Legal Environment of Business

BUS 7305

Law of Contract
 Law of Contract
To be continued from previous lecture…

Where substitute performance is possible under the contract,

then the contract is not frustrated.
Case: Tsakiroglou & Co. Ltd vs Noblee Thorl (1962) A.C.
93.
Fact: D supposed to send the groundnuts to P, and it was
contemplated by both parties that the ship would use the
Suez Canal (Hamburg to Port Sudan).
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The Canal was then closed to shipping, and the
sellers did not deliver the goods claiming that the
contract was frustrated.
HL Held: the contract was not frustrated. Since
there was an alternative way to send the goods.
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Similarly, a change in circumstances which only incidentally
affects the purpose of the contract will not frustrate the
contract.
Case: British Movietonews Ltd vs London & District
Cinema Ltd (1952) A.C. 166
Fact: During the 2nd world war, P and D entered into an
agreement for the supply of newsreels.
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D argued that the contract was frustrated because the war

was over and there was no longer any need to show these
particular newsreels.
HL Held: the contract was not frustrated just because it
was no longer commercially viable for one party.
It is also noted that self-induced frustration will not
discharge the contract.
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Effect of the frustration of contract:
In Bangladesh, there is no liability from the frustration
of contract. Both of the contracting parties are free
from the contract (except common law liabilities).
However, in English law, there are two types of law
that govern the effect of frustration.
i) based on statutes;
ii) based on common law (case law), Case: Chandler
vs Webster (1904) 1 K. B. 493, CA.
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Fact: D hired a room for one day in order to see Edward
VII’s coronation procession. The hire charge was 141.75
pounds way payable immediately. P paid 100 pounds. The
coronation was postponed because of the King’s illness.
CA Held: the contract was frustrated. P was unable to
recover the 100 pounds and was liable to pay the remaining
41.75 pound to D.
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On the other hand, based on statutes, it is governed
by the Law Reform (Frustrated Contract) Act, 1943
Under the section: 1(2) all sum paid or payable, due
to frustration cease to be payable;
Under the section: 1(3) money paid will be
recoverable
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- subject to some exception, a payee can set off an amount
(which he has already spent or to that extent he has already
performed)
- money payable ceases to be payable.
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4) Discharge of contract by breach:
Whenever a party fails to perform an obligation arising
under a contract then the party can be said to be in breach of
contract.
A breach of contract can actually occur in one of two ways:
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* By failing to perform obligations- this situation itself can
occur in one of two ways:
- either the contract is not performed at all or
- the contract is not performed to the standard required
under the contract, e.g. by providing goods that are not of
satisfactory quality.
* By repudiating the contract- obligation under it, without
any lawful justification.
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Lord Diplock also saw there were two basic exceptions to
his proposition:
- fundamental breach: breach of a term deprives the other
party of substantial benefit under the contract then the
whole contract is said to be breached.
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- breach of condition: where the term is so central to the
contract that its breach renders the contract meaningless and
thus entitles the other party to repudiate their obligations
under the contract or can claim damage as well.
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Various types of breach
Based on the above, it is possible to identify three particular
forms of a breach. The consequences of the breach depend
on the nature of the breach.
They are:
Breach of any term- where the term is not anything
important, regardless of whether it is a condition or a
warranty if a term is breached there will always be available
action for damage.
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Breach of a condition- a condition is a term going to the
root of the contract. It means that if it is breached it would
render the contract meaningless.
A condition can either be expressed by the parties
themselves or it can be implied by law. The consequence of
breach of condition, damages may be available as a remedy,
but the victim of the breach will not be able lawfully to
repudiate the obligations under the contract.
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Anticipatory breach- breach occurs before the date for performance of
the contract.
Here, one party to the contract either
- expressly gives notice to the other party that he will not complete the
obligation; or
- it can be implied from that conducts, that he will not complete his
obligations under the contract.
So there will, therefore, be a breach of contract.