Unit 12 – Performance and Breach

Discharge
-Happens in four main ways:
1. Performance
2. Agreement of the parties
3. Breach
4. Frustration
The Principle of Substantial Performance
-Some contracts are “entire obligation”; in general a party cannot recover payment for a partial
performance
-May be only effective way for householders to ensure prompt and proper performance of small
building works
-In contrast, most large jobs are installment payments
-Three ways courts mitigate this harsh rule:
1. Interpret contract as a series of smaller “entire obligations”
2. Allow recovery when a party has substantially performed – if so, then a breach is a warranty
3. If buyer is not a consumer, the Sale of Goods Act 1979 s.30(2A) prevents unreasonable
rejection of delivery

Cutter v Powell Entire Obligation

[1795] -Cutter was employed as a second mate, contract was entire
-Cutter died before voyage was complete, widow sought payment on a quantum meriut
basis
-Held: Cutter’s obligation was entire; since he didn’t complete, no payment was made
Sumpter v Hedges Avoiding the Entire Obligation Rule – Acceptance of the Benefit by the Non-
[1898] Breaching Party
-Sumpter finished half the building project, then stopped (out of money), Hedges
finished; Sumpter sued, alleging conduct was acceptance of work done
-Held: No free acceptance (couldn’t leave half done), so no money recoverable
-Note: no new contract, no fresh consideration
Hoening v Isaacs Avoiding the Entire Obligation Rule – Substantial Performance
[1952] -Claimant completed most of the work, small defects which cost $55 out of $350
remaining to be paid
-Defendant tried to withhold all payment invoking entire obligation
-Held: For an entire contract, a defendant cannot repudiate liability on the ground that
the work, although substantially performed, is in some technical respects not in
accordance with the contract.
-Defendant liable for balance owing minus setoff for defects
-Quality obligation was not the entire obligation; the entire obligation was completion of
the work. Quality was therefore a warranty, breach of warranty does not entitle
repudiation
Bolton v Mahadeva Substantial Performance
[1972] -Claimant installed central heating; it was found to be highly defective – flue was
defective, gave off fumes, inefficient
-Defendant refused to pay, citing entire obligation
-Held: No substantial performance on the facts
 Actual Breach of Contract
-Sometimes difficult to tell if a breach has occurred (ex. Partial or inadequate performance)
-Whether or not a repudiatory breach has occurred depends on the terms of the contract. Two
matters to be considered:
1. The Standard of performance to be met in the contract
a. Strict Liability – either performance measures up, or it doesn’t
b. Reasonable care and skill
-fault is relevant
2. Type of term breached (only conditions and sufficiently serious innominate terms give rise
to termination)
-“Actual” breach – time for performance has arrived and promisor has failed to deliver.
-Distinguish from “anticipatory” breach – promisor announces he will not complete, or disables
himself from being able to complete performance

Arcos v Ronaasen Standard of Performance – Strict Liability

[1933] -contract specified 8/16 thick barrel staves; breach of contract when they were 7/16 to
9/16 thick
-Fault of the party is immaterial – liability is strict and fault need not be proved
Strict Liability in Statute
Sale of Goods Act 1979 (B2B) ss. 13-16 strict
Consumer Rights act 2015 (B2C) s.49

What Occurs Upon Breach

-Subject to an enforceable exemption clause, a breach entitles the injured party to damages to
compensate losses flowing from the breach
-Repudiatory breach – gives injured party right to affirm or terminate
-Affirmation – if the contract is affirmed following a repudiatory breach, both parties must continue
to perform their contractual obligations

Photo Production Consequences of Breach

Ltd v Securicor -Lord Diplock: Breaches of primary obligations give rise to secondary obligations
Transport Ltd (damages, subject to remoteness and mitigation) on the part of the defaulting party, and
[1980] in some cases may entitle the injured party to be relieved of future performance
-Breach will not necessarily result in the termination of the contract
-Repudiatory breach: inured has option to terminate or affirm
Vitol SA v Norelf Can Innocent Party “Accept” Repudiation through Failure to Perform Future
Ltd, The Santa Clara Obligations?
[1996] -Claimant was found to be in anticipatory breach
-As a matter of law, yes – however whether it did so is a question of fact depending on
the contractual relationship and the circumstances of the case
-The sellers’ failure to perform the contract could not constitute acceptance of the
buyers’ anticipatory repudiation of the contract as the failure did not evince a clear and
unequivocal choice not to affirm the contract.
Johnson v Agnew Breach Terminates future; but contract still has a past
[1980] -those rights acquired unconditionally are still binding
Yukong Line Ltd of What constitutes affirmation?
Korea v Rendsburg -Claimants sent a telex acknowledging the notice of non-performance, did this constitute
Investments affirmation of the contract?
Corporation of -Held: Court stressed need for very clear evidence of the intention to continue with the
Liberia [1996] contract
Decro-Wall Seriousness of Breach
International SA v -If the breach is not serious enough to justify termination of the contract, but the
Practitioners in innocent party purports to do so, then he may be in breach
Marketing Ltd
[1971]

