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Contract Law - Discharge of a contract for breach (7) - Coggle Diagram
Contract Law - Discharge of a contract for breach (7)
I. Withholding performance
A. Conditions precedent
One party's obligation = conditional on something else
Not necessarily a promise but concern about performing
Modern meaning divorced from this sens of the order of perf
B. Entire obligations
one party must completely finish before the other’s obligation (usually to pay the price) arises
Rare for an obligation to be construed as entire, = all the risk ont 1 party.
Depends what intented objectively
Cutter v Powell (1795) eg of entire obligation (more than usual wage but on an entire basis to discourage desertion)
Failure to perform entire obligation = breach Sumpter v Hedges (1898) (builder)
C. An exception for ‘substantial performance’?
Such cases as Sumpter v Hedges, courts tend to amount that the entire obligation has been substantially perform = other pay the price, less reduction for damages for defects (eg Dakin & Co Ltd v Lee (1916) / Hoenig v Isaacs (1952)
Treitel (2020) :closed_book: rationalise the lay in a different way than exception
Build a house involves obligation as to quantity (entire) and to quality (not entire). Entire = full perf
But sometimes hard to separate not finished and finished badly = so defective that no substantial perf (Bolton v Mahadeva 1972)
D. Acceptance of partial performance
Innocent party :check: partial perf, not able to rely on entire obligation to resist paying. BUT only where innocent had a choice in the matter
Ex, accepted furniture # from building a house (ex essential to occupy it)
Explains Sumpter v Hedges was obliged to pay for the materials left on the site but not for the building work itself.
cf s25 CRA seller delivers a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods he must pay for them at the contract rate
E. Should the law be reformed?
Many critics of entire obligation: earning nothing while doing a part of the work -> unjust enrichment? should get a reasonable sum for the work. Law Commission’s Report Pecuniary Restitution on Breach of Contract (No 121 (1983)) agreed
Dissent by Brian Davenport QC. Right to do so? Identifying someone as enriched, not enough for restitutionary remedy -> Need also "unjust"
:warning: if term expressly provides entire obligation
In fact, most building ct = in stages
Sumpter v Hedges still followed (Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd (2010))
II. Termination of the contract for breach
A. Breach of condition or serious breach of an innominate term
What sort of term breached?
Condition = always amount to a breach, option for the innocent party to terminate ct and claim damages
and warrenties, if breach = never gives innocent party option to terminate contract; he can only claim damages.
But misreading of earlier law = distinction non exhaustive, evolution of law, escape possible without breaching a condition =
Hong Kong Fir Shipping Ltd v Kisen Kaisha Ltd (1962) = 3rd cat of term: breach of which does not automatically entitle the innocent party to terminate the
contract, but only if the consequences of the breach are very serious, labelled ‘innominate’ or 'intermediate terms' -> can always claim damages
B. Deciding whether a term is a condition or an innominate term
‘certainty + inflexibility’ of a condition versus the ‘flexibility + uncertainty’ of an innominate term
4 cat, identified by the CA BS & N Ltd v Micado Shipping Ltd (The ‘Seaflower’) (2001), in which a term is likely to be categorised as a condition
Term = condition ‘if it is expressly so provided by statute’
Ex: terms implied into contracts for the sale of goods by statute
SGA = soe implied terms as conditions (description s13(1), quality (s14(2))
Buyer entitled to reject the goods (unless breach so slight that unreasonable s15A) cf right to reject in CRA
Arcos Ltd v EA Ronaasen & Son (1933): trivial breach, adaquate to use , but HL said didn't matter bc goods comply with description = condition (cf s15a today)
Term = condition = so categorised as the result of previous judicial decision
(some decisions are open to re-examination)
Often standard terms, can be cat as a condition a prior precedent, ccial sense to stick to that
Bunge Corpn v Tradax Export SA Panama (1981), ccial assumptions
Parties can in principle elevate a term to the status of condition by expressly providing as such in their contract
Need clear evidence of intention
word ‘condition’ is unlikely to suffice, particularly where the rest of the terms and surrounding circumstances (regime) point away from this interpretation (eg Schuler AG v Wickman Machine Tool Sales Ltd (1973))
Contrary: express stipulationan obligation specifies the time of
performance and provides that ‘time is of the essence’ = time = condition = even negligible delay = allow to terminate
Union Eagle Ltd v Golden Achievement Ltd (1997)
Even if not specified initally, time can be mode of the essence by notice to the other party with reasonable time within which to remedy the breach
a term will be a condition ‘if the nature of the contract, of the subject-matter or the circumstances of the case lead to the conclusion that the parties must, by necessary implication, have intended that the innocent party would be discharged from further performance of his obligations in the event that the term was not fully and precisely complied with
look at the nature ct, obligation, circumstances... ccial context not necessarily enough (Spar Shipping A/S v Grand China Logistics Holding (Group) Co Ltd (2016))
Innominate term categorisation is particularly tempting for the court where an innocent party is relying on a trivial breach in order to terminate for an ulterior reason
The Hansa Nord (1975) ( :warning: between express promise of good condition and implied SGA term as quality of goods)
Duchy Farm Kennels Ltd v Steels (2020), confidiality clause breached = not a condition, no statute, precedent, express clarification or the 4th condition + breach not serious enough for repudiatory breach -> claim in damages sufficient if employer loss
Fluctuating market = can see that time for perf can be seen as a condition
C. Advantages and disadvantages
Certainty of conditions # flexibility innominate terms (rediscovery in HK Fir welcomed by some, bc many terms are complex)
But advantages of conditions over innterms
How to react to a breach of innterm?
