5) i) ii) iii)

Contracts III Terms of the contract Discharge of the contract Remedies for breach

TERMS OF A CONTRACT The promises which the parties to a contract make to each other are known as the "terms" of the contract. They are graded by the law into the following categories: Purpose of Categorization As might have been implicit from their descriptions, the p rpose of the legal categori!ation of contract al terms is to assist in the determination of the legal conse" ences of their breach. #or the party contemplating a breach, it is very important to be aware of the legal conse" ences that will ens e from implementing his decision. Conditions This is a term of ma$or stip lation in a contract. %t is part of the central themes. %t r ns to the part of the contract. &hen it is said that a term which is a condition "goes to the root of the contract" it merely means that the aggrieved party attached so m ch importance to the term that, if he had known that there wo ld be a breach of it, he wo ld not have entered into the contract. 'onse" ently, if it is broken, the in$ red party may ( ) treat the contract as rep diated and s e the party at fa lt for damages, ) affirm the contract and s e for damages. This was ill strated in the case* Poussard v Spiers (1876) 1 QBD 410 +o ssard was engaged to appear in an operetta from the start of its ,ondon r n for three months. The plaintiff fell ill and the prod cers were forced to engage a s bstit te. A week later +o ssard recovered and offered to take her place, b t the defendants ref sed to take her back. The co rt he d that the defendant-s ref sal was $ stified and that they were not liable in damages. &hat chiefly infl enced the co rt was that +o ssard-s illness was a serio s one of ncertain d ration and the defendants co ld not p t off the opening night ntil she recovered. The obligation to perform from the first night was a condition of the contract. #ail re to carry o t this term entitled the prod cers to rep diate +o ssard-s contract. !arranties %t is generally described as a stip lation which does not go to the root of the contract and breach of which does not entitle the aggrieved party to treat the contract as at an end, b t entitles him only to s e for damages. This is a minor term, or a term of minor stip lation. %t is a collateral or peripheral term of a contract. %t is not part of the contral theme. Bettini v Gye (1876) 1 QBD 183 .ettini, an opera singer, was engaged by /ye to appear in a season of concerts. 0e ndertook to be in ,ondon at least si1 days before the first concert for the p rpose of rehearsals. 0e arrived three days late beca se of a temporary illness. 0e gave no advance notice and /ye ref sed to accept his services. 2

%t was he d that the plaintiff had been engaged to perform for a 23)week season and the fail re to attend rehearsals co ld only affect a small part of this period. The promise to appear for rehearsals was a less important term of the contract. The defendant co ld claim compensation for a breach of warranty b t he co ld not rep diate .ettini-s contract. E"press ter#s The terms of a contract are said to be "e1press terms" if the parties themselves adverted to them at the time of negotiations and act ally agreed pon them 4i.e. incorporated them into the contract, either verbally or in writing). &ritten terms prevail over nwritten terms. 0andwritten terms prevail over others. I#p ied ter#s A term which the parties did not e"press $ incorporate into the contract may nevertheless be deemed to be one of the terms of the contract %$ i#p ication. This may be necessary in order to "give b siness efficacy to the contract", as e1plained in The Moorcoc&. Alternatively, the term may be implied by an Act of +arliament, s ch as the implied conditions and warranties implied by the 5ale of /oods Act. The sale of /oods Act implies the following terms* s.26 of the 5ale of /oods Act, implies into all sales contracts warranties namely: ) the warranty of "" iet possession", and ) the warranty that the goods shall be free from ndisclosed enc mbrances. s.2647) of the 5ale of /oods Act implies a condition that the seller has "a right to sell" 4i.e. he is the owner of) the goods. %f the goods are stolen goods, and the b yer had been aware of this fact, he wo ld not have entered into the contract E"e#ption or e"c usion c auses A party to a contract may seek to avoid legal conse" ences of a breach of a term thereof by inserting therein a paragraph or sentence to that effect. Alternatively, the cla se may be intended to i#it the legal conse" ences of the breach rather than avoidance thereof. 5 ch sentences or paragraphs are known as "e1emption cla ses". They are fo nded on the theory of freedom of contract and are common in standard form contracts. Judicial attitude to excemption/ exclusion clauses The 8nglish $ dges believed that a contract is an agreement which is free $ entered into by parties who are "s i $ ris" 4i.e. legally at par). 'onse" ently, a party to a contract which contained an e1emption cla se was bo nd by it. After all, why did he agree to enter into the contract despite the cla se9 As a conse" ence of n mero s cases that were bro ght before them, the 8nglish co rts form lated the following r les regarding e1emption cla ses: i. An e1emption cla se m st be an integral part of the contract. A cla se contained in a doc ment which is essentially a receipt for money paid will not be regarded as an e1emption cla se. ii. The partic lar cla se in the doc ment m st have been bro ght to the attention of the party affected by it before he entered into the contract. A p rported notification after 7

