FACULTY OF LAW

UNIVERSITY OF IBADAN
LCI 202 – Law of Contract II
(c) K. Anifalaje, 2024

DISCHARGE OF CONTRACT

A valid contract between parties may be discharged in one of four ways known to law;
namely:

(a) By express agreement; or

(b) By performance; or
(c) By the doctrine of frustration; or
(d) By breach

1. DISCHARGE BY AGREEMENT

Eodem modo qua oritur, eodem modo dissolvitur – What has been created by agreement
may be extinguished by agreement. An agreement by the parties to an existing contract to
extinguish the rights and obligations that have been created is itself a binding contract
provided that it is either made under seal or supported by consideration. Discharge by
agreement may take the form of bilateral discharge or unilateral discharge.

Bilateral Discharge

Rescission

A contract which is either wholly or partially executory may be discharged by mutual

agreement between the parties that such a contract shall no longer bind them. This effects a
rescission of the contract, and it releases the parties from their obligations under it.
Consideration for such agreement consists in the agreement by each party to release his rights
under the contract in consideration of a similar release by the other.

Where the contract is made under seal, the technical rule at common law was that such a
contract could not be dissolved, either wholly or partially, except by another contract under
seal. It is the view of the courts of equity, however, that a simple contract which
extinguished or varied the deed was a good defence to an action on the deed. And by the
Judicature Act 1873, the view of the courts of equity has been the rule in all courts. Thus, in
Berry v Berry (1929) 2 K.B. 316, a husband covenanted in a deed of separation to pay his
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wife £18 a month. Eight years later, by a written contract not under seal, he agreed to pay her
£9 a month and 30 per cent of his earnings if they exceeded £350 a year. It was held that this
simple contract was a good defence to an action brought by the wife to recover the sum fixed
by the deed of separation.

Where, however, the contract has been wholly executed by one party, leaving the other party
still to perform his side of the obligation, the right to performance of such contract can be
abandoned by release under seal or the agreement to release be supported by some other
consideration on the part of the person seeking to be released.

Where the executory contract is one which is rendered unenforceable by action unless
supported by adequate written evidence as prescribed by statute, whether the discharging
contract must also conform to the statutory requirement was stated by the House of Lords in
the case of Morris v Baron & Co (1918) A.C. 1, to depend upon the extent to which the
parties intended to alter their existing contractual relations. Their intention in this respect
must be collected from the terms of the discharging contract. It would, however, appear that
there is no need for a written discharge since these contracts are merely rendered
unenforceable by action unless they are so evidenced and there is no requirement that they
should be dissolved in writing- see UAC v John Argo (1958) 14 NLR 105.

Note also that rescission of a contract may also take place by such an alteration in its terms as
substitutes; a new contract for the old one. The old contract may be expressly discharged in
the new one, or discharge may be implied by the introduction of new term or new parties.
This method of discharge is therefore a form of rescission with a new contract superadded.
See Morris v Baron & Co (Supra).

Unilateral Discharge

A contract may be the subject of unilateral discharge where the contract has been performed
by one of the contracting parties, but has not been performed by the other party. In this
instance, the right to performance of such a contract can be effectively abandoned by the
party who has performed by a release under seal. The sealed instrument dispenses with the
need for consideration. A release expressed in an agreement not under seal is nudum
pactum, unless there is some form of consideration in return for the right that is abandoned.

Accord and Satisfaction

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Discharge of a contract in return for a consideration which consists in some satisfaction other
than the performance of the original obligation is termed ‘accord and satisfaction’.

Accord and satisfaction has been judicially defined in British Russian Gazette Ltd v
Associated Newspaper Ltd (1933) 2 K.B. 616 at pp. 643-644 as follows:

Accord and satisfaction is the purchase of a release from an obligation,

whether arising under contract or tort, by 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 .

The rule in Pinnel’s case prescribes that the payment of a smaller sum in satisfaction of a
larger sum is not a good discharge of the debt. But see the view of the court in Foakes v
Beer (1884) 9 Ap. Cas. 605. Thus, for an accord and satisfaction to be established, there
has to be a true agreement, the accord, between the parties, followed by the satisfaction,
which is the consideration. In D & C Builders Ltd v Rees (1966), the defence of promissory
estoppel raised by the defendant failed because of the absence of an accord between the
parties. In the case, the plaintiffs agreed to accept a smaller sum in discharge of a larger sum
owed them by the defendants, as a result of duress. Lord Denning MR said that in the
circumstances, there was no true accord so as to found a defence of accord and satisfaction.
He further stated that there was no equity in the defendant to warrant any departure from the
due course of law as “no person can insist on a settlement procured by intimidation.”

Hitherto, it was the rule that a contractual obligation or cause of action arising from the
breach of a contract was not discharged so long as the satisfaction remained executory. The
question is however, now regarded as one of the construction of the agreement as, the
promise only, as distinct from the actual performance of it, may be a good satisfaction to
discharge the original obligation from the date when the agreement is made if it clearly
appears that the parties so intended. See British Russian Gazette Ltd v Associated
Newspaper Ltd (Supra).

The modern rule therefore is that if what the creditor has accepted in satisfaction is merely
his debtor’s promise to give consideration, and not the performance of that promise, the
original cause of action is discharged from the date when the agreement is made. This,
however, raises a question of construction in each case, for it has to be decided as a fact

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whether it was the making of the promise itself or the performance of the promise that the
creditor consented to take by way of satisfaction.

Note that by sections 62 and 89 of the Bill of Exchange Act, if the holder of a bill of
exchange or of a promissory note either unconditionally renounces his rights in writing or
delivers the instrument to the person liable, the effect is to discharge the obligation of the
acceptor or promisee even though no consideration is received. This constitutes one
exception to the rule that a unilateral discharge requires consideration.

2. DISCHARGE BY PERFORMANCE

Generally, a party who has performed all his obligations under a contract is discharged from
any liability under the contract. The general rule however, is that performance of a contract
must be precise and exact. If there is the slightest deviation from the terms of the contract, the
party not in default is entitled to claim that the contract has not been performed and to sue for
damages for breach and in certain cases, he may elect to treat the contract as discharged.

Partial Performance

Since the performance of a contract must be precise and exact, if one party’s performance is
made conditional on complete and entire performance by the other, the party in default
cannot recover anything if he incompletely performs his side of the contract. The general rule
is that no claim can be made in respect of the partial performance of an ‘entire’ contract. In
other words, if payment is to be made on completion of the whole, the promisee cannot
recover anything until the work is completely executed. In Carter v Powell (1795) 6 T.R.
320, the defendant agreed to pay Carter thirty guineas provided that he proceeded, continued
and did his duty as second mate in a vessel sailing from Jamaica to Liverpool. The voyage
began on 2 August and Carter died on 20 September when the ship was nineteen days short
of Liverpool. An action by Carter’s widow to recover a proportion of the agreed sum failed,
for by the terms of the contract the deceased was obliged to perform a given duty before he
could demand payment. Also, in Sumpter v Hedges (1898) 1 Q.B. 673, the plaintiff who had
agreed to erect upon the defendant’s land two houses and stables for £565, did part of the
work to the value of about £333 and then abandoned the contract. The defendant himself
completed the buildings. It was held that the plaintiff could not recover the value of the work
done.

The Doctrine of Substantial Performance

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The principle that no claim can be made in respect of the partial performance of an entire
contract, if rigorously applied, could produce great injustice. Moreover, the principle would
often result in the unjust enrichment of the other party if he could retain the benefit of the
incomplete performance without the necessity of paying for it. The law has therefore
provided that if the contract is substantially performed, the injured party cannot treat himself
as discharged from his obligation to pay, although he will have a counterclaim or set-off for
any loss which he may have sustained by reason of the incomplete performance. Thus, a
court will hold a contract to have been substantially performed if the actual performance falls
not far short of the required performance, and if the cost of remedying the defects is not too
great in amount in comparison with the contract price. In Dakin (H) & Co, Ltd v Lee (1916)
1 K.B. 566, the plaintiffs were builders who had contracted to execute certain repairs to the
defendant’s premises for £1, 500. They carried out a substantial part of the contract, but failed
to perform it exactly in three important respects (which could have been rectified at a cost of
£80). The court held that the contract had been substantially, if not precisely performed and
the fact that the work was done badly did not mean that it had not been performed at all. The
plaintiff was accordingly held entitled to recover the price less a reduction for the defective
work.

