(Breach of Contract)

By Dr Jerry I-H Hsiao 5 May 2011

The Lifeline of a Contract

Formation
o Agreement o Legal Intent o Consideration

Terms
o Expressed or Implied o Condition, warranty, or innominate term?

Discharge Performance
Standard of performance

Breach Remedies
Vitiating Factors
- Mistake - Misrepresentation - Duress - Undue influence
o Termination o Damages o Specific relief o Others
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Frustration
- Allocation of risk by contract law

What amounts to a breach of contract?

o The obligation alleged to have been breached must form part of the contract

incorporated as a term.
o The question whether or not a particular contract has been breached depends upon

the precise interpretation of the terms of the contract. No universal principle can be established which displaces the need for a careful analysis of the terms of each individual contract.
o It is for the party alleging the existence of the breach of contract to prove that a

breach has occurred.

Treitel (2007): A breach of contract is committed when a party without lawful

excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing.

Breach

Failure to perform Defectively performance Refusal to perform Incapacitates oneself from performance
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Without lawful excuse

Failure to perform
Under a contract, A agrees to deliver 100 apples to B by 1st May 2011, for a contract price of 20. A fails to deliver the apples on 1st May 2011. That amounts to a breach of contract. The failure may be caused by various reasons
o financial difficulty; o failure of the farmers to supply the apples; o other reasons.

Whichever case it might be, the requirement of performance is strict.

Defective performance
Where the performance rendered is of the same kind as that promised, differing from it only in point of time, quantity or quality, it is reasonable to refer to it as a defective performance. The Stork [1955] 2 QB 68 (QB/CA) Devlin J: A man who acts in purported fulfillment of a contract is not for this purpose doing the
same thing as a man who does not act at all If a seller agrees to deliver 1 lb. of first quality beans and tenders second quality beans It is not then open to the seller to say: "My tender was a bad one; it is just the same as if I had never tendered at all

Where the defect in performance is of a particularly serious kind, the acts done by the party in breach may indeed amount or lead to a non-performance rather than defective performance. Chanter v Hopkins (1838) 4 M & W 399 (Exch) Lord Abinger CB: if a man offers to buy peas of another, and he sends him beans, he does
not perform his contract the contract is to sell peas, and if he sends him any thing else in their stead, it is a non-performance of it.
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Refusal to perform (renunciation)

Treitel (2007): A party is guilty of renunciation where, by words or conduct, he evinces a clear and absolute refusal to perform.
Under a contract, A agrees to deliver 100 apples to B by 1st February 2011, for a contract price of 20. Before 1st February 2011, A tells B that he would not deliver any of the apples. A has breached the contract by refusing to perform.

Refusal to perform can also be implied from conduct.

Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318 (CA) The plaintiff oil company let a garage to the defendants, the lease containing a covenant that all motor fuel sold at the garage should be supplied by the plaintiffs, payment to be made upon delivery. After difficulties between the parties regarding payment, the plaintiffs refused to deliver further supplies of fuel without prior payment by banker's draft. Lord Denning MR: The new stipulation was entirely at variance with the agreement. In my opinion that new stipulation amounted to a repudiation of the contract.
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Incapacitating oneself from performance

A person may break a contract by incapacitating himself from performing it. For example
o A seller commits a breach of contract for the sale of a specific thing if he sells

it to a third party (Bowdell v Parsons (1808) 20 East 359).

o A shipowner commits a breach of a charterparty if he sells the ship to a third

party free from any charter engagement (Omnium DEnterprises v Sutherland [1919] 1 KB 618).

See also Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 (QB).

Without lawful excuse I

There is no breach when non-performance or defective performance is justified by some lawful excuse.

Such lawful excuse exists where one party is entitled to refuse to perform because the other has failed to perform a promissory condition precedent or a concurrent condition. In such cases, performance of the former partys obligation has never become due.
o By a contract of sale, it was agreed that A will pay B only after B delivers the apples. B fails to deliver the apples.

