Commercial Contracts - Essay Example

Commercial Law Question 4 Time plays a significant role in commercial contracts. The concerned parties have to fulfil their contractual obligations within the specified time. If the contract does not specify any time restriction, then the parties must fulfil the contractual obligations within a reasonable period of time.1 In the UK, the law admits of three situations, relating to delivery dates in contracts. These are time of the essence, estimated delivery date, and liquidated damages for late delivery. The UK law of contract deems the promised time for delivery of goods or completion of contractual obligations to be the major term of the contract.2 Parties to a contract have to deliver or complete their contractual obligations within the stipulated time. A contract need not specifically declare time to be of the essence. In general, a contract comprises of several conditions that indicate the importance of time. Some of these are that time is of the essence or that delivery dates are of fundamental importance. As such, the parties have to make the delivery within the stipulated time or complete contractual obligations, by the date mentioned in the contract.3 Section 10 of the SGA addresses issues related to the time factor in contracts. It stresses that conditions relating to the time of payment do not constitute the essence of the contract. Unless a different intention is visible in the contractual terms, time does not become of the essence of the contract. Specifications relating to time become crucial to the contract, on the basis of the contractual terms. Moreover, Sections 10(1) and 10(2) are silent regarding conditions and warranties that constitute the standard procedures of determining when a right of repudiation comes into being. 4 In general, time obligations constitute conditions in contracts of sale, if time is crucial to the contract. Instances of such terms are contracts, wherein the breach of a time obligation, entitles the non – breaching party to rescind the contract. However, delay in payment by the buyer does not empower the seller, prima facie, to repudiate the contract.5 Similarly, any other time obligation does not permit repudiation, as it is dependent on the construction of the contract. Under the provisions of Section 10(1), damages can be claimed by the seller, if the buyer delays payment to the extent that the seller can rescind the contract. Such an eventuality arises; first, if the court is of the opinion that time is crucial to the contract. Second, if time is not critical to the contract, the deferment of the payment ultimately resulted in a failure to make payment, thereby permitting repudiation of the contract.6 The seller is required to determine whether the delay in payment by the buyer, is sufficiently long to avoid the contract. If the assessment of the seller is incorrect, then he will be liable to the buyer for breach of contract. However, this situation is rare, because the property in goods is usually transferred to the buyer, prior to the delay in payment.7 Under these circumstances, the seller is limited to claiming damages for non-payment of the price by the buyer. In situations, where the seller breaches a time obligation or the time breach by the buyer is unrelated to the payment of the purchase price, the issues involved are different. Section 10(2) states that construction of the contract determines whether a time obligation is crucial to the contract.8 However, the courts have held that time obligations are of the essence to the contract. In addition, section 10(1) of the Sale of Goods Act 1979 declares that specifications regarding time of payment are not crucial to a contract of sale, until and unless a different intention can be understood from the contractual terms.9 In British and Commonwealth Holdings Plc v Quadrex Holdings Inc, it was held that unreasonable delay was essential, if the innocent party was to be permitted to give notice that would make time of the essence.10 In Behzadi v Shaftesbury Hotels Ltd, the court held that after the time for completing a contractual obligation had expired, a notice given by the party not in breach would render time of the essence for that contract.11 In Bunge Corp v Tradax SA, the House of Lords opined that specifications of time were to be construed as indicating that time was of the essence in the contract.12 The underlying reason behind this decision is to improve legal certainty in commercial relationships. It is essential for the parties to determine, whether the delay enables them to rescind the contract. In this manner, English law circumvents the provision of a Nachfrist notice, prior to the repudiation of a contract. Thus, the innocent party need not deliver any notice, if a time condition is breached, before being entitled to rescind the contract.13 The issuance of notice by a party to a contract, serves to make time of the essence in a contract, even if there had been no such initial specification. This was the ruling in Charles Rickards Ltd v Oppenheim.14 This situation arises as soon as the time for performance of the contract expires. The party not in breach is entitled to issue a notice to the other party, after the expiry of the date specified for completion of the contract. This is independent of whether time is of the essence in the contract, and such notice serves to make time of the essence. This decision runs contrary to the ruling in British and Commonwealth Holdings Plc v Quadres Holdings Inc that unreasonable delay is necessary for giving notice that would make time of the essence. 