For example, certain provisions in the Sale of Goods Act specify whether certain terms should be regarded as conditions or warranties. The courts will also pay regard to the express terms of a contract: if the parties expressly identify a term as a condition or warranty, the courts will generally treat it as such. However, there are exceptions such as where statute provides otherwise or where, in the circumstances, the court considers that the parties cannot have intended a breach of that term to result in automatic termination.
In those cases, the courts usually construe the term as being intermediate and look to the surrounding circumstances to ascertain whether the breach is sufficiently serious to justify termination. If the parties intend any breach of a particular term to give rise to automatic termination, the contract should make that clear. Where time is of the essence in a contract, even a short delay can trigger a common law right to terminate for breach as the term is considered a condition of the contract.
Where a party declares an unequivocal intention to abandon further performance of the contract, or an intention not to perform some essential aspect of the contract, the innocent party is entitled to treat himself as discharged from further performance. Not every declaration of non-performance is a repudiatory breach. Sometimes a party will refuse to perform some, rather than all, of its contractual obligations or indicates that he will only perform them in a particular manner. In determining whether the breach is repudiatory the court will consider whether the non-performance amounts to a breach of condition or deprives the innocent party of substantially the whole benefit of the contract see below.
A declaration of non-performance can be either an express refusal to perform or it can be inferred from the party's conduct if he behaves in a manner which would lead a reasonable person to conclude that he has no intention of fulfilling his obligations.
Termination is not automatic. The innocent party may elect either to accept the breach and treat the contract as discharged or to affirm the contract and press the party in breach to perform. The law does not lay down a particular period in which the election must be made. In practice this area can be fraught with difficulty because, while the innocent party is deciding how to treat the contract, he risks taking a step which constitutes an election to affirm it and, once an affirmation has been made, it cannot be revoked.
Commercial contracts often contain express termination clauses which provide for termination in certain specified circumstances, including for breaches other than repudiatory breaches.
Some contractual termination clauses work by expressly classifying terms as conditions or warranties so as to make clear those circumstances in which the contract can be brought to an end and those which only give a right to claim damages. Some contractual provisions attempt to give rights to terminate for "material" or "substantial" breaches, for "any" breaches however minor or for repeated breaches. Contractual termination rights will operate in addition to common law rights to terminate unless the latter are expressly or impliedly excluded 17 by providing that the contract may only be terminated by exercising the contractual rights.
Termination clauses require careful drafting and regard must be had to the way in which the courts approach such provisions. However, electing to terminate a contract on the basis of a contractual termination right can preclude a common law claim for future loss of bargain as a result of a repudiatory breach see below. Serious consideration needs to be given whenever a party is exercising contractual termination rights.
Deciding whether you have a right to terminate a contract and how to bring about that termination can be difficult. The compensation that can be claimed by way of damages can vary depending on which termination rights are exercised.
Damages for repudiatory breach are assessed according to normal principles. This means that the innocent party is, as far as possible, put in the position in which it would have been if the contract had been properly performed, subject to the usual rules on causation, forseeability and mitigation. At common law, in addition to claiming recompense for losses resulting from the breach or breaches prior to the termination, an innocent party accepting a repudiatory breach of contract is entitled to claim "loss of bargain" damages an amount to compensate for the lost opportunity to receive future performance of the contract.
Contractual provisions may entitle a party to terminate where the breach in question does not amount to a repudiatory breach at common law. However, in this situation it may not be possible to recover "loss of bargain" damages. Where the breach is not also repudiatory at common law, damages will usually be limited to loss suffered up to the date of termination unless the contract expressly provides otherwise.
The difference can be considerable. Where a party has both common law and contractual rights to terminate, but elects to terminate using a contractual termination entitlement rather than alleging repudiatory breach, it will be prevented from claiming loss of future bargain damages.
An innocent party who instead decides to affirm the contract , rather than terminating, can claim damages in the normal way for loss suffered as a result of the breach or breaches. Before terminating a contract, consider whether you want the relationship to end or whether you should continue with the contract but reserve the right to claim damages for any breach.
You may want to renegotiate the contract. If you decide to terminate, you should also check whether there is a prescribed dispute resolution procedure to reach a solution and whether the party in default has a contractual right to remedy the breach within a certain period. Although an election to terminate need not be made immediately, you should be careful not to take too long or engage in conduct which could be seen as an affirmation of the contract.
Take care to qualify any correspondence with appropriate reservations of rights when engaging in further business related conduct. Once communicated, an election to terminate cannot be withdrawn without the other party's consent. If a contract is terminated but the parties proceed for a time on "business as usual" terms, a new or supplementary contract might be created, potentially on the same terms as previously, which could be a commercially undesirable outcome.
The decision to terminate, and how you communicate that decision, can become more complicated where a party has both contractual and common law rights to terminate. The consequences of this choice can be significant.
If a contracting party wants to be in a position to claim loss of bargain damages, the notice of termination should make it clear that it is terminating pursuant to its common law right to terminate for repudiatory breach. Terminating on the basis of a contractual right alone may preclude a claim for future loss of bargain damages.
However, terminating solely on the basis of a common law right carries the risk that the party terminating will itself be in repudiatory breach if the breach relied on for the common law termination is not found to be repudiatory. It is unclear whether a party can terminate on the basis of a repudiatory breach while reserving their contractual right to terminate in the event their claim is misconceived.