The condition precedent to As obligation to pay has not been fulfilled.

o By a contract of sale, it was agreed that A will pay B at the time of delivery. B fails to deliver.

The concurrent condition to As obligation to pay has not been fulfilled.

In both cases, A need not perform his part of the contract by paying the contract price.

Without lawful excuse II

An extraneous event may occur to interfere with one partys obligation to perform his part of the contract.
o

The event may interfere so seriously with performance that both parties are discharged under the doctrine of frustration. By a contract of sale, A agrees to sell to B 100 tonnes of wheat. A hurricane struck, destroying As farm. A is not in breach of contract for not delivering the wheat. The contract is frustrated.

But even where its effect are less drastic, it may still provide a party with an excuse for non-performance. An employee who does not go to work because he is ill is not in breach, even though the illness is not so serious as to frustrate the contract. Poussard v Spiers (1875-76) LR 1 QBD 410 Blackburn J: This inability having been occasioned by sickness was not any breach of contract by the plaintiff
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Without lawful excuse III

o Minnevitch v Caf de Paris (Londres) Ltd [1936] 1 All ER 884
It was held that the owner of a London caf, who had engaged the claimants to give cabaret performances there, was justified in refusing to allow such performances to take place on the day on which King George V died, and on the following day, but not on the four days after that.

Time
A party relying on an excuse for non-performance must show that the excuse existed at the time of his refusal to perform: it is not enough for him to show that it arose or would have arisen at some later time. A farmer will be in breach of contract for refusing to deliver wheat because he predicts that the price of wheat will rise ten-folds in the near future.

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Recalling
Breach of contract occurs when a party:

without lawful excuses; 2. refuses (renunciation); 3. fails (failure of performance) to perform his contractual obligation; 4. performs defectively; 5. incapacitates himself from performance (impossibility). Breach of contract does not automatically bring a contract to an end. It always gives the claimant a right to claim damages, but does not always entitle him to terminate the contract.
1.
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Expressed

Implied

Sources
Term

Importance

Condition

Warranty

Innominate term

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Termination of contract
The claimant can terminate the contract if:
1. Renunciation 2. Impossibility

3. Breach to all obligations

If only some of the obligations were broken, the right to terminate depends on whether the breach is serious

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Definition
A condition: an essential term, the breach gives the claimant

the right to terminate and claim damages for loss up to termination and beyond A warranty: a non-essential or subsidy term, the breach of which yields no right to termination; the claimant can only claim damages for losses up to the time of the action Innominate terms: wait and see, it depends upon whether the breach has deprived or will deprive the claimant of substantially the whole benefit which the breach has deprived or will deprive the claimant of substantially the whole benefit which was intended he should obtain from the contract See Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962)
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Anticipatory breach
Where renunciation and impossibility occur before performance is due, this is known as anticipatory breach; the claimant is entitled to terminate ( if the breach is serious) and claim damage immediately. Hochster v De La Tour (1853) 2 E&B 678 White and Carter (Councils) Ltd v McGregor [1962] AC 413 (HL) The doctrine of anticipatory breach allows the innocent party to accept that there is a breach once the other party evinces his intention to not perform the contract, even though the contract date is yet to be due. The question is whether the innocent party can ignore that intention, and wait till the date of breach before suing for breach of contract.
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Entire and severable obligations I

A contractual obligation is said to be entire when the contract requires it to be completely performed by one party (A) before the other (B) is to pay, or to render such other counterperformance as may have been agreed. Where A fails to complete performance of an entire obligation, B is entitled to refuse to pay even though the deficiency in As performance causes him little prejudice or none at all.