iii.

iv. v. vi.

the concl sion of the contract is not effective. 0owever, the party seeking to enforce the cla se may s cceed if he proves that he had dealt with the other party on previo s occasions, and had given him similar doc ments %f the party affected by the e1emption cla se had signed it, he will be bo nd by it, whether he did not read its contents before signing it. 81ceptionally he may evade some of the cla se if, before signing the doc ment, he had en" ired as to what it meant and was given verbal representations which modified the effect of some of the written words. %f the cla se is ambig o s, it will be interpreted against the party who inserted it and who is now relying on it. This is known as the "contra preferentem r le". As a general r le, an e1emption cla se cannot be relied pon by a third party. This is d e to the privity of contract r le. An e1emption cla se cannot be relied pon to e1onerate a party from the conse" ences of a f ndamental breach of contract.

Pena t$ C auses These are cla ses imposing a penalty on any party, meant to force him to observe certain cond ct. /enerally, s ch cla ses are not enforceable by the co rts. 'ISC(AR)E OF CONTRACT A contract is said to be discharged when the obligations created by cease to bind the parties that who area now freed from performance. %t may be discharged in the following ways* *reach This occ rs if there is a fail re to perform it strict $ as was agreed. This is non)performance or tendering a defective. Exa p!e" The 5ale of /oods Act, s.2: provides that where a seller delivers less, or more, than the " antity of goods agreed to be bo ght, the b yer may re$ect what is delivered and s e for damages for breach. This is a codification of the common law r le of strict performance. .reach does not discharge a contract b t entitles the other party to treat it as rep diated. %t is either anticipatory or Rep diatory;Act al. Anticipatory breach This occ rs when one party declares in advance that he will not perform his side of the bargain when the time of the performance arrives. 0e is taken to have rep diated the contract. %f one party, by words or cond ct, leads the other reasonably to believe that he does not intend to be bo nd by his agreement, the law does not re" ire that other party to await the inevitable. To protect himself or to mitigate his loss, he is " ite entitled to anticipate the inevitable event and act accordingly. %t leaves the innocent party with a choice* 4a) 0e can wait for the time of performance to arrive, perfom his obligations and then s e for damages. 4b) 0e can, forthwith, treat the rep diation as absolving him from the necessity to perform, and s e for damages. :

