Contract Law Overview - January 2025 PDF

Contract Law Overview SEMESTER ONE 1. Enforcing Agreements What is a Contract? Voluntary, on purpose transaction Not every voluntary transaction is a contract Gifts are not contracts Has to have an agreement involving a promise Not necessarily in writing Land has to be in writing, others can be ve...

Contract Law Overview SEMESTER ONE 1. Enforcing Agreements What is a Contract? Voluntary, on purpose transaction Not every voluntary transaction is a contract Gifts are not contracts Has to have an agreement involving a promise Not necessarily in writing Land has to be in writing, others can be verbal Must be reciprocal Chooses to offer or accept future performance Intended to be enforceable by the state If all of the above are met, there is an in personam right Different from a property right AKA in rem right You can use or exclude others from using property What is the role of general contract law? Part of private law Foundation for all commercial law Employment contracts, tenancy agreements, etc Why does the state enforce agreements? Corrective Justice Fairness People in the transaction have made a joint agreement/choice to do something together Once the choices are jointly made, new rights and duties are created Can't say that one view or choice is more important than the other In every contract, both parties are promisors and promisees Equality between people Protection of power to choose In breach of contract, the breaching party makes their choice superior to that of the other party Nobody (nor their choice) is worth more than anyone else or their choice Economic Efficiency In all contracts, a person has something. They sell it to someone that puts a higher value on that thing. What is the contractual surplus? Having more value in the world after the contract than before Bargaining power In the realm of contractual surplus Why can we trust voluntary transactions to generate surplus? Mutually beneficial Also why the court should not second-guess the parties Where should we not value the choice of parties? Unequal parties Landlord and tenant Not equal freedom Rationale If we understand what is useful about contract law, the way it enforces joint choice of parties, we also understand when it might not be at its best, because there are situations in which enforcing contracts would not respect the choice of two parties, because they might not be equal parties or best guardians of their own interests (eg gym membership) Smith v Hughes Takeaway Three levels for making sense of a case What's going on? Oral contract between seller and buyer (the parties) The problem Subjective intent was not the same between the two parties They didn't mean the same thing Objective intent (?) External evidence that they meant old oats because of the high price Buyer got a sample The legal question In order for parties to make a contract, they have to be in agreement with each other, be of the same mind. Here, there was no subjective agreement between them How do we interpret the offer of the seller here? Was the seller offering new or old oats? How do we interpret this? Real intention = subjective intention Conduct = external behaviour, not internal behaviour Reasonable man = based on behaviour, going "This is what they meant" What is a reasonable, objective He gave them a sample Facts Smith offered to sell Hughes oats, gave sample Hughes took sample, wrote that he would buy oats at 3s per quarter Hughes later refused the oats because they were new (he thought he was buying old) When sample was shown nothing was mentioned about age of oats Decision HELD: must be new trial Per Cockburn J: "passive acquiescence of the seller in the self-deception of the buyer did not entitle the latter to avoid the contract" Per Blackburn J: "no legal obligation of vendor to inform purchaser that purchaser is under a mistake not induced by act of vendor; the direction did not bring to the minds of the jury the distinction between new and old, and believing and contracting because of belief they were old" Hartog v Colin and Shields 3 All ER 566 Takeaway Purchaser cannot "snap up" an offer which they know to have been made under a mistake Facts Defendants contracted to sell plaintiff 30k argentinian hare skins Mistakenly offered by price/pound rather than price/piece Value of piece is ⅓ of value of pound Verbal and written negotiations always mentioned price/pound Expert evidence says generally price/piece Incorrect price given, subjective intent was for price per piece but objective intent was price per pound. Industry standard was to sell by piece, which the price was suitable for. Plaintiff knew/should've known that piece was a mistake, that it should've been pound. "The offer was wrongly expressed, and the defendants by their evidence, and by the correspondence, have satisfied me that the plaintiff could not reasonably have supposed that that offer contained the offerers' real intention." (Singleton J at 568) Decision HELD: Plaintiff could not reasonably have supposed that the offer expressed real intention of defendants, and must have known it was a mistake. Plaintiff did not make a contract with the defendants. 2. Formation I: Offer Offers Distinguished from Invitations to Treat Boulder Consolidated Ltd v Tangaere 1 NZLR 560 (CA) Takeaway To be concluded, contracts must reach a certain level/point Facts Plaintiff entered contract to buy lot 168 of land from defendant By agreement, lot 168 replaced with lot 203 Defendant unable to give title to lot 168 Letter sent that a different lot should be selected Decided to take lot 138 Advised by letter No reply to letter 1 month later solicitors threatened action By this time lot 138 no longer available Decision Plaintiff sued for damages, breach of contract for lot 138 SC awarded damages Defendant appealed HELD: no clear offer of lot 138 at 21 June capable of acceptance by plaintiff. Correspondence had not reached stage whereby a contract had been concluded Carlill v Carbolic Smoke Co 1 QB 256 Takeaway Facts Advertisement to pay £100 to any person who contracted influenza after using their product Plaintiff (on faith of advertisement) bought product, used it as and for period specified, contracted influenza anyway Decision HELD: above facts established a contract (not a wager or policy) Plaintiff entitled to recover Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd 1 QB 401 Takeaway Facts Customer entered shop, selected items, took items to counter, cashier stated price/received payment If drug involved, supervised by Pharmacist in control of department (who was authorised to prevent removal) Plaintiff brought action alleging infringement of S18(1)(a)(iii) of Pharmacy and Poisons Act 1933 Requires poisons on list to be effect by or under supervision of pharmacist Decision HELD: the self-service system did not amount to an offer by the defendants to sell, but merely an invitation to buy; that such an offer was accepted at cashier's desk under supervision, therefore no infringement Decision affirmed Pratt Contractors Ltd v Palmerston North City Council NZLR 469 Takeaway Facts Tender for construction of flyover Tenderers required pre-registration and $100 deposit Tender to be awarded to the lowest bidder Plaintiff was lowest bidder and expected to be awarded contract Another tenderer was awarded contract because of a letter they sent Proceedings commenced on basis that tenderer gave rise to contract Defendant claimed that request for tender amounted to invitation to treat, therefore, no contractual obligations Decision HELD: plaintiff established that contract had arisen with defendant Because tender documents were more detailed, extensive and substantial than regular In selecting a particular tender, Council was bound by terms it itself had imposed, as well as by the requirements of fairness and equity Letter with alternative tender could not be regarded as an offer precise enough to allow acceptance, therefore not regarded as alternative tender To accept this was unfair Plaintiff entitled to recover costs of tendering exercise ($17,822), damages ($200k) Claim for loss of opportunity too speculative and remote Termination of Offer Dickinson v Dodds 2 ChD 463 Takeaway Offer to sell property may be withdrawn before acceptance without any formal notice to the person whom the offer was made It is sufficient if the offeree has actual knowledge that the offeror has done an act inconsistent with the continuance of the offer (eg selling to a third party) Facts The owner of a property signed a document (purporting to be an agreement) to sell it at a fixed price. A postscript was added (also signed) "this offer to be left over until friday 9am) Decision HELD: document amounted to only an offer, which might be withdrawn at any time before acceptance, and that a sale to a third party which came to the knowledge of the person to whom the offer was made with an effectual withdrawal of the offer Decision of Bacon VC reversed Hyde v Wrench (1840) 49 ER 132 Takeaway Facts Defendant offered in writing to sell farm for £1000 Plaintiff offered £950 Defendant did not accept Plaintiff agreed to give £1000 No assent by Defendant, though there was no withdrawal of the initial offer Decision No binding contract Cross v Davidson (1898) 17 NZLR 576 Takeaway Facts Plaintiff and Defendant corresponded in regard to proposed sale of a steamer by defendant to plaintiff Only question was price, defendant wanting £1400, plaintiff wanting to pay less Plaintiff - "offer accepted. £100 deposit National Bank Napier for you. Delivery early next week" Time of delivery not previously mentioned Decision "Delivery early next week" imported new term into the negotiations, therefore no contract Verdict for defendant Dysart Timbers Ltd v Nielsen 3 NZLR 160 Takeaway Facts Litigation between parties resulting in CA award for Dysart of over $30k Nielsen applied for leave to SC Nielsen made offer of settlement on 9 August, with payment to be made on August 13, whereupon application for leave to appeal would be discontinued SC granted leave to appeal on 9 August Communicated at 12.30pm 42 minutes later Dysart (through solicitor) accepted offer of settlement 1 ½ hours later, Nielsen (through solicitor) replied that offer was no longer acceptable because leave at SC could no longer be withdrawn HC found offer "still on foot" when accepted Nielsen appealed to CA (unsuccessful) Appealed to SC (this case) Decision 1. (McGrath J dissenting) an offer was a unilateral act and the focus was on what the offeror alone meant to happen. This had to be objectively assessed. An offer would lapse in circumstances not expressly provided for in the offer, if they constituted a fundamental change in circumstances on which the terms of the offer were based. 