Re Nelson [1928] Ch 920

Facts

• The dispute arose from a contract for the sale of goods with multiple deliverables and payment terms.
• The buyer sought to terminate a specific portion of the agreement, alleging breaches by the seller affecting only certain contractual obligations.
• The seller argued the contract was indivisible and that termination of any part would necessitate termination of the entire contract.
• The Chancery Division was tasked with determining whether partial termination was permissible under the circumstances, analyzing the contract's terms, the breaches involved, and relevant equitable principles.

Issues

1. Whether partial termination of the contract was legally permissible when only certain obligations had allegedly been breached.
2. Whether the contract was divisible such that specific obligations could be terminated without undermining the overall agreement.
3. What equitable considerations applied in granting or denying partial termination.

Decision

• The court held that the doctrine of partial termination permits the termination of discrete contractual obligations if the contract is divisible.
• It was determined that the substantial performance test should be applied to assess whether the breached obligations were essential or separable.
• The court found that the buyer’s claim for partial termination was justified, as the seller’s breaches were material but affected only a portion of the contract.
• The seller’s lack of bad faith and the absence of unjust enrichment or undue hardship influenced the equitable outcome in favor of the buyer.

Legal Principles

• The doctrine of partial termination allows for the termination of specific obligations within a contract, provided the contract is divisible and the breaches are material.
• The "substantial performance" test is used to determine if unperformed obligations are separable from the rest of the contract.
• Equitable considerations, including the potential for unjust enrichment or hardship, are relevant in assessing partial termination.
• The judgment clarified the significance of precise contract drafting regarding the divisibility of obligations and remedies for partial breaches.

Conclusion

Re Nelson [1928] Ch 920 established a key legal framework for partial termination, permitting parties to end specific, divisible obligations within a contract following material breach, provided such termination is fair and does not undermine the residual agreement, thereby shaping subsequent contract law jurisprudence.