Breach and Termination PDF

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SEM 6 / Breach and Termination 1. A breach of a condition entitles the injured party to terminate the contract regardless of the consequence of a breach. ○ (b) Arcos Ltd v Ronaasen (1993). ○ The buyer has the right to request goods of a certain specification. 2. If a breach of an innominate term deprives the injured party of substantially the whole benefit from the contract, the injured party can terminate the contract, if not, he can only claim damages. ○ (f) Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962). ○ Not entitled to terminate the contract, since the breach had not deprived the charterers of the whole benefit of the contract. 3. If one party commits an anticipatory breach, the injured party can choose to accept the breach and terminate the contract or affirm the contact and keep the contract alive. If the injured party affirms the contract, the breaching party has a chance to cure his breach until the date of performance. ○ (j) White & Carter (Councils) Ltd v McGregor (1962). 4. Even if the word ‘condition’ is used to describe a term in the contract, it does not necessarily mean that the term is a condition term. ○ (a) Schuler v Wickman Machine Tools Sale Ltd (1974). ○ The contract was terminated unlawfully. The word ‘condition’ used was actually a warranty and not a condition. 5. Courts apply the objective test or the reasonable person test to interpret express terms. ○ (i) Rice v Great Yarmouth BC (2003). ○ A term in a four-year maintenance contract provides that one party can terminate the contract if the other party breaches ‘any of its obligations under the contract.’ The court held that a reasonable person in the shoes of the parties could not have intended ‘any of its obligations’ to be a condition. 6. It is an implied condition term in a contract for the sale of goods that goods must be of satisfactory condition. ○ (c) Section 14(2) of the Sale of Goods Act 1979. 7. The parties are released from their prospective obligations on termination of the contract. ○ (d) Photo Production Ltd v Securicor Transport Ltd (1980). 8. It is an implied condition term in a contract for the sale of goods that goods must correspond with description. ○ (e) Section 13(1) of the Sale of Goods Act 1979. 9. It is an implied warranty term in a contract for the sale of goods that the goods are free and will remain free until the time when the property is to pass, from any charge or encumbrance not disclosed or known to the buyer before the contract is made. ○ (h) Section 12(2)(a) of the Sale of Goods Act 1979. 10. It is an implied condition term in a contract for the sale of goods that the seller has the right to sell. ○ (g) Section 12(1) of the Sale of Goods Act 1979.

Question 1: 1. What is a condition term? Please give an example. ○ A condition is an important term in the contract, and a breach of a condition is a repudiatory breach. The injured party is entitled to terminate the contract. ○ There are two types of conditions: the express condition and the implied condition. Express condition - a condition which the parties explicitly agreed in the contract. Implied condition - can either be implied in common law or by statutes. The objective test is used to decide if something is an express or an implied condition. 2. What is a warranty term? Please give an example. ○ A warranty is a less important term in the contract. Parties decide that this is not essential to the heart of the contract, therefore, a breach of a warranty only enables the injured party to claim damages, not to terminate the contract. Section 61(1) of the Sale of Goods Act 1979 defines a warranty as ‘an agreement collateral to the main purpose of the contract.’ 3. What is an innominate term? Please give an example. ○ An innominate term is defined as “of such undertakings, all that can be predicated is that some breach will and other will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he would obtain.” (Diplock LJ, Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] A seaworthy clause in a contract could be breached by the slightest failure, e.g. a nail missing. Could instantly lead to the termination of the contract if this was a condition instead of an innominate term. ○ This is a more modern term to categorise terms that don’t fall under conditions or warranties. ○ Rather than classifying the terms themselves as conditions or warranties, 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. ○ If the breach is material - it deprives the injured party of substantially the whole benefit from the contract, the injured party can terminate the contract. ○ If the breach is immaterial - it does not deprive the injured party of substantially the whole benefit from the contract, the injured party cannot terminate the contract. 4. How does a court decide if a term is a condition, warranty or an innominate term? ○ Express terms - but even if the word of ‘condition’ is expressly used in the contract, it does not necessarily mean that it is a ‘condition term’. The court would take an objective approach to interpret the contract. ○ Implied terms - at common law and in statutes. 5. What are the differences between an anticipatory breach and an actual breach?

