Breach

English Contract Law

Komilla Chadha www.musingswithkomilla.blogspot.com Spring 2013

Komilla Chadha komillachadha@gmail.com www.musingswithkomilla.blogspot.com

Breach
What is a breach? A breach is were a party fails to perform its contractual obligations. This can occur in three ways: 1.Failure to perform an obligation 2.Failure to match a quality of performance required by contract 3.Repudiating obligations unlawfully

Discharge by performance The general rule is that a contract cannot be discharges, unless the obligations have been performed as stated in the contract. This is made clear in Bolton v Mahadeva 1972,the defendant contracted the plaintiff to implement a heating system. However, the system implemented did not heat the house and gave out toxic fumes and so the defendant refused to pay. The courts held that the defendant did not have to pay as the contract was not specifically performed. However, this needs to be differentiated to situations where there has been a substantial, but not exact, performance. This is because in these scenarios the other party has to still fulfill their obligations. For example, in Hoeing v Isaacs 1952, the plaintiff

agreed to decorate and furnish the defendants flat. The defendant however only paid part of the price as their

were minor defects in the work. The courts ruled that the defendant had to pay the remaining amount minus the cost of remedy of the defects. The breach here was not sufficient to discharge the whole contract, it merely enabled damages to be issued. Furthermore, if there has been a partial performance and the promisee has the option and accepts it, they will be bound to pay a reasonable price for what they receive.

Classifications of breach When a breach occurs you dont discharge a party of their obligations but rather replace them with secondary obligations e.g. to pay damages. This was explained by Lord Diplock in Photo Productions Limited v Securicor Transport ltd 1980. He said there are two exceptions to this rule and that is; Fundamental breach if a party breaches a

fundamental term, depriving the other party of a major benefit as expected under the contract, then the whole contract is breached. Breach of a condition - Where the term is so central to the contract that the failure to perform makes in meaningless. This distinction is important because exclusion and limited liability clauses cannot be replied on where a fundamental breach has occurred. The right of an injured party to carry out the contract after the repudiary breach is also not absolute. For example in White & Carter Ltd v McGregor 1962, the plaintiff entered into an advertising contract with the defendant, but on the same day the defendant cancelled the

contract, The plaintiff refused to accept this and continued on advertising and then sued the defendant for all the money due in the contract.Here it was accepted that it was acceptable for the plaintiff to have affirmed the contract but it was held that the right was subject to limitations. Do note that there has to be a legitimate interest for this person other than claiming damages to affirm the contract see Clea Shipping Corporation v Bulk Oil International Ltd 1984. The different types of breach 1. Breach of a term Could be any type of term including a minor breach of an innominate term or a warranty

An action for damages is always available, and this is the only remedy for a breach of warranty. Where a breach does not amount to a substantial failure of performance, the injured party does not usually have a right to treat the contract as discharged e.g. in Bettini v Gye 1976, in this case the plaintiff was an opera singer who had a contract to perform in this show and should arrive six days before for rehearsals. He only arrived three days before because of illness and the defendant repudiated the contract. This was wrongful according to the courts as he could still fulfill a substantial amount of his contract. 2.Breach of a condition Can be expressed by the parties or implied from fact or law. To produce a full range of remedies it must, however,

conform to the proper description of a condition, see Schuler v Wickman Machine Tool Sales Ltd. Just using the word condition is insufficient. In this case, the contract stated it was a condition to visit six motor

manufacturers at least once a week, this term being breached could not repudiate the contract as this was not a condition, central to the contract. For example, in The Mihalis Angekis 1970 case, the date that a ship which was going to be chartered was no longer possible and this was a breach of a condition because it was central to enacting the contract. It might also include an innominate term where breach was sufficiently serious to warrant repudiation by the other party, see The Hong Kong Fir case 1962. This is because in this case the innominate term deprived the injured party of substantially the whole benefit of the contract and thus was allowed to treat the contract like it had been repudiated. Whether a term is a condition or not depends upon the intention of the parties involved, for example, in Corporation v Tradax Export 1981, This was held to be a condition as Bunge a term stated that the surrounding

15days notice had to be given for the ship to be loaded. circumstances and intention would show that too. In this case the innocent party can sue for damages and/ or repudiate.

3.Anticipatory breach What is anticipatory breach? Video version: http://www.youtube.com/watch?v=D_lyTklLaLY This occurs if one party notifies the other party of intention to breach the contract. For example, Hochester v De La Tour 1853 (http:// www.youtube.com/watch?v=He9w62ePgHY&list=UUrlFDi-6V6kAc6ILyX8ggg&index=1). In this case the defendant employed the plaintiff to work starting in a month. Before

he started work the defendant terminated the contract, the plaintiff argued there had been a breach. The courts agreed there had been a breach and the plaintiff could claim damages immediately. The remedy that an anticipatory breach fruits is dependent on on what type of term we are discussing; so the breach of a condition will yield the repudiation of the contract and the breach of a warranty or an innominate term will tend to yield damages. With anticipatory breach the key feature is that the are communicated to the other party either expressly or impliedly. By communicating the innocent party has a chance to seek performance elsewhere and could reduce the liability of the party in breach. It is beneficial for both parties. Express communication tend to be easier to deal with. Where it is implied it is more complex. The remedies tend to be more fact sensitive.

How can the innocent party respond? Video at: http://www.youtube.com/watch?v=GRoOW8SqdqA Sometimes you will hear critics of the law argue that the law surrounding anticipatory breach favors the innocent party and this is because the innocent party has a choice and the power to decide what happens once the anticipatory breach is made. They can either accept the reputation or affirm the contract. They is that the innocent party has to stick to the decision they have made or else there is a potential they themselves will find themselves in breach. If they chose to accept the breach then they can claim damages.

However should they choose to affirm the contract then they cannot reply on anticipatory breach. This means that they have to make sure they fulfill all of their obligation or they run the risk of being in breach, The Simona 1989 (http://youtu.be/_ONrQWllmO0).

The White & Carter Ltd v McGregor Case 1962 Video At: http://www.youtube.com/watch?v=cydDVvB1rt8 Facts Thus case concerns an advertising contract between the plaintiffs who sold advertising space on litterbins and the defendant, a party looking to advertise. The day the contract was drawn up, the defendant cancelled the contract. The plaintiffs chose to affirm the contract and went a head with the advertising for the three years and then looked to sue the defendant for the contractual price. It made sense for them to pick this option that should they have accepted the breach there would be no losses at the time so would only be able to claim nominal damages

Judgement

They were allowed to claim the contractual price as the anticipatory breach was of a condition so it was a major breach even though contract was waste of time and money. Further it should be noted, that it was highlighted that there was no obligation to mitigate losses when it comes to anticipatory breach and you cant force the innocent party to accept the repudiation.

Points Does this make commercial sense?

Lord Reids limitation on affirming contracts Video http://www.youtube.com/watch?v=JDFzbkEs-fY

Although White & Carter Ltd were allowed to claim the contractual price, there is a limitation on to what extent all other innocent parties can follow suit. Lord Reid argues that there has to be a legitimate interest in the performance of the contract other than to claim the contractual price should they chose to affirm the contract. For example, in The Alaskan Trader 1984, it was found that the innocent party wholly unreasonably refused to accept the defendants repudiation. A ship they had hired for 24 months was put in repairs after 12 months and they had said anyway that they had no further use for the ship and so they could only claim damages not the contractual hire price.