CONTRACT WEEK 4 Flashcards
memorisation
L Schuler AG v Wickman Machine Tool Sales
Facts: A and B entered into a contract. A clause provided that “it shall be a condition of this agreement” that A’s representatives had to visit six firms each week to sell B’s products, but they failed. B claimed it was entitled to terminate the agreement, arguing a single failure breached the condition.
Outcome: The term was not a condition as this would be “so unreasonable” it cannot be said the parties intended for termination to arise upon breach of it - it meant only condition in the “less stringent” sense (that it is a term of the contract). Whether a term is a condition will be decided by construing the contract as a whole.
- “Use of the word ‘condition’ is an indication [that the parties intended to make breach of it lead to termination] - even a strong indication - of such an intention but it is by no means conclusive.”
- Freedom of contract?: As long as parties make their intention “abundantly clear”, the courts will not interfere and say they could have made a better bargain. However, if a word has multiple meanings or the contracts are “utterly fantastic”, the courts will interfere.
o The draftsman should have said “this agreement is conditional upon”.
Lombard North Central plc V Butterworth
Facts: C was a finance company and leased a computer to the D for 5 years.
* Clause 2: time was of the essence with regard to the payment of the quarterly rentals
* Clause 5 failure to make due and punctual performance entitled termination
* Clause 6 on termination the C was entitled to all arrears of instalments, all future instalments and damages for breach
Having paid the 1st 2 instalments on time, the D was late in paying the next 3 although they were paid. When the 6th was delayed C wrote to D to terminate the contract. They repossessed the computer and then sold it. C also sought payment under c6.
Outcome: Held that
* 6 was unenforceable because it was held to be a penalty clause
* 2 meant that the C had been entitled to terminate and in addition to past arrears was also entitled all future instalments and damages for breach. CoA held that this clause gave the owners the right to terminate the contract but that they were only entitled to recover by way of damages the unpaid instalments as at the date of the termination of the contract.
Hong Kong Fir Shipping Co Lts v Kawasaki Kisen Kaisha Ltd
FACTS: C (shipowners) let out their ship under a 2 year time charterparty to the D. A term in the contract (seaworthiness term) meant that the ship was to be ‘in every way fitted for ordinary cargo service’. In contention with this the crew onboard were both too inexperienced and too few number to deal with the ships old-fashioned machinery, leading to serious breakdowns on the first voyage.
The charterers terminated the contract for the shipowners breach, despite that with 17months left on the contract ‘it would be unreasonable to think that the ship would not be seaworthy with a competent and full crew’.
RATIO: Seaworthiness was not a condition, so breach did not entitle the charterers to repudiate. Seaworthiness and delays were instead an innominate term - breach would only entitle the innocent party to terminate if the consequences flowing from it makes further performance impossible or “totally different” from intended, frustrates the contract and deprives them of “substantially the whole benefit” of the contract - it did not here. Only damages were allowed.
Bunge Corporation New York v Tradax Export SA, Panama
FACTS: A sale contract required the buyers to tell the sellers fifteen days before their ships were ready to transport the cargo. The buyers gave a shorter notice period. The sellers contended this was a condition, where breach terminated the contract. The sellers sued for damages. The buyers contended that it was an innominate term.
RATIO: The term breached was a condition (even though it was not expressly labelled as one) because i) of the need for certainty ii) the seller’s obligation to be ready to load was dependent on the buyer giving notice, iii) damages for breach being hard to assess favour the term being a condition and iv) precedent says time clauses are conditions.
- Innominate term: One where “the effect of non-performance […] will depend on the nature and consequences of the breach.” Unless a contract makes clear (expressly or impliedly) that a term is a condition or warranty, it is an innominate term.
–> Unlike in Hongkong Fir, where there were many possible breaches (rusty nail or a serious defect), there is only one breach possible of a time clause - being late - this contract is “totally different in character”.
Maredelanto Compania Naviera SA v Bergbau-Handel GmnH (The Mihalia Angelos)
FACTS: C chartered the ship to D. In the contract, C said the ship was expected to be ready to load on July 1st, but they had no reasonable grounds for believing this and it was not ready until the 14th. D cancelled the contract. C brought an action against D for anticipatory breach; D argued C breached the condition of readiness.
RATIO: The clause was a condition where breach entitled D to terminate the contract, even though the delay did not cause D any loss (a condition breach entitles V to terminate, regardless of how insignificant the consequences are). Such a term has been held to be a condition in sale of goods cases and it would be anomalous if charterparty cases were different. It also ensures “certainty”, “uniformity” and “predictability”: parties know before breach can lead to termination.
- The parties should not have to prove the breach has produced serious consequences which go to the heart of the contract before the contract can be terminated, where the court’s answer may vary per case.
The question the courts ask is not if the term was a condition or warranty but “was the breach such as to go to the root of the contract?