2. (Tipping and Wilson JJ dissenting) when the offer was made, the offeror must have been aware that the SC might grant/dismiss the leave application at any time, yet did not refer to it when making the offer. Granting of leave did not amount to a fundamental change in circumstances. Appeal dismissed 3. Formation II: Acceptance The Communication of Acceptance Felthouse v Bindley 142 ER 1037 (Common Pleas) Takeaway Acceptance must be communicated. Silence is not enough. Facts Horse purchase - initial price mixup, sorted by splitting the difference "If i hear no more about him, i consider the horse is mine at £30 15s" No reply sent No money paid Horse stayed with original owner Nothing happened Defendant (who is neither of the above parties) was an auctioneer employed to sell farming stock Accidentally sold the horse in question Was told to reserve the horse (not sell him) After this, original owner wrote to original buyer that the horse had been sold Decision Held: original buyer could not maintain an action against the auctioneer for the conversion of the horse, he having no property in it at the time the auctioneer sold him. Original owner's letter does not have any relation to the initial proposal. The Postal Rule Henthorn v Fraser 2 Ch 27 (CA) Takeaway Acceptance is complete as soon as it is posted Revocation is complete when it is received Facts Negotiation of a house purchase (in person) Secretary signed and handed note giving option of purchase at £750 (open for 14 days) Next day, secretary posted withdrawal notice H posted unconditional acceptance offer (delivered after office closed) Decision Held: acceptance is complete as soon as it as posted However, revocation is complete on receipt Due to distance between parties, acceptance by post must have been in contemplation There was a binding contract Decision Reversed Holwell Securities Ltd v Hughes 1 All ER 161 (CA) Takeaway Postal Rule does not apply when the terms state that the acceptance has to reach the offeror Facts Plaintiff given option to purchase certain free-hold property by cl1 of agreement Cl2 provided "options shall be exercisable by notice in writing to the [defendant] at any time within 6 months from the date hereof..." Plaintiff wrote, exercising option (within time limit) Letter was correctly posted, but never delivered No other written communication given before expiry Defendant sought specific performance Plaintiff contended, due to postal rule, option had been validly exercised Decision Held: option not validly exercised Postal rule does not apply when terms say it has to reach the offeror. Default Rules Holwell Securities Ltd v Hughes 1 All ER 161 (CA) Takeaway The postal rule applies unless the terms say otherwise Facts Plaintiff given option to purchase certain freehold property by cl1 of agreement Cl2 provided 'option shall be exercisable by notice in writing [to the defendant] at any time within 6 months from the date hereof...' Plaintiff wrote within 6 months exercising the option Letter was correctly posted but never delivered No other written communication given before expiry Decision Plaintiff sought specific performance Plaintiff contended that due to postal rule, the option had been validly exercised HELD: - option not validly exercised Postal rule doesn't apply when terms say it has to reach offeror Mandatory Rules Williams v Carwardine EWHC KB J44 177 ER 1101 (Assizes) Takeaway Motive is not material when receiving award If two people give information together, they must bring a joint action for the reward Facts A. published a handbill, offering a reward to any person who would give such information as would lead to the discovery of who murdered B. C, knowing of the handbill, gave information Not because of the reward, but of guilty conscience Found motive not relevant Decision Held: C is entitled to the reward, despite differing motive motive not material Also held, that first person who gives information is entitled to the reward If two people give information together, they must bring a joint action for the reward. Mirror Image Rule Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd 1 WLR 401 (CA) Takeaway Offer and acceptance must mirror each other Facts Plaintiff offered to deliver machine tool in 10 months time, for £75,535 Condition that "orders were accepted only on terms set out in quote, which were to prevail over any terms in the buyers' order" Included a price variation clause, condition of acceptance that goods were charged to the price on date of delivery, rather than date of order Machine ready in September, buyers couldn't accept until November Sellers invoked price clause (listed above) and claimed £2892 due to rise in costs between May and April (when machine was meant to be delivered) Decision Original judgement for sellers, awarded £2892 plus interest On buyers' appeal: Held: allowing appeal, that buyers' order was not an acceptance of the offer in the sellers' quote, but rather a counter offer which the sellers accepted, when contract was completed without any price limitation clause Original judgement reversed Battle of the Forms Powierza v Daley 1 NZLR 558 (CA) Takeaway The last form wins Facts Sale and purchase agreement for vehicle dealership $325k conditional on $200k finance and City Council planning approval $10k deposit on agreement going unconditional Balance to be paid on/before possession date Property owner wanted better offer Offer increased to $405k, agreement amended Property owner phoned Real Estate Agent, saying offer was accepted but required extended settlement date Buyer (Powierza) agreed When the Real Estate Agent collected the document, changes had been made: Possession date was altered Deposit was increased to $40k Council planning approval condition struck out Buyer accepted, asking for instalments on the raised deposit Property owner denied this Buyer accepted $40k deposit as a whole Real Estate Agent couldn't contact the property owner (2.30pm) Property owner phoned Real Estate Agent at 8pm advising he had signed another contract for $435k at 5pm Decision HC Held parties had not concluded a contract by 8pm when seller withdrew the counter offer, before the Real Estate Agent told him of buyer's acceptance On appeal Binding contract came into existence at 2.30pm because nothing was previously communicated about the offer being closed Appeal allowed. 4. Formation III: Certainty and Intention to create a legal relation Certainty and Intention Needs to be certainty Parties agree on what they think is essential The mirror image rule Postal The essential terms of the contract must be certain enough Necessary agreement regarding what the parties see as essential - It is the role of the court to do its best to give effect to the agreement between the parties Consideration Consideration must be sufficient - but need not be adequate - Chappell v Nestle Existing legal duty - practical benefit is good consideration in the variation of contracts - Williams v Roffey Bros Part payment in itself is not sufficient consideration - Foakes v Beer Promissory Estoppel - Wilson Parking v Fanshawe Remedies The expectation me Cost of cure often the ordinary measure - but not when disproportionate in value Use of other measures to ensure compensation - certainty Jones v Padavatton 1 WLR 328 Takeaway Presumption against intention in domestic agreements Facts Arrangement between mother and daughter Daughter would move to england from america, where she lived and worked as a secretary Mother provided her with £42 per month. Arrangement was varied Mother provided a house for daughter Dispute between mother and daughter concerning occupancy of the house Mother took summons in the county court claiming possession of the house after having given daughter notice to quit Decision - Held: Allowing Appeal County court Judge refused to make the order sought, on grounds that daughter was entitled to remain in the house under terms of varied arrangement Which he held to be a binding contract Although family members might enter into legally binding contracts in regard to family affairs, there is a presumption against such On the facts, the arrangements relating to the house were made without contractual intent. Dater had no defence to mother's claim Rose and Frank Co v J R Crompton & Bros Ltd 2 KB 261 Takeaway Presumption of intention in business agreements Facts Manufacture of tissues 1 kind sold in US 1 kind sold in US/Canada 1 kind sold to US firm This firm placed all orders for goods of 3rd kind with English firm Relations at first made for 1 year, were renewed from time to time Part of tissues sold were actually manufactured by a separate English firm US firm proposed new arrangement Document was drawn up and signed by 3 firms (1 US, 2 English) 2 English firms expressed willingness to extend arrangements by 3 years, plus another 3 years, subject to 6 months notice by any of the parties This new document had several modifications: "This arrangement is not entered to, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the law courts in either the US or England, but it is only a definite expression and record of the purpose and intention of the 3 parties concerned to which they each honourably pledge themselves with the fullest confidence, based on past business with each other, that it will be carried through by each of the 3 parties with mutual loyalty and friendly co-operation." English firms determined (terminated) without notice US firm brought an action for breach of contract Decision - HELD Document did not constitute binding agreement That the order and acceptance thereof were alike referable to the document, and that the non-fulfilment of them did not constitute a breach of the contract. Previous judgement reversed Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd 2 NZLR 385 Takeaway Normal inference was that parties did not intend to be bound before the agreement had been drawn up and executed on both sides Facts Concorde had right under licence to manufacture an emulsion-producing gun Parties entered into negotiations for production by Concorde, purchase and distribution by Anthony in Australia Samples produced, but Anthony was unsuccessful in marketing/selling the product in the Australian market. 7 July 1975 - Anthony's solicitor wrote to Concorde's solicitor, repeating that any contract was conditional on Anthony being satisfied with the marketability of the product Also said that this condition was not satisfied, as such, arrangement must now be treated as at an end Decision HELD Concorde brought an action for damages for wrongful repudiation HC Judge held: no contract had been concluded Concorde appealed Negotiations conducted partly between solicitors and partly between parties directly Evidence showed that purpose of negotiations was to prepare commercial agreement Normal inference was that parties did not intend to be bound before the agreement had been drawn up and executed on both sides Nothing to displace this inference when negotiations began, as a result there was no contract Appeal dismissed. W N Hillas and Co Ltd v Arcos Ltd 38 Com Cas 23 (HL) Takeaway Contracts need to be sufficiently definite. COntracts need to be mutually cancelled. Facts Contract to purchase quantity of timber during 1930 Clause providing that "buyers shall also have option of entering into a contract with sellers for purchase of 100k standards for delivery during 1931" In Dec 1930, appellants wrote to respondents purporting to exercise above option Before this, respondents had entered into other agreements which made it impossible for them to sell the 1931 timber to the appellants Action brought for breach of contract Respondents pleaded that contract had been cancelled by mutual consent, consequently there was no longer an existing option to be exercised Decision Action tried, found that contract had not been cancelled At this time, respondents contended that option clause in the contract did not itself constitute a contract, but merely an agreement to make an agreement at some future date, and was not sufficiently definite to be enforceable Originally held: option clause was an enforceable contract Awarded £30k damages CA appeal: Judgement reversed - option clause too indefinite HL appeal Allowed, original judgement restored Held: upon construction, option cause was not a mere agreement to make an agreement in the future Contract not mutually cancelled, had been broken Appellants entitled to damages Wellington City Council v Body Corporate 51702 (Wellington) 3 NZLR 486 (CA) Takeaway A promise to negotiate in good faith, given in return for a monetary sum, if wholly unperformed, could give rise to an equitable obligation to repay The problematic element of subjectivity attaching to good faith negotiation in contract law is significantly reduced in the case of good faith obligations referred to in s4 - Employment Relations Act 2000. Reasoning which applied in ordinary contract cases could not simply be translated into the employment relations arena. Facts Council was the ground lessor of premises. BC (Alirae) was lessee May 1998 - Council wrote to all lessees indicating willingness to sell its lessor's interest to them Terms and Conditions set out in the letter Alirae indicated interest and negotiations began March 1999 - "Council officers will negotiate, in good faith, sales of Council's leasehold interests to existing lessees at not less than the current market value of those interests." April 1999 - Council rejected Alirae's first offer. Further negotiations ensued but eventually broke down. Alirae pursued HC action, alleging