Contract Notes PDF

BREACH OF CONTRACT PART I INCORPORATION 1. To establish a breach of contract, the first requirement is that the term that has potentially been breached is incorporated in the contract. (A) For express WRITTEN terms 1. If there is a SIGNATURE State: Party X will argue that signature is conclusive o...

BREACH OF CONTRACT PART I INCORPORATION 1. To establish a breach of contract, the first requirement is that the term that has potentially been breached is incorporated in the contract. (A) For express WRITTEN terms 1. If there is a SIGNATURE State: Party X will argue that signature is conclusive of acceptance (L’Estrange; Toll) State: Party Y can argue that a signature will not be binding if there has been a misrepresentation of the express written terms (NOT merely excluding an express oral term) (Analyse Misrepresentation) (Curtis) 2. If ELECTRONIC Acceptance Equivalent to ‘signature’ (eBay) (Discuss Above) 3. IF DISPLAYED or DELIVERED - e.g. tickets, receipts, signs, websites, brochures, links 3.1 State: As there is nothing to suggest a signature (cf L’Estrange), the test for incorporation is that of reasonable notice. 3.2 Recipient must reasonably expect document to contain contractual terms. Consider the type of document. (Causer) Causer: D gave docket to P when P left premises, so that when P came back, P could hand in docket to collect dry cleaning from D. Court said docket would not be reasonably expected to be a document containing terms; AND 3.3 Reasonable notice must be given before contract made (Oceanic Sun Line).“Must do all that is reasonably necessary to bring the terms to the attention of the party to be bound.” Notice must be given before the contract is made; AND 3.4 Where terms onerous or unusual, clear and specific notice required (Interfoto) Interfoto: Condition that P must return documents to D within 14 days or face wildly high fees. State: Party X will try to argue that term was onerous, as there is then a greater burden on Party Y to provide notice. 4. If there has been a PRIOR COURSE OF DEALING 4.1 Requires (La Rosa): (i) Repeated, regular and uniform dealings in which the document displayed those terms (ii) At some stage, X must have brought it to Y’s attention that the document contains contractual terms (iii) Must come from a document that is considered a contractual document - La Rosa: Invoices are not contractual documents. State: Party X will argue there have been enough dealings. State: Party Y will argue there has not been sufficient notice or not enough transactions. (B) If Express ORAL TERMS 1. Are oral terms a warranty or mere representation? State: P will try to argue for warranty State: D will argue that there was a mere oral representation 1.1 If B makes a statement of fact or opinion, it will be treated as a ‘mere representation’ unless there is something to suggest B was promising the statement was true (J J Savage & Sons v Blakney) 1.2 The following are indicators of warranty: (i) D more knowledgeable than P on the matter. - Oscar Chess: Private car seller (not a car specialist) said car was 1948 model; in reality, it was 1939 model. Court said not a warranty. Buyer could still have sought rescission for misrepresentation. - Dick Bentley: Car dealer (car specialist) claimed car had done few miles than it actually had. Court said could be assumed to be warranting due to their level of expertise (ii) Statement on an important matter/term and/or made just before contract concluded - Van den Escchert: Vendor assured buyer that house had no white ants just before entry into contract. (iii) Promissory or informal language used? (Lunar Park) Objective test – would a reasonable person in the position of P understand they were being promised or guaranteed something as opposed to merely being told a fact? JJ Savage: Sale of boat; requested speed; ‘estimated 15 mph’; in reality, a lot slower; held this was a mere representation. ANALYSE whether it was just puffery also. 2. ANALYSE: Assuming the Oral Term is a Warranty, CAN the warranty be incorporated IF THERE IS A WRITTEN CONTRACT? 1. State: IF the contract is wholly or partly in writing, then the Parol Evidence Rule (PER) could apply. 2. State: P will argue for the modern view of the PER. This states that an apparently complete written agreement creates a presumption of integration that extrinsic evidence is inadmissible to add to, vary or contradict the document, but that this presumption can be rebutted by sufficiently strong evidence (State Rail; Nicolazzo v Harb; SRA v Heath). It is difficult to produce strong enough evidence to rebut the presumption. *Typically if contract is signed and complete, PER would apply. 3. IF contains an ‘Entire Agreement’ Clause: - States that the agreement between the parties is encompassed entirely within the four corners of the contract. - An obligation which must be entirely or substantially performed by one party before the other party is obliged to render their performance. - This strengthens the above presumption but does not bar evidence of an additional term (Hart) 4. State: In the event that the PER DOES restrict extrinsic material, P may argue he can circumvent the PER by arguing that there’s a separate collateral contract 4.1 Party B makes an oral promise, and in return for that promise, Party A promises to enter into the ‘main’ contract. 4.2 Requirements: (i) The subject matter must be one that would not reasonably be expected to be dealt with in the main contract (Shepperd v Ryde). D promises the statement is true and, in return, it induces P to enter the ‘main’ contract (Shepperd) Sheppard: Council stated that park in front of house was reserved as park land, based on this information P purchased the house (main contract), council subsequently subdivided the park blocks, HCA found that the subdivision would be in breach of a collateral warranty. (ii) Term must be sufficiently certain (Crown Melbourne) P stated in contract D would be ‘looked after at renewal time.’ Court said there was no CC here because being ‘looked after at renewal time’ is not sufficiently certain to be a promise to be enforced. (iii) The promise was consistent with the terms of the main contract (Hoyt’s) (C) CONSIDER WHETHER ANY IMPLIED TERMS CAN INCORPORATED IN THE CONTRACT 1. IF term can be IMPLIED IN FACT (Applied because of the circumstances of that particular contract) 1.1 FOR CONTRACTS WHOLLY IN WRITING Apply BP Refinery test: 1) Reasonable and equitable; 2) Necessary to give business efficacy to the contract (i.e. the contract is ineffective without the term: Moorcock) 3) So obvious that it ‘goes without saying’ – necessary that both parties would have agreed that the term was obvious; 4) Capable of clear expression; and 5) Consistent with the express terms Conclude: This is a very high standard test, so it is unlikely to succeed, particularly on point three 1.2 FOR CONTRACTS NOT WHOLLY IN WRITING A term will be implied if it is necessary for the reasonable or effective operation of the contract (Byrne). 2. If a term can be IMPLIED IN COMMON LAW or STATUTE (implied into all contracts of that class of contract) 2.1 Requirements for CL: (1) Particular to a definite class of contract; (2) Suitable to be recognised as an implied term for all of those contracts; and (3) These are implied where ‘necessary’. Narrow view of ‘necessity’: The enjoyment of certain rights conferred by the contract would otherwise be rendered nugatory, worthless or undermined (Byrne) Conclude: Very high standard test, difficult to satisfy. See implied duty of care for performance (Australian Wheat). 2.2 Requirements for Statute: A statute may imply terms into a particular type of contract ― E.g. The Sale of Goods Act 1895 (SA) ss 12–15: imply terms as to title, sale by description or sample, merchantable quality, fitness for purpose into contracts for the sale of goods in SA. 3. If a term can be implied by CUSTOM Based on established custom and practice in industry/market/location 3.1 Requirements (Con-Stan Industries v Norwich Winterthur): Question of fact in each case The custom must be so well known that all affected parties must be presumed to have included it The term must not be contrary to the express terms of the contract Party may be bound even if ignorant of custom (D) ISSUE: HOW TERMS OF THE CONTRACT WILL BE INTERPRETED 1. State: The court will objectively analyse what a reasonable person would have been lead to believe those terms in a contract to mean (Toll v Alphapharm). 2. State: The terms of a commercial contract are to be understood by what a reasonable businessperson would have understood them to mean (Ecosse Property Holdings, ). (A) State - LAW: Extrinsic evidence is inadmissible to add to, vary or contradict document (Goss). 1. IF trying to identify the parties to the contract, identify the subject matter of the contract or to resolve an ambiguity State: LAW above State: However, extrinsic evidence admissible to: (1) identify the parties to the contract (White); OR (2) identify the subject matter of the contract (White); OR (3) resolve an ambiguity (White) 2. IF assessing the surrounding circumstances known to the parties at the time the contract is made State: An exception to the rule is where the court is trying to establish background facts known to both parties (Codelfa). State: However, it is currently uncertain in Australia precisely when to assess the surrounding circumstances. P will argue for the broad approach stated in Jireh, which is that evidence of the surrounding circumstances is admissible whenever interpreting terms. D will argue for the narrow approach stated in Codelfa, which is that evidence of the surrounding circumstances is only admissible to interpret terms when the terms are ambiguous. Conclude: It is unknown which approach the courts will take. 3. IF Subsequent Conduct State: LAW Evidence as to post-contractual conduct and statements generally not admissible to interpret contract; Franklins v Metcash Trading (2009). (B) Does an EXCLUSION CLAUSE apply? 1.1 ISSUE: Where exclusion clauses have been incorporated into the contract, interpret whether they apply or not: 1.2 Ambiguities resolved contra proferentem (against the interest of the party that is responsable for drafting the it), principle endorsed in Darlington v Delko. 1.3 IF excluding Liability for serious breaches of contract State: Clauses excluding liability for serious breach are given their ‘natural and ordinary meaning’ and, where appropriate, construed contra proferentem in the case of ambiguity. (Darlington) 1.4 IF excluding liability for negligence Liability for negligent conduct only excluded if: (1) clause expressly mentions negligence or a synonym (e.g. recklessness, carelessness, lack of care, without care) (Canada Steamship); or (2) if general words are used, the words could not have been intended to cover another form of liability (Davis) 1.5 Statutory Controls (2) Analyse: The next requirement is that the term has indeed been breached. (3) Analyse: Remedies. Vitiating Factors MISREPRESENTATION (Alternative to breach of contract - cannot bring both) Requirements: 1. P has the onus of proving there has been a representation of existing fact, AS OPPOSED TO: (i) A puff  - Mitchell: Contract for the sale of property. Advertisement described premises as ‘immaculate presentation – nothing to spend.’ Turned out, seriously problems w foundations – spent thousands to fix. Court: Said it was a puff because a reasonable person would say the statement didn’t have definite meaning; - The more specific the words, the less likely they will be considered puffery (Eveready). (ii) A statement of opinion or belief Unless the opinion is not genuinely held (Bisset v Wilkinson ). Unless it can be proven that promises/predictions were not honestly held or believed (Edgington v Fitzmaurice). (iii) A statement as to the future 1. Implicitly representing he knew facts which would justify his expression of confidence or prediction, when in fact he knew the truth was otherwise (Ritter v North Side Enterprises) (iv) OR A mere failure to disclose information (Scott). 1. Failure to speak can be misrepresentation in the case of half truths (Dimmock v Hallett). Literally true, but implying something false. Dimmock: advertisement stated that the farms had paying tenants, half truth as by time of auction had given notice to quit property. 2. Failure to correct statement that becomes false (With v O’Flanagan). 3. Silence isn’t generally a misrepresentation (W Scott Fell) 2. P has the onus of proving that statement has turned out to be untrue 3. Court will presume that this induced P to enter into the contract. D has to rebut (Difficult) (Holmes) Holmes: Vendor misrepresented quality of stock; purchaser found out; later elected to enter contract anyway, knowing the truth; thus, no inducement. 