Legal Environment of Business

BUS 7305

Law of Contract
 Law of Contract
To be continued from previous lecture…
b) For part-performance of contract:
if one of the parties has performed the contract partly but
not completely and then the other party has shown
willingness to accept the part performed, in that case, the
strict rule will, usually not apply and can claim money for
that part performance of a contract.
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The level of part-performance may be-
 Substantial performance:

where the substantial part has been done what

was recurred under the contract then the doctrine
of substantial performance can apply.
Case: Hoenig vs Isaacs, (1952) 2 AII ER 176
 To be continued…
Fact:
A decorator was hired to decorate and furnish a flat for
pound 750. Decorator completed the work.
Owner paid pound 400 by 3 installments while the work
was underway.
However, defect to put bookcase and wardrobe that
would cast about pound 55 to put right.
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Consequently, owner refused to pay the remaining

payment.
Court of Appeal Held: substantial part of the contract has
been performed.
So the balance of the price should be paid to the
decorator, less the amount representing the defects in
the work.
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However, it will not be classed as substantial

performance if too much remains to be done
under the contract.
Case: Bolton vs Mahadeva (1972) 1 WLR 1009
Fact: an electrical contractor was hired to install a
central heating system. When it was installed, the
system gave off fumes and did not work properly.
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Consequently, payment was refused; as a result, the
contractor sued for the price.
CA held: rejected his claim on the ground that there was
not substantial performance.
Reasoning: total cost for central heating system 560
pounds;
Reinstall cast for defectiveness 174 pound, too high in
the eye of the Court of Appeal.
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However, substantial or not substantial is
immaterial in the following cases:
A party can sue for damages where his
performance has been prevented by the other
party.
Case: Planche vs Colburn (1831) 8 Bing 14
Fact: A publisher was planning to produce a series
of books on a particular theme. The publisher
then hired an author, and author wrote one of the
books in the series.
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When the publisher decided to abandon the whole series
the author was prevented from completing the work
through no fault of his own and despite the fact that he
had already done a lot of work for the book.
Court held: the author was entitled to recover half his fee
for his wasted work, based on the quantum meruit.
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Where one has offered to perform, but this has been
refused, in this case, a court can compel others for
accepting as per the contract.
Case: Startup vs Macdonald. (1843) 6 Man & G 593
Fact: The contract was for 10 tons of linseed oil to be
delivered by the end of March. The seller in fact delivered
at 8:30pm on 31 March, which was a Saturday and the
buyer refused to accept delivery.
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Court held: the seller was able to claim that he had

tendered performance and to recover damages as a
result.
However, at present, the result might be different under
the Sale of Goods Act, 1979 (this case was in 1843)
since delivery should be at a ‘reasonable hour’ and this
would be a question for the court to decide in the
individual case.
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Contract perform in due time stipulated in the contract:
Prima facie, where the contract is not performed on time
the only action for damage is possible.
Repudiation of the contract may be possible if time is of
the essence.
The time of performance is ‘of the essence’ when:
i) it says so in the contract;
ii) the circumstances make it so;
iii) one party has already failed to perform.
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2) Discharge by agreement
A contract can also be ended by agreement without it
necessarily having been performed.
There are in fact two ways in which the contract could be
discharged by agreement:
i) bilateral discharge:
ii) unilateral discharge:
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i) bilateral discharge:
In this case, contracting parties completely make a new
agreement and replacement of the original agreement.
Here, in fact, both are gain a new but different benefit
from the new agreement.
ii) unilateral discharge:
Here, one party releasing to the other party from his
obligations under the original agreement.
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3) Discharge of contract by Frustration
Frustration takes place, where after the contract is
concluded/formed, an intervening event occurs which
makes the performance of the contract either
impossible or
illegal or
radically different from what was contemplated by the
parties (none of the party will be liable).
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The contract becomes impossible:
Where the performance of the contract becomes impossible
because of the destruction of the subject matter of the contract
then the contract is frustrated.
Case: Taylor vs Caldwell (1863) 32 LJ QB 164
Fact: D hired out the Surry Gardens and Music Hall to P for a series
of concerts. Six days before the first concert the Hall was
destroyed by an accidental fire.
Held: D was not liable to P for wasted advertising and other
expenses. (Contract is frustrated)
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When the subject matter of the contract is radically changed:
Where a change in circumstances radically affects the purpose of
the contract will be frustrated.
Case: Krell vs Henry, 1903) 2 K. B.740, CA
Fact: D hired rooms in Pall Mall for two days in order to see Edward
VII’s coronation procession as it passed along Pall Mall.
No reference to the procession was made in the written agreement.
The coronation was postponed because of the king’s illness.
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CA held: the contract was frustrated. As the purpose was not
served and there was no alternative way to use of the Pall Mall.

When the performance of contract is illegal:

To be discussed…
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Limitation of frustration:
Notwithstanding the fact, however, there are the
limitations of frustrations in the following cases:
* Frustration took place where external
circumstances have caused the performance to
be radically different from that agreed.
Case: Davis Contractors Ltd vs Fareham Urban
District Council (1956) A.C. 696.
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Fact: P contractors agreed to build 78 houses for D
for 92,425 pounds within the eight months.
Due to a shortage of skilled labor and building
materials, the work took 22 months and cost
111,076.
P claimed that the contract was frustrated by the
long delay and claimed the additional costs on a
quantum meruit basis.
HL Held: the contract was not frustrated because the
cause of the delay was not unforeseeable.