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CHING YIK DEVELOPMENT SDN BHD V SETAPAK HEIGHTS

DEVELOPMENT SDN BHD ( 1996 ) 3 MLJ 675

1) FACTS

a) In October 1991, the respondent an owner of a certain piece of property


entered into an agreement with the appellant for the sale and purchase of the
property at a purchase price of RM4,990,000 the first agreement
b) Clause 5 of the first agreement required the respondent to deliver up duly
executed memorandum of transfer to the appellants solicitors to be held by
them pending the conclusion of the sale.
c) The appellant paid the respondent a sum of RM250,000 as a deposit and
entered a private caveat against the property.
d) In December 1991, the parties entered into a second agreement which
stipulated for an increase in the purchase price of RM3m. In October 1992,
the appellant sent a cheque in the sum of RM4,740,000 in purported payment
of the balance of the purchase price.
e) However, the cheque was dishonoured because the payment on the cheque
was stopped by the appellant on the ground that the respondent had failed to
comply with cl 5 of the first agreement.
f) In July 1993, the appellant commenced proceedings against the respondent
for specific performance.
g) The respondent applied to strike out the action under O 18 r 19 of the Rules
of the High Court 1980.
h) The judicial commissioner granted the respondent application and ordered
the appellant action to be struck out.
i) The appellant appealed. Counsel for the appellant submitted that the judicial
commissioner had erred in holding that the appellant was without a cause of
action.
j) He argued that the respondent had breached its obligation to deliver the
memorandum of transfer in accordance with the provisions of cl 5 of the first
agreement and that the appellant was therefore entitled to withhold the
payment of the balance of the purchase price.

2) HELD

a) Dismissing the appeal:

b) In every contract, be it for the sale of land or any other commodity, there are
some terms that are of fundamental importance and others of less or minor
importance. Where the term that has been flouted is fundamental to the
contract, the innocent party is entitled to treat himself as being discharged
from further obligations under it. But where the obligation that has been
breached is only subsidiary or minor in nature, the innocent party may not
treat himself as being free of his obligations under the contract, although he
may sue and recover damages for the non-performance of the subsidiary
term;
c) A party who terminates a contract or treats it as having come to an end in
reliance upon the breach of a non-fundamental term is himself guilty of a
breach of a contract;
d) Whether a particular term is fundamental to the contract or merely a term of
subsidiary importance depends on the way in which the particular contract is
constructed. Nevertheless, in the absence of any special considerations in a
contract for the sale of land, the obligation to pay the purchase price is a
fundamental term. So too is a term that the vendor has good title to the
property that is the subject matter of the sale. If the parties desire to make
some other obligation fundamental in nature, they must make it dependent
upon one or other of these terms;
e) Another approach is to look at the consequences of the breach of the term in
question. If the breach is of such a nature that it goes to the root of the
contract, then the term broken is fundamental in nature. On the other hand, if
the consequences of the breach are not serious in the sense that they do not
go to the root of the contract, then the term in question is a subsidiary one
entitling the innocent party to recover damages, but not to treat the contract
as being at an end;
f) Applying either of the tests to the facts of the present appeal having regard to
the terms of the first agreement as a whole it was clear that the stipulation as
to the payment of the purchase price was a fundamental term. It was also
clear that the obligation to deliver the executed memorandum of transfer was
merely a subsidiary term, the non-performance of which did not relieve the
appellant from his obligations under the contract. Therefore, the appellants
failure to pay the purchase price was fatal to its case.
BEHN BURNESS ( 1863 ) 3 BTS 751 122 ER 281