3.1 Does not matter that A could have discovered the truth easily, but failed to check (Redgrave v Hurd). 4. What are the consequences of misrepresentation? i. Contract voidable (provided there are no barriers to rescission) ii. Where voidable, contract can be rescinded with effect cancel everything done under the contract which requires restitution of any benefits.  MISTAKE Common Mistake Requirements: (1) Both parties in agreement about the identity (identity, nature or IF both parties are existence i.e. quality, nature or functionality) of the subject of the contract in agreement, but (2) Both parties are equally mistaken both equally (3) Mistake is fundamental to the contract mistaken about the (4) Neither party took the risk by expressly or impliedly warranting/ identity of the assuming the existence of the subject matter (McRae) subject of the (5) The fact situation is radically different from that which the parties contract made their agreement (Bell) Consequences - Void (it never came into existence – do not consider barriers to rescission). - See ‘Action for Money Had and Received.’ Mutual Mistake Requirements: (1) Parties objectively appear not to have reached agreement IF parties both have - Raffles: There were two ships named Pierless. Each party believed the different beliefs or contract involved different ships, so objectively appeared not to have intentions but are reached agreement. unaware of the - Taylor: A thought price was $150,000. Contract signed specified discrepancy $15,000 total in price. Court said contract valid because an objective person would see a price of $15,000. Consequences - Void (it never came into existence – do not consider barriers to rescission) - See ‘Action Money Had and Received.’ Unilateral Mistake Requirements: Taylor: Court has power in equity to make a contract voidable where: IF only one party (1) contract is in writing; mistaken, and the (2) A makes a serious mistake as to content or subject matter of a other party fundamental term (e.g. price in Taylor); and intentionally takes (3) B is aware of the mistake and deliberately sets out to prevent it being advantage of the discovered to take advantage of the mistake mistake Consequences - Voidable (provided there are no barriers to rescission) - See ‘Action for Money Had and Received.’ *Rectification > court can order rectification of written contract where satisfied it does not record parties ‘common intention’ (Simic) > can only be used to correct mistake as to how agreement is recorded, not the substance or effect of transaction (Pukallas). NON EST FACTUM Plea that a signed document has ‘not been made’ and is thus void, by a person who cannot understand at all what they are signing, eg because of blindness, illiteracy or mental disability makes a fundamental mistake as to its terms, and (if the other party is ignorant of their difficulty) has not been careless (Petelin v Cullen). DURESS - THREATS State: Contract voidable if procured by an illegitimate threat that overbears the will in the sense that the victim feels no practical choice other than to submit. Analyse: An illegitimate threat may be: (1) Any threats of physical harm (Barton); (2) Threats to damage to property unless signed the contract; or (3) Threats to breach a contract that would cause economic loss (North Ocean Shipping) *Australian Courts are unlikely to find economic duress lightly – mostly look to illegitimate pressure that was unlawful or wrongful by reference to some external standard (Electricity Generation v Woodside Energy). Consequences - Voidable (provided there are no barriers to rescission) - See ‘Action for Money Had and Received.’ UNDUE INFLUENCE 1. State: Contract voidable where one party’s hold over the other is such that they lack the capacity to reach an independent judgment. 2. Presumed Undue Influence Undue influence automatically always presumed for following relationships: (1) parent and child; (2) solicitor and client; (3) doctor and patient; (4) religious adviser and advisee; (5) guardian and ward 3. IF not automatically presumed, undue influence may be presumed where the weaker party can prove a special relationship of trust and confidence exists. e.g. banker and client, husband and wife See Johnson v Buttress: 4. IF presumed, either automatically or where special relationship can be proven, burden is on the stronger party to prove weaker party was able to reach a free and independent decision (e.g. received independent legal advice). 5. Actual undue influence (VERY RARE) - Weaker party must prove stronger party exerted undue influence over them when entering the transaction (Thorne v Kennedy (2017)). Thorne v Kennedy: P migrated to Australia to marry D. D presented P with a grossly one-sided prenuptial agreement, which P signed. Court said there was actual undue influence in persuading fiancé to sign agreement, as without the marriage she’d have no right to stay in Australia. 6. What are the remedies available? Contract is voidable (provided there are no barriers to rescission) See ‘Action for Money Had and Received.’ Voidable Contracts 1. What are voidable contracts? 1.1 Voidable contracts are initially valid and enforceable but are rendered void at option of wronged party, if not voided remain enforceable. 2. What are rescinded contracts? 2.1 Everyone is returned to the position they were in before the contract was entered into. 3. CONTRACTS ARE ONLY VOIDABLE if there are none of the following barriers to rescission: (i) Affirmation: After discovering the truth of the misrepresentation, P elected to affirm the contract expressly or impliedly. But only if they knew of the right to rescind (Coastal Estates v Melevende); or (ii) Restoration of pre-contract position impossible: - e.g. can’t rescind an employment contract - But at equity, substantial restoration will suffice, and court may make orders adjusting the parties’ rights to achieve that (Alati); or (iii) Property has been acquired by an innocent third party before rescission 1. Consider whether innocent third party? 2. Consider timing (like in Caldwell)? 2.1 If rescinded BEFORE third party purchase, rescission successful. Car and Universal Finance v Caldwell: Rogue sold innocent third party a car; original seller to rogue didn’t receive money; original seller tried and couldn’t contact rogue but went to police which was enough to demonstrate rescission; contract was rescinded. 