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Contact Law LLB Law
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Lecture notes of 73 pages for the course Contract Law at CF (Contact Law)
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7, Remedies:-conditions precedent: one party’s obligation is conditional on something else/ an obligation to perform
is subject to
-entire obligations: it must be performed in full as a condition of the other party’s obligations arising at
all - one party must completely finish before the other’s obligation (usually to pay the price) arises - it
is relatively rare for an obligation to be construed as ‘entire’= puts all the risk onto one party, who
must perform in full before the other side has to perform or, more commonly, pay anything at all.
Re Hall & Barker judge refused to construe a solicitor’s retainer to act in relation to winding up a
bankrupt’s estate in that way. The parties cannot have intended ‘that a solicitor should engage to act
for an indefinite number of years, winding up estates, without receiving any payment on which he can
maintain himself.’= whether an obligation is entire depends on what the parties must have intended,
judged objectively, looking at all the circumstances
Discharge of the Contract:
-a contract can be discharged in a number of ways: come to an end
• discharge by performance: has been fulfilled/ nothing left to do
• discharge by agreement: M&S case: break clause in the contract terms to allow parties to
agree to end the contract early
• discharge by frustration
• discharge by breach
1. defective performance or non-performance
2. ‘repudiation’ of the contract, which means that one party has pulled out of or ‘renounced’ the
contract, either by words or by conduct
Discharge by frustration:
= a contract is unable to be fulfilled after it is validly created, but neither party is at fault
-if there is a change in circumstances that makes the contract impossible to perform e.g. war/
pandemic or deprives it of its commercial purpose e.g. event cancellation
-all contractual obligations cease and neither party may sue for breach of contract or specific
performance
NB – frustration does not occur if the contract has become harder or more expensive to complete, if
one of the parties is at fault or if the frustrating event could have been foreseen
Discharge by breach:
-original Sale of Goods Act (1893) reflected this, dividing terms in sale of goods contracts into two
distinct categories: ‘conditions’, any breach of which gave the innocent party the option to terminate
the contract, and ‘warranties’, breach of which never gave the innocent party the option to terminate
the contract
“Breach of contract always gives the innocent party the right to claim damages. However the innocent
party may in certain circumstances also have the option of withholding his own performance or
bringing the contract to an end because of the other party’s breach” O’Sullivan and Hilliard, The Law
of Contract
NB: even in cases of serious breaches of contract (repudiatory breach), termination remains an
option
-in a repudiatory breach situation the innocent part has a choice: accept the contract is terminated or
‘forgive’ the other side and allow it to continue
Options in a repudiatory breach scenario:
,1) accept repudiation
2) affirm contract (forgive and continue)
- conditions
are the most significant terms of the contract
• Breach entitles the innocent party to claim damages and, if they so choose, may also
terminate the contract
-warranties are terms of lesser importance to the contract
• Breach entitles the innocent party to claim damages, but NOT to terminate the contract
-innominate terms – the court considers whether the breach has deprived the injured party of the
substantial benefit of the contract, then decides whether the contract may be terminated
The entire obligation rule:
-if A isn’t obliged to perform their obligation until B has performed their obligations
-failure to perform an entire obligation completely will be a repudiatory breach
=rarely litigated due to commercial payment arrangements
Role of warranties:
-the Sale of Goods Act (as amended by the CRA) preserves a third category of term, the ‘warranty’
(defined in s 61(1)), but outside this statutory context there may be very few true warranties
-label ‘warranty’ says nothing about the potential availability of a right to terminate
-‘serious’: the consequences of the breach for the innocent party (rather than the deliberateness or
manner of the breach), which must ‘deprive the innocent party of substantially the whole benefit
which it was intended that he should obtain from the contract’
Contrast to Hong Kong Fir Shipping Ltd v Kisen Kaisha Ltd (1962):
Aerial Advertising Co v Batchelors Peas Ltd (Manchester) (1938)
=how the consequences of breach of a very minor term might, on unusual facts, be wholly prejudicial
to the innocent party.
