Contract - Privity of contract, part payment of debt, promissory estoppel, remedies, misrepresentation, mistake, duress & undue influence and discharge Flashcards
PRIVITY OF CONTRACT
1) General rule
2) Exceptions
3) Collateral Contract
4) Assign
5) Contract rights of third parties
1) - only parties to a contract can sue or be sued under that contract and they must have provided consideration
Key case Dunlop v Selfridge
- tyres dunlop - dew & co - selfridge. Selfridge did not keep agreement with dew & co. Dunlop sued Selfridge
- Held Dunlop not party to contract with selfridge, no consideration provided
2) Exceptions
Agency
- principal authorises agent to act on their behalf with a a third party - customer
- so long as acts within authority given- principal bound by contract agent enters into
- THERE is no contractual relationship with the agent
- agents can have authority which is:
* express - written down
* implied - acts done in the business or trade
* apparent - no actual authority - principal died, fired them or exceeded authority - but third party has reasonable grounds to believe the agent has the authority and enters into the contract on that basis. Contact valid between principal and customer - NOT the agent
3) Collateral contract
- can be formed between party and a third party outside the contract IF third party has given a promise on which party relied when entered into contract with other party, and for which third party received some sort of benefit
eg 3rd party recommends painter to party 1 as gets commission. Party 1 & 2 enter into contract as a result of recommendation, paint fails - P1 can’t sue P2 but can sue 3rd party - because collateral contract formed - promise provided to P1 and received commission
4) Assign
- a party can assign their contract to another and they can therefore sue, even though not originally party to contract
5) Contracts (rights of third party Act 1999)
- 3rd party can enforce terms of contract not party to
- BUT can be expressly excluded in a contract so won’t operate
- 2 circs where can arise
* contract expressly provides 3rd party can enforce, or
* contract=
-confer benefit on third party
- parties intended the term to be enforceable by the third party- presumed if in contract - presumption can be rebutted if it is expressly excluded
-CAN only be done if third party can be expressly identified in the contract - absolutely clear - name, class or description
- so if clearly named = obvious
- BUT if group of people and third party part of that then - applies, but where not clear will be trickier
Part Payment of a debt and promissory Estoppel
1) What is it?
2) What is the rule
3) What is promissory estoppel and what does it do?
1) - promise to accept part payment of debt DOES not discharge other party from paying full amount
2) What is the rule?
- paying less is not good consideration
- can’t pay less and expect full debt to be discharged
- This is case EVEN IF creditor states debtor is released from deb t
- if debtor wants to pay less and creditor accepts, debtor MUST give some consideration for it to be accepted
- new and valid consideration can be anything that involves a NEW ELEMENT - eg paying different time, place.
- to be valid new consideration other side must accept part payment
- key case Pinnel - part payment but in advance and therefore seen as new element and valid consideration
3) Promissory Estoppel
- operates as exception to rule that part payment of debt is not a good one
- equitable doctrine at CTS discretion
- party seeking to use must come with CLEAN HANDS not anything dodgy, as equitable person relying on it must be good and act honourably
- RULE
- where one person acts in a certain way, relies on the promise of another party, and they then go back on their promise
- Estoppel, prevents estopps party from going back on the promise
- designed to prevent unconscionable conduct - stopping promise when going back is unfair
Requirements =
1) Pre existing contractual relationship
2) clear unequivocal communications that the B accepted the offer from A and did so
3) Must be objectively intended that A intended to rely upon the statement or promise
4) A relied on the communication/understanding then changed their position. A need not have suffered any detriment.
5) B now seeks to rely on the original communication or understanding and its inequitable to do so
6) will be inequitable if it would cause A to suffer detriment having changed their position in reliance on the promise
KEY CASE - High Trees - reduced rent during war, then after war asked for payment back dated. Promissory estoppel operated - there was no valid consideration BUT a promise had been given and they had now changed their position, promise that was relied on - estoppel relied upon
When PE comes to an end
- In HIgh trees PE came to an end when war ended, because circumstances that gave rise to the estoppel have stopped
- PE can therefore come to an end at a reasonable time after the circumstances which gave rise to PE came to an end
- reasonable notice must be given that the promise will now be ending. This prevents estoppel being applied for as now it will come to an end
REMEDIES
1) Damages
1) Damages
- financial remedy
- compensate so injured party back in position would have been if contract properly performed
- 3 ways to obtain
1) Liquidated damage clause
- parties insert a clause saying how will pay if contract breached
- this clause can be struck out as a penalty by the courts - called PENALTY RULE
Test for penalty rule - Cavendish Square Holdings
1) Must have liquidated damages clause, which is triggered by breach of contract
2) There is NO justification for the liquidated damages clause.
