Week 6 Breach of contract Flashcards
(19 cards)
What is a contract
“an agreement between two or more persons (the parties) having the capacity to make it, in the form demanded by law, to perform, on one side or both, acts which are not trifling, impossible or illegal”
How may a contract be breached
Breach occurs when one or more parties fails to discharge its obligations under the terms of the contract (without justification).
Usually refers to non-performance but can encompass other things
All different types of breaches
-part performance,delayed performance,inadequate performance,anticpatory breach
Remedies of breach of contract how to choose
Determining what is the appropriate remedy (or remedies) will depend on several factors:
The nature of the breach (materiality),
What the innocent party wants to achieve (often in a pragmatic sense);
Three different approaches to compel a party to perform
= retention or lien (IP withholds own performance), (self-help),
= specific implement to do a thing (a judicial remedy),
= action of payment, £ to be paid under contract (judicial remedy)
The other two remedies
To be free of their own future obligations under the contract;
To bring the contract to an end (without itself incurring any liability, but can only do so if CB in material breach):
= resile (n. recission)
To receive money compensation for non-performance:
= damages
Retention and lien
Essentially, where the Innocent Party (IP) wishes:
a) the contract to subsist, but
b) wishes to withhold its own performance of obligations (owed to CB), to try to compel the CB to perform.
IP exercise retention (or lien)
Mutality
“Insofar as remedies for breach are concerned, for a party to take The party seeking a remedy must show they [the IP] are not themselves in breach of their obligations. They can only insist on performance by other party if they have performed theirs”.
Insofar as remedies for breach are concerned, for a party to take advantage of a ‘self-help’ remedy, that party must be able to demonstrate the fact of mutuality – that the obligations are ‘mutual’ or, in Erskine’s words, ‘the causes of one another’ (Erskine, Institutes, III, 3, 86)
Assesing whether retention or witholding perfoance as a self help remedy by reason of the counterparty
Conventionally this is done, by assessing the ‘interdependency’ of:
the obligation breached (by the contract breaker(CB)); and
the obligation, performance of which was withheld by the innocent party (IB).
Or, by asking: were the 2 obligations ‘counterparties’ to one another?
See: Bank of East Asia v Scottish Enterprise 1997 SLT 1213 (HL).
Not every obligation has a counterpart enabling
Lord Jauncey does not spell out the circumstances in which one obligation will fall to be regarded as the counterpart of another. [!!]Sometimes of course the express terms of the contract will regulate the matter. In other cases it depends on the intention of the parties as gleaned from the terms of the contract.”
Macari v Celtic F.C. 2000 S.L.T. 80; per Lord President Rodger at 88
See more recently J H & W Lamont of Heathfield Farm v Chattisham Limited [2018] CSIH; 2018 SC 444 on mutuality but also for a useful discussion of many contract law concepts
Mutality
Instead of trying to identify which terms are interdependent, ask if the Contract Breaker (CB) has failed to perform a “substantive obligation”.
See Lord Drummond Young in (1) McNeil v Aberdeen City Council 2014 SC 335, para 27; (2) JH&W Lamont of Heathfield I2018 SC 440
Materiality
B’s submission was that a breach of contract could not be material unless . . . the breach amounted to a repudiation of the contract by the party in breach. . . . . In every case the question whether a breach of contract is material is one of fact and degree. Having regard to . . .
the fact that B deliberately . . . refused to obey to reasonable orders which . . . he was contractually bound to obey, these were breaches of a contractual duty which went to the root of the contract
What if retention (by IP) does not prompt the contract breaker (CB) to perform its contractual obligations??
If “Retention” or Withholding of Performance by the Innocent Party is not effective, then the innocent party may wish to bring the contract to an end….
By rescinding (n ‘recission’)
what does rescind mean
‘Rescission is the rightful act of the other party indicating that, as a result of the other party’s repudiation, he regards himself as no longer required to fulfil his contractual obligations, i.e., to effectively treat his duties under the contract as at an end. Intimation of this fact is advisable.’
What does resile mean
: Lawfully withdraw from a contract.
but not in response to repudiation or breach.
What does repudiate mean
Repudiate: Make clear that you will not perform the contract (even though the counterparty has no right to withhold performance).
Does not end the contract but gives the other party the choice to walk away.
Rescind/recission
If “Retention” or withholding of performance by the Innocent Party (IP) is not effective to prompt the contract breaker (CB) to
to perform its obligations, then the innocent party may wish to bring the contract to an end….
By rescinding (n ‘recission’)
what happens when a contract is rescined
the contract is not in fact ‘terminated’ in its entirety. What happens in the event of rescission is that the parties are relieved of any obligation to make further performance of their primary or substantive obligations under the contract … the parties’ accrued rights are not affected.”
MacNeill v Aberdeen City Council [2013] CSIH 103, per Lord Drummond Young at [23]:
Pre-Requisites to recission
Before the Innocent Party (IP) can rescind the contract (meaning to bring it to an end),
the Contract Breaker (CB) must be in material breach.
(This is because the policy of Scots law is that parties, both parties, should be held to their bargain.
So it controls unreasonable behavior on the part of the IP who tries terminate the contract for non-material breaches).
2) risks for the innocent party
There are risk for the Innocent Party.
If the IP rescinds the contract, meaning to bring the performance of future obligations to an end, including its own, but it transpires that the CB was not in material breach, this might then have the unfortunate consequence of putting the IP in breach in turn.
