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Law Notes Contract Law Notes

Termination Of Contract Notes

Updated Termination Of Contract Notes

Contract Law Notes

Contract Law

Approximately 1511 pages

From the AuthorContract law notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB contract law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

These were the best Contract Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LLB samples from outstanding law students ...

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Termination of Contract

When can a contract be terminated?

  • Chen Wishart: courts favour keeping contract in place and D paying damages for unperformed parts rather than allowing termination.

    • Where failure of performance is total

      • C entitled to terminate contract

    • Where failure of performance is partial

      • Chen Wishart: difficult technical questions arise

  1. Is the obligation dependent on the other party’s performance?

  • Independent Obligations: where A and B have promissory obligation to one another, but this is independent of the performance of the condition (e.g. tenant’s covenant to pay rent is independent from landlord’s covenant to repair)

    • C cannot terminate, but D is liable for any breach

  • Dependent Obligations: Where A’s performance is dependent on B’s performance (e.g. where C buys goods from D, C need only pay if D delivers)

    • If this is an entire obligation

      • (where D must complete entire performance before C is obliged to pay, for instance)

        • then if D defaults, C can terminate, need not pay any of the performance completed, and D is liable for any breach.

    • If this is a divisible obligation

      • Then if D defaults

        • C can claim damages

          • But may not be able to terminate contract

  1. If the obligation is divisible, when can this be terminated?

  • Breaches of “conditions”(essential term) = C can terminate in all circumstances.

    • Hong Kong Fir Shipping v Kawasaki [1962]: X hired vessel from Y for 24 months, returned after 12 claimed “unseaworthy” therefore breaching contract.

      • Sellers LJ:

        • unless the non-performance alleged goes to the whole root of contract,

          • it is not to be treated as so fundamental as to undermine the whole contract.

            • It will only give rise to damages, not termination.

  • Breaches of “warranties” (subsidiary term) = C cannot terminate.

    • Hong Kong Fir Shipping v Kawasaki [1962]:

      • Upjohn LJ:

        • Where term is open to many interpretations,

          • it is contrary to common sense to suppose that in such trivial breaches of the term, D should immediately have a right to end the contract.

            • Unless the contract makes that very clear indeed.

  • Innominate terms (wait and see)

    • Problem: It’s sometimes impossible to tell at contract formation whether a term in a condition or warranty – hence rise of innominate terms:

      • Hong Kong Fir Shipping v Kawasaki [1962]: X hired vessel from Y for 24 months, returned after 12 claimed “unseaworthy” therefore breaching contract.

        • Diplock LJ:

          • Some contract terms capable of being termed “conditions” and “warranties” from the outset

            • However, in some cases, should look not at the breach, but the event that follows.

          • If an event from the breach deprives the Innocent Party of substantially the whole benefit which it was intended that he should obtain from the contract

            • Then this is a “condition” which can give rise to termination.

              • If not, it is a “warranty” which won’t give rise to the termination, only damages.

  1. So, how are terms classified?

  • Policy Considerations

    • Prior determination (determination of terms at outset) supported by:

      • Need for Legal Certainty in commercial transactions.

      • Freedom to Contract

    • Subsequent determination (innominate terms) supported by:

      • Wish to avoid bad faith withdrawal

        • i.e. where C terminates contract to avoid bad bargain or market fluctuations, and depends on technicalities to escape liability.

          • This would support innominate terms – the ability to terminate would depend on the seriousness of the consequences, not other considerations.

            • However, Lord Denning in The Mihalis Angelos [1971]

              • Law entitles termination if X has legal right at required time – even if mistake/false reason is the reason originally given.

      • Upholding Bargains

        • Better to have performance than termination – encourages C to keep with contract by classifying as “innominate term”

        • Chen Wishart: but this could also be achieved by classifying the term as a “condition” from the outset, encouraging D to fulfil the contract.

  • Statue

    • Sale of Goods Act 1979:

      • Implies conditions that

        • Seller has title to good s.12(1)

        • Goods correspond to description s.13(1) etc.

      • Implies warranty that

        • Goods sold free from encumbrances in favour to third parties not known s.2(2)

        • Buyer enjoys quiet possession of goods s.2(4-5)

      • Innominate Effect: s.15A(1)

        • Non consumer customer must treat breach as one of warranty where breach is “so slight it would be unreasonable for him to reject them”

          • Q = what is slight only answered by “wait and see” approach.

  • Weight of Authority

    • The Mihalis Angelos [1971]:

      • Lord Denning: Courts don’t often ask: was the term a condition or warranty?

        • But rather: was the breach such as to go to the root of the contract?

          • If it was, then the other party is entitled to discharge self from further performance.

        • However, some terms are conditions by weight of...

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