Breach of Contract - Introduction
Preliminary considerations:
When does the “life” of a contract come to an end? (CVL: See Art. 1671)
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Discharge by Performance: parties perform exactly as they should (CVL: CCQ 1553)
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Discharge by Agreement: “what has been created by agreement may be extinguished by agreement” (CVL: CCQ 1439, 1687 – creditor has the power to release the debtor)
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Discharge due to Frustration/Impossibility: Non-performance is excused (CVL: CCQ 1671, 1693)
Breach of Contract - REMEDIES
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Gives rise to claim for damages – an obligation to make good for disappointing the other party
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May entitle to specific performance
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May give rise to the right to terminate the contract
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Breach does not “automatically” terminate the contract must apply to court?
What is a breach? A party does not honour the obligations arising from the contract
To determine whether the contract has been breached, it is necessary to thoroughly analyze the contract and what has been promised.
Types of Breach
To see what type of breach, look at the content of the contract, determine the nature and scope of promises / undertakings / obligations
1. Total Failure to Perform
2. Late Performance
3. Partial Performance
4. Defective Performance
Termination Flowing from Breach – CML
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Repudiation (bringing contract to an end) – may give rise to “recission” – which is what happens when you invoke your right to terminate the contract…
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When a party intimates by words or conduct that she does not intend to honour her obligations when they fall due in the future (“anticipatory breach”)
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Fundamental Breach (“material”, “repudiatory” – i.e. bringing the contract to an end – this is the most common term in Canadian CML)
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Of what nature must a breach be to be called “fundamental”?
Breach and Hong Kong Fir
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Court says to first look at the breach to see if it is fundamental
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Contract says that the ship needs to returned in sea working condition, the KKKL were incompetent and spent weeks repairing – slowing down the HK, question is what is sea worthy condition – court found that HK repudiated contract too early, the ship was still ok (though performance wasn’t perfect), and that they were taking advantage of the cheap chartering ship market
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Who breached first?
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Distinction Condition/Warranty
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Court refuses to pigeonhole every contractual term according to that dichotomy
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Open-ended criterion: result of the breach depriving the party not at fault of substantially the whole benefit of the contract
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Compare 1604 CCQ: “He is not entitled to resolution… if the default of the debtor is of minor importance”
CML – Hong Kong Fir Shipping Co. v. Kawasaki Kisen Kaisha Ltd., [1962] 2 Q.B. 26: CB2 258 |
Jurisdiction
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UK
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Facts
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KKKL bought ship and chartered it to HFSC, promising to pay for repairs but not time when ship in port. HFSC used ship, but the “voyage was a catalogue of disasters”; HFSC repudiated the K and claimed damages; KKKL sued for wrongful repudiation. Between time of chartering and repudiation, sharp fall in the rate of sea freight and KKKL could only charter a ship for less than half of what HK was paying.
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Issues
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Did KKKL fundamentally breach the contract, thus giving HK have grounds to repudiate the contract?
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Holding
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No KKKL
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Reasoning
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Diplock:
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“Where an event occurs the occurrence of which neither the parties nor Parliament have expressly stated will discharge one of the parties from further performance of his undertakings, it is for the court to determine whether the event has this effect or not”
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Test is: “does the occurrence of the event deprive the party who has further undertakings still to perform of substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain as the consideration for performing those undertakings?”
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Where the event occurs because of one party’s default, that party cannot rely on it as relieving him of performance, and other party (though entitled to) need not treat it as relieving him of obligations; where event occurs because of neither party’s default, each is relieved of further performance
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Many K’ual undertakings are more complex, neither “categories” nor “warranties”: only some breaches will give rise to this event, and legal consequences (unless express in K) depend on nature of event and don’t flow from prior classification
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Judge must look at events occurring from breach as they were at time of breach, and decide whether these events deprived one party of substantially the whole benefit it was both parties’ K’ual intention it should receive in exchange for own undertakings
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Mere occurrences of events that ship was in some respects unseaworthy (delay, either at date or acceptance of rescindment) did not deprive HFSC of whole benefit that it and KKKL intended that HFSC should obtain from performance of obligations
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Ratio
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The frustration test is not easily met. Other points as listed above.