Anticipatory Breach
-Anticipatory breach: Before performance is due, a party either:
1. Renounces the contract; or
2. Disables himself from being able to perform it
-Anticipatory breach gives rise to an immediate right of action

SK Shipping (S) Pte Renunciation – A Clear and Absolute Refusal to Perform

Ltd v Petroexport -Must be an unequivocal intention, and injured party must subjectively believe this is
Ltd the case
-Court will look at totality of relevant words and conduct, in the light of the
circumstances and the nature of the contractual relationship, to see if the purporting
party has evinced an intention not to perform and the innocent party accepting the
words and conduct as renunciatory

Woodar Investment Renunciation – Intention to abandon

Development Ltd v Reliance on a Contractual termination Provision is not Renunciation
Wimpey -In order to constitute a renunciation of the contract, there must be an intention to
Construction UK abandon the contract
Ltd [1980] -In this case, the party was relying on a term to justify termination of the contract
Universal Cargo Definition of Anticipatory Breach / Performance Incapacitation
Carriers - Anticipatory breach means simply that a party is in breach from the moment that his
Corporation v Citati actual breach becomes inevitable.
[1957]
British & Take it on the reason of the thing; the party must show that he was ready: but if the
Benningtons v NW other stops him on the ground of an intention not to perform his part, it is not necessary
Cachar Tea [1923] for the first to go further and do a nugatory act”.
Yukong Line Ltd of Injured Party Has an Election to Affirm or Terminate
Korea v Rendsburg -The renunciation itself is not a breach, however the other party has the option to treat
Investments it as a breach
Corporation of -Injured party may, in the future, treat as discharged if the other party again repudiates
Liberia [1996] ** Poole page 378
Stocznia Gdanska Is the election to affirm a repudiatory breach irrevocable?
SA v Latvian -Election is not irrevocable in relation to continuing or renewed anticipatory breach in
Shipping Co. [1998] the period between affirmation and the date set for contractual performance
Fercometal SARL v Risk to Affirmation – Subsequent Breach by Injured Party
Mediterranean -If the injured party affirms, and subsequently breaches, he is liable for damages and
Shipping Co. SA, cannot argue that guilty party’s anticipatory breach excused him from further
The Simona performance of contractual obligations
Avery v Bowden Risk to Affirmation – Frustration between affirmation and date for performance
[1855] -If the contract is frustrated between date of affirmation and performance, injured party
will lose rights to remedies for the breach

White & Carter Claiming the Contract Price as an Alternative to Damages

(Councils) Ltd v -Claimants accepted breach, affirmed, claimed full contract price as liquidated damages
McGregor [1962] -Claim in debt, so no duty to mitigate
-Controversial (3-2 in the Lords)
-Subsequent Limitations on this decision:
(1) Claimant must be able to perform without the cooperation of the defendant
(2) Claimants must have a legitimate interest in continuing to perform rather than just
seeking damages
Hounslow London Ability to Perform Without Cooperation to Claim Contract Price
Borough Council v -Innocent party cannot carry on performance when he needs cooperation of the party in
Twickenham breach
Garden -Held: co-operation needs to be active, not passive
Developments Ltd
[1971]
Attica Sea Carriers Legitimate Interest to Justify the Election to Affirm
Corporation v -Affirmation would have cost the breaching party more in repairs than the worth of the
Ferrostall Poseidon ship
Bulk Reederei -owners had no legitimate interest in performing, rather than claiming damages
GmbH, The Puerto -It cannot be “perverse” to saddle innocent party with affirmation (The Aquafaith
Buitrago [1976] [2012])
Hochster v De La Termination – Injured Party Can Claim Damages Right Away
Tour [1853] -defendant terminated contract before it was supposed to begin, tried to argue could not
claim damages
-Held: innocent party can claim damages right away, before the time is fixed for
performance