7.4 Termination S02Y24.pptx

Principles of Business Law Semester 2 2024 TOPIC 7: REMEDIES FOR BREACH TERMINATION Termination: Overview  In addition to seeking damages for breach, the non-breaching party may also be able to terminate the contract.  Whether a party can terminate depends upon:  The...

Principles of Business Law Semester 2 2024 TOPIC 7: REMEDIES FOR BREACH TERMINATION Termination: Overview  In addition to seeking damages for breach, the non-breaching party may also be able to terminate the contract.  Whether a party can terminate depends upon:  The type of term breached; and  The nature of the breach. Recall from previous topic: Types of breaches [You may want to re-watch video 2 from topic 6] Non-performance – a complete failure to perform  The time for performance arrives and nothing is done; or  Something is done but it bears no relation to what was undertaken  Varley v Whipp Partial performance  Anything less than complete performance is partial performance (and thus a breach of contract).  There are two types of partial performance: 1. Substantial performance; 2. Less than substantial performance.  There has been substantial performance of an obligation where the plaintiff still receives the expected benefits under the contract. Types of breaches (CTD)  Late performance  Failure to perform on time amounts to a breach of contract even if the obligation is performed at a later date.  Anticipatory breach  Occurs where a party, before the time for performance, indicates that she is unable or unwilling to perform the entire contract, or a particular contractual obligation. Termination: Types of contractual terms There are three different types of contractual terms: 1. Conditions 2. Innominate/intermediate terms 3. Warranties Classifying terms: Types of contractual terms Conditions  A condition is a term of fundamental importance.  A term is a condition where it can be inferred from the circumstances that the promise was so important that the promisee that they would not have entered the contract if the promise had not been made.  This is known as the Tramways test. Classifying terms: Conditions Associated Newspapers v Bancks FPBCL p 306 Facts  Under a ten-year contract:  B agreed to provide a weekly full-page cartoon to AN;  AN undertook to pay B and to publish the cartoon on the front page of the comic section of its newspaper.  Owing to a shortage of news items, AN began publishing the cartoon on the third page of the newspaper’s colour supplement (which was headed ‘Sunday Sun Comics’).  B terminated the contract on the ground that AN had repeatedly breached its contractual promise to publish the cartoon on the front page of the comic section.  It was not contentious that AN had breached this promise. Issue  Could B terminate for AN’s breach?  Was the promise to publish on the front page of the comic section a condition? Conditions Associated Newspapers v Bancks (ctd) Decision  B could terminate for AN’s breach.  The promise to publish on the front page of the comic section was a condition. Reason  Applying the Tramways test, the term was a condition.  Publicity associated with prominent placement is very important for artists such as B – thus, he would not have entered into the contract unless the “front page promise” had been made. When does a Breach of a condition permit termination? The following breaches of a condition give rise to the right to terminate:  Non-performance of a condition;  Topic 6, Video 2  Less than substantial performance of a condition;  Topic 6, video 2  (If timely performance is a condition), late performance;  Holland v Wiltshire  Anticipatory breach of a condition.  Hochster v de la Tour Late performance of a condition: Holland v Wiltshire FPBCL p 376 Facts  W sold land to H.  The contract nominated a date for payment.  At H’s request, W agreed to extend this date, but H failed to perform by the extended date.  H then announced that he did not intend to proceed with the sale at all. Issue  Was the nominated date for payment a condition? Late performance of a condition: Holland v Wiltshire (ctd) Decision  Time for performance was held to be a condition of the contract.  The failure to perform by the (extended) time thus entitled W to terminate the contract. Reason  The transaction (sale of land) was such that timely performance was expected and essential. Anticipatory breach of a condition  Recall: the law recognises anticipatory breach when:  performance can no longer be achieved (that is, the promisor is not able to perform); or  by words or conduct the promisor has indicated an intention not to perform (that is, the promisor is not willing to perform).  If the anticipatory breach is of the whole contract, or a condition, the non-defaulting party may terminate the contract. Anticipatory breach of a condition: Hochster v De la tour FPBCL p 365 Facts  D engaged H as a courier.  Three weeks before that date that H was to commence working for D, D informed H that his services were no longer required.  H sued D for breach of contract. Issue  Could H terminate the contract and, in turn, sue for damages for anticipatory breach? Anticipatory breach of a condition: Hochster v De la tour (ctd) Decision  H could terminate the contract (and sue for damages). Reason  There was no need to classify particular terms.  The anticipatory breach related to the entire contract. Types of contractual terms: Warranty or innominate term?  