Audio recording 25.1 transcript

The focus of chapter twenty-five is termination. And termination is not a remedy like rescission as we saw for misrepresentation or duress, for example. Because termination, and termination for breach of contract is prospective only. So, upon a breach of contract the innocent party will be able to sue for damages. And the primary obligation to perform is replaced by a secondary obligation to pay damages. And that's what we'll look at in more detail in chapter twenty-seven. But sometimes the innocent party will also be able to terminate the contract for the breach. So be able to end the contractual relationship between the parties. And termination is, if you'd like, a self-help remedy for breach of contract, because it's something that the innocent party can do without needing to go to court. And then the important question is, when will the innocent party be able to terminate the contract? And that depends upon the nature of the term you're looking at. So traditionally all terms are split into two. So, you had conditions and warranties, and roughly conditions were really important terms, and any breach of condition entitled you to terminate a contract. Whereas warranties were unimportant terms, any breach of which entitled you to damages, but not also to termination. But the law became quite difficult with artificial distinctions drawn between cases, which could only say a term would be either a condition or a warranty. And the law has developed to now recognize innominate terms, or sometimes called intermediate terms. And for innominate terms it really does depend whether or not a party will be able to terminate the contract. And you need to examine the facts of the case very closely. So, some breaches of innominate terms are very minor and inconsequential, so a party won't be able to terminate, and some breach of innominate terms go to the root of the contract, so it’s said, and are fundamental. And in those sorts of cases, the innocent party will be able to terminate the contract. And I think when you're looking at innominate terms, there seems to be something of a trend at the moment to find that the term is innominate rather than a conditioner or a warranty, because that gives the court greater flexibility. But then to find that the innominate term has been breached, but the breach is such that the innocent party isn't entitled to terminate. So, I think there's a tendency for courts at the moment to want to keep contracts alive. And to think that compensating innocent parties through damages is sufficient without also giving them the right to terminate the agreement. One of the things that's worth highlighting in this is that contracting parties themselves can choose to make something a condition. And can choose to say any breach of this term will entitle me to terminate the contract with you. And that's helpful because it provides the parties with the greatest degree of certainty and respects freedom of contract, freedom to choose the content of the bargain. But it's important to know that even if the parties say that something is a condition, it still raised a question of interpretation. You have to decide whether or not a term is labelled to condition in the sense that the parties intend any breach of the term will entitle innocent party to terminate. And the high profile decision of Schuler v Wickman shows that sometimes the court might say, well, the word condition is not used here in that sense. But I also think you should appreciate that Schuler is something of an outlier, it's something of an unusual decision in the context of commercial contracts. If two commercial parties, particularly two well-advised commercial parties, say that something is a condition, then you can generally expect that any breach of that term will entitle the innocent party to terminate. But it's a choice. The innocent party doesn't have to accept to a repudiatory breach, and doesn't have to terminate the contract. And that's something we'll look at more in the context of anticipatory breach in chapter twenty-six.