La1106 – Exam Notes

Lecture 2

Termination: The contract is valid until it is terminated

Rescission: The contract was invalid from the start (i.e. due to a mistake, misrepresentation)

Classification of terms of a contract

• 
  Promises or undertakings
  
  • 
    Terms may be classed as conditions, warranties, or innominate(/intermediate) terms
    
• 
  Contingent conditions
  
  • 
    Contingent upon something occurring or not occurring
    
• 
  Procedural terms
  
  • 
    Like promises of undertakings, but do not actually arise until or unless something occurs
    
• 
  Secondary obligations
  
• 
  Exemption clauses
  
  • 
    Excluding liability of one of the parties under particular circumstances
    

Promises or undertakings

• 
  Terms that are extremely important (the parties would not have entered into the agreement without them) may be classified as conditions
  
• 
  Warranties and innominate terms are of lesser degree of importance
  
• 
  Breach of warranties entitles the other party to compensation, but does not entitle them to terminate the contract
  

Termination for breach

• 
  Breach = failure to perform as agreed in the contract
  
• 
  Can take the forms of
  
  • 
    Non-performance
    
  • 
    Defective performance
    
  • 
    Late performance
    

Conditions

• 
  Any breach of a condition by a party gives the other party the right to terminate the contract and/or to seek damages
  
• 
  The right to terminate at common law may be augmented by terms of contract
  
• 
  If the other party breaches, you may choose to terminate the contract, or to affirm the contract (continue in spite of the breach), which would still entitle you to damages
  
• 
  The motive of the terminating party is irrelevant
  
  • 
    Arcos v Ronaasen
    

Warranties

• 
  A breach of a warranty allows the wronged party to claim damages only
  

Determining if a term is a condition or warranty

• 
  Correct categorisation is important for determining the remedies available
  
• 
  Usage of term ‘condition’ or ‘warranty’ is not conclusive
  
  • 
    Wickman Machine Tools Sales Ltd v Schuler AG
    

• 
  The test of essentiality
  
  • 
    The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he [or she] would not have entered into the contract unless he [or she] had been assured of a strict or substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor
    
  • 
    Tramways Advertising v Luna Park – Jordan CJ
    
• 
  Does the term go to the root of the matter?
  
  • 
    Bettini v Gye
    
    • 
      The clause was not vital to the agreement, therefore was a warranty only
      
    • 
      Was determined that Gye should not have terminated the contract, so Bettini was entitled to damages
      
  • 
    Associated Newspapers v Bancks
    
    • 
      Court determined that the term was a condition of the contract as it went to the root of the matter
      
• 
  May refer to the factual matrix
  
• 
  Other relevant factors:
  
  • 
    Previous decisions
    
  • 
    Promotion of certainty
    
  • 
    Language used
    
    • 
      The more promissory, the more likely to be classified as a condition
      
    • 
      Displays a strong obligation, demonstrates importance to the parties
      
  • 
    Other terms of the contract
    
  • 
    Likely character of the breach
    
  • 
    Adequacy of damages
    
• 
  A term is a condition if both parties have agreed that it is so
  

Innominate (or intermediate) terms

‘There are, however, many contractual undertakings of a more complex character which cannot be categorized as being ‘conditions’ or ‘warranties’… Of such undertakings all that can be predicted is that some of the breaches will and others will not give rise to an event which will deprive the party not in fault of substantially the whole benefit which it was intended that s/he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise and do not follow automatically from a prior classification of the undertaking as a ‘condition’ or ‘warranty’.’

• 
  Diplock L in HongKong Fir Shipping Co Ltd v Kawasaki
  

Determining the outcome of an innominate term

• 
  Prove that the term is innominate
  
• 
  Establish the impact of the breach
  
  • 
    A serious breach gives the other party the right to terminate the contract and to seek damages
    
  • 
    For a minor breach, the other party is entitled to damages only
    
    • 
      Ankar v National Westminster Finance
      

Repudiation

• 
  Repudiation occurs when a party demonstrates an absence of willingness or ability to perform the contract.
  
• 
  It can relate to performing the whole contract, a condition of the contract or something fundamental to the contract.
  
• 
  It can occur before (anticipatory breach) or at the time of performing the contract.
  
• 
  It must be serious.
  
• 
  The same facts may give rise to termination for breach of a condition, termination for repudiation and claim to terminate under a clause of the contract
  
  • 
    Shevill v Builders Licensing Board
    

Effect of repudiation

• 
  The innocent party is entitled to end the contract and seek damages
  
• 
  The repudiation of one party does not automatically bring the contract to an end
  
• 
  They may elect to use their right to terminate the contract and seek damages
  
• 
  Implied term: ‘one essential promise which is implied in every contract is that neither party will without just cause repudiate his obligations under the contract, whether the time for performance has arrived or not.’
  
  • 
    Tramways Advertising v Luna Park at 646.
    
• 
  The aggrieved party should not be bound to a contract where the other party has indicated that they are not going to form
  

Anticipatory breach

• 
  A specific form of repudiation
  
• 
  Relates to an anticipation that they will not perform in the future
  
• 
  ‘It is an intimation of an intention to abandon and altogether refuse to perform the contract’- Freeth v Burr
  
• 
  Innocent party is entitled to terminate the contract immediately and seek damages, or can wait until time of performance and seek damages for breach.
  
• 
  Alternatively, you may wait until the action should have been performed and there is a breach of contract, and seek damages at that point
  
• 
  A statement or an action by one of the parties to the contract demonstrating that they will not be doing something they are supposed to pursuant to that contract when the time comes for doing that thing
  

Conduct amounting to repudiation

• 
  Conduct will amount to repudiation where lack of readiness, unwillingness or inability relates to whole contract, essential obligations or something fundamental.
  
• 
  Conduct that may amount to repudiation
  
  • 
    Express statement
    
    • 
      Hochster v De La Tour
      
  • 
    Implied refusal to perform
    
    • 
      Objective test: Would the words or conduct of the party lead a reasonable person to conclude that the party did not intend or was unable to perform the contract?
      
    • 
      Carr v J A Berriman
      
      • 
        Berriman didn’t elect to terminate the contract at the time of the breach in relation to excavation, so alone it was irrelevant
        
      • 
        The breach in relation to the subcontracting was not an essential term breached
        
      • 
        Together though, the conduct of Carr demonstrates that he does not take the contract seriously and Berriman was held to be able to terminate it
        
  • 
    Repudiation inferred from a combination of events
    
    • 
      Progressive Mailing House Pty Ltd v Tabali P/L
      
    • 
      Events that otherwise may be classed as a breach of warranty in combination display a lack of intention to carry out a contract as per its terms
      
  • 
    Installment contracts
    
    • 
      Sale of Goods Act 1896, s 33(2)
      
    • 
      Consider the likelihood of further breaches and the ratio of the breaches to the whole contract
      
    • 
      Maple Flock v Universal Furniture Products
      
  • 
    Erroneous interpretation of the contract
    
    • 
      But if party honestly believes in the erroneous interpretation it may not amount to repudiation, particularly if party still willing to perform the ‘tenor’ of the agreement.
      
    • 
      If a party continues to insist in the incorrect interpretation, that will amount to repudiation as they are not willing to adhere to the proper interpretation of the contract
      
    • 
      DTR Nominees Pty Ltd v Mona Homes P/L
      
  • 
    Wrongful termination of the contract
    
    • 
      If the contract is terminated for repudiation, however no repudiation has actually occurred, the party that terminated the contract may be sued for repudiation.