Performance and Breach - Contract law PDF

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18/02/Contract Law Week 5Performance and BreachBringing contract to an end  Four main possible ways that contract could be discharged/brought to an end i. by the paries performing according to the terms of the contract (the most common outcome)  most of ime, this occurs – contract ends naturally a...

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18/02/2020 Contract Law Week 5

Performance and Breach Bringing contract to an end  Four main possible ways that contract could be discharged/brought to an end i. by the parties performing according to the terms of the contract (the most common outcome)  most of time, this occurs – contract ends naturally at the end of exchange ii. by the parties agreeing to abandon/discharge the contract (needs consideration or deed)  both parties agree to end contract even though both parties have not completed all their obligations  for this to be done, there must be a second agreement expressing the end of obligations  requires consideration  must be structured in such a way that consideration is required (ie. Usually done by structuring agreement as if it were a deed) iii. by operation of law (e.g., frustration) iv. by breach  breaches which justify the end of the contract

In deciding whether or not a contract has been breached, one needs to figure out what the breach actually means: i. What is the standard of performance required in order to decide that that standard, has not been met

Standards of Performance recap – Supply of goods: Strict standard applied – Supply of services: Reasonable standard applies

Standard of Performance  There are two types of standards: o A strict standard or  One absolutely have to meet all requirements subject to under a contract  Tends to be used in contracts for sale of goods  Eg. If there is a school that orders 50 iPads but Apple only delivers 49, the standard has not been met – not good enough o the use of reasonable care and skill?  Tends to be used in contracts for the sale or provision of services  Eg. A man is hired to mow the lawn. It is not expected that the lawn must be mowed perfectly. But there is an expectation that the man hired with use reasonable skill and care to complete his job.  A standard of strict liability is one in which either performance measures up to what is demanded by the contract or it does not  The fault of the party in breach in not measuring up to this standard is irrelevant

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o Court tends to not care about why a contract has not completed A standard of reasonable care, in contrast, imposes a duty on the party to use reasonable care and skill in the performance of her contractual obligations

Strict liability – Standard of Performance (Strict Standard)  In general terms, contracts for the supply of goods impose a strict standard of performance with regard to the quality and quantity of the goods to be supplied  Arcos v Ronaasen [1933] AC 470 o Involved the supply of wooden stakes o Standard required was that they should be ½ inch thick and not all met this standard o Ques: had there been a breach? o Argument from seller: The stakes were perfectly good, quality-wise and it could still be used but they were not all ½ inch thick o Court: Rejected seller’s argument. All the stakes were not the ½ inch thick and the seller did not meet the obligation of the contract and therefore there has been a breach. o Saleability does not influence anything. Reasonable care & skill – Standard of Performance (Reasonable Care and Skill)  In general terms, contracts for the supply of services require that the party exercise reasonable care and skill in the performance of her contractual obligations  Generally do not hold persons providing a service to strict standard  s.13 of the Supply of Goods and Services Act 1982 o Deals with supply of services in particularly o With respect to services, there is an additional obligation to use reasonable care and skill, carry out services in a reasonable time and where no price is decided, a reasonable price should be given.

4 ways in which contracts are discharged: i. Performance ii. Agreement/abandonment iii. By operation of law * iv. Breach *

(i) Performance of Obligations under a Contract  Parties must perform precisely all the terms of the contract in order to discharge their obligations  s13 Sale of Goods Act 1979: Sale of goods by description  If goods are sold by description, the goods must correspond with the description o Particularly important for sales on the internet  One must perform all the certain terms in the contract but what this means can differ based on circumstances: o Re Moore and Landauer [1921] 2 KB 519 – sale of goods  Agreement for the sale of 3000 tins of canned fruit, packed in cases of 30 tins each  When goods were shipped, it was discovered that they were packaged in parcels of 24 tins each, differing from the terms in the contract

