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1. Contracts may be brought to an end by full performance; mutual agreement; the operation of a term in the contract; the operation of the law; or one party’s termination for the other party’s breach.
2. Breach of contract occurs when a party, without lawful excuse, refuses (‘renunciation’) or fails (‘failure of performance’) to perform any of his contractual obligations; performs defectively; or incapacitates himself from performance (‘impossibility’). Breach of contract does not automatically bring a contract to an end. It always gives the claimant a right to claim damages (and perhaps specific performance), but does not always entitle him to terminate the contract.
3. The claimant can terminate the contract if renunciation, impossibility, or breach relate to all of the contract-breaker’s obligations. Where they relate to only some of the contract-breaker’s obligations, the right to terminate depends on whether the breach is sufficiently ‘serious’, and this, in turn, depends on the status of the term breached:
- Breach of a ‘condition’ (an essential term) allows the claimant to terminate.
- Breach of a ‘warranty’ (a subsidiary term) does not allow termination; it only gives a right to damages.
- Breach of an ‘innominate term’ (a ‘wait-and-see’ term) will only allow termination if the claimant is thereby deprived of substantially the whole benefit that he was intended to receive under contract.
4. Where renunciation and impossibility occur before performance is due, this is known as anticipatory breach; the claimant is entitled to terminate (if the breach is sufficiently serious) and claim damages immediately.
5. A party can withhold their own performance (without terminating the contract for breach) simply because their own performance is not yet due because: (a) a contingent condition (an event upon which the existence of the contract depends but which neither party is obliged to bring about) has not occurred; or (b) their own performance is dependent on the other party’s ‘entire’ performance of a promissory condition which has not been substantially completed.
6. Contractual terms are classified by statute, the parties’ express agreement, binding precedent, or judicial determination of the parties’ implied intentions. It is for the court to interpret whether the parties used the words ‘condition’ or ‘warranty’ in their technical termination-yielding sense and to interpret the effect and scope of any agreed termination clause.
7. An otherwise unclassified term is likely to be a condition if: it involves a single performance, clearly specified in time and sequence, can only be breached in one way, is vital to the contract, or necessary for commercial certainty. A term is likely to be innominate if: it can be breached in different ways with varying degrees of seriousness, where performance takes place over some time and substantial performance may already have been given, or where the obligation is loosely framed.
8. An election to terminate must be clear, unequivocal, and communicated to the contract-breaker. The claimant need not give his real, or indeed any, reason for termination, so long as he is legally entitled to terminate. The election to terminate or affirm the contract is irrevocable once made.
9. The effect of termination is to discharge both parties from further performance of the contract and impose a secondary obligation on the contract-breaker to pay damages. In contrast, no contractual liability remains in respect of outstanding obligations where contracts are (a) discharged for frustration; or (b) rescinded ab initio (eg for misrepresentation), although there may be restitutionary liability for benefits received.
10. The claimant can elect not to terminate, but rather to affirm the contract and sue for the price unless he needs the contract-breaker’s cooperation or has no ‘legitimate interest’ in completing his performance.