- to be justified it must protect legitimate interests of party ie must cover loss suffered and protect commercial interests of the innocent party eg deter party from breaching a term that would damage innocent parties commercial interests
3) clause is excessive and unconscionable.
- Amount payable disproportionate to the commercial interests of innocent party
- must be very high degree of disproportionality
- greater the bargaining power between parties lees likely court will deem the clause a penalty.
- need to identify what the legitimate interests of the innocent party.
- this is what the primary commercial purpose of the contract is for the innocent party,
- Does the liquidated damages clause protect that? It will do if it deters the party from breaching a term of the contract that is important to the contracts purpose or provides compensation to the innocent party, which allows it to fulfil or protect its ability to perform its side of the bargain.
- as well as being subject to the penalty assessment , liquidated damages clauses in consumer contracts are also subject to the obligation of fairness under CRA 2015
- liquidated damages clause is not subject to any limitations such as causation, remoteness or mitigation
2) Claim for debt
- where party fails to pay agreed amount for goods/services provided
- innocent party has right to claim fixed unpaid amount as a debt
- not subject to limitations of remoteness, causation or mitigation
3) Unliquidated damages -
- No liquidated damages clause. or liquidated damages clause has been struck out
- not dealing with simple debt (one party provides B2B services for fixed amount and other not paid for)
- ie amount of damages payable is unclear loss of profit/loss of value) and CTS must determine amount to be paid.
- must therefore first identify kind of loss innocent party has suffered.
4) Expectation Loss-
- general rule put party back in position would have been in had contract been properly performed = expectation interest
- foundational rule for common law damages
- compensatory so compensate injured party for loss suffered.
- No loss will only receive nominal damages
5) Cost of cure or diminution of value
- type of expectation loss - puts in position would have been in ha contract been properly performed
- BUT for different scenarios ie
*performed contract but not to standard as set out in contract
- most commonly seen in construction/decoration contracts where performance defective and needs correcting
- usually dealt with by third party doing job properly - cost of paying 3rd party recoverable as loss as wouldn’t have been incurred if done correctly in first place
- How to measure loss - 2 ways
* Cost of Cure
- amount needed to put party in position would have been in if contract completed correctly
- WILL not be awarded - if unreasonable, or innocent party no intention to remedy defective performance, ie will live with it!
* diminution of value
- if cost of cure not awarded, innocent party can be rewarded for diminution of value
- common in repair contracts
- difference between value of goods expected and goods received
- no difference/diminution - no damages
- won’t be awarded if unreasonable or and no diminution of value
6) Reliance Loss
- can recover expenses incurred up to when contract breached ie put in position would have been in
- only used where undertaking creative adventure, exploring and breach puts stop to that
- used because impossible to predict what the profits from venture would have been, and therefore can’t calculate potential losses. Presumption would have at least broken even.
7) Damages for non-financial loss
- where major or important part of contract is to give pleasure, relaxation or peace of mind, damages for non-pecuniary loss are recoverable
- rarely in B2B contracts
- can be rewarded where mental distress caused. NOT in commercial contracts
Restrictions on the recovery of unliquidated damages?
1) What needs to be satisfied=
2) How do these restrict?
1) All 3 of these must be satisfied
*causation
*mitigation
*remoteness
- contributory negligence is not a barrier to a successful claim, but if established will reduce what can be claimed
2) =
Causation
* factual causation - breach must be main cause - can be other causes but must be main cause
* Legal causation - chain of causation must not be broken by any intervening event, breach must be main cause of loss.
Mitigation
* can’t claim for anything that should have been avoided
* must take reasonable steps to mitigate their loss, question of fact.