 It was still 3000 tins and still canned fruit but was packaged differently from what the contract provided  CA took a harsh approach  CA: Buyer could reject shipment because the goods did not correspond with the requirements of the contract. Contract specified packaged of cases of 30 tins each and it was not.  Standard of strict liability for sale of goods is VERY high. o Cutter v Powell (1795) 6 Term Rep 320 – sales of services  Involved a sailor who made an agreement to sail on the voyage.  Sailor died a few days before the ship got back to port  His widow sued the owner of the ship because she had not received his wages for the journey  Court: Because the sailor had died a few days before reaching the port, he had not completed all his obligations and the widow could not receive anything Exceptions to the general hard-line approach to sale of goods and standard of performance: Modification of the general rule  Divisible contracts – Can either be an entire contract or a divisible contract. o If a contract is a whole contract, this means that one party has to provide complete performance in order for the order party to pay o If a contract is divisible, it means that if one party performs partly then there is an obligation on the other party to pay for the part of the contract that was performed. o It is left up to the courts to decide whether a contract is whole or divisible.  Sumpter v Hedges [1898] 1 QB 673  S agreed that he build 2 houses and some stables on H’s land for £565  S completed part of the work that was valued at £333 and when he had done this part of the work, S abandoned the contract  H then completed the construction.  Question: Was the contract whole or divisible?  Court: It was an entire contract because he had not provided all the services that the contract insisted upon, there was no obligation for H to pay S at all.  Roberts v Havelock (1832) 3 B. & Ad. 404  Contract for the building of a ship  Ship wright was supposed to build the ship but there is no specification on when payment was to be made  The ship wright built part of the ship but did not finish it  Court: Shipwright could claim some payment even before the ship building had been completed  Whether a contract is entire or divisible will come down to the wording of the contract itself and the opinion of the Judge 

Acceptance of partial performance o Sometimes the court can make a decision that even if the contract is an entire contract, the other party has accepted part performance and the part performance ought to be paid for o Christy v Row (1808) 1 Taunt 300  A ship was supposed to go from England to Hamburg  The ship was prevented from arriving in Hamburg due to “restraint of princes” ie. No permission given to dock

 Ques: When the ship was turned awar from Hamburg and sent to other port and the cargo was delivered there, it was not performance subject to the contract but was it part performance?  Court: When the goods were accepted at the other port, it was deemed to be acceptance of partial performance. Even though contract specified delivery to Hamburg, when the goods were accepted at the other port, partial performance had been accepted by the other side. 

Completion of performance prevented by the promisee o Where a party Is prevented by the other side, from performing his obligation, this will be an exception to the strict standard. o If the promise prevents the performance of the other party’s obligations then the other party can claim payment in part o Planche v Colburn (1831) 8 Bing 14  P hired to write a book on Costumes and Ancient Armour for £100 upon completion of the book  P did the research and started the writing but he had not finished when the publisher decided to abandon the series  P claimed for his £100 on prevention from completing the book  Court: Agreed with P. It was not P’s fault that the publishers stopped the book series and he would be eligible to claim for part payment for the part performance.

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Substantial performance o If the party has essentially performed pretty much all the contract but not all of it, courts can consider how much of the performance has taken place and label it ‘substantial’ to be excepted o This is unlikely to be accepted in cases involving the sale of goods o Dakin v Lee [1916] 1 KB 566 *not talked about  Involves a services contract

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Tender of performance o One party is ready, able and willing to perform but the other party is preventing that party from doing so o Stirrup v M'Donald (1843) 6 M&G 593  Plaintiffs agreed to sell 10 tonnes of oil to the defendant and agreed to deliver it to him in the last 14 days of March. Payment would be rendered in cash at the end of that period.  Delivery was completed at 8:30pm on the 31st March  P refused to accept the delivery because it was not in the duration of the last 14 days of March  Whether 8:30 pm constitutes a reasonable time for delivery would depend on the type of business it is  Eg. If attempting to make a delivery at 8:30pm at a school, there will be no one there to accept delivery; If attempting to deliver to a law firm at 8:30pm, this may be a good time since law firms are always busy  Court: In industries requiring substantial use of oil, 8:30pm in the evening on the last day of March, was a perfectly reasonable time to be made and delivery should be obligatorily accepted

