Termination for Breach

Breach of Contract

A breach of contract occurs when one party fails or refuses without lawful excuse, to perform his obligations under the contract in accordance with its terms. The contract term must be a promise rather than a precondition to the contract. Where the contract provides that a particular state of affairs must exist before obligations arise, such for example in the case of a unilateral contract, then the failure of such condition to occur is not a breach of contract.

In the case of many preconditions, there is a promissory element on the part of one or both parties to use reasonable endeavours to cause it to occur. In this case, the party with the obligation may breach the contract by failing to do so.

The relevant obligation must have arisen and fallen due. There is no breach before the due date unless there is an anticipatory breach or an explicit rejection of the contract. A party’s obligation may never arise if the other party repudiates it or commits a fundamental breach of his prior obligations.

Breach may not be Self Evident

What is or is not a breach, depends on the terms of the contract and the facts and circumstances of the performance or defective performance in question. This raises issues of fact and law as to the terms of the contract, their interpretation, what has occurred and the consequences under the contract.

There may be no contractual obligation at all, even though there is a contract in place. There may be a standing supply contract, which sets out the conditions applicable to individual sales/ jobs. There may be no promise to provide sales /work under it. It may simply contemplate individual contracts being entered on its general terms, as and when sales/jobs arise and whereupon their individual basic terms are agreed and the standing terms apply. In this case, the failure to sell/ supply work is not a breach.

Excusing other Party from Contract

The non-performance of a contract may be justified by a lawful excuse.  If this is the case, then it will not constitute a breach of contract. A party may be entitled not to perform because a defined event or circumstances under the contract has occurred.

A party may be excused from performance because of the other party has committed a fundamental breach of his prior obligations. His obligation to perform may not arise at all where the other party must first perform his obligations under the terms of the contract and the failure to do so is a fundamental breach.

Where the party in default commits a fundamental breach of contract, the innocent party may treat the contract as terminated as regards his future obligations and sue for damages.  The test for a fundamental breach is whether it goes to the root of the contract. The breach must be such that the innocent party is deprived of the substantial benefit of what he has contracted for.

Disablement from Performance

It may be a breach of contract, often an anticipatory breach if one party disables himself from performing the contract. For example, a party may sell the thing which he has contracted to sell to the other party, to a third party.

Whether he has disabled himself and committed a repudiatory breach will depend on the circumstances. If the thing is not unique or if he can reacquire, there may not be a breach.

A person is not necessarily disabled or incapacitated from performing a contract, merely because he has become insolvent. This may be so in some circumstances. However, in many circumstances, the contract may be such as may be performed by the Official Assignee or trustee in bankruptcy.

A person may be disabled from the performance of his contractual obligations by circumstances outside his control. In some cases, the doctrine of frustration may apply. The doctrine is narrow in its terms. It is unlikely to apply where the circumstances are due to the party’s default. Frustration will not apply if either the party, expressly or by implication, has undertaken the risk concerned.

Party in Apparent Breach has Lawful Excuse

A party may have an excuse under the general law or the terms of the contract, not to perform. The other party may not have performed his prior obligations. The contract may be discharged under the doctrine of frustration, such for example when its performance has later become illegal.

The relevant exculpatory excuse for non-performance must exist at the due time for performance. It is not sufficient that it arises afterwards. There may be, of course, a later frustration or other discharge, but this does not obviate the prior breach. It may mitigate and reduce the level of damages available.

Specifying the Breach I

The general principle appears to be, that a party is not obliged to state his reason or excuse for non-performance. He may not be aware of the excuse at the relevant time. The principle may be justified on the basis that it prevents a party benefiting from the concealment of a breach.

A party may wrongfully reject goods which later turn out to be defective, unknown to him. Similarly, in principle, and subject to unfair dismissals legislation, an employee may be dismissed for breach of duty unknown to the employer if that breach is sufficient to justify dismissal.

There is support for the contrary position that a person may only terminate the contract on the basis of the facts as they apply at the time and as known to him at that time. On this approach, if a person wrongfully terminates and later discovers another lawful basis of termination, it does not rectify the wrongful termination.  The cases have been criticised.

Specifying the Breach II

There are significant limitations to the general principle that a party need not state his reason or excuse for non-performance.A party may not rely on an unspecified excuse if that breach could otherwise have been rectified. If the position was otherwise, it would prevent the other party from curing the defect and making good his obligations within the relevant time.

A party may be estopped from alleging some other sufficient reason, where he gives a false and groundless reason for non-performance and the other party acts to his detriment in trying to cure it.

There is support for the principle that a party may not be permitted to fail to specify the defective performance, even in cases where the other party could not have cured the defective performance and did not change his position in reliance, where it would amount to unfair dealing.

Repudiatory Breach

Where a party in default under a contract evinces his intention, no longer to be bound by or comply with the contract, there is a repudiatory breach. This may be verbal or by conduct. A repudiation need not be, necessarily, deliberate.

A request by one party to be released from the contract is not necessarily a repudiation.  In order to be a repudiatory breach, it must be so serious that it is clear that there is an intention to abandon and reject the contract.

A repudiatory breach is by definition a fundamental breach. Not all fundamental breaches are repudiatory in nature in that they don’t necessarily disclose an intention not to be bound by the contract. Many fundamental breaches occur for reasons outside one party’s control, and notwithstanding his best efforts to perform his obligations.

