Breach of Contract

Question 1

Breach of contract will occur?

Answer 1

without lawful excuse

Question 2

definition of breach of contract?

Answer 2

a party either failing to perform/refusing/performing defectively- where failed to reach required standard of performance

Question 3

what is the definition of a contract in relation to?

Answer 3

contractual obligation

Question 4

what distinction do you need to make before standards of performance?

Answer 4

primary obligations

secondary obligations

Question 5

what are primary obligations?

Answer 5

obligations requiring performance under terms of contract- rests on content of contract (what are their term and obligations owed) (performance due under terms of contract)

Question 6

what is important to keep in mind with breach of primary obligations?

Answer 6

any breach of primary obligation is replaced (gives rise to )with a secondary obligation

Question 7

what is a secondary obligation?

Answer 7

what is a secondary obligation?

Question 8

what is strict/absolute contractual obligations?

Answer 8

you must do this (absolute standard) and failure to complete precisely - amounts to breach = de minimis

Question 9

what is de minimis rule?

Answer 9

but needs to be minor in nature in order to prevent breach through defective performance of this kind

Question 10

formula for strict?

Answer 10

if strict- must be perfomed- breach = damages

Question 11

examples of strict obligations?

Answer 11

delivery obligation in contract to supply e.g 1st oct have to do it & most sale of goods obligations eg satisfactory quality

Question 12

what is a qualified contractual obligation?

Answer 12

imposes standard performance of reasonable care & skill- x stated result just qualified standard - if do perform = x breach - liverpool city council and erwin

Question 13

Consequences of Breach?

Answer 13

on proof of breach the “innocent” (non-breaching) party is automatically entitled to be compensated (by means of damages for breach) for loss suffered which results from the breach- cause failure gives rise to 2nd

Question 14

what is the hw as a general principle, on proof of breach there is an automatic right to claim damages for breach?

Answer 14

unless the breach is regarded as a serious (or repudiatory) breach, the contract will continue in force and both parties must continue to perform their obligations under it.

Question 15

what is a repudiatory breach?

Answer 15

its a very serious one and if so there is an election

Question 16

If the breach is repudiatory?

Answer 16

If the breach is repudiatory, it allows the innocent party to treat the contract as repudiated and therefore as discharged for the future.

Question 17

If a repudiatory breach occurs then?

Answer 17

If a repudiatory breach occurs then, in addition to the right to claim damages for loss suffered, the innocent party has a choice or election.

Question 18

what 2 options can you get with option/election?

Answer 18

1. innocent party may treat contract as terminated - only future obligations discharge contract itself survives and terms such as exemption clauses may be relevant for assessing remedies- misrep would wipe to beginning not here
2. you can affirm contract- innocent party in clear and unequivocal terms may treat contracted as enforced and make both parties to continue to perform or remain future obligations due in contract

Question 19

Does the innocent party terminate if he merely fails thereafter to perform his own obligations due under the contract?

Answer 19

vitol v norelf, The Santa Clara

Question 20

Therefore the central question is ?

Answer 20

Therefore the central question is

Is the breach a repudiatory breach?

Question 21

A repudiatory breach will occur in cases?

Answer 21

A repudiatory breach will occur in cases of renunciation (or rejection) of the contract, or incapacitation (where the guilty party’s actions prevent him from performing his contractual obligations).–the type of breach that occurs/ if type of term that is broken

Question 22

what are the types of repud breaches?

Answer 22

Renunciation- i dont want this contract anymore - rejecting contract (renun = fundamental)
; or
Incapacitation; - prevent yourself from performing contract made eg bike to one party sell to other incapacite as dont have goods anymore

Question 23

what is if a term is broken?

Answer 23

if the term broken is either a condition, or an innominate term and the effects of breach of that innominate term are serious, the breach will be repudiatory (giving rise to the option for the innocent party to terminate or affirm

Question 24

what are the types of if the term is broken?