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Stipulations as to time of performance o The general common law rule  Time is regarded as being of the essence  If a contract requires a specific time, one must adhere to the time specified. o Section 41 Law of Property Act 1925  Modifies the common law rule for property sales  If time is not of the essence, then one has a right to damages but not to termination  The reason that this is important to the law of property is because if you have gone under all the preparations to sell a house/flat, and the contract does not specific that time is of the essence then it’s not treated as such.  The reason for this is that in present time, it can be very difficult moving large sums of money across in a specified time o Equity *not very impt  Time was not regarded as being of the essence in equity

(ii) Agreement  General rule: what has been created by agreement may be extinguished by agreement ie. If parties want to mutually end a contract, there must be a separate agreement to terminate.  Key point  if you are forming an agreement to discharge a contract, the agreements must meet all the requirements of a contract including consideration (in particular) 

There are 2 main types of agreements between parties: o Bilateral discharge - Both parties are discharging the other from their obligations under the contract ie, neither party has performed their obligations fully  Accord and satisfaction  Equivalent to shaking hands and walking away  No consideration problem in this circumstance because both parties are agreeing that the exchanged consideration is the non-performed obligations of the contract  Rescission and substitution  Parties do want to carry on their working relationship but the existing contract is not working for them  Parties rescind the contract and create a new one  There is no consideration problem in this circumstances because the substitution of the new contracts acts as the consideration for both parties  Variation  There is a consideration problem created here – it requires consideration in some form whether it be a side agreement, or structured as a deed  Parties want to change the terms of the original contract – do not want a new contract but want to make changes to the current contract and continue working together  Waiver  Technically another form of variation whereby one party waives its right to performance by the other party  Creates a consideration problem – there must be some consideration for agreeing to not exercise your rights under the contract (either a side agreement with fresh consideration or structured as a deed)

o Unilateral discharge – One party has fully performed his obligations but the other party still has obligations to perform  The party who has completed their obligations fully, is discharging the other party from their remaining obligations in the contract  Consideration issue – consideration needed – because only one party has obligations remaining and for the other side to agree to release the other party from their obligations and there must be consideration.

(iii) Frustration *covered before

(iv) Termination & Breach  Recall: Breaches of conditions will justify termination but breaches of warranties do not justify the termination – only money damages.  Sometimes there is a situation whereby one party makes minor breaches, but the only remedy possible from court is for damages.  In theory, breaches that are big or small potentially are able to bring forward claims of damages but for damages to be awarded, there must be a breach and suffer of some loss   

Breach: “[where] a party without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing” (Treitel) Which breaches justify termination? Diab v Regent Insurance Co Ltd [2006] UKPC 29

When does the breach occur?  Depends what the contract says (  TERMS) o Breaching of conditions will justify the termination of a contract o Breaches of warranties will generally not justify the termination of the contract  The Party alleging the breach is under an obligation to prove that they did not meet term and there has been a breach  The hierarchy of obligations: o Saying that you will do something (highest) o Using best endeavours to do something o Reasonable endeavours – ie. A reasonable effort; “so far as seller is reasonable aware”  

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Generally strict liability (i.e. liability regardless of fault) But terms of contract may qualify one party’s liability by including some fault requirement, o e.g. obligation to take reasonable care; warranty given “so far as [the Vendor] is aware / to the best of [the Vendor’s] knowledge” So, what does the contract say?  TERMS o What exactly was the obligation on the other side?