An anticipatory breach is a clear assertion, verbal or by conduct that a party will not perform some or all of his future obligations under the contract. He may not have performed at all or he may have performed in part. The anticipatory breach may be a repudiatory breach or one giving a right to damages only, depending on whether the intention to breach relates to a fundamental term or not.

Anticipatory Breach

A person may show or express an intention not to perform his future obligations under the contract before the due date for performance has arisen. This repudiatory breach in advance of the date for performance is an anticipatory breach. There may be an anticipatory breach where a person puts it outside his power to perform the contract.

An anticipatory breach may arise if either party renounces or disables himself from performing his future contractual obligations.

The renunciation should be clear and absolute. It may be by writing, verbal or by conduct. It may be inferred from silence exceptionally, where this is the necessary inference in the circumstances. This may occur where one party fails to take steps to dispel an apparent intention, manifested by silence in the circumstances.

Breach Becoming Fundamental

A delay in performing the contract may, after a period, amount to a repudiation or fundamental breach. A continuing breach may become progressively more serious, so that at some point in amounts to a fundamental breach. This will depend on whether and at what point, it deprives the innocent party, substantially of the benefit of the contract.

Where there is a continuing, breach, the innocent party may give the party in default a further reasonable time in which to perform. Continued delay beyond the point in time at which time becomes of the essence in accordance with the notice, is a fundamental breach.

Designated Fundamental Breach

Certain terms of the contract may be designated from the outset as so important, that any breach of them will entitle the other party to terminate. This right is usually exercisable where the defined event occurs which the parties regard as a fundamental breach or a repudiation of the contract by the party in default.

Other terms may be designated so that they do not fall into this category and so that their breach provides a right to damages only. Terms or other terms may be designated as falling into neither such category so that the effect of breach will depend on the interpretation of the contract and the seriousness of the breach in the circumstances.

A contract may provide for a right of termination for breaches which might not appear to be fundamental in themselves. The position under a written contract is determined by the court’s interpretation of the clauses in the circumstances.  The courts will be reluctant to classify a trivial breach as giving rise to a right to terminate the contract unless this is provided in clear terms.

The use of the word “condition”, is not necessary if the language of the contract is otherwise clear, even in a sale of goods case. The use of the word condition assists, but is not necessarily conclusive of the position if the contract is not in sufficiently clear terms.

Designated Fundamental Breach II

The concept of a fundamental or repudiatory breach applies principally where there is no express contract or statutory terms such as, in particular, the Sale of Good Act. Where the contract does not expressly or comprehensively deal with the issues, then there may be scope for application of the concepts, even where the contract makes some provision in that regard.

The courts have evolved the concept of an innominate term, where the parties have not clearly designated, whether its breach gives rise to an option to terminate. If a term is designated as a condition or term, breach of which entitles the innocent party to terminate, irrespective of how serious the particular breach is, then the court will uphold this position.

Options for Innocent Party

Where the innocent party has the right to terminate, he will usually have the alternative option not to terminate it. In this latter case, he may waive the right to terminate the contract and elect to claim damages only (if any arise from the breach). The innocent party must usually act promptly and decisively if it wishes to terminate the contract. Otherwise, he may be regarded as affirming the contract or waiving his right to terminate it.

Where of a breach of warranty or other less important term does not give a right to terminate the contract. Instead, the innocent party will have a right only, to damages/compensation for any loss thereby incurred.

Where the right to terminate is conferred in clear terms by the contract, those rights will displace the common law rights in most cases. In some cases, where the contract is in sufficiently clear terms, the contractual right may be interpreted as being additional to, or supplementing the common law rights.

References and Sources

Irish Textbooks and Casebooks

Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch 18

Friel, R. The Law of Contract 2nd Ed, (2000)

McDermott, P.  Contract Law (2001) 2nd Ed (2017) Ch 21

Enright, M. Principles of Irish Contract Law (2007)

Clark and Clarke Contract Cases and Materials 4th Ed (2008)

English Textbooks and Casebooks

Poole, J. Casebook on contract law. (2014) 12th edition

Stone and Devenney, The Modern Law of Contract 10th Ed (2015)

McKendrick, Contract Law 10th Ed (2013)

Chen-Wishart, Contract Law 5th Ed (2015)

Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)

Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.

Chen-Wishart, M. (2015) Contract law. 5th Ed.

Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.

Duxbury, Robert (2011) Contract law. 2nd Ed.

Halson, Roger (2012) Contract law. 2nd Ed.

Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)

O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)

Peel, and Treitel, The law of contract. 13th Ed. (2011).

Poole, J.Casebook on contract law. 12th Ed. (2014).

Poole, J.  Textbook on contract law. 12th Ed. (2014)

Richards, P Law of contract. 10th Ed. (2011)

Stone, R.  The Modern law of Contract. 10th Ed. (2013)

Treitel, G. H.  An outline of the law of contract. 6th Ed (2014).

Turner, C Unlocking contract law. 4th Ed. (2014).

Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).

UK Casebooks

Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)

McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)

Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)

Burrows, A. S.  A Casebook on Contract. 4th Ed.

Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)

Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)

UK Practitioners Texts

Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)

The above are not necessarily the latest edition.