contracts week 8: Breach PDF

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Week 8 - Breach Wednesday, 24 April 2019

4:30 PM

• Learning objectives

1. 2. 3. 4. 5. 6. 7. 8. 9.

Learning Objectives: At the end of this class you should be able to: Explain the concept of performance and breach in contract law; Outline situations in which a contract is breached for defective performance; Outline when there is a right to terminate a contract for breach at common law; Distinguish between conditions, warranties and intermediate terms and apply the distinctions to hypothetical factual scenarios; Distinguish between an express power to terminate and an implied right to terminate a contract and construct examples of each; Explain and apply the concept of a contingent condition; Outline the categories of agreements to terminate a contract; Explain the process of termination by subsequent agreement; and Explain and apply the concept of accord and satisfaction.

Important to consider - what was the promise- what was the breach? Have a list of arguments in the way in which a right ot termination could arise? Chapter 12 • The performance required by the contract - Whether a breach has occurred depends on compliance with the terms of the contract, not on whether the party in breach was blameworthy, careless or affected by events outside his or her control. - Contractual liability is, in this sense, strict. What is required by way of performance of a contract depends on the terms of the contract and the construction of those terms. Strict means that you either do it or you don't. However, this doesn't mean, performance needs to be perfect - In assessing whether there has been performance in accordance with the terms of a contract, important issues will be the standard of performance required and the time at which performance is required - A party must perform both in the way required by the contract and at the time required by the contract. In some cases the standard of performance required by a contract will be expressly specified. • Order of performance - A contract may specify the order in which the parties must perform their obligations. Otherwise, the order of performance is a matter of construction - Obligations may be consecutive; ie, the parties perform their respective obligations at different times. Obligations may also be concurrent. In these cases, the parties must be ready and willing to perform at the same time.

• Responses to a breach of contract - Where one party (the aggrieved party) alleges that the other party has breached the contract, the other party may respond in a number of different ways. He or she may acknowledge the breach and possibly try to rectify the situation. The other party may also dispute that the breach has occurred, perhaps arguing that the aggrieved party's interpretation of what is required under the contract is incorrect. - Another response is for the party alleged to be in breach to attempt to excuse his or her failure to perform in accordance with the terms of the contract. - The other party might argue that there is a term in the contract limiting his or her liability for the breach - He or she may argue that there was some excuse for his or her failure to perform, eg, that that the contract was not properly formed, that the contract was frustrated, or that the enforceability of the contract is affected by misinformation, an abuse of power or illegality • Remedies and the right to terminate - If a breach of contract is established, the aggrieved party will have a right to damages to compensate for any loss caused by the breach. - If the contract has been fully performed, this may be a sufficient remedy. If the contract has been only partially performed, the aggrieved party may claim damages to compensate him or her for losses occasioned by the breach and also elect to continue with performance of the remainder of the contract.

Chapter 13: termination - Breach, Contingent condition, agreement • Rights conferred by the common law - Briefly, a breach occurs when a party fails to perform at the time or to the standard required by the other party • What constitutes a breach of contract - Briefly, a breach occurs when a party fails to perform at the time or to the standard required by the contract • When is there a right to terminate for breach at common law Whether or not there is a common law right to terminate for breach depends primarily on the classification of the term

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breached. In this context there is a three-fold classification of terms; conditions, warranties and intermediate or innominate terms. 1. If a term is a condition, the aggrieved party will be entitled to terminate for any breach of that term by the other party regardless of the gravity or consequences of the breach. Damages to compensate for any loss suffered by the aggrieved party will also b available. 2. If a term is a warranty, the aggrieved party will not be entitled to terminate merely by reason of a breach of the term by the other party, although damages to compensate for any loss suffered by the aggrieved party will be available. 3. If a term is an intermediate or innominate term, the aggrieved party's right to terminate depends on the gravity and consequences of the breach of the term. If the breach is likely to have serious consequences for further performance of the contract then the aggrieved party will be entitled to terminate the contract in addition to claiming damages for any losses caused by the breach.

