Consequences of Affirmation/Termination PDF

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Consequences of Affirmation/Termination - 24.05-35 Right to Elect •

An aggrieved party has a right to terminate for o Breach of a condition o "Grave" breach of an intermediate/innomiate term o Repudiation by the other party

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An Aggrieved party ----> put to his/her election must either: o Terminate o Affirm (Continue with the contract)

NOTE - Affirmation does NOT destroy the right to sue for damages for the breach in question • However, once an election is made, it is FINAL and CANNOT BE RETRACTED

Consequences when the contract is AFFIRMED

FOR THE AGGRIEVED PARTY • The reasons to affirm, rather than terminate, a contract are: o Termination will likely cause inconvenience to the aggrieved party o Termination will mean that aggrieved party will have to find a new contracting partner • Thus attempting to resolve problems is preferrable o May value continuing his/her contract with the other party over short term advatnages gained by terminating FOR THE NON-PERFORMING PARTY • Affirmation keeps contract alive for BOTH parties (Bowes v Chaleyer) o Thus, the party who breached/repudiated the contract is able to rely to their advantage on subsequent events >>> including subsequent breaches by the aggrieved party

Bowes v Chaleyer (1923) An aggrieved party who AFFIRMS a contract keeps the contract alive for the benefit of both parties. Thus an aggrieved party remains LIABLE to perform his/her own contractual obligations Further a party who breached a contract earlier may, after affirmation, become entitled to terminate the contrat on the ground of SUBSEQUENT BREACHES by the aggrieved party

FACTS • •

A buyer ordered goods from a seller - 1800 yards of tie silks Contract stipulated, "half the goods as soon as possible, half two months later.

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Before the first goods arrived the buyer cancelled the contract (repudiated) The seller did NOT accept the repudiation and continued to purport to deliver the goods However when the goods were delived they were NOT in accordance with the contract o NOT half-half split (was three portions o Goods did not arrive two months apart

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What are the consequences of affirmation? Repudiation

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ISSUE-

OUTCOMEThe delivery terms were held to be CONDITIONS of the contract Therefore, breach of the condition - entitled the buyer to terminate After the initial breach by the buyer (who purported to cancel the agreement) - the seller had ELECTED not to accept repudiation by the buyer • The seller thus remained liable to perform his part of the contract o Buyer - entitled to take advantage of any subsequent default by the seller • • •

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Even though the seller affirmed the contract, he was still liable to perform his subsequent obligations under the contract (which he did NOT do)

Consequences when the contract is TERMINATED - 24.30 For the aggrieved party • •

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Termination brings an end to both parties 'future obligations to perform' Contract is NOT rescinded from the beginning o Rights that have already been unconditionally acquired, or accrued, are NOT discharged (McDonald v Dennys Laceles Such rights include o Right to recover payment for any part of the contract which has been performed o Right to claim damages for any breaches accruing up until the time the contract was performed

For the non-performing party •

Rights which have been accrued prior to termination may also relied upon by a party who has breached/repudiated the contract

Restrictions on the right to Terminate

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If one party has a prima-facie right to terminate, the other party may claim there is a restriction on that right o These may be a result of restrictions imposed by themselves, such as through a clause o Statutes sometimes impose restrictions o Legal and Equitable principles

Ready and Willingness •

Entitlement to termination for breach/repudiation: o The aggrieved party must show that he/she was ready >>> able and willing to perform the contract o Discussed in Foran v Wight o NOTE: There is no need to show able/willingness to perform where there is repudiation by way of anticipatory breach (Sharjade v Commonwealth • Only need to establish elements if he/she seeks damages

Foran v Wight (1989) Discusses principles concerning TIME when we aggrieved party must be ready and willing and what the aggrieved party must SHOW to satisfy the requirement FACTS• • •

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Involved contract for the sale of land 10% Deposit taken 22nd of June - Sale was meant to be completed o 20th of June Vendors advised that they would be unable to settle or complete the contract o The purchasers chose NOT to terminate the contract 22nd of June NEITHER party attempted to sttle 24th of June the purchases purported to terminate the contact (rleying on the ACTUAL breach of the contract) and claimed a return of the deposit

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Disputed by vendors who stated the did not have the funds available and therefore not READY AND WILLING

ISSUE •

Whether, in the case of an anticipatory breach being accepted, a party is required to prove readiness or willingness (when they were induced to believe they did NOT have to perform)

OUTCOME •

An Aggrieved party who suffers an anticipatory breach does not have to terminate - it can continue with the contract and let the anticipatory breach become an actual breach. • "Repudiation by way of anticipatory breach by a party to a contract does not put an end to the contract unless the other party accepts the repudiation and rescinds the contract...He may continue to treat the contract as on foot and hold the guilty party to the performance of his obligations. If those obligations fail to be performed the anticipatory breach will become an actual breach".