In Ekwunife v Wayne (W.A.) Ltd (1989) 5 NWLR (Pt. 122) 422, the appellant, a contractor,
had been engaged to lay underground pumps for some petrol stations and to electrify them on
completion. After installing all the pumps, it was discovered that there was no electricity
supply in any of the locations and so the appellant could not electrify the pumps. The
Supreme Court found that the parties had mutually varied the contract terms to exclude
electrification on realising that the locations had no electricity supply. Nevertheless, the court
held that if this had not been so, it was satisfied that there had been a substantial performance
of the contract by the appellant and he was, therefore, entitled to be paid for the part of the
contract he had actually performed.

Note that in a sense, the substantial performance doctrine is only a qualification of the rule,
rather than an exception thereto. Thus, where a contractor fails to meet the standard of
substantial performance, he will, even in modern times, not be entitled to claim anything for
what he has done. Thus, in Bolton v Mahadeva (1972) 2 All E.R. 1322, the plaintiff
contracted to install a central heating system in the defendant’s house for the sum of £800. He
installed the system but it only worked very ineffectively and the defendant refused to pay for
it. The court held that the plaintiff could recover nothing.

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Acceptance of Partial Performance by the Promisee

Although the general rule is that a party who incompletely performs his side of an entire
contract cannot recover in respect of any partial performance which falls below the
substantial performance level, yet a claim to remuneration may arise where the other party
has accepted such partial performance. For example, Section 30(1) of the Sale of Goods Act
1893 provides that:

Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them, but if the buyer accepts the
goods so delivered, he must pay for them at the contract rate.

See Omoleye v Okeowo (1973) 3 U.I.L.R. 180

In most case, such a claim will arise upon a quantum meruit that is, for a reasonable sum in
respect of the benefit conferred by the partial performance. But the defaulting party can so
claim if the party not in default has the option whether to accept or refuse the partial
performance; acceptance cannot be forced upon him against his will.

Thus, in Sumpter v Hedges (supra) it was held inter alia that the plaintiff could not recover
for the work which he had done, for the defendant had no option but to accept the building
partly erected on his land. but he was held entitled to recover the value of the materials used,
for the defendant could choose whether or not he would use thse to complete the building.

Prevention pf Performance by the Promisee.

If a party to an entire contract has performed part of the work that he has undertaken and
was by the act of the other party, prevented from proceeding further with performance, the
law entitles him to be paid for the fruits of the labour he has already rendered by giving him
two alternative remedies. He is entitled to either recover damages for breach of contract or
recover reasonable compensation in quantum meruit for work already done. See Akinsulie v
Ogunyanju (2011) 12 NWLR (Pt. 1261) 264; Planche v Colburn (1831) 8 Bing 14., the
plaintiff had agreed to write for ‘The Juvenile Library’, a series published by the defendants,
a book on Costume and Ancient Armour. He was to receive £100 on the completion of the
book. He collected material and wrote part of the book, and the defendants abandoned the
series. The plaintiff sued the defendant claiming alternatively on the original contract and on
a quantum meruit. It was held that the plaintiff was entitled to recover on a quantum meruit
an amount equivalent to what he had already written, and he was allowed to recover £50.

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Also, in De Bernardy v Harding (1853) 3 Exch. 822, the defendant had agreed to erect and
let seats to view the funeral of the Duke of Wellington. He agreed that the plaintiff should
advertise the seats outside England and sell tickets, and that he should receive a commission
on all the tickets thus sold. The plaintiff prepared advertisements and paid printers, but,
before he had sold any tickets, the defendant wrongfully revoked his authority. It was held
that the plaintiff could sue in quantum meruit for the work already done. Alderson B said:

Where one party has absolutely refused to perform, or has rendered himself
incapable of performing, his part of the contract, he puts it in the power of the
other party either to sue for a breach of it or to rescind the contract and sue on
a quantum meruit for the work already done.

Tender of Performance

Tender is attempted performance of a promise to do something, or of a promise to pay

something. In each case, the performance is prevented by the act of the party for whose
benefit it is to take place. Thus, if A, as a party to a contract, cannot complete performance
without the concurrence of the other party, B, an offer by A to perform and a rejection of that
offer by B entitles A to a discharge from further liability. The readiness of A to perform has
been nullified solely by the conduct of the other party, B. In this situation, A is entitled to
maintain an action for breach of contract, or to set up the repudiation as a defence to an action
brought by the promise, B. The rule, therefore, is that a tender of performance is equivalent to
performance.

In Startup v Macdonald (1843) 6 Man & G 593, the plaintiff agreed to sell ten tons of oil to
the defendant and to deliver it to him ‘within the last fourteen days of March’, payment in
cash to be made at the expiration of that time. Delivery was tendered at 8.30 p.m. on 31
March, a Saturday, but the defendant refused to accept or to pay for the goods owing to the
lateness of the hour. It was held that the tender of the oil was in the circumstances equivalent
to performance and that the plaintiffs were entitled to recover damages for non-acceptance.
The law is stated with lucidity by Rolfe B at at pp. 610 – 611.

The effect, however, of a tender varies according as the subject matter is goods or money. If
A actually produces goods of the correct quantity and quality to B, the rejection of his offer
entirely discharges him from further liability and entitles him to recover damages for breach
of contract. See Startup v Macdonald (supra).

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However, where the performance due consists in the payment of a sum of money, a tender by
the debtor, though refused by the creditor, does not release him from his obligation to pay the
debt. The debtor is bound in the first instance ‘to find out the creditor and pay him the debt
when due’; if the creditor will not take payment when tendered, the debtor must nevertheless
continue always ready and willing to pay the debt. If he is sued for breach, he merely pays the
money into court without interest or damages, whereupon the cost of the action must be borne
by the creditor.

In order to constitute a valid tender of money, it must observe exactly any special terms
which the contract may contain as to time, place and mode of payment. Also, there must be
an actual production of the money, or a dispensation of such production. Payment must be
unconditional and must be offered in what is called “legal tender”. Also, the debtor must not
ask for change but must tender the precise amount due, unless he is content to leave the
surplus with the creditor.

Time of Performance

Generally, where there is no stipulation as to the time a contract is to be performed, it would

be reasonable to infer that performance was to be within a reasonable time. At common law,
time was always of the essence of the contract. Thus, where a time was fixed for the
performance of his undertaking by one of the parties to the contract, and such condition as to
time were not fulfilled, the common law regarded the contract as broken or discharged and
the other party is entitled to repudiate the contract and claim damages for the breach.

A different and more flexible view is however taken by the courts of equity that time was not
necessarily essential, and that if they could do so without injustice, they would decree
specific performance notwithstanding the failure of the plaintiff to observe the time fixed for
completion. This is based on one of the guiding principles of equity that Equity looks to the
intent rather than to the form. Since the passing of the Judicature Act, the rule of equity has
prevailed.

But the maxim that in equity, the time fixed for completion is not necessarily of the essence
of the contract does not mean that stipulation as to time may always be disregarded. Failure
to complete on the contractual date may, render the delaying party liable to damages for
breach of contract. The fact that time is not of the essence in equity does not negative a
breach of contract in such a case.

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3. Discharge By Frustration

Where subsequent to the formation of a contract, a change of circumstances render the

contract legally or physically impossible of performance, the question is raised as to whether
this discharges the contracting parties from further liability. This situation is provided for by
the doctrine of frustration. Frustration would occur where it is established to the satisfaction
of the court that due to a subsequent change in circumstances which was clearly not in the
contemplation of the parties, the contract has become impossible to perform. Originally, the
doctrine was confined to the discharge of maritime contracts by the ‘frustration of the
adventure’, but it has now been extended to cover all cases where an agreement has been
terminated by supervening events beyond the control of either party.

