This case study is concerned with Contract, more specifically the materiality of a breach of contract, and the remedies thus allowable.

It is recognised by Judges that “repudiation is a drastic conclusion which should only be held to arise in clear cases of refusal, in a matter going to the root of the contract, to perform contractual obligations” Lord Thomson gives this idea further credence   if the breach is such, by degree or circumstances, that it can be remedied so that the contract as a whole can thereafter be implemented, the innocent party is not entitled to treat the contract as rescinded without giving the other party an opportunity so to remedy the breach .  So repudiation should not readily be assumed by the innocent party, who also have a duty to allow the other party to remedy the breach.

The case Wade v Waldon, is viewed by many authoritative for the study of materiality.  In the case Mr Wade (comedian) and Mr Waldon (Theatre Manager) entered into a contract for Mr Wade to perform at Mr Waldon’s theatre.   The contract contained an article stipulating that artistes engaged must give 14 days notice before the engagement, and the notice should accompany any bill matter.    Mr Wade did not give this notice.   On reading the theatrical papers he discovered that his act was not mentioned, and on enquiring further, was told that his contract was cancelled by Mr Waldon on the basis of breach of contract.   Mr Waldon sued Mr Wade for breach of contract, Mr Wade sued Mr Waldon for breach of contract in not letting him appear.

The court rejected Mr Waldon’s claim on the grounds that the stipulation was not material, and therefore he was not entitled to rescind the contract, and that by doing so, was in breach of contract himself.    The court also upheld Mr Wade’s claim – allowing him proof of damages sustained.

This case shows us that the question of materiality should be viewed from the facts and circumstances of each individual case, in the absence of any text in the contract stating that the stipulation about 1-4 days notice was to be taken as material, the judges held it was obvious that the breach was not material (The Lord President said that he was “very clearly of the opinion that this stipulation does not go to the root of the contract”).   This case also highlights the prospective dangers arising when assuming too readily that repudiation has occurred.   If Mr Waldon had just sued for damages, there would have been no case to argue.

A further important test for materiality arose in Spiers v Peterson.   In this case, Lord Peterson had contracted with Spiers to build him a house.    The house was subsequently built, and it was then discovered that the damp proof course was ineffective.    Consequently Lord Peterson held back the final payment, and the builders took him to court.

It was argued by Lord Peterson that a defective damp proof course did go to the heart of the contract to build a house, and thus was a material stipulation in housebuilding.    However, the court found that there were many important aspects to building a house, and to decide which were material or not, the court investigated how much it would cost to rectify the damp proof course.

Lord Ormidale reasoned that “The materiality of a deviation or omission must always depend largely on the amount of the sum required to rectify it relatively to the whole contract price”.    It was found that a sum of £700 was reasonable.   However, since the total value of the contract was £19,000, the rectification of the damp proof course was seen to be only a fraction of the contract value and thus did not constitute a material breach of contract.    Lord Peterson was found to be unjustified in refusing to pay.

So we have seen that repudiation is not to be readily inferred when a breach of contract situation arises, and that the innocent party should allow the other party the chance to remedy the breach.   We have also seen that a material breach of contract is a breach which strikes at the heart of the contract, and (if measurable in monetary terms) a breach where the value to rectify the breach is a large part of the total contract price.    Given these conclusions, let us now examine the facts of the case study and apply our reasoning to them.

Jack and Acme Builders have entered into a legally binding contract with each other.    Thus rights and obligations were created on both sides from the moment the contract was agreed upon.   Jack lifting the slabs before the workmen were to start was part of the contract.    Because Jack did not lift the slabs as agreed, he was in breach of contract.    Assuming that there was no text in the contract relating to the materiality of the lifting of the slabs, then we must deduce for ourselves the materiality of this part of the contract from the facts available.

The builders would argue that not lifting the slabs was a material breach of contract, because (we assume) they could not carry out their obligations until the slabs were lifted.   However, in considering the reasoning behind the cases previously discussed, we note the following.

Firstly, the builders have assumed that the contract had been repudiated and thus ended the contract, a drastic conclusion to reach.    This is despite the recognised fact that “it is not open for the party unilaterally to declare the contract terminated”.   In addition to this, the breach could be remedied so that the contract could be completed, by the lifting of the slabs.   Given that this is so, then as per Lord Thomson in the Lindley Catering Investments case, the builders are not entitled to treat the contract as rescinded.   The builders ought therefore to have given Jack every opportunity to fulfil his part of the contract, for example by allowing Jack more time to complete the work, whilst claiming damages for breach.    The fact that the builders had plenty of other work to go on to is irrelevant in this, because by entering into the contract, the builders are recognising that there is a possibility of a breach of contract occurring, and that they would be bound to abide by the law in such matters.

Now let us consider the relative values of the full contract and the lifting of the slabs.   Spiers v Peterson tells us that if the cost of lifting the slabs is large, relative to the contract as a whole, then the breach could be deemed material.    However, we are told that another firm of builders formed a contract with Jack to carry out the same works, but at the cost of £2,500.   Additionally, they would lift the slabs for £150 extra.   So with this second builder the cost to lift the slabs is very small relative to the contract as a whole, and therefore the lifting of the slabs is not material.    It could be argued however, that this is only relevant to the second builder.     But in a competitive market, there is no reason why prices for the same work should be substantially different between the two builders (and Acme’s price would have to be substantially higher to change the outcome of this test).

In conclusion, we can see that the builders would argue that the breach was material because they could not carry out their obligations until the work was completed.   In Jack’s defence we have that firstly the builders assumed that the contract was repudiated too readily;  secondly, they did not allow Jack any opportunity to remedy the breach;   and thirdly, since the cost to lift the slabs was only a very small sum, compared to the value of the contract as a whole, the clause concerning the lifting of the slabs is not material.

Given these circumstances, with the facts we have been given, I feel that the builders were not entitled to rescind the contract.   My advice to Jack would be to take Acme Builders to court on the grounds that by rescinding the contract, they were in breach of contract themselves (as in the case of Wade v Waldon previously discussed).   However, Jack could only claim for £500 damages, which is the “money compensation as will put him in the position in which he would have been but for the breach”.

CITATIONS

The Heron II 1961 AC 350

Blythe v Scottish Liberal Club 1983 SLT 260

Bellini v Gye 1876 1 QBD 183

Spiers v Peterson 1924 SC 428

Wade v Waldon 1904 SC 571

Woodar Investment Development Ltd v Wimpey Homes Construction UK Ltd 1980 1 WLR 277

Lindley Catering Investments Ltd v Hibernian Football Club Ltd 1975 SLT (notes) 56

BIBLIOGRAPHY

C. Burns and J.N. Quar – Commercial Law of Scotland, 3rd edition, 1980, William Hodge & Co. Ltd

M. MacMillan and S. MacFarlane – Scottish Business Law, 2nd edition, 1993, Pitman Publishing.

D.M. Walker – The Law of Contract and Related Obligations in Scotland, 3rd edition, 1995, T & T Clark.

C. Willett and A. Odonnell – Scottish Business Law;   Text, Cases and Material, 1st edition, 1991, Blackstone Press Ltd

S. Woolman – Introduction to the Scots Law of Contract, 2nd Edition, 1994, W. Green.

---