Performance and breach Units 77, 82, 83

Performance When all obligations under an agreement are performed by the contracting parties, the contract is discharged. Substantial performance of these obligations may be sufficient = the defect in performance is minor (does not relate to a condition). A party may voluntarily choose to accept partial performance. The vast majority of contracts are result in performance. Each party fulfils the obligations which he has contracted to perform. When all obligations under an agreement are performed by the contracting parties, the contract is discharged. (it’s the end of the contractual obligations) In the past, the rules in relation to performance were quite strict. However today substantial performance, may be sufficient. Substantial performance means that there may be a defect in one party’s performance of his obligations, but that the essential requirements have been fulfilled. The defect in performance must be minor. which means that it does not relate to a condition of the contract (an essential term) In this situation, the party responsible for the defect will usually be paid less to compensate the cost of repairing the defect. The difficulty for the court is to establish whether there has actually been substantial performance – that decision will be based on the facts of each case. If there has been some performance but this falls short of substantial performance, we refer to partial performance. A party may voluntarily choose to accept partial performance – in this case, the other party is entitled to payment, but only for the work which he has completed. If the party does not want to accept partial performance, then he is not obliged to, and he may sue for Breach of contract.

Frustration A contract is frustrated when, after it has been concluded, unforeseen events occur which make performance impossible illegal radically different to what was in the contemplation of the parties when they entered into the contract A contract is then said to be “discharged on the grounds of frustration”. In some cases, parties become unable to perform their contractual obligations due to a change which occurs after the contract is signed. In this situation we refer to frustration. A contract is frustrated when, after it has been concluded, unforeseen events occur which make performance Impossible: for example a contract to fire a concert venue which then burns down, or an employment contract where the employee ill-health means that he can no longer work Illegal; due to a change in the law or a change in circumstances > early case involved a contract to sell machines to Poland during WW2, when Poland was occupied performance became illegal radically different to what was in the contemplation of the parties when they entered into the contract: the entire purpose of the contract had disappeared (room hired for a ady to watch king’s coronation procession - purpose directing both owner and hirer) The court’s application of this doctrine is very strict; it cannot be used simply to escape a bad bargain. There are a number of exceptions to the doctrine of frustration: for example the court will not accept that there is frustration if the frustrating event was foreseeable when the contract was signed, if the frustrating event is the result the actions of the party who has not fulfilled his obligations (self-induced frustration), or if performance is still possible but would simply be more expensive or difficult A contract is said to be “discharged on the grounds of frustration”: means that the parties obligations cease at the point that the frustrating event occurs.

Breach of contract Occurs when one party, without lawful excuse, fails to perform any of his or her contractual obligations. The burden of proof is on the claimant alleging breach A breach may be anticipatory or actual. However, if one party, without lawful excuse, fails to perform any of his or her contractual obligations then a breach of contract has been committed Note < without lawful excuse – if the contract has been frustrated, that provides a lawful excuse. The burden of proof is on the claimant who is allegeing breach > who must prove breach on the balance of probabilities A breach may be anticipatory or actual.

Anticipatory breach An anticipatory breach occurs before performance is due: by renunciation / repudiation: when a party by words or conduct evinces an intention not to perform his contractual obligations before performance is due by impossibility: when a party makes performance of his obligations impossible Entitles IP to immediately: consider himself released from his own obligations sue for remedies However, if one party, without lawful excuse, fails to perform any of his or her contractual obligations then a breach of contract has been committed Note < without lawful excuse – if the contract has been frustrated, that provides a lawful excuse. The burden of proof is on the claimant who is allegeing breach A breach may be anticipatory or actual. An anticipatory breach occurs before performance is due i) by renunciation / repudiation: when a party by words or conduct evinces an intention not to perform his contractual obligations before performance is due > the clearest example is when a party states that he doesn’t intent to fulfil his obligations, but repudiation can be inferred from conduct ii) by impossibility: when a party makes performance of his obligations impossible > for example when a party has a contract to buy a house on a certain date, and teh seller then sells it to someone else An AB entitles the IP to immediately consider himself released from his own obligations > : no longer bound to perform his own contractual obligations sue for remedies: doesn(t have to wait for the date that the contract should have been executed, can sue for and receive damages immediately

Actual breach of contract An actual breach occurs when a party: fails to perform his contractual obligations when performance is due, or performs defectively An actual breach occurs when a party fails to perform his contractual obligations, when performance is due. or performs defectively The question of whether the contract has been breached depends on the precise terms of the contract, it is a factual question for the court to decide.

