A contract is said to be discharged when an event happens which discharges or releases parties from their obligations in a contract. A contract may be discharged by performance, agreement, frustration or breach.
DISCHARGE BY PERFORMANCE
A contract is discharged by performance when both parties have done what they are required to do under the contract. A contract would not be discharged by performance if parties have not carried out their full obligations in the contract. This is what is called the “entire performance rule”. See: Bolton vs. Mahadeva.
As a result of hardship in the application of the entire performance rule, there evolved a number of exceptions:
- Defendant’s default: Westac Nig Ltd vs. Sokoto State Govt and ors (2001) NWLR PT 708 @304
- Substantial Performance: Dakin and co Ltd vs. lee; Reuben Ekwulife vs. Wayne West Africa Ltd (1989) NWLR PT 122.
- Severable Contract: Ritchie vs. Atkinson.
- Acceptance of partial performance: Omoleye vs. Okeowo
Time of Performance
Parties may expressly fix the time for the performance of a contract. Thus, any performance of the contract outside the stipulated time frame will be ineffective. In essence the contract is not discharged by the lapse of time unless it is expressly stated that time is of the essence. Any failure to perform the contract at the right time would make the performance ineffectual and entitle the aggrieved party to reject the performance of the contract. Gamla Nig Ltd vs. New Nig Bank PLC (1999) NWLR PT 631@413.
Note however that the present position of the law is that where no time is fixed for performance, it must be done within a reasonable time. Paul Edem vs. Canon Balls Ltd (2005) NWLR PT 938 @56; Societe Generale Bank of Nig Ltd vs. Eleganza(2004) NWLR PT 875 @443-444.
DISCHARGE BY AGREEMENT
Parties may decide to agree to put an end to a contract before it is completed. This can be either by a provision for discharge of contract upon non fulfilment of some terms, by a new agreement, by waiver or by accord and satisfaction.
Accord And Satisfaction
This is an agreement to terminate or discharge an already existing obligation. In British Russian Gazette Ltd vs. Associated Newspaper Ltd, Scrutton LJ defined accord and satisfaction as follows:
Accord and satisfaction is the purchase of release from an obligation whether arising under a contract or through the means of any valuable consideration not being the actual performance of the obligation itself. The accord is the agreement by which the obligation is discharged. The satisfaction is the consideration which makes the agreement operative.
See: Trayshot Enterprises Ltd vs. Minister of Agriculture(2002) NWLR PT 771@25; Owena Bank PLC vs. Punjab National Bank (2005) NWLR PT 658 @635; Shell Petroleum Company of Big Ltd vs. Federal Board of Inland Revenue(1999) SCNJ.
Note that the whole essence of accord and satisfaction is that the person with the legal rights in the contract agrees to forgo this right due to consideration from the defaulting party. The burden is therefore on the party trying to raise the defence to prove it. See: Nigerian Educational Research and Development Council & ors vs. Gonzo (2000) NWLR PT 673 @551.
DISCHARGE BY FRUSTRATION.
The doctrine of frustration is applicable to all kinds of contract. It is the premature determination of a contract lawfully entered into by the parties. It occurs after the contract has already come into existence. It postulates that parties are excused from the contract if some unexpected event happens without the fault of either party. Northern Carriers Ltd vs. Panalpina Northern Ltd .
Frustrating Events
- Destruction of the subject matter. Taylor vs. Caldwell; Apple vs. Myers.
- Failure of an event. Krell vs. Henry; Maritime National Fish Ltd vs. Ocean Trawlers Ltd.
- Incapacity. Robinson vs. Davidson; Morgan vs. Manager. Note that a company cannot successfully plead frustration if the company finds it difficult to carry out operations. Cooperative and Commerce Bank vs. Onyekwelu (1999) NWLR Pt 623 p.462.
Note also that temporary incapacitation may not frustrate a contract. Morrison vs. Bell.
- Subsequent Legal Changes or government intervention: A change in law or government may interfere with the obligations of parties in a contract. Especially when that change prohibits either party from carrying out their obligations imposed by the contract. For instance, there may be statutory provisions after the contract prohibiting the importation of certain goods which are the subject of the contract. Uzomah vs. Uzomah.
However, where the effect of the law is to suspend the transaction, there is no frustration. Tricklewood Property & Ors vs. Leidhons Investment Trust Ltd.
- Outbreak of war: Dabsbrown vs. Haco Ltd.
Exception To Frustration
The following are the exceptions to the operation of frustration:
- Self Induced Frustration: This occurs where the event which caused the frustration was caused by the party which seeks to rely on it to repudiate the contract. In this situation, frustration will not avail the defaulting party. Niegerian Bank for Commerce and Industry vs. Standard Nigerian Engineering co Ltd(2002) NWLR PT 768.
- Contracts affecting real property: Whether the doctrine of frustration applies to real property depends on the type of transaction and the stage of performance. Generally, frustration in applicable in leases. In Wong Lai Ying vs. Chinachem Investment Co, a land slip destroyed a block of flats under construction. This delayed construction for two and a half years. It was held that the sale of one of the flats was frustrated by the delay.
- Express Term of The Contract: Where there is an express term of the contract to take care of the frustrating event, there cannot be any frustration. The point here is generally based on the Latin maxim “Expressio unius est exclusio alterius“.
Effect Of Frustration
At common law, discharge by frustration has the effect of determining the contract and frees parties from further obligations. The discharge of the contract affects future relations after the frustrating event. The contract remains valid up till the point of frustration. Chappler vs. Webster.
Under the statute when a contract is discharged by frustration, all sums payable or paid till the frustrating even will be valid. Contract Law of Ogun State; Kwara State Contract Law.
DISCHARGE BY BREACH
A contract is discharged by breach where one party has refused to perform his obligation or has rendered himself incapable of performing his obligation. MTN Communication Ltd vs. Amadi (2013) AFWLR PT 670; First Bank of Nigeria PLC vs. imasuen and Sons Nig Ltd (2014) AFWLR PT 725; Ahmed vs. CBN (2013) AFWLR PT 660.
In Ahmed vs. CBN (2013) AFWLR PT 660, the supreme court held that a contract will be breached when the defaulting party has acted contrary to the terms either by non-performance, by performing contrary to the terms or by unlawful repudiation of the contract.
The court also said that a breach of contract may be actual or anticipatory. It is actual when the party doesn’t carry out his obligations. It is anticipatory when the defaulting party represents that he won’t perform his own obligations. Federal Government of Nig vs. Zebra energy Ltd (2002) NWLR PT 798.
REMEDIES FOR BREACH
At common law, the most important remedy for breach is damages. At equity the common remedy is specific performance or injunction.
Damages
This is a pecuniary compensation given to the party who has suffered as a result of the arbritrary actions of the other party. They are awarded in order to restore the affected party back to the position he was in had there been no breach. Kentus Chemical and Allied Project Ltd vs. UBA PLC (2014).
Measure of Damages
In damages for breach of contract, the affected party is compensated for losses that arise from the breach. The amount must be within the contemplation of the parties and must not be arbitrary or speculative. Nigerian Merchant Bank PLC vs. Garuba; Beta Glass PLC vs. Epaco Holdings Ltd.
In the determining the actual damages, the formula has always been restitutio in integrum. That is, returning the affected party to the position he was in before the breach occurred.
Types of Damages
Special and General Damages: Damages are broadly classified into general and specific damages. Special damages flow directly from the act complained of. They must be specifically privileged, particularised and proved.