A term that does not meet the Tramways test will be either:  a warranty; or  an innominate/intermediate term.  If breach of a term that is not a condition may cause substantial loss, the term is an innominate/intermediate term.  If breach of a term that is not a condition will not cause substantial loss, the term is a warranty. What type of breach of an intermediate/innominate term may permit termination? A breach of an intermediate/innominate term will permit termination if the breach:  is serious; and  deprives the non-breaching party of the substantial benefit for which they entered the contract. Breach of a warranty only permits termination if it amounts to repudiation  The only common law remedy that can be imposed for breach of warranty is damages, unless the breach amounts to repudiation.  There is no right to terminate the contract for mere breach of warranty. Classifying terms: Warranties Bettini v Gye FPBCL p 318-9 Facts  B, a singer, contracted to sing for G (a promoter).  It was a term of the contract that B would arrive six days prior to the first performance and participate in rehearsals.  B arrived four days late as she was unwell (and missed some rehearsals as a result).  G wanted to terminate the contract.  In order to be able to do so, G needed to show that the promise to attend rehearsal was a condition of the contract. Issue  Was the promise to attend rehearsal a condition (in which case G could terminate) or a warranty (in which case G could not terminate)?  NOTE: at the time of this decision, the courts were yet to recognise the innominate/intermediate term category. Classifying terms: Warranties Bettini v Gye (ctd) Held  The ‘rehearsal promise’ was a warranty.  It did not evidence repudiation of the entire contract.  Thus, G was not entitled to terminate the contract. Reason  B was hired to sing at several events.  Attending the rehearsals did not go to the root of the contract.  The term was a warranty, not a condition. Note  The fact that B had a reasonable excuse (being unwell) does not factor into the decision.  It is possible that the term would now be classified as an intermediate/innominate term. However, the outcome would be the same as the breach is not of a kind that would permit termination for breach of an innominate/intermediate term. Classifying terms: Innominate/intermediate term Cehave v Bremer FPBCL p 332 Facts  B sold citrus pellets to C.  The contract required that the pellets be shipped ‘in good condition’.  The pellets shipped by B were not in good condition – thus, B had breached the contract.  The pellets were, however, good enough to be used as animal feed, which was how C intended to use them. Issue  Was C entitled to reject the goods and terminate the contract?  What type of term was the promise that the pellets were in good condition? Did breach of that promise confer upon C a right to terminate the contract? Classifying terms: Innominate/intermediate term Cehave v Bremer (ctd) Decision  C could not reject the goods and terminate the contract. Reason Classify the term  The term was an intermediate/innominate term:  it could be breached in a minor way that caused no loss;  it could also be breached in a way that would have serious consequences. Does breach of this type of term permit termination?  Only a serious breach of an intermediate/innominate term that substantially deprives the non-breaching party of the substantial benefit for which they entered the contract gives rise to a right to terminate.  C was not deprived of the substantial benefit because the pellets could be used for the purpose he intended to use them for (namely, feeding animals). Electing to terminate  Termination is not automatic.  A non-breaching party with the right to terminate the contract must choose (elect) whether or not to exercise this right.  The decision to terminate must be communicated to the party in breach. Loss of right to Terminate: Affirmation  A party can lose the right to terminate by election not to terminate (affirming the breach).  If a party:  knows of the facts that gave rise to the right to terminate; and  continues on with the contract there has been an affirmation and the right to terminate is lost. Loss of right to terminate: Return to: Holland v Wiltshire Facts  W sold land to H.  The contract nominated a date for payment.  At H’s request, W agreed to extend this date, but H failed to perform by the extended date.  H then announced that he did not intend to proceed with the sale at all. Issue  Did W have the right to terminate the contract? Loss of right to terminate: Return to: Holland v Wiltshire There were three breaches 1. H’s initial failure to perform on the date specified in the contract.  This amounted to a breach of a condition, entitling W to terminate the contract.  W chose not to terminate – W elected to affirm the contract and, in turn, lost the right to terminate for this breach. 2.H’s failure to perform by the time of the first extension.  This also amounted to a breach of a condition, entitling W to terminate the contract.  W chose not to terminate – W elected to affirm the contract and, in turn, lost the right to terminate for this breach. 3. H’s announcement that he did not intend to go ahead with the sale.  This amounted to repudiation of the entire contract.  W did not elect to affirm this breach.  W could terminate for this repudiatory conduct.