1) FACTS

a) In policies of insurance and charter parties, the word “warranty” is


synonymous with “condition.” Per Erle CJ, Pollock CB, Williams and
Keating JJ, and Channell B.
b) A “representation” is a statement, or assertion, made by one party to the other,
before or at the time of a contract, of some matter or circumstance relating to
it. Per the same Judges.
c) Although a representation is sometimes contained in the written instrument,
it is not an integral part of the contract; and, consequently the contract is not
broken though the representation proves to be untrue nor (with the exception
of the case of policies of insurance, at all events marine policies, which stand
on a peculiar anomalous footing) is such untruth any cause of action, nor has
it any efficacy whatever, unless the representation was made fraudulently,
either by reason of its being made with a knowledge of its untruth, or by
reason of its being made dishonestly, with a reckless ignorance whether it
was true or untrue. Per the same Judges.
d) Whether a descriptive statement in a written instrument is a mere
representation or a substantive part of the contract is a question of
construction which the Court, and not the jury, must determine. Per the same
Judges:
e) When that question is raised by pleading, the Court may, in aid of the
construction, take into consideration the surrounding circumstances; such as
the circumstances under which, and the purposes for which, the charterparty
was entered into: aliter if the question is raised by demurrer or on an
application for judgment non obstante veredicto. Per the same Judges.
f) If the former, the question arises whether that part of the contract is a
condition precedent or only an independent agreement, a breach of which
will not justify a repudiation of the contract, but will only be a cause of
action for a compensation in damages. Per the same Judges.
g) With respect to statements in a contract descriptive of the subject-matter of it,
or of some material incident thereof, the true doctrine is that, generally
speaking, if the descriptive statement was intended to he a substantive part of
the contract, it is to be regarded as a warranty, that is to say, a condition on
the failure or non performance of which the other party may, if he is so
minded, repudiate the contract in toto, and so be relieved from performing
his part of it, provided it has not been partially executed in his favour.
h) If, indeed, he has received the whole or any substantial part of the
consideration for the promise on his part, the warranty loses the character of
a condition, or, to speak perhaps more properly, ceases to be available as a
condition, and becomes a warranty in the narrower sense of the word – viz a
stipulation by way of agreement, for the breach of which a compensation
must be sought in damages. Per the same Judges.
i) The position that a statement of this kind in a charter party which may be
regarded as a mere representation if the object of the charter party be still
practicable, may be construed as a warranty, if that object turns out to be
frustrated, denied to be law. Per the same Judges.
j) By memorandum of charter party, dated London, it was agreed between AB,
therein described as “owner of the good ship or vessel called The M, of 420
tons or thereabouts, now in the port of Amsterdam,” and CD, that the said
ship, being tight, staunch, strong, and every [752] way fitted and ready for
the voyage, should, “with all possible despatch, proceed direct to N & C.” In
an action by the ship owner against the charterer for not loading the agreed
cargo:

2) HELD

a) By Erle CJ, Pollock CB, Williams and Keating JJ, and Channell B, reversing
the judgment of the Court of Queen’s Bench;
b) i. That the words “now in the port of Amsterdam” amounted to a warranty or
condition precedent to, the contract, that the ship was there at the, time, of
making the memorandum of charterparty.
c) ii. That the question was properly raised by a plea that at the time of making
the charterparty, time and the then situation of the ship were material and
essential parts of the contract: although it should seem the question might
also be raised by pleading the material circumstances on which the defendant
relied as leading to the construction which the plea sought to put on the
instrument.
ASSOCIATED METAL SMELTERS & THAM CHEOW TOH ( 1971 ) 1 MLJ
271

1) FACTS

a) In this case, the plaintiffs claimed damages for breach of warranty of


a metal melting furnace.
b) The defendants had agreed to sell the furnace to the plaintiff and had given
an undertaking that the melting furnance will have a temperature of not lower
than 2,600[deg ]F.
c) The furnace supplied by the defendants in fact did not meet the required
temperature.

2) HELD

a) The failure on the part of the defendant to supply a furnace which would
meet the required temperature constituted a breach of the condition of the
contract entitling the plaintiffs to treat such breach as a breach of warranty.
HONG KONG FIR SHIPPING CO LTD V KAWASAKI KISEN KAISHA
( 1962 ) 2 QB 26

1) FACTS

a) Ship owners let the vessel, Hongkong fir, to charterers for a period of 24
months. Clause 1 of the contract obliged the owners to deliver a “seaworthy”
vessel and Clause 3 further obliged them to maintain the vessel’s
seaworthiness and good condition.
b) Upon initial delivery, the vessel’s machinery was described to be in
‘reasonably good condition,’ yet required constant maintenance due to its
age.
c) The vessel owner’s chief engineer was inefficient and incompetent, and the
vessel suffered numerous breakdowns and delays.
d) The charterer’s repudiated the contract, alleging a breach of the obligations to
deliver and maintain a seaworthy vessel.

