new contract with different parties or terms (Waugh v. H.B. Clifford Commerce [1982])
• Rescission by agreement: May be by express agreement or by mutual abandonment

Discharge by Frustration:

Frustration occurs when, after the contract is made, an event occurs that:

1. Is not caused by the fault of either party
2. Was not foreseen by either party at the time of contracting
3. Makes performance impossible or radically different from what was agreed

Cases on Frustration:

• Paradine v. Jane (1647) — tenant remained liable for rent even though a German Prince occupied the land (military occupation was not frustration — the event was not truly impossible)
• Taylor v. Caldwell (1863) — music hall burnt down before the concert date — contract was frustrated; neither party liable
• Herne Bay Steamboat v. Hutton [1903] — coronation naval review case; the King’s illness frustrated the contract (or did it? — some courts say no because seeing the review was not the sole purpose)
• Krell v. Henry [1903] — coronation procession route 2; procession did not take place — frustrating event; deposit recoverable

Effects of Frustration:

• Both parties are discharged from future obligations
• Money paid before frustration is recoverable (Fibula SpA v. FinancialXD)
• Money due but not yet paid is not payable
• Expenses incurred before frustration are dealt with under the Law Reform (Frustrated Contracts) Act 1943 (UK; applied in Nigeria as common law)

Discharge by Breach:

Breach occurs when one party fails to perform their obligations without a lawful excuse. Breach may be:

• Minor (partial): Non-fundamental term broken; the other party may claim damages but must continue performance
• Fundamental (repudiation): A fundamental term is broken; the other party may terminate (rescind) and sue for damages

Anticipatory Breach: A party may anticipatorily repudiate before performance is due — the other party may immediately sue for breach without waiting for the performance date (Hochster v. De La Tour [1853]).

Limitation Periods (Nigeria):

• Simple contracts: 6 years from the date of breach
• Specialty contracts (deeds): 12 years
• For fraud or concealed fraud: 6 years from when the plaintiff discovered or could have discovered the fraud

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🔴 Extended — Deep Dive (exam-level mastery)

For students preparing for top-rank selection.

The Rule in Cutter v. Powell:

The rule in Cutter v. Powell (1795) established that where a contract provides for entire performance (no installment provision), failure to complete the performance discharges the other party’s obligations. This is harsh in some cases, and courts have developed exceptions:

1. Divisible contracts: Where the contract price is apportioned to specific parts, each part is treated separately (Morrison v. Smith [1954])
2. Substantial performance: Where the promisor has substantially performed (with minor deviations), they can recover the contract price less the cost of completion (Hoons v. Rimbault; Dakin v. Oxley [1864])
3. Prevention by the other party: If the other party prevents performance, the first party is discharged (Placer Development Corp v. Cnergy)

Self-Induced Frustration:

If the frustrating event was caused by the fault of one party, that party cannot rely on frustration. This includes:

• Refusal to cooperate in a condition precedent
• Failure to take reasonable steps to fulfil a condition
• Strikes or lockouts caused by the employer’s conduct

The Basis of the Frustration Doctrine:

Two theories exist:

1. The implied term theory: The court implies a term into the contract that it would be suspended or discharged upon the occurrence of the frustrating event
2. The construction theory (preferred): The court construes the contract in light of the supervening event — the change is so fundamental that the original contract no longer governs

Damages — The General Principle:

The general measure of damages for breach of contract is expectation loss (the “benefit of the bargain”): the plaintiff should be put in the position they would have been in had the contract been performed (Robinson v. Harman [1799]).

Types of Damages:

1. Expectation damages: Put the plaintiff in the position as if the contract had been performed (loss of profit + expenses wasted)
2. Reliance damages: Put the plaintiff in the position as if the contract had never been made (used when profit is too speculative)
3. Consequential/indirect losses: Losses flowing from the breach (lost profits from a sub-contract, etc.) — recoverable if not too remote
4. Liquidated damages: Pre-agreed sum specified in the contract (enforceable if genuine estimate of loss; a penalty clause is unenforceable)

The Test for Consequential Losses — Remoteness:

The Rule in Hadley v. Baxendale [1854]: Damages are recoverable if they:

1. Arise naturally from the breach in the usual course of things (direct losses — foreseeable at the time of contracting)
2. Were in the reasonable contemplation of both parties at the time of contracting as the probable result of breach

Hadley v. Baxendale: A mill shaft broke; carrier delivered it late for repair; mill owner claimed lost profits from the mill being closed. Held: The carrier did not know the mill would be completely shut down; he could not have foreseen the loss; therefore damages were limited to the difference in value of the shaft at the two delivery dates.

Specific Performance:

Specific performance is an equitable remedy ordering a party to perform their contractual obligations. It is available at the court’s discretion when damages are inadequate. It is NOT available for:

• Contracts of personal service (Whitwood Chemical v. Hardman [1891])
• Contracts where damages are an adequate remedy (e.g., sale of generic goods)
• Contracts requiring constant supervision
• Contracts that are uncertain
• Contracts of part performance of a larger contract

It IS available for:

• Sale of unique land (every piece of land is unique)
• Sale of unique goods (a painting by a specific artist)
• Share sales (in some cases)

Injunction:

An injunction is a court order restraining a party from doing something (prohibitory injunction) or requiring them to do something (mandatory injunction). It may be:

• Interlocutory: Temporary; pending trial — requires a serious question to be tried and balance of convenience
• Permanent: After trial; final remedy

Rectification:

Rectification is an equitable remedy correcting a written contract that fails to reflect the parties’ true agreement. The test is whether both parties had a common intention at the time of contracting that was not accurately recorded in the document. Unilateral mistake is insufficient unless the other party knew or ought to have known of the mistake.

⚡ Common ICAN Question Patterns:

• The rule in Cutter v. Powell and substantial performance
• Distinguishing frustration from mere inconvenience or increased cost
• The test for foreseeability in Hadley v. Baxendale
• Specific performance vs damages