Performance and Breach

Question 1

Performance

What are Contingent Obligations?

Answer 1

Where neither of the parties to the contract are actually responsible for these conditions being fulfilled
Despite the fact that neither of the parties are responsible other obligations of the parties under the contract are dependent on the contracts being fulfilled

Question 2

Condition Precedent

Answer 2

Has to be met in order for contractaual obligations to be “switched on”
e.g. one party must obtin a livcense/planning permission

Question 3

Condition Subsequent

Answer 3

Where the parties’ obligations are being performed but their continued performance depends on the subsistence of a particular condition
e.g. getting funding from the gvt

Question 4

No breach for failure/non-occurrence of conditions precedent or subsequent. Obligation is just discharged.

Answer 4

If these conditions are not met then there is no breach of contract. Obligations under contract just don’t arise

Question 5

Independent and Dependent Obligations

Answer 5

Term independent of D’s breach:
Taylor v Webb
An obligation that exists even if D is in breach of his obligations. INDEPENDENT of the breach of the other party
Tenant’s obligation to pay rent is independent of the landlord’s obligation to keep property in a state of repair. Even if landlord fails to keep property in state of repair tenant still has to pay rent
Typically though terms are dependent on D’s performance. Obligations are dependent on the other party’s continued performance

Question 6

Entire and Divisible Obligations

Entire Obligations definition and case

Answer 6

Complete performance by D required to trigger C’s duty e.g. only paying for a service once it is finished
Potentially unfair:
Cutter v Powell
Cutter had agreed to work on a ship sailing from Jamaica to England for 30 guineas, 4 times the going rate for working on such ships on such journeys. But only offered payment on completion of the journey. Cutter died just before journey completed. Powell said he doesn’t pay as journey wasn’t completed
Widow lost her claim that he should pay for part-completion. Said this was an entire obligation. The defendant’s duty only arose on the full performance of the claimant’s full performance, which did not occur. Justification of that strict rule is, why should the recipient pay for part performance when that is not what they wanted - they wanted full performance

Question 7

Entire and Divisible Obligations

Entire Obligations quote/analogy

Answer 7

Re Hall & Barker (1878) 9 Ch D 538, 545
‘… if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay one half the price’ (Sir George Jessel MR).

Question 8

Entire and Divisible Obligations
Entire Obligations
Mitigation of the harshness of the doctrine
Substantial performance

Answer 8

Dakin v Lee
Protects those who have substantially performed their contract obligations. Dakin agreed to carry out certain repairs on Lee’s premises for £1500. Carried out all but some very small costs (totalling £80). Lee says he has no obligation to pay as it was not fully completed
Court said Dakin could recover as he had substantially performed. Recieves £1500 minus the £80 required to complete the repairs

Question 9

Entire and Divisible Obligations
Entire Obligations
Mitigation of the harshness of the doctrine
Restitution for Benefit Accepted by C

Answer 9

Courts ask in cases where the promise receives only part of the performance whether or not the promisee accepted voluntarily the part that was received. If he did, then the promisor can recover the value of that part
Recognised in Sale of Goods Act 1979 s 30(1). Allows a buyer who has received less than the requested number of goods to reject them, or accept the part and pay for that

Question 10

Entire and Divisible Obligations
Entire Obligations
Mitigation of the harshness of the doctrine
Restitution for Benefit Accepted by C case

Answer 10

Sumpter v Hedges
If you have opportunity to reject part performance and do not take it, then you must pay for part performance received. Sumpter had agreed to build 2 houses for £565. Ran out of money and could not complete, which he told Hedges. Hedges completed the houses himself. Sumpter brought action for remuneration of the work that he had done
Court said no, bc Hedges had no choice but to accept the work that had been done. But, the court said he could recover value of the materials and tools he had left behind bc Hedges had a choice of whether or not to use them

Question 11

Entire and Divisible Obligations

Divisible Obligations

Answer 11

Courts tend to say that most obligations are not entire, but divisible
When the obligations are broken, then the other party is entitled, not necessarily to not perform their side, but entitles the innocent party to claim damages
Breach entitles C to damages
Status of term breached determines whether right to terminate

