Breach and performance

Part I Discharge by performance

-- When performance is due, a debtor must seek his creditor. But this can be varied by contractual terms

-- Whether time is of essence?

In order to be discharged from the contract, performance must be complete and executed precisely in
accordance with the contract terms, such as within the stipulated time and up to the required standard.

Re Moore and Co and Landauer and Co [1921] 2 KB 529

D agreed with P to buy 3000 tins of fruit packed in cases of 30 tins. Some in 24 tins. D were entitled to
reject the whole consignment since there is a defect in the performance.

De minimis rule

Trivial defect will not preclude finding the full performance. Cf. Strict obligations as to description,
fitness for purpose and merchantable quality  breach despite trivial defect

Arcos v Ronaasen [1933] AC 470 (HL) (Timber for barrel supposed to 1⁄2” thick, instead timber 9/16”
thick supplied)

-- This is still treated as a breach of contract even though the timber could still be used for the intended
purpose

Entire and severable obligations

(1) “Entire obligation”: requires complete performance by A in order for B to pay or render counter-
performance

 Incomplete performance will mean that nothing is to be recovered from B, even though B suffers
little or even no prejudice

Cutter v Powell (1795) 6 TR 320

Seaman agreed to work on a ship from Jamaica to Liverpool for an agreed period of time. Would be paid
30 guineas provided that he continued and did his duty throughout the voyage. Died before arriving at
Liverpool. Administratrix failed to recover for the work done before death. Nothing was recovered.

-- The risk of complete performance to earn a higher wage (than the normal wage of L8) was on the
seaman; Lord Kenyon CJ: “It was a kind of insurance”

Sumpter v Hedges [1898] 1 QB 673

P agreed to build two houses for D at a lump sum of L565. Failed to complete the houses due to financial
difficulties. D finished the houses. P could not recover the agreed sum or any reasonable remuneration.
But could recover sum for materials used by D.

No evidence of a new contract to pay such a sum?

-- Sale of goods

Seller fails to deliver the correct quantity the buyer is not bound to accept and pay.

Considerations:

1) If accept, need to pay at the contract rate

2) Cannot insist on delivery of less than he agreed to accept
3) May be varied by contractual stipulations
4) Does not permit the rejection due to a trivial discrepancy

 Refer to SOGO for more details

(2) “Severable obligation”: payment is due from time to time as performance progresses, e.g. contracts
of employment

A party who has fully performed the specified part can recover the corresponding payment even though
his failure to complete the whole of the promised performance is a breach of contract.

E.g. Ritchie v Atkinson (1808) 10 East 295 (Shipowner agreed to carry a cargo at a rate per ton. Carried
part of the cargo. Entitled to recover part of the fees. But liable to damages for failing to carry the rest.)

 Ultimately, a matter of construction?

The doctrine of substantial performance

H Dakin & Co Ltd v Lee [1916] 1 KB 566

P agreed to carry out repairs to D’s house for L1500. Unimportant part left unperformed. D refused to
pay the balance. Held that P could recover the outstanding balance minus the cost of remedying the
defects.

Sankey J: “Where a builder has supplied work and labour for the erection or repair of a house under a
lump sum contract, but has departed from the terms for the contract, he is entitled to recover for his
services, unless (1) the work that he has done is of no benefit to the owner; (2) the work that he has
done is entirely different from the work he has contracted to do; or (3) he has abandoned the work and
left it unfinished.”

Hoenig v Issacs [1952] 2 All ER 176

P agreed to refurbish D’s flat for L750. D only paid L400 due to faulty design and bad workmanship. P
sued for the balance. Held that defects only in furniture at L55. Could recover balance minus L55.

Voluntary acceptance of partial performance

Where a party terminates for breach of an entire obligation but “voluntarily” accepts partial or defective
performance, he must make some payment for it. (A new contract is inferred)

Quantum meruit or quantum valebat

Wrongful prevention of performance

Can claim for damages or a quantum meruit.

Planche v Colburn (1831) 131 ER 105

P agreed to write a book in serial form in D’s periodical. D stopped publishing the periodical when P had
already written a greater part of the book. P was entitled to a quantum meruit of 50 guineas.

Part II Discharge by breach

1. General

(1) “Any breach gives rise to a cause of action; not every breach gives a discharge from liability.”

When facing a repudiatory breach, i.e. a breach of a condition or sometimes an innominate term, the
innocent party is then given a choice: to “affirm” the contract thus treating it as continuing, or to
“accept the repudiation”, i.e. the contract will then be terminated.

Cf. rescission ab initio vs. termination (repudiation); breach or warranty vs. condition

(2) There is no middle ground, or a third choice.

Cf. The proposition put out by Rix LJ in Stocznia Gdanska SA v Latvian Shipping Co (No 2) [2002] 2 Lloyd’s
Rep 346:

“In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation
of the contract, and that is the period when the innocent party is making up his mind what to do. If he
does nothing for too long, there may come a time when the law will treat him as having affirmed. If he
maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his
contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains
alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing ‘writ in
water’ until acceptance, can be overtaken by another event which prejudices the innocent party’s rights
under the contract—such as frustration or even his own breach. He also runs the risk, if that is the right
word, that the party in repudiation will resume performance of the contract and thus end any
continuing right in the innocent party to elect to accept the former repudiation as terminating the
contract.”

 Then, when is too long? As usual the period of time depends on the facts of the case.