* any loss incurred from failure to mitigate or from unreasonable steps taken - extravagant 3rd party to rectify - will be rejected
* if fail to mitigate loss NOT recoverable
Remoteness
* defendant will only be responsible for losses in “contemplation of parties” ie foreseeable at date of contracting
* 2 limb test
1) losses foreseeable and occur in natural course of things ie normally occur in business defendant and claimant operate
2) losses foreseeable if parties had knowledge of special circumstances outside ordinary course of things which result in the loss ie ought to have been known as a not unlikely possibility by the defendant because of the unique situation of the contract. Its is an objective test
Contributory Negligence
* where the defendant has a concurrent duty of care in both contract and tort and claimants loss contributes to negligence, or fault contributes to loss, amount of loss can be SET OFF - reduce defendants liability against damages owed
- defence used by defendant to reduce amount they owe
- concurrent duty of car in contract and tort will only apply to cases of professional negligence eg contracts with sol where party acted negligently.
Other remedies = x 5 =
1) Specific performance
- equitable remedy at discretion of court
- compels party to perform part of contract that they promised to
-damages are available as of right for breach
- specific performance ONLY available if courts think its right
- SP only available if
* damages adequate remedy - if no replacement, damages will be pointless, rare one off goods damages will not be sufficient.
- land is classed as unique and one off. Court will use specific performance for house to be transferred
- most common use of specific performance
- rules of equity are satisfied -
- applicant must be good person and has brought claim as quickly as possible
Rules of equity: - no delay
- not act dishonestly before bringing the claim
- specific performance must be physically possible
- must not cause excessive hardship to the defendant - can’t be very unfair
- Type of contract must not prevent specific performance
- does not apply to contracts for personal services - personal, requiring personal service of an individual eg employment
- Courts cannot compel employee to work
- Specific Performance used in
s52(1) sale of goods act 1979 - compels supplier to supply specific, identifiable goods to the buyer
- exists so supplier can’t chose not to supply and sell to someone else.
2) Injunction
- restrains def from doing something
- equitable remedy - at discretion of court
- only awarded where damages are inadequate
- won’t be awarded under contracts for personal services
3) Restitution
* Total failure of consideration - one party pays money in advance but other party gives nothing in exchange/or provides defective goods
- can use restitution to get their money back
- can also being claim for damages for loss
* compensation for work done
- contract broken by other party - choice of damages, restitution of reasonable sum of money on quantum meruit basis (compensation on basis time spent on work)
* contract never formed - restitution of reasonable sum on quantum meruit basis
- guarantees and indemnities attach to underlying primary obligation - normally a loan
- person providing guarantee - guarantor
- person providing indemnity - indemnifier
- beneficiary of guarantee or indemnity is the other party to the contract - normally lender
- difference between indemnity and guarantee =
4) Guarantee
- promise given by guarantor that party will promise to perform contract and if doesn’t will do, or pay sum of money- taking responsibility for loss
- secondary obligation, means if contract falls away or declared invalid, guarantee no longer exists.
- must be evidenced in writing
- signed by guarantor
5) Indemnity
- promise to be responsible for loss
- can be one of parties or 3rd party on behalf of party to the contract
- key difference is that indemnity is a primary obligation, meaning not contingent on main contract, it is its own independent contractual agreement
- if anything happens to contract INDEMNITY will stand, unlike a guarantee
- covers loss of other party up to a certain amount
- beneficiary can claim on indemnity for full loss as set out in the indemnity
MISREPRESENTATION
1) What is this?
2) Elements of actionable misrepresentation
1)
- pre contractual statements made during negotiations before entering into a contract may amount to representations
- if false = misrepresentations
- misrepresentation must be actionable
- must distinguish between term and representations - statement made during negotiations of contract
2)
* Unambiguous
- must be clear and unambiguous stating what representee (person relying on representation) believed
- False - must be false
- Statement of fact
- must be of fact
- can be by conduct as long as directed towards the claimant
- these are NOT statements =
i) mere puff/sales talk,
ii) statements of opinion - opinion before contract is not a statement - EXCEPTION to this = if person giving opinion has some special knowledge or skill, their opinion is likely to be a fact
- CAN’T be statement of future intention - I will do it- as the future can never be a fact
- No Silence
- silence can’t give rise to representation, must actually say it.
- example = buying something in shop, turns out to be less valuable than hoped, seller hasn’t said anything, this = buyer beware, nothing said so no misrepresentation.
