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ALL CONTRACT law TP2 notes! [Lecture NOTES]
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Lecture notes of 63 pages for the course Law at Aston (TP2 NOTES!!)
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Contract LawTP2 Notes
,Week 15/16 - Breach of Contract
Reading:
§ Jill Poole, Textbook on Contract Law (14th edn, OUP 2019) ch 8;
and
§ Jill Poole, Casebook on Contract Law (14th edn, OUP 2019) ch 8.
Please also refer to the supplementary Lecture Outline document (available on Blackboard)
which provides a more detailed discussion of this topic than these slides.
Breach of contract: definition
A breach of contract will occur where:
§ without lawful excuse (e.g., frustration – see later topic) a party either:
(i) fails or refuses to perform a performance obligation imposed on it under the terms of
the contract OR
(ii) performs that obligation defectively, in the sense of failing to meet the required
standard of performance.
Primary and Secondary obligations
§ First step is to distinguish primary and secondary obligations
§ Primary obligations determine the performance due under the terms of the
contract
§ Any breach of a primary obligation gives rise to a secondary obligation to pay
damages
§ So, breach of primary obligation triggers secondary obligation to pay damages
See per Lord Diplock in Photo Production v Securicor (extract at Poole, Casebook (13th
edn) page 330)
Standards of performance: strict and qualified contractual
obligations:
Are two types of obligation: strict and qualified
If the obligation is strict
§ Subject to the de minimis rule (‘microscopic’ breaches), it must be completely and
precisely performed, or the performing party will be in breach.
If the obligation is qualified
§ There is no obligation to achieve a stated result and if the performing party
performs to the qualified standard of reasonable care and skill, there will be no
breach
,Breach and its consequences:
§ On proof of breach, can claim damages as of right (breach = right to damages).
(Although this is subject to whether there is a valid exemption clause (see later
topic).)
§ But, unless the particular breach is a repudiatory breach, the contract continues, and
future obligations must be performed.
§ If the breach is a repudiatory breach then, in addition to right to receive damages for
the breach, injured party also has OPTION (or ELECTION) to either
§ Terminate the contract (meaning to accept the breach as terminating the
contract), or
§ Affirm it (in clear and unequivocal terms).
Effects of the election
Termination – discharges both parties from future performance under the terms of the
contract
Affirmation – means both parties must continue to perform all remaining obligations
under the contract (contract continues)
Effect of termination: discharge of the contract:
§ Where a breach is repudiatory and the non-breaching party elects to terminate, we
talk about the parties’ obligations being discharged
§ Discharge means the future performance (or primary obligations) of BOTH parties
need not be performed because the contract has been “discharged”
§ Discharge thus places a stop on performance of an otherwise valid contract
§ As noted, discharge of the contract can occur on repudiatory breach but requires the
innocent party to decide (elect) to terminate
§ Discharge also happens automatically if the contract is frustrated for subsequent
impossibility
§ Where frustration occurs, the discharge is automatic, so no party action
required (i.e., no need to elect)
§ We will look at frustration later in the course.
Discharge is very different in effect if the contract is void or
voidable:
Discharge of the contract can be distinguished from instances when:
(1) the contract is void or
(2) the remedy of rescission is exercised (voidable for misrepresentation)
§ In such circumstances (i.e., where contracts are void and voidable), the contract is
treated as being of no effect from the very beginning – in other words, it is as if it
had never been made.
, Structure:
§ So, when there is a breach:
Key question: is it a repudiatory breach? If yes, non-breaching (innocent) party has a right
to damages and to elect to either:
(a) Terminate or (b) Affirm the contract.
If no, non-breaching party has right to damages only (and the contract continues – no issue
of terminating or electing to affirm).
Accepting the repudiatory breach as terminating the contract:
§ For the contract to be terminated, innocent party must have ‘accepted’ the breach
§ What can constitute acceptance (of termination)?
Generally, are looking for some communication (i.e., some evidence of a positive
election to terminate).
§ 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’.
and
(1) 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 did not apply for
the export licence, would it be enough for B to conclude that S was accepting
B’s repudiation?
But, generally, silence will not be enough.
Is the breach a repudiatory breach so that the election arises?
§ Will be repudiatory if there is
(i) renunciation (party effectively says ‘I am not going to perform my contractual
obligations’); or
(ii) incapacitation (party cannot perform obligation as result of its own actions i.e., own
act or default)
§ But can also be analysed by looking at the type of term or obligation that has been
breached.
§ This is because breaches of certain types of contractual terms (‘conditions’
and sometimes ‘innominate terms’) are repudiatory breaches.
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