Actions For Debt And Frustration Notes

Week 7- Actions for debt and frustration

Advantages of an action for debt:

• E.g. A party who has performed their obligations under a contract prior to the contract being terminated might be able to claim payment of the contract price as a debt.

• The action for debt is alternative to damages.

• It is different than damages. The differences between debt and damages:

  • A party may be entitled to recover a debt even where that party has breached the contract and the contract was terminated as a result. A party in damages has to prove that there has been a breach of contract.

  • Mitigation for loss does not apply for debt but it does for damages.

Requirements of an action of debt:

• Two requirements must be satisfied:

  • The contract must impose an obligation to pay a certain or ascertainable sum of money.

  • The right to payment of the sum must have accrued.

    • I.e. consideration must be given. They must have earned the payment.

• What amounts to sufficient performance to claim payment under a contract depends on the distinction between:

  • Entire obligations:

    • It is one that must be wholly performed for a party to be entitled to payment for that performance.

    • Entire performance is a condition precedent to payment.

    • E.g. Building contract for a lump sum. If you partly perform then you don’t get the contract price or any part of the price.

  • Divisible obligations:

    • Is one in which parties have intended the contract price and performance to be divided into corresponding parts.

    • A party will be entitled to a payment of each instalment of the contract price that they have performed.

    • Each divisible part must be entire to get payment.

  • To assess if the contract is entire or divisible is a matter of construction depending on the intentions of the parties. A contract will be entire if it appears the parties intended it to have only complete performance. This often happens when there is a single sum of money. There are apportionment provisions like rents, annuities, dividends and other periodical payments which must be made.

• The doctrine of substantial performance allows a party to recover the contract price, even though the contract has not been fully performed but it was substantial. It may apply to divisible obligations so the substantial performance of each part will entitle a price for this performance.

  • Courts consider the performance rendered and the nature of the defects in the performance.

  • The doctrine of substantial performance often does not apply where the contract is entire- the parties have intended that nothing less than complete performance gives a contractual right to payment.

• The parties to a contract may make payment of a sum of money independent of performance of a contract. In this case the sum will be owing as a debt as soon as the time for payment arises. E.g. In a contract for the sale of land in instalments the instalment will be due.

  • However if there was no performance you can make a claim of restitution where you can get back the payments on the ground of total failure of consideration.

Deposits:

• A right to payment is considered independent of performance in a deposit case. It is a guarantee of intention to perform the contract.

• If the transaction does not proceed parties often say what will happen to the deposit. If the transaction goes ahead, the deposit is part of the purchase price. Often the vendor retains the deposit if the purchaser defaults.

• Where a deposit is not excessive but is a reasonable sum, the principles above will apply.

• If the vendor refused to proceed with the contract very clear words in the contract will be needed to allow him to keep the deposit. This is when the vendor repudiated the contract.

• If the deposit is not paid when the vendor terminates the contract for the purchasers breach and if there is an unconditional right that the vendor retains the deposit, it must be paid.

• The deposit can be considered a penalty and the courts can grant relief.

Mitigation and the action for debt:

• Defendant promised to pay an amount. The plaintiff can sue for it. It is a claim that the plaintiff has executed the quid pro quo. Whether a debt is payable or not is about construing the contract and look at when the payment were due.

• If the vendor is ready, willing and able but the purchaser does not pay, can the vendor sue for the price? Can’t sue for debt unless he has already executed the quid pro quo. If on the agreed date they are ready willing and able to hand over the goods, the remedy is un-liquidated damages. They can’t sue for the price of the goods unless they have already passed title.

• In an instalment contract for the sale of land, if the express terms of the contract make the sums due on a particular day then the vendor can sue for the price instalment as a debt due to him.

• A claim for debt arises if the circumstances have arisen without the sum being paid. The sum is payable when there is the quid pro quo unless there is a clear exclusion clause that requires early payments as a debt due to him.

• When the contract is said to contain one entire obligation- Party A must execute all or part of his promises before he has to be paid anything.

• Cutter v Powell (1795) - Mr T Cutter agreed he would sail with Powell from Kingston, Jamaica to Liverpool, England. The contractual note read as follows. “Ten days after the ship Governor Parry, myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool.”Cutter died after seven weeks. It was a ten week voyage. The ship captain refused to pay any wages at all. Mrs Cutter (executor of his will (administertrix) - continues the personality in law) sued to recover the wages for the part of the journey that the husband had survived. It was apparent that the usual wages of a second mate of a ship on such a voyage was four pounds per month: but when seamen are...

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