Substance of the contract

Breach, rules of interpretation

What makes up a contract?

Representations: when is a statement incorporated into the contract Terms: what is the importance of the statement in a contract?
Conditions: fundamental importance Warranties: collateral/minor importance Innominate terms: when is the term major or minor?

Incorporation of the term into the contract

Importance of the statement

Bannerman vs. White [1861]
Seller assured the buyer that the goods bought did not contain a particular ingredient. Statement was not true Pl. claimed the assurance formed part of the contract.
A major term (describing sale object).

Court held the contract not binding without the false statement there would have been no contract.

Special knowledge by the offeror

Oscar Chess vs. Williams [1957]
Private seller stated that the car was a 1948 Morris. This was not true and the car sold was worth much less. Court held the representation was not a term (did not have special knowledge).

Dick Bentley Prod. Ltd. vs. Harold Smith (Motors) Ltd. [1965]
Representation (car had done 20,000 instead of 100,000 miles) held to be a term because the seller had special knowledge. He should have known the accuracy of the statement, therefore intended it to be a part of the contract.

Inclusion of oral representation in a written contract

Heilbut, Symons & Co. Vs. Buckleton [1913]
Must be clear evidence that representations made were intended to be contractually binding. In this case, the representation was made in response to an enquiry. There was no intention that this was to be contractually binding.

The Parol Evidence Rule

Henderson vs. Arthur [1907]:
Extrinsic evidence, especially oral evidence, may not be admitted to add, delete or vary the terms of a contract which has been put in writing. Served the interest of legal certainty. However, can also create unfairness if it is obvious that other terms agreed but not put in writing. Nowadays, exceptions so significant that the rule has ceased to be important in practice.

Exceptions to the Parol Evidence Rule

Rectification: equitable remedy, available in the case of a transcription mistake (i.e. oral contract incorrectly written down). Collateral contract: an oral agreement which exists in parallel to the written agreement
Must be clear evidence that it was intended to be binding

Written contract incomplete

Written contract not intended to be the whole contract

Writing not the whole agreement

J Evans & Son (Portsmouth) Ltd. v. Andrea Merzario Ltd. [1976]
Pl. had had goods transported by Def. for a long time. Goods always stored below ship. Def. wanted to change to containers (normally stored on deck) Pl. agreed provided they were stored below deck as normal. This was not done and a container was lost.

Statement of the court

[The] contact [was] partly oral, partly in writing and partly by conduct. In such a case the court does not require to have recourse to lawyers devices such as collateral oral warranty in order to seek to adduce evidence which would not otherwise be admissible. The court is entitled to look at and should look at all the evidence from start to finish in order to see what the bargain was that was struck between the parties.

Interpretation of a contract

Lovell & Christmas Ltd. vs. Wall (1911)

If there is one principle more clearly established than another in English law it is surely this: It is for the court to construe a written document. It is irrelevant and improper to ask what the parties, prior to the execution of the instrument, intended or understood. . . . [U]nless the case can be brought within some or one of these exceptions, it is the duty of the court, which is presumed to understand the English language, to construe the words used therein, and without reference to anything which previously passed between the parties to it.

Rules of interpretation
The courts interpret a written contract
not by reference to the intention of the parties but rather accordance with the ordinary grammatical meaning of the words and without reference to the contractual history

Reason for not referring to negotiations:

Only the words of the final written contract embodies the settled consensus.

Courts should try and save / give effect to the agreement subject to evidence of intention.

Exceptions to the rules

Reference to extrinsic evidence can be made where:
the contract is in a foreign language the terms used have a special meaning
The terms used must obviously have more than one meaning / be obviously ambiguous

the parties conduct reflect particular business practice

Primary Obligations of the Contract

Lay down primary obligations

Express / implied = breach of contract
Secondary obligation
to pay compensation to comply with an order for specific performance

Three types
Conditions: major primary obligation Warranties: minor primary obligation Innominate terms: either or.

Types of conditions
Condition precedent
Contractual liability dependent on the existence of a state of affairs / event

Condition subsequent
An event that cause existing contract to terminate

Promissory conditions
Parties agree that a certain result will be achieved. Otherwise = breach of condition

When is a term a condition?

L. Schuler AG v. Wickman Machine Tools Sales Ltd. [1973]
Use of the word condition is an indication even a strong indication of such an intention but it is by no means conclusive. The fact that a particular construction leads to a very unfavourable result must be a relevant consideration. The more unreasonable the result, the more unlikely it is that the parties can have intended it.