breach of contract - that the council had failed to negotiate in good faith by failing to respond to/accept reasonable offers made by Alirae and by seeking to sell to a third party on terms similar to those Alirae was offering HC found that council was in breach of contract Council appealed Decision Held: A contract purporting to bind the parties to negotiate, however expressed, was in substance a contract to try to agree. Contracts to negotiate were not to be held in all circumstances to be unenforceable. Enforceability depended on terms and their specificity. Whether the terms of a process contract were sufficiently specific was a separate issue. For there to be an enforceable contract, the parties must have reached consensus on all essential terms; or at least upon means of sufficient certainty by which those terms may be determined. The same theory of consensus applied by analogy to a process contract that obliged the parties to negotiate in good faith for the purpose of trying to reach an agreement on all essential terms. In this context, good faith was essentially a subjective concept. It did not give sufficiently certain objective criteria by which the Court could have decided whether either party was in breach of the good faith obligation. The Court was unable in such cases to resolve the question whether a particular negotiating stance was adopted in good faith. The process contract between the Council and Alirae was unenforceable. It was a contract to negotiate in good faith with no more definition than that of what the obligations of the parties were. Appeal allowed. Electricity Corporation of New Zealand Ltd v Fletcher Challenge Energy Ltd 2 NZLR 433 (CA) Takeaway (per Richardson P, Keith, Blanchard, and McGrath JJ) An agreement to use all reasonable endeavours was enforceable if the full agreement was sufficiently precise for the Court to be able to spell out what the parties had to do in exercising their reasonable endeavours. But an agreement to use all reasonable endeavours was unenforceable in the case of the negotiation of complex contractual terms because it was impossible for the Court to define what the parties ought to have done to reach an agreement. Facts Entered into negotiations for acquisition of shares in a gas field and a long-term supply of gas FCE CEO suggested division of shares and that they enter into a heads of agreement (HOA) - for the gas supply - which would contain all essential terms to be binding, including quantities, flow rates, start date, duration, prices and force majeure clauses ECNZ CEO signed "agreed" on the letter, shortly after, senior management signed the HOA Parties acquired shares, ECNZ board approved HOA but a full agreement was not reached FCE sought declaration that ECNZ was in breach of HOA by failing to use all reasonable endeavours. ECNZ argued that the HOA was incomplete, unenforceable as certain terms were stated "not agreed", required further agreement or were uncertain, especially the requirement to use all reasonable endeavours. HC found HOA binding ECNZ appealed Decision Thomas J Dissenting The prerequisites to formation of a contract were an intention to be immediately bound and an agreement, express or implied, or the means of forming an agreement, on every term legally essential to formation of the contract or manifested by the parties as essential to their bargain. In determining whether objectively, the parties intended to enter into a contract, it was permissible to look at the words of the agreement, background facts (unlike contract interpretation), contract drafts and subsequent conduct towards each other. It was not clear whether the parties' internal memoranda were admissible. If the parties had an intention to contract, the Court would do its best to give effect to their intention, and, if possible, uphold the contract despite omissions or ambiguities. If there was a sufficient skeleton of express terms then gaps would be filled by implied terms. However, if essential matters were not agreed or could not be determined by a mechanism, formula or agreed standard it might be beyond the Court's ability to fill the gap, even with expert evidence. The parties had gone into negotiations intending to conclude an agreement but the HOA was not binding because it appeared incomplete; It did not state it was binding; There was no machinery given to resolve matters not agreed; Items were marked "not agreed" to indicate their importance as essential items; The approval of ECNZ's board was not to a completed bargain but as to what had been done so far; The parties later treated themselves as free to renegotiate supposedly agreed items; FCE took the risk that ECNZ would enter a binding agreement Appeal allowed 5. Consideration I: Fundamental Principles General Principles of Consideration Hamer v Sidway 124 NY 538 Takeaway "Refraining from use of liquor and tobacco at the request of another is sufficient consideration for a promise by the latter to pay a sum of money Facts Uncle promised nephew $5000 if he didn't drink, swear, use tobacco, play cards until he was 21 When he turned 21, he wrote to his uncle saying he had performed his part of the agreement, therefore he was entitled to $5000 Uncle died without paying the money or interest Decision Reversal of previous judgement Judgement of special term affirmed Costs payable out of the estate Chappell & Co Ltd v Nestle Co Ltd AC87 (HL) Takeaway Consideration need not just be monetary Facts Chappell manufactured and sold gramophone records to Nestle as advertising Price charged to Nestle: 4 pence/record Nestle sold record to the public for 1s6d each Stipulating condition that record buyers must also send 3 wrappers from their 6 penny packets of milk chocolate By a motion, which was treated (by consent) as the trial of the action, the appellants (Chappell) sought to restrain Nesle on the grounds that the transactions involved breaches of copyright in that the circumstances they were not protected by the provision of s8 - Copyright Act 1956 Decision For the purposes of s8, the transactions in question were sales by retail (Viscount Simonds & Lord Keith of Avonholm dissenting) that part of the consideration for the sale of the records was the acquisition and delivery of the wrappers; that s8 contemplated that the "ordinary retail, selling price" would be a money sum only, constituting the entire consideration for the sale, and that, accordingly, the respondent's (Nestle) operations were not within the ambit of the section, and there was, therefore, infringement of Chappell's copyright (per Viscount Simonds & Lord Keith of Avonholm) the wrappers formed no part of the selling price, but their production was merely a qualification for purchasing records CA decision reversed Cook v Wright (1861) 1 B&S 559, 121 ER 822 (QB) Takeaway The compromise of a claim may be good consideration for a promise, although litigation has not actually been commenced Facts Wright was an agent for B, who was a non-resident owner of houses in a district subject to a new Act Work was done to execute the Act Expenses for this work were charged on the house owners Notice was given to Wright to pay "his" share of the expenses, as if he was the owner, rather than the agent Wright attended meeting of Commissioners, objected to both the nature and amount of the above charges Wright stated that B owned the properties, not him Wright was told that legal proceedings would be taken against him if he did not pay As a compromise, the amount charged to Wright was reduced, plus time given to pay it in 3 instalments, which he gave 3 promissory notes for. Decision The 3 promissory notes constituted sufficient consideration in the compromise. There was a contract. Existing Legal Duty Collins v Godefroy (1831) 1 B & Ad 950 (KB) Takeaway Cannot claim because there is an existing legal duty to do the thing An attorney, who has attended on a subpoena as a witness in a civil suit, cannot maintain an action against the party who subpœnaed him, for compensation for loss of time. Facts Collins was subpoenaed to attend Court as a witness He attended Court for 6 days to give his evidence After the case, Collins demanded six guineas as his regular fee for attendance Collins gave Godefroy notice that unless the sum was paid in the course of the next day, he should enforce payment of the sum Godefroy said he thought that the sum had been paid by his attorney Collins commenced action - Court initially agreed with Collins Decision On appeal - Lord Tenterden was of the opinion that Collins could not recover because, in point of law, he was bound to give evidence, pursuant to the subpoena Scotson v Pegg EWHC Exch J2 Takeaway An existing contractual duty owed to a third party to the contract, can amount to valid consideration for a new promise The performance of an act which a person has agreed with another to perform, is good consideration to support a contract with a third person if the latter derives a benefit from the performance Facts Plaintiffs were requested by defendant to deliver a cargo of coals Defendant promised to unload and discharge at the rate of 49 tons/working day as and when the ship was ready Defendant did not unload/discharge at the above rate, but also refused to for 5 days Defendant unloaded/discharged 5 days later than they said they would Plaintiffs had extra expenses of the crew of the ship for the 5 days delayed Decision 6. Consideration: Part Payment and Promissory Estoppel Part Payment of a Debt Equitable Estoppel 7. Consideration Concluded: Statutory Revisions Privity Deeds 8. The Fundamental Principles of Damages The Expectation Measure Wertheim v Chicoutimi Pulp Co AC 301 (PC) Takeaway The general intention of the law in giving damages for breach of contract is that the plaintiff should be placed in the same position and he would had had the contract been performed Facts Contract to deliver 3000 tons of moist wood pulp between September 1 and November 1 Delivery late, suit to recover £20,047.50 as damages The above sum represented difference between price of pulp in November 1900 (70s) and July 1901 (42s6d) Pulp was sold at 65s/ton giving him a loss of only 5s/ton Decision Entitled to recover only 5s/ton Below court had, by the evidence, decreed that amount on 2000 tons only Due to this, the current court increased by £250 in respect of the remaining 1000 tons together with a further amount subsequently agreed by the parties Golden Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) UKHL 12, 2 AC 353 Takeaway principle that damages should be assessed as at the date of breach not inflexible damages should be assessed as at when they happened, not before or after desirability of achieving certainty in commercial contracts was subject to the overriding compensatory principle that the damages awarded should represent no more than the value of the contractual benefits of which the claimant had been deprived they want to have certainty in commercial contracts, but not at the risk of double dipping the damages should only represent the value of what was lost, not more or less that if at the date of the breach there had been a real possibility that an event would happen terminating the contract or otherwise reducing those contractual benefits, the quantum of damages might need to be reduced proportionately to reflect the estimated likelihood of that possibility materialising damages can be adjusted proportionally Facts Charter of a vessel for 7 years Clause 33 provided that both parties should have the option to cancel if war or hostilities broke out between certain countries Contained an arbitration clause December 2001, charterers repudiated the contract, which was accepted by the owners Owners claimed damages, went to arbitration 2003 - war broke out in country covered by clause 33 Arbitrator found that at the time the war broke out (Dec 2001) it was seen as a possibility but nothing more Were the owners entitled to recover for the entire period (12/01 - 12/05) or were they limited up to the period of 3/03? Limited to 3/03 Upheld by CA Decision On appeal by the owners: Dismissed under the principle that damages should be assessed as at the date of