ACTUAL BREACH OR BREACH WHEN PERFORMANCE DUE OR DURING

PERFORMANCE

Renunciation or Repudiation

If at the time performance is due, a party by words or conduct makes known his intention not to perform his part of the contract, the question whether the other party can treat himself as discharged from his obligations depends on whether time is of the essence in the contract. The right for damages is there.

In English law, the common law generally regarded time fixed as of the essence. Equity did not originally so regard a condition as to time. But the Judicature Acts of the nineteenth century fused the rules of common law and equity. In mercantile contracts time will be normally assumed to be of the essence.

In contracts for sale of land or other immovable property it will be presumed that time is not of the essence.

The provisions in Indian law is S.55 of the Contract Act regarding voidability for failure of performance of a contract in which time is of the essence has been discussed under time of performance in Module V, 'Discharge of Contract'.

If during the performance of a contract one of the parties by words or conduct (expressly) refuses to perform the contract, there is breach, and the other side is forthwith released from obligation for further performance and is entitled to sue at once for damages.

In Cort v. Ambergate etc Railway Co. [(1851) 17 QB 127], P contracted with D company to supply 3,900 tons of railway chairs on a certain price, to be delivered in certain quantities at specified dates. 1,787 tons had been delivered. The company now requested him to deliver no more as they would not be wanted. P sued for breach averring he was ready and willing to complete performance but D had prevented it. The court rejected the argument for D that P should have proved actual delivery of the entire lot. It held as the contract had been repudiated by D, P could sue for breach.

Impossibility created by Act of One Party

If during the performance of a contract, one party, by his own act or default, makes further and complete performance

189 impossible, there is breach, and the other side is forthwith

released from obligation for further performance and is entitled to sue at once for damages. Thus the rule is similar in this case also.

In O’Neil v. Armstrong [(1895) 2 QB 418], P, as British subject, was engaged by the captain of a war-ship belonging to Japan to act as a fireman on a voyage from Tyne to Yokohama. During the voyage, Japan declared war on China. P was informed that the performance would bring him under penalties of law. P therefore left the ship. P sued the master for the wages agreed.

It was held he was entitled to succeed for the action of D’s principals, the Japanese Government had made his performance of the contract legally impossible.

Discharge by breach will occur not only where one party disables himself from performing the contract, but also where he prevents completion of the contract by the other. Courts are ready to imply a term in contracts that each party undertakes to do all that is necessary to secure performance. For example, if a licence is required for the export of goods, and the buyer fails to provide the seller with the information necessary to obtain the licence, the buyer cannot sue the seller for non-delivery [Kyprianou v. Cyprus Textiles Ltd. (1958) 2 Loyd’s Rep.

60].

Failure of Performance

Failure of performance, which may be total or partial, is the most common ground for the discharge of a party by breach.

Failure of performance obviously can occur only during performance.

It is not every failure of performance by one party which entitles the other to be discharged from his own obligations under it.

In order to determine when this would result we have to look at the contract and the failure in the following ways :

(a) Are the mutual promises independant or interdependant or concurrent ?

(b) Is the obligation subject to failure an ‘entire’ one or

‘divisible’ ?

(c) Is the broken part a term of ‘condition’ ? (d) Does the breach go to the ‘root of the contract’ ? (a) Relationship between the mutual promises

Way back, Lord Mansfield in Jones v. Barkley [4 Doug. 659]

classified reciprocal promises in contracts as : 1. Mutual and independant

2. Mutual and dependant 3. Mutual and concurrent.

The usefulness of the classification holds good even today.

There are certain contracts in which the obligations of each party may be independant of each other in the sense that neither party can claim to be released from his promise by the failure of the other to perform his part. For example, in the contract covering a lease, the covenant of the tenant to pay rent is independant of the covenant of the landlord to repair. Rent

cannot be withheld on the ground that the landlord has failed to repair the premises [Taylor v. Webb (1937) 2 K.B. 283], Courts tend against construing contracts as containing independant promises but the structure of some contracts as such.

Ordinarily, in the structure of most contracts, the obligations of each party are interdependant. For example, an employee is not bound to observe a covenant in restraint of trade that would have applied on termination of service when he has been wrongfully dismissed by his employer [General Billposting Co. Ltd. v. Atkinson (1909) A.C. 118]. The clearest example is offorded when the parties have agreed that performance of their promises shall be simultaneous each to be ready and willing to perform at the same time. This makes the mutual promises concurrent. For example, under the law of Sale of Goods (both in England and in India), unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions.

This is what is intended in most transactions of sale of goods for cash across shopping counters. Failure to tender the goods discharges the buyer from payment of the price and failure to tender the price discharges the seller from delivery of the goods.

(b) ‘Entire’ obligation and ‘divisible’ obligation

Certain contracts can only be ‘entire contracts’ in the sense that the liability of one party is dependant upon the complete performance of obligations by the other. For example, when a suit of clothes is given to a tailor to be stitched in return for a promise to pay the charges, nothing less than a completed suit of clothes is expected. Complete performance is subject to the doctrine of substantial performance. In such cases, when failure of complete performance comes about whether by abandonment or negligence or even misfortune it results in discharging the other party from obligation. The case Culter v. Powell [(1795) 6 TLR 320] was decided on this basis. A seaman was engaged as a second mate on a voyage from Jamaica to Liver pool and 30 guineas was to be paid as a single payment on completion of the voyage. Unfortunately when the ship was 19 days from Liverpool the second mate died. The widow sued to recover a proportion of the sum but failed. But since then the Law Reform (Frustrated Contracts) Act 1943 has been passed. If that case were to be decided now, under S.1 of that Act, a proportionate sum may be recoverable by the widow as compensation. But the case is still used as an illustration for individual obligation.