Cutter v Powell (1795) 6 TR 320 A seaman agreed to serve on a ship bound from Jamaica for Liverpool. He was to be paid 30 guineas ten days after the ship arrives at Liverpool provided he proceeds, continues and does his duty from hence to the port of Liverpool. The seaman died just before the journey was completed. Held: The seamans widow could not recover for work he had done before his death. (Isnt it harsh?)
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Doctrine of Substantial Performance

Hoenig v Isaacs [1952] 2 All ER 176
Hoenig, an interior decorator, contracted to perform decorative and furnishing work for Isaacs. Isaacs paid 400 and proceeded to occupy and use the furniture in the apartment. He then refused to pay the balance on the grounds that certain work done and articles of furniture supplied were defective. Those defects could be made good for 55. Held: Hoeniq was entitled to be paid at the full contract rate (less the cost of making the defects good), as he had substantially completed the work. Treitel (2007): Cases such as Hoeniq v Isaacs are sometimes explained on the ground that [Isaacs] had substantially performed an entire contract. It is submitted that the explanation is unsatisfactory since it is based on the error that contracts, as opposed to particular obligations, can be entire. The basis of Hoeniq v Isaacs is that the builder, even though he was under an entire obligation as to the quantity of the work to be done, was under no such obligation as to its quality. Defects of quality therefore fell to be considered under the general requirement of substantial failure, and on the facts there was no such failure.

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Entire and severable obligations II

A contract imposes severable obligations if payment under it is due from time to time as performance of a specified part of the contract is rendered. Where a contract imposes severable obligations, a party who has fully performed the specified part can recover the corresponding payment even though his failure to complete the whole of the promised performance is a breach of contract. For example: Employment and monthly payment
In order to avoid problems associated with entire obligation, courts can lean

towards finding obligations to be divisible. Breach of it gives the claimant an action for damages, but does not necessarily allow him to withhold his own performance or to terminate the contract. It has to depend on the term breached

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Consequences of breach
Breach
1. Wrongful party repudiates the contract 2. Innocent party accepts repudiation

Remedies

o Damages o Specific relief o Others

Terminate

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Termination for breach

Treitel (2007): Termination in the present context is used to describe the remedy by which one
party (the injured party) is released from his obligation to perform because of the other partys non-performance. It differs from other remedies such as damages or specific performance which seek to put the injured party into the position in which he would have been if the contract had been performed. It may, and often will, be used in combination with a claim for damages.
Damages or specific performance

Performance

Non performance

terminate
Lombard North Central Plc v Butterworth [1987] QB 527 (CA) 535 Mustill LJ: both sides are relieved from those obligations which remain unperformed.
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Termination distinguished from rescission

Johnson v Agnew [1980] AC 367 (HL)
Lord Wilberforce: At this point it is important to dissipate a fertile source of confusion and to make clear that although the vendor is sometimes referred to in the above situation as "rescinding" the contract, this so-called "rescission" is quite different from rescission ab initio, such as may arise for example in cases of mistake, fraud or lack of consent. In those cases, the contract is treated in law as never having come into existence In the case of an accepted repudiatory breach the contract has come into existence but has been put an end to or discharged. Whatever contrary indications may be disinterred from old authorities, it is now quite clear, under the general law of contract, that acceptance of a repudiatory breach does not bring about "rescission ab initio.".

Rescission ab initio

Performance

Non performance

termination

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When can an innocent party terminate a contract?

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Suisse Atlantique Socit d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 (HL) Lord Upjohn: There was much discussion during the argument upon the phrases "fundamental breach" and "breach of a fundamental term" and I think it is true that in some of the cases these terms have been used interchangeably; but in fact they are quite different there is no magic in the words "fundamental breach", this expression is no more than a convenient shorthand expression for saying that a particular breach or breaches of contract by one party is or are such as to go to the root of the contract which entitles the other party to treat such breach or breaches as a repudiation of the whole contract. Whether such breach or breaches do constitute a fundamental breach depends on the construction of the contract and on all the facts and circumstances of the case.
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Right to terminate

Express provision allowing for termination

Fundamental or repudiatory breach

Substantial failure in performance

Breach of condition, or innominate term where the breach goes to the root of the contract.

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