Unit 5 Flashcards
(50 cards)
Conditions: Definition & Breach
Definition: Major terms that go to the “root of the contract.” They are fundamental to the agreement.
Effect of Breach: Allows the innocent party a significant right: they can terminate the contract (discharge future obligations) AND claim damages for any loss suffered, even if the actual loss from the breach is minor.
Implied Terms: Terms implied by statute (e.g., Sale of Goods Act) are generally classified as conditions, reflecting their fundamental importance
Warranties: Definition & Breach
Definition: Minor terms that are less important to the core purpose of the contract. They are subsidiary to the main obligations.
Effect of Breach: The innocent party cannot terminate the contract if a warranty is breached. Their only remedy is to claim damages to compensate for the loss they have suffered as a result of the breach, even if the actual loss is significant. The contract continues despite the breach.
Objective Test: Condition or Warranty?
Courts determine whether a term is a condition or a warranty by applying an objective test: What would a reasonable person, considering all the circumstances at the time the contract was made, have believed the parties intended regarding the importance of this term?
Factors Considered:
The circumstances surrounding the contract (the context of the agreement).
The contract as a whole (the other terms and the overall purpose).
Whether the parties explicitly labeled the term as a “condition” or a “warranty” (though this is not always decisive).
Unfairness of Condition/Warranty Classification
he strict distinction between conditions and warranties can lead to potentially unfair outcomes:
A minor breach of a condition gives the innocent party the drastic remedy of termination, which might be disproportionate to the actual harm caused.
A major breach of a warranty, even one that significantly impacts the innocent party, only allows for a claim in damages, forcing them to continue with a contract that may no longer be beneficial.
INNOMINATE TERMS: Addressing Rigidity
Introduced by the courts to provide more flexibility and address the potential unfairness of the strict condition/warranty classification. These terms are not automatically categorized as either major or minor at the time of contract formation.
INNOMINATE TERMS: Test for Breach
The consequence of breaching an innominate term depends on the effect of the breach at the time it occurs. The key question is: Did the breach “deprive the innocent party of substantially the whole benefit of the contract”? This focuses on the actual impact of the breach on the innocent party’s ability to achieve the main purpose of the agreement.
INNOMINATE TERMS: When Applicable
This approach is particularly useful in situations:
Where the parties have not expressly agreed on when a party has the right to terminate the contract.
When the situation is not specifically governed by statute that dictates the classification of the term.
When a term in the contract is too complex or its potential impact too varied to be accurately classified as either a condition (always allowing termination for any breach) or a warranty (never allowing termination) at the time the contract is formed.
INNOMINATE TERMS: Labeling & Statute
If the parties explicitly label a term as a “condition” or a “warranty” in their contract, the court will generally respect that intention, although, as seen in cases like Schuler v Wickman, this label is not always conclusive if the consequences of treating it as such would be unreasonable.
Statute may dictate the classification of certain implied terms. For example, the Sale of Goods Act 1979 classifies certain terms about the quality and description of goods as conditions.
Grounds for Termination
Termination is available to the innocent party in cases of:
Breach of a condition: A breach of a major term, regardless of the severity of the actual consequences. These breaches are considered “repudiatory breaches” because they indicate a refusal to be bound by a fundamental aspect of the contract.
Very serious breach of an innominate term: A breach of an intermediate term where the effect of the breach is so significant that it “deprives the innocent party of substantially the whole benefit of the contract.” These are also considered repudiatory breaches.
Effect of Termination - Future Obligations
Termination only affects the future obligations of the parties under the contract. It does not undo obligations that have already been performed or rights that have already accrued before the termination.
Innocent Party’s Choice After Repudiatory Breach
When a repudiatory breach occurs, the innocent party has a choice:
Affirm the contract (continue): The innocent party can choose to treat the contract as still in force. This decision should be clearly communicated to the breaching party. Importantly, even if the contract is affirmed, the innocent party retains the right to claim damages for the losses they have already suffered due to the breach.
Discharge the contract (terminate): The innocent party can choose to end the contract, releasing both parties from their future obligations. This decision must also be communicated to the breaching party. Upon termination, the innocent party can still claim damages for the losses they have incurred as a result of the breach.
It is the innocent party’s decision whether to affirm or terminate.
Effect of Termination: Damages
While termination discharges the future obligations under the contract, it does not prevent the innocent party from claiming damages for the losses they have suffered due to the breach that led to the termination. The right to claim for past losses remains
Termination of Fully Performed Contracts
In certain specific circumstances, it is possible to terminate a contract even after it has been fully performed. This typically arises in cases involving breaches of particular terms that are protected by statute, such as under the Consumer Rights Act 2015 (e.g., the short-term right to reject faulty goods) and the Sale of Goods Act 1979 (e.g., rejection of goods for breach of condition). These statutory provisions provide specific rights to consumers or buyers even after they have received the goods or the service has been completed.