breach was not inflexible and the desirability of achieving certainty in commercial contracts was subject to the overriding compensatory principle that the damages awarded should represent no more than the value of the contractual benefits of which the claimant had been deprived; that if at the date of the breach there had been a real possibility that an event would happen terminating the contract or otherwise reducing those contractual benefits, the quantum of damages might need to be reduced proportionately to reflect the estimated likelihood of that possibility materialising; but that where such an event had already happened by the time damages were assessed, the court should have regard to what had actually occurred so that the estimation was no longer necessary; and that, since the event entitling the charterers to terminate under clause 33 had happened before damages had been assessed and the owners' right to receive the hire rate and profit share provided for by the charterparty would thereby have been brought to an end, the owners were not entitled to damages in respect of the period thereafter. CA decision affirmed Hawkins v McGee (1929) 84 NH 114, 146 A 641 Takeaway Facts Action against surgeon for breach of alleged warranty of success of an operation Operation consisted of removal of scar tissue from palm (due to accident 9 years ago) and replacing with tissue from the chest. Plaintiff's father asked "how long will the boy be in hospital?" answer: "three or four days,... not over four; then the boy can go home and it will be just a few days when he will go back to work with a perfect hand." This could only be construed as expressions of opinion or predictions as to the probable duration of the treatment and patient's resulting disability, and the fact that these estimates were exceeded would impose no contractual liability on the defendant Surgeon allegedly said before the operation was decided upon "I will guarantee to make the hand a hundred per cent perfect hand" or "a hundred percent good hand" If this is to be taken at face value, it seems obvious that proof of their utterance would establish the giving of a warranty in accordance with his contention Defendant argues that no reasonable man would understand that they were used with the intention of entering into a contract, but rather than they could only be reasonably understood "as his expression in strong language that he believed and expected that as a result of the operation he would give the plaintiff a very good hand" Decision Original verdict for the plaintiff "We therefore conclude that the true measure of the plaintiff's damage in the present case is the different between the value to him of a perfect hand or a good hand, such as the jury found the defendant promised him, and the value of his hand in its present condition, including any incidental consequences fairly within the contemplation of the parties when they made their contract. Damages not thus limited, although naturally resulting, are not to be given." "The extent of the plaintiff's suffering does not measure this difference in value. The pain necessarily incident to a serious surgical operation was a part of the contribution which the plaintiff was willing to make to his joint undertaking with the defendant to produce a good hand. It was a legal detriment suffered by him which constituted a part of the consideration given by him for the contract. It represented part of the price he was willing to pay for a good hand but it furnished no test of the value of a good hand or the different between the value of the hand with the defendant promised and the one which resulted from the operation." Defendant appealed on several grounds, including that damages awarded were excessive Trial court ordered that the verdict be set aside unless plaintiff remits all but $500 of the damages Plaintiff refused to consent to reduction, verdict set aside as being "excessive and against the weight of evidence" Plaintiff took exception to this ruling, went to SC who ordered a new trial Priyanka Shipping Ltd v Glory Bulk Carriers Pte Limited EWCH 2804, 1 WLR 6677 Takeaway Facts Claimant bought a bulk carrier vessel on terms that it was sold for demolition and would not be traded or sold further other than for demolition Claimant had little interest from bulk scrap buyers, and as such began to look int obtaining cargo for a laden voyage. Claimant asked defendant to release the vessel from the contractual restriction, which was declined. Despite not being released from the restriction, the claimant went on to conclude 2 trading fixtures. Claimant later commenced proceedings seeking a declaration that the defendant was entitled to only nominal damages because the defendant had not suffered any recoverable loss and damage as a result of the trading fixtures, a third one of which was concluded shortly before the trial. Defendant counter-claimed 1. A final injunction preventing any further trading of the vessel 2. Damages for the historic breaches, based (if an injunction were granted) on the price the defendant reasonably could have demanded from the claimant to release the vessel from the restriction Decision That the claimant having committed 3 obvious and undisputed breaches of the negative covenant by completing trading fixtures, the defendant was prima facie entitled to an injunction; that in light of the fact that the breaches were deliberate (and in the case of the third, cynical); that the financial or other consequences for the claimant of an injunction would not be so extraordinary as to make its granting unconscionable or oppressive; that damages would not be an adequate remedy; that any issues in satisfying the third fixture were of the claimant's own making; that the defendant aced expeditiously in seeing an injunction the claimant had failed to satisfy the court that it would be unconscionable or oppressive for an injunction to be granted; or that it would be oppressive not to award damages in lieu of an injunction accordingly, an injunction would be granted enforcing the terms of the restriction and preventing any further use of the vessel for trading. That negotiating damages could be awarded for a breach of contractual right if: the loss suffered could be measured by reference to the economic value of the right which had been breached, and the breach of contract had resulted in the loss of a valuable asset created or protected by the right infringed; that such would be the case only in situations where some asset or property (or something analogous) distinct from the contractual right itself had been lost that negotiating damages were not available in the present case, since once the vessel had been sold and delivered to the claimant, the defendant had no proprietary or financial interest in it, with the consequence of the claimant's use of the vessel for trading had not involved the claimant taking r using something in which the defendant had an interest, for which the defendant was entitled to require payment; that rather, the nature of the defendant's right in the restriction was more analogous to a non-complete obligation in relation to which negotiating damages were not available as a measure of the seller's loss accordingly, the counter claim for negotiating damages would be dismissed and, since there was no pleaded claim for any other sort of damages, a declaration granted that the defendant was entitled to nominal damages only. Morris-Garner v One Step (Support) Ltd UKSC 20 Takeaway in what circumstances can damages for breach of contract be assessed by reference to the sum that the claimant could hypothetically have received in return for releasing the defendant from the obligation which he failed to perform? Facts Defendant established a business providing support for young people leaving care 2002, agreed to sell 50% interest to Mr and Mrs Costelloe Claimant company was "incorporated as a vehicle for the transaction" First defendant and Mr Costelloe ran the business, second defendant as manager Over time working relationship between first defendant and Mr Costelloe deteriorate May 2006 - Mrs Costelloe gave notice of intention to serve a deadlock notice July 2006 - first defendant incorporated another company, of which she and second defendant were sole shareholders August 2006 - Mrs Costelloe served the deadlock notice, offering to either sell her shareholding to first defendant or buy out the first defendant for £3.15m First defendant elected to be bought out December 2006 - buy-out agreement entered into, with following conditions for the first defendant: £3.15m price to resign as director 3 year Covenant requiring her to keep business information confidential 3 year Covenant prohibiting her from engaging in a business that was in competition or soliciting its clients without consent Such consent not to be unreasonably withheld Second defendant terminated employment with claimant and agreed to similar covenants against competition and solicitation (as above) August 2007 - Positive living began trading in competition with the claimant By early 2008, claimant's business struggling February 2008 - solicitors for claimant wrote to first defendant threatening proceedings for injunction. After exchange, matter not currently pursued further December 2009 - 3 year covenants expired September 2010 - after further correspondence defendants sold their shares in Positive Living for £12.8m July 2012 - present proceedings issued, alleging breach of covenants and breach of equitable duty of confidence, that the defendants had induced each other to breach the covenants, and had conspired together to injure it by unlawful means. Estimated loss by forensic accountant between £3.4m and £4.6m. Hypothetical license fee between £5.6m and £6.3m. - estimated what a reasonable person in claimant's position would have agreed to accept in return for release from the covenants, and what a reasonable person in defendant's position would have agreed to pay for that release and identifying overlap. Damages not yet assessed, court to be circumspect in comments on the reports. Decision Specific Performance and Injunction Loan Investment Corporation of Australasia v Bonner NZLR 724 (PC) Takeaway Facts Decision Causation Quinn v Burch Bros (Builders) Ltd 2 QB 370 (CA) Takeaway Facts Decision Borealis AB v Geogas Trading SA EWCH 2789, 1 Lloyd's Rep 142 Takeaway Facts Decision 9. Refining the Expectation Interest Cost of Cure and Non-Pecuniary Losses Addis v Gramophone Co Ltd AC 488 (HL) Takeaway Facts Decision Jarvis v Swans Tours Ltd QB 233 (CA) Takeaway Facts Case about lack of enjoyment of a Swiss holiday Went on a two week holiday and did not get what he expected Bar not available, as he expected it to be Skiing not available when he expected it to be Decision Ruxley Electronics and Construction Ltd v Forsyth AC 344 (HL) Takeaway Facts Decision Hamlin v Great Northern Railway Company (1856) 1 H & N 408, 156 ER 1261 (Exch Ch) Takeaway Facts Decision Hobbs v The London and South Western Railway Co (1875) LR 10 QB 111 Takeaway Facts Decision Bloxham v Robinson 2 NZLR 664 (CA) Takeaway Facts Decision Mitigation British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd AC 673 (HL) Takeaway Facts Decision Payzu Ltd v Saunders 2 KB 581 (CA) Takeaway Facts Decision Certainty Chaplin v Hicks 2 KB 786 (CA) Takeaway Facts Decision Anglia Television Ltd v Reed 1 QB 60 (CA) Takeaway Facts Decision McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Takeaway Facts Decision 10. Remoteness Hadley v Baxendale (1854) 9 Exch 341 (Exch) Takeaway Special circumstances need to be communicated Facts Broken iron shaft was to be carried by the defendants to a person to make a new one ("consignee") Delivery by the defendants was delayed, causing new shaft to be late and flour mill unable to operate, causing loss of profits Decision Loss of profits could not be recovers as the defendants were common carriers Special circumstances (of the need to not delay) were not communicated to the defendants, therefore plaintiffs can not recover Horne v Midland Railway Co (1873) LR 8 CP 131 (Exch Ch) Takeaway Urgency must be communicated Factors out of control