However, it has been suggested that there should be no reason why a party could not serve a notice accepting a repudiatory breach, but assert in the alternative their contractual right to terminate.
Where there is a clause in the contract covering termination, it is important to follow any specified notification requirements and time limits.
You may also be obliged to give the party in default an opportunity to remedy the breach within a certain time. If a party wants to terminate on the grounds of a delay, consideration needs to be given as to whether time is of the essence.
If there are no express contractual terms and no facts allowing an implication of time being of the essence, then the party will have to serve a notice requiring completion in a reasonable time. This will then cause any further delay to be classed as a sufficiently serious breach of a contractual term, and will justify termination at common law. Where time is of the essence, even a short delay will be a repudiatory breach and will engage a common law right to terminate.
A party cannot recover damages for any part of a loss which could reasonably have been avoided, so it is important to consider ways to prevent or reduce loss.
The duty to mitigate requires a party to act reasonably, which will depend on the individual circumstances of each situation. However, the claimant need only take steps which are "in the ordinary course of business" 22 and is not required to engage in commercially risky conduct. Expenses, costs or further loss incurred in taking steps to mitigate the loss can be recovered. As for timing, once the innocent party becomes aware of the breach, or ought to have known of it, it has a reasonable time within which to take steps to mitigate.
An actionable misrepresentation is a false statement made fraudulently, negligently or innocently that causes the representee to alter its position in reliance on the statement.
One of the ways in which a representee may alter its position is by entering into a contract. The legal options available and the consequent effect on the contract depend on whether the statement has become a term of the contract, the type of misrepresentation, the cause of action relied on and the remedy claimed. If a statement made during pre-contractual negotiations has become a term of the contract, then normal principles apply to determining whether the contract can be terminated.
The court will ask whether the representor promised in the contract that the statement in question was true. If so, has that promise been broken so as to constitute a repudiatory breach at common law or trigger contractual termination provisions as outlined above? If that is the case, the innocent party may terminate the agreement for breach. Where the false statement has induced the representee to enter into the contract but the misrepresentation has not become embodied as a term of the contract, the relevant remedy at common law is rescission of the contract.
This means that performance is reversed, all rights and obligations fall away, the parties' pre-contract position is restored and the agreement is treated as if it had never existed. Rescission is by election. The representee must give a clear indication that he intends to be bound by the contract no longer. The representee does not have to go to court to obtain rescission, although if there is a dispute he may have to seek an order of the court that the election was valid.
The rescission will be valid provided the representee can show that either:. This establishes a prima facie right to rescind. However, rescission may be barred on a number of different grounds:.
As to this last point, if the representee has elected to rescind the contract on the basis of a misrepresentation that is fraudulent, 26 the court has no power to declare that the contract is still in existence. The remedy under the Misrepresentation Act is either rescission or damages in lieu see below. The court decides which of these remedies is the most appropriate and equitable, exercising a very broad discretion which includes considering the likely effect on both parties of permitting the contract to continue.
Effie's contract with Rekall Ltd requires that Effie deliver all of her catalogues by 4pm on Friday. If Effie fails to do this, she is in breach of her contract. If Effie only delivers 90 per cent of the catalogues by 4pm on Friday, she is still in breach because she did not complete the job. This is called 'part performance'. Effie's truck breaks down and she tells Rekall Ltd on Monday that the catalogues will not be delivered by Friday. Effie is in 'anticipatory' breach of the contract.
A breach of a contract will not automatically bring a contract to an end unless the contract expressly states this. Normally a breach just gives a right to 'damages' — the right to sue for any loss caused by the breach of contract.
The obligations under the contract continue to be binding. When the breach of contract is a serious breach or a breach of an essential term, the other party will have a right to terminate the contract or keep the contract going. However, your contract may require the hirer to provide you with a 'notice to remedy a breach' before it can be terminated.
Lee has a contract with Rekall Ltd to develop new software by 30 June. Rekall Ltd requires the software by this time because it has promised clients that from 1 July the software will be available for sale. If Lee fails to develop the software by 30 June, this will be a breach of an essential term. It is essential to Rekall Ltd that the software is ready in time.
If you try to terminate a contract for breach where you have no right to, the termination will have no effect. You will still be required to comply with the rest of the contract. One way to reduce risk is to include a provision in your contract that expressly states that if a particular term is breached, the other party has the right to terminate the contract. Always seek advice before you try to end a contract in this way. Having a good dispute resolution clause in the contract will help manage these issues.
Some contracts specify what will be payable if there is a breach by one party of a particular contractual obligation. Most contracts only allow termination in the case of a material breach. A material breach is defined as a significant failure to carry out the terms of the contract. There are several elements you can use to determine whether or not a breach is material:. When a material breach occurs, you have the option of compelling performance, collecting damages, or even terminating the contract if it is so written.
Almost all contracts require you to notify the other party within a certain timeframe that you are terminating the contract due to a breach. You do this by sending a termination letter. This termination letter must include the date of effect, the reason for termination such as an explanation of the material breach , a description of the remedies attempted to be made to resolve the situation, and any other information required in the termination clause. Depending on your specific situation, the cost of handling a breach of contract or termination can vary dramatically.
In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers. If you have received written notice that the other party is intending on doing some action that could be considered a breach of contract, this is considered an anticipatory breach, and you have the right to take action as though the breach had already occurred.
0コメント