(3) Some types of breaches

-- Failure or refusal to perform

Cf. promise and “condition”: situation in unilateral contract

-- Defective performance

Cf. a total failure of consideration

-- Incapacitating oneself

-- Without lawful excuse

Cf. the concept of “condition precedent”, frustration

E.g. An employee who does not go to work because he is ill is not in breach

(4) The concept of strict liability, liability based on faults and conditional contracts

Anticipatory breach

It occurs when, before performance is due, a party either renounces the contract or disables himself
from performing it.

(1) Renunciation

The Rialto [1996] 2 Lloyd’s Rep 604

Moore-Bick J: “A renunciation of the contract by one party prior to the time for performance is not itself
a breach but it gives the other party, the injured party, the right to treat it as a breach in anticipation
and thus to treat the contract as discharged immediately. In other words, if a person says he will not
perform, the law allows the other to take him at his word and act accordingly.”

The Mihalis Angelos: The cause of action is founded on the renunciation itself but not the future breach.

Clear and absolute refusal to perform; may not be express but unequivocal

Cf. Stoczina Gdanska SA v Latvian Shipping Co [2002] 2 Lloyd’s Rep 436: “speaking silence” as in the
sense that the previous conduct of a party in refusing to perform another related contract may give rise
to the inference that he will refuse to perform the contract in question
 Need positive steps to dispel this inference

(2) Disablement

It need not be deliberate but must be due to the party’s own act or default.

3. Acceptance of repudiation

(1) No particular form of accepting a repudiation; but it must be clear and unequivocal

(2) Unrecoverable – even if the performance is resumed, the original contract is treated as terminated
and the performance is under the terms of the new contract, despite finding the terms of the contract
the same

(3) The general rule is well established that, if a party refuses to perform a contract, giving a wrong or
inadequate reason or no reason at all, he may yet justify his refusal if there were at the time facts in
existence which would have provided a good reason, even if he did not know of them at the time of his
refusal.

-- “An unaccepted repudiation is a thing writ in water”

(4) Damages can be recovered at once, before the time fixed for performance

Hochester v De La Tour (1853) 2 E&B 678

D agreed to employ P as courier for 3 months from June, but repudiated the contract in May. P could
claim damages at once, and not wait until June.

“If the claimant has no remedy for breach of contract unless he treats the contract as in force and acts
upon it down to June 1st 1852, it follows that, till then, he must enter into no employment.”

(5) Termination – breach of a condition; substantial failure in performance

4. Both parties in breach

In general, the breaches are treated indivudally.

Where one party (A) breaches the contract and that breach is followed by a breach by the other party
(B) then, assuming that both breaches are repudiatory, the breach by party A will give party B the right
to terminate future performance of the contract. If B exercises that right and accepts the repudiation his
subsequent failure to perform his obligations under the contract will not constitute a breach of contract.
The position is rather more complex if B does not accept the breach and then himself commits a
repudiatory breach of contract. In such a case can A accept the breach and terminate performance of
the contract or does the fact that he has previously repudiated the contract prevent him from exercising
his option to terminate? It is suggested that, in such a case, the effect of B electing to affirm the contract
is to leave the primary obligations of both parties unchanged.

-- Unless A’s obligation to perform is a condition precedent to B’s obligation to perform

What about simultaneous breaches?

5. Circumstances of discharge

“The three sets of circumstances giving rise to a discharge of contract are tabulated by Anson as: (1)
renunciation by a party of his liabilities under it; (2) impossibility created by his own act; and (3) total or
partial failure of performance.

In the case of the first two, the renunciation may occur or the impossibility be created either before or
at the time for performance. In the case of the third it can occur only at the time or during the course of
performance. Moreover, if the third be partial, the failure must occur in a matter which goes to the root
of the contract. All these acts may be compendiously described as repudiation, though that expression is
more particularly used of renunciation before the time for performance has arrived.”

2. Affirmation

General

(1) Affirmation is only valid when:

1) IP knows the facts giving rise to the breach and

2) the knowledge of his legal right to choose between the alternatives, e.g. accepting the
repudiation

(2) May be express of implied, but must be unequivocal

(3) Must be a total affirmation; otherwise there is a new contract

Cf. The situation where the IP asks the CB to reconsider his breach and contractual obligations

(4) Irrevocable in the case of a repudiatory breach

Cf. Subsequent and continual breaches after the affirmation  termination is “treating the contract as
being at and end on account of the continuing repudiation reflected in the other party’s behaviour after
the affirmation”

(5) Loss of right to terminate

Example 1: When a reasonable time has passed and no action taken

Example 2: SOGO – Buyer may be deprived of the right to repudiate the contract despite having full
knowledge of the breach
Waiver and estoppel

Affirmation as a waiver by election: the abandonment of a right which arise by virtue of a party making
an election [abandon the right to accept the repudiation, but not the right to sue for damages]

As a waiver by estoppel: IP agrees with the party in default that he will not exercise his right to treat the
contract as repudiated or so conducts himself to lead the CB to such a belief

Cf. Promissory (equitable) estoppel

 Any differences between the two? Permanent vs. Suspensory. Knowledge of the rights.

Effect of affirmation

(1) Affirmation does not necessarily mean the relinquishment of the claim for damages for loss
sustained as a result of the breach

(2) May insist on holding the party to the bargain and continue to tender due performance on his part

Cf. (i) White and Carter (Conucils) Ltd v McGregor [1962] AC 413: the right to complete the contract and
claim for the agreed sum is restricted to situations where there is a legitimate interest in performing the
contract rather than claiming damages

(ii) That IP side of obligation can be fulfilled without the cooperation of the CB

(3) The wrongdoer is entitled to perform his side of the contract and take advantage of any supervening
event that may reduce his liability