Chapter 3 - Termination of contract Flashcards
How can a contract be discharged by frustration?
If performance or further performance is rendered impossible or futile
When is a contract deemed to be breached?
Failure to perform contractual obligations sufficiently, unless contract discharged by frustration or other lawful excuse
What are some examples of contracts have been frustrated?
- Destruction of the subject matter
- Personal incapacity to perform a contract of personal service
- Government intervention
- Non-occurrence of an event which is the sole purpose of the contract
What is the law reform (frustrated contracts) act 1943?
Act applies unless contract expressly provides otherwise
Consequences of frustration under the act are:
- Any money paid under the contract before the frustrating event is to be repaid.
- Any sums due for payment under the contract cease to be payable
- Recover of expenses incurred during performance of contract
- Repayment of valuable benefit
Where might a lawful excuse apply?
Where he has tendered performance but this has been rejected
Where the other party has made it impossible for him to perform
Where the parties have by agreement permitted non-performance.
What is a repudiatory (serious) breach?
Breach of a term regarded as a fundamentally important term
Breach deprives the injured party of substantially the whole benefit of the contract
Can be said to “go to the root of the contract”
What is an anticipatory breach?
Where one party renounces his contractual obligations explicitly or implicitly in advance
What happens if a breach is sufficiently serious?
Injured party may:
- Treat contract as discharged immediately and sue for damages
- Allow contract to run until an actual breach takes place
Innocent party may continue prep for performance and recover agreed price for services
What are the remedies for repudiatory breach?
If the innocent party elects to treat the contract as discharged, he must notify the other party of his decision. Following applies:
- Not discharged from contractual obligations due at the time of termination, but he is discharged from his future or continuing contractual obligations and cannot be sued on them
- Need not accept nor pay for further performance
- May be able to refuse to pay for partial or defective performance already received, unless
the contract is severable - Can reclaim money already paid in respect of defective performance
- Can still claim damages from the defaulter.
What is the purpose of damages?
To put the parties in the position they would be in if the contract had been correctly performed.
What is the 2 part test that needs satisfying in order to claim damages?
Remoteness of damage
Measure of damages
What is remoteness of damage?
Damages may only be awarded in respect of those losses which may fairly and reasonably be considered as, either:
- naturally arising
- if the losses are not reasonably foreseeable
How are damages measured?
Expectation interest - to put the person in the position he would have been in if the contract had been performed
Reliance interest - to put the claimant in the position he would have been in if he had not relied on the contract
What are the different typesof damages?
Damages will be awarded for actual financial loss.
Mental distress and damages for loss of enjoyment may be recoverable where the principal purpose of the contract is the provision of enjoyment
What is mitigation of loss?
Assumed that the claimant will take all reasonable steps to reduce or mitigate losses
Not required to take discreditable/risky measures
What are liquidated damages?
Parties may include up-front in their contract a fixed sum or formula to determine the damages payable for a breach
What is a penalty cause?
Where the liquidated damages are excessive the penalty clause is not enforceable
What is an equitable remedy?
Court order of specific performance
Only awarded when damages are not an adequate remedy
What are the 3 types of injunction?
Mandatory - directs the defendant to take positive steps to undo something he has
already done in breach of contract
Prohibitory - requires the defendant to observe a negative promise in a contract
Asset freezing
What is an alternative dispute resolution (ADR)?
Any process other than use of court to resolve disputes
Key procedures are arbitration, mediation and conciliation.
How is arbitration dealt with?
Settles by an independent person, act in a similar way to a judge in a court case.
Parties must agree to submit to the process, usually an arbitration agreement which was created at the beginning of the relationship, contract present means contract laws apply
Arbitration agreement sets out what the process involves as well as rights and obligations of the parties
Disagreements to the agreement must be settled in court
International arbitration agreements are covered by a UN Model Law on Arbitration
How is mediation and conciliation handled?
Independent 3rd party involved, doesn’t act like a judge, instead assist parties in coming up with their own solution
Solutions and mediation agreements are not automatically legally binding on the parties
What are the advantages of ADR compared to litigation?