Answer 24

• Conditions (breach is always a repudiatory breach)– important matter “going to the root” of the contract. If the term broken is a condition, the breach is always repudiatory and therefore gives rise to the option to terminate or affirm.
• Innominate terms (breach may or may not be repudiatory)-less important term concerning a matter which does not “go to the root” of the contract. Remedy always limited to damages only- can be broken in no of diff ways
• Warranties (breach of this term is never repudiatory – and the remedy is damages only)less important term which can be remedied by payment of damages (compensation)

Question 25

what are the cases for the key terms?

Answer 25

pusard v spears- singer had to sing for whole season but did not until 1st week in by which time substitute in - 1st night was a condition - broken = term/affirm

compared with betterney v guy - singer was hired to perform for an entire season & had agreed to arrive 6 days for rehersal but 3 days late but clause relating rehearsals were not so central to main purpose of contract to be a condition so instead warranty- remedy limited to damages of loss suffered

Question 26

why were warranties and conditions good?

Answer 26

look at contract before any performance had occurred to see whether breach of particular term condition/warranty would have particular effect in breach e.g cond always being repud-advantage of being certain but hw it is inflexible

Question 27

what case recognised the inmoniate term?

Answer 27

Hong Kong Fir Shipping:- Hire of ship for 24 months. To be seaworthy
Delivered Feb 1957 unseaworthy – staff inadequate and incompetent
Charterers repudiated (terminated) the charter.
Ship available again in Sept 1957 (17 of the 24 months left).
Shipowners claimed charterers had wrongfully repudiated.

Question 28

what was it important to know in the Hong Kong Fir Shipping case?

Answer 28

Was the breach of the seaworthiness term a repudiatory breach?
Seaworthiness obligation was not a condition of the contract because it could be broken in a number of different ways – not all of which were serious.- e.g not just due to staff
Instead, it was an innominate obligation- since 17mnths left effects were not serious It followed that the charterers did not have the right to repudiate and had wrongfully repudiated.

-no

Question 29

what was the comparison case?

Answer 29

Aerial Advertising v Batchelors Peas- P were to advertise the D’s peas by flying over towns trailing a banner reading: ‘Eat Batchelors’ peas!’
In breach of contract the pilot flew over the main square of Salford during the 2 minutes’ silence on Armistice Day.
This caused great upset and the D’s product were boycotted, leading to a fall in sales

so serious consequence of breach- yes

Question 30

what do you do when you look at an inominate term?

Answer 30

once you define- look how serious it is- whether it deprives party etc so term inominate where there are a range of breaches that could occur some of which serious/not but not def not much support in bunger corp v traddocks- breach of inom may or may not be repud - term/affirm it depends on seriousness- need to deprive

Question 31

what are the difficulties in practice to identify repud breaches as we know consequences?

Answer 31

1. Identifying which terms are conditions- as we know always repud & even if say cond it may not have consequences we think
2. Uncertainties – innominate term - wait and see the consequences of breach- tony weir in 1976 cambridge law journal
3. Dangers of wrongful repudiation – innocent party terminates when there is no repudiatory breach- so he will end up being the party committing repud breach

Question 32

what is the 1st step you need to consider in regards to looking at what term is repudiatory?

Answer 32

Is the term broken a condition?:- 4 things we consider

• Does statute classify it as a condition?
• have the parties classified term as condition?does it have effect of being condition e.g options
• does the term go to ‘the root’ of the contract
• is it a time stipulation in a merchantile/ shipping contract bc tradtionally those breaches of time stip in shipping have been treated as conditions without needing to show root of cont

Question 33

what i the 1st step to consider when look if term broken?