Question 12

Breach
Types of Breach
Anticipatory

Answer 12

(i) Renunciation – D basically informs C that they are not going to perform their side of the deal – renouncing the contract. Is a breach but occurs before the date of performance
(ii) Impossibility – the D has in some way disabled themselves from being able to perform the contract

Question 13

Breach
Types of Breach
Actual

Answer 13

Happens when performance is due

Question 14

Breach
Types of Breach
Anticipatory and actual

Answer 14

Both entitle C to damages
Depending on seriousness may give C right to terminate, in which case breach (whether anticipatory or actual) known as Repudiatory

Question 15

Breach
Termination for Breach
Rescission

Answer 15

Retrospective and prospective effect

Mutual restitution after rescission

Question 16

Breach
Termination for Breach
Termination

Answer 16

Only prospective (de futuro) 
Both parties discharged from primary obligations 
C has right to expectation damages 
C chooses to terminate for serious breach (vs. frustration, where automatic discharge)

Question 17

The Right to Terminate
When can you terminate?
Total breach

Answer 17

Total breach (no performance) = right to terminate

Question 18

The Right to Terminate
When can you terminate?
Partial breach

Answer 18

Partial breach, depends on term’s status:

(i) Condition (essential term) is breached – right to terminate and claim damages for any losses they have suffered and will go on to suffer (loss of bargain)
(ii) Warranty (non-essential term) is breached – only has a right to damages for losses up to time of the action, cannot claim damages to put in position they would have been in had it been performed bc the contract continues as there is no right to terminate the contract.
(iii) Innominate (intermediate term) is breached – whether you can terminate depends on the particular consequences of breach of that innominate term. If sufficiently serious consequences the promise will have the right to terminate. Laid down in Hong Kong v Kawasaki

Question 19

The Right to Terminate

Right to terminate where breach of innominate term case

Answer 19

Hong Kong Fir Shipping v Kawasaki
Legal consequences depend on whether breach deprives C ‘… of substantially the whole benefit which it was intended he should obtain from the contract’ (Diplock LJ, 70)
HKF chartered ship to Kawasaski for 24 months. Breached a term that said the ship must be in every way fitted for ordinary cargo services. Failed to provide competent personnel to man and maintain that ship. As a result it had several serious breakdowns and spent only 2 months at sea in the first 7 months of the charter
Could the charterers terminate the contract? Was an innominate term and therefore the breach of that term only gave rise to a right to terminate if the consequences were so serious that it would frustrate the entire commercial purpose of the charter. What were the effects of the breach in that particular case? Term was about seaworthiness of the ship – was innominate as it could be breached in both trifling and serious ways. Was the failure to provide competent personnel serious or trifling?In this case courts said the failure to provide competent personnel did not allow to terminate the contracts bc, although there had been delays, the defendants had tried to resolve the situation and bc of the length of the contract the claimants had not been deprived of the whole benefit of the contract

Question 20

The Right to Terminate

Statutory Classification

Answer 20

Eg, Sale of Goods Act s 12(1)

The sale of goods act says certain terms are always condition terms

Question 21

The Right to Terminate

Parties’ Intentions

Answer 21

Usually though the parties decide what classification the terms are

Question 22

The Right to Terminate

Parties’ Intentions case

Answer 22

Lombard North Central Plc v Butterworth
Butterworth hire-purchasing a computer from Lombard. Agreed to make payments for 5 years totalling over £1000. Contract said that time was of the essence in the contract. Lombard terminated the contract as B missed a couple payments towards the end, took back the computer sold it for about £173 as it had already been mostly paid off
Court said he was allowed to do that bc the term was a condition, they agreed that was an essential part of the contract. Moreover, he can claim the future payments that should have been made as loss of bargain