Anticipatory Breach - defintion
An anticipatory breach occurs when one party, before the date of performance of their obligations, clearly indicates to the other party that they will not be performing the contract. In this situation, the innocent party has two options
two options for innocent party in Anticipatory breach:
Terminate immediately and sue for damages: They can treat the contract as having been breached at the moment of the anticipatory breach and immediately take steps to end the contract and claim compensation for their losses without waiting for the actual performance date.
Wait for the performance date: They can choose to wait until the scheduled date of performance to see if the breaching party changes their mind and performs. However, this carries the risk that further losses might be incurred during the waiting period.
Specific Performance
A discretionary equitable remedy where a court orders a party to fulfill their contractual obligations. Can be combined with damages.
Specific Performance - Restrictions: Adequacy of Damages & Supervision
Adequacy of Damages: Generally not granted if monetary damages would be a sufficient remedy to compensate the claimant for their loss. Exception: Contracts involving unique items (e.g., rare art, specific land) where monetary value is hard to determine or doesn’t replace the item.
Ongoing Court Supervision: Not usually granted if the order would require the court to continuously monitor the defendant’s performance over a prolonged period. Courts prefer one-off resolutions.
Contracts for Services: Generally not ordered, especially for personal services, due to the need for trust and confidence between the parties. Forcing someone to work for another can also be seen as akin to servitude.
Just and Equitable: The court will only grant specific performance if it is fair and just in all the circumstances. This involves considering:
The claimant’s conduct (e.g., did they act fairly?).
Potential hardship to the defendant if the order were granted.
Injunctions
A discretionary equitable remedy that is a court order prohibiting (prohibitory) a specific action or requiring (mandatory) a specific action. Cannot compel actions that specific performance would not.
Injunctions: Employment
Courts are reluctant to grant injunctions that would indirectly compel an employee to work for an employer, mirroring the restrictions on specific performance for service contracts.
Case: Page One Records v Britton (The Troggs). An injunction preventing the pop group from hiring a new manager was refused. The court reasoned that this would effectively force them to continue employing the original manager, which was inappropriate given the personal and fiduciary nature of the manager’s duties.
Nature of Injunctions:
Injunctions are equitable remedies, meaning they are granted at the discretion of the court, not as an automatic right.
Like specific performance, an injunction will not be granted if its effect would be to compel the defendant to do something they could not have been ordered to do via specific performance.
Enforcement of Negative Promises (Covenants Not to Work) in injunctions:
While courts won’t force positive performance (like working), they may grant an injunction to enforce a negative promise within the contract (an agreement not to do something).
The key limitation is that enforcing the negative promise must not be tantamount to indirectly compelling the defendant to perform their original contract or forcing them to remain idle.
Case: Warner Brothers Pictures Incorporated v Nelson [1937] 1 KB 209 - Warner Brothers sought an injunction to prevent her working for other film/stage productions (but not the wider clause preventing any other occupation). The injunction, restricted to film and stage work for others, was held not to be the equivalent of ordering specific performance or forcing her to remain idle. The judge considered that Ms. Nelson was a person of intelligence and means and could find other useful and remunerative work, even if not as highly paid as acting. She would be tempted to return to Warner Brothers to earn more, but not legally compelled to do so.
Factors Courts Consider (Summary): When deciding whether to grant an injunction to enforce a negative covenant preventing a party from working for others or in a specific capacity:
Length of Time: Shorter durations (e.g., a few weeks) make an injunction more likely.
Impact on Career: If granting the injunction would seriously harm the party’s overall career prospects, it is less likely to be granted.
Effective Compulsion: An injunction will not be granted if its inevitable result is to force the party to work for the original employer.
Restitution as a Remedy
Aims to prevent unjust enrichment - one party gaining a benefit at another’s expense. Can arise from breach or lack of contract. Not a universal remedy for all unjust enrichment.
Situations Where a Restitution Claim May Arise: Recovery of Money Paid Where There Has Been a Total Failure of Consideration:
If one party (the payer) has paid money to the other (the payee) under a contract, the payer can claim back that money in restitution if the payee is in breach and there has been a total failure of the consideration.
Total Failure of Consideration: This means the payee has performed none of what they promised under the contract, or what has been done is completely useless.
Examples:
Paying in advance for goods which the seller then refuses to deliver. (Payer receives nothing).
