Breach of contract

Introduction

Where one party fails to comply with a term under the contract, either express or implied, it is said to be in breach of that contract.

Every breach of contract will give rise to a right to claim damages.

Actual and anticipatory breach

An actual breach of contract may occur when one party performs defectively, differently from the agreement, or not at all.

An anticipatory breach of contract will occur where one party indicates before the date of performance that they will not be performing the contract as agreed .

Actual and anticipatory breach- cases

Where an anticipatory breach occurs, the other party can sue for breach straight away, it is not necessary to wait until performance falls due.

Hochster v De La Tour (1853) H was hired as a tour guide for the holiday season. Two months before he was due to start work, he was told he was no longer needed. H could choose to sue for breach of contract immediately, even though the date of performance had not yet arrived.

However, once a party has affirmed the contract (by committing to wait) they cannot subsequently change their mind.

Avery v Bowden (1855) B hired A’s ship and agreed to load his cargo onto the ship within 45

days. B later told A he had no cargo and advised him to take the ship away. This was an anticipatory breach and A could have sued for breach of contract immediately. Instead, A kept the ship available at the port, in the hope that B would eventually fulfil the contract. Before the 45 days were up, the Crimean War broke out between England and Russia, so that performance became illegal and the contract was frustrated. A lost his right to sue for breach of contract.

It is therefore important to identify whether the term is a condition, an innominate term or a warranty what type of term is breached

Conditions are those important terms which are fundamental to the contract (e.g. Poussard)Breach of a condition entitles the innocent party to end the contract early and claim damages (repudiatory breach)

Innominate terms are those terms which can be breached in serious or minor ways (e.g. Hong Kong Fir) The courts look at the consequences of the breach... If serious, it will be treated as a condition. If minor, it will be treated as a warranty.

Warranties are less important terms of the contract (e.g. Bettini) Breach of a warranty entitles the innocent party to damages only.

Choice to affirm or terminate

Even where there is a repudiatory breach, discharge of the contract is not automatic. The innocent party will have the option to either:

accept the breach as terminating the contract (in which case both parties’ future obligations will be discharged)

OR

affirm the contract (in which case the contract remains in force for both parties).

when a party wishes to terminate a contract

If the innocent party wishes to terminate the contract it must communicate its choice to the other party in a clear and unequivocal manner, otherwise it will be taken to have waived its right and affirmed the contract.

In Vitol v Norelf (1996), N’s silence and failure to carry out anymore obligations under a shipping contract demonstrated that it intended to treat the contract as at an end.

conclusion