Reasons for terminating: “The fact that a contracting party gives a bad reason for determining it does not prevent him from afterwards relying on a good one” after
Cehave NV v Bremer Handelsgesellschaft mbH (The Hansa Nord)
FACTS: The buyers rejected the goods because one shipment was of bad quality, so a Dutch court ordered the sellers to sell them elsewhere. The buyers then re-bought the goods for 30% of the initial price and used the goods for the original intended purpose. The trial judge saw the term (the shipment “was to be made in good condition”) as either a condition or warranty. He held it to be a condition, entitling the buyers to reject
RATIO: The term is innominate (this is a novel application of Hongkong Fir to sale of goods cases, but the principle is of “universal application” due to the need for uniformity across contract). Here, as only a “small portion” of the goods was bad, the breach “did not go to the root of the contract” or deprive the buyers “of the whole benefit of the contract”, so they are not entitled to terminate, but only to damages. To terminate, an innominate term breach must be “serious and substantial”.
Grand China Logistics Holding (Group) Co Ltd v Spar Shipping AS
FACTS: The charterparty contained a withdrawal clause, allowing C to withdraw if punctual payment of hire was not received: this clause was used. C argued the clause was also a condition, which would allow them to claim loss of bargain damages.
RATIO: The term was an innominate term, not a condition because i) the presumption is that terms are innominate unless stated otherwise, ii) the clause does not expressly say it is a condition (by making time of the essence or listing the consequences of breach), iii) breach could lead to “trivial” consequences (the “hallmark” of an innominate term) and iv) the general view is that timely payment clauses are not conditions.
- Certainty: An “important consideration”, but “over-reliance on certainty would lead to a presumption that terms are conditions”, even though the modern presumption is that a term is innominate unless clearly stated otherwise.
–>Why does this presumption exist?: It is “inherently unlikely” parties would confer a “draconian right” of termination in reference to breach of terms with consequences which are “objectively not sufficiently serious”.
Arcos v Ronaasen
FACTS: C purchased wood from D. The contract permitted variation in the length and breadth of the wood but the thickness was a “definite thickness” of ½ an inch. Only 5% were of this thickness. C rejected the goods and D sought payment. The wood was still usable for C’s purposes.
RATIO: The buyers were entitled to reject the goods as they did not fulfil the implied condition under s13 Sale of Goods Act 1893 that the goods shall correspond with the description. It was not enough that they received the “commercial equivalent” of what they asked for - conditions of the contract must be strictly performed.
- “If the written contract specifies conditions of weight, measurement and the like, those conditions must be complied with. A ton does not mean about a ton, or a yard about a yard […] If the seller wants a margin he must, and in my experience does, stipulate for it.”
Where this may not apply: Where the difference is “so slight as to be negligible” - with “microscopic deviations”.
Johnson v Agnew
FACTS: The seller (who was in arrears on his mortgage) contracted to sell the house to the buyer. The buyer failed to complete the sale and the seller was given an order for specific performance, which was not complied with. The mortgagees enforced their powers to sell the property for a sum that was insufficient to discharge the mortgage, so the seller sought damages from the buyer. The buyer argued the seller had elected to enforce through SP, so he could not claim damages.
RATIO: The owner was entitled to elect specific performance and then claim damages when this was not complied with. An order of specific performance “provisionally” keeps alive the contract, as opposed to ending it (like acceptance of repudiation) - here, the owner is “merely electing for a course which may or may not lead to the implementation of the contract - what he elects for is not eternal and unconditional affirmation”.
- The election: If the purchaser fails to complete, the owner can elect between i) accepting the repudiation and claiming damages, where both parties are discharged from further performance (the contract is treated as coming to an end; this is not rescission ab initio) and ii) seeking an order of specific performance to affirm the contract.
o If i) is chosen, the owner cannot thereafter seek SP (termination is irrevocable).
o If specific performance is not complied with: The owner can i) apply to the court for enforcement of that order or ii) apply to the court to dissolve the order and put an end to the contract. ii) was chosen here.
So, if the breach continues after the affirmation, a new right to terminate is created
Photo Production Ltd v Securicor Transport Ltd
FACTS: P and S had a contract for the provision of security services. One of S’ staff caused a fire while performing security services, damaging P’s property. S pointed to an exclusion clause saying they were not liable for such damage. P said the employee’s actions as an agent of S constituted a fundamental breach of contract (one where the innocent party can terminate the contract, which includes the exclusion clause in it).
RATIO: The doctrine of fundamental breach was not relevant - the case was a matter of construction of the contract. The exclusion clause did cover the damage and exclude S’ liability.
- Primary obligation: An obligation to perform contained in the contract. Every failure to perform a primary obligation is a breach of contract.
- Secondary obligation: An obligation which is triggered by breach of a primary obligation.