Answer 33

Does statute classify it as a condition?
-e.g sale of good act- specific provisions do say that term in q is a condition

-Classification of obligations in B2B contracts ss.13-15 SGA 1979 as CONDITIONS
BUT see s.15A SGA 1979/Equivalent provisions: s.5A and s.10A SGSA 1982]
– equiv of the inom term as says where buyer has right to terminate s.13/14/15 the actual breach is so slight= unreasonable to complete reject goods & given that were in b2b contract ( 2 commerical parties) breach of condition is not to be treated as a breach of condition but MAY be treated as breach of warranty

• suggests no option to terminate and limited to damages only bc this provision has no application if the buyer is a consumer. Only applies to commercial contracts where there is breach of sat quality (only slight so unreasonable to reject)

hw parties can oust s.15A (s.15A(2)). which permits them to do that- so if youre advising - last thing they want is uncertainty with right to reject- so you tell them to reject out of this provision so can affirm/term

Question 34

what i the 2nd step to consider when look if term broken?

Answer 34

have the parties classified term as condition?does it have effect of being condition e.g options & have they succeeded if made it a condition

Question 35

case for 2nd step?

Answer 35

Lombard North Central plc v Butterworth
Hire of computer and prompt payment of each instalment of the hire was stated to be “of the essence” of the agreement.
(1) Parties are free to classify relative importance of their terms;- can have a go at trying to make it condition but does it work?
(2) “Of the essence” made prompt payment a condition – so if any payment was made late, would be repudiatory breach and entitle finance provider to terminate.
[Harsh consequences for consumer].

Question 36

what is of the essence?

Answer 36

when it comes to payment of money/production of docs- so of the essence makes it clear about being a condition

Question 37

what is the other case for 2nd step?

Answer 37

Schuler AG v Wickman Machine Tool Sales - use of the word “condition” is not conclusive. -need to say terminate if thats what you want to achieve

HL HELD that although a contract described a term – that representative was to visit 6 named manufacturers at least once a week – as a “condition”,
It could NOT be parties’ intention that any single breach of this term, however trivial, would entitle injured party to terminate entire distributorship contract.
HL approach highly paternalistic and interfering in parties’ freedom of contract. Query correct?

so use of word condition does not make it a condition but use of word essencce does

Question 38

what i the 3rd & 4th step to consider when look if term broken?

Answer 38

-does the term go to ‘the root’ of the contract- e.g so important that contract would not have been made without it - importance attached test - if you can show not contracted without term then it must go to root of contr = condition

• is it a time stipulation in a merchantile/ shipping contract
  traditionally courts have looked at need for necc in commercial contracts- lead that general principal to classify certain terms in these contracts as conditions without needing to show go to root of contract

Question 39

what are the time stipulations & merch cont in detail?

Answer 39

Generally thought a term relating to ‘time’ in a shipping contract would be condition without having to show that the individual term went to root of contract.
*The Mihalis Angelos: expected ready to load clause in charter contract was a condition. If broken would always give rise to right to terminate.- bc if broken always want to avoid contract- have oblig to give rise to term

reason to recognise these as conditions= for commericial certainty
Megaw L.J. referred to need for certainty. If classify term as a condition will know in advance what the position will be if the terms is broken. - ready to load clause - particular time etc then you need to be given certain details for voyages so that why time is vital in shipping contractsunge

-Corporation v Tradax SA: condition that 15 days’ notice of readiness to load vessel had to be given. If notice was given late, it entitled the shipper to terminate.

All time to certainity without looking at indivudal term in q

Question 40

what is the but to merch and time?

Answer 40

• In Torvald Klaveness A/S v Arni Maritime Corp., The Gregos, the House of Lords held that a timely redelivery obligation (of vessel at end of time charterparty) was innominate. - meant court need to examine seriousness - if short = dont determine termination
• Lord Mustill referred to a reluctance to extend list of conditions because breach of “condition” provides the innocent party with the “opportunity to rely on innocuous breach as means of escaping from unwelcome bargain”. so he means once term= condition always gives rise to terminate so if u wanted to term for another reason e.g economic youd search in contract for breach of condition that would give escape route even though breach occured= trivial - use breach and say repud and say out bc of repud = damages for it (there is now uncertainity on position) merch conditions/not?