3. If rescinded AFTER third party purchase, rescission unsuccessful or (iv) Fact contract has been fully performed is no longer a bar (Misrepresentation Act s 6(1)(b). IMPORTANT – ANALYSE ACTION FOR MONEY HAD AND RECEIVED See possibility of undue delay (cf North Ocean Shipping)  Variation of Terms 1. Has one party agreed to do more work or to accept less and the other party is still promising to only do what they originally agreed to do? 1.1 Consideration is satisfied when both parties accept an additional undertaking or both parties agree to accept less. 2. Consider whether the parties have agreed to terminate contract and replace with a new contract. Concut v Worrell: a formal employment contract in place of an initial verbal agreement was a variation - Courts will have regard to intention. 3. P will bring an action for money had and received on the basis of total failure of consideration for that payment OR simply variation will not be made out due to lack of consideration. 4. State: if D is simply promising to complete work that it was already obliged to perform, that cannot be good consideration for P’s promise to pay extra (Stilk v Myrick). Stilk v Myrick: two sailors deserted a ship, ship’s master agreed to share those wages between the remaining crew. Master refused to pay as the continuation of existing duties was not sufficient consideration to enforce the extra payment. 5. There are three possible ways consideration will be found: Exceeding pre-existing duty; Compromise and Practical Benefit. (1) Exceeding pre-existing duty (Hartley v Ponsonby) Hartley v Ponsonby: 17/37 crew deserted ship making voyage much more dangerous and difficult to sail. This exceeded pre-existing duty. (2) Compromise (Wigan v Edwards). If one party has a bona fide belief that he is excused from performing a pre existing contractual obligation, then performing or promising to perform this obligation will be good consideration for a new promise by the other party. Work is done in return for giving up claim for breach of contract in court.*Does not matter that action may not succeed in court. See Wigan v Edwards: E purchased a house from W, contract did not contain promise that house was in good condition, house was defective, W promised to fix defects, compromise was found to be valid variation. (3) Practical Benefit (Musumeci, Hill v Forteng). Basis that value to P of having work done and paying for this creates a practical benefit, worth more than the right to sue D for breach of contract, especially given the costs of litigation. See Hill v Forteng: Director of company accepted salary reduction. No changes to duties. Practical benefit was he was able to retain job in circumstances where might have lost job. Apply three Musumeci Requirements: 1. B doubts that A will complete performance 2. B offers A an additional payment or concession 3. B thereby obtains a benefit or ‘obviates a disbenefit’ which is worth more than any likely remedy against A. 4. No duress, fraud, undue influence or unfair pressure by A? *Note strong hints in Hill v Forteng that these may not all be required. See Musumeci: Winadell leased a premises to Musumeci, W leased to a competitor of M, to avoid M cancelling lease and leaving vacancy W reduced rent. W obviated a disbenefit. *Note Party agreeing to do more or accept less must receive practical benefit. 6. Consider: General rule is that acceptance of part-payment of a debt does not discharge the rest of the debt (Foakes v Beer). Although see practical benefit possibility, this issue was left open in MWB Business Exchange Centres v Rock Advertising. 7. Consider: There may be a requirement for variations to be made in writing, although in Australia variations may be made orally (Sara Stockholm), even if contract speci es variations only to be made in writing. *Note if statutory requirement for variation to be in writing, this must be followed. fi  Enforcement Remedies (A) Specific Performance 1. Equitable remedy, can be used to order performance of a contractual obligation. Granted at court’s discretion but not if damages would be an adequate remedy. 2. cf sale of land assumed to have peculiar and special value (Adderley v Dixon); sometimes goods can also be unique (Smythe v Thomas). 3. Reasons for refusal include continuing court supervision (J C Williamson v Lukey); employment contracts (Byrne v Australian Airways); plaintiff has unclean hands; unreasonable delay in seeking relief; P not willing or able to perform their own obligations; contract for personal services (JC Williamson, Byrne). (A1) See Discretionary Factors for Specific Performance Reasons for refusal: Cannot have specific performance granted for a contract of personal services (personally have to do the work) (e.g. if dismissed from employment and sue for breaching employment contract, won’t get specific performance i.e. won’t be employed again) (B) Action in Debt (Common) (No need to prove loss) 1. A lump sum contract is presumed to be an entire obligation (Phillips v Ellinson Bros). An Entire Obligation is an obligation which must be entirely performed by one party before any right to the contract price (or any part of it) arises. 2. Presumption that P’s Entire Obligations must be Wholly or Substantially Performed before P can bring an action in debt against D (Phillips), but this is rebuttable by express terms. Phillips: Phillips employed as manager to work 40 hours per week for 2 years, after that receive percentage of Ellinson Brothers profits. Not performed his obligation, not entitled to claim. 3. D must have wholly or substantially performed for the money to be owed (Bolton v Mahadeva) 4. What constitutes Whole or Substantial Performance of Entire Obligations? Where there are defects to resolve or work to perform to complete an entire obligation. Bolton v Mahadeva: For substantial performance, discuss: (a) the nature of the defects (b) the cost of rectifying those defects (P wants to show the cost of rectifying is minor compared to price of contract; D wants to show major costs compared to price of contract) (c) the price of the contract. Bolton: P contracted to install hot water and central heating system, many defects such that the work was not usable. The cost of rectifying compared to contract price is around 31% where 174.50/ 560. *Note that minor defects can be disregarded per the De Minimis rule. 5. If substantial performance has taken place, according to Mann v Paterson, the action for debt would take primacy over an action in restitution for quantum meruit. There is no claim for quantum meruit for partial performance of an entire obligation (Cutter v Powell), unless an exception to the general rule applies. Consider quantum meruit exception. 