BREACH
Breach gives innocent party right to damages, and sometimes right to terminate. 3 points to note:
breach does not automatically bring the contract to an end, however serious, just gives innocent party option
to terminate,
termination of contract for breach is not the same as rescission, termination is prospective only, rescission
supervision
means it is void abi initio.
Not always easy to tell whether contract has actually been breached - requires analysis of implied/express
8
terms.
Conditions precedent — sometimes one party’s obligation is conditional on something else, subject to a
condition precedent. If the other party promises to achieve it, failure is breach, but if the contract is not formed
until the thing is done, there is no breach for failure.
Entire obligations — sometimes the agreement is that one party must finish their obligations before the other’s
obligations arise. Courts often attempt to construe contracts to avoid entire obligations, but sometimes its
unavoidable so the courts developed the “doctrine of substantial performance” to mitigate the hardship of entire
obligations:
•
Exception for substantial performance? — where work has been significantly performed/performed fully
4 categories in BS & N Ltd v Micado
but badly, the courts will say this triggers the price obligation, subject to a reduction for damages/defects.
Shipping Ltd [2001] in which term is likely
Applied in Hoenig v Isaacs [1952] where price was payable with reduction for minor defects.
to be a condition:
•
Treitel argues it is difficult to distinguish between not finishing and finishing badly - courts generally use
if expressly stated by statute: s.15A
substantial performance to prevent one party from wiggling out of paying for trivially defective work.
Sale of Goods Act implied term that
Acceptance of partial performance — where innocent party has accepted the part performance, he cannot rely
goods comply with description is a
on the entire obligations to avoid paying. Only applies where innocent party had a choice e.g. can’t not occupy
condition.
your house just because builders haven’t finished it.
condition if previously categorised as
Reform — many commentators dislike entire obligations e.g. Sumpter v Hedges builder received nothing for
one by a judicial decision,
condition if “it is so designated in the doing a large part of the work, leaving the owner unjustly enriched. Law Comm recommended that people who do
some of the work should get a reasonable sum - many object saying the enrichment is not ‘unjust’ because the
contract or if the consequences of its
contractual obligations were not completed. Held in Cutter v Powell that restitutionary principles should be
breach, that is, the right of the innocent
subsidiary to, not subvert, the contractual regime. Cannot use restitutionary principles to change the contract.
party to treat himself as discharged,
Also NB most honest builders ask for payment in instalments - so normally doesn’t affect that many people.
are provided for expressly in the
contract” - requires more than the
word ‘condition’, needs to be clear it is
an important term.
2 distinct situations where an innocent party can terminate for breach (i) breach of condition or innominate term,
condition if “nature of the contract,
(ii) repudiation, where one party has pulled out or renounced the contract, by words or conduct.
subject matter or circumstances of the
Held in Hong Kong Fir Shipping v Kisen Kaisha Ltd [1962] that the old SGA 1893 distinction between conditions/
case lead to a conclusion that the
parties must, by necessary implication, warranties was not exhaustive - there is a third type of term, breach of which does not automatically guarantee
termination, only if the consequences are serious. 3 types of term now (i) condition - automatic right to terminate
have intended the innocent party
and damages, (ii) innominate term - innocent party can always claim damages and might be able to breach if
would be discharged from
effect is serious enough, (iii) warranties - breach never gives right to terminate, only damages.
performance if the obligations in the
term were not complied with”. If
important term, it will be a condition,
but if the term is trivial or can be
Only very serious breach of an innominate term will entitle an innocent party to terminate - must deprive the innocent
breached in a no. of ways, The Hansa party of “substantially or all the benefit” which he would have obtained from the contract e.g. Aerial Advertising v
Nord [1975] held it would be
Batchelor Peas [1938] completely lost all the profit they would have expected from the contract for breach of route of
innominate.
plane - clearly entitled to terminate.
condition or
innominate term?
termination for breach
does innominate term warrant termination?
REPUDIATION & ANTICIPATORY BREACH
Innocent party can also terminate where other party wrongfully abandons/renounces the contract (repudiation). Can be
express words/implied conduct that is wholly inconsistent with contract or renders performance impossible.