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An actual breach is a breach which happens on or after the date of performance; e.g. the seller fails to deliver the goods on the agreed time or the good delivered are not of satisfactory quality. ○ An anticipatory breach is a breach that happens before the date of performance; e.g. before the agreed date of delivery, the seller tells the buyer that he will not deliver the goods on the delivery date (renunciation). Disablement - doing something which means you will be unable to fulfill your contractual agreements. 6. When does the party have a right to terminate the contract? ○ Not every breach gives rise to a right to terminate the contract. Only if the breach constitutes a repudiatory breach, can the injured party terminate the contract. There are three types of repudiatory breach: a breach of a condition term; a breach of an innominate term which deprives the injured party of the substantial benefit on the contract; and renunciation. 7. What are the legal effects of a breach of a contract? ○ When one party commits a repudiatory breach, the injured party can choose either to terminate the contract or affirm the contract - to keep the contract alive. This is called ‘the elective theory’, which aims to prevent the breaching party (the wrongdoer) from benefiting from his breach. The contract is not automatically terminated, no matter how serious the breach. 8. What are the legal effects of a termination of a contract? ○ Termination normally does not operate retrospectively: it does not normally release the parties from the obligations which had arisen before termination. For example, if an employee commits a repudiatory breach of a contract, the employer terminates the contract. If the employee has not been paid their due salary before the date of termination, the employer (the injured party) is still obligated to pay the employee their salary until the date of termination. ○ In some cases, termination may have limited retrospective effects. When this happens, restitution ensues - the parties return each other the value which they received from each other. E.g. a seller breaches the implied condition (s.14 Sale of Goods Act 1979) that goods must be of satisfactory quality. The goods have been delivered to the buyer and the buyer has paid the price. The buyer terminates the contract, and the buyer returns the goods to the seller and the seller the price to the buyer. ○ The parties are released from future obligations. Question 2: Hotel Magnificent (HM) is a five-star holiday hotel. HM makes the following contracts. Please advise HM on its right to termination. ● HM purchases one hundred lobsters from a local fisherman. A term in the contract states ‘it is a condition term that all of the lobsters must be delivered at 10am 10th July’. But the delivery is made at 10.05am 10th July.

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HM purchased a new Volvo 9900 HD Coach Bus from Austin & Jones, a reputable car dealer. When the coach is delivered, HM found that the engine has a serious fault and the bus cannot be used. HM hires Holiday Paradise, a cruise ship from P&G Shipping Co. for 12 months. HM intends to use Holiday Paradise for its new offer of the 7-day Mediterranean Cruise Holiday. When the ship is delivered, it is found that the ship is not safe to use. The repair would have to take 6 months. HM purchases 20 indoor spinning bicycles from Sport Indirect. The contract contains the following term. It is a warranty that Sport Indirect will provide free maintenance and service to all of the purchased bicycles every three months for two years. Though HM repeatedly called Sport Indirect for service in the past 16 months, Sport Indirect has not sent anybody to service the bikes as it promised. HM contracted with a new pop star, Archie King, to perform on the Christmas Eve party 2019. On 15th June, Archie’s agent informs HM that Archie cannot come because he will go to receive a music award in New York on 24th December 2019.

Is it an actual breach or an anticipatory breach? Is it a condition, a warranty or an innominate term? Express or implied term? Is it a repudiatory breach? Lobsters: ● An actual breach - the delivery was late. ● Innominate term - it doesn’t deprive HM of the full benefit of the contract. Using the reasonableness test, there are multiple reasons for why a delivery could be late. ● It is a non-repudiatory breach. ● They cannot terminate the contract, but they could claim for damages. Bus: ● ● ● ●

Ship: ● ●

An actual breach - defective performance. The bus does not meet the standards agreed by the parties. Implied term - the Sale of Goods Act 14(2) + (3). Goods should be of satisfactory quality and fit for purpose. It is a condition. It is a repudiatory breach - they are entitled to terminate the contract, and they can also claim damages. Restitution is likely to occur - buyer gets back money, seller likely to get back goods.

Actual breach. Innominate term - deprives HM of half of the hire time (a lot). Potentially lost out on 26 cruises: a lot of lost profit. Does deprive them of the benefit.

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It is a repudiatory breach - they could terminate and they are also entitled to claim damages.

Sport Indirect (bikes): ● Actual breach. ● No implied terms at common law or statutes. ● Warranty - collateral to the main purposes of the contract. ● Gives rise to the ability to claim damages, not terminate the contract. Archie Kings: ● Anticipatory breach - occurred before the date of performance. Does not automatically terminate the contract. ● Can choose to terminate the contract, accept the breach, or affirm the contract (Archie can still choose to perform). ● If they affirm the breach, they cannot revoke their choice and then terminate the contract. ● Could claim damages if they terminate. Question 3: Critically discuss the distinction between a ‘condition’ and a ‘warranty’. A condition is much more important in the contract than a warranty. It is a major term and if breached, the damaged party can terminate the contract. If a warranty is breached, the innocent party can only claim damages and are not entitled to terminate the contract. Flexibility takes away from certainty. Should first attempt classify as a condition or a warranty, and lastly fall back on innominate terms....