Chapter 6: Terminating a Contract and Remedies for Breach

Question 1

How can a contract be terminated?

Answer 1

. By performance (actual, attempted)
. By agreement (by express or implied term, by subsequent agreement, by contingent conditions)
. By operation or law
. By breach (in performance, repudiation)
. By frustration (impossibility of performance/contract radically different)

Question 2

Explain termination by performance.

Answer 2

Fulfilment of provisions - when the parties to a contract fulfil their obligations to one another the contract is terminated (comes to an end).

The entire contract must be performed before payment becomes due.

Question 3

What happens if one party has not performed exactly as promised?

Answer 3

The party is not discharged from his/her obligations under the contract and may be sued for breach of contract.

Question 4

What are some exceptions to the complete performance rule?

Answer 4

The “substantial performance” rule.

Entire and divisible contracts.

Question 5

What is the “substantial performance rule”?

Answer 5

Unless exact performance is a condition of the contract, contracting parties who “substantially perform” their obligations will be able to claim the contract price, subject to the right of the innocent party to deduct the amount required for exact performance against the full contract price.

The question of what is regarded as “substantial performance” depends on the circumstances.

Furthermore, the court does not concern its of with minimal things that have not been done as they ignore small deviations from the contractual terms. (Eg. Failure to paint a single weatherboard on a house would not be regarded as a breach).

Question 6

What are entire and divisible contracts?

Answer 6

The parties may provide that the contract is divisible into self-contained stages (eg. building and construction contracts) so that exact (or substantial) performance of each stage triggers payment of the contract price.

Question 7

Explain termination by agreement.

Answer 7

A contract may be terminated under the original contract (express and implied powers to terminated) and due to a subsequent agreement.

Question 8

Termination by agreement: express power to terminate.

Answer 8

A contract may be terminated through the happening of an event as provided for in the original agreement itself.

Eg. A contract loan with a bank may provide that the bank can terminate its contractual arrangements with the borrower in the “event of default” but the borrower and declare that the money’s lent are immediately due and payable.

A contract may also have a stipulation that it will terminate at the expiration of a specified period.

Question 9

Termination by agreement: implied right to terminate.

Answer 9

When a contract does not contain a provision as to its duration, a court may imply a right to terminate on giving notice to the other party.

Eg. Where a distributorship agreement was silent as to its duration, the court held that a period of six months notice prior to terminating the contract was appropriate.

Question 10

Termination by agreement: termination by subsequent agreement.

Answer 10

A contract is the result of agreement, and by means of s further agreement, the contract may be terminated.

Question 11

Explain termination by breach.

Answer 11

A breach of contract may entitle the other party to terminate the contract. But this depends on the situation.

The types of breach include:
. Breach by repudiation
. Breach of a contract term

Question 12

Explain the following form of breach: repudiation of the contract

Answer 12

Repudiation - when one party demonstrates an absence of willingness or ability to perform their obligations under the contract.

An innocent party has the right to terminate the contract when the other party repudiates their obligations under the contract.

Question 13

What are the two categories of repudiation?

Answer 13

. Anticipatory breach

. Repudiation by performance

Question 14

What is an anticipatory breach (repudiation before the contract is due for performance)?

Answer 14

Where a contract is entirely u performed on both sides.

Eg. Where the time for performance has not her arrived and one party repudiates the contract, the other party can treat the contract as terminated and she immediately for damages for such breach.

Question 15

What is repudiation for non-performance?

Answer 15

A party can expressly state that they are unwilling or unable to perform the contract or their words and conduct can indicate that they are repudiating the contract.

A party may also repudiate a contract by putting it out of their power to perform the contract. Eg. Where the seller of an antique car sells the car to a third person. In such case, the original buyer can treat the seller as having repudiated the contract for the sale of the vehicle.

Question 16

What is the effect of repudiation?

Answer 16

It gives the other party an option to either ignore the breach and to insist upon performance when due, or to accept the repudiation and treat themselves as discharged from any further obligation under the contract.