of both the parties (like a war ending) mean no recovery Facts Shoes were delivered to train station to be delivered to London by Feb 3rd Shoes were not delivers in London by 4th Feb, consequently not accepted by consignees Station master had been spoken to, but the level of urgency with the delivery was not made clear War ended overnight between feb 3 and 4 (shoes were for soldiers) Due to delay, plaintiffs were obliged to sell the shoes at 2s9d instead of 4s per pair as originally agreed, which was the best price available due to the war ending, even if they'd been delivered on time Decision Not entitled to recover, because damage was not considered to arise naturally from breach, or "might reasonably supposed to have been in the contemplation of both the parties at the time when they made the contract" They couldn't predict the war was going to end that night if the urgency had been made clear then they may have been able to recover Victoria Laundry (Windsor) Ltd v Newman Industries Ltd 2 KB 528 (CA) Takeaway Facts contract to purchase, deliver and install a boiler for £2,150 boiler was damaged when being dismantled by third parties who were under contract of the defendants delivery was delayed suit for loss of profits of £16/week +£262/week over the 5 months delay allowed sum for damages but not loss of profits based on special circumstances defendants were not made aware of Decision on appeal: defendants could not reasonably contend that they could foresee the loss of profits caused by the delay appeal allowed Koufos v C Czarnikow Ltd 1 AC 350 (HL) [The Heron II] Takeaway Facts delivery by sea of 3000 tons of sugar was late by 9 days, due to voyage deviation by shipping company because of this delay, made less money market prices were known to be dropping so wanted delivery before this happened Decision because prices were known to fluctuate, the ships' delaying their voyage would likely result in depreciated value of the goods on board charterers entitled to the difference H Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd QB 791 Takeaway Facts defendants failed to install hopper correctly, causing pignuts to go mouldy mouldy nuts caused infection which killed 254 pigs originally held that there was a breach of warranty because the hopper should be fit for purpose (of storing pignuts safely) and that pig illness and death was a direct and natural consequence of the breach However, also found that parties could not reasonably have contemplated that there would be serious illness in the pigs Decision On appeal, dismissed, that damages for breach of contract were recoverable in respect of injury or loss where the parties, given the situation at the time of the contract, would have contemplated as a serious possibility the type of consequence, not necessarily the specific consequence, that ensured on breach of contract, and it must have been within the contemplation of the parties that injury to the pigs was a serious possibility if, in breach of the contract, the hopper was unfit for storing nuts suitable to be fed to the pigs Per Lord Denning: defendants were liable for the loss of the pigs that died because they ought to reasonably have foreseen that there was a possibility that the pigs might become ill, even though it was not a serious possibility, but were not liable for loss of profits. McElroy Milne v Commercial Electronics Ltd 1 NZLR 39 (CA) Takeaway Facts Development project to be sold with a tenant whose lease is guaranteed Solicitors fail to include the parent company of the tenant as guarantor Tenant repudiates -> delay in sale -> property market crash -> drop in price Damage claimed: the difference between expected sale price and the value at the date of the trial Decision The solicitors' negligence had deprived their client of the ability to market the development as planned, a consequence sufficiently foreseeable or in contemplation. The expectation loss was not too remote. In a case such as this, the contract breaker had to take the state of the market at the date when in fact it became possible for CEL to offer the property for sale free from dispute. It was not enough to say that the market fell to an extent never expected by the defendant. If the kind of loss was foreseeable, the defendant must accept responsibility for the extent of it. While the general rule was that damages for breach of contract should be assessed as at the time of the breach, this was not a rule of universal application where it would not do justice. It would be totally artificial to attempt to measure the true loss by reference to alternative valuations at the date of the breach The fixing by the Judge of the value of the property in January 1989 at $5.2mil was perfectly acceptable, the Judge having heard all the evidence. The 25% discounting was an appropriate method for dealing with the contingencies Appeal and cross-appeal dismissed Observations (per Cooke P and Hardie Boys J): Reasonable foresight or contemplation, which appear to be interchangeable terms, were always important considerations; but they are not the only considerations. Other factors, including directness, "naturalness" as distinct from freak combinations of foreseeable circumstances, the magnitude of the claim and the degree of the defendant's culpability, are also relevant. Remoteness was a question of fact to be answered after taking into account the range of relevant considerations, among which the degree of foreseeability was usually the most important. (per Cooke P): Assessment of damages was a question of fact and the ultimate question as to compensatory damages was whether the particular damage was sufficiently linked to the breach of the particular duty to merit recovery in all circumstances. The Achilleas - Transfield Shipping Inc v Mercator Shipping Inc UKHL 48, AC 61 [The Achilleas] Takeaway - Test for remoteness is assumed of Responsibility Facts Decision HOFFMAN LJ - logical to find liability upon the (objecctive) intention of the parties because all contractual liability is voluntarily undertaken. - must be in principle wrong to hold for risks theat would not be considered to have been reasonably undertaken. - was clear to both oparties that if there was a breach, liability would be limited to the overrun charter (nothing further) because fo the industry standard. - unfair to ask more than that - industry standard - need to decide whether loss is a kind or type that the contract breaker ought to e taken as having responsibility for - kind or type - but not scope - of loss - this is the principle behind remoteness - was there assumption of responsibility for this kind/type of loss? - if loss of that type/kind fell within the assumption then yes, if not o. - generally inclusive principle - implication of primary and secondary obligations involves same reasoning (at pg 71. - What people assume responsibility for is what they expect to be liable for - at pg 67. - not undoing previous, just enhancing it? Just explaining what people ordinarily assume responsibility for (not always though). HOPE LJ - test is not general foreseeability - test is assumption of responsibility 11. Parties' Choice of Secondary Obligations Liquidated Damages and Penalties Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd AC 79 (HL) Takeaway Where a single sum is agreed to be paid as liquidated damages on the breach of a number of stipulations of varying importance, and the damage is the same in kind for every possible breach and is incapable of being precisely ascertained, the stipulated sum, provided it be a fair pre-estimate of the probable damage and not unconscionable, will be regarded as liquidated damages and not as a penalty. Facts Trade pricing given to a society which it shouldn't have Had previously agreed to pay £5 per item sold in breach HELD, assuming without deciding, that the stipulated sum applied to all the preceding stipulations in the agreement that it was liquidated damages CA decision reversed Decision CA Decision Reversed Dunedin L, at 86-88 "I shall content myself with stating succinctly the various propositions which I think are deducible from the decisions which rank as authoritative:- 1. Though the parties to a contract who use the words "penalty" or "liquidated damages" may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages.... Parties' description not conclusive 2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage... 3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged as at the time of the making of the contract, not as at the time of the breach... A question of construction, judged at time of formation 4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are : (a) It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in comparison with the greatest loss that could conceivably be proved to have followed from the breach.... (b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid... (c) There is a presumption (but no more) that it is penalty when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage"... On the other hand: (d) It is no obstacle to the sum stipulated being a genuine pre estimate of damage, that the consequences of the beach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties..." Associated Distributors Ltd v Hall 2 KB 83 (CA) Takeaway Facts Bicycle hired for 53 weeks Cl5 gave the option of termination of hire by return of the bicycle. Remains liable for any rent up to date of return and for all sums payable under agreement and any damages for breach of agreement terms CL7 says no allowance/credit, but he was allowed to pay (by way of compensation for depreciation of good in addition to any other sums payable thereunder such sums) as with the amount previously paid for rent should make up a sum equivalent to not less than ½ the total amount including the option purchase price payable under the agreement Bicycle returned under cl5, only having paid 1 instalment Decision Plaintiffs claimed sum £6 16s 6d with £1 4s being rent arrears, the rest being penalty under cl7. The rent arrears were awarded, the other amount disallowed (but allowed £1 15s in lieu of) On appeal: held - reversing decision of county court judge - that no question of claim under cl7 being liquidated damages or penalty in nature arose and therefore hirer had to pay Cavendish Square Holdings BV v Makdessi UKSC 67, 3 WLR 1373 Takeaway liquidated damages and penalties liquidated damages cannot be penal Facts Defendant agreed to sell claimant controlling interest in a company which he had founded Claimant agreed to pay up to $147m depending on calculation of profits For a period after the sale, the defendant was not to compete with his old business If he did, he would not be entitled to any further payments Claimant would acquire an option to buy his remaining shares at a price which disregarded goodwill Defendant breached, claimant sought declaration that he was not entitled to further payments and was obliged to sell his shares to it Decision Judge agreed CA allowed Defendant's appeal Held that clauses were not genuine pre-estimates of loss but rather to act as deterrent, therefore unenforceable Claimant appealed contending that the clauses were not penal and that common law rule that contractual penalty clauses should be unenforceable should be abolished/restricted to not apply to commercial transactions with parties of equal bargaining power and each acted upon skilled legal advice held that it shouldn't be abolished long standing common to almost all systems of law useful to protect people against "oppressive bargains" shouldn't be extended either eg to cover clauses that imposed obligations on a party, on certain contingencies which didn't involve breach a provision was penal if it was a secondary obligation which imposed a detriment that was out of proportion clauses 5.1 and 5.6 had no relationship with measure of loss attributable however, claimant had legitimate interest in observance of non-competition provisions which extended beyond the recovery of that loss goodwill of both parties was critical 5.1 and 5.6 were enforceable (Judge was right) APPEAL ALLOWED Neuberger and Sumption LL The scope of the penalty doctrine. The Dunlop