Question 23

The Right to Terminate

Parties’ Intentions subject to judicial control case

Answer 23

Schuler v Wickman Machine Tools Sales Ltd
Schuler had given Wickman the sole right to sell Schuler’s goods in the UK for a period of 4 and a half years. Clause 7 of the contract made it a condition of this agreement that Wickman’s two main representatives should visit particular manufactures to promote Schuler’s goods. They failed to do that. Could Schuler terminate Was stipulated in the contract that this was a condition
Unexpectedly, HL did not allow Schuler to terminate, bc although the word condition had been used in the contract, the parties had not meant to use it in its technical legal sense. They thought that it would have been completely unreasonable for them to use it in that sense. It would have meant that one missed visit (contract required 1400 visits) would have given cause to terminate.
 ‘… [t]he fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear’ (Lord Reid, 251).
Seems to regulate the contract but justify by saying they are only giving effect to the real intentions of the parties

Question 24

The Right to Terminate

Judicial Classification

Answer 24

By default terms are considered innominate, unless classified otherwise by statute, the parties, or judicial precedent.

Question 25

The Right to Terminate
Electing Termination (‘Accepting Repudiation’)

Answer 25

C has right to terminate for repudiatory breach
C must communicate termination to D clearly and unequivocally
Right lost if C affirms the contract

Question 26

The Right to Terminate

Electing Affirmation

Answer 26

C may continue with or affirm the contract 
C must (expressly or impliedly) indicate clear intention to continue (Peyman v Lanjani)
Effect: Both still bound by primary duties, but C can claim damages

Question 27

Why elect affirmation?

Answer 27

May have incurred expenses in your performance which cannot be claimed in contract damages. Termination may damage the reputation of the claimant, may want to show that they are a company or business that fulfills their contracts. Termination may prevent them from fulfilling other contracts.

Question 28

Why elect affirmation case

Answer 28

White & Carter (Councils) Ltd v McGregor
May be certain restrictions on allowing the claimant to affirm their contract:
McG had agreed to pay W to advertise his garage business on rubbish bins that they supplied to the local council for a three year period. On same day McG decided didn’t want this contract and tried to cancel it (an anticipatory breach). W refused and chose to affirm the contract. Carried on with advertising the garage business on the rubbish bins and completed their side of the bargain then sued McGregor for price set out in contract (brought an “action for the agreed sum”).
Were they entitled to do this?
Should they, in these circumstances where one of the parties had tried to cancel on the day of the contract, whether they had a duty to terminate?
Court ruled they had done nothing wrong
Bur certain limits laid out by Lord Reid:

Question 29

Limits on affirmation case 1

Answer 29

(i) Can only affirm where you don’t need co-operation of the defendant to continue (e.g. can’t affirm if you are a builder as the defendant has to let you in)
Cf Vine v National Dock Labour Board
Employee wrongfully dismissed. Could only claim damages. Couldn’t affirm as that would require co-operation of the employer, which they did not have

Question 30

Limits on affirmation case 2

Answer 30

(ii) Must be, on the part of the claimant, a legitimate interest in affirmation. If the claimant could perfectly well just claim damage that’s what they ought to do
See Simon J in Ocean Marine Navigation Ltd v Koch Carbon Inc (The ‘Dynamic’) [2003] 2 Lloyd’s Rep 693, at [23]
Burden is on D to show that C has no legitimate interest. Not enough for D to show that the benefit of affirming the contract is small compared to the expense of the defendant. Exception only applies where damages would be wholly adequate and affirmation would be wholly unreasonable. Unclear why damages would not have been wholly adequate in White and Carter

Question 31

*Q Liu ‘The White & Carter Principle. A Restatement’ (2011) 74 Modern Law Review 171
Criticisms of White and Carter

Answer 31

Main criticism: Entitles the claimant to perform the contract in a very wasteful way
D never wanted the contract, their performance has no value
Damages don’t do that
If W terminated and then claimed for damage – they would be put in financial position they would have been if contract had no been made
Courts would mitigate the loss
W and C must have tried to find a substitute contract
Should the law be encouraging wasteful performance or promoting efficiency by requiring promises in such cases to go for damages instead

No rule, however, that requires the claimant to be reasonable. It’s the defendant’s fault for breaching, and they run the risk of having to pay for st they don’t want or value