6. The debt has accrued i.e. it is past its due date. 7. The amount of money is stipulated (B1) What are the consequences of an action in DEBT? - IF P HAS COMPLETED ENTIRE PERFORMANCE of Entire Obligation, but has not been paid by D, P can bring an action for debt. - IF P HAS SUBSTANTIALLY PERFORMED an Entire Obligation, but P has not been paid by D, P is entitled to recover the contract price for performing the entire obligation from D in an action for debt, but P will be liable to pay damages to D under a counter-claim for damages for breach of contract, to compensate D for any loss arising because the contract has not been fully performed by P. - IF NO SUBSTANTIAL PERFORMANCE, then P cannot get an action for debt and will have to rely on Restitutionary Remedies. (C) Injunctions 1. Can be used to enforce negative stipulations, by restraining a threatened or actual breach of contract (Lumley v Wagner) 2. May be permanent of interim relief 3. More commonly granted than specific performance (D) Liquidated Damages 1. Parties may stipulate agreed sum to be paid in the event of a particular breach. Common in construction contracts. 1.1 Note rule against penalties. Test is now whether sanction is out of all proportion to the interest the innocent party is legitimately seeking to protect (Paciocco v ANZ Bank). Rule is unclear in Australia due to Andrews v ANZ Bank.  Termination of a contract 1) Does the party have a right to termination? (A) If UNILATERAL TERMINATION by One Party Analyse the term allegedly breached to give rise to termination… Consider: BASIS for termination; justified by any available ground (Concut), but if party terminates on one basis cannot later terminate on a different basis (Melbourne Stadiums v Sautner). 1. Is is an Essential term (conditions)? ISSUE: Is the term that has been breached an essential term of the contract? Requirements: 1. The parties are free to designate any term essential, regardless of its ‘fundamental’ nature (Gumland). - e.g. ‘time is of the essence’ makes the time stipulation an essential term. - ‘ASAP’ is not considered to be essential term (Ammann) 2. IF there is no express mention of essential term, Court may imply that it is an essential term. > Test is whether promisee would not have entered into contract unless assured of strict or substantial compliance (objective test – what a reasonable person would think the party thought) (Lunar Park). The language used will assist in interpreting the nature of the term (Lunar Park). i. Party A (arguing the term is essential) will argue with the authority of Associated Newspapers, whereby the court inferred a term was essential. Associated Newspapers: Mr Banck’s cartoon must be on 1st page, on a couple of occasions there were cut down versions and not on 1st page. Would Bank’s have entered into contract without assurance that term would be strictly complied with? Court found NO. ii. Party B (against essential term) will argue with the authority of Gough, where the relevant term was found not to be essential. Gough: The company wanted to terminate as the name on tower block was going to be different than what was initially contracted, rejected by HC as a name is not an essential term. IF IMPLYING A TIME STIPULATION: 1. Prima facie any delay will give right to claim damages. General rule that failure to perform on time is a breach of contract, but may not always be grounds for termination. 2. May be grounds for termination if: (a) The time stipulation is an essential term. Time stipulations are presumed not to be essential terms (Law of Property Act); but parties can make time ‘of the essence’, which makes performance on time essential.  (i) If not expressly mentioned, may be implied as an essential term. Apply Lunar Park test; would the party have entered into the contract unless assured of strict or substantial compliance? (b) OR; the delay is so serious as to constitute a fundamental breach (Koompahtoo) or repudiation (Laurinda v Capalaba (1989). (i) Test for fundamental breach is whether delay substantially deprives the other party of the benefit of the contract. Must be fundamental and go to the root of the contract (Hongkong; Koompahtoo). cf Balance time delay v time of overall project to determine whether fundamental. Consequences of breaking an essential term - Any breach justifies termination (Hongkong Fir) (2) Is it an Intermediate term (MOST TERMS) 1. ISSUE: Is there an intermediate term? Intermediate term: If term can be breached in a number of different ways, it’s an intermediate term (Koompahtoo) E.g. term is that ship must be seaworthy; but a ship is unseaworthy if there’s a gaping hole (major issue but also if it’s missing one life boat (minor issue). 2. ISSUE: Has there been a fundamental breach of an intermediate term? (test for fundamental breach – if it substantially deprives the other party of the benefit of the contract. Must be fundamental and go to the root of the contract), then termination permitted (Hongkong; Koompahtoo) i. - D will argue that the case is analogous to Hongkong Fir, where the breach did not substantially deprive the other party of the benefit. Hongkong Fir: ship owners leased a vessel, clause required a seaworthy vessel and that this is maintained, upon delivery machinery required maintenance due to age, causing breakdowns and delays. ii. - P will argue using Koompahtoo as authority, whereby the breach was held to be fundamental iii. - D may also seek to argue that the term was in fact a warranty (see 3), rather than an intermediate term. Koompahtoo: Corporation governing an Aboriginal community entered into building development, incorrect records were kept which was a term of the contract, what was the status of obligation to keep records? HC ruled non-essential term but intermediate term and found fundamental breach. - IF P successful, P can terminate. - IF D successful, P can still claim damages for any breach of contract, regardless if fundamental. (3) Warranty Consequences - If promise/guarantee that