Repudiatory/Actual breach This occ rs where a party indicates either by words or cond ct that he does not intend to honor his contract al obligations or commits a breach of a condition, or commits any other breach that has serio s conse" ences for the in$ red party. %t mainly occ rs when the performance is d e. %t gives the in$ red party two options* Treat the contract as rep diated. This then allows him to recover damages and treat himself as being discharged from his primary obligations nder the contract. 0e can affirm the contract i.e. ignore the breach and still treat the contract as valid. 0e can th s carry on with his own performance. %f he does affirm it, he is still able to claim damages for any loss res lting from the breach. %n other words, he is electing to treat the condition breached as if it were a warranty. Perfor#ance This is by doing as agreed nder the contract. A contract is discharged by performance if both parties have d tif lly performed their obligations. <riginally , at common law, a party co ld only be discharged by performance if every part of the contract was performed. 'ontract al obligations had to be observed to the letter. This is the so called doctrine of =precise and e1act.> 0owever, the harshness of this common law principle led to the admission of a n mber of e1ceptions where in parties are discharged witho t performing precisely and e1actly, namely 5 bstantial performance +artial performance. %f accepted by the other party. 5eparable;divisible contracts +revented +erformance Tender of performance #r stration of contract E"press Agree#ent Discharge of contract by agreement $ stified on the premise that whatever is created by agreement may be e1ting ished by agreement. Discharge by agreement may be e1ec tory or e1ec ted. &here contract al obligations are e1ec tory a in either party has performed discharge is bilateral where each party charges the other from performance. Their m t al promises constit te consideration where contract al obligations are e1ec ted i.e. one party has performed discharge is nilateral where the party that has not performed is discharged by the other from performance. ?nilateral discharge may take any of the following terms* !ai+er: This may occ r where the contract is still e1ec tory and one party is nable to perform his part. The other party may re ease him from the obligations nder the contract by a deed 4i.e. he waives his right to performance of the contract). A deed is re" ired in order to make the agreement binding, since there is no consideration given by the released party. Accord and satisfaction: This occ rs where the contract is discharged by a new contract between parties. An e1ample wo ld be where A. agreed to sell a white PE,)EOT pick) p to .. 0e is now nable to proc re one and pers ades . to accept a white 'ATS,N +ick) p, and .. agrees to this. 6

 Assign#ent: This occ rs where the rights of a contract are transferred to another party, as where A lends . money to be repaid at the end of the month. .efore the end of the month A. tells .. to pay the money to '. when the time to pay comes. Assignments are not recogni!ed by the common law b t may be effected nder the %ndian Transfer of +roperty Act 2@@7 which is applicable in Aenya. No+ation: This occ rs where the <.,%/AT%<B5 or d ties nder a contract are transferred from one party to another, as where A lends money to . to be repaid at the end of the month. .efore that time arrives, it is agreed that .-s father 4') will repay the loan. Frustration 'ontracts are discharged by fr stration then performance of obligation is considered impossible, illegal or commercially f tile by reason of foreseen or e1traneo s circ mstances for which other party is to blame. According to +rofessors 'hesire and #ifoot, fr stration is a relatively new legal concept which the co rts have yet to develop f lly. %t is therefore not possible to tab late or classify all the circ mstances in which a contract may be discharged by fr stration. 0owever, the decided cases ill strate that the contract may be discharged by fr stration in one of the following ways: Destr ction of s b$ect matter of the contract before the time of performance arrives, Bon)occ rrence of an event i.e. a new sit ation has arisen which renders it impossible to perform the contract as originally anticipated. 5 pervening illegality ca sed by a change in the law, or government interference, so that it becomes illegal to perform the contract. Death or permanent incapacitation which renders it impossible for a party to a contract to perform it beca se of ne1pected or s dden illness. government intervention &here government acts or steps render performance impossible Effect of Frustration The effects of fr stration on a contract are detailed in the ,aw Reform 4#r strated 'ontracts) Act 2C6: of 8ngland which is applicable in Aenya nder the ,aw of 'ontract Act 2CD2. The Act provides that when a contract is fr strated ( The contract is terminated Eoney paid is recoverable. Eoney payable ceases to be payable. The parties may recover e1penses inc rred nder the contract, or retain the relevant s m from money received if any. %f any party to the contract has inc rred e1penses in part performance of the contract which has conferred "a val able benefit" on the other party, he is entitled to payment of a reasonable compensation on a " ant m merit. The doctrine of fr stration does not apply: - &here the parties anticipated the wo ld)be fr strating event and made e1press provision for it in the contract i.e. force ma$e re cla ses. - &here the fr strating event is self)ind ced.

