Week 5 - Termination + remedies Flashcards
A contract may be terminated due to
performance end of an agreement term frustration breach
explain breach by performance (most common)
“substantial performance rule” - unless exact performance is a condition of the contract contracting parties who “substantially reform their obligations will be able to claim the contract price, and inncocnent party to deduct the outstanding amount
explain termination by agreement
The contract itself may contain the terms for termination (expressed). Courts may also imply termination into a contract where the parties have not so specified its length. A further agreement can also result in termination.
implied right to terminate:
providing reasonable notice to other party e.g.
Crawford Fitting Co v Sydney Value and fittings
explain breech of contract
Where one party repudiates the contract the other party has a right of termination.
Where a contract is unperformed by all parties, and one party repudiates, the right of termination exists for the other party. This is called “anticipatory breach of contract”.
Where one party has repudiated, the other party may ignore the breach and insist upon performance or accept it and treat themselves as discharged from the contract.
The basic principle is that a breach in actual performance of the contract by one party entitles the other to terminate in one of two situations:
*
• if one party by action or statement shows an intention to repudiate the whole contract or to carry it out in a manner inconsistent with their obligations; or
• there has been a breach of some essential or fundamental obligation under contract.
breach of condition = termination, dmamages + equitable remedies
breach of warranty = damages
Breach of innominate term = remedies depend on classification
explain difference between conditions + warranties
A condition is a term of fundamental importance to the contract.
A warranty is a less important term.
The remedy differs - a breach of condition leads to an action for termination and/or damages,
but warranty breaches mostly lead only to actions for damages.
Innominate/intermediate breaches may be either a condition or a warranty depending upon the gravity of the breach (not clearly stated)
explain termination by frustration
Frustration of a contract is when an ‘unforeseen event occurs,’ outside the control of the parties, which makes performance of the contract impossible. The law regards the parties as being discharged from obligations under the contract.
Circumstances in which this occurs can vary, but the following situations can lead to frustration:
change of law
destruction of subject matter
death, illness
circumstances that cause radical change to contract
common objective no longer possible
When does frustration of a contract NOT occur? When changes in the law do not go to the basis of what the parties contracted for * gov’t intervention
The effect of frustration is that it automatically terminates the contract. A frustrated contract is not void from the beginning at common law but is determined by the supervening impossibility. The future obligations of the parties are discharged but liabilities and obligations that are already accrued are not discharged.
Remedies for breached contract
- )common law:
- damages (monetary compensation)
- termination (repudiation, condition) - ) Equity/equitable:
- specific performance
- Injunction
3.) Restitution
Abdul contracts with Michael to build him a shed for $10,000.00. Michael completes the shed however did not ventilate it properly as required. Abdul has to pay Jimmy $2,000.00 to finish the shed. Abdul terminates the contract with Michael and is refusing to pay him any money and claims he did not exactly perform his obligations. Advise Michael if he can claim the $10,000 contract price.
ssue: Can Michael terminate the contract and claim the $10,000 contract price.
Rule: A contract must be performed completely and exactly. However, substantial performance may give rise to an obligation to pay. Substantial performance is one of fact, depending on all the circumstances, including the nature of the contract, the nature of the defects and the related costs in rectifying the defects. Further, the court will also enforce payments where there is a small defect in performance of an entire contract, and not treat it as a breach. The plaintiff will be able to claim the contact price less the amount required to finish it exactly. (Hoenig v Isaacs)
Apply : On the facts, it does appear that Michael has substantially completed the shed, and as this is an entire contract, not divisible like the case of Tadriani, it is possible that the court may require Abdul to pay for the work done on a quantum meruit basis (ie the $8,000). The value of the work done in accordance with completion, which cost $2,000 for Abdul to secure.
Conclude: Michael should be able to claim the value of the work done.
Trucks Galore entered into a contract to advertise on a large billboard on top of the Renato building in Melbourne over a 5 year period. After the first year a new building was built next door which blocked the view of the billboard. Trucks Galore lost money as not only were they paying for a sign that could not be seen, potential customers were being lost who could not view the sign. Trucks Galore wish to terminate the contract with the Renato building claiming it was an unforeseen event that a building could be build next door blocking the view of the billboard.
Can they terminate the contract?
ssue: Can Trucks Galore terminate the contract with Renato because of the sign on the basis of the unforeseen event?
Rule: The basis of Truck Galore’s wish to discharge the contract seems to be the doctrine of frustration.
The general rule for frustration states the following:
A contract can be said to be frustrated when a supervening (unforeseeable) event occurs between formation and final performance which causes the rights and obligations of the parties to the contract to be impossible to perform, or radically different from what was contemplated by the parties at the time the contract was made.
Further:
It must not be the fault of either party
It must not make the contract merely more diffcult or expensive to perform.
Events that give rise to frustration include: Supervening illegality, death or illness, destruction of subject matter, common objective no longer attainable, government or legal intervention, and other radical differences. (See cases p.89-91)
Apply: The change in circumstances according to the facts may not amount to frustration. Where the risk is foreseeable then it will not amount to a supervening event. See the case of Ooh! Media Roadside v Diamond Wheels. Truck Galore should have included a clause in the contract to ensure that upon the occurrence of such event they would have contractual rights.
Conclude: This is not frustration of contract, the contract will not be discharged.
Note: if frustration does occur it is imperative to talk about the effect of frustration from bottom p.91.
ang is a seafood wholesaler. He contracts with Matthew to purchase a new refrigeration unit for his seafood. At the time of contracting he tells Matthew that the changeover from the old refrigeration to the new one must go smoothly because he has ongoing contracts with many restaurants who will buy their seafood elsewhere if there are any problems. The new refrigeration unit is installed and after a few days the unit breaks down and is no longer cooling. Yang loses $20,000 worth of seafood that goes bad. Yang is also unable to fulfill the orders of the restaurants and they terminate their contracts and he loses a further $200,000 in profit. Yang sues Matthew for damages. Can Yang claim both these losses?
ssue: The issue is in relation to remoteness of damages, and whether Yang can claim his loss from Matthew.
Rule: Where there is a breach of contract, which leads to a plaintiff’s loss, the court will order common law damages as compensation to remedy that loss. Not all losses can be claimed however. The plaintiff must mitigate their loss, and also only losses that flow naturally form the breach will be claimable (Hadley v Baxendale). The loss must be within the reasonable contemplation of both parties for the plaintiff to be able to claim (H Parsons v Uttley Ingham); and those losses that are not within the reasonable contemplation of the defendant at the time the contract was formed will be too remote. (Day v O’Leary).
Apply: On the facts we are told that Yang informs Matthew of the need to get the new refrigeration running smoothly because of his seafood business. Matthew is thus made explicitly aware of the loss that may arise if the refrigeration is not intalled properly. The loss of both the seafood and the contracts naturally arise from the breach, and are both actually contemplated as a probable result of the breach.
Conclude: It does appear that both these losses will be claimable by Yang, as they are within the reasonable contemplation of Matthew at the time the contract was formed.
Janie B was a celebrity host on Channel 7. Janie had 1 year left on her contract with Channel 7 however signed a contract to join Channel 9 immediately to host a new show. What remedies, if any can Channel 7 seek for Janie’s breach of contract?
Issue: What remedies are available to Channel 7?
Rule: Equity provides remedies for breach of contract where damages may not be adequate. Injunctions are a form of court order that may restrain or force a party to adhere to a contractual promise.
Apply: As damages may not be an adequate remedy for Channel 7, the court may order an injunction against Janie from joining Channel 9.
Conclude: Janie may be restrained from working at Channel 9 by an injunction.