-EXCEPTION = - half truths - statements technically true but misleading or where truth is weak. eg buying car asking owner if any defects, they say no, but haven’t actually checked = technically true, but is a weak truth - because hasn’t bothered to look, therefore not the whole truth
- Continuing representation - if at beginning negotiations true statement, but then becomes false the false statement MUST be corrected before contract or WILL be misrepresentation
- Contracts of utmost good faith
- duty to disclose material facts in a contract of utmost good faith
- ie one party knows a fact - which could affect price or whether other party should enter into the contract - and other other party is in weaker position eg insurance contracts are the main example
*addressed to claimant - this can be conduct
*Induces the claimant to enter into the contract with the representor
- Representation must have caused the claimant to enter into the contract, relied upon it and believed it was true
- does not have to be only reason entered into the contract
- BUT must be real and substantial cause so that is no misrepresentation and would have entered into contract there would be no actionable representation
Categories of misrepresentation x3?
- once established actionable misrepresentation must establish category
- liability for fraudulent misrep CANNOT be excluded
- for negligent and innocent liability can only be excluded under B2N contracts if reasonable under UCTA 1977 and if fair under CRA 2015 = burden for both is on party relying on the clause (s3(1) Misrepresentation Act 1967)
1) Fraudulent Misrep - requirements
- false statement must be made - knowingly, without belief in its truth and recklessly made
- motive is irrelevant
- burden on claimant to show representor made false misrepresentation
REMEDIES
- Rescission and damages s21 Misrepresentation Act 1967
- Rescission equitable remedy
- only use where can return to original position - return property
- claimant must communicate to def that intend to rescind the contract and have property returned, or commence proceedings in ct ( which amounts as intention to rescind
- rescission impossible where:
* claimant continues despite knowing there has been a misrepresentation
* lapse of time - too much time since discovery of misrep
* restitution impossible - goods perished, changed in nature, new contracts entered into and bona fide 3rd party has rights in property
- if rescission not available, claimant can still claim damages
- damages to put back in place they would have been in
- can recover all losses directly flowing from representation. regardless of foreseeability
- remoteness is not an issue
- representee must take steps to mitigate as soon as fraud discovered eg trying to sell property bought
2) Negligent Misrep
2 actions available
- common law - negligent misrep
- Statute s2(1) Misrep act 1967
- where there is a contract between the parties
Requirements =
- false statement made
- def believes statement false, but
- made carelessly or without reasonable grounds for believing in its truth up to the time the contract is made, and
- claimant relying on statement has suffered loss
REMEDIES
- rescission or damages
- under s2(2) damages can be in lieu of rescission - not available for fraudulent misrep - these are in addition to any damages awarded
- for negligent and innocent misrep time is counted from the date the contract is entered into
- damages assessed in same way as for negligent misrep, all losses from the misrep are recoverable - remoteness is not applicable
- burden on claimant
3) Innocent Misrep
REQUIREMENTS
- false statement made and claimant has relied on it, entered into contract and suffered loss BUT it is neither fraudulent misrep or negligent misrep
- statement made believing it to be true and having reasonable grounds for that belief
REMEDIES
- recession for damages
- no separate right of damages of innocent misrep
Bullet points for misrepresentation
IS MR actionable
- unambiguous
- false
- statement of fact
- No silence
- addressed to claimant
- induces C to enter into contract with representor
ID category
- Fraudulent
- Negligent
- Innocent
ID Remedy
- Fraudulent = rescission & damages
- Negligent = rescission/damages & damages
- Innocent = damages only
MISTAKE
1) Vitiating factors - make imperfect or void - what are these?
1)
- operative mistake (OM)= mistake so fundamental renders the contract VOID.