- &here the contract is a ease or one for the sale of land ) b t there is some do bt regarding this. REME'IES FOR *REAC( OF CONTRACT The remedies available to a party who s es for a breach of contract are divisible into: 4a) 'ommon law remedies, and, 4b) 8" itable remedies. COMMON .A! REME'IES 'a#ages The ma$or remedy available at common law for breach of contract is financial compensation known as "damages". Types of damages Damages are classified into the following categories: No#ina da#ages which are awarded to a plaintiff to vindicate his right to the performance of the contract. This occ rs if the plaintiff has not s ffered any act al financial loss as a res lt of the breach of the contract. Actua or su%stantia da#ages which are awarded to the plaintiff as compensation for act al loss occasioned by the breach. %t sho ld however be noted that: - + nitive or e1emplary damages are not awarded by the co rt* and - Damages cannot e1ceed the loss s ffered by the plaintiff so that the plaintiff finds himself in a better financial position than if the contract had been properly perfomed. .i/uidated da#ages which are provided for by the contract. . t a s m provided for by the contract will not be recoverable if it is "a penalty". Rules That Govern The Measure f !amages For "reach f #ontract 2) The p rpose of a monetary award in damages for breach of contract is to compensate the innocent party for the loss s ffered. The essence is to p t that party where it wo ld otherwise have been if the contract al obligations had been performed 7) The loss of damage s ffered by the innocent party m st be proved. %t is the d ty of the plaintiff to prove loss. :) The plaintiff m st prove that he s ffered loss or damage by reason of the defendant to breach of contract. The plaintiffs loss m st be traceable to the defendant in breach there m st be a ne1 s between the two failing which damages are said to be too remote and therefore irrecoverable as was the case in (ad e$ + *a"enda e. This case is a thority for the proposition whenever a breach of contract occ rs, the plaintiff can only recover s ch loss as is reasonably foreseeable as likely res lt from the breach. %n this case the profits lost by reason of clos re of the mill were too remote and therefore irrecoverable. 6) &here a party is in possession of special information abo t the contract b t fails to act on it where pon the other party s ffers loss, s ch party is liable for the loss. #eron $$ &here the plaintiff s ffered a loss of 6,F22 by reason of a delay delivery of a consignment of s gar by the defendant 4appellant) who was aware that the respondent was a s gar merchant. %t was held that the appellant was liable for the loss as the same was traceable to the deto r he made res lting in the delay. 3) &here parties to a contract have already fi1ed the amo nt payable to the innocent party in D

the event of breach, and a breach of contract occ rs it is for the co rt to determine whether the s m so fi1ed is payable as damages or is a penalty in which case it is not enforceable. %n Dun!op P%eu ati& 'yre &o v (e) Gara*e and +otor &o, ,ord D nedin form lated the pres mption, co rts of law rely on in determining whether the s m fi1ed is li" idated damages or a penalty. D) &henever a breach of contract occ rs it is the d ty of the innocent party to take s ch reasonable steps as are necessary in the circ mstances to red ce the loss it wo ld otherwise have s ffered from the breach. The law imposes a d ty on the innocent party to act reasonably. 0owever, whether he has so acted is a " estion of fact. %n assessing damages the amo nt by which loss o ght to have been red ced by the acts of the innocent party is not reasonable from the defendant. G) As a general r le, co rts of law do not award p nitive damages for breach of contract. !istinction bet$een li%uidated damages and penalty,i" idated damages cla se is a fi1ed or ascertainable s m agreed by the parties at the time of contracting, payable in the event of breach. A penalty cla se is a cla se in a contract providing for a specified s m of money to be payable in the event of s bse" ent breach. There are two opposing arg ments on li" idated damages cla se and penalty cla ses. .eca se the claimant has the b rden of proving the amo nt of his loss, it is a great convenience to him if the contract can simply state a s m which will be payable by the defendant in the event of breach and the claimant can then s e for the stated s m. <n the other hand, any s ch system is open to ab se if the s ms might be set at a level far higher than the loss act ally s ffered. The 0o se of ,ords attempted to reconcile these arg ments in Dun!op Pneu ati& 'yre v (e) Gara*e and +otor 42C23) 0ere a contract between the parties re" ired the defendants to observe D nlop-s price list for certain prod cts. The contract stated that for every sale other than at a listed price the defendants wo ld be re" ired to pay H3 by way of li" idated damages and not as a penalty. 08,D: The s m was li" idated damages and so was recoverable. # rther, to address the distinction between the two, the 0o se of ,ords in this case made a n mber of general points which help to disting ish the two categories: The terms sed by the parties are not concl sive since the distinction is a matter of law A s m will be treated as a penalty if it is "e1travagant and nconscionable in amo nt" in comparison with the greatest loss that co ld conceivably be proved to have followed from the breach %t will be a penalty if the breach consists of not paying a s m of money and the s m stip lated is far greater than the s m which o ght to have been paid There is a pres mption that it is a penalty when a single l mp s m is payable by way of compensation on the occ rrence of one or more of several events, some of which may occasion serio s and others trifling damage. <n the other hand: G

