Breach of Contract
A breach of contract occurs where, without any lawful excuse (e.g. frustration) a party
either
1) Fails or refuses to perform a performance obligation imposed on it under the terms
of the contract.
2) Performs that obligation defectively, in the sense of failing to meet the required
standard of performance.
☁ A Primary obligation determines the performance due under the terms of the
contract. If this is breached it automatically gives rise to a secondary obligation to
pay damages.
To determine (2) you need to find out the performance obligation imposed and the
standard imposed. There are 2 types of performance obligations in contracts:
Strict Qualified
Absolute Duty to exercise reasonable care and skill
Breach occurs where the obligation isn’t Breach occurs only where reasonable skill
completely and precisely performed in and care is not exercised.
accordance with its terms
Consequences of a breach:
◐ The innocent party can claim damages as they are automatically compensated.
◐ If the breach isn’t repudiatory the contract continues and both parties must continue
to perform their obligation under it.
◐ If the breach is repudiatory, the innocent party can claim damages as well as having
a choice or election to either:
1) Terminate for repudiatory breach
2) Affirm the contract
Terminate- discharge both parties from future performance under the terms of the
contract. Discharge means the future performance of the contractual obligations (so
primary obligations) are brought to an end but the contract still exists along with its
terms. It places a stop on performance of an otherwise valid contract.
Affirmation- means both parties must continue to perform all remaining obligations
under the contract (the contract continues).
, If the innocent party elects to treat the contract as terminated, it’s only the future
obligations which are discharged. The contract itself survives and its terms may be
relevant for the purpose of assessing remedies.
A breach has occurred Is it a repudiatory breach?
Yes- innocent party has a
No- Innocent party has right to right to claim damages
claim damages ONLY and the and to elect either:
contract continues
1) Terminate or 2) Affirm
For the contract to be terminated the innocent party must have accepted the breach
so need to show some form of acceptance, generally some form of communication.
They need to make it clear that the contract has been breached and they would like
to terminate the contract.
Whether this has happened is generally a question of fact depending on ‘the
particular contractual relationship and the particular circumstances’ (per Lord Steyn
in Vitol v Norelf, The Santa Clara (HL)).
Is it enough if innocent party simply does not perform their own obligations under
the contract?
Vitol v Norelf, The Santa Clara: Yes, in some circumstances.
Lord Steyn gave two examples:
(1) If employer told contractor not to return to site and contractor does not return;
Lord Steyn: may ‘convey a decision to treat the contract as at an end’
(2) Contract to ship good overseas on specified vessel and date. Seller under
contractual duty to obtain the export licence. If buyer repudiates (breaches)
contract before any loading of shipment and B knows that S didn’t apply for the
export licence, would it be enough for B to accept that S was accepting B’s
repudiation? Yes
But, generally, silence will not be enough.
A breach of contract occurs where, without any lawful excuse (e.g. frustration) a party
either
1) Fails or refuses to perform a performance obligation imposed on it under the terms
of the contract.
2) Performs that obligation defectively, in the sense of failing to meet the required
standard of performance.
☁ A Primary obligation determines the performance due under the terms of the
contract. If this is breached it automatically gives rise to a secondary obligation to
pay damages.
To determine (2) you need to find out the performance obligation imposed and the
standard imposed. There are 2 types of performance obligations in contracts:
Strict Qualified
Absolute Duty to exercise reasonable care and skill
Breach occurs where the obligation isn’t Breach occurs only where reasonable skill
completely and precisely performed in and care is not exercised.
accordance with its terms
Consequences of a breach:
◐ The innocent party can claim damages as they are automatically compensated.
◐ If the breach isn’t repudiatory the contract continues and both parties must continue
to perform their obligation under it.
◐ If the breach is repudiatory, the innocent party can claim damages as well as having
a choice or election to either:
1) Terminate for repudiatory breach
2) Affirm the contract
Terminate- discharge both parties from future performance under the terms of the
contract. Discharge means the future performance of the contractual obligations (so
primary obligations) are brought to an end but the contract still exists along with its
terms. It places a stop on performance of an otherwise valid contract.
Affirmation- means both parties must continue to perform all remaining obligations
under the contract (the contract continues).
, If the innocent party elects to treat the contract as terminated, it’s only the future
obligations which are discharged. The contract itself survives and its terms may be
relevant for the purpose of assessing remedies.
A breach has occurred Is it a repudiatory breach?
Yes- innocent party has a
No- Innocent party has right to right to claim damages
claim damages ONLY and the and to elect either:
contract continues
1) Terminate or 2) Affirm
For the contract to be terminated the innocent party must have accepted the breach
so need to show some form of acceptance, generally some form of communication.
They need to make it clear that the contract has been breached and they would like
to terminate the contract.
Whether this has happened is generally a question of fact depending on ‘the
particular contractual relationship and the particular circumstances’ (per Lord Steyn
in Vitol v Norelf, The Santa Clara (HL)).
Is it enough if innocent party simply does not perform their own obligations under
the contract?
Vitol v Norelf, The Santa Clara: Yes, in some circumstances.
Lord Steyn gave two examples:
(1) If employer told contractor not to return to site and contractor does not return;
Lord Steyn: may ‘convey a decision to treat the contract as at an end’
(2) Contract to ship good overseas on specified vessel and date. Seller under
contractual duty to obtain the export licence. If buyer repudiates (breaches)
contract before any loading of shipment and B knows that S didn’t apply for the
export licence, would it be enough for B to accept that S was accepting B’s
repudiation? Yes
But, generally, silence will not be enough.
