The real estate industry is characterised by several transactions between different stakeholders/players. One major transaction within the industry is real estate development, which essentially involves construction or renovation and sale of buildings/apartments. Key players in respect of real estate development include: land owners, individual/corporate investors, construction companies, product suppliers, brokerage companies/realtors, real estate solicitors, mortgage firms, etc. Just like any other industry, there is a constant interface among the real estate players, which makes contracts inevitable within the industry.
The industry strives on various types of contracts, including project finance contracts, land sale contracts, joint-venture agreement, construction contracts, turnkey agreements, supply agreement, etc. The binding nature and or enforcement of these contracts/agreements are governed by the general law of contract. Hence, based on the general principle of law, these contracts, once voluntarily entered into, are binding on the contractual parties and courts will not permit a departure from the terms of the contracts/agreements. However, this principle is not absolute, as the doctrine of frustration may be invoked to discharge parties from the obligation of a real estate contract. While a party may raise the doctrine of frustration to absolve himself from the liability arising from the failure to carry out an obligation under a real estate contract, it is the duty of the court to determine whether indeed a frustrating event has occurred which renders impossible the performance of a contractual obligation.[1]
So what is frustration and when does frustration occur?
The doctrine of frustration is applied to excuse a contractual party from performing an obligation under a contract, as well as from the consequence/liability of non-performance of such obligation. Put simply, it is a defence for the non-performance of a contract, with no penalty/liability accruing to the defaulting party. In A.G. Cross River State v A.G. Fed.,[2] frustration was defined by the Supreme Court of Nigeria as:
“…the premature determination of an agreement between parties, lawfully entered into and which is in the course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by law both as striking at the root of the agreement and entirely beyond what was contemplated by the parties when they entered into the agreement.”[3]
From the above definition, frustration of a contract is predicated on the occurrence of an intervening event(s) or circumstantial change which significantly alters the obligations under the contract. For a court to hold that an event/change has occasioned the frustration of a contract, certain factors must be established. These factors were identified by the Supreme Court in Mazin Eng. Ltd v Tower Aluminium,[4] and can be summarised as:
- the event/change occurred or become known after the formation of the contract and before the non-performance of a contractual obligation;[5]
- at the time of entering the contract, parties did not foresee or contemplate the event/change;[6]
- the occurrence of event/change is no fault of the parties.[7]
- the event/change has rendered the performance of a contractual obligation impossible or radically different from the obligation under the contract.[8]
Frustration in real estate contracts can be manifested in various ways. The courts have identified some intervening event(s) or circumstantial change that can frustrate the performance of contract and these are applicable to real estate contracts. These intervening event(s) or circumstantial change include: subsequent legal changes, outbreak of war, destruction of the subject matter of contract, government requisition of the subject matter of the contract and cancellation of an expected event.[9] The court has also held that innate inability or illness of one party to perform the contract in the manner anticipated, as well as death of a party to the contract can result in frustration of a contract.[10] It should be noted that an event/change that merely makes execution of a contract more difficult or more expensive than originally anticipated by parties would not qualify as event/change that results in frustration.[11]
What is the effect of frustration?
Frustration operates to determine a contract and discharges parties of any further obligation under the contract.[12] The determination of the contract is based on operation of law.[13] As noted earlier, frustration excuses non-performance of a contractual obligation and the consequence of the non-performance.[14] Hence, with frustration, the issue of breach of contract does not arise and remedies of breach of contract, such as specific performance and damages, do not arise.[15]
What happens to monies paid before frustration of a contract?
This question arises where a party has furnished consideration and there is non-performance or part performance by the other party as a result of frustration. With respect to a contract that has not been performed, a party may be able to recover monies paid on the basis that there is a total/complete failure of consideration. This point was emphasised by the Court of Appeal in Abdullahi & Anor. v Lead Automobile Co. Ltd,[16] when it held:
“…As regards the claim of N15 Million by the Respondent, the law is clear where a party pays money to another party for a consideration in a contract, which has totally and completely failed, such as due to frustration of the contract, that party is entitled to claim his money back from the other party.”[17] (Underling for emphasis)
In Mazin Eng. Ltd v Tower Aluminium,[18] the Supreme Court noted that the appellant, who had earlier furnished consideration under the frustrated contract, is entitled to monies paid in respect of contract.