Kuwait Rocks Co v AMN BulkCarriers Inc, The Astra - condition

Question 41

however what is the inmoniate term advantage?

Answer 41

Puts a stop to automatic escape routes and using breach of “condition” as means to avoid bad bargains - when breach not that serious

Reardon Smith Line v Hansen-Tangen:
Technical breach- tanker described by incorrect number and year name – but in all respects accorded with the specification. Buyers wished to avoid the contract because market in oil tankers had collapsed – and therefore used this breach to justify terminating the contract.
HL HELD : Not a breach of condition. Instead was breach of innominate term and since effects of breach were insignificant, buyers had no right to terminate.

Question 42

what if the term not a condition what is the structural approach?

Answer 42

is the term broken an innominate (intermediate) term ?
Are the effects of the breach serious?
If Yes - it is a repudiatory breach.
If No – HKF - It is not repudiatory and remedy limited to damages only.
Is the term broken a warranty?
Less important term and damages will suffice as remedy for breach

Question 43

what are the 2 types of appraoches for repud breach?

Answer 43

3 types of terms
 Condition
 Innominate term
 Warranty
2 types of terms
 Conditions- we know cons
 Non-conditions and apply HKF test to determine if breach of this term is repudiatory- non then hong kong test

if hkf= inom and fails= warranty cause damages adequate remedy
do you have right to term/affirm? is this a repud breach? overall want to know

some say 3 types and need to know but hard to identify but some say 2 best approach 2

Question 44

what is an anticipatory breach?

Answer 44

1st thing we need to know- to be able to identify it
key thing- there is a contract- once contract entered into before time fixed for performance- 1 party indicates either expreslly/ conduct intention not perform or inconsistent with contractual term-One party breaches by renouncing his contractual obligations - says that he is not going to perform.
Renunciation is a repudiatory breach

Question 45

what was said in yukonline v rensberg investments incorp of liberia?

Answer 45

in renunciation of contract by 1 party prior to time of performance but gives injured party a right to treat it as a breach of anticipation and treat contract as discharged “no longer required= anticipation repud breach

Question 46

what happens because there is an anticipation of a repud breach?

Answer 46

bc still a repud breach = election

so innocent party can elect to termin/ affirm contract and claim the performance at date fixed for performance of contract

Accept the breach as immediately terminating performance of the contract [Termination] - vitol acceptance can term (silence)
Can claim damages at the date of termination (important)

• Can claim damages immediately on acceptance of repudiatory breach after 1st May. No need to wait until 1st June – but must in that period = mitigate loss from date of the breach; try an obtain alternative employment as innocent party wants to keep loss at min (principle of mitigation of damages) so you can terminate immediately but need to mitigate- Hochster v De La Tour Example- must mitigate from date of breach (if term)

-other option is affirm
Affirm the contract and give the guilty party the opportunity to perform on the contractual date fixed for performance. [Example : wait until 1st June and give guilty party a second chance to perform]- u need me or not - but if fuilty party still does not perform then innocent party can accept and terminate contract despite earlier aff- cause there is an actual repud breach

In some (limited)circumstances the innocent party can continue with performance of his obligations- even though not wanted and claim the contract price (White & Carter v McGregor)

Question 47

what must the affirmation also be?

Answer 47

yukonline v rensberg authority on affirmation on how it Affirmation must be clear and unequivocal evidence of intention to continue with the contract- need to want to go on with performance and be clear about it- Not ‘we strongly request that you honour your contractual obligations’ – Yukong Line= not clear
Having affirmed cannot obtain damages for breach until contractual date for performance. BUT also no duty to mitigate. - dont need to mitigate

what are the risks to choose to affirm in that period (innoncent party) affirmation and date fixed for performance so date given 2nd chance to fixed date

Question 48

what are the risks?

Answer 48

could lose right of action in respect to damages in ant repud breach

can happen Innocent party might commit a breach of contract in that period (liable) and cannot argue that the other’s earlier anticipatory breach (now affirmed) excuses his own performance.

