#16125 - Remedies - Contract Law

Anticipatory:
- Repudiation (expressly or impliedly evincing an intention, by words or conduct, not to perform all or part of the contract, before performance is due) or
- Impossibility (disabling oneself from performing before performance is due, ex. By selling the subject matter of the contract)
Actual: failure to perform when performance is due

In case of repudiation:

If not express refusal, question is whether D’s acts or omissions would lead a reasonable person to conclude that D no longer intends to perform.
Breach occurs at time of repudiation (not time performance is due), so that (if sufficiently serious) it entitles C to terminate the contract immediately and claim for damages:

Hochster v De La Tour (1853) 2 E & B 678

Facts: D employed C to commence works for three months commencing in June, but repudiated in May. C could claim damages immediately and did not have to wait until June.

Discharges both parties from further performance of their primary obligations under the contract (though there are secondary obligations to pay monetary compensation for C’s loss) (Photo Production per Lord Diplock).
Accrued and other continuing obligations remain enforceable, as do clauses relating to post-termination situation (agreed damages clauses, exclusion clauses…).
Restitutionary claims are available (barring double recovery) – allowing C to sue for:
- Restitution of money paid if there is total failure of consideration
- Quantum meruit of reasonable value of goods or services supplied but not yet paid for under the contract¹

If breach is total C can obviously terminate, but if partial:

Breach of a condition = termination allowed
Breach of warranty = termination not allowed

1/ The levels of abstraction

To determine whether C can terminate, must determine whether C’s unfulfilled expectation is:

Level I = contingent or promissory obligation?
- If contingent condition (condition precedent or subsequent) there is no question of breach so no termination (simply, the parties’ obligations don’t arise or are discharged)
- If promissory condition (condition that one party has an obligation to bring about) go to Level II
Level II = dependent or independent obligation?
- Independent condition (C’s promise is independent of D’s performance) C cannot terminate if D fails to perform² (though D is still liable for the breach)
- Dependent condition (each party’s obligation to perform is dependent on the other’s performance or willingness to perform) go to Level III
Level III = entire or divisible obligation?
- Entire obligation (when D’s obligation must be completely performed before C is obliged to perform)³ C can terminate and does not need to perform, except:
  - If D substantially performed (Hoenig v Isaacs), C cannot withhold performance but must pay after deducting loss suffered from the incomplete or defective performance
  - D can claim restitution for the benefit conferred and accepted by C, or a quantum meruit (market value) if C had the opportunity to reject but accepted the benefit.
- Divisible obligation breach gives C an action for damages, but not necessarily terminate (depending on the status of the term (go to Level IV)
Level IV = condition, warranty or innominate term?
- Condition (an essential term at the formation of the contract) C can terminate and sue for damages for losses up to termination and loss of bargain
- Warranty (a non-essential, subsidiary term at the formation of the contract) C cannot terminate and can only claim in damages up to the time of the action (not loss of the bargain because the contract continues)
- Innominate term (if impossible to say at the time of formation how important the term is because the consequence of breach will vary in seriousness depending on the circumstances) whether C can terminate depends on the seriousness of the actual consequences of breach for C:
  - Whether the breach has/will deprive C of substantially the whole benefit it was intended he should obtain from the contract (Hong Kong Fir, Diplock LJ)
  - Bar is very high – the test is the same as that of frustration (Telford Homes, Lewison LJ)

*Hong Kong Fir Shipping v Kawasaki [1962] 2 QB 26

Facts: D chartered a ship to C for 24 months, but breached a term requiring the ship to be fitted for ordinary cargo service (seaworthiness term) by failing to provide competent personnel to maintain the ship. Thus the ship had many serious breakdowns and was only at sea for two out of the first seven months.
Held: the seaworthiness term was an innominate term whose breach would only entitle the charterer to terminate if the consequence was so serious as to frustrate the commercial purpose of the venture (because such a term can be breached in many (some trivial) ways, it would be contrary to common sense to suppose that every breach would entitle termination). In this case, because of D’s steps to remedy the situation and significant length of charterparty left, C was not substantially deprived of the whole benefit and cannot terminate. Thus, C’s purported termination itself amounted to a repudiatory breach and D was allowed to sue for loss of profits.
Diplock LJ: the legal consequences of breach of innominate terms do not follow automatically from a prior classification as a condition or warranty. It depends on whether the breach has/will deprive C of substantially the whole benefit it was intended he should obtain from the contract.

2/ The classification of terms

a/ By statute

*Sale of Goods Act 1979, ss 12-15A⁴

Conditions:
- Title (s12(1))
- Correspond with description (s13(1)) or sample (s15(2))
- Satisfactory quality unless buyer’s attention was drawn or buyer’s examination ought to have revealed (s14(2) and s14(2C))
- Reasonably fit for purpose that buyer has made known to seller (s14(3))
Warranties:
- Goods sold are free from charges or encumbrances in favour of third parties not disclosed or known, and quiet possession (s2(2), s2(4-5))
No example of innominate term, but such is the effect of s15A(1) (which says that breach of implied conditions entitle buyer to reject (terminate), but the buyer must treat the breach as one of warranty if it is so slight to be unreasonable to reject)

Though NB:

The Hansa Nord [1976] QB 44

Facts: D agreed to sell C animal feed with a term that "shipment to be made in good condition." By the time the shipment arrived the market price of the feed had dropped. Some of the feed was found damaged (though some of it was substantially good condition), and C rejected the entire cargo, claiming restitution of the price paid because the shipment was not made in good condition. The seller then sold the goods to a third party who resold them to the original buyer for 1/3 the price.
Held (CoA):
- (1) That the term "shipment to be made in good condition" was not a "condition" but an innominate term which gave no right to reject unless the breach went to the root of the contract
- The court was not precluded bysection 11 (1) (b) of the Sale of Goods Act 1893from so holding
- Since the whole cargo was used for its intended purpose as animal feed, the breach did not go to the root of the contract and the buyers, though entitled to damages, were not entitled to reject
- (2) That since the pellets were bought for use in cattle feed and were used for that purpose they were of "merchantable quality" and there was no breach of section 14 (2) of the Act of 1893.
- (3) That although the buyers were not entitled to reject the goods they were entitled to damages for the difference in value between the damaged goods and sound goods

b/ By the parties

In principle possible for the parties to classify, but can be exploited by the stronger party so:

Court might find that parties used the label in a non-technical sense, leaving courts free to classify it as innominate

*Schuler v Wickman [1974] AC 235

Facts: D had the sole right to sell C’s goods for four years. A clause made it a “condition” that D’s representatives should visit manufacturers each week to promote C’s goods. They failed to do so.
Held (HL): it was not a condition because this would turn one missed visit (out of...

#16125 - Remedies - Contract Law

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