Breaching Terms of a Contract:
Includes:
- Anticipatory Breach
- Termination:
o Condition
o Warranty
o Innominate term
- Damages
o Expectation Interest
o Reliance Interest
o Restitution Interest
Account for Profits
Negotiating Damages
o Restrictions
Mitigation
Remoteness
Causation
o Damages for Pain and Suffering
- Penalty Clauses
Assume that requirements of a legally enforceable contract are present.
Anticipatory Breach:
- Anticipatory breach = where one contracting party informs the other party, before the time
fixed for performance under the contract, that he will not perform his obligations under the
contract.
- Effect:
o Entitles the ‘innocent party’ to terminate performance immediately and claim
damages at the date of the acceptance of breach – the party does not have to wait until
the date fixed for performance.
Hochster v de la Tour
o BUT – have a choice.
Innocent party can choose to affirm the contract and demand performance.
This does not prevent the innocent party accepting the breach if, at the date
fixed for performance, the other party still refuses to perform.
The innocent party, in addition to affirming the contract, may continue with
the performance of his obligations under the contract, even though he knows
that the performance is not wanted by the other party – action for the agreed
sum.
White and Carter (Councils) Ltd v McGregor – tells us that this does
not prevent a claim and the claimant is entitled to recover the full
contract price.
o Case concerned bin advertisements which the claimant
prepared and exhibited even after the defendant made clear
that he wished to cancel the contract.
o HL held that the appellants had the right to carry out the
contract and could therefore claim for the entire value.
BUT – this rule is not unqualified – the defendant had to show that
the claimant did not have any legitimate interest in fulfilling the
contract.
o Lord Reid and Lord Hodson – emphasised that it would be
impossible to say that the appellants should be deprived of
, their right to claim the contract price merely because the
benefit to them, as against claiming damages and re-letting
their advertising space, might be small in comparison with
the loss to the respondent.
o It appears from this judgement that the facts need to be fairly
extreme before it is held that there is no legitimate interest –
there is no obligation to behave reasonably.
E.g., the chance of an “elite” academic publisher publishing your
work would plausibly be a huge benefit to your career.
- Implied term of good faith??
Breach of a particular clause of a contract – ‘Termination’:
- To determine what remedies the claimant can obtain against the defendant, it must be
established the ‘type’ of term that has been breached.
o Whether they are considered conditions, warranties or innominate terms.
- “Condition” = an essential term of the contract which goes to the root or the heart of the
contract.
o E.g., when purchasing a new car, the terms as to the make of the car, its
roadworthiness, and the obligation to pay the price = all conditions.
- “Warranty” = a lesser, subsidiary term of the contract.
o E.g., the colour of the car (unless it was part of the description).
- “Innominate Term” = neither a condition nor a warranty.
o The innominate term approach looks to the effect of the breach and questions whether
the innocent party to the breach was deprived of substantially the whole benefit of the
contract.
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
- There are three recognised ways in which a term may be held to be a condition:
o Statutory classification
o Judicial classification
o Classification of the parties
- Statutory Classification:
o E.g., ss.12-15 Sale of Goods Act 1979 – implies certain terms into contracts for the
sale of goods.
The implied terms as to satisfactory quality, fitness for purpose and
compliance with description and sample = conditions.
The implied term that the goods are free from charges and incumbrances in
favour of third parties = warranty.
- Judicial Classification:
o There are two grounds on which courts may decide that a term is a condition:
1. Where performance of the term goes to the root of the contract so that, by
necessary implication, the parties must have intended that the term be treated as a
condition, breach of which would entitle the other party to treat himself as
discharged.
Couchman v Hill.
BUT – although it must go to the root of the contract, it need not be the case
that every breach of the term should deprive the innocent party of
substantially the whole benefit which it was intended that he would obtain –
Bunge Corp v Tradax Export SA.
2. Where binding authority requires the court to hold that the term is a condition.
In some industries, parties trade on standard terms, and a decision that a
particular standard term is a condition will not only affect that contract, but
also all subsequent contracts of that type.
Governing factor = certainty.
BUT – certainty carries with it a price.
