Discuss fundamental breach of contract.

Question: Discuss fundamental breach of contract. [HJS 1988, UPJS 1991]

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Answer

It was a doctrine developed in the 1950s and early 1960s by the Court of Appeal that where one party had committed a fundamental breach of the contract, he was not permitted to rely on the provisions in the contract which excluded or limited his liability.

The doctrine of fundamental breach is a method of controlling unreasonable consequences of wide and sweeping exemption clauses. Even where adequate notice of the terms and conditions in a document has been given, the party imposing the conditions may not be able to rely on them if he has committed a breach of the contract which can be described as “fundamental“.

The rule has been thus stated by Lord Denning in Spurling Ltd v. Bradshaw, [(1956) 1 WLR 461, 465] These exempting clauses are nowadays all held to be subject to the overriding proviso that they only avail to exempt a party when he is carrying out his contract, not when he is deviating from it or is guilty of a breach which goes to the root of it. Just as a party who is guilty of a radical breach is disentitled from insisting on the further performance by the other, so too he is disentitled from relying on an exempting clause.

An easy illustration is to be found in cases where goods different from those contracted are delivered. For example, a car was sold on an “as is” basis and without any warranty or guarantee. Even so, the seller was held liable when five days later the engine of the car blew up. It was not a “car” that was delivered. Hence the contract was fundamentally broken.

What constitutes a fundamental breach?

“Every contract contains a core or fundamental obligation which must be performed. If one party fails to perform this fundamental obligation, he will be guilty of a breach of the contract whether or not any exempting clause has been inserted which purports to protect him.”

This may be illustrated with the facts of Davies v. Collins [(1945) 1 All ER 247]

The plaintiff entrusted to a dyer and cleaner a uniform for cleaning. On the docket given to him when he handed over the uniform was the following clauses “Whilst every care is exercised in cleaning and dyeing garments, all orders are accepted at owner’s risk entirely and we are unable to hold ourselves responsible for damage, shrinkage, colour, or defects developed in necessary handling. The proprietor’s liability for loss is limited to an amount not exceeding ten times the cost of cleaning.”

The defendant sent the uniform to be cleaned by a sub-contractor and it was never returned. The plaintiff claimed the full value of the uniform. It was held that the mere fact of the particular limitation clause in the contract was sufficient to exclude any right to subcontract the performance of the substance of the contract.

Limitation clauses of this kind do not apply where the goods are lost not within the four corners of the contract but while something was being done which was outside the terms of the contract altogether, or when a loss takes place in the course of some operation which was never contemplated by the contract at all.

Another illustration of fundamental breach is Alexander v. Railway Executive [(1951) 2 KB 882]

On depositing his luggage at the parcel office of a railway station, paying ordinary rates, the plaintiff received a ticket containing conditions one of which exempted the defendants from liability for misdelivery or loss of any article exceeding £ 5 in value unless a special charge for the same was paid. The defendants allowed the plaintiff’s friend to take away the luggage and in an action by the plaintiff relied on the above exemption clause.

But it was held that “an essential part of the executive’s duty was to take care of the deposited goods; that they had committed a fundamental breach of the contract in allowing an unauthorized person to have access to the goods and to take them away and, therefore, they could not rely on the exemption clause to shield them from liability.”

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X