something is true (warranty)... - Breaches never justify termination - BUT P can bring damages for any breach (B) IF REPUDIATION (Serious refusal or inability to perform: Laurinda) “Conduct of a party which evinces an intention no longer to be bound by the contract or to fulfill it only in a manner substantially inconsistent with the party’s obligations: Koompahtoo at. Repudiation occurs due to any of the following (or multiple of the following): 1. Wrongful termination - Wrongful termination usually amounts to repudiation, allowing other party to terminate and sue for damages, UNLESS based on good faith misinterpretation of contract where party is still willing to perform their obligations (DTR Nominees). - Query whether this can be used as a ground for termination if not ready, willing and able to perform themselves (DTR Nominees) DTR Nominees: Contract for sale/purchase of land, party A fails to get certain plans registered, B says that was an essential term, A says no it wasn’t we can terminate, good faith misinterpretation. 2. Breach of Essential Term or Fundamental Breach of Intermediate Term; - Overlaps with above 3. Anticipatory Breach; or If party indicates ahead of performance that they will not perform, or will not be able to perform at stipulated time, it is repudiation EVEN THOUGH breach hasn’t yet occurred (Hochster) 4. Series of Minor Breaches - Reflects an attitude which shows an unwillingness or inability to perform obligations (Tabali) (C) If FRUSTRATION Requirements: 1. Supervening event for which neither party is responsible 2. Must deprive parties of substantial benefit of contract (Codelfa). Circumstances calling for performance would be radically different from that which was undertaken (Davis Contractors). 3. This supervening event is NOT a matter which the parties expressly allocated the risk for in their original contract (expressly through force majeure clause); and 4. The Court cannot imply that one of the parties has been allocated the risk of the supervening event occurring as it was reasonably foreseeable (Ooh! Media) Ooh! Media: Office tower obstructed outdoor advertising on billboard, parties knew tower was being constructed and so should have allocated the risk. Codelfa: Construction contract with specified date of completion, injunction was filed by council to stop work on particular hours, Court found that contract was frustrated. 5. Not frustrated where ‘self-induced’ (Maritime National Fish v Ocean Trawlers). Consequences: Automatically brought to an end by operation of law – PARTIES HAVE NO CHOICE. Always State: Where a contract is frustrated, the consequences for the parties will be determined according to the Frustrated Contracts Act. D) Implied Termination Where a contract is apparently indefinite, law may imply a right for either party to terminate on reasonable notice (Byrne). - Standard implication for employment contracts (Byrne) - May also be implied for other contracts with no end date (Crawford) Crawford: Contract for company to sell products; no end date stipulated; Court said it was indefinite; so implied right to terminate on reasonable notice existed. E) IF Mutual Agreement Requirements: (1) Mutual agreement to terminate; and (2) Where Party A party has not fully performed its obligations, Party A must provide fresh consideration in return for being released from its unperformed obligations OR the parties must use a deed (no consideration). - Where agreement deals with same subject matter as earlier agreement, but in different terms, intention to terminate earlier agreement may be inferred (Hillam v Iacullo). F) Inferred Abandonment If neither party can terminate, because both were at fault. but both wanted out of the sale, a court might infer that the contract has been abandoned (DTR Nominees). 2) Exercise of the Right to Terminate 1. Has the party with the right to terminate elected whether to affirm or terminate the contract? Silence is not affirmation, but may depend on whether alerted other party that he was making his mind up. 2. Party with right to terminate must elect whether to terminate or affirm contract. Affirmation may be express or implied form conduct - Ignoring breach and continuing to perform contract = implied affirmation - Affirming party must at least know of circumstances creating right to terminate (Khoury v Government Insurance Office) (e.g. if employer only finds out about stealing 1 year after it occurred, then the employer’s affirmation can only occur after finding out about the circumstance of stealing) 3. Tropical Traders v Goonan (1964): New rights can arise after an affirmation. Facts: Vendor kept asking for more time to complete a sale, every time a new date came and went this continued to allow the right to terminate, every extension resulted in an affirmation but new rights to termination were granted. Despite prior affirmation, this can lead to a new right of termination. 4. Affirmation traditionally waives right of termination (Delor Vue Apartments). 3) What are the CONSEQUENCES of termination? Future Obligations are discharged (McDonald); although some terms intended to continue (Securicor). Accrued Rights to Performance are still enforceable (Bot) For money paid under a terminated contract, basis for recovery is money had and received. May sue for reasonable remuneration for bene t of services or property provided (QM/QV) fi  Damages for Breach of Contract (Compensation) a) Analyse: Any Breach of Contract (Analyse ‘Breach of Contract’) entitles the injured party to seek damages. b) Analyse: Damages will be nominal (a token amount) unless P can prove they have suffered loss (Romero v Farstad Shipping (No 3). c) State: P is entitled to be put in the same position as if the contract had not been breached (Robinson; Tabcorp). d) Analyse Mitigation of Loss Date of assessment is usually date of breach but can be varied (Ng v Filmlock). Expectation Loss (The expected benefit to be gained from performance of the contract) Quantifying expectation loss Calculating damages is the difference between what happened and what ought to have happened (Clark) 1. Undelivered Goods 1.1 Additional cost (if any) of buying replacement goods (SOGA s 50). - If goods cost more, the difference between the two prices. If the goods cost less, the damages will be nominal. 