2) ISSUE

a) The questions arose as to


b) Whether the seaworthiness obligation constituted a ‘condition’ of contract,
the breach of which entitles the party to repudiate; and
c) Whether the breach caused delays of a sufficient degree so as to entitle the
charterer to treat the contract as repudiated.

3) HELD

a) Firstly, the Court held that in order to construe whether a contractual clause
constitutes a condition precedent, the breach of which permits repudiation, or
an innominate term, the breach of which permits damages, depends on a
holistic assessment of the contract’s surrounding circumstances in
determining the intention of the parties in their treatment of the clause.
b) On the facts, the Court held that the seaworthiness and maintenance clause
was not viewed as so fundamental so as to amount to a condition of the
contract, but rather constitutes a term allowing damages.
c) Secondly, the Court held that an innocent party cannot treat the contract as
repudiated due to delays, however significant, if the breach falls short of a
frustration of the contract rendering performance impossible.
d) On the facts, the delays, albeit serious and repeated, did not amount to a
frustration of contract that entitled repudiation of the contract, but merely a
breach allowing for damages.
THE MIHALIS ANGELOS ( 1971 ) 1 QB 164

1) FACTS

a) The owners of the ship, The Mihalis Angelos, chartered the ship to the
defendant to use for the carriage of some cargo.
b) A clause in the agreement stated the ship was expected ready to load on 1st
July.
c) In fact the owners had no grounds for believing the ship would be ready to
load on that date as it was in Hong Kong at the time and would not be ready
until at least the 14th of July and in fact it was not ready at that date.
d) The defendant cancelled the contract on 17th of July.
e) The cargo that they expected to be carrying had not arrived due to the
bombing of a railway in Vietnam.
f) The ship owners brought an action against the defendants for anticipatory
breach.
g) The defendants argued that the claimant was in breach of condition of the
contract by not be ready to load on the specified date.

2) HELD

a) The expected ready to load clause was a condition despite the fact it had
caused no loss to the defendant.
b) The classification as a condition was said to be because of the need for
commercial certainty in shipping contracts.
THE HANSA NORD ( 1976 ) QB 44 , REARDON SMITH LINE V
HANSEN-TANGEN ( 1976 ) 3 ALL ER 570

1) FACTS

a) A shipment was delivered where 1/3 of the contents were damaged


b) The implied terms from the Sale of Goods Act has been replaced in the
contract
HELD BUNGE CORPORATION V TRADAX EXPORT ( 1981 ) 2 ALL ER 513

1) FACTS

a) A party contracted to purchase 15,000 tons of US soya bean meal, to be


shipped in three shipments. Under the standard form of contract, Clause 7
stipulated that, in respect of the first shipment, “[b]uyers shall give at least
[15] days’ notice of probable readiness of vessel(s) …” The last day for the
buyers to give notice pursuant to Clause 7 was June 12.
b) This notice was given on 17 June. Following the late notice, the sellers held
the buyers to be in default, terminated the contract and claimed damages.

2) ISSUE

a) The question arose as to whether the notification clause constitutes a


contractual ‘condition’, the breach of which by the buyer gave the seller a
right to terminate.

3) HELD

a) The Court held that, in a written contract, where a stipulated term has to be
performed by one party as a prerequisite to the other party’s ability to
perform their obligations, the term ought to be constructed as a condition.
b) In the case of mercantile contracts, time is essential and clauses related to
time require precise compliance by the Parties.
c) On the facts, Clause 7 prescribed requisite notice by the buyers, absent which
the sellers would not be able to ascertain the loading port to nominate to
fulfil the delivery of the contract goods within the shipment period.
d) The ability of the seller to fulfil his contractual obligation is entirely
dependant on the buyer’s punctual performance of this contractual clause.
e) Thus, and particularly in consideration of the essential role of time within
mercantile contracts, the notification clause is constructed as a contractual
condition that requires strict compliance.
f) Accordingly, the buyers have breached the condition and the sellers had the
right to terminate and claim for damages.

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