When is a term a condition? (2)

Hongkong Fir Shipping Co. Ltd. vs. Kawasaki Kisen Kaisha [1962]
Breach must give rise to an event which will the party not in default of substantially the whole of the benefit which it was intended he should obtain from the contract.

Barber v NWS Bank Plc [1995]

This term is not one which admits of different breaches, some of which are trivial, for which damages are an adequate remedy, and others of which sufficiently serious to warrant rescission. There is here one breach.

Time is of the essence regardless of the effects of breach

Bunge Corpn. v. Tradax Export SA
[I]n mercantile contracts, stipulations as to time [] usually are [] treated as being of the essence of the contract, even though this is not expressly stated in the words of a contract. It would follow that in a mercantile contract it cannot be predicated (i.e. claimed) that, for time to be of the essence, any and every breach of the term as to time must necessarily cause the innocent party to be deprived of substantially the whole benefit which it was intended that he should have.

Even minor breaches of time clauses lose the contract!

Union Eagle Ltd. vs. Golden Achievement Ltd [1997]
The contract for the sale of a flat: completion for the transaction was 5 pm. Clause in the contract said time was of the essence: late completion would lead to rescission and loss of deposit. Pl. were 10 minutes late. Claimed specific perf. Court rejected claim of specific performance and enforced the clause strictly, saying certainty was needed in commerce.

Breach of a condition
Allows the non-breaching party to treat the contract as repudiated. Excuses him from further performance However, other secondary terms may still apply: they will not be extinguished by the breach of a condition Pl. can however choose to continue the contract

Secondary terms of the contract survive breach

Photo Production Ltd. vs. Securicor Transport Ltd. [1980]
The Court of Appeal held that breach of a condition would end the contract and extinguish all other obligations under the contract. Rejected by the House of Lords which stated that an exclusion clause (which excluded liability for injurious act or default by any employee), still applied. Held that the exclusion clause ruled out liability even if injury was caused intentionally.

Election: perform or terminate

Right to repudiate is lost if contract is affirmed in awareness of right to treat it as repudiated. In either case, the breaching party will be obliged to pay damages for breach. Affirmation of contract is a question of fact. May be difficult to ascertain if the nonbreaching party does nothing. In this case, the non-breaching party may lose the right to repudiate on grounds of estoppel.

Warranties
Breach = secondary obligation to pay damages Do not justify termination of the contract The decision whether a term is a condition or warranty depends on the case and the judge
E.g. turning up for rehearsals or training Effects of breach not taken into account if the term is expressly classified a warranty.

Innominate terms
Hongkong Fir Shipping Co. Ltd. vs. Kawasaki Kisen Kaisha Ltd. [1962]
[S]ome breaches will, and others will not, give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of the breach of such an undertaking, unless provided for expressly in the contract, depend on the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a condition or warranty.

Effect of breach of innominate terms

This is determined by the nature of the breach
E.g. breach of a clause relating to delivery may be minor or major, depending on the circumstances. If the result of the breach is substantially to deprive the non-breaching party of the benefit he was to receive under the contract, then the term = condition.

Implied Terms
Impossible for the parties to provide for all events in the contract Implied terms fill the gaps in the contract Do not always reflect the will of the parties and the courts and parliament use implied terms to pursue their own aims. E.g. Quality of the goods, consumer protection. Divided into terms implied as fact and terms implied in law

Terms implied as fact

This is where the parties have forgotten to include a term. The term must be necessary The courts will fill the gap with reference to the circumstances of the contractual relationship. Therefore, aims to reflect the intention of the parties.

Test for term implied as fact

Shirlaw v. Southern Foundries [1926]
Prima facie that which in any contract is left to be implied is something so obvious that it goes without saying; so that, if, while the parties were making their bargain an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common Oh, of course!

Terms implied in law

Other terms are implied regardless of the intention of the parties and without reference to the contractual relationship. Liverpool City Council vs. Irwin [1976]
H.L. Implied a term that the council was under an obligation to maintain the building Test: the term must be a necessary result of the contractual relationship.

Spring vs. Guardian Assurance plc. [1994], Lord Woolf

This being the nature of the engagement, it is
necessary to imply a term into the contract that the employer would, during the continuance of the engagement or within a reasonable time thereafter, provide a reference at the request of a prospective employer which was based on facts revealed after making those reasonably careful inquiries which, in the circumstances, a reasonable employer would make.

Terms implied by statute

Most important:
Standard of the production of goods or delivery of services E.g. Sale of Goods Act 1979 (as amended):
(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality. (2A) [G]oods are of satisfactory quality if they meet the standards that a reasonable person would regard as satisfactory