Breach of Contract

Question 1

What is a breach of contract?

Answer 1

This is where the other party is entitled to damages as a result of the breach caused by the other party.

Question 2

What is a repudiatory breach and what is the two types?

Answer 2

A repudiatory breach is the kind of serious breach that entitles the innocent party to treat the contract as discharged

• Where the guilty party refuses to perform their obligations. In such circumstances it is said that the guilty party has repudiated the contract.
• Where the guilty party performs their obligations in a manner that is seriously defective.

Question 3

What happens when a repudiatory breach occurs?

Answer 3

When a potential repudiatory breach arises the innocent party is not required to treat the contract as discharged. Instead, the innocent party is entitled to treat the contract as discharged

Chooses to end - Parties released from obligations and party receives damages.

Question 4

What is affirmation?

Answer 4

If the innocent party affirms the contract then it remains in force so that both parties are under a contractual obligation to continue performance.

Question 5

What can the innocent party also do?

Answer 5

the innocent party could then complete its obligations and then sue for the price due

Question 6

What was held in White & Carter v McGregor?

Answer 6

Well established decision with a fair majority vote.

Question 7

What happens when a party refuses to perform?

Answer 7

Where a party does refuse to perform, the innocent party is entitled to treat the contract as discharged

Question 8

What was held in the case of Hochster v De La Tour 1853?

Answer 8

The Court disagreed and held that an action could be brought before the date for performance.

Question 9

What happens if the innocent party ignores the refusal?

Answer 9

If the innocent party opts to ignore the refusal and continue with the contract, then that party runs the risk of being in breach later (if the innocent party’s performance is defective). The fact that the party had been in breach earlier will be no defence

Question 10

What was established in the case of Avery v Bowden 1855?

Answer 10

This meant that the contract was discharged by frustration and so the claimant was not entitled to damages for breach.

Question 11

What is the difference between conditions, warranties, and innominate terms?

Answer 11

• Conditions are the important terms, so important they go to the root of the contract.
• Warranties are said to be peripheral terms that are not so important.
• Innominate terms were recognised as such more recently. These are terms that cannot be classified as either conditions or warranties because a breach of them could be serious or trivial.

Question 12

Under the case law, a repudiatory breach from seriously defective performance occurs where…

Answer 12

• The term breached is a condition, or

* The term breached is an innominate term where the effect of the breach satisfies the Hong Kong Fir test.

Question 13

When is a term a condition? - statute

Answer 13

Legislation can make certain a condition like the Sale of Goods Act 1979.

Question 14

When is a term a condition? - judicial precedent

Answer 14

The Mihalis Angelos 1971 - Here it was made clear that in a shipping contract, the term which says when the ship will be expected to be ready for loading (an expected readiness clause) is a condition. Thereafter, all such clauses will be treated as conditions so any breach of the term, however small will allow for termination of the contract.

Question 15

When is a term a condition? - The (apparent) intentions of the parties

Answer 15

What was held in the case of Schuler v Wickman [1973] - The majority of the House of Lords (4-1) decided that the parties could not have intended for the term to be a real (legal) condition. This meant that using the word ‘condition’ could be an indication of what the parties intend but it is not conclusive

Question 16

When is a term a condition? - Innominate terms

Answer 16

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha - The CA felt that the term was too complex to classify as a either a condition or warranty. There was no relevant statute or binding precedent and the intentions of the parties were not clear In addition, the term was capable of a very serious breach (going to the root of the contract) but also it was capable of having on trivial consequences

Question 17

The question to ask is whether the breach deprived the innocent party substantially of the benefit intended by the contract?

Hong Kong fir test’

Answer 17

• If the answer is ‘yes’ then the effect of the breach is equivalent to a breach of condition and will entitle the innocent party to terminate.
• If the answer is ‘no’ then the breach is equivalent to a breach of warranty and so the innocent party is entitled to damages only.

Question 18

Judges will not admit that they have based their decision on the effects of the breach - Aerial Advertising v Batchelor Peas [1938] ?

Answer 18

Pea case with aeroplane. Term held as a condition

Question 19

What was held in the case of The hansa Nord 1975?

Answer 19

The CA held that the term requiring the goods to be in good condition was an innominate term and since the breach did not deprive the buyer substantially of the benefit intended (he could still use the goods as intended) then the breach was not serious enough for termination. -

Question 20

What does The Hansa Nord case demonstrate in relation to benefits for the consequential approach?

Answer 20

Works to prevent economic opportunism - cash in on technical breach.