 %t is no obstacle to the s m stip lated being a gen ine pre)estimate of the damage, that the conse" ences of the breach are s ch as to make precise pre)estimation almost an impossibility. %n s mmary th s, a Ili" idated damagesJ cla se is enforceable provided that the amo nt is a gen ine pre)estimate of the damage and not nconscionable. 'onversely, if a penalty cla se is incl ded merely to deter potential diffic lty, its void. Th s over time, many people have been seeking to avoid penalty cla ses. 5imilar res lts can be achieved by other 4 nob$ectionable) devices. Three devices are o tlined in EcAendrick 472.D I8vading the penalty cla se r leJ) incl de* 2 The penalty cla se r le does not apply to a cla se which accelerates an e1isting liability. 7 .eca se the penalty cla se r le only applies to breaches of contract, the parties can legitimately stip late that an amo nt shall be payable on an event which is not a breach of contract. : The parties can stip late that a term is a condition which is of the essence of the contract with the effect that breach of the term allows the in$ red party to terminate the contract and claim damages. Action for the Price %f the breach is simply a ref sal to pay the agreed price, the creditor sho ld simply bring an action for the price. This is only s b$ect to two limitations* #or contracts of sale of goods, the action for price may only be bro ght if the property in goods has passed to the b yer, nless there was an agreement to pay the price on specific date) s. 6C 5/A 2CGC #or anticipatory breach, s ms which become d e after anticipatory breach has occ rred are not recoverable nless the claimant affirms the contract. 0uantu# Meruit This is a ,atin term which literally means Ihow m ch its worthJ. %tJs a meas re of the val e of contract al work which has been performed. %ts an alternative to damages whose main ob$ective is to restore the claimant to the position he wo ld have been if the contract had never been made. %tJs th s a restit tory award. %ts mainly so ght where the party has already performed part of his obligations and the other party rep diates the contract. De Barnardy v #ardin* The claimant agreed to sell tickets and advertise for the defendants who were erecting stands for spectators to view the f neral of the D ke of &ellington. The defendant cancelled the arrangement witho t $ stification. 08,D: the claimant was allowed to recover the val e of the services already rendered. %ts s ally for a smaller s m that damages* b t may be higher than damages in cases where the claimant is only entitled to nominal damages 4e.g. beca se the claimant wo ld not have been able to perform the contract anyway @

E0,ITA*.E REME'IES The e" itable remedies for breach of contract are: In1unction This is an order of the co rt which restrains 4i.e. prevents) a party to a contract from doing something which, if done, will occasion a breach of the contract. #or e1ample, if <nyango has agreed to sell some ni" e goods to Aama and promised to deliver them at end of the two weeks. <n the third day after the contract was formed, Aama learns that <nyango has entered into another contract with Abd llah and intends to deliver the goods to Abd llah within two days. Aama may instit te legal proceedings in the 0igh 'o rt with a view to restraining <nyango from delivering the goods to Abd llah. An in$ nction may also be iss ed in order to restrain a breach of a negative stip lation in a contract. #or e1ample, if a tenancy agreement contains a cla se prohibiting the tenant from sing charcoal for cooking in the rented premise, an in$ nction may be iss ed to prevent him from doing so. There are three types of in$ nction: a) %nterloc tory in$ nctions: are designed to reg late the position of the parties pending a hearing. b) A prohibitory in$ nction: orders a defendant not to do something in breach of contract. c) A mandatory in$ nction: re" ires a defendant to reverse the effects of an e1isting breach. An in$ nction, being an e" itable remedy, is not a tomatically available b t is iss ed at the discretion of the co rt. A common gro nd for the e1ercise of the co rtJs discretion is the co rt-s belief that it is "$ st and e" itable" to do so. Specific perfor#ance As can be ded ced from its name, specific performance is an order of the co rt which orders the defendant to perform the contract precisely 4i.e. specifically) as he had promised to do. %t is decreed at the discretion of the co rt b t will not be decreed in the following cases: &here damages wo ld be ade" ate compensation for the plaintiff. &here the co rt cannot s pervise performance of the contract, s ch as a b ilding contract. &here the contract is one of personal services. 0owever, the co rt may grant an in$ nction restraining the defendant from doing something inconsistent with the contract. &here the contract is a money)lending contract. &here one of the parties is an infant. Mare+a2 Freezing In1unction A special type of in$ nction which has developed s bstantially over the last decade or so is the Mare+a in1unction 4now known as a Freeze Order), which is granted to prevent defendants in proceedings before the 0igh 'o rt from removing assets o t of the $ risdiction with the aim of avoiding or fr strating the enforcement of any $ dgment against them. .'%e +areva. &ase (1/80)