15 This perspective, based on case law, was contradicted by equity, which was of the opinion that time would not be of the essence, in the absence of such specification by the parties. Thus, section 21 of the Law of Property Act 1925, holds that if time is not of the essence, in accordance with equity, then the terms of a contract relating to time should be construed similarly at common law.16 The House of Lords have attached considerable import to the intention of the parties to a contract. This was clearly demonstrated in their ruling in United Scientific Holdings Ltd v Burnley Borough Council.17 In this case, their Lordships ignored the tenets of equity and common law and concentrated on the very nature of the contract. Specifically, this case dealt with a 99 year lease, wherein the landlord had failed to undertake a rent review, within the stipulated 10 year period.18 The House of Lords held that time was not of the essence, as far as the action of the landlord was concerned. In Stickney v Keeble, it was held that in the sale of land, the buyer can give notice to the seller to complete the obligation within the specified time. Failure to do so could result in the repudiation of the contract. Such notice renders time of the essence, and permits the notifying party to repudiate the contract after the expiry of the notice period.19 In this case, an agreement for sale of land was made on the 8th of June, which required completion to transpire on the 11th of October. Failure to do so causes the purchaser to give a notice to the seller, wherein the completion was required to be done, by the 13th of February of the succeeding year. However, the seller failed, even after being provided this additional time, and the purchaser rescinded the contract and successfully claimed the return of his deposit.20 The court found the purchaser’s claim and actions to be reasonable. This line of reasoning has been regularly applied to the sale of goods. For instance, in Hartley v Hymans,21 the court ruled that the waiver of the delivery period by the buyer, served to engender a new agreement that prolonged the delivery period, by a reasonable time. In addition, notice regarding this extension of delivery period was to be given to the seller by the buyer. 22 Unlike a Nachfrist notice, the ruling in this case, ostensibly requires a new implied agreement. A more supportive ruling emerged in Charles Rickards v Oppenhaim, wherein the court held that subsequent to waiving the time period for delivery, a buyer could give a notice relating to the period of completing the contract.23 However, the notice period has to perforce be reasonable, and during the pendency of this period, the buyer is precluded from resorting to any other remedy. 24 In contracts where time is the essence, the non – breaching party permit additional time to the other party, for it to fulfil its contractual obligations. This constitutes a waiver of contractual rights to claim damages for delay. English law, unlike a Nachfrist notice, requires waiver of time obligations and the provision of a notice that makes time of the essence.25 If the non – breaching party foregoes its rights regarding a breach of time stipulation, then time will no longer be of the essence of their contract. However, the contractual obligations have to be completed within a reasonable period. Bibliography Behzadi v Shaftesbury Hotels Ltd (1992) 2 All ER 477 British and Commonwealth Holdings Plc v Quadrex Holdings Inc (1989) 3 ER 492 Bunge Corp v Tradax SA (1981) 2 All ER 513 Charles Rickards Ltd v Oppenheim (1950) 1 All ER 420 Hartley v Hymans (1920) 3 KB 475 Law of Property Act 1925 Piliounis, PA, ‘The remedies of specific performance, price reduction and additional time (Nachfrist) under the CISG: are these worthwhile changes or additions to English sales law?’, Pace International Law Review, 2000, vol. 12, Iss. 1, pp. 1 – 46 Sale of Goods Act 1979 Stickney v Keeble (1915) AC 386 Stone, R, The Modern Law of Contract, 2009, Taylor & Francis United Scientific Holdings Ltd v Burnley Borough Council (1978) AC 904 Wright, D, Law for project managers, 2004, Gower Publishing Ltd Read More