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Comments
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Whole analysis is whether a party has been deprived of a ship under the K, as the ship provided was so bad as not to be a ship – this applies whether there is fault or no fault (if no fault, can look for recourse under the Frustrated Contracts Act; if fault, can seek damages)
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Notion of frustration is supposed to be easier to access (lower threshold) than civilian idea of superior force (unforeseeable, irresistible) – but examples we’ve seen of frustration claims have meant that it isn’t easy to claim either (here, fact that the boat was in dire need of repair wasn’t enough)
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It’s clear by a certain point that both parties have stopped performing; the question becomes who stopped first (not just who breached a little bit)
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Some people think that this outcome was unfair because the ship really was a disaster – but timeline of events shows that the lessee of the ship announced that the deal was over long before the delays got really bad
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Ks aren’t breached in a binary on/off fashion: interpretation of a clause involves a range of (non-performance); can often only assess a K once problems have occurred
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There is a distinction between warranty and category – a warranty is a promise, and if it is breached, it gives rise to a claim in damages, but not to recission. Other promises, “conditions,” are promises that if they are breached, the whole contract fails.
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Cancellation clause inserted into contract may give the parties the option to cancel if timely delivery is not made by the owner.
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Fundamental Breach and Cehave NV
1. Cehave claimed that the breach was a breach of a condition (not a warrantee), thus is fundamental, thus Cehave could repudiate
2. Denning says in light of Hong Kong Fir there are different kinds of conditions that are unclear, so we must look at the consequences of the breach to see the seriousness of it (i.e. did the breach “deprive substantially the whole benefit of the contract”)
This is different, because before breaches were assessed by type, never by looking at its consequences
CML – Cehave NV v. Bremeer Handelgeselleschaft mbH, [1975] 3 All E.T. 739: CB2 254 |
Jurisdiction
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Quebec
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Facts
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BHm agreed to sell CNV citrus pellets for cattle feed, in installments; by time of shipment, market price had fallen. Fifth installment arrived, but some damaged; CNV rejected all cargo, arranged for a middleman to buy it at a much lower price and then sell it to them, and then used it to make feed.
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Issues
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Was there a breach? Can CNV reject the entire K for this breach (was the breach fundamental)?
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Holding
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Yes. No. Bremeer Handelgeselleschaft mbH
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Reasoning
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Denning:
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Post-Sale of Goods Act 1893, distinction between “condition” (if promisor breaks in any respect, other party is relieved of obligations and can sue for damages; if other party has by conduct waived it, in which case other party is bound to perform future obligations but can sue for damages) and “warranty” (if promisor breaks in any respect, other party is not relieved of obligations, but can sue for damages)
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This division not exhaustive: many stipulations are neither, but are intermediate, with effect depending upon breach; if breach goes to root of K, other party is discharged; if not, he is not
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Anticipatory breach: if one party, before performance, shows by words or conduct that he will not perform in a vital respect when that day comes, other party is discharged
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So here: Was there a condition? If not, how bad was the breach? Was there anticipatory breach?
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“Shipped in good condition” (from K of sale): a clause as to quality; buyer cannot reject whole lot unless divergence is “serious and substantial” and attributable to seller; an intermediate stipulation; here, breach did not go to root damages but not rejection
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“Merchantable” (from Sale of Goods Act 1893): goods are merchantable if they are as fit for the purposes for which goods of this kind are commonly bought as it is reasonable to expect given context; this is a condition; merchantability would depend on a reasonable commercial man’s expectation; these pellets were fit for cattle food, as they were used for that purpose later, so they were merchantable no breach of 1893 Act
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CNV entitled to damages, but not to reject goods case remitted to board for assessment
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Ratio
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There is a middle ground between warranty and condition, where damages may be due and K is terminated – or some other combination (room for judicial discretion).
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Termination of Contract (Resolution)
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Discourage strategic behaviour on the part of the party not at fault (Cehave)
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Limit the scope of uncertainty for the party at fault
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Specific list of circumstances which lead to termination
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Criterion focusing on the nature of the obligation in question
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Conditions vs. Warrantees
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An open-ended criterion focusing on the seriousness of the breach and of its consequences
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