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Breach of Contract
If contract is breached, innocent party has right to claim damages. In certain circumstances,
she will also have option of electing to terminate contract. Not every breach terminates contract.
Termination of contract is prospective, rescission is retrospective ab initio.
What is a breach?
Re Hall & Barker: "If a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay half the price".
Cutter v Powell (same principle): A contract of hire of a second mate for a voyage from
Jamaica to Liverpool disclosed an entire obligation; performance of the obligation in full was a condition precedent to the obligation to pay the money. Accordingly, when the second mate died before the ship had reached Liverpool, his widow could not sue for wages because payment required completion of the trip.
Sumpter v Hedges (same principle): A contract between a builder and a landowner for the construction of two houses disclosed an entire obligation to build the two houses. When the builder abandoned the job midway, the landowner was not liable to pay the price, because this obligation only arose on completion of the work.
Exception: doctrine of "substantial performance"
When an obligation has been substantially performed, recipient cannot withhold performance.
Whether the obligation has been substantially performed is a matter of degree. The question is if A's degree of inadequate performance has deprived B of substantially the whole of the benefit for which B's duty to pay is dependent.
Dakin v Lee: Builder did all the work but there were some minor discrepancies between what had been contracted and the result of C's work. Held: this is not a case where the builder's work was not of no benefit to payer, it was entirely different from contractual stipulations, or builder had not abandoned the work. Obligation had been substantially performed.
Cf Bolton v Mahadeva. Facts: C agreed to fit heating and hot-water system. After work was done, heating system produced 10 per cent less warmth than stipulated and emitted fumes.
Costs of remedying defects were a third of contract price. Held: no substantial performance,
work was not merely 'shoddy' but had failed to achieve primary purpose.
For non-consumer contract, see s 30(2A), SOGA 1979: "A buyer… may not - (a) where the seller delivers a quantity of goods less than he contracted to sell, reject the goods under subsection (1) above… if the shortfall… is so slight that it would be unreasonable for him to do so."
Substantial performance satisfied: A contracts to pay B to move 100 boxes. B
does but some boxes are scratched.
Not satisfied: same facts, but B only moves 95 boxes instead of 100.
Acceptance of partial performance
"There are cases in which, though the plaintiff has abandoned the performance of a contract,
it is possible for him to raise the inference of a new contract to pay for the work…from the defendant's having taken the benefit of that work, but, in order that that may be done, the circumstances must be such as to give an option to the defendant to take or not to take the benefit of the work done": Sumpter v Hedges.
In Munroe v Butt, the following example was discussed: If the contract is to do building work on land, if the works are not completed, it is hard to see how the recipient has a genuine choice to accept or not accept the benefit of what has been completed. It may be essential for the recipient to live in the building, but that is no indicator of acceptance of partial performance: What gives rise to right to terminate?
(A) Breach of condition/serious breach of an innominate term = right to terminate contract
Categorisation of terms depending on the legal effect of breach
Per Hong Kong Fir Shipping v Kisen Kaisha:
1. Legal effect of breach of condition right to terminate and claim damages
2. Legal effect of breach of warranty no right to terminate but right to claim damages
3. Legal effect of serious breach of innominate term, defined as one which 'will deprive the party not in fault of substantially the whole benefit which it was intended he should obtain' (Hong Kong Fir Shipping v Kisen Kaisha) right to terminate and claim damages (if not serious, only right to claim damages)
Condition or innominate term?