Where there has been part-performance of the contract, the doctrine of quantum meruit can be relied on to retain a portion of monies received or recover a portion of the contractual sum for the portion of work/service done/rendered. In Panar Ltd v Wagbara,[19] the Court of Appeal stated:
“It is true that the doctrine of quantum meruit normally comes into play when for some reason the contract for service cannot be completed. In such case the value of the services rendered up to the point where the contract failed is ascertained and paid to the contractor. It is not normal to refer to the doctrine when the claim is for the full agreed contract price at the satisfactory conclusion of the job contracted.”[20]
The above positions are predicated on the principles of restitution and unjust enrichment, which are both aimed at protecting the disadvantaged party to the contract.[21]
Conclusion
With the coronavirus disease, COVID-19, the execution of lots of real estate contracts were affected, resulting in either non-performance or part-performance of contractual obligations. This has exposed several real estate stakeholders to legal claims from investors, partners and clients. The good news is that some real estate stakeholders may be able to protect themselves from the non-performance or part-performance of their contractual obligations, depending of the circumstances.
Chat with us at Capital Ace Attorneys to evaluate your chances of protection.
REFERENCES
[1] A.G. Cross River State v A.G. Fed [2012] 16 NWLR (Pt 137) 425, 479; B.A.L. Co. Ltd v Landmark University [2020] 15 NWLR (Pt 1748) 465, 497; AIICO Insu. PLC v ADDAX Pet. Dev. Co. Ltd [2015] 6 NWLR (Pt 1456) 597, 615.
[2] [2012] 16 NWLR (Pt 137) 425, 479.
[3] See also N.B.C.I. v Standard (Nig.) Eng. Co. Ltd [2002] 8 NWLR (Pt. 768) 104, 124; N.R.M.A.&F.C. v Johnson [2019] 2 NWLR (Pt 1656) 247, 266.
[4] [1993] 5 NWLR (Pt 295) 526, 534, 537. See also: Pulseline Services Ltd v Equitorial Trust Bank [2010] LPELR-4886(CA) 31.
[5] Dauda v L.B.I. Co. Ltd [2011] 5 NWLR (Pt 1241) 411, 426; R.M.A.&F.C. v U.E.S. Ltd [2011] 9 NWLR (Pt 1252) 379, 418.
[6] N.B.C.I. v. Standard (Nig.) Eng. Co. Ltd (n 3) 131.
[7] C.C.B v Onyekwelu [1999] 10 NWLR (Pt 623) 452, 460-461; Saka v Ijuh [2010] 4 NWLR (Pt 1184) 405, 426.
[8] N.R.M.A. & F.C. v Johnson [2019] 2 NWLR (Pt 1656) 247, 275; N.B.C.I. v. Standard (Nig.) Eng. Co. Ltd (n 3) 131.
[9] A.G. Cross River State v A.G. Fed (n 1) 480; Nwaolisah v Nwabufoh [2011] 14 NWLR (Pt 1268) 600, 631.
[10] R.M.A.&F.C. v U.E.S. Ltd (n 5) 418; Diamonf Bank Ltd v Ugochukwu [2008] 1 NWLR (Pt 1067) 128.
[11] Nwaolisah v Nwabufoh (n 9) 600, 631; R.M.A.&F.C. v U.E.S. Ltd (n 5) 418.
[12] Mazin Eng. Ltd v Tower Aluminium [1993] 5 NWLR (Pt 295) 526, 534.
[13] Dragetanos Const. (Nig.) Ltd v F.M.V. Ltd [2011] 16 NWLR (Pt 1273) 308, 403.
[14] Ibid 538.
[15] N.B.C.I. v Standard (Nig.) Eng. Co. Ltd (n 3) 131.
[16] [2020] LPELR-51940(CA).
[17] The cases of Nwaolisah v Nwabufor [2011] LPELR – 2115 (SC) 49; First Bank v Ozokwere [2006] 4 NWLR (Pt 970) 422 and Haido v Usman [2004] 3 NWLR (Pt 859) 65 were relied on. See also: Grant Properties Ltd & Anor v Osasanya & Anor [2019] LPELR-49526(CA)
[18] [1993] 5 NWLR (Pt 295) 526, 534, 538.
[19] [1999] LPELR-6731(CA).
[20] Alh. Mustapha Isa v C.G.C Nigeria Limited [2014] LPELR-23977(CA).
[21] Ibid; First Bank v Ozokwere (n 17).