Court might rule that an innocent party who elected to terminate the contract (bc serious enough) was not sufficiently serious = uncertainty
D. Any role for warranties?
s61-1) in SGA but very few true warrenties, rare for a term to be peripheral, hard to imagine v serious csq (warrenty in old cases for innterms
E. How to tell if breach of an innominate term justifies termination
cf HK Fir, need v serious breach of innterm to entitled the innocent party to terminate the ct
serious = csq breach for the innocent, deprive him substantially the whole benefit which it was intended to gain
HK Fir still largely achievable
Even csq of breach of minor term can be wholly prejudicial Aerial Advertising Co v Batchelors Peas Ltd (Manchester) (1938)
Test bit more difficult to apply where the innocent party wishes to terminate the contract because of lots of small breaches, arguing that they add up to a substantial failure of performance
Court will decide what the combined effect of the breaches is on the innocent party
Ex :red_cross: Valilas v Januzaj (2014) (dentist, fee) or Force India Formula One Team Ltd v Etihad Airways PJSC (2010) (rebrand a car)
III. Repudiation and anticipatory breach
innocent party entitled to terminate the contract is if the other party ‘repudiates’ it, which means wrongfully abandoning or renouncing the contract altogether
A. The anticipatory angle
Repudiation can occur before the time fixed for
performance => ‘anticipatory breach’
The relevant breach, which gives the innocent party the option to discharge the contract, is the repudiation itself, not the other party’s eventual non-performance of the contract
Innocent party can terminate the contract immediately without waiting for the due date for perf
Eg: Hochster v De La Tour (1853): innocent party absolved from any future perf
Rationale = encourage mitigation = terminate as soon as clear that non performance = claim damages
Pb of calculating damages awarded in advance of the date for perf (eg The Golden Victory 2007)
Express words, eg Frost v Knight (1872)
Repudiation = wrongful cancellation ( :red_cross: if right to do it).
Courts reluctant to say repudiation if misinterpretation of a ct right to cancel (Woodar Investment Development v Wimpey Construction UK Ltd (1980) -> no unequivocal intention to abandon the ct by mistaken application fo the ct)
Might be different where a contracting party purports to cancel the contract thinking he is entitled to do so because of the other party’s breach
Implied from conduct = wholly inconsistent with the contract -> perf impossible (eg Sentinel International Ltd v Cordes (2008) -> disregard of basic obligations, no intention to be bound anymore)
Not lightly inferred
Strict test: the conduct must be clear and give the impression that the contractor is renouncing all (or all his important) obligations in the contract (otherwise, would apply to too many situations)
Different from just intention, also concerns "I would like but I cannot" // "I will not)
may also involve one party making it impossible for himself to perform or continue to perform his obligations (eg Lovelock v Franklyn (1846))
IV. Innocent party’s option to terminate contract
Theory: the innocent party is at liberty to bring the contract to an end following a breach of condition, serious breach of an innominate term or a repudiation but not obliged.
In practice, no really other choice (eg employee have to accept repudation) -> but still a act of acceptance to exercise ociété Générale, London Branch v Geys (2012).
White & Carter (Councils) Ltd v McGregor (1962): even if innocent party can perform their obligations withut cooperation from the other party, they may not be entitled to it when no legitimate interest, financial or otherwise in perf
very controversial, restriction part's right to make this choice
A. Electing to ‘reject the breach’ and keep the contract alive
innocent party does not wish to terminate the contract, he is said to ‘reject’ the other party’s repudiatory breach, but this does not mean that he is waiving it entirely, may still claim damages
Irrevocable decision: only an unequivocal decision, full knowledge of the circumstances of the repudiatory breach will suffice
:warning: can be just protest (Yukong Line Ltd of Korea v Rendsburg Investments Corpn of Liberia (1996))
Howard v Pickford Tool Co Ltd (1951) that an ‘unaccepted repudiation is a thing writ in water’ :question:
If elect to keep the ct, as if the repudiation never occured, but breach is likely to happen again
Risk of breaching own obligation or frustration
Risk that the other party incoke an express contractual right later to terminate the ct (eg Fercometal SARL v Mediterranean Shipping Co (The Simona) (1989))
Occasionally, courts will take some notice that one party committed a repudiatory breach even where the innocent party opted to keep ct alive: Hasham v Zenab (1960) (seeking a spe perf)
Exception with estoppel principles (not understood)
B. Electing to ‘accept the breach’ and discharge the contract
Clear / Unequivocal but no need for express words = acting like it sufficient
Acceptance must generally be communicated to the other party or at least overtly evinced to him
Innocent party accept repudiation by mere failure to perform its future obligations? State Trading Corpn of India (1989), CA suggested not (equivocal)
But no rigit rule of law (explained HL Vitol SA v Norelf Ltd (The Santa Clara) (1996)). In exceptional circumstances, failure to perfure may suffice (cargo resold, mere non perf)
Cf silence in Acceptance in ct formation (exceptional circumstances sufficient)
Primary obligations of the parties once terminated replaced by secondary obligations (cf Photo Production Ltd v Securicor Transport Ltd (1980) (pay damages, mitigation))
/# rescission: obligations and rights that have already accrued by the date a repudiatory breach is accepted survive
instalment of the price has already accrued and is due, it remains due (varied with damages)
Generally, acceptance of a repudiation discharges the whole contract BUT possible for a contract to be construed as having severable obligations (although unusual)
cf end, good/bad reasons doesn't matter
Intro
Breach = damages but also option of withholding
Breach = :red_cross: automatic end of ct = option to terminate, fundamental principle
Termination for breach # rescission