-A made a long-term contract with B to advertise B’s product by flying a small plane over residential
districts trailing the banner ‘Eat Batchelors’ Peas!’
-A breached a term in the contract that it would confirm its route with B. Breach of this term would
normally be inconsequential, but on this occasion A flew the plane over the centre of Salford, during
the two-minute silence on Armistice Day! The adverse publicity had a disastrous effect on B’s sales
and the court held that B was entitled to terminate the contract. B’s expectations from an advertising
contract had been wholly dashed.
Hong Kong Fir Shipping Ltd v Kisen Kaisha Ltd (1962)
-Court of Appeal demonstrated convincingly that the Sale of Goods Act twofold distinction between
‘conditions’ and ‘warranties’ had never been, and should not be regarded as, exhaustive
-third category of term, breach of which does not automatically entitle the innocent party to terminate
the contract, but only if the consequences of the breach are very serious, labelled ‘innominate’ or
‘intermediate’ terms
arguing that the term as to seaworthiness was a condition.
,-Court of Appeal did not agree, observing that the seaworthiness term ‘can be broken by the presence
of trivial defects easily and rapidly remediable as well as by defects which must inevitably result in a
total loss of the vessel.’
-it would be unsatisfactory if the only choice as to the categorisation of the term were between
‘condition’, which would entitle D to terminate the contract however trivial the breach, and ‘warranty’,
which would never entitle D to terminate the contract, however serious the breach.
Diplock LJ explained: ‘There are, however, many contractual undertakings of a more complex
character which cannot be categorised as being ‘conditions’ or ‘warranties’ … Of such
undertakings all that can be predicated is that some breaches will and others 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 should obtain from the contract; and the legal consequences of a breach
of such an undertaking … depend upon the nature of the event to which the breach gives rise
and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or
a ‘warranty’ (emphasis added)’
Is a term a condition or innominate term?
‘certainty + inflexibility’ of a condition
‘flexibility + uncertainty’ of an innominate term
four categories identified by the Court of Appeal in BS & N Ltd v Micado Shipping Ltd (The
‘Seaflower’) (2001):
1. a term will be a condition ‘if it is expressly so provided by statute’ (Sale of Goods Act 1979 and
Consumer Rights Act 2015 provides a comprehensive set of remedies for the buyer in the event of the
seller’s breach, including the right to reject
Arcos Ltd v EA Ronaasen & Son (1933), buyers contracted to buy a quantity of timber staves,
to be used for making cement barrels.
-staves were sold by description, namely that they were to be half an inch thick (most were 9/16ths of
an inch and the buyers rejected them)
-breach was trivial, in that the staves were still perfectly adequate for making barrels and the buyers’
real reason for rejecting the staves was that their market price had fallen below the contract price.
-House of Lords held that this did not matter, because the statutory implied term that goods comply
with their description is a condition. If the facts of Arcos arose today, it would be caught by s 15A of
the Sale of Goods Act, which restricts the right of a (non-consumer) buyer to reject goods for breach
of condition
=not tantamount to changing the statutory implied conditions into innominate terms, since the buyer
only loses the right to reject the goods where the breach is so slight that it would be unreasonable to
reject, whereas breach of an innominate term would only give such a right where the breach was very
serious
2. a term will be a condition ‘if it has been so categorised as the result of previous judicial decision
(although it has been said that some of the decisions on this matter are excessively technical and are
open to re-examination by the House of Lords).’