Before 1863, obligations arising from contracts were regarded as absolute.

n Paradine v Jane (1647) Aleyn 26, Paradine sued Jane for rent due upon a lease. Jane
pleaded that a certain German Prince, enemy to the King and Kingdom, had invaded the
realm with an hostile army of men and did enter the defendant’s possession whereby he could
not take the profits. The plea was in substance a plea that the rent was not due because the
lessee had been deprived, by events beyond his control, of the profits from which the rent
should have come. It was held that this was no excuse. The court stated that:

“When the party by his own contract creates a duty or charge upon himself,
he is bound to make it good, if he may, notwithstanding any accident by
inevitable necessity, because he might have provided against it by his
contract. And therefore if the lessee covenants to repair a house, though it
be burnt by lightning, or thrown down by enemies, yet he ought to repair it.”

This rule as to absolute obligation continued to be in force until 1863 when in the case of
Taylor v Caldwell (1863) 3 B & S 826 a doctrine to mitigate the rigour of the rule in
Paradine v Jane was evolved. By the said doctrine, if the further fulfilment of the contract is
brought to an abrupt stop by some irresistible and extraneous cause for which neither party is
responsible, the contract shall terminate forthwith and the parties be discharged.

In Taylor v Caldwell , the defendant agreed with the plaintiff to hire to him a music-hall and
gardens for the purpose of entertainment. Before the day of performance arrived, the music-
hall was destroyed by fire. The plaintiff sued the defendant for damages for breach of the
contract which the defendant, through no fault of his own, was unable to perform. The

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defendant was held not liable to pay, for ‘the contract is not to be construed as a positive
contract, but as subject to an implied condition that the parties shall be excused in case,
before breach, performance becomes impossible from the perishing of the thing without the
default of the contractor’.

Although the Taylor’s case deals with the physical destruction of the subject matter before
performance fell due, the ratio decidendi therein was soon extended to other situations such
as where there has been a frustration of a commercial or common venture, or where
performance has been rendered illegal by a subsequent change in the law.

See Krell v Henry (1903) 2 K.B. 740; Tatem Ltd v Gamboa (1939) 1 K.B. 132; Jackson v
Union Marine Insurance Co. Ltd (1874) L.R. 10 C.P. 125.

Definition

In Cricklewood Property and Investment Trust Ltd v Leighton’s Investament Trust Ltd
(1945) A,C, 221, Viscount Simon referred to frustration as the premature termination of an
agreement lawfully entered into between parties by an occurrence of an event or change of
circumstances so fundamental as to be regarded by law as both striking at the root of the
contract and as being totally outside the contemplation of the parties at the time of the
agreement. Also, in Davis Contractors, Ltd v Fareham U.D.C. (1956) A.C. 696, Lord
Radcliffe stated that:

Frustration occurs whenever the law recognises that without default of either
party a contractual obligation has become incapable of being performed
because the circumstances in which performance is called for would render it
a thing radically different from that which was undertaken by the contract.
Non haec in foedera veni. It was not this that I promised to do.”

Operation of the Doctrine

Some of the cases in which the doctrine of frustration has been invoked include:

1. Where the performance of the contract is made impossible by the destruction of a

specific thing essential to that performance.

See Taylor v Caldwell (supra)

2. Non-occurrence of a particular event or frustration of a commercial or common

venture.

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Instances of these would be found in the so-called “coronation cases” which arose out of the
postponement of the coronation of King Edward VII of Great Britain owing to his sudden
illness, the principle of frustration was applied to contracts the performance, of which
depended on the existence or occurrence of a particular state of things forming the basis on
which the contract had been made. In Krell v Henry (1903) 2 K.B. 740, the defendant agreed
to hire a flat from the plaintiff for June 26 and 27, 1902;; the contract contained no reference
to the coronation processions, but they were to take place on those days and to pass the flat.
The processions were cancelled. Two-thirds of the rent had not been paid when the
processions were abandoned and the court held that the plaintiff could not recover it. The
court considered that the processions and the relative position of the flat lay at the foundation
of the agreement. The contract was therefore discharged.

Note however that failure before performance of the factor which induced the parties to enter
into the agreement will not necessarily discharge the contract; for “it may be that the parties
contracted in the expectation that a particular event would happen, each taking his chance,
but that the actual happening of the event was not made the basis of the contract. In Herne
Bay Steamship Co v Hutton (1903) 2 K.B. 683, the defendant chartered from the plaintiff the
S.S. Cynthia for June 28 and 29, 1902, for the express purpose of taking paying passengers to
see the Coronation naval review at Spithead and to tour the fleet. The review was cancelled,
but the fleet remained. When the defendant refused to continue with the contract, the plaintiff
sued for the balance of the hire sum, and the defendant counterclaimed for a refund of £50 he
had paid. The court held that the defendant was not discharged from his obligations under the
contract by the postponement of the Naval Review, partly on the ground that a tour of the
fleet was still possible, but mainly because they considered that it was the defendant’s own
venture and it was at his risk. The court further pointed out that if the existence of a particular
state of things is merely the motive or inducement to one party to enter into the contract, as
distinct from the basis on which both contract, the principle of frustration cannot be applied.
and the example was given of one who hires a vehicle to take himself and a party to Epsom to
view the races on Derby day; he will not be discharged if the races are cancelled, for his
purpose is not the common foundation of the contract to hire the vehicle.

3. Where performance of a contract for services is rendered impossible by the death or

incapacitating illness of the promisor, a term will readily be implied that performance is
conditional on the promisor’s continued capacity to perform the contract.

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In Robinson v Davidson (1871) L.R. 6 Ex. 269, the defendant’s wife, an eminent pianoforte
player, promised to perform at a concert, but was prevented from doing so by a dangerous
illness. An action was brought against the defendant claiming damages for breach of contract.
The court gave judgement for the defendant on the ground that the continued good health of
his wife was a condition annexed to the agreement. The contract being discharged, it was not
broken by her failure, nor, on the other hand, could she have insisted on performing when she
was unfit to do so.

4. Supervening Incapacities.

This covers a multiple of frustrating events such as subsequent legal changes, outbreak of
war, destruction of the subject matter and government’s proscription of the subject matter of
the contract. In this instances, the question to which the courts addresses themselves is
whether supervening events have frustrated the object of both parties by so changing the
circumstances in which a promise falls to be performed that to hold the promisor to it would
be to hold him to something which though it may not be impossible, is something different
from that which he originally promised to do.

(i) Destruction of the subject matter

In Appleby Myer (1867) L.R. 2 C.P. 651, the plaintiffs undertook to erect certain machinery
upon the defendant’s premises, the agreement providing that the work was to be paid for on
completion. While the work was in progress, and before it was completed, the premises and
the machinery already erected were wholly destroyed by fire. It was held that the contract
was frustrated, but since it had been argued that payment was to be made only on completion,
the plaintiffs could recover nothing for the work already done.

In Bentworth Finance (Nig) Ltd v Bakari (Unreported, High Court of North Central
State,) where, a lorry, the subject matter of a hire purchase agreement was involved in an
accident and damaged beyond repairs, the plaintiff’s claim for the balance of the rentals and
related charges from the defendant was rejected by the court which held that held since there
is no suggestion that the defendant was responsible for the accident, the accident constituted a
frustrating event which terminated the hire-purchase agreement and discharged both parties
from liabilities arising thereafter from the agreement.

See also, Taylor v Caldwell (supra).

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An example of frustration by the destruction of the goods would be found in section 7 of the
Sale of Goods Act 1893 as well as section 8 of the Sale of Goods Law of Western Nigeria
which provides that:

Where there is agreement to sell specific goods and subsequently the

goods without any fault on the part of the seller or buyer, perish before the
risk passes to the buyer, the agreement is thereby avoided.

