#5392 - Breach And Remedies For Breach - Contract Law

Breach and Remedies for Breach

A contract is breached when a party, without lawful excuse, fails to perform any of his contractual obligations. Generally, liability for breach of contract is strict, and not based upon fault: the promisor undertakes to achieve a particular state of affairs, and breach is committed when performance falls short of this, even if the contract-breaker has done his best.

Temporally, breach of contract can divided into anticipatory breach and actual breach.

• Anticipatory breach refers to the breach of a contract before the performance is due either by repudiation or impossibility.

• Actual breach refers to the breach of a contract when performance is due by failing to perform the obligations.

In determining whether a contract can be terminated for breach, or whether the breach merely triggers a right to damages, the courts have looked at the importance of the term broken as well as the seriousness of the consequence of the breach, and this has resulted in the classification of terms of a contract as either conditions or warranties.

• Condition: Promise, as to a fact or as to future conduct, which is regarded by the parties as an essential term, and any breach of which gives the innocent party the option of terminating the contract and claiming damages for any loss up to termination and beyond.

• Warranty: Term which the parties do not consider essential, but as subsidiary, and the breach of that term gives rise to a claim for such damages as have been sustained by the breach of that term.

• Intermediate/Innominate Terms: Terms which do not fall under the classification of ‘condition’ or ‘warranty’ may be seen as intermediate terms. Breach of such a term entitles the innocent party to treat the contract as repudiated only if the other party has thereby renounced his obligations or rendered them impossible of performance, in some essential respect or if the consequences of the breach are so serious as to deprive the innocent party of substantially the whole benefit which it was intended he should obtain from the contract. Otherwise, the appropriate remedy will be in damages.

1. Termination

(i) Conditions, Warranties & Innominate Terms

Sale of Goods Act 1979, ss12-15A

• Hong Kong Fir Shipping v Kawasaki [1962] 2 QB 26: Breach of term requiring ship to be for ordinary cargo service by providing an incompetent crew and old ship which led to delay. P sought damages for wrongful repudiation by D.

  • It would be unthinkable that all of the trivial matters which could make a ship unseaworthy could all be breach of condition.

  • It is open to the parties either expressly or by necessary implication to make clear that a particular stipulation is a condition.

  • The remedies open to a party for breach of stipulation which is not a condition will depend upon that nature of the breach and its foreseeable consequences.

  • Q is: does the event deprive the party of substantially the whole benefit of the contract?

• The Mihalis Angelos [1971] 1 QB 164: Clause of charterparty said that vessel was expected to be ready to load ‘about X date’. At that time the vessel was out on another voyage. Issue as to whether the clause was a condition.

  • Megaw LJ thinks that the clause is a condition for four inter-related reasons:

    • It tends towards certainty in the law: advantage in this where commercial contracts are concerned. Where justice does not require flexibility there is everything to be said for a degree of rigidity in principle.

    • Will rarely be injustice in holding person to be in breach of condition where he makes stipulation as to date;

    • Case law in support of notion that dates are conditions;

    • To hold that it is innominate would result in difference between charterparty and sale of goods.

• Schuler v Wickman [1974] AC 235: D had obligation to promote and extend the sale of the products which included obligation (condition) to make certain visits to particular companies. D failed in this latter respect, but tried to rely on a clause which said 12 months notice must be given for termination, or entitled to do so where there us a material breach of obligation which has failed to remedy within 60 days (otherwise contract will remain in force), to say that those were only circumstances under which the contract could be ended.

  • If the terms of the clause are wide enough to cover breach of the earlier noted conditions then the condition must be read as subject to that which follows. Does not matter that a better draftsman would have separated things out better.

  • It appears that the clause was intended to apply to all material breaches capable of being remedied. Takes the meaning of remedy to mean an assurance that matters will be put right for the future; were in this case. To restrict scope to actually putting right that which has already gone wrong would leave it with virtually no meaning.

  • Looking at the position broadly the circumstances of this case can be remedied by ensuring that the breach doesn’t occur again.

  • Just because something is called a condition does not mean that it will be treated as such; in this case the later clause changes things.

  • Lord Wilberforce disagrees on point of construction and thinks that is a condition in this case.

  • Note that main problem was that contract badly drafted so gave the court a lot of flexibility.

• Cehave v Bremer, The Hansa Nord [1976] QB 44: Clause in contract for sale of citrus pulp pellets said ‘shipment to be made in good condition, each shipment shall be considered a separate contract’. Rejected entire cargo because part of it was damaged. (CA)

  • Buyers were entitled to damages but could not terminate the contract as the clause had not been expressly classified as a condition nor was the court bound by authority to hold that it was a condition.

  • In absence of party stipulation and binding authority thought that had to be an innominate term.

  • Seems to have been in contemplation of the court that market fluctuations meant that termination was in the interest of the party. Thought that where there was market fluctuation court should encourage performance and not avoidance of obligations.

• Bunge Corp v Tradax [1981] 1 WLR 711: Time of shipment was at buyer’s option but sellers had option to choose the port. Buyers were to give notice of when vessel was ready; they did so two days late. Sellers refused to accept notice and claimed that buyers had repudiated the contract when the time for notice passed.

  • Reject argument of counsel that term is only a condition when every possible breach would be such as to deprive the innocent party of substantially the whole benefit of the contract.

  • For this type of clause there is only one type of breach and that is lateness.

  • The application of Hong King Fir to all terms not expressly classified would be commercially undesirable as it would remove the certainty so desperately needed in mercantile contracts (which often involve string contracts).

  • It was ‘clearly essential’ that the buyer and seller should know precisely what their rights were; clause was a condition.

(ii) The Meaning of Termination/Discharge/Rescission for Breach

• Johnson v Agnew [1980] AC 367: O contracted to sell land to P; P fails to complete so O gets order for specific performance. Still does not complete so O brings action in court for specific performance to be dissolved and for the contract to be terminated so that he can get damages.

  • If purchaser fails to complete the vendor may treat that as a breach and accept it, or he may bring an action for specific performance.

  • If V chooses to accept P’s breach then he cannot later bring an action for specific performance. This follows from the fact that once the contract is repudiated the parties are discharged from further performance. This is different from rescission where there is mistake, fraud, or lack of consent as in those cases the contract is treated as having never come into existence.

  • If specific performance is sought and made then the contractual obligations remain. If there is non-compliance still then may bring a further action either to have the order enforced or to ask the court to dissolve the contract. If the latter is the course of action taken then will be entitled to damages.

  • Where there is a contract of sale damages are usually assessed at the date of breach: although this rule is not inflexible and may be altered in the event that it is likely to cause injustice.

• Photo Production v Securicor [1980] 1 All ER 556: P entered into contract for D to provide security services. Employee of D lit a fire whilst on patrol which caused damage. D pleaded in aid clause which said under no circumstances were they to be responsible for any injurious act by an employee nor for any damage by fire except that which was attributable to the negligence of an employee acting in the course of employment.

  • The question whether and to what extent an exclusion clause is to be applied to fundamental breach or breach of a fundamental term is a matter of construction of the contract.

  • Since Suisse Atlantique Parliament has intervened to say when it does not wish exclusion clauses to be applied. The doctrine of fundamental breach is no longer needed, even if in the past it has served a useful purpose.

  • Termination means that both parties are excused from further performance. Preferable to use words such as discharge or termination.

  • Per Diplock: Every failure to perform a primary obligation is a breach of contract. That then gives rise to a secondary obligation to pay damages and the contract remains in force unless:

    • Breach...