- Contract null as though never existed
- no damages available for mistake - as if mistake found no contract in first place
- mistake must exist at time contract formed
- mistake of fact that;
i) - prevents formation of contract as no actual agreement - in mutual and unilateral mistakes, or
II) makes contract something other than intended - contract entered into but is then different to what intended or made possible
- 3 categories of mistake
i) common mistake - both parties reach agreement based on same mistake
- Res Extincta - subject matter of of contract not in existence. If at time of contracting BOTH believe subject matter exists when in fact doesn’t - operative mistake
- Res Sua - mistake as to ownership. Both parties in contract over subject matter, but subject actually owned by someone else and 2 parties DON’T realise = operative mistake
- BUT won’t be mistakes IF
i) one party at fault -NOT OM
ii) contract makes express provision on matter (clause in contract dealing with above situations) or one party accepts responsibility for mistaken subject matter - NOT OM
iii) mistake as to quality does not count - ie about type of item, quality make-up or manufacture - is NOT operative mistake
ii) Mutual mistake - both parties appear to agree but are agreeing on different things
TEST = reasonable man test to see if parties CAN agree or, if it is an OM;
- would reasonable man believe subject matter to be what parties thought it was
- if believe terms in line with what ONE of parties thinks then YES contract
- if concludes terms cannot be what either party would think = no contract = mutual mistake
iii) unilateral mistake
1) Unilateral mistake as to terms of contract;
- only one party mistaken and other takes advantage
2) Unilateral mistake as to nature of document signed;
- difference between what signed and what though he was signing, to be operative mistake must:
i) - be a fundamental difference between what was, and what believed was signing
ii) - trick or fraud BUT
iii) - signatory must still have taken reasonable care to make any checks before signing
ie - no operative mistake if it is down to the claimants carelessness
3) Unilateral mistake as to the ID of the person connected with
- one person enters into contract with another, BUT actually enters into one with someone completely different
- Rules different depending on way contract formed:
i) Face to face - presumption no OM - presumption contract formed between mistake party and actual party
- only rebutted if ID of person (who that person is not creditworthiness or ability to pay) if fundamental to the contract ) ie wouldn’t have entered into into it if had known
ii) Long distance transactions - over phone or online - no presumption and easier to establish OM
MISTAKE OR MISREP?
Using presumptions
FACE to FACE - likely misrep unless can rebutt
LONG DISTANCE - more likely to be a mistake
DURESS & UNDUE INFLUENCE
1) What is Duress?
2) What is undue influences?
3) Test for constructive notice
1) DURESS
- duress - 1 party coerces another party into contract or revised terms of contract
- threaten party to get what they want
- violates principle that parties must enter into contracts voluntarily
- 3 types:
i) To person
- if threats made were reason to enter into contract = duress
- burden on party exerting pressure
ii) to property
- directed at someone’s property
- threat must be reason for entering into contract = duress
iii) to economic/business interests
- most common form
- threat to financial standing - don’t enter into won’t do business with
- threat to “do this or else”
3 elements
1) pressure resulting in lack of choice
- victim no practical alternative but to enter into contract, or accept amended terms, not in their interest
- NOTE if gets independent advice less likely no practical alternative - less likely to be duress
2) Pressure must be illegitimate
i) unlawful threat - threat to commit crime or tort = illegitimate pressure
ii) threatened breach of contract which def is not entitled to make - threatens to breach contract unless counterparty into a new contract of the original contract are amended
iii) pressure applied in bad faith
- pressure used to get more money than what entitles to in contract
- pressure based on unlawful grounds - unlawful threat, BUT lawful threats (not to do business or report action to police) can amount to duress - doctrine of lawful act duress
3) Significant cause
- must be significant cause to enter into contract
- But for test - but for pressure victim would not have acted
NOTE - if duress relates to variation of contract THAT is all that would be rescinded, NOT the full contract
NOTE - has consideration been given for this to be a valid consideration, yes if gains practical benefit
IN MCQ - look for promise to pay more from party in rush to get job done quicker - this will be duress
2) UNDUE INFLUENCE
- equitable remedy at discretion of courts
- protects against abuse of relationship, exploitation of a vulnerable person
- there to uphold principle enter into contracts voluntarily
3 Main Kinds
i) Actual undue influences - pressure/coercion/illegitimate threats - economic duress is used
ii) Presumed undue influence
- relationship of trust and confidence - presumed in some fiduciary relationships (doctor to patien- sol - client, teacher- pupil - NOT husband- wife - in this situation need to prove relationship of trust and confidence on facts, And;
- transaction that calls for an explanation - not for benefit of party or is risky
- if both apply undue influence raised and must be rebutted by defendant
- if not rebutted ONLY remedy is rescission NOT damages
BULLET POINTS
- relationship of trust and confidence - proven on facts ( eg spouse) or presumed (eg doctor patient)
- transaction that calls for an explanation; reason for transaction is relationship between the parties
- undue influence is presumed and cannot be rebutted
= undue influence = rescission
UNDUE INFLUENCE - MOST COMMON in mortgages of couple over matrimonial home
- if presumed UI arises and bank has notice of this - acutal (knew about it) constructive (ought to have known)
- bank may have constructive notice of undue influence - husband /wife relationship presumed by CTS on facts and undue influence as not benefitting directly-
- if bank has constructive notice - transaction IS VOIDABLE and mortgage would be set aside
- lender can also have actual notice of undue influence - clear evidence being unduly influenced - this is very rare though
- constructive notice means bank is deemed to have notice of the undue influence because failed to take appropriate steps
3) TEST FOR CONSTRUCTIVE NOTICE
Transaction must be:
a) not to financial advantage of victim giving the security, and
b) substantial risk of undue influences - giving security over loan for sole use of spouse
If has above bank will have constructive notice of undue influence = contract voidable - cannot enforce loan
NOTE if loan going to both individuals - constructive notice WOULD NOT arise.