2. Defective Goods 2.1 Compare value of goods as promised and as supplied (SOGA s 52) 3. Uncompleted Work 3.1 Cost of having someone else complete it or rectify any defects, unless that cost would be unnecessary and unreasonable. 3.2 D will argue that the cost of rectification is extravagant or out of balance with the loss suffered by the plaintiff, as found in Forsyth. Forsyth: Pool was several centimetres less than the contract, not necessary and reasonable to get the very large sum of damages. 3.3 P will argue that it is reasonable to seek rectification damages as found in Bellgrove and Tabcorp. Bellgrove: P contracted to have house built, builder used wrong kind of cement, house was in danger of collapse, claim in damages for the contract of house plus demolition of original. Damages for P were necessary and reasonable. Tabcorp Holdings v Bowen Investments: Lease has clause that work cannot be done on building without consent of owner, marble foyer is constructed, sues for cost of ripping out marble and re-doing the foyer and succeeds. Reliance Loss 1. Analyse: In rare cases where expectation loss cannot be ascertained, reliance loss may be awarded (McRae). McRae: Impossible to assess the expected benefit for a non-existent oil tanker because D did not specify a tanker of any particular size or condition. Instead, P awarded reliance damages to compensate him for all his expenditure which he incurred in reliance on D’s promise. Consequential Loss 1. Any loss as a consequence (additional loss) of the breach of contract e.g. resulting loss of profits or fines, physical injury caused by defective goods. 2. Analyse: Causal link must be established (‘but for’ test); and 3. Analyse: Loss must not be too remote... According to Hadley, loss is not too remote if it is either: A kind of loss that arises naturally according to the usual course of things (first limb) (Concerns the type of loss – objective test); or Loss reasonably contemplated by parties at time of contract, as a ‘probable result’ of this kind of breach (second limb) (Concerns the actual knowledge of the parties – subjective test) (Endorsed in European Bank v Evans). 4. Apply the Hadley test in Victoria Laundry: Contract for new boiler. Boiler not delivered on time. - P sued for general loss of profits. General loss of profits succeeded. Court said this is reasonably expected. - P also sued for loss of profits from a particularly lucrative contract. Loss of profits from particularly lucrative contract failed. Found to be too remote because P hadn’t been told D about the particularly lucrative contract at the time of making the contract for the new boiler. Court said that if D had been told at that relevant time, second limb would’ve applied. Non-Pecuniary Loss Damages aren’t available for mental distress, unless: (1) They are the result of a physical injury; or (2) Specific aim of promise breached is to create happiness / relaxation / freedom from stress (Baltic) Mitigation of Loss No recovery for loss or reduction of damages where loss was either: (1) Loss actually avoided by P; or (2) D proves loss should reasonably have been avoided by plaintiff taking appropriate steps (objective test) (British Westinghouse v Underground Electric Railways) (NB: burden of proof on D to argue that more convenient & cheaper – TC Industrial). e.g. “P will be entitled to salary he would have received under the contract less any alternative income he does in fact obtain (i.e. when he finds a new job) or D can prove he can reasonably obtain from a comparable job.” If losses are incurred in an attempt to mitigate, the plaintiff may claim for these. Restitutionary Remedies Alternative Remedies to Damages (Cannot have both) 1. Loss of Bargain Damages 1.1 Where a breach of contract is used as a basis for termination, LOBD may be claimed. 1.2 Damages for loss of all benefits expected under the contract, no just loss from the breach that triggered the termination. 1.3 Doesn’t matter that innocent party caused that loss by electing to terminate (Maloney). 2. Recovering Money Paid under a Terminated Contract (ACTION FOR MONEY HAD AND RECEIVED) 2.1 Used to recover money paid under mistake or duress or where there is a total failure of consideration (didn’t get any of what you bargained to receive, perhaps because contract was void or terminated) (Baltic). 3. IF Recovery of deposits on termination Requirement - If 10% or less, it is a deposit (Luu). Although there is no rule that says a deposit can’t be a higher figure. - deposit if it is earnest money paid at the time of making the contract (Luu). Consequences (Luu) - If payer at fault => payer cannot recover deposit. - If payee at fault => payer can recover. - If no total failure of consideration, deposit cannot be recovered in restitution, nor can it be included in damages because it is a cost that he would have h ad to bear regardless of compliance. Nonetheless it can be considered in assessing overall financial position. 4. IF Recovery of Instalments Requirement - If 20% or above, it’s an instalment. Consequences - If contract is silent as to who keeps instalments, generally recoverable by payer regardless of fault under an action for money had and received, so long as there is a total failure of consideration (Baltic). 5. IF Partially Performed (Action in Quantum Meruit) 5.1 The general rule is that there can be no recovery for partial performance (Cutter).  5.2 However, if P partially performs an entire obligation under a lump sum contract with D, P can only bring an action in quantum meruit to recover payment for its partial performance of the entire obligation if: (1) Free acceptance of benefit of work / goods 1.1 Whether benefit has been rejected, look for whether work has already been partially completed and therefore cannot be rejected at all. 1.2 Sumpter v Hedges: Must be a meaningful choice to accept or reject the work (very narrow). - Builder agreed to build 2 houses; half completes both houses; owner doesn’t pay; builder sues on quantum meruit; no free acceptance – owner had to finish work; did get quantum valebat. (2) New contract implied (Related to above) Steele v Tardiani: Ps didn’t cut wood to specs; as D freely accepted the benefit of the goods, P was induced to believe that it was ok for them not to cut the wood properly, and a fresh contract was formed; thus, Ps can recover a reasonable sum for wood not cut properly. (3) Full performance wrongly prevented (Sopov; Mann v Paterson) - Here P can bring an action in either breach of contract (for breaching implied duty of cooperation) or quantum meruit. Claim under quantum meruit where market has gone up / contract where market has gone down. 6. IF Property was Supplied or Used (Quantum Valebat) - When a contract is terminated, and D retained or used property at P’s expense, P may recover under Quantum Valebat. - To recover a ‘fair and reasonable’ price for property supplied or used (Sumpter). 