tests. "The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation." (at 1392) Limited to secondary obligations Presumption for sophisticated parties Against the traditional test Out of all proportion to any legitimate test 127 Hobson Street Ltd v Honey Bees Preschool Ltd NZSC 53, 1 NZLR 179 Takeaway Facts Premises leased by Hobson St to Honey Bees Hobson St agreed to install second lift Honey moved into premises in 2012 No formal lease signed, but spent $500k outfitting Entered into lease Dec 2013, initial period of 6 years with 3 further terms of 6 years Lift not mentioned in the lease but in a collateral deed The deed committed the landlord to installing second lift by 31 july 2016 If this didn't happen, LL would "indemnify Honey Bees... for all obligations they may incur... under the lease including payment of rent, operating expenses and other payments as provided under the lease, to the expiry of the lease" Lift not installed/working until April 2018 Proceedings issued at HC to enforce indemnity Appellants defended Breached common law against contractual penalties Decision HC said no, didn't breach CA dismissed appeal Granted leave to SC (which is this case) HELD: (basically) only unenforceable if consequence is disproportionate or exorbitant. To determine cause in question required "objective exercise of construction". Did not offend rule against penalties Appeal dismissed The test in Cavendish. "A clause stipulating a consequence for breach of a term of the contract will be an unenforceable penalty if the consequence is out of all proportion to the legitimate interests of the innocent party in performance of the primary obligation.... A consequence will be out of all proportion if the consequence can fairly be described as exorbitant when compared with those legitimate interests." (at ) What is a legitimate interest? Legitimate interest and deterrence. Penalties and unconscionability Kemble v Farren (1829) 6 Bing 141, 130 ER 1234 (Comm Pleas) Takeaway Facts Defendant was comedian engaged to work 4 seasons at Covent Garden Theatre in October 1828 Plaintiff agreed to pay £3 6s 8d every night the theatre was open for performances, plus one benefit night per season Agreement had a clause that if either party breached, the breaching party would pay the other party £1000, which it was agreed would cover any damages Defendant (allegedly) refused to act during the second season out of four. Decision At trial, verdict for Plaintiff £750, subject to a motion to increase to £1000 Held that present verdict of £750 should stand and not be increased to £1000 Robophone Facilities Ltd v Blank 1 WLR 1428 (CA) Takeaway Facts Hireage agreement signed by defendant but not plaintiffs Taken to court under clause 11 to pay remainder of hireage No express evidence that acceptance was communicated to Defendant Inference was that salesman did so before/when they gave the Defendant post office forms for signature Decision Exclusion and Limitation Clauses Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd Takeaway Facts - Plasticine factory burnt down (completely gutted) - onwers claimed insurance, who paid out sums of £50k,£ejk and later further sums. - Owners rebuilt and began once again making plasticine there. - Insurance company investigated, found cause of fire to be the fault of Wayne Tank, because it was installing new equipment in the mill. - insurance company used the name of plasticine company and sued wayne tank for damages. - tank co said not their fault, but if it was, their liability was limited by conditions of the contract. - plasticine company said that tank co was guilty of fundamental breach and therefore not entitled to rely on limitation clause. - Fire was caused by a plastic pipe carrying an ingrdient of plasticine, melted due to said ingredient being heated and passed through it. Judge found that pipe should have been made of steel, not plastic. - In order to melt the ingredient (it was very cold that day and the ingredient had solidified) the heating mechanism was left on all night with no one monitoring it. - Thermostat was placed in the wrong place on the pipe, causing it to show cooler temperatures than were actually correct. - Decision Forfeiture Galbraith v Mitchenall Estates Ltd 2 QB 473 (QB) Facts Plaintiff hired caravan from Defendant for 5 years Initial payment given of £550 10s Retail price of caravan £1050 Hire agreement Plaintiff assumed that the hire agreement was a hire-purchase agreement No fault of defendants that plaintiff made this assumption Contracted to pay initial payment and 60 monthly rentals of £12 10s The agreement provided that at the end of the 5 years (or sooner if agreed) the hirer should obtain no interest in the caravan If the hirer determined (AKA terminated) the agreement in the first month; OR Default of provisions of contract by the hirer If because of either of these, defendants elected to repossess Would be able to retain the initial payment Would have all their remedies if the caravan was not in good condition Would become entitled to £300 per 24 months OR £450 per 36 months Plaintiff lived in caravan for 4 months but failed to pay any monthly rentals Defendant determined (terminated) hire agreement, repossessed the caravan (worth £800) Plaintiff claimed for return of initial payment on grounds that the defendant effected forfeiture which he was penalised by the defendant retaining the initial payment, and that it was an implied term of contract that the Defendant should repay the first payment Decision Condition permitting Defendant to retain both the caravan and the initial payment is too harsh However, plaintiff was not in a position to carry out the terms of the contract Defendants were not guilty of any fraud, sharp-practice or unconscionable conduct when they entered into the contract Accordingly, no equity to compel Defendant to return initial payment in such circumstances Judgement for defendants Stockloser v. Johnson 1 Q.B. 476 Lord Denning's position. Lord Justice Romer's position. "I have come to the conclusion that I ought to follow the view expressed in the judgement of Romer LJ, for the reasons which he there gave." (Sachs J, at 484) Cf discussion in Cavendish -. Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd AC 573 (PC) Takeaway Can a deposit count as a penalty? Facts Bank sold premises at auction to defendant Contract stated 25% deposit, with payment of balance within 14 days If there was failure to comply, the deposit would be forfeited to the bank Dojap (purchaser) failed to comply, the bank rescinded the contract and forfeited the deposit Decision Dojap started proceedings to be released from the forfeiture (get the deposit back) SC refused CA allowed (in part) and granted relief from forfeiture to extent of 15% of purchase price Why change from 25% to 15%? Bank appealed and Dojap cross-appealed Held, dismissing appeal of bank and allowing cross appeal of Dojap Not unlawful penalty provided that (objectively) it operated as earnest for performance of contract Expectation interest??? Browne-Wilkinson L The question of deposit. "In order to be reasonable a true deposit must be objectively operating as 'earnest money' and not as a penalty." (at 580) Still sounds like expectation interest Cf. Cavendish Limitation Clauses Photo Production Ltd v Securicor Transport Ltd AC 827 (HL) Takeaway Exclusion and limitation of secondary obligations Facts Contract for provision of night patrol services of 4 visits per night. Main perils in consideration were fire and theft Condition 1 (basically): company not responsible for injurious act by employee of company unless act was foreseeable and avoidable by company doing due diligence Company also not responsible for loss suffered through fire or any other cause, except if the loss is solely attributable to the negligence of the employee while they are acting in the course of their employment Condition 2: limits defendants liability under terms of contract "or at common law" Security employee lit fire while on duty Said employee had good references and was employed by the company for 3 months prior to the incident Plaintiff claimed damages of £648k under breach of contract and negligence Decision Judge rejected initial claim (£648k) due to condition 1 CA reversed this decision Defendants appealed HELD: allowing appeal Doctrine of fundamental breach by virtue of which the termination of a contract brought it, and with it, any exclusion clause to an end was not good law; that question whether and to what extent an exclusion clause was to be applied to any breach of contract was a matter of construction Words of exclusion clause were clear and on their true construction covered deliberate acts as well as negligence so as to relieve defendants from responsibility for their breach of implied duty CA decision reversed - Securicor to pay £615k plus interest and costs A principled approach. The sources of secondary obligations. "My Lords, an exclusion clause is one which excludes or modifies an obligation, whether primary, general secondary or anticipatory secondary, that would otherwise arise under the contract by implication of law." (Diplock L at 850) Commercial contracts between people of business. Consider: SGS (NZ) Ltd v Quirke Export Ltd 1 NZLR 52 (CA) Rule in light of principle that rationalises it Also other considerations - policy, equity, 12. Cancellation of the Contract Cases Crump v Wala 2 NZLR 331 (HC) Takeaway Facts Appellant agreed to sell respondent a quantity of jeans Jeans were represented as made in US and of good quality Representations induced buyer to enter contract Upon delivery, jeans were found to be from Asia and of bad quality Respondent sued appellant for particularised damaged and general damages for loss of reputation, embarrassment, stress and inconvenience. Reliant upon: s6(1) Contractual Remedies Act ss 15, 16(b) and 17 Sale of Goods Act ss 9, 13 9A), 13 (j) Fair Trading Act Decision DC Judge found Wala entitled to: Reject goods under s7 Contractual Remedies Act Recover (by damages or s9 CRA) price paid and certain setting up costs Less the sale price of 49 jeans he had sold General damages for stress and anxiety Similar remedies available under FTA Mr Crump appealed, Mr Wala cross-appealed Parliament intended by s 15(d) of the Contractual Remedies Act 1979 that the Sale of Goods Act 1908 should continue to govern the discharge of contracts for the sale of goods. That being so, the cancellation provisions of the Contractual Remedies Act (ss 7 to 9) which were conceptually relief, not remedy provisions, were inapplicable to a sale of goods. The learned District Court Judge was in error in relying on s 9 of the Contractual Remedies Act as one basis for the remedies awarded by him Subject to any express provision in the contract between the parties, s 6(1) of the Contractual Remedies Act applied to a contract for the sale of goods. Liability lay under the Sale of Goods Act, s 6(1) of the Contractual Remedies Act, and s 13(a) of the Fair Trading Act 1986 Affirmation was an equitable doctrine which rested on the underlying notion that an aggrieved person must elect between fundamentally inconsistent rights. For it to apply, the affirmer must have knowledge or obvious means of knowledge of the facts on which his or her right to rescind arose. The affirmer must also know of his or her right to rescind. There must be an unequivocal affirmation, either expressly or by conduct, from which such an affirmation could properly be inferred. Affirmation presupposed that nothing had been done by the injuring party of an unconscionable character to bring about the affirmation Acceptance under the Sale of Goods Act was something different from affirmation. Sections 13(3) and 37 of that Act made it quite clear that a buyer was confined to a remedy in damages where there had been acceptance whether or not the defect had been discovered. The Sale of Goods Act set up an implied (in law) affirmation The retail sale of 49 pairs of jeans over a period of three weeks of trading after Mr Wala had become aware of the true facts amounted to an acceptance. On the facts that Mr Wala knew that the jeans were defective in terms of the