Cancellation must be wrongful and can be done by implication, as long as it is clear this is what the party is doing. If
supervision
this occurs before the time fixed for performance, the innocent party can terminate immediately as made clear in
Hochster v De La Tour [1853] but the innocent party is not obliged to terminate - supposed to be unfettered but
8
obviously sometimes its impossible to continue e.g. Hayes v Gallant [2008]. Therefore the innocent party has a no. of
options:
•
Electing to reject the breach and keep the contract alive - once he has elected to keep the contract alive, this is
irreversible. May regret this if the contract is later frustrated e.g. Avery v Bowden [1855]. If C carries on performing
and then claims for agreed sum due to him, held in White & Carter v McGregor [1962] that he can do this, but Lord
Reid said there were 2 qualifications: (i) he must perform his side of the obligations, and (ii) ‘legitimate interest’ - if he
does not have a legitimate interest, financial or otherwise, in continuing the contract, he cannot claim the agreed sum.
Specific performance — normally
Difficult test - Lord Denning says in Attica Sea Carriers v Ferrostaal [1976] that there is no legitimate interest where
applies where seeking to enforce
damages would be an adequate remedy, however Lloyd LJ said in The Alaskan Trader [1983] that “wholly
something other than a sum of money.
unreasonable” conduct was required. Shift towards whether or not C has acted reasonably in keeping the contract
Enforces the primary duty to perform
alive, held in Reichman v Beveridge [2006] that the category of cases where the innocent party is deprived of the right
the contract - held in Beswick v
to bring action for agreed sum should be small.
Beswick [1968] that you must show • Electing to accept the breach and discharge the conduct — doing nothing is too equivocal to count as acceptance,
specific performance was an
but the Santa Clara [1996] says that innocent party failing to perform future obligation’s can count as acceptance.
‘adequate remedy’ with various factors •
Termination — does not mean the contract disappears/is rescinded, rather, the party’s primary obligations are
e.g. adequacy of damages;
discharged and replaced with secondary obligation to pay damages - held in Photo Production v Securior Transport
uniqueness of the performance; no
[1980] that an exclusion clause is a secondary obligation, also arbitration/liquidated damages clause.
suitable alternative.
SPECIFIC REMEDIES
Bars to specific performance:
•
if SP requires constant supervision
English law reluctant to impose specific remedies, Burrows is a strong advocate of them - more realistic for parties’
by the court, Lord Hoffmann added
expectations.
they should take into account how
Action for an agreed sum — either agreed price or other types of agreed sums. Award of an agreed price arises when
specific the obligation is,
one party has not paid the money agreed - 2 consequences (i) C does not need to prove loss, simply what he is owed,
•
contract in question is a contract
and (ii) no requirement of mitigation. Whether or not C is entitled may depend on whether he has fulfilled all of his
involving personal service - would
obligations, and courts use doctrine of substantial performance regarding this.
be difficult and inappropriate to
enforce this, could be slavery etc… Award for other than an agreed sum — ‘liquidated damages’ clause is “if you breach contract, you must pay £X” but if
the clause states a much higher amount that any loss C would have suffered it may be a penalty clause and be struck
•
obligation is not precise enough,
• C has acted unconscionably - must down - Dunlop Pneumatic Tyre v New Garage Co [1915] says if the clause is genuinely an attempt to estimate loss, it is
acceptable and if not, it will be struck down. Several factors emerge: if parties use phrase ‘penalty’ or ‘liquidated
come “with clean hands”,
damages’ this is relevant but not conclusive; if breach is not paying a sum of money, and the sum in the clause is
• severe hardship would be caused to
D by specific performance Patel v Ali greater than the breach sum, this is a penalty clause; if the events when this sum will be payable are trivial/frequent, this
is presumed to be a penalty clause - Ford Motor Co v Armstrong [1915]; fact that it is hard to estimate the loss does not
[1984].
make it a penalty clause.
NB. mandatory and prohibitory
Penalty clauses also dealt with under Sch 2, Para 1(e) UTCCR.
injunctions - former very unlikely,
Should the party who is entitled to receive the money from the clause claim it is a penalty clause e.g. where the actual
latter only available where it is not
loss is greater? Law is unclear - in Wall v Red Luggade [1915] it was suggested this was permissible and the matter was
oppressive and where SP would not
left open in Cellulose Acetate Silk Co Ltd v Wildnes Foundry [1933].
have been refused.