Authority - The Simona- Anticip rep breach by charterers which owners affirmed. Waited for cargo. Then owners committed rep breach. This rep breach by owners was not excused by earlier breach by charterers because of affirmation - they chose to affirm and ignore

Question 49

what is another risk in affirming?

Answer 49

Supervening frustration (something out of control in both parties after date entered contract) (e.g gov declaring action illegal) in period between affirmation and date fixed for performance
- frustration will result in injured party losing right to remedies for initial antic breach so contract will be treated as discharged= no action in relation to earlier ant breach

Authority - Avery v Bowden= no cargo but ignores and waits for cargo (affirm) but then war breaks out so frustrated - owners no remedy bc affirm

Question 50

what happened in White & Carter v McGregor?

Answer 50

Before date when contract term started (and after making of contract), D repudiated and asked Ps to cancel.
Ps refused and posted advertisements for the full 3 years – no mitigation. continued to act- they made no attempt to mitigate loss and find another ad company in replacement to take d place

Ps sued for contract price.
HL 3:2 allowed this recovery - controversial - as it was clear that the performance was not wanted - evidence debt claim dont need usual rule for damages - court will know precisley what that is

no req for them to mitigate to find another ad contract

Question 51

what is the difference between a damage claim and a debt claim?

Answer 51

damages claim- court will insist you mitigate loss but debt claim - claim for amount you havent been paid so get what u claimed no mitigation dont have to reduce loss because guilty party should have paid you- doesnt matter if wasting money bc performance not required

Question 52

what is White & Carter v McGregor key principle?

Answer 52

Principle: If affirms, injured party can continue to perform his contractual obligations and then claim contract price in action for agreed sum. No duty to mitigate. & can claim

but it is controversial and loads of obiter statements were found

Question 53

what are the 2 limitations

Answer 53

1. on the actual ability to affirm and continue
2. on the ability to perform then claim contract price to limit white principle

But [Lord Reid’s obiter limitations] –
To affirm must have legitimate interest in performing - - affirmation must not be ‘wholly unreasonable’ in the circumstances;
and
To be able to claim contract price must be able to perform without guilty party’s co-operation – or limited to damages only

if either not satisfied then limited to claim in damages only.

Question 54

Lord Reid’s (obiter) limitations ?

Answer 54

-Cannot affirm if no legitimate interest in performing the contract rather than claiming damages.
- Burden on guilty party to show this (i.e. to establish that the innocent party cannot affirm)
-The balance is in favour of affirmation (Ocean Marine v Koch Carbon)- diffiuclt to challenge affirm if no legimatie interest needs to atleast be small one e.g parties repreentation would be very diffiuclt to avoid affirm
-Only instance where will lose ability to affirm is where damages adequate and continuing the operation of the contract would be ‘wholly unreasonable’ (The Alaskan Trader)
Cannot claim the price if cannot continue performance without the cooperation (active or passive- houndlow) of the guilty party- if unable limited to claim in damages
Hounslow v Twickenham Garden Developments- had no right to continue

Question 55

what case is more accepting of white & carter?

Answer 55

Isabella Shipowner SA v Shagang Shipping Co. Ltd, The Aquafaith- Charterers stated that they would redeliver the vessel early in anticipatory breach.
The owners affirmed (refused the early redelivery) so that the charterers would be liable for the charter hire for the minimum term.
The charterers claimed (i) that the owners could not affirm as they had no legitimate interest in performing rather than claiming damages and (ii) they could not claim the hire since the charter involved the cooperation of the charterer.
Judge rejected both arguments:
Held
Just because damages would be an available remedy was not a basis for innocent party to lose ability to affirm. Some benefit to the owners in continuing performance – so legitimate interest – and continuation was not ‘beyond all reason’. [Difficult to lose right to affirm]
Owners did not need cooperation of charterers to keep the ship available to the charterers. They could earn the hire without any cooperation from the charterers.