agreement, that in a general way he had a right to reject them and get his money back, but that because of his impecunious situation he nevertheless elected to trade on for three weeks in the hope of generating cash flow amounted, under the general law, to an affirmation which had not been induced by unconscionable conduct on the part of Mr Crump Section 6 of the Contractual Remedies Act 1979 treated a misrepresentation as if it were a breach of contract for the purpose of awarding damages with the result that, in general, a plaintiff would recover damages according to the contract measure (in general, an expectancy measure) and not the tort measure. The result of the application of the usual rule would be that a plaintiff was entitled to the difference between the value of the subject-matter as in fact delivered; and the value as it would have been if the representation had been true. Consequential loss was recoverable provided it fell within the relevant remoteness rules, however conceived, if, of course, the loss had actually been caused by the misrepresentation. Consequential loss for anxiety and stress was not easily recoverable and, in general, depended in functional terms on something of a bargained for expectancy Mr Wala was restricted to a monetary award, not to have the agreement voided or be entitled to reject the goods. As a result Mr Crump was not required to refund the purchase price to Mr Wala. Mr Wala was of course entitled to his expectancy loss which amounted to $12,875. He was not entitled to reliance damages Damages for anxiety or mental stress could not, in particular, be recovered for breach of a contract made in the course of or somehow connected with a business and which resulted in the failure of that business. Damages would not be awarded under this head in this case Appeal and cross-appeal allowed. Observations First, it is hard to see that much more is going to be achieved by Judges in the way of textual analysis of the Fair Trading Act remedies provisions than what has already been achieved. Second, my complaint with the Fair Trading Act is as to its vagueness in determining substantive liability and its capacity - already evident - to be cancerous. But predictability of remedy, I think, need not be accorded quite the same degree of priority. The "basket of remedies" approach to that statute is consistent with the approach which has been taken elsewhere in the law of remedies in New Zealand in the last decade or so. Third, that said, of course one does not lightly jettison hard-earned intellectual capital carefully evolved by Judges over several centuries. And in that connection, the warning of Lord Simonds LC in Chapman v Chapman AC 429, 444, that "it is even possible that we are not wiser than our ancestors" has to be borne in mind. Fourth, in functional terms, there is a great deal of insight to be gained from the interest-based analysis of remedies using the Fuller classification - expectancy, reliance, and restitution interests - and, if there is any merit in my suggestion, the possible fourth head of dignitary interests (see p 343 line 22). Hochester v de la Tour [1843-60] All ER Rep 12 Takeaway Where a party to an executory agreement, before the time fixed for performance, breaks the agreement, either by disabling himself from fulfilling it, or by renouncing it, an action will lie at the suit of the other party for the breach before the time specified for the fulfilment of the agreement. Facts Defendant engaged plaintiff to render services beginning 1 June 1852. On May 11, defendant informed plaintiff that he would not employ him as agreed and refused compensation. Decision Plaintiff entitled to bring an action for breach of contract by writ dated May 22. Schmidt v Holland 2 NZLR 406 Takeaway Facts After signing sale and purchase agreement for land, the Schmidts decided not to buy the Holland's land and purchased another property Deposit was not paid Holland's subsequently sold the land for $1500 less than agreed with Schmidts REA sued Hollands for sale commission, Hollands joined as 3rd parties Decision DC held agent entitled to commission from Hollands, Hollands entitled to damages from Schmidts Schmidts appealed to HC, Hollands did not contest judgement against them No basis for damages claim against Schmidts. Hollands had not communicated acceptance of repudiation, and had not rescinded the contract. Hollands had not acted quickly enough, therefore unable to exercise powers incurred by default of the contract. Kumar v Station Properties Ltc 1 NZLR 99 Takeaway Facts Station Properties (SPL) was developing an apartment building Finance raised through redeemable shares Needed further finance Shareholders were offered chance to change the nature of their investment by buying apartments as underwriters with intention of selling them before settlement Kumar (among others) took and executed S&P agreements. SPL undertook to provide "certificate of practical completion" issued by a nominated architect SPL also entered into "side agreements": 1% fee to purchasers Supply a set package of furniture Set up management agreement for the complex Agreement also provided "sunset clause" that if SPL not ready/willing/able to settle by 13/3/09, either party could cancel the contract. The nominated architect inspected the building but the certificate of practical completion was provided by another firm SPL failed to fulfil other agreements Market fell, purchasers for many apartments could not be found Kumar (among others) refused to settle because of invalid certificate of completion and lack of compliance with side agreements Kumar and others also claimed "gazump" clause meant they were not obliged to settle SPL sued for damages Decision HC found Kumar and others were obliged to settle However, SPL's breaches were material and substantial so they were justified in refusing to settle, and failure to provide valid certificate meant SPL had not been ready, willing or able to settle CA held that SPL's breaches had not entitled Kumar and others to cancel and their refusal to settle entitled SPL to cancel the agreements Kumar and others appealed to SC. Peter Turnbull & Co Pty Ltd 3 NZLR 273 (CA) Takeaway Facts Agreement to buy/sell oats at 7s 4d/bushel. To be sent to Sydney by ship nominated by plaintiff with 14 days' notice of ships/dates. Plaintiff mentioned Peter Turnbull & Co. Pty. Ltd. brought an action in the Supreme Court of New South Wales claiming from the defendant, Mundus Trading Co. (Australasia) Pty. Ltd., the sum of £2,100 as damages for the non-performance by the defendant agreement that the plaintiff would purchase from the defendant two hundred and fifty tons of oats at the price of seven shillings and fourpence (7s. 4d.) per bushel f.o.b. Sydney to the knowledge of the defendant for the purpose of resale. The plaintiff further alleged that it was a term and condition of the agreement that the oats were to be loaded by the defendant on a ship or ships nominated by the plaintiff during the months of January and February 1951, the defendant had failed to deliver any of the oats the plaintiff had been compelled to purchase the same quantity of oats elsewhere at the price of ten shillings and fourpence (10s. 4d.) per bushel losing the benefit of that agreement and the profits expected to be made under the agreement. The action was tried as a commercial cause without a jury, the issues for trial being, inter alia: (a) whether there was a contract made between the plaintiff and the defendant whereby the defendant agreed to sell and the plaintiff agreed to buy two hundred and fifty tons of oats at the price of 7s. 4d. per bushel f.o.b. Sydney; (b) did the defendant commit a breach of this contract in that it failed to deliver the oats the subject of the contract to the plaintiff; and (c) if the defendant did so fail to what damage is the defendant entitled. The trial judge found that the plaintiff was not in default on 28th February 1951 when the defendant stated it would not load the oats in Sydney and that the plaintiff was entitled to accept the repudiation of the contract by the defendant, and to maintain the action for the breach. A verdict was given for the plaintiff in the sum of £2,100. An appeal by the defendant was upheld by the Full Court of the Supreme Court (Street C.J., Owen and Clancy JJ.) the verdict for the plaintiff set aside and in its place a verdict was entered for the defendant (Peter Turnbull & Co. Pty. Ltd. v. Mundus Trading Co. (Australasia) Pty. Ltd.1). Decision Lecture Slides What are the grounds for cancelling a contract? What are the requirements for electing to cancel/affirm a contract? What notice must A give B to cancel a contract between A and B? What is the effect of a contract being cancelled for the contracting parties? How will the court approach the granting of remedies (if applicable)? To what extent will the contract supersede statutory provisions on the cancellation of a contract? Overview: Cancellation of a Contract under ss36-42 of the CCLA 2017 S36: Allows a party to cancel if the other party repudiates the contract S37: allows a party to cancel the contract if they entered it because of a misrepresentation made to them on an essential point, or the other party has breached, or it is clear they will breach, an essential term of the contract, or the beach/anticipated breach/misrepresentation led to a substantial alteration in the benefit/burden of the contract S38: permits a party to affirm a contract despite knowing about the act that would entitle them to cancel the contract under prior sections S39: requires a party with 'substantially the same interest' as the breaching party to get the court's approval to cancel a contract under prior provisions S41: requires a cancelling party to give notice of cancellation or, if it is not possible, a clear intention to cancel the contract S42: sets out the effect of cancellation and how the parties' remaining liabilities/obligations are dealt with. The contracting out provision "if a contract expressly provides for a remedy for misrepresentation, repudiation, or breach of contract, or makes express provision for any of the other matters to which ss 35-49 relates, those sections have effect subject to that provision.' - s34 Remember - not just for remedies, but for all other provisions in ss 35-49. We will discuss further when we get to remedies Main principle: interpret the clause to assess the extent to which the clause affects the application of ss 35-49 of the CCLA 2017. What do you think should be the extent of permitted contracting out? How do the Cancellation provisions in the CCLA 2017 interact with rules of Common law and Equity? Note that ss36-39 replace common law and equitable rules allowing a party to 'rescind [the contract]...treat it as discharged' in the event there is breach/repudiation/misrepresentation (s40). Also note that if there is an express remedy in the contract in situation of misrepresentation/breach/repudiation, ss35-49 (provisions relating to cancellation) take effect subject to that contractual provision (s34). What does this mean for rules of common law and equity? Although the statutory scheme in the CCLA 2017 replaces the previous rules of both law and equity, in many respects they will still be relevant. In particular, the terms "repudiation" and "breach" largely carry with them their common law meanings, and therefore import common law rules. In the end it would seem that if the meaning of the words can be defined only in terms of their previous use, then that previous use will be applied to the statutory provisions unless it is clearly contrary to them as a whole." - The Laws of New Zealand, Contract, Part XIV (38) at , last reviewed 27 February 2021, emphasis added. Approach we will take: how does the common law fit in to the statutory scheme? Savings Provision: Section 59 You must first assess whether the cancellation provisions in subpart 3 of part 2 apply to the dispute at issue. Section 59: (1) Nothing in this subpart affects— (a) the law relating to specific performance or injunction: (b) the law relating to mistake, duress, or undue influence: (c) the doctrine of non est factum (it is not