If the innocent large elects to treat themselves as discharged, he or she can immediately she the defaulting party for damages whether or not the time for performance is due. However my if the innocent party does not elect to treat themselves as discharged me then the contract remains on foot for the benefit of both parties.

Question 17

Explain the following form of breach: breach in performance (breach in fulfilling terms of contract).

Answer 17

A breach in performance usually does not involve a complete and conscious repudiation of the whole contract, but rather a breach of certain obligations under it.

A breach in actual performance by one party entitles the other party to terminate the contract if one or two situations exist.

Question 18

What are the one or two situations that must exist for one party to be entitled to terminate a contract after a breach in performance?

Answer 18

. If the acts or omissions by the defaulting party are such as to show an intention to repudiate the whole contract, or to carry it out only in a manner inconsistent with their obligations under it or
. If there has been a breach of some “essential” or fundamental obligation under the contract.

Question 19

Acts of omissions indicating an intention not to be bound.

Answer 19

Page 85.

Question 20

Breach of an essential term.

Answer 20

Difficult to determine whether the party in breach has broken an essential obligation under the contract such as to entitle the other party to treat the contract as terminated, or whether the breach is of a less serious nature entitling the large not in default to damages only.

Question 21

How to determine whether a breach is serious or not.

Answer 21

The test of essential its is whether it appears from the general Maguire of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance that the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise.

DTR Nominees Pty Ltd v Mona Homes Pty Ltd

Question 22

What happens when there is a breach of a condition or a warranty?

Answer 22

Condition - term of contract that is of such basic importance that breach of it gives rise to a right to treat the contract as at an end.

Warranty - subsidiary to the main purpose of the contract so that its breach confers merely a right to sue for damages.

If there is a breach of condition and the other party does not treat the contract as terminated, the condition sinks to the level of a warranty only.

Question 23

What happens when an innominate/intermediate term is breached?

Answer 23

This is a term which stands somewhere between a condition and warranty.

It is held as capable of operating according to the gravity of the breach, as either a condition of a warranty.

Question 24

Explain termination by frustration.

Answer 24

This refers to the ending of a contract due to an unforeseen event which results in a fundamentally different situation from that contemplated by the parties at the time of entering into the contract.

The unforeseen event must be so serious that it makes further performance of the contract illegal, impossible or radically different from that contemplated by the parties.

Mere hardship, inconvenience, or material loss will not be justified.

Question 25

Application of doctrine/principle of frustration.

Answer 25

The following examples are circumstances that have been held to frustrate a contract:
. Supervening illegality (law renders further performance illegal)
. Death or illness (makes performance of contract impossible)
. Destruction of subject matter (eg. Hired building being burnt down)
. Common objective no longer attainable (something happens to important event)
. Government intervention (carrying contract is radically different)
. Other circumstances cause radical difference in performance

Question 26

What is the effect of frustration?

Answer 26

When it occurs it automatically terminates the contract.

However, a frustrated contract is not void from the beginning, meaning the rights and liabilities that have already accrued are not discharged, but future obligations of parties are discharged.

Question 27

What are the remedies available for breach of contract?

Answer 27

. Common law - damages and termination
. Equity - specific performance and injunction
. Restitution

Question 28

What is an action ins restitution?

Answer 28

A remedy in restitution is imposed by the law independently of contract.

An action in restitution is usually brought either because there is no express contract between the parties or such contract is void or unenforceable.

Accordingly, an action in restitution may provide a remedy where otherwise there would be none.

Question 29

What are the remedies available where the contract is terminated for breach?

Answer 29

If there has been a serious breach of contract such as breach of a condition, the innocent party may elect to terminate the contract.

If the innocent party does not elect to terminate the contract for the breach, then the contract comes to an end and the parties are released from further performance of obligations under the contract. I’m this case, the innocent party can also sue for damages for the loss they have suffered due to the breach.

Question 30

What are the remedies available where the contract is not terminated for breach?

Answer 30

Breach may not be serious enough for innocent party to terminate the contract (eg. Breach of warranty).

Contract remains on for and the parties remain liable to perform obligations under contract.

Innocent party is entitled to sue for damages for breach of contract.