Bunge Corpn v Tradax Export SA Panama (1981),
-HL held that this ‘notice of readiness’ obligation is a condition, so that a seller may terminate the
contract even if the buyer is only slightly late in giving notice and this delay causes no prejudice to the
seller
-Mihalis Angelos (1971) had earlier adopted similar reasoning, when an equivalent standard clause in
a ship charter-party was construed as a condition, noting that the leading book on charterparties for
practitioners described the term as a condition, without criticism
3. a term will be a condition ‘if it is so designated in the contract or if the consequences of its breach,
that is, the right of the innocent party to treat himself as discharged, are provided for expressly in the
contract.’= the parties can in principle elevate a term to the status of condition by expressly providing
as such in their contract, although the courts require very clear evidence that this was what the parties
intended
, Stocznia Gdynia SA v Gearbulk Holdings Ltd (2009),
-parties spell out that breach of the relevant term entitles the other party to terminate the contract.
-whether that express contractual right to terminate also carries the right to damages for loss of
bargain, as are available where the claimant terminates at common law following a repudiation, which
the Court of Appeal unanimously answered in the affirmative
Schuler AG v Wickman Machine Tool Sales Ltd (1973)
-a minor term (clause 7) was described as a ‘condition’
-the contract also contained another common clause, clause 11, allowing either party to terminate the
contract if the other committed a material breach of any term.
-W breached clause 7, but not in a material way, so the express contractual right to terminate in
clause 11 was not triggered. Could S terminate in any event, on the basis that clause 7 was described
as a ‘condition’?
-House of Lords held that the parties did not intend the word ‘condition’ in clause 7 to have its
technical meaning, since this would be inconsistent with the regime in clause 11
‘The fact that a particular construction leads to a very unreasonable result must be a relevant
consideration. The more unreasonable the result, the more unlikely it is that the parties can
have intended it and if they do intend it the more necessary it is that they shall make that
intention abundantly clear.’
=time stipulation is a condition, so that even a negligible delay in performance entitles the innocent
party to terminate the contract
Union Eagle Ltd v Golden Achievement Ltd (1997)
-contract for the sale of a flat provided that completion must take place before 5 p.m. on a particular
date, that time was of the essence and that if the purchaser failed to comply, the seller could retain
the purchaser’s deposit.
-purchaser was ten minutes late with the cheque, the seller refused to accept it, and forfeited the
purchaser’s deposit.
-Privy Council agreed that the seller was entitled to do so. Indeed, their Lordships’ sympathy was with
the seller, which had been unable to resell the flat for years while the purchaser’s claim was litigated.
Behzadi v Shaftesbury Hotels Ltd (1992), Sentinel International Ltd v Cordes (2008), and North
Eastern Properties v Coleman (2010))
Urban 1 (Blonk Street) Ltd v Ayres (2013) to the contrary,
=‘making time of the essence’= does not mean that one party, here the vendor, can unilaterally alter
the categorisation of a contractual term into a condition, but it comes to much the same thing in
practice because it means that if the purchaser still fails to complete after the date specified in the
notice, the vendor can terminate the contract immediately
-however: (obiter) suggestion in Samarenko v Dawn Hill House Ltd (2011) that, on serving such a
notice, the innocent party will still only be entitled to terminate if the other party’s failure to comply with
the notice within a reasonable time is itself a serious breach, seems equally out of line with principle,
defeats the object of the notice regime, and is hard to reconcile with the weight of authority
4. a term will be a condition ‘if the nature of the contract, of the subject-matter or the circumstances of
the case lead to the conclusion that the parties must, by necessary implication, have intended that the
innocent party would be discharged from further performance of his obligations in the event that the
term was not fully and precisely complied with.’
Mihalis Angelos and Bunge v Tradax
-commercial nature of the contract (an international sale contract) and the obligation (a time
stipulation) and all the other circumstances suggested that the parties intended that it should be a
condition.
-courts thought it would be intolerable if the innocent party had to guess whether the other
was sufficiently late to entitle it to terminate, and unlikely to be what the parties intended
Samarenko v Dawn Hill House Ltd (2011)
-Court of Appeal held that a term in a contract for the sale of land obliging the purchaser to pay a
deposit once planning permission was obtained was a condition, as such terms would almost
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