Includes:
- Anticipatory Breach
- Termination:
o Condition
o Warranty
o Innominate term
- Damages
o Expectation Interest
o Reliance Interest
o Restitution Interest
Account for Profits
Negotiating Damages
o Restrictions
Mitigation
Remoteness
Causation
o Damages for Pain and Suffering
- Penalty Clauses
Assume that requirements of a legally enforceable contract are present.
Anticipatory Breach:
- Anticipatory breach = where one contracting party informs the other party, before the time
fixed for performance under the contract, that he will not perform his obligations under the
contract.
- Effect:
o Entitles the ‘innocent party’ to terminate performance immediately and claim
damages at the date of the acceptance of breach – the party does not have to wait until
the date fixed for performance.
Hochster v de la Tour
o BUT – have a choice.
Innocent party can choose to affirm the contract and demand performance.
This does not prevent the innocent party accepting the breach if, at the date
fixed for performance, the other party still refuses to perform.
The innocent party, in addition to affirming the contract, may continue with
the performance of his obligations under the contract, even though he knows
that the performance is not wanted by the other party – action for the agreed
sum.
White and Carter (Councils) Ltd v McGregor – tells us that this does
not prevent a claim and the claimant is entitled to recover the full
contract price.
o Case concerned bin advertisements which the claimant
prepared and exhibited even after the defendant made clear
that he wished to cancel the contract.
o HL held that the appellants had the right to carry out the
contract and could therefore claim for the entire value.
BUT – this rule is not unqualified – the defendant had to show that
the claimant did not have any legitimate interest in fulfilling the
contract.
o Lord Reid and Lord Hodson – emphasised that it would be
impossible to say that the appellants should be deprived of
, their right to claim the contract price merely because the
benefit to them, as against claiming damages and re-letting
their advertising space, might be small in comparison with
the loss to the respondent.
o It appears from this judgement that the facts need to be fairly
extreme before it is held that there is no legitimate interest –
there is no obligation to behave reasonably.
E.g., the chance of an “elite” academic publisher publishing your
work would plausibly be a huge benefit to your career.
- Implied term of good faith??
Breach of a particular clause of a contract – ‘Termination’:
- To determine what remedies the claimant can obtain against the defendant, it must be
established the ‘type’ of term that has been breached.
o Whether they are considered conditions, warranties or innominate terms.
- “Condition” = an essential term of the contract which goes to the root or the heart of the
contract.
o E.g., when purchasing a new car, the terms as to the make of the car, its
roadworthiness, and the obligation to pay the price = all conditions.
- “Warranty” = a lesser, subsidiary term of the contract.
o E.g., the colour of the car (unless it was part of the description).
- “Innominate Term” = neither a condition nor a warranty.
o The innominate term approach looks to the effect of the breach and questions whether
the innocent party to the breach was deprived of substantially the whole benefit of the
contract.
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd
- There are three recognised ways in which a term may be held to be a condition:
o Statutory classification
o Judicial classification
o Classification of the parties
- Statutory Classification:
o E.g., ss.12-15 Sale of Goods Act 1979 – implies certain terms into contracts for the
sale of goods.
The implied terms as to satisfactory quality, fitness for purpose and
compliance with description and sample = conditions.
The implied term that the goods are free from charges and incumbrances in
favour of third parties = warranty.
- Judicial Classification:
o There are two grounds on which courts may decide that a term is a condition:
1. Where performance of the term goes to the root of the contract so that, by
necessary implication, the parties must have intended that the term be treated as a
condition, breach of which would entitle the other party to treat himself as
discharged.
Couchman v Hill.
BUT – although it must go to the root of the contract, it need not be the case
that every breach of the term should deprive the innocent party of
substantially the whole benefit which it was intended that he would obtain –
Bunge Corp v Tradax Export SA.
2. Where binding authority requires the court to hold that the term is a condition.
In some industries, parties trade on standard terms, and a decision that a
particular standard term is a condition will not only affect that contract, but
also all subsequent contracts of that type.
Governing factor = certainty.
BUT – certainty carries with it a price.