When plaintiff may terminate 1) The other party refuses to perform or is clearly unwilling to do so o Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 436, (affirmed in part [1967] 1 WLR 979 and reversed in part [1958] 2 QB 254)

 Involves a ship that had been hired and the charterer of the ship wanted to load cargo in the port of Basra in Iraq  Ship arrived at port but the charterer was not able to get the cargo to the ship on time  Every shipping contract contains lay-days ie. Side days that can be used to figure out what it is to be done  While there were still lay days which were ongoing, the owner cancelled the contract for the hire of the ship and hired it to someone else  The owner was making a gamble that the hirer would not be able to get the cargo in time and he would rather hire the ship off to someone else  Ques: Was this termination by the owner justified?  Court: The breach was not sufficient yet, to permit them to terminate the contract  Owner of ship could claim damages for the delay but because it was still within the lay days, it did not reach the level of termination yet  Court: Sympathetic to owner and stated that if he had waited a few more days for the lay days to be over, he would have been guaranteed termination but the owner ‘jumped the gun’  General rule – Breach must be clear and of sufficient seriousness that termination is justified. o ERG Raffinerie Mediterranee SpA v Chevron USA (The Luxmar) [2007] EWCA Civ 494  Case hinged on difference between a freight on board contract and a non-traditional freight on board contract  When the contract could be terminated and whether or not time was of the essence  If the contract had been traditional, then time would be of the essence  Ds argued that it was a non-traditional contract and therefore time was not of the essence  Court: The contract had become a non-traditional freight on board contract and time was no longer of the essence and the termination was not justified.  Usually, in shipping cases between 2 sophisticated parties, courts are reluctant to allow parties to terminate the contract where it is unclear whether a party is unwilling to perform o Mersey Steel & Iron v Naylor, Benzon (1884) 9 A.C. 434  Involved the sale of 5000 tonnes of steel  Contract specified that 1000 tonnes of steel must be supplied every month  The deliveries started but the sellers got into difficulties as the seller’s company was about to by wound up  The buyers heard of this and decided they wanted to suspend payment – did not want to pay for anything that they would not receive  Ques: Was this a justified termination of the contract?  Court: They believed that they were acting in good faith in this circumstance and was not justified repudiation of the contract and it was not justified in its termination  Cannot terminate a contract on the belief that the other party is going bankrupt o Eminence Property Developments Ltd v. Heaney [2010] EWCA Civ 1168  CA gave a clear test for what would account to repudiatory breach ie. A breach justifying termination:  Test answers question: Is this a breach of sufficient seriousness that the other side can terminate the contract?

There must be, by all objective measures, a clear intention to abandon the contract. Case involved a sale of several flats to H from EPD and the contract included the standard conditions of sale Anytime there is a contract for the sale of land, it will majority of the time contain the standard conditions of sale for property These standards have a particular requirement of time being of the essence – ie. If the contract specifies by 5pm, then the time absolutely must be adhered to.  Generally, the standard of conditions for sale stated that time is not of the essence (unless otherwise specified) This contract’s standard of conditions for sale stated that “time is only of the essence when there is a notice to complete served”. The seller (EPD) served a notice to completed on H but when the notice was served, they gave the wrong date (15th Dec instead of 18th Dec) – notice was wrong H did not complete and responded on the 17th Dec – stating that the notice to complete was served but the date was wrong. And by sending the notice, this is a repudiatory breach and the contract was terminated. Meaning that H no longer has obligation to purchase the flats High Court: Agreed with H CA: Overturned judgment and said that the sending of notice is not, in and of itself, a repudiatory breach  Looking in the circumstances objectively, the person who breached the contract, has to show an intention to abandon the contract. For the breach to be justified, the standard set is: there must be, by all objective measures, a clear intention to abandon the contract.  So when EPD sent the notice, they did not intend to end the contract, they wanted to finish the contract. There was a breach by EPD by putting the incorrect date on the notice but it was not repudiatory. Takeaway  Breaches can be serious and bad but without clear, objective evidence that the person doing the breach intends to abandon the contract, it will difficult to show it was a repudiatory breach. 

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2) The other party is clea...