(ii) A supervening legal change

A supervening legal change will also frustrate a contract. For example, when a law passed
after the formation of the contract makes subsequent performance legally impossible. Thus,
if further performance of a contract becomes impossible by legislation having that effect, the
contract is discharged. See Reilly v The King (1934) A.C. 176.

The change in the law must be such as to strike at the root of the agreement, and not merely
to suspend or hinder its operation in part. Thus, it has been held in Criclewood Property
and Investment Trust, Ltd v Leighton’s Investment Trust, Ltd (1945) A.C. 221 that a
ninety-nine year building lease was not frustrated by Government restrictions on
building for only a small part of the term.

In Revenue Mobilisation, Allocation and Fiscal Commission v Units Environmental

Sciences Ltd (2011) 9 NWLR (Pt. 1252) 379, it was held inter alia that a contract may be
discharged by a supervening prohibition such as where the prohibition would have made the
contract illegal had it been in force when the contract was made. Supervening illegality is a
ground of discharge because the court has to take into account the relative interest of the
parties and the interest of the public in seeing that the law is observed. In the instant case, the
court held that the Certain Political, Public and Judicial Office Holders (Salaries and
Allowances,, etc) Act 2002, cannot be described as containing provision which frustrated the
contract to build a Staff Housing Facility. This is because there is no prohibition in the Act
that bars the appellant entering into an agreement to build staff quarters. The appellant has an
option for its staff to provide accommodation or monetise. It was held that this is not a
supervening prohibition.

iv) Outbreak of war

This is well illustrated by a number of cases which occurred during the Nigerian civil war.

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 In Daps Brown v Haco Ltd (1970) 2 All N.L.R. 47, the plaintiff, an employee of the
defendants, was in Port-Harcourt (a town under Biafran control) for a considerable period of
the war. After the war, he arrived in Lagos and brought an action to recover his unpaid
salaries during the period of the war. It was held that the outbreak of war had frustrated the
contract of employment between him and the defendants. The suit was, therefore, dismissed.

In United Cinema and Film Distributing Co. V Shell B.P. Petroleum Dev. Ltd (1973) 3
U.I.L.R. 459, the plaintiffs hired films, projectors and other equipments to the defendant
company for the benefit of its employees in Eastern Nigeria. The defendant’s properties,
including the plaintiffs’ films and projectors, were seized by the Biafran government. An
action by the plaintiffs claiming outstanding rental payments and recovery of the equipments
from the defendants, was dismissed inter alia on the ground that the contract was frustrated
because of the Biafran government’s seizure of the defendant’s properties including the films
and the equipments.

See also Tatem Ltd v Gamboa (supra)

(v) Cases arising out of charter-parties or the sale and carriage of goods by sea.

In F.A. Tamplin Steamship C. Ltd. v Anglo-Mexican Petroleum Products Co. Ltd (1916) 2
A.C. 397, the steamship F.A. Tamplin was chartered by a time charter-party for five years
from December 4, 1912, to December 4, 1917. In February 1915 the Government
requisitioned the ship for use as a troopship and made certain structural alterations to her for
this purpose. The charterers were willing to go on paying the agreed freight under the charter-
party, but the owners claimed that the contract had been frustrated by the requisition as they
wished to obtain a larger amount of compensation from the Crown. It was held that the
contract still continued. The interruption was not of sufficient duration to make it
unreasonable for the parties to go on. There might be many months during which the ship
would be available for commercial purposes before the five years expired.

See also Tsakirogllou & Co Ltd v Noblee and Thorl GmbH (1962) A.C. 93.

Limitations on the Doctrine

(1) Frustration will not apply where it is self-induced. Self-induced frustration is defined
in Bankline Ltd v Arthur & Co (1919) A.C. 435 at 452 “as frustration due to his own
conduct or to the conduct of those for whom he is responsible.” Thus, the doctrine cannot

14
apply where the event which is alleged to have frustrated the contract arises from the act or
election of a party. Reliance cannot be placed upon a self-induced frustration.

In Maritime National Fish Ltd v Ocean Trawlers Ltd (1935) A.C. 524, the respondents
chartered to the appellants a stem trawler fitted with an otter trawl. Both parties knew at the
time of the contract that it was illegal to use an otter trawler without a licence from the
Canadian government. Some months later, the appellants applied for licences for five trawlers
which they were operating, including the respondents’ trawler. They were informed that only
three licences would be granted, and were requested to state for which of the three trawlers
they desired to have licences. They named three trawlers other than the respondents’, and
then claimed that they were no longer bound by the charter-party as its object had been
frustrated. It was held that the failure of the contract was the result of the appellants’ own
election, and that there was therefore no frustration. See also Western Nigeria Finance
Corporation v West Coast Builders Ltd (1971) 1 U.I.L.R. 93.,

But the onus of proving that frustration was self-induced rests upon the party raising the
allegation. Where it is found that frustration has been self-induced, the contract is not
frustrated, but discharged by the breach of that party.

(2) Frustration will not apply where there are express provisions in the contract
covering the event, unless the event which has actually taken place can be said to have gone
beyond the provisions made by the parties as in Jackson v Union Marine Insurance Co. Ltd
(1874) L.R. 10 CP 125 wherein a ship was chartered in November 1871, to proceed with all
possible despatch, dangers and accidents of navigation excepted, from Liverpool to Newport
and there to load a cargo of iron rails for carriage to San Francisco. She sailed on 2 January,
but on the third ran aground in Carnarvon Bay. She was got off by 18 February and was taken
to Liverpool where she was still under repair in August. On 15 February the charterers
repudiated the contract. The question was whether the charterers were liable for not loading
the ship, or whether the time likely to be required for repairs was so long as to excuse their
failure to do so. It was held that the adventure contemplated by the parties was frustrated and
the contract discharged. A voyage to San Francisco carried out after the repair of the ship
would have been a totally different adventure from that originally envisaged. The express
exception, read literally, no doubt covered the accident that had happened, and it would have
precluded the charterers from recovering damages in respect of the delay; but it was not
intended to cover an accident causing injury of so extensive a nature .

15
Also, in Pacific Phosphate Co Ltd v Empire Transport Co. Ltd (1920) 36 TLR 750., where
a contract was made in 1913 by which ship owners undertook to provide charterers with
certain vessels in each of the year 1914 to 1918, and it was agreed that if war broke out
shipments might at the option of either party be suspended until the end of hostilities. After
the start of the war, it was held that the contract was discharged, not merely suspended. The
suspension clause was not intended by the parties to cover a war of such a catastrophic nature
and with such dislocating effect as in fact occurred.

Note that where the parties have expressly provided for the contingency which has occurred,
it is a question of construction whether the express provision was intended to govern any
form that the contingency might take. If it was, there is no frustration; if not, there can be
frustration.

(3) The frustrating event should defeat the common intention of the parties; there cannot
be frustration on one side alone. See Blackburn Bobbin Co. Ltd v Allen (T.W.) & Sons Ltd
(1918) 2 K.B. 467, the defendants agreed to sell and deliver to the plaintiffs at Hull a quantity
of Finnish birch timber. They found it impossible to fulfil this contract because the outbreak
of war cut off their source of supply from Finland. The plaintiffs were unaware that timber
from Finland was normally shipped direct from a Finnish port to Hall, and that timber
merchants did not in practice, hold stock of it in the country. It was held that there was no
frustration. What had happened was merely that an unforeseen event had occurred which
rendered it practically impossible for the defendant to deliver, but that that event might have
been, but was not, provided for in the contract. It was stated that for the contract to be
dissolved, there must have been a failure of something which was at the basis of the contract
in the intention of both parties, and that was not the case in this case.

Leases and the Doctrine of Frustration.