- bank must also KNOW partner is granting security for another’s benefits
- to avoid constructive notice bank must take reasonable steps to ensure the other party entered into the contract freely and with full knowledge of the facts, to do this they must;
1) insist other party has private meeting with representative of the bank, where the representative tells them of risks of the transaction and provides all relevant financial information; and
2) written confirmation from sol that they have provided independent effective impartial advice in other party - nature, extent and consequences. In absence of partner
- Does not only happen in mortgage cases, but is most common example
- can happen when any partner puts up anything for security to get a loan for their spouse
DISCHARGE OF A CONTRACT
1) What is this?
2) What are the methods by which this can be done
1)
- how contract comes to an end or is discharged
- every contract has obligations and rights, when these end, rights end and contract ends
2)
i) PERFORMANCE - contractual obligations fulfilled
- fully preform what agreed to
EXCEPTIONS
* by choosing to accept partial performance - pay for what has realistically been done, not full amount
- party must be given option to accept
- won’t happen in building/construction/decoration works on land/property as work needs to be completed
* by paying a difference for substantial performance
- pay for substantial completion of contract minus cost of defect that needs remedying
* wrongful prevention of performance
- party prevented from completing obligation fully because of fault of other party
- can either claim breach of contract or Quantum meruit - payment for amount done so far
* Statute s15a SOGA
- breach of ss13,14 or 15
- but breach so slight would be unreasonable to repudiate the contract
- option for other party to accept but claim damages under breach of warranty
- S15A prevents someone claiming a breach of condition for breach of SOGA implied terms when the breach is unsubstantial
ii) AGREEMENT - parties agree to bring obligations to an end, achieved in 2 ways
1) Waiver entered into by both parties which cancels contract
- BUT if one party fully performed and other hasn’t performed any obligation then
* party done nothing must be released by DEED, or
* other party released by giving new consideration ie part payment of a debt (Pinnel case) party who has done work accepts to release party that hasn’t
2) Discharge by operation of a term in contract
- term providing for termination of the contract by specified action - serving notice or after certain time - contractual end date
- Material breach term - if party to contract commits material breach, then other party ha a right to exit the contract.
iii) BREACH - failure to perform obligations
- total failure of consideration claimant will be entitled to sum paid in advance - known as restitution.
- unjust enrichment - defendant enriched, received benefit, which is unjust and at expense of claimant
- can also be where claimant performs service for def, who gets benefit, BUT no contract formed ie becomes void. Unjust enrichment steps in to ensure claimant gets something for what done
- claimant must prove enrichment unjust, maybe due to mistake eg accidently transferred money, or total failure of consideration,
- same as failure of consideration - DW by way of restitution
- 3 elements to establish claim for enrichment
1) def enriched or received benefit
2) Enrichment unjust
3) At expense of C
= unjust enrichment = c entitled to any amounts paid
iv) Discharge by breach - breaches of condition
- gives innocent party right of election and damages
- innocent party can choose termination and claim damages or affirm and claim damages.
