Classification of Terms

Question 1

Five-step analytical framework for analysing performance and breach.

Answer 1

a) Is there a breach in the first place?
b) Is the term breached a condition, warranty or innominate term?
c) Is there a repudiatory breach?
d) If repudiatory breach, has C accepted or affirmed the repudiation?
e) Consequences of the decision to accept or affirm.

Question 2

Define an entire obligation. When will a court construe an obligation as entire?

Answer 2

Those that must be performed in full as a condition of the other party’s obligations arising at all, but the court will rarely adopt such a construction as this places all the risk on one party (see Barker).

Question 3

Dakin

Answer 3

If C has performed an entire obligation but in some defective way, as distinct from failure to perform, then the court may say that “substantial performance” has occurred triggering D’s obligation to pay the price, subject to a reduction in damages.

Question 4

Bolton

Answer 4

If the work is “generally ineffective for its primary purpose” this is a failure to perform rather than substantial performance. It is relevant to take into account both the nature of the defects and the proportion between the CoC and the contract price.

Question 5

Treitel - what kinds of obligations are more likely to be entire obligations?

Answer 5

Obligations as to quantity (“to build a whole house”) as distinct from obligations as to quality (“to build a good house”)

Question 6

When can C claim the contract price for incomplete performance of an entire obligation?

Answer 6

Where D has chosen to accept the partial performance, provided D has had an OPTION as to whether to take the benefit of the work done (Sumpter)

Question 7

When can C claim a sum in quantum meruit for incomplete performance of an entire obligation?

Answer 7

Sumpter - requires the finding of a fresh contract where D promises to pay for the work already done

Question 8

The Seaflower - four instances where a term is likely to be classfied as a condition

Answer 8

I. If expressly so provided by STATUTE (e.g. S.14(6) Sale of Goods Act – it is a condition that the goods must be of satisfactory quality)
II. If it has been so categorised as a matter of PRECEDENT (usually for standard terms)
III. If so DESIGNATED in the contract or if the right of the innocent party to treat himself as discharged as a result of breach of the term is expressly provided for.
IV. If it must be so designated by necessary IMPLICATION.

Question 9

Schuler

Answer 9

The mere use of the word “condition” is unlikely to suffice if the rest of the terms and surrounding circumstances point away from this interpretation; “the more unreasonable the result of a particular construction, the more unlikely that the parties had intended it”. However if there is no such contradiction the parties may designate even the most trivial term a condition.

Question 10

When is a time stipulation a condition?

Answer 10

Union Eagle - If a term specifies the time of performance and provides that “time is of the essence”, the time stipulation is a condition so that any delay in performance entitles the innocent party to terminate

However time of payment is not generally of the essence w/o express provision (Valilas)

Question 11

Behzadi

Answer 11

Even if a contract does not specify time is of the essence, following a breach of a time stipulation time can be made of the essence by serving notice to D + giving him a reasonable time within which to remedy the breach

Question 12

Hong Kong Fir Shipping - test for innominate term

Answer 12

A term that might be broken by trivial defects in performance as well as defects so fundamental it would have undermined the contractual purpose is an intermediate or innominate term (e.g. here the seaworthiness clause)

Question 13

The Hansa Nord (caveat)

Answer 13

Indicated a preference, in sale of goods contracts, to construe terms as innominate for reasons of commercial efficacy, for the court should tend to prefer a construction which will ensure performance and not encourage avoidance of obligations.

Caveat - C was clearly trying to get out of a bad bargain

Question 14

Bunge Corporation (distinguishing HK Fir)

Answer 14

The decisive factor in Hong Kong Fir was that the possible breaches of the seaworthiness clause were various; where there is only one possible breach of the clause in question (e.g. a time clause) the questions to be asked are

1) What importance have the parties expressly ascribed to this consequence?
2) In the absence of expressed agreement, what consequence ought to be attached to it having regard to the contract as a whole?

Question 15

Bunge Corporation (2 points on classification of conditions)

Answer 15

1. While the court should not be too ready to interpret clauses as conditions, if the intentions of the parties as gleaned from the contract so indicate the court should not be reluctant to hold that an obligation has the force of a condition.
2. The “gravity of breach” approach applies to whether the breach of the innominate term is serious enough to engage the right to terminate and NOT to whether the term is innominate or a condition in the first place.

Question 16

Bunge Corporation (time stipulations)

Answer 16

In a mercantile contract where a term has to be performed by one party as a condition precedent to the ability of the other part to perform another term, the term as to time for performance of the former will generally be a condition

Question 17

How may we reconcile the case law on identifying conditions?

Answer 17

It is suggested that HK Fir’s test is the most instructive - the variety of ways in which the term could potentially be breached. Bunge Corporation merely indicates there should be no presumption against construing a term as a condiiton, the parties’ intentions being key, and suggests a condition is more likely to be found where a term can only be breached one way (consistently with HK Fir).