Both the House of Lords in England and the Supreme Court in Nigeria have had the
opportunity to consider the commonly-held view that leases are outside the doctrine of
frustration on the ground that a lease creates not merely a contract between the parties but
also an estate in land. This is known as the “estate theory”. In Cricklewood Property
Investment Trust Ltd v Leighton’s Invetment Trust Ltd (1945) A.C. 221, in May 1936, a
building lease was made to the lessees for a term of 99 years. Before any buildings had been
erected the war of 1939 broke out and restrictions imposed by the government made it
impossible for the lessees to erect the shops that they had covenanted to erect. In an action
brought against them for the recovery of rent they pleaded that the lease was frustrated. It was
16
held unanimously by the House of Lords that the doctrine of frustration, even if it were
capable of application to a lease, did not apply in the instant circumstances. The compulsory
suspension of building did not strike at the root of the transaction, for when it was imposed
the lease still had more than ninety years to run, and therefore the interruption in performance
was likely to last only for a small fraction of the term. Lord Russelll and Lord Goddard LCJ
expressed the opinion that the doctrine of frustration cannot apply to a demise of real
property while Lord Simon and Lord Wright took the opposite view. Lord Porter expressed
no opinion on the question.

In Araka v Monier Construction Company Ltd (supra), the Supreme Court found it
necessary to make its view known on the issue as to whether frustration applies to leases.
After examining some cases notably, Cricklewwod Property Investment Trust Ltd, the court
held that the doctrine was equally applicable to leases as well as other transactions on land.
the Supreme Court declared:

Having given proper consideration to the matter, we are inclined to accept the
views of Viscount Simon and Lord Wright as being the correct statement of
the law that the doctrine of frustration may in certain circumstances apply to a
lease. We think that it may be tantamount to injustice to deny a tenant the
benefit of frustration in cases where, owing to their occurrence of an
intervening event in change of circumstances so fundamental as to be
regarded by the law as striking at the root of the agreement, it has become
impossible for the tenant to enjoy the fruit of his lease and at the same time to
expect him on account of the abstract estate concept to honour his obligation
under the lease. . . .

Later, in 1981, in National Carriers Ltd v Panalpina (Northern) Ltd (1981) A.C. 675, by a
majority of 4 to 1, the House of Lords adopted the decision of the Supreme Court in Araka
case and held that the doctrine of frustration was in principle applicable to leases though the
cases in which it could properly be applied were likely to be rare and exceptional and
applying the formulation to the facts before them, the majority held that the loss of use for a
maximum of two years out of a ten-year lease did not amount to one of the exceptional cases
in which the doctrine of frustration would apply.

The conclusion therefore is, that in both Nigeria and England, the doctrine of frustration is
applicable to all types of contracts, including contracts relating to land.

17
Effects When the Doctrine Applies

At Common Law

(1) The contract is not merely voidable at the option of one or other of the parties; it is
brought to an end forthwith, without more and automatically.

In Hirji Mulji v Cheong Yue Steamship Co, Ltd (1906) A..C. 497, by a charter-party made
in November, 1916, ship owners agreed that their ship, Singaporean should be placed at the
charterers’ disposal on March 1, 1917, for ten months. Shortly before this date the ship was
requisitioned by the Government. The ship owners thought that she would soon be released,
and asked the charterers if they would be willing to take up the charter. The charterers said
they would. The vessel was, however, not released until February 1919, and the charterers
refused to accept her. It was contended by the shipowners that the charterers had so
conducted themselves as to oust the doctrine of frustration. The House of Lords however held
that frustration brings the contract to an end automatically, and could not be waived in this
manner.

(2) Frustration releases both parties from any further performance of the contract while
leaving intact any legal rights already accrued, or money already paid, before the frustrating
event occurred. In other words, the contract is terminated as to the future only. All obligations
falling due for performance after that time are discharged; all those already due remain
undisturbed.

In Krell v Henry (supra) for instance, it was held that the plaintiff could not recover the
agreed from the defendant, since it did not fall due until the last minute of 24 June, and before
this moment had arrived the abandonment of the procession had been announced. In Jackson
v Union Marine Insurance Co. (Supra), the grounding of the ship under charter terminated
the contract, with the result that the owners were not bound to provide an alternative vessel,
nor were the charterers bound to pay freight. See also, Appleby v Myer (Supra).

This common law principle, since it meant that any loss arising from the termination of the
contract must lie where it had fallen, might well cause hardship to one or other of the parties,
as is shown in Chandler v Webster (Supra).

The harshness of the decision in Chandler case excited considerable criticism, and in 1942,
it was overruled by the House of Lords in Fibrosa Spolka Akcyjna v Fairbairn Lawson
Combe Barbour, Ltd (popularly referred to as the Fibrosa case) (1943) A.C. 32. The

18
respondents contracted with the appellants, a Polish company, to manufacture certain
machinery and deliver it to Gdynia. Part of the price was to be paid in advance, and the
appellants accordingly paid £1,000. The contract was frustrated by the occupation of Gdynia
by hostile German forces in September 1939. The appellants thereupon requested the return
of the £1,000 which they had paid. This request was refused on the ground that considerable
work had been done, and expense incurred, under the contract. Under the rule in Chandler v
Webster this money would have been irrecoverable, as it had already been paid at the time
the frustrating event occurred. The House of Lords, however, allowed the appellants to
recover. It was pointed out that an action for the recovery of the sum paid was not an action
on the contract, which ex hypothesi had ceased to exist, but an action in quasi-contract to
recover money paid on a consideration which had wholly failed. The term ‘consideration’
should here be understood not in the sense of the consideration which is necessary to the
formation of a contract, but rather in the sense of the performance of an obligation already
incurred. Thus, if the party paying the money has received no part of the performance for
which he bargained, he is entitled to recover it, for the consideration has totally failed.

The rule established by the Fibrosa case has thus diminished the injustice of the former law,
but since it operates only in the event of a total failure of consideration, it does not remove
every hardship. On the one hand, it does not permit the recovery of an advance payment if the
consideration has only partly failed, i.e., if the payer has received some benefit, though
perhaps a slender one, for his money. On the other hand, the payee, in his turn, may suffer an
injustice. While he may be compelled to repay the money on the ground that the payer has
received no benefit, he may himself, in the partial performance of the contract, have incurred
expenses for which he has no redress. Thus, in order to address these issues, statutory
measures had to be put in place to do justice to each of the contracting parties.

Statutory Intervention

A further attempt to clarify the law has been made by the Law Reform (Frustrated
Contracts) Act, 1943 (England). This law was re-enacted in its essentials by the government
of Western Nigeria in 1959 and by the Federal Government in 1961 in the Law Reform
(Contracts) Act, No 64 of that year applicable to the then Federal Capital Territory of Lagos
only. It has been re-enacted as the Law Reform (Contracts) Law, Cap L 63, Law of Lagos
State 2003. Also, most of the states of the former Easter Region have modified the common
law by legislation in this regard. As the statutory reform now stands, the reform is applicable

19
to Lagos, Oyo, Osun, Ogun, Ondo, Ekiti, Edo, Delta and the Eastern States. The Northern
States are still operating under the common law in this respect.

The Law Reform (Contracts) Law, Cap L 63, Law of Lagos State 2003 is used for
purposes of this lecture. The main features of the law are:

1. The statute in effect amplifies the decision of the House of Lords in the Fibrosa case.
Thus, where a contract is frustrated and the parties are for that reason discharged from further
performance of the contract, the law permits the recovery of the money prepaid towards the
performance of the contract and abolishes any liability to pay, if in fact payment had not yet
been made. See section 4(2).

However, the provision of the law goes beyond the decision in the Fibrosa case. The proviso
to section 4 states that:

Provided that, if the party to whom sums were so paid, or payable incurred
expenses before the time of discharge in, or for the purposes of, the
performance of the contract, the court may, if it considers it just to do so
having regard to all the circumstances of the case, allow him to retain or, as
the case may be, recover the whole or any part of the sums so paid or
payable, not being an amount in excess of expenses so incurred.