A modern example, occurs in Bolton v. Mahadeva [(1972) 2 AER 1322]. P contracted to install a certain heating system in D’s house for £ 800. He installed the system but it worked inefficiently. D refused to pay anything. The Court of Appeal held P could recover nothing. In 1983, the Law Commission (in England) proposed legislation to change the position since in such cases the defendant is left with an unwarranted profit.

Such 'entire' contracts are the exception rather than the rule.

Most contracts are ‘divisible’. A contract may be a complex one with different undertakings with different importance. A failure by a party to precisely perform an obligation will no doubt give a right for an action but will not necessarily discharge the other party from his own obligations

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(c) Broken part of the contract being a term of ‘condition’

Assuming that a contract is divisible, the next question arises whether the particular term which has been broken is a condition of the contract. Here, it may be stated that a term in a contract will be considered a condition according to its importance in the contract and the effect of its breach. A term will be classified as a condition if fixed by statute or recognised by judicial decision, or if the parties have so agreed in their contract expressly or by implication. A term will be a condition by its import and not description. A breach of a condition entitles the innocent party to be discharged from the contract. Right to claim damages remains.

The imputation of condition to a term, whether it is precedent, subsequent, or concurrent to or with liability in a contract depends on the contractual intention of the parties. In Bannerman v. White [(1861) 10 CB NS 844], B offered hops to W for sale. W asked if sulphur had been used in growing them as brewers did not want such hops. B told W that sulphur was not used. W purchased the crop of that year. The crop was weighed in W’s warehouse to calculate the price. W now repudiated the contract on the ground that the hops contained sulphur. B sued W for the price. It was found that sulphur had been used in five out of three hundred acres for trying new machine and B had forgotten or thought the matter not important.

But the court concluded that a condition of a contract had been broken and W would reject the hops and B could not claim the price. In this case the condition happened to be a condition precedent.

After the decision in Hongkong Fir Shipping Co. Ltd v.

Kawasaki Kisen Kaisha Ltd. [(1962) 2 QB 26], some terms of a contract may be classified as ‘intermediate terms’ the breach of which will not necessarily entitle the innocent party to be discharged from his obligations in the contract. An intermediate term may perhaps be described as more than a warranty but less than a condition.

(d) Breach going to the ‘root of the contract’

If the term broken is not a condition proper, but an intermediate term, the discharge of the innocent party from further performance depends upon the nature and consequences of the breach. To ground this, courts have sought after different metaphors from time to time. But as Sachs L.J. said in Decro-Wall International SA v. Practitioners in Marketing Ltd [(1971) 2 AER 216], "at the risk of being dubbed old-fashioned”

his preference is for the expression “goes to the root of the contract”. This has been the favourite expression for the last one and a half centuries. The question whether the breach goes to the root is for the court to decide on the facts of the case.

Other phrases used by courts more recently are that the breach must be “fundamental”, that the breach must “affect the very substance of the contract”, or “frustrate the commercial purpose of the venture”. However called the substance the judges have had in mind is the same. It is that the breach must be far reaching in effect to justify discharge. The test laid down in Hangkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. [(1962) 2 QB 326], is, “does the breach deprive the other party of substantially the whole benefit which it was the intention of the parties that he should obtain as consideration for performing his undertaking ?”.

Facts : P chartered to D the vessel Hongkong Fir for twenty four months that she was in every way fitted for ordinary cargo service. The vessel was old. P did not provide proper engine room staff. The chief engineer was addicted to drink. There were many break downs in machinery. The ship was only eight and half weeks at sea in the first seven months. The rest of the time was spent to make the ship seaworthy which was at last achieved. D refused to continue with the charter party. The court held on the facts that the delays and the steps taken to make the ship seaworthy considered together would not deprive D of substantially the whole benefits which it was the intention of parties that he should obtain from further use of the ship. D could not treat the contract as repudiated.

The root of the contract approach has been adopted to contracts to deliver and pay for goods in instalments. The breach may amount to express or implied repudiation under the sale of goods law. But if there is a failure of performance it must go to the root of the contract in order to justify discharge. In Maple Flock Co. Ltd v. Universal Furniture products Ltd [(1934) 1 KB 148], there was a contract to supply 100 tons of flock of certain standard to be delivered by instalments. The sixteenth delivery was below standard. The buyer wanted to treat it as repudiation. But the seller wanted to continue. Lord Hewart C.J. held that two tests, one the ratio quantitatively which the breach bears to the contract as a whole, and second, the degree of probability that such a breach will be repeated, must be applied. On the facts, the sixteenth delivery was only 11/2 tons out of 100 tons. 20 satisfactory deliveries had been made both before and after. It was held, therefore that the buyer could not discharge the contract, but only claim damages.

It follows that the further the parties have proceeded with the performance, the less likely it is that one party will be able to claim discharge by a single breach in such contracts. But if it is going to the root it will discharged. Thus in Munro & Co.

Ltd. v. Meyer [(1930) 2 KB (312)], in a contract for supply of 1500 tons of bonemeal by instalments, nearly half was delivered but found seriously adulterated. Held, the buyer was entitled to be discharged.

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