The Seaflower: a term of a contract will be held to be a condition if:
(i) It is provided by statute
(ii) It is provided by previous authority
It is provided expressly in the contract
(iv)It is provided by necessary implication that the parties must have intended for the term to be a condition (considering the nature of the contract or the subject-matter or the circumstances of the case)
Otherwise a term of a contract will be considered to be an intermediate term
SoGA 1979: Certain terms that are implied into contracts for the sale of goods by the SoGA
1979 (now confined to non-consumer sales) are designated as conditions in the statute itself:
Term that the seller has the right to sell the goods (s 12 (1)) designated as a condition in s 12 (5A) Term that goods sold by description conform to their description (s 13 (1)) designated as a condition in s 13 (1A)
Terms that the goods are of satisfactory quality (s 14 (2)) and are reasonably fit for the buyer's purpose under s 14 (3)), designated as conditions in s 14 (6)
Term that the goods sold by sample will correspond with the sample (s 15 (2)),
designated as a condition in s 15 (3).
An example of the condition that goods sold by description must conform to their description
(equivalent statutory provision is s 13(1) SoGa 1979): Arcos v E A Ronaasen & Son: A
contract for the sale of timber planks stipulated that the planks were to be ½ inch thick. In breach, the planks supplied were 9/16 inch thick. The buyer was entitled to terminate the contract and reject the planks, even though the planks were perfectly fine for his purpose of making cement barrels, because the SoGA designates as a condition the implied term that goods sold by description must conform to their description.
However, there is a difference between the label of the good and its description. Reardon
Smith Line v Hansen-Tangen: A contract relating to the charter of a ship described the ship as
"Osaka Hull Number 354". By the time the ship was tendered, it had a different hull number.
The charterer attempted an argument in analogy with Arcos, claiming that the implied term and condition that the ship would conform to its description had been breached. However,
the argument failed because the ship was not being sold by description in quite the same way. It was still the same ship; the label was merely to identify it.
A later amendment to SoGA restricts the right of a non-consumer buyer to reject goods because of a breach of the implied terms from ss 13-15, where the breach is so slight that it would be unreasonable to reject the goods - see s 15A. (The buyer may still claim damages for breach of warranty.)
For consumer sale of goods contracts, the label "condition" is no longer used in the
CRA 2015 regime, but this does not matter as there is now a comprehensive regime for implied terms under the CRA, giving the buyer various remedies for breach including the right to reject.
(ii) Existing precedent governing particular terms: The Mihalis Angelos: A term in a voyage charterparty that the ship was "expected ready to loan… about July 1, 1965" was a condition.
Bunge Corporation v Tradax: A term in a contract for the sale of soya bean provided that the buyers were to "give at least 15 consecutive days' notice" of the probable readiness of the ship for loading" was a condition.
(iii) Express classification by the parties:
The parties do not have to label the term a "condition" in the contract for it to be regarded by the court as so expressly classified. It is sufficient, for instance, for the contract to state that the innocent party will be entitled to terminate the contract upon the term's breach: Stocznia
Gdynia SA v Gearbulk.
Schuler AG v Wickman Machine: On the other hand, the mere labelling of a term as a
'condition' is a good but inconclusive indication that the parties intended the term to be a condition. The court must discover the intention of the parties as disclosed in the contract as a whole. Moreover, if a word is capable of having a popular meaning and a technical legal meaning, the parties must make is abundantly clear that they intend the technical legal meaning, otherwise the courts will ascribe it its popular meaning.
On the facts of Schuler, clause 7(b) of the contract was labelled a 'condition', yet clause 11 states that parties are allowed to terminate the contract only on material breaches. There is inconsistency here - if clause 7(b) was a condition, parties could terminate the contract even on a non-material breach of it.
In interpreting the contract, regard must be had to commercial sense. Rice v Great Yarmouth
Borough Council: A term in the contract gave one party the right to terminate for "breach of any of [the other party's] obligations under the Contract". The court interpreted "any" to mean "any repudiatory breach" rather than "any at all", because the former construction
"appears to visit the same draconian consequences upon any breach, however small, of any obligation, however small. In this it is unlike cases, such as Bunge, which concerned an obviously vital time clause that can only be broken in one way, and much closer to the cases,
such as Hong Kong Fir Shipping… concerning multi-faceted obligations, which can be broken in many different ways… the notion that this term would entitle the council to
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