Note that the proviso applies not as of right but only at the discretion of the court. Where the
court positively exercises such discretion, the payee has both the shield and the sword in his
hand. He has the shield in the sense that he may be allowed at the court’s discretion to retain
any sum or part of sum already paid to him, i.e. he is given the right to set off against the sum
so paid or payable a sum, not exceeding the value of any expenses which he has incurred in
performing the contract before the frustrating event occurred. He also has the sword in the
sense that he may, at the court’s discretion, be allowed to recover the whole or part of any
expenses he may have incurred towards preparation for the performance of his own part of
the contract.

Note also that a party can receive no allowance for his expenditure unless it was incurred
before the occurrence of the frustrating event. Furthermore, the payee is only entitled to retain
at the court’s discretion any sum or part of sum already paid to him or recover sums or part of
sums payable to him. Thus, if at the time of the frustrating event, no sum had been paid to
him or no sum was payable to him, he can recover nothing irrespective of the extent of his
expenditure towards the execution of the contract.

20
Note also that the provisions of section 4(2) will apply only where the contract has been
discharged by frustration and the frustrating event has not been expressly provided for by the
parties.

Section 4(3) also provides for the adjustment of the financial relations of the parties by
allowing the party who had done something towards the execution of the contract, which
constitutes a valuable benefit to the other (other than payment of money) to recover a sum of
money not exceeding the value of the benefit so conferred by him on the other party.

In estimating the amount of the sum to be recovered, the court must consider all the
circumstances of the case, especially, any expenses that the benefitted party may have
incurred in the performance of the court before the time of discharge, and also whether the
circumstances causing the frustration have affected the value of the benefit.

It is not clear however, whether this sub-section does full justice, for it is only where “a
valuable benefit” has been “obtained” by the other party that the court is empowered to give
relief. It is therefore not clear whether the provision of this sub-section would make a
difference today to cases like Appleby v Myers, wherein the benefit conferred perished with
the frustrating event. A number of varied opinions have been expressed by learned authors on
this issue.

By section 4(3)(b), what constitutes “valuable benefit” has to be looked at in the light of the
circumstances existing just before the discharge and the frustrating event. But the decision of
Robert Goff J in BP Exploration Co (Libya) v Hunt (No 2) (1979) 1 WLR 783 suggests that
Appleby v Myers would still be decided the same way today. In contrast, if the case of Cutter
v Powell were to be decided today, Mrs Cutter would have been able to claim an amount of
money equivalent to the number of days her husband worked on the vessel before his death.

Section 3(4) provides that when it appears to the court that the contract can be split into two,
then severance ought to be effected.

Note that the Law does not apply if there is an agreement to the contrary in the contract and
by Section 3(5) certain types of contract have been excluded from the operation of the law.
These include:

(i) Any charter-party except a time charter-party or a charter-party by way of demise,

(ii) Any contract for the carriage of goods by sea;

21
 (iii) Any contract for the sale of specific goods where the goods have perished before
the risk passes to the buyer, or any other contract for the sale and delivery of
specific goods where the contract is frustrated by reason of the fact that the goods
have perished.
(iv) .....................................

4. Discharge by Breach

Contractual agreements which have neither been fraudulently nor illegally entered into by
parties must in all respects be observed or enforced. Thus, breach of a contractual obligation
by any of the contracting parties may under certain circumstances operate as discharge.
Furthermore, a breach of a contractual obligation may give the injured party not only a right
of action to recover damages, but may also discharge him from any performance that may
still be due from him. However, for a breach to operate as a discharge, it must be such as to
constitute a repudiation by the party in default of his obligations under the contract.

In Obajimi v Adediji (2008) 3 NWLR (Pt. 1073) 1, the Court of Appeal stated that a breach
of contract is committed when a party to the contract without lawful excuse fails, neglects or
refuses to perform an obligation he undertook in the contract or either performs the obligation
defectively or incapacitates himself from performing the contract. See also Adeoti v Ayorinde
(2001) 6 NWLR (Pt. 709) 336. Thus, discharge by breach is of two types:

(1) Anticipatory Breach or Breach by Renunciation or Repudiation.

A breach by one of the contracting parties while the contract is still wholly executory, i.e.,
before either party is entitled to demand a performance by the other of his promise is termed
‘anticipatory breach.’ It happens in such a situation where one party declares his
unwillingness to perform his own part of the contract when the time for performance comes.
Renunciation may be express or implied; it may be evinced by words or by conduct. The test
of whether an intention is evinced by conduct is whether the party renunciating has acted in
such a way as to lead a reasonable person to the conclusion that he does not intend to fulfil
his part of the contract.

In Hochester v De la Tour (1853) 2 E & B 678, the defendant engaged the plaintiff on the
12th of April to enter into his service as courier and to accompany him upon a tour; the
employment was to commence on the 1st of June. On the 11 th of May the defendant wrote to

22
the plaintiff to inform him that his services would no longer be required. The plaintiff at once
brought an action, although the time for performance had not yet arrived. It was held that he
was entitled to do so.

See also Nigerian Supplies Manufacturing Co. Ltd v Nigerian Broadcasting Corporation
(1967) 1 All N.L.R. 35; Frost v Knight (1872) L.R., 7 Ex. 111.

(2) Defective Performance / Fundamental Breach

This may be illustrated by a situation where in the process of performance, one of the
contracting parties commits a breach of a major term of the contract or a situation where
owing to negligence, carelessness or deliberate act, he commits a breach which goes to the
root of the contract; i.e., a breach which has the effect of depriving the injured party of
achieving the main purpose for which he contracted. See Agetanos Construction (Nig.) Ltd v
Fab Madis Ventures Ltd (2011) 16 NWLR (Pt. 1273) 308; Diamond Bank Ltd v
Ugochukwu (2008) 1 NWLR (Pt. 1067) 1; Johnson Wax Nib. Ltd v Sanni (2010) 3
NWLR (Pt. 1181) 235, Best (Nig.) Ltd v Blackwood Hodge (Nig) Ltd (2011) 5 NWLR (Pt.
1239) 95 .

Note also that a breach of a condition will also entitle the injured party to repudiate the
contract.

Effect of Breach

A breach does not of itself, effect a discharge of the contract. In other words, the breach does
not automatically terminate his obligation by reason of the repudiation of the contract by the
other party. Thus, in the case of anticipatory breach and indeed, as in other cases, the injured
party has to make an election. He has to decide whether to accept the breach and so regard
himself as discharged or decide to consider the contract as still subsisting.

Where the innocent party elects to treat the contract as discharged, he must make his election
known to the party in default. The effect is to terminate the contract for the future as from the
moment when the acceptance is communicated to the party in default. In essence, the
obligation of both parties, that are still pending and which have not been performed, would
come to an end. Note that the breach does not operate retrospectively, and as such the
previous existence of the contract is still relevant with regard to the past acts and defaults of
the parties. Thus, the party in default is liable in damages both for any earlier breaches and
also for the breach that has led to the discharge of the contract, but he is excused for further

23
performance. This is so even where the performance date is still in the future. See Hochester
v De la Tour (Supra); Frost v Knight (Supra).

On the other hand, where the injured party elects to treat the contract as still in existence, the
effect is that the status quo is preserved intact i.e, both parties remain subject to all their
contractual rights and obligations. The contract remains in being for the future on both sides
and each party has a right to sue for damages for past or future breaches. Each party is
entitled to hold the other to his bargain and to continue to tender due performance on his part.
Note also that a party, who elects to disregard a repudiation by his co-contractor cannot
recover damages at law for breach of contract: if the contract is still in being, it has not yet
been broken See Udom v E. Michelette & Sons Ltd (1997) 8 NWLR (Pt. 516) 187; Bayo
Kuku v Permaroof Contractors Ltd (1971) 1 U.I.L.R. 161; White and Carter (Councils),
Ltd v McGregor (1962) A. C. 413; Hasham v Zenab (1960) A. C. 316

Note, however that, where the innocent party rejects the repudiation, i.e., where he refuses to
accept the renunciation, and continues to insist on the performance of the contract, he loses
the right to rely on the breach and the contract remains in existence for the benefit and at the
risk of both parties. Should anything occur subsequently to discharge the contract from other
causes, the guilty party, whose renunciation has been refused, may take advantage of such
discharge. See Avery v Bowden (1855) 5 E. & B. 714.