my deed): (d) subpart 4 (frustrated contracts): (e) Part 3 (sale of goods): (f) sections 253 to 260 of the Property Law Act 2007 (which relate to relief against the cancellation of leases for a breach of a covenant or condition): (g) the Consumer Guarantees Act 1993: (h) any other enactment to the extent that it prescribes or governs terms of contracts or remedies available in respect of contracts, or governs the enforcement of contracts. (2) Subsection (1) applies except as provided in sections 35(2) and 52 Exceptions to the Cancellation Provisions: Sale of Goods If the dispute concerns a sale of goods then it is dealt with under part 3 CCLA and not under subpart 3 (Cancellation). However note can still get damages for misrepresentation under s 35(2) for sale of goods contracts. Examples: Finch Motors Ltd v Quin (No 2) 2 NZLR 519: '... a car bought for towing a boat was found to be unsuitable for the purpose... this [was]... a breach of condition under what is now s 138 of the [CCLA]... the only remedies available were those provided for under the Sale of Goods Act itself, now pt 3 CCLA'. (F&B, p. 746) Moodie v Agricultural Ventures Ltd 3 NZLR 129: 'this was a contract for the sale of goods governed by the Sale of Goods Act 1908. Animals come within the definition of goods in s2. By s 15 of the Contractual Remedies Act, it is provided that only ss 4(3), 6(2) and 14 of that Act affect the Sale of Goods Act. Thus s7 of the Contractual Remedies Act dealing with cancellation does not apply to contracts for the sale of goods.' Note criticism of the carve-out provided to sale of goods and suggestions for it to be abolished, so the cancellation provisions apply to contracts for the sale of goods (F&B, p. 747). What do you think? Exceptions to the cancellation provisions: Sale of Goods Crump v Wala 2 NZLR 331 (HC) Agreement for sale of American-made jeans from C to W. Only about 25% were actually American-made. W couldn't sell the jeans and had to close the business. Sued for damages. DC found W could cancel under s7 Contractual Remedies Act, and either damages, or alternatively recovery under s9. Hammond J: 'I take the view that Parliament intended... that the Sale of Goods Act should continue to govern the discharge of contracts for the sale of goods...if this is so, the cancellation provisions of the Contractual Remedies Act [including ss 7-9]... are inapplicable as to a sale of goods. And the learned District Court Judge could not rely, as he did, on s 9 of the Contractual Remedies Act as one basis for the remedies awarded by him.' - p 335, emphasis added. Consumer Guarantees Act 1993: supply of goods and services in consumer contracts. Fair Trading Act 1986 Provides parties with the option ofr remedies where there has been misleading/deceptive conduct. Parties can choose either the FTA or CCLA cancellation provisions. Refer F&B pp 750-751 for discussion of differences between the cancellation provisions and remedies Property Law Act 2007 ss 235-260 deal with the cancellation of leases. It appears a lessor (landlord) can only cancel a lease using ss 244-252 of the PLA (although HCA did not was to resolve the debate: Aronui Ko Huiarau Trust Board v Edwards NZHC 667 at ). However, it appears the lessee (tenant) still has rights to cancel under the CCLA cancellation provisions (refer PLA s 267(5)(a)(ii)). Process for Assessing Cancellation According to the CCLA 2017 Step 1 - Are there grounds for cancellation? Repudiation Statutory Definition 36 Party may cancel contract if another party repudiates it (1) A party to a contract may cancel the contract if, by words or conduct, another party (B) repudiates the contract by making it clear that B does not intend to— (a) perform B's obligations under the contract; or (b) complete the performance of B's obligations under the contract. (2) This section is subject to the rest of this subpart. What is Repudiation? "making it clear that B does not intend to...perform B's obligations under the contract; or...complete the performance of B's obligations under the contract.' - s36 "Although the statutory definition appears to be all-embracing, it can be assumed that common law definitions of repudiation may still be relevant, since the language of the common law is used in the legislation. At common law, repudiation has been defined as: an absolute refusal to perform a contract; a total refusal to perform a contract; a declaration of intention not to carry out a contract when the time arrives; and an intention to treat the obligation as altogether at an end. In short, it must be shown that the party to the contract made quite plain an intention not to perform the contract." - The Laws of New Zealand, Contract, Part XIV (38) at , last reviewed 27 February 2021, emphasis added. In some instances it might not matter whether the action is classified as a repudiation or a breach (LONZ citing MacIndoe v Mainzeal Group Ltd 3 NZLR 273, 280) 'Where there is a contract to be performed in the future, if one of the parties has said to the other in effect "if you go on and perform your side of the contract I will not perform mine", that in effect, amounts to saying "I will not perform the contract". In that case the other party may say, "you have given me distinct notice that you will not perform the contract. I will not wait until you have broken it, but I will treat you as having put an end to the contract, and if necessary I will sue you for damages, but at all events I will not go on with the contract".' - Mersey Steel and Iron Co v Naylor Benzon & Co (1884) 9 App Cas 434 per Lord Blackburn Repudiation can be by express words or inferred reasonably from a party's behaviour Repudiation by Express Words Hochester v De La Tour [1843-60] All ER Rep 12 (QB, 1953) Takeaway Where a party to an executory agreement, before the time fixed for pefomrnace, breaks the agreement either by disabling himself from fulfilling it, or by renouncing it, an action will lie at the suit of the other party for the breach before the time specified for the fulfilment of the agreement Facts Defendant engaged plaintiff to render services beginning 1 June 1852. May 11, defendant informed plaintiff that he would not employ him as agreed and refused compensation Decision Plaintiff is entitled to bring an action for breach of contract. Repudiation by Conduct 'you must look at the actual circumstances of the case in order to see whether the one part to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract. - Mersey Steel and Iron Co v Naylor Benson & Co (1884) 9 App Cas 434 at 438-439 per Lord Selborne Not held to be repudiation: Requesting to be let out of an agreement - Schmidt v Holland 2 NZLR 406 Not wanting to move ahead with an agreement just because they misunderstood the agreement - Kumar v Station Properties 1 NZLR 99 "The mere fact that a party vigorously espouses a view of a contract's meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. It is clear that the party accept that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or on the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts to a refusal to accept any obligation to complete the contract in accordance with its terms" - at Examples of Repudiation by Conduct If X sells a house to Y when X had a prior arrangement ot sell the house to Z Synge v Synge 1 QB 466 Lovelock v Franklyn (1846) 8 QB 371 Morrison v Speedy Parcels Ltd (1990) 5 NZCLC 66,203 Consistently refusing to complete a contract on the basis an enforceable contract never existed Chatfield v Jones 3 NZLR 385 Refusing to settle a purchase until rent was paid, despite no entitlement to such payment Stewart v Davies (1995) 3 NZ ConvC 192,285 Unjustified attempt to cancel Finn and Burrows, citing 875 Frankton Road Ltd v Dandekar NZHC 937 at Unequivocal refusal to grant or acknowledge a lease on terms which had been agreed Finn and Burrows, citing Hirst v Voudsen (2004) 6 NZCPR 135 Partial Repudiation What is Partial Repudiation? If the party has partially completed but then refuses to complete, it appears that the refusal must 'constitute a contractual breach that is sufficient to entitle the innocent party to cancel in terms of [the equivalent of s37(2)(a) an (b)]... if the breach does not justify cancellation in terms of [those provisions], the innocent party will be left to its remedy in damages.' - Kumar v Station Properties Ltd NZSC 34 at Ss 37(2)(a) and (b) deal with breach of an essential term or a breach that would substantially alter the benefit/burden under the contract for the affected party. Effect of Not Accepting a Repudiation An innocent party can accept a repudiation and cancel a contract, or they can choose to affirm the contract (continue it). However, even if they do not accept the repudiation, they could still: Get an award of specific performance. In Hesham v Zenab Ac 316, even though the seller repudiated a sale of land agreement (settlement in 6 months) very shortly after execution, the buyer chose to affirm the agreement and was successful in getting an award of specific performance Be absolved of obligations in the case of repudiation that renders their own obligations moot and unnecessary - Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Ltd Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australia) Ltd (1954) 90 CLR 235 Contract fro sale of oats. Condition was that the oats had to be loaded on ships nominated by the buyer in Jan/Feb 1951 and buyer had to give 14 days' notice of shipment details. Turnbull had already contracted to sell the oats they were buying. Mundus didn't deliver the oats as promised. Held: Mundus' actions absolved Turnbull of the need to uphold that condition. "...the plaintiff should succeed because he was excused from literal compliance with the clause requiring a February ship and 14 days' notice thereof and was so excused at and from a time when the plaintiff could still have fulfilled it. What excused the plaintiff was the defendant persistently maintaining it could not ship the goods from Sydney as distinguished from Melbourne." - Per Dixon CJ "...there was ample prima facie evidence that the appellant was and never ceased to be ready and willing to nominate a February ship...the appellant, having always been ready and willing to perform its part under the contract, was in a position to say that the respondent would certainly have been then in default in making delivery under the contract if the acts which the respondent's conduct had absolved the appellant from doing had been done." - Kitto J As with Dixon CJ and Kitto J, Webb J allowed the appeal. "...no obligation to deliver oats could arise until after the giving by the appellant of the requisite 14 days' notice...the obligation of the respondent to deliver the contract goods never became enforceable.' - Taylor J (in dissent) Essentially, the contract had not been rescinded by Turnbull, who elected to keep it going, it 'was still on foot', and Turnbull needed to fulfil its obligations. 'The appellant never became entitled to a delivery under the contract.' The evidence didn't suggest Mundus waived the notice obligation. Misrepresentation Statutory Definition 37 Party may cancel contract if induced to enter into it by misrepresentation or if term is or will be breached (1) A party to a contract may cancel it if— (a) the party has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made by or on behalf of another party to the contract; or (2) If subsection (1)(a), (b), or (c) applies, a party may exercise the right to cancel the contract if, and only if,— (a) the parties have expressly or impliedly agreed that the truth of the representation or, as the case may require, the performance of the term is essential to the cancelling party; or (b) the effect of the misrepresentation or breach of the contract is, or, in the case of an anticipated breach, will be,— (i) substantially to reduce the benefit of the contract to the cancelling party; or (ii) substantially to increase the burden of the cancelling party under the contract; or (iii) in relation to the cancelling party, to make the benefit or burden of the contract substantially different from that represented or contracted for. (3) Subsection (1