7. Quantum Meruit Scenario 1: Reasonable remuneration can be recovered for work performed under an otherwise void or unenforceable contract. See, eg, Pavey & Matthews v Paul. Problem Solving Process Breach of Contract. Has there been a breach of contract? 1. Is the term that has potentially been breached incorporated into the contract? 1.1 Are there any implied terms that can be incorporated into the contract? 2. If incorporated into the contract, how will the term be interpreted? 2.1 If there are exclusion clauses, interpret whether these will apply to the contract or not? [CONTENT] At this point, there has been a determination of whether the terms are incorporated into the contract. If not, there are not part of the contract and are therefore not binding on any party. 3. Has the term in fact actually been breached? This must be determined. 4. What are the remedies that are available? Void or Voidable Contract. Is the contract either void or voidable? 1. Has there been misrepresentation? (alternative to breach of contract, cannot bring both) 2. Has there been a mistake? 3. Has there been duress (threats)? 4. Has there been undue influence? 5. Are there any barriers to rescission? Contracts are only voidable if there are no barriers to rescission. [CONTENT] Under these circumstances can likely claim Action for Money Had and Received. - Used to recover money paid under mistake or duress or where there is a total failure of consideration (didn’t get any of what you bargained to receive, perhaps because contract was void or terminated) (Baltic). Remedies. What are the remedies that are available? Numbered 1 - 4. Is the contract void or terminated? If YES, see restitution remedies. If NO, see enforcement and/or damages remedy. (1) Termination of Contract. Termination is a REMEDY. TO ESCAPE FROM A CONTRACT (E.G. IF X SUING Y FOR BREACHING A TERM, Y WANTS TO TERMINATE); AND - IF SUCCESSFULLY TERMINATED, Y CAN CLAIM LOSS OF BARGAIN DAMAGES. [CONTENT] Contract may be discharged or terminated by performance, mutual agreement, automatically through operation of law. Incentives to terminate include discharge future obligations that are unperformed, claim loss of bargain damages, unhappiness with performance etc. 1. Have all obligations already fallen due? If NOT, don’t talk about termination, only remedies for BREACH. 2. Is the term allegedly breached that is giving rise to termination incorporated (expressly or impliedly) into the contract? Has this term in fact actually been breached? 3. Does the party have a right to terminate? 4. Has the party exercised the right to terminate? 5. What are the consequences of termination and possible remedies available? (2) Enforcement Remedies. These can be used as a remedy for breach of contract. 1. Is specific performance available? 2. Is an action in debt available? (3) DAMAGES. What are the damages that are available for breach of contract? [CONTENT] a) Analyse: Any Breach of Contract (Analyse ‘Breach of Contract’) entitles the injured party to seek damages. b) Analyse: Damages will be nominal unless P can prove they have suffered loss. 1. Are expectation loss damages available? 1.1 See Quantifying expectation loss, 2. Are reliance loss damages available? 3. Are consequential loss damages available? 4. Are non-pecuniary loss damages available? 5. Are mitigation of loss damages a factor to be considered? (4) Restitutionary Remedies | Alternative remedies to DAMAGES. [CONTENT] Cannot have both restitution and normal damages. 1. What are the restitution remedies available for void or terminated contracts? 1.1 Are loss of bargain damages available? 1.2 Is a quantum merit claim available? 1.3 Is there any recovery of deposits available etc? Robinson - Causation, remoteness, mitigation of loss Performance: Conditional Obligations Presumption of entirety (Phillips): presume all work must be done to earn any of the money. However, contract may be divisible into entire obligations If no date, law implies that work has to be done within reasonable time. For contract of sale, as a general rule the main obligations must be performed at the same time i.e. concurrent. Substantial performance may suffice (Bolton v Mahadeva) Performer can sue in debt, but client may counterclaim for damages. Client would receive damages that amount to cost of completing the work. Variation of terms Termination and replacement? If one party agrees to do more or to accept less, but the other party is promising to do what they originally promised. Need to consider possibility that parties have agreed to terminate and replace with a new one. Compromise (Wigan v Edwards). Agreement to build house for 500k, at the end say you were supposed to put in paving, dispute arises, agree to put extra paving in, consideration is provided as long as party honestly believed the paving was a requirement, paving is done in return for giving up claim for breach of contract in court. If no evidence of dispute over performance of original contract, see practical benefit exception (Musumeci, Hill v Forteng). Practical benefit was that tenant didn’t leave and this benefit was worth more to them than cost of suing for breaking their lease. Work through test in Musumeci. Whoever the party is who’s agreeing to do more or agreeing to accept less are the ones that must get the practical benefit because it’s other party doing what they originally promised to do that gets the consideration must argue they are providing a practical benefit by performant of original contract. 2. Void contract for mistake. It has never existed, never had any legal force. Voidable contract due to coercion. One party has right to rescind contract, Installs air con, doesn’t work and Con refuses to pay for it - no question of termination. Contrast to Maria does half of the work and abandons the job and leaves, termination is relevant for repudiation. Getting someone else to pay is terminating the problem. Enforcement Remedy