In certain circumstances, however, a refusal to accept the defendant’s repudiation can work
to the advantage of the plaintiff.

Where the innocent party accepts the breach, the contract, as said earlier, comes to an end.
But, this is only with regard to the primary obligation thus giving rise to the secondary
obligation to pay damages. It is the law that a party who has accepted the breach of a contract
must take reasonable step to mitigate his loss. As was stated by the House of Lords in Photo
Production Ltd v Securicor Transport Ltd (1980) A.C. 827 at 840, where the innocent party
elects to terminate the contract, i.e. to put an end to all primary obligations of both parties
remaining unperformed:

(a) there is substituted by implication of law for the primary obligations in

default which remain unperformed, a secondary obligation to pay money
compensation to the other party for the loss sustained by him in
consequence of their non-performance in the future and (b) the unperformed
primary obligations of that other party are discharged.

24
Remedies for Breach

Where the innocent party accepts the breach as discharging the contract, the following
remedies are available to him.

(i) He may sue for the recovery of damages for the loss he has suffered;
(ii) If he has already done part, though not all, of what he had contracted to do, he
may claim on a quantum meruit for the value of the work that he has already done;
(iii) In certain circumstances, the injured party may obtain an order for the specific
performance of the contract; or an injunction to restrain its breach.

Damages

The common law remedy for breach of a contract is damages.

The common law rule governing damages popularly known as “the remoteness of damage
rule” is as contained in the case of Hadley v Baxendale (1854) 9 Exch. 341 at p. 354 that:

Where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally, i.e., according to the usual course of things, from such
breach of contract itself, or such as may reasonably be supposed to have
been in the contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it.

In the case, the plaintiffs’ mill was stopped by the breakage of a crankshaft, and it was
necessary to send the crankshaft to the makers as a pattern for a new one. The defendants,
who were carriers, undertook to deliver the shaft to the makers, but the only information
given to them was ‘that the article to be carried was the broken shaft of a mill, and that the
plaintiffs were the millers of that mill.’ By some neglect on their part the delivery of the shaft
was delayed, and in consequence, the mill could not be re-started until some time after it
could otherwise have been. The plaintiffs lost profit which they would otherwise have made.
The question was whether this loss of profits ought to be taken into account in estimating the
damages. Applying the principles quoted above, the court pointed out that the circumstances
communicated to the defendants did not show that a delay in the delivery of the shaft would
entail loss of profits of the mill; the plaintiffs might have had another shaft, or there might

25
have been some other defect in the machinery to cause the stoppage. Accordingly, they could
not recover for this loss.

The rule laid down in Hadley v Baxendale consists of two branches. It lays down that
damages are recoverable (i) when they are ‘such as may fairly and reasonably be considered
arising naturally, i.e. according to the usual course of things’ or (ii) when they are ‘such as
may reasonably be supposed to have been in the contemplation of both parties at the time
they made the contract’; provided that, in both cases,, they are the probable result of the
breach. In other words, the innocent party cannot recover damages in respect of every loss
flowing from the breach of the contract.

Although there are two branches to the rule in Hadley v Baxendale, in essence they both
form part of a single general principle. An attempt to elucidate their relationship was made by
Asquith L.J. in Victoria Laundry (Windsor) Ltd v Newman Industries, Ltd (1949) 2 K.B.
528 at p. 530 that the general principle which governs both branches of the rule is that:

In cases of breach of contract, the aggrieved party is only entitled to recover

such part of the loss actually resulting from the breach as was at the time of
the contract reasonably foreseeable as liable to result from the breach.

What was at that time reasonably so foreseeable depends on the knowledge

then possessed by the parties or, at all events, by the party who later commits
the breach.

For this purpose knowledge ‘possessed’ is of two kinds; one imputed, the
other actual. Everyone as a reasonable person, is taken to know the ‘ordinary
course of things’ and consequently what loss is liable to result from a breach
of contract in that ordinary course. This is the subject- matter of the ‘first
rule’ in Hadley v Baxendale. But to this knowledge, which a contract-
breaker is assumed to possess whether he actually possesses it or not, there
may have to be added in a particular case knowledge which he actually
possesses of special circumstances outside the ‘ordinary course of things’, of
such a kind that a breach in those special circumstances would be liable to
cause more loss. Such a case attracts the operation of the ‘second rule’ so as
to make additional loss also recoverable. Under neither branch is it necessary
that the contract-breaker should actually have asked himself what loss is
liable to result from a breach. It suffices that, if he had considered the

26
 question, he would as a reasonable man have concluded that the loss in
question was liable to result.

In the case, the plaintiffs, launderers and dyers, decided to extend their business. For this
purpose and for the purpose of obtaining certain dyeing contracts of an exceptionally
profitable character, they required a larger boiler. The defendants, an engineering firm,
contracted to sell and deliver to the plaintiffs on 5 June a certain boiler of the required
capacity. This, however, was damaged in the course of removal and was not delivered until
the following 8 November. The defendants were aware of the nature of the plaintiffs’
business and they were informed in more than one letter before the conclusion of the contract
that the plaintiffs were ‘most anxious’ to put the boiler into use ‘in the shortest possible space
to time’.

These two cases were further examined in Koufos v C. Czarnikow, Ltd (Heron II) (1969) 1
A.C. 350 wherein the respondents, a firm of sugar merchants, chartered the ship Heron II
from the appellant to carry a cargo of sugar from Constanza to Basrah. The ship deviated
without authority from the agreed voyage, with the result that the cargo was delayed. Owing
to a fall in the market for sugar at Basrah, the respondents obtained £3, 800 less for the sugar
than the price obtainable when it should have been delivered. The appellant contended that he
was not liable for this sum as he had no special knowledge of the seasonal and other
fluctuations of the sugar market. But the House of Lords held that a ship owner must be
presumed to know that prices in a commodity market were liable to fluctuate, and judgement
was given against him.

In Heron II , the House of Lords reviewed the earlier decisions and expressed a contrary
view to the decision of Asquith LJ with regard to the criterion by which to determine the
remoteness of damage arising from a breach of contract. They stated that the question is not,
as Asquith LJ said whether the damage should have been foreseen by the defendant, but
whether the possibility of its occurrence should have been within the reasonable
contemplation of both parties at the time when the contract was made, ‘and is therefore not
too remote’, having regard to their knowledge at that time. It stated that to place the test of
recovery in contract on reasonable foreseeability, is to place it at par with recovery in tort
which is quite different and imposes a much wider liability.

The criterion of reasonable contemplation applies to both branches of the rule laid down in
Hadley v Baxendale. The difference in this respect between the two however is that in the
case of the first branch, the ‘horizon of contemplation’ is confined to the loss which arises

27
naturally in the usual course of things and which is therefore presumed to have been within
the contemplation of the parties. The second branch, by reason of the special knowledge
possessed by the defendant, extends the ‘horizon of contemplation’ to loss that does not arise
in the usual course of things.

But the Court of Appeal returned to the question in 1978 in H. Parsons (Livestock) Ltd v
Uttley Ingham & Co Ltd (1978) Q.B. 791, and a unanimous court composed of Lord
Denning MR, Scarman LJ and Orr LJ, were highly critical of the decision made by the House
of Lords in Heron II. Lord Denning found it difficult to apply those principles as formulated
by the House of Lords as universally applying to all cases of contract or to all cases of tort.
Lord Denning also found it difficult to draw a distinction between what a man contemplates
and what he foresees. According to him, the only distinction to be drawn was between
physical loss and economic loss. Lord Denning thought that as Hadley v Baxendale, the
Victoria Laundry and the Heron II all dealt with loss of profits,, they could be regarded as
laying down a principle applicable only where breach of contract led to economic loss and
that where it led to physical loss, the same test as in tort, foreseeability, should apply. The
other Judges however rejected this distinction.