- in both cases innocent party still needs to mitigate against losses= innocent party in reality needs to terminate contract and take steps to mitigate- find another buyer for goods - rather than affirm the contract
- once decision to terminate or affirm made CANNOT be revoked
- breach causing discharge can be repudiatory or anticipatory
Repudiatory Breach - breaches condition, including branch of innominate terms that are classed as conditions.
- options are repudiate contract, tell other party, be discharged from future obligations and claim damages, or affirm breach, continue with contract and claim damages
Anticipatory Breach - one party tells other that won’t be performing their obligation BEFORE the actual breach happens
- breach of condition so gives right of election:
A) innocent party can choose to terminate and claim damages for loss from date of communication that contract will not be performed
- must give notice
B) IP can affirm contract and continue even though know other party will not perform contract
- only if co-operation of counterparty is not required to continue performance of contract
- if not required IP can perform their obligations then sue for contract price as debt action - mitigation and remoteness doe not apply
- this can only be done if not “extreme to do so - ie makes no commercial sense.
- breach of warranty = damages ONLY, contract WILL NOT be terminated
- innocent
v) FRUSTRATION - intervening event prevents performance of a contract
- without risk of being sued
- happens when events out of control of either party - no fault of either
- was completely unforeseeable and not dealt with in contract - ie no clause saying if x happens etc
- contract becomes incapable of being performed - so completely different from what was originally agreed on that it would be unjust and impractical to perform or be enforced by the courts on one of the parties
- or contract is rendered impossible or illegal to perfom
- will not operate where unforeseen event - eg COVID - this only delays or interrupts and makes contract more expensive to perform
Doctrine of Frustration
1) What events will frustrate the contract if completely unforeseeable x 3
2) What are the limitations to the doctrine of frustration
3) Recovering money after frustration
1)
A) Impossibility
3 main ways
i) Destruction of subject matter of the contract. Eg venue destroyed by fire and people have tickets to see show there
ii) death or illness of party to contract
iii) Excessive delay - so bad performance of contract is impossible
B) Supervening illegality and government intervention
- law change makes contract incapable of being performed. EG = lockdown’s in COVID
- if temporary it will only frustrate contract if performance is substantially affected
C) Change in circumstance
- results in purpose of contract being unable to be performed
- supervening event makes commercial purpose, shared by both parties impossible to be performed
- ALL commercial purposes must be destroyed. If some can still be gained from the contract frustration WON’T apply
2)
Four limitations to doctrine of frustration applying
i) contracts which become difficult or expensive to perform, due to unexpected events BUT that can still be performed, MUST still be performed - frustration does not apply to prevent bad bargain or luck
ii) Unexpected event or change in cirs is inherent risk of industry, therefore foreseeable
- parties must make provision for that risk, if they don’t customers could claim for breach of contract - where animal not performing as described
iii) Self-induced frustration
- event that caused frustration caused by party trying to rely on it to frustrate the contract
iv) Express contractual provision - if risk dealt with in contract - in force majeure clause then CTS must uphold clause. It will not be deemed unforeseeable or unexpected so frustration WON’T apply
3)
- two areas deal with frustration and money
- dealt with under common law and statute
COMMON LAW - when act excluded by parties in the contract
- contract ends at point of frustration
- from this point parties released from obligations
- no actions needed from any party from this point - including returning money paid
- if advance payment made and contract frustrated can only be returned where total failure of consideration
- so even if other party does something only minor, before frustration, no money need be returned, parties walk away.
LAW REFORM ACT 1943 (statute)
- s1(2) - money paid in advance recoverable, BUT expenses incurred by party performing the contract before frustration must be deducted. NO need to show total failure of consideration
- s1(3) - benefit through partial performance
- party who receives valuable non monetary benefit before contract frustrated MAY have to pay - CT decides amount on what just
- eg decorating before lockdown then ceases, homeowner can enjoy bits decorated after frustration
- NOT available under common law
SUMMARY
Advance payment one party to other =
COMMON LAW - recoverable only if total failure of consideration
LAW REFORM ACT - recoverable - no need to show total failure of consideration
- expenses incurred by other party in performance are deducted
Partial performance - non-monetary benefit=
COMMON LAW - Non- recoverable
LAW REFORM ACT - party enjoying benefit could pay for it
