BREACH OF CONTRACTS

1. Breach Of Contracts
• Discharge by Breach:
• When a party fails to fulfil his obligations under a contract, the innocent parties has
certain remedies.
• When the other party fails to perform an essential obligation of the contract or when
he refuses to perform the contract entirely, a party to the contract has the option either
terminating the contract or treating the contract as subsisting.

2. Common Law
• Situations which gives rise the right to be discharged
• from contract to the innocent party.
• -Repudiation (Renunciation)
• Through words/conduct – one party intimates through words or conducts that he has
no intention to perform his main obligation under the contract.
• Hochster v De La Tour(service for no need)
• Facts: The plaintiff (Pff) was hired as a courier on April 12, 1852, to start work on
June 1, 1852. Three weeks before the start date, the defendant (Def) informed the
plaintiff in writing that his services were no longer needed.
• Action: The plaintiff immediately sued for breach of contract.
• Holding: The court held that the plaintiff was entitled to sue immediately, even
though the performance date had not yet arrived, because the defendant's letter clearly
amounted to a repudiation of the contract.
• Lovelock v Franklyn (land sell to another person )
• Facts: The seller (Dell) agreed to sell land to Lovelock at a certain price to be paid
over seven years. Before the payment was completed and within the seven-year
period, Dell sold the land to someone else.
• Court's Decision: The court held that Dell's action of selling the land to another
party impliedly repudiated the agreement with Lovelock.
I. Proof of repudiation
• An absolute refusal to perform (by words or conduct) must be clearly
established. The defaulting party must clearly show they do not
intend to fulfill their obligations.
• A simple refusal or failure to act is not enough to prove a refusal to
perform, especially if the party honestly misunderstood the situation
• -Fundamental Breach
• Examine the seriousness of breach.
• determined by 2 approaches:
• A) Look to importance terms broken either:
• ‘condition’-essential and important term- breach of condition gives rise to right to
terminate the contract and claim damages,
• ‘warranty’-non-essential term and less important term, breach of warranty only gives
rise to claim damages
• B) Innominate/Intermediate Approach: When examining a breach of contract,
focus on the seriousness of the consequences:
• If the consequences are severe, the innocent party can end the contract.
• If the consequences are minor and can be fixed, the innocent party can only claim
damages.

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd:

• Issue: Whether there was a breach of the undertaking that the chartered ship was seaworthy
and fit for ordinary cargo service.
• Facts: The ship experienced frequent breakdowns due to incompetent staff and outdated
machinery, leading to significant delays. It was operational at sea for only 8 ½ weeks in the
first 7 months of a 24-month charter.
• Court of Appeal (COA): Determined that the seaworthiness clause was an innominate term.
The charterer could only terminate the contract if the consequences of the breach were
extremely serious.
• Outcome: Despite the problems and delays with the ship, the fact that the ship owner tried to
fix the issues and there was still a significant time left in the charter meant that the charterer
did not lose all the benefits of the contract and therefore could not cancel it.

3. Statutory Provisions
• Section 40 states that if one party to a contract refuses to fulfill their promise completely or
makes it impossible for themselves to fulfill it, the other party can end the contract. However,
if the other party indicates, either through their words or actions, that they agree to continue
with the contract despite the refusal, then the contract remains in force.
• Rescission due to breach of contract means the contract is not considered void from the
beginning. Instead, it terminates the future obligations that the parties would have had under
the contract. In other words, it ends their responsibilities going forward but does not erase
everything that happened before the breach.

4. Instances Of Breach
• Section 40, when a party to a contract refuses or becomes unable to fulfill their promise
completely, the contract does not automatically end. Instead, the innocent party has the
choice to either terminate the contract or continue with it. The term "in its entirety" does not
mean every obligation must be unfulfilled; it refers to essential terms.
• For example:
• If a singer (A) agrees to perform at a theatre two nights a week for two months but willfully
misses a night, the theatre manager (B) can choose to end the contract.
• If A misses a night and B agrees for A to perform the following night, B cannot later end the
contract but can claim compensation for the missed performance.
• In both cases, the innocent party has the option to decide whether to continue or terminate
the contract based on the circumstances of the breach.
• Section 40 of the law embodies the common law principles regarding refusal to perform and
disability to perform in contracts:
• Repudiation: This occurs when one party clearly indicates they will not fulfill their promise
under the contract. The innocent party can then choose to terminate the contract and is
relieved from further obligations.
• Termination: When the innocent party accepts the repudiation (refusal to perform) of the
other party due to a breach, they have the right to terminate the contract. This action ends
their future obligations under the contract.
• Rescission: If a contract is invalidated due to lack of free consent (such as coercion or
fraud), the innocent party has the right to rescind or cancel the contract. This means they can
undo the contract as if it never existed.
• Choo Yin Loo v SK Visuvalingam:
• Facts: The plaintiff (Pff) and defendant (Def) entered into a contract where the plaintiff
agreed to perform work on the defendant's land, providing laborers. In return, the defendant
was supposed to make fortnightly payments amounting to 70% of the value of the work
done.
• Holding: The court determined that the defendant's refusal to continue making the agreed
fortnightly payments amounted to a breach of the contract. This breach entitled the plaintiff
to rescind or cancel the contract.
• Explanation: The court decided that because the defendant did not continue paying as
promised, which was a key part of the contract, the plaintiff had the right to cancel the
contract altogether.

5. Consequences of Discharge by Breach

• When a contract is discharged because one party refuses or is unable to fulfill their
obligations under Section 40:
• The innocent party is freed from having to perform any further obligations under the
contract.
• The defaulting party no longer has the duty to perform any future obligations they
had not yet fulfilled.
• Article 65 deals with the consequences of rescinding a voidable contract:
• Rescission: When a person who has the option to cancel a voidable contract chooses
to do so, the other party to the contract is relieved from fulfilling any promises they
made as part of the contract.
• Restoration of Benefits: If the person rescinding the contract has already received any
benefits from the other party, they must return those benefits as much as possible to
the original giver.
• if someone cancels a contract that can be voided, the other party doesn't have to fulfill
their promises anymore, and if the canceler has gained anything from the contract,
they should give it back to the other party as much as they reasonably can.
• Article 66 of the law addresses the obligation of a person who has received an
advantage under a void agreement or a contract that becomes void:
• Void Agreement: If an agreement is found to be invalid from the beginning.
• Void Contract: If a contract becomes invalid due to circumstances that arise later.
• In both cases:If someone has gained any benefit or advantage from the agreement or
contract, they are required to return that benefit or compensate the person from whom
they received it.
• Section 76- When a person rightfully cancels or rescinds a contract: They are entitled
to receive compensation for any harm or losses they suffered because the contract
was not fulfilled.