Expert of relevant field
Cheaper than court
Held in private
Can tailor to needs of the parties
Quicker than going to court
What are the disadvantages of ADR compared to litigation?
Decision of an expert lacks legal authority
Disagreements could still go to court
Could run for a long time
No privacy
Not legally enforceable
No timescale
What is an exclusion clause?
Any clause which purports to restrict or exclude liability for breach of contract or negligence
How is the exclusion clause enforceable?
Must be an integral part of the contract, depends on whether doc is signed.
If signed:
- Term is binding
- Any ambiguity will be interpreted against the person who is seeking to rely on it
If not signed:
- Timing
- Communicated
- Any ambiguity will be interpreted against the person who is seeking to rely on it
What is the Unfair Contract Terms Act (UCTA) 1977?
Makes legislative provision for exclusion clauses in certain contracts - can render such clauses void
Doesn’t apply to insurance contracts or contracts to transfer land.
Concerned with business liability only
A contract between a business and a consumer is covered by the Consumer Rights Act 2015
What are the consequences of UCTA 1977?
Void if:
- Any clause or notice that attempts to exclude or restrict liability for death or personal injury arising from negligence
- In contracts of sale or hire purchase, a clause that purports to exclude or limit liability for breach of the undertakings as to title of the seller or owner, implied by the Sale of Goods Act 1979
Void unless it can be shown to be reasonable:
- Any clause that attempts to restrict liability for other loss or damage arising from negligence
What is reasonableness?
Where the statutory test of reasonableness applies, the term must be fair and reasonable having regard to all the circumstances which were, or which ought to have been, known to the parties when the contract was made.
What is the burden of proof in a reasonableness test?
Lies on the person seeking to rely on the clause.
Statutory guidlines have been included in UCTA to help in the determination of reasonableness
Courts also consider insurance and whether any misrepresentations were made
What is the consumer rights act (CRA) 2015?
Provides statutory control in respect to consumer contracts and notices
Terms in contracts between businesses and consumers will only be binding if deemed fair
How does CRA 2015 determine whether a term is fair?
Considers whether it can be deemed automatically unenforceable
Can’t restrict any of the consumers legal rights under CRA 2015
If clause does restrict, automatically unenforceable and void
What are the requirements of the consumer rights act 2015?
Terms should be written in plain intelligible language and should be prominent
Circumstances when the contract was signed
The nature of the contract
What is the normal method of discharge of a contract?
Performance
Are complete and exact performance of all contract terms required?
Not necessarily
What is generally sufficient discharge?
Substantial performance of a party’s contractual obligations
How are most contracts treated?
Severable, may leave remaining obligations to be performed even after others have been discharged
Is it sufficient discharge when one party prevents performance?
Yes
Otherwise other party is entitled to sue for damages for breach of contract or bring a quantum meruit action to claim for work already completed
If it is impossible to perform a contract, is there a contract?
Usually not
When does the duty to mitigate losses arise?
Doesn’t arise until an innocent party accepts the breach
Must show losses caused by the actual breach
Do contractual disputes reach court?
No, usually resolved by:
- negotiation
- mediation/arbitration
- adjunction
- expert determination
What happens if the defendant proves that chain of causation was broken by the claimant?
Defendant won’t be liable
What happens if the losses are exceptional/abnormal and not reasonably forseeable?
Defendant will only be liable if they knew (at time of contract) of special circumstances behind the abnormal consequences
When mitigating a loss, who does the burden of proof lie with?
Burden of proof is on the defendant to show that the claimant failed to take a reasonable opportunity of mitigation
Do UCTA or Consumr rights act apply to private persons?
No
What does CRA 2015 state about a term being unfair?
Term is unfair if, contrary to the requirement of good faith, it causes significant imbalance in the party’s rights and obligations under the contract to the detriment of the consumer
How can an anticipatory breach be implied?
From conduct, need not be explicit
If a contract is discharged, can the innocent party still claim damages?
Yes
What does the UCTA 1977 only apply to?
Commercial contracts between businesses
Is an apology a possible remedy under ADR?
Yes