Geys v Societe Generale, Londo Branch
FACTS: C’s contract said he could be dismissed with three months’ written notice and provided for the making of a termination claimant. D dismissed C and paid the termination payment, but C did not realise this until later. C’s solicitors wrote to D saying C was affirming the contract. D then wrote to C saying the payment was for termination of employment. C wanted to get the bonus so wanted to say he was fired later on compared to when he actually was.
RATIO: The contract was not automatically terminated upon D’s wrongful repudiation (and the payment), but when D wrote to C. C must be “notified in clear and unambiguous terms that the right to bring the contract to an end is being exercised”: this was not the case, as it should not be on C to check his bank. A “wise employer” would give the notice in writing but this is unnecessary.
- Elective theory (affirmed): D’s repudiation only terminates an employment contract when the other party accepts the repudiation (“it is for the innocent party to judge whether it is in his interests to keep the contract alive”).
o Automatic theory (discredited): The automatic theory leads to “obvious injustice” and “enables the wrongdoer to benefit from his own wrong”, as D can decide when the contract ends without C’s input. - Acceptance: “The requirement is for a real acceptance - a conscious intention to bring the contract to an end, or the doing of something that is inconsistent with its continuation”.
o This should not be easily inferred, as otherwise the point of the election is defeated.
o Acceptance and notifications cannot take the form of silence
Hochester v De La Tour [ANTICIPATORY BREACH]
FACTS: D agreed with C to employ him as a courier. Before the date of expected performance, D wrote to C informing him they no longer needed him. C sued D for anticipatory breach, claiming damages. D argued C could not bring an action before the date of expected performance.
RATIO: An anticipatory breach is a breach of contract. An anticipatory breach immediately dissolves the obligation of the other party to perform the contract, leaving “no reason” for waiting to sue until the day of performance.
Woodar v Wimpey [ANTICIPATORY BREACH]
FACTS: D agreed to purchase land from C (where part of the purchase price would be paid on completion), with a clause allowing D to rescind in the event that an authority were to negotiate an acquisition of the property. D then rescinded the contract as an authority did this. C said D had no right to rescind and sought damages
RATIO: D had not wrongfully repudiated the contract. Far from repudiating the contract, D had (albeit erroneously) relied on the term in question (which both parties agreed on) and did not have an ulterior motive to abandon the contract from the beginning (the reliance was not “totally abusive, or lacking in good faith”). C was not entitled to damages as the contract had provided for rescindment.
- Is there a repudiation?: D’s conduct must be looked at “as a whole”. “Does this [to a reasonable person] indicate an intention to abandon and to refuse performance of the contract?” Although, subjectively, D wanted out as land prices had fallen, “the subjective intention is not decisive”.
In this case: “Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations. To uphold [C’s] contentions in this case would represent an undesirable extension of the doctrine.”
Obiter: “The doctrine of repudiatory breach is largely founded on considerations of convenience and the opportunities which it affords for mitigating loss”: if D commits an anticipatory breach, C can end the contract there and claims for damages.
Sumpter v Hedges [ENTIRE & SEVERABLE]
FACTS: C contracted to build two houses for D for a lump sum payment, but only completed part of the work before abandoning the contract. C brought an action for payment for his partial performance
RATIO: Partial performance for a lump sum payment does not entitle Cs to recover the contractual price in whole or in part until performance is completed. In some cases here, a quantum meruit payment (a restitutionary remedy) could be made out through inferring a new contract for the partial work independent from the lump sum, but this could not be made out here.
White and Carter Ltd v McGregor [REMEDIES]
action for the agreed sum
FACTS: The C supplied local authorities with litterbin on which they let advertising space. The D contracted to pay for the display of adverts on litterbins, advertising their garage business, but later that day they repudiated the contract, which had been concluded by their sales manager contrary to the wishes of the proprietor. The C refused to accept the repudiation and went ahead and displayed the adverts for a period of time.
There was an accelerated payment clause in the contract, which on failure to pay, entitled the C to the agreed contract price without displaying the adverts for the full 3 year period. C on the clause claimed the $196 agreed price.
RATIO: Held that they were entitled to the agreed price. The innocent party can affirm a repudiated contract (so as to perform the contract and thereafter sue for the contract price) if:
1) It can perform without the cooperation of the defaulting party; and
2) Has a legitimate interest in doing so
Lord Reid
The general rule is that if one party makes it clear to the other party that he refuses or will refuse to carry out his part of the contract, the other party, the innocenent party can either
a) Accept the repudiation and sue for damages whether or not the repudiation has yet come or
b) Disregard or refuse the contract and then let it remain in full effect
In this case: “it is impossible to say the appellants should be deprived on their right to claim the contract price merely because the benefit to them, as against claiming damages and re-letting their advertising space, might be small in comparison with the loss to the respondent”
