Discharge by Breach

Question 1

Whats the usual remedy for breach of contract?

Answer 1

an award of compensatory damages, ie monetary compensation.

= does not always give right to terminate contract

Question 2

What can party seek if breach of condition (or innominate term treated as such) ?

Answer 2

Damages + right of election

Question 3

What can party seek if breach of warranty or innominate term treated as such) ?

Answer 3

Damages only

Question 4

What is an ‘anticipatory breach’? + how is it expressed?

Answer 4

where a party indicates they won’t perform their contractual obligations in advance of the date for performance.

Question 5

When is someone said to have ‘renounced’ the contract?

Answer 5

words or conduct leads a reasonable person to conclude that they don’t intend to perform their part of the contract = ‘renounced’ the contract.

Question 6

What is the innocent party entitled to if the other party has renounced the contract?

Answer 6

an immediate right to ‘accept’ the renunciation and to treat the contract as terminated.

Question 7

If a party wants to rely on an anticipatory repudiatory breach, what do they need to do to?

Answer 7

demonstrate that if breach occurred at time performance was due it would have been repudiatory.

Question 8

What is a repudiatory breach?

Answer 8

Where one party has breached a term of the contract which is either a condition, or an innominate term which is to be treated as a condition, entitling the other party (in principle) to treat the contract as terminated.

Question 9

What is the effect of terminating a contract for repudiatory breach?

Answer 9

= ends all primary obligations of both parties remaining unperformed.

innocent party can claim damages from specific breach + loss of contract caused by termination of contract as a whole.

The discharge from remaining rights and obligations is ‘prospective’ only - any rights and obligations which have accrued before termination remain enforceable.

Question 10

What are the risks of wrongful termination?

Answer 10

terminating a commercial contract for repudiatory breach = high risk for client esp re the risks of wrongful termination.

eg: party (A) gives notice to terminate its contract w another party (B) on grounds of a breach by B which it believes to be a breach of a condition + therefore repudiatory.

If a court later finds breach was of a warranty then A had no right to terminate + its notice to do so was wrongful. A’s wrongful notice reg as a ‘renunciation’ of future performance of the contract and/or a serious breach of contract and may be accepted by the other party, B (the original contract breaker), as repudiating the contract.

By serving a notice without justification for doing so, A has turned what it thought was a termination on the grounds of breach by B into a damages claim against it on the basis that A is the party actually in repudiatory breach

Question 11

What is the right of election?

Answer 11

Where there has been a repudiatory breach of contract, the contract is terminated only if aggrieved party makes the election (meaning choice) to treat the breach as repudiating the contract, ie putting an end to all unperformed primary obligations.

innocent party must inform party in default of their decision.

Question 12

What are the two options to choose under the right of election?

Answer 12

1) Elect to affirm
2) Elect to terminate

Question 13

What are the benefits of affirmation?

Answer 13

contract survives + rights of innocent party preserved - will depend on circumstances if its best.
eg: contract may relate to a big project whereby affirming + cont w project + giving contractor opportunity to finish = better option than abandoning it altogether + having to sue for damages and find another contractor.

OR innocent party calc that if contract can be performed such that a right to charge the contractual charges as a debt will arise = will put itself in a better + more certain financial position than if it terminates contract + brings a claim for unliquidated damages (damages uncertain)
However, if contract is affirmed + can be performed, right to contractual charges is relatively clear + certain.

innocent party retains a claim for damages arising from the breach but cannot terminate as a result of it (so the damages would not include compensation for loss of performance of the contract as a whole). The election is between accepting the contract as discharged or continuing. The election is not a waiver of damages from the relevant breach.

Question 14

What are the 4 requirements to affirm a contract?

Answer 14

· Must be unequivocal commitment to continue

· Contractual obligations remain

· Entitled to damages

· Must mitigate loss in relation to damage suffered from any breach, but not in relation to any debt claim, and not when deciding whether to affirm

Question 15

What are the 3 requirements to elect to terminate?

Answer 15

· Notification required

· Entitled to damages

· Must mitigate loss

Question 16

What are the two limits on the innocent party’s right to affirm the contract in response to a repudiatory breach?

Answer 16

1) The co-operation of the breaching party is required for continued performance of the contract

= if innocent party req co-operation of other contracting party in order to fulfil their obligations under the contract = will prevent innocent party claiming contract price.

2) The innocent party has no ‘legitimate interest, financial or otherwise’ in affirming the contract and continuing with performance.

= only in extreme cases that innocent party won’t have a legitimate interest in affirmation and will only operate if D can show that:

i) damages would be an adequate remedy for C; +

ii) an election to keep contract alive = unreasonable

Question 17

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