The rule in Hadley v Baxendale has been consistently applied by Nigerian courts in dealing
with issues of damages in contract. See Ajufor v Trans Arab Ltd (Unreported, Sagay, p.
630); Maiden Electrominics Works Ltd v A.G. Federation (1974) 1 S.C. 53; Olagunju v
Raji (1986) 5 NWLR (Pt. 42) 408;; Union Merchants (Overseas) Ltd v Odeh Trading
Company (1962) WRNLR 229; Nigeria Advertising &Publicity Ltd v Nigeria Airways Ltd
(Unreported, Sagay p. 632).

Specific Performance

Specific Performance is an equitable remedy for breach of contract where the common law
remedy of damages will be an inadequate or a defective remedy for the plaintiff in the
circumstances of the case. A decree of specific performance issued by the court constrains a
contracting party to do that which he has promised to do. The purpose of such a decree is to
ensure that justice is done. Specific performance is particularly relevant in the realm of the
law of contract especially in transactions relating to real property where it is used mainly to
enforce contract for the sale or lease of property. It is one of the earliest examples of the
maxim that equity acts in personam, See Penn v Baltimore (1750) 27 E.R. 847; British Bata
Shoe Co. V Melikan (1956) 1 F.S.C. 100. At common law, a party may unilaterally decide
to breach the contract he has validly entered into, the consequence of which is only the

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payment of damages to the injured party. However, the court, in the exercise of its equitable
jurisdiction, will in certain circumstances require the contracting parties to respect the
sanctity of the contractual relationship created by their acts, and compel them to perform their
contractual obligations in accordance with the terms of the contract. The fundamental rule
however is that specific performance will not be decreed if there is an absolute remedy at law
in answer to the plaintiff’s claim. The jurisdiction of the court in specific performance is
therefore anchored on the inadequacy of the remedy of damages at law.

Unlike the common law remedy of damages which is available as of right, the equitable
remedy of specific performance is granted at the discretion of the court, which discretion
must be judicially and judiciously exercised on well-settled principles. In Ryan v Mutual
Tontine Westminster’s Chambers Association (1893) 1 Ch. 116 at p. 126, the court stated
that:

This remedy by specific performance was invented, and has been cautiously applied, in order
to meet cases where the ordinary remedy by action in damages is not an adequate
compensation for breach of contract. The jurisdiction to compel specific performance has
always been treated as discretionary, and confined within well-known rules.”

Generally, while the court will more readily grant specific performance of a contract relating
to sale or lease of land, specific performance will not normally be granted to enforce a
contract for the sale of goods easily procurable elsewhere or for delivery of stocks or shares
for which there is a free market. For instance, in Hutton v Watling (1948) Ch. 26, the court
observed that the jurisdiction to grant specific performance of a contract for the sale of land is
to be founded not on the equitable interest in the land which the contract is regarded as
conferring upon the purchaser, but on the simple ground that damages will not afford an
adequate remedy. See also Dauda v L. B. I. Co. Ltd (2011) 5 NWLR (Pt. 1241) 411 where
the court stated that in a case involving breach of contract for sale of land, damages cannot
adequately compensate a party for breach of contract for the sale of an interest in a particular
piece of land or of a particular house, in which case, the order of specific performance is
available at the instance of the vendor or purchaser.

Note however that the contract in which a decree of specific performance will be granted by
the court must be specifically enforceable. The court will not for example grant a decree of
specific performance of a contract for personal service or a contract of guarantee or an
immoral or illegal contract.

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Injunction

Injunction may be defined broadly as an order of the court by which a person is required to
do or to refrain from doing a particular act. Injunction is one of the remedies fashioned out by
the Chancery Court to make available to a litigant where the circumstances of the case
demand. The party seeking a relief of injunction must however prove that he has a legally-
enforceable right and that he is not a volunteer.

Quantum Meruit

Quantum meruit literally means “as much as he has earned”, that is, so much as the party
doing the service deserves. Quantum meruit arises where a person has expressly or impliedly
requested another to render him a service without specifying any remuneration but the
circumstances imply that the service is to be paid for, there is an implied promise to pay on
quantum meruit ; or where the contract is to do certain piece of work for a lump sum and he
does only part of the work, he may be able to claim on quantum meruit. See Ebla
Construction Ltd v Costain (West Africa) Plc (2011) 6 NWLR (Pt. 1242) 110; Warner &
Warner Int. V F.H.A. (1993) 6 NWLR (Pt. 298) 148.

Thus, where the party injured by a breach of contract has, at the time when the breach occurs,
done part, but not all, of that which he is bound to do under the contract, he may sue on a
quantum meruit to claim a reasonable remuneration for the services rendered. It is a remedy
which can be claimed as an alternative to damages. In Akinsulie v Oguunyanju (supra) it
was held inter alia that a party to an entire contract partly performed by him and was, by the
act of the other party, prevented from proceeding further with performance, is entitled under
the law to be paid for the fruit of his labour he has already rendered. In such a situation, he is
open to two alternative remedies: (a) damages for breach of contract and (b) reasonable
remuneration in quantum meruit for work already done. The court further held that a claim on
quantum meruit cannot arise where there is an existing contract for the payment of an agreed
sum. Quantum meruit may also be used by the plaintiff where an original contract to which
he was a party has been replaced by a new one, and he now seeks payment for work done or
goods supplied under this substituted agreement.

Note that the right to claim quantum meruit does not arise out of the contract as the right to
damages does; it is a right conferred outside the contract by the law, a quasi-contractual right,
therefore, and not a contractual one.

For the remedy to be available, certain conditions must be fulfilled.

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1. The original contract must have been discharged. The contract must have been broken by
the defendant in such a way as to entitle the plaintiff to regard himself as discharged from any
further performance, and he must have elected to do so. In other words, he must be off with
the old contract before he can be on with the new. If the contract is in existence and “open”,
he cannot use the quantum meruit remedy, but must rely on his remedy in damages.

2. The claim must be brought by the party not in default. The party who breaks the contract,
even though he may have partially performed some part of his obligation, is not entitled to a
quantum meruit for the work which he has done.

Once these conditions are satisfied, the injured party may rescind the contract and sue on a
quantum meruit for the work actually done.

Note however, that, the court applies a principle of assessment which differs from that which
is applied in assessing damages for breach of contract. For whereas the purpose of damages is
to place the injured party, as nearly as may be, in the position which he would have been in if
the other party had performed the contract, the purpose of quantum meruit is to recompense
him for the value of the work which he has done, that is, to restore him to the position which
he would have been in if the contract had never been made. In other words, damages are
compensatory while quantum meruit is restitutory. In Planche v Colburn (1831) 8 Bing. 14,
the defendants had commenced a periodical publication, called ‘The Juvenile Library’’, and
had engaged the plaintiff to write a volume on ancient armour for it. For this he was to
receive the sum of £100 on completion. When he had completed part,, but not the whole, of
his volume,, the defendants abandoned the publication. The plaintiff was held entitled to
retain a verdict for £50 which the jury had awarded him. Tindal C.J. said:

I agree that, when a special contract is in existence and open, the plaintiff
cannot sue on a quantum meruit: part of the question here, therefore, was,
whether the contract did exist or not. It distinctly appeared that the work
was finally abandoned; and the jury found that no new contract had been
entered into.. under these circumstances, the plaintiff ought not to lose the
fruit of his labour.

Also, in De Bernardy v Harding (1853) 8 Ex. Ch. 822, the defendant appointed the plaintiff
his agent to advertise and sell tickets for seats to view the funeral of the Duke of Wellington,
the plaintiff to receive a commission on the tickets sold. The defendant wrongfully revoked
the plaintiff’s authority after he had already incurred certain expenses in carrying out the

31
contract. It was held that the plaintiff was entitled to recover quantum meruit for the expenses
so incurred. See also Ebla Construction Ltd v Costain (West Africa) Plc (supra).

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