Consequences of breach The consequences depend on the nature of the term breached. Breach of a condition: an essential term of the contract the IP can terminate the contract and sue for damages Breach of a warranty a non-essential/minor term the IP can sue for damages but can’t terminate Breach of an innominate term a term whose breach may lead to termination depending on the seriousness of the consequences the IP can only terminate if he loses “the main benefit of the contract”. When there is an actual breach of contract the consequences depend on the nature of the term breached: There used to be just two types of term We said earlier that a condition is an essential or important term of a contrcat >lorry (camion), make, age, mileage Breach of a condition = an essential or important term of a contract > the OP can terminate the contract: self-help remedy, can consioder that they are no longer bound to perform their contractual obligations Other terms which are less important may be defined as warranties: a warranty is a non-essential or minor term of a contract, for example the colour of the lorry (red or blue) Breach of a warranty = a non-essential or minor term of a contract > the OP can sue for damages but can’t terminate However, in min 20th century, courts felt that this was too restrictive, introduced a third category Breach of an innominate term > an innonimate term is an intermediate term, whose breach may have important or trivial consequences: « wait and see terms » whether or not breaching an inonimate term can lead to a termination of the agreement depends on on the seriousness of the consequences caused by the breach – the OP can only terminate if he loses “the main benefit of the contract”. (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]) If difficulties, differences between a singer who misses q couple of days of rehearsals (breach of warranty), and a singer who misses the first four nights of the performance, including the opening night when all the critics are there (breach of condition).

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]) KKK chartered a ship from HKFS for two years The contract included a term that the ship was “seaworthy”. The ship was out of action for 20 weeks due to mechanical problems. The court found that the “seaworthiness” was an innominate term the effects of the breach in this case were not sufficiently serious to justify termination. Nonetheless, if the effects had been more serious, termination could have been justified. I want to give you an example of innominate terms, to make that a bit clearer. The case is (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962]), and this is the case that created this concept, before this case there were only conditions and warranties. So the facts were: KKK chartered a ship from HKFS for two years The contract included a term that the ship was “seaworthy”. (en état de naviguer ). The ship was out of action for 20 weeks due to mechanical problems. And the incompetence of the crew The court found that the “seaworthiness” was an innominate term the breach did not deprive the defendant of substantially the whole benefit of the contract and so did NOT justify termination. The company lost 20 weeks out of two years – the court held that that should be treated like a breach of a warranty. So what could the company do? the company which hired the ship could sue for damages but not end the contract Nonetheless, if the effects had been more serious, termination could have been justified: if the ship had sunk or been out of action for two years its breach would be like a breach of condition.

Termination or affirmation? Even when termination is an option, the contract is not automatically terminated. The IP may elect to: terminate further performance of the contract and claim damages future obligations are removed but the contract is not void ab initio affirm the contract A breach of contract does not automatically bring a contract to an end Even when termination is an option for a wronged party, a contract is not automatically discharged. (not automatically terminated) The wronged party can always choose - choose to: terminate further performance of the contract and claim damages IP consider that they are no longer bound by their contractual obligations, also claim damages Termination must be clear and unequivocal, and must be communicated to the other party In the case of future obligations are removed but the contract is not void ab initio > see more on this next week, but essentially both although parties are discharged from their fure obligations, the contract-breaker is still obligazte dto pay compensation, and any terms which refer to post-termination issues, such as agreed damages, continue to applyaffirm the contract or . affirm the contract: continue with the contract and enforce it. May still seek damages.