The 'o rt of Appeal pheld an in$ nction to restrain the defendants from removing or disposing o t of the $ risdiction money standing to the credit of the defendants in a ,ondon bank. The claimants were ship owners and the defendants were charterers nder a voyage charter. The defendants had received payments for the freight in that bank acco nt, b t they had failed to pay the hire charges d e to the claimants. 4The term Eareva in$ nction derives from the name of the ship in this case.) 5 ch an in$ nction will normally be granted where it seems likely that the claimant will obtain $ dgment against the defendant b t there is good reason to believe that assets of the defendant will be disposed of or dealt with in s ch a way as to prevent enforcement of the $ dgment. 0owever, a Eareva in$ nction will not be granted if its effect wo ld be some considerable interference with the rights of third parties. Any person who has notice or knowledge of a Eareva in$ nction m st do all that is reasonable to safeg ard the assets in " estion. %f he;she aids and abets the defendant to dispose of them, he;she will be liable for contempt of co rt and p nished accordingly. #or e1ample, if a bank is given notice of the in$ nction, it may act immediately and a tomatically to rescind any instr ctions given by the bank-s c stomer concerning his;her acco nt. This type of in$ nction may be granted in regard to claims for debts or other li" idated s ms. %t may be granted in any commercial action and in actions for damages for breach of contract. Anton Pi er Order 3Search Order) Another val able addition to contract al remedies which has evolved in recent times is the Anton +iller order 4now known as a Search Order). ,ike the Eareva in$ nction, it is a preemptive remedy designed to prevent a defendant from disposing of or dealing with material, property or assets in s ch a way as to fr strate enforcement of a $ dgment. A co rt has an inherent power to make an order re" iring the defendant to permit access to his;her premises with the ob$ect of searching for illicit materials and doc ments. The order also has the effect of permitting s ch property to be taken away, detained and kept in safe c stody ntil the f ll trial of the action. 5 ch an order was made originally in the case of 0nton Pi!!er 1G v- +anu2a&turin* Pro&esses 3td (1/76). A 5earch <rder order may be granted on an ex parte application to the co rt 4i.e. in the defendant-s absence). This is permissible beca se s rprise is essential ( if the defendant were to have prior knowledge of the application, there wo ld be a risk that he;she wo ld destroy or hide the property in " estion. The co rt may grant a 5earch <rder where the property comprises articles which infringe the claimant-s copyright, trade mark or other rights. %t will seek to safeg ard the defendant-s rights by ordering that the items in " estion be placed immediately in the c stody of a responsible person on behalf of the claimant. An order may also be made for the preservation of a doc ment amo nting to best possible evidence where there is a real danger of its being destroyed or hidden by the defendant. Rescission 2F

%t is a right which e1ists in certain circ mstances especially where the contract is voidable. %t means that the contract is cancelled or re$ected and the parties are restored to their pre)contract condition. #o r conditions m st be met for there to be effective rescission* %t m st be possible for each party to be ret rned to his pre)contract al condition. An innocent third party who has ac" ired rights nder the contract will prevent rescission from occ rring. The right m st be e1ercised within reasonable time of it arising. <nce a person affirms the contract e1pressly or by cond ct, he loses the right to rescind.

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