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"If the other party keeps the contract alive, he does so not only for his own benefit but also for the benefit of the party guilty of repudiation. The latter may, upon giving reasonable notice, withdraw his repudiation and complete the contract and...the other party remains bound by the contract, enabling the repudiating party to take advantage of any breach by the other party or any supervening event which would discharge him from liability."

READY AND WILLINGNESS •

An Aggrieved party can only terminate on grounds of a breach if it was ready and willing to perform the contract.

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This is presumed these days, but a defendant can still require the plaintiff to prove readiness and willingness. • "Under the old rules a plaintiff was required to plead that he was ready and willing but under the present rules that fact is implied with the effect that he is not required to prove it unless the defendant puts it in issue. In that event, the burden of proving readiness and willingness rests upon the plaintiff."

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To show that it was ready and willing, a party simply has to show that it is not 'substantially incapable' of performing at the time of repudiation (broad application). However, in the case of an anticipatory breach, the repudiating party's words or conduct may mean that there is no point for the Aggrieved party to perform his obligation on the set date because it will be futile considering the nonperformance of the repudiating party.

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This means the conduct of the repudiating party effectively induces the Aggrieved party to adopt the assumption that its performance is futile and therefore it does not need to show readiness and willingness. An estoppel will arise in favour of the

Aggrieved party to estop the repudiating party from demanding that the Aggrieved party needed to be ready and willing.

Restrictions - Election Requirements 25.50 ELECTION •

When an aggrieved party is allowed to terminate , they have a choice between o TERMINATING o CONTINUING with, or affirming, the contract

• There are TWO requirements for an election to affirm a contract: 1. Knowledge of facts giving rise to the right to terminate 2. Unequivocal conduct consistent only with a choice to continue with the contract

There will be no election to affirm where there is "only a qualififed conditional waiver of the original stipulation" - Tropical Traders LTD v Goonan

Tropical Traders LTD v Goonan Concerns an extension of time >>>> sometimes an aggrieved party will grant the party in breach an extension of time >>>a mere extension of time is unlikely to amount to affirmation of the contract

FACTS•

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LEGAL ISSUE -

Concerned a contract for the sale of land where the purchase price was to be paid by o A deposit o Followed by four sums at 12-month intervals o The balance of the price five years from the date of the contract Contract provided that time should be of the essence in the contract in ALL respects Purchasers were later in paying the first three installments but made the fourth payment early They then sought an extension of time to pay the final sum o Vendor agreed to grant an extension but specified that the extension "must be regarded as an act of grace and does not vary the vendors right to strict enforcement of the contract" (RESERVE THE RIGHT TO TERMINATE When payment was NOT received on the date and they terminated the contract

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Whether the purported recission by the vendor/appelant was effectual

OUTCOME•

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The purchasers contended that by voluntarily accepting late payments for the first three instalments the vendor lost the right to terminate for final payment, either because: The conduct appeared to dispense with the stipulation that time was of the essence under the contract By granting an extension of time, the appellant bound itself by an election NOT to rescind for non-payment

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Whilst granting an extension of time may render time of the essence to be no longer applicable in some circumstances (Kilmer v British Columbia Orchard Lands), this is NOT a general proposition - NOT every grant of an extension of time has that effect "Barclay v Messenger

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When the original date passed and no transfer had been made, the vendor could elect for or against the rescinding the contract o Once the election was made it could NOT be retracted o However it is also able to keep the question open - Clough v London and North Western Railway • Appelant did no more than to promise it would NOT elect to rescind the contract before the NEW date mentioned • The granting of extension of time No more than announcing an intention to refrain from electing

Immer (No 145) v Uniting Church In Australia Property Trust (NSW) FACTS • •

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LEGAL ISSUE

There was a contract for the purchase of excess airspace rights In the contract, the purchaser was entitled to terminate if the council approval of the trasnfer was NOT received by a certain date o Councils Approval >>>> conditional upon refurbishment of the historic building in question Immer thourgh the council had approved the transfer of the property rights As such Immer sent the documents of settlement to be signed The council had stated the approval was conditional on them completing the refurbishment Purchaser then realised their misake and notified the vendor that it was terminating the contract

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Whether the purchaser abandoned its contractual right to recission by electing to affirm the agreemtn under mistaken belief

OUTCOME •

Khouryo v Government Insurance Officea"The party alleged to have elected to affirm the contract must be at least aware of the facts [ ] giving rise to the right to avoid the contract

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On this basis, Immer argued that o An electing party must be confronted with two mutually

exclusive courses of action between which he must, in fairness to the other party, make his choice o Thus, the question is whether Immer was confronted with two mutually exclusive courses of action o Since the Council failed to approve the transfer, the right to terminate the contract arose and continued - this meant that the purchaser was NOT confronted with the necessity of making an election o In the circumstances, the purchaser, although originally mistaken as to whether the council had approved transfer, was AWARE of the relevant fact giving rise to the right to terminate....