2 questions to ask 1. Is this a condition or a warranty? 2. Is this an intermediate term damages Termination

Condition (refer to this as a term) Yes

yes

Intermediate term

yes

Maybe (serious breach)

Warranty

yes

No

- Accordingly, the first step in deciding whether or not an aggrieved party has a right to terminate for breach of a term of the contract is to classify the term in question. - Terms will generally only be classified as warranties where required by statute, in particular under the Sale of Goods Acts. The classification of a term as intermediate is likely to be preferred for the reason that it gives courts greater flexibility in dealing with a breach. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd[1962] 2 QB 26 at 69-70, Lord Diplock suggested that, in the absence of a clearly expressed intention to the contrary, a term will only properly be classified as a warranty if it is such that no possible breach could give rise to an event which would deprive the aggrieved party of substantially the whole of the benefit which it was intended she or he should receive from the contract.

• Termination for breach of a condition - Where a term is classified as a condition, any breach of the term, regardless of its gravity, will give the aggrieved party a right to terminate the contract. - In the absence of classification by statute or by an express statement by the parties, whether a term is a condition is determined as a matter of construction of the contract in question. - The accepted test for whether a term should be construed as a “condition” in Australia is that stated by Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641: " The question whether a term in a contract is a condition or warranty, that is, an essential or inessential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor." • Rights of termination - Express • Contingent condition - Argument as to how to end a contract - we will not enter into this contract until you move to London - when the person moves to london then the contingent condition is fulfilled and a contract then is formed and the performance of the other party then arises Important readings - tramways, Banks, koompahtoo • Lecture pod - How do we bring a contract to an end? - whether common law may give the right to terminate • What is a condition Case name

Tramways Advertising v Luna Park

facts

- Tramways Advertising, the plaintiff, carried on the business of advertising on trams for its clients. It entered into a contract with Luna Park, the defendant, whereby it agreed to exhibit for three “seasons” advertising material for the defendant by means of 53 boards displayed on the roofs of trams. - The Defendant found out, during the second season, that the ads were not displayed a minimum of 8 hours a day. - The Plaintiff admitted this, but argued that they were being displayed on an average of 8 hours a day. - Regardless, the Defendant considered this a breach of condition and regarded himself as no longer bound by the contract. - Against the protestations of the Defendant, the Plaintiff continued to display the ads. - When the Defendant did not pay, the Plaintiff sued. The Defendant argued breach of

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a contract and therefore the termination.

issue

How long certain acts for luna park had to be on trams as they went around sydney? Termination by breach of contract

Rule/ ratio decidendi

The test of essentiality is whether it appears from the general nature of the contract considered as a whole or from a 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 and this ought to have been apparent to the promisor - CJ Jordan ( use this in the exam) Apart rom special circumstances, a vital breach of any essential promise is a good ground for avoiding the contract notwithstanding that no intention to repudiate can be established If the innocent party would not have entered into the contract unless he had been assured of a strict or substantial performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight

application

Conclusion

luna park loses

Case name

Luna Park v Tramways

facts issue

How long certain acts for luna park had to be on trams as they went around sydney?

Rule/ ratio decidendi

Uses the same rule in tramways v Luna park

application

Latham CJ The minimum amount of time required was 8 hrs and Luna park would not have entered into the contract if there was an expectation that performance would be less than 8 hrs everyday. Therefore, the promise to have a minimum of 8 hrs of advertising a day was essential. Therefore, it was a condition, and the failure of tramways to do that, meant there was a breach of the condition, which meant that Luna Park could terminate the contract there and then How do we know the promise was essential? The essential character of the clause in question appears both from its own terms and from circumstances in which the contract was made In the first place the words “we guarantee” are particularly suited, in a contract drawn by laymen, to emphasise [303] the importance of the clause which they introduce. In the next place, the payment of £20 per week was not to begin until the complete number of roof boards, namely, 53, were all displayed at the same time. The money is made payable “from date of first appearance of complete number of boards 53 in all”. Thus, if the advertising company displayed even as many as 52 boards on every day throughout a whole season, it would never become entitled to recover any payment. This provision in the contract therefore supports the view that the parties regarded the completeness of the display contracted for as an essential element in the contract. the words “at least eight hours” should be construed as meaning “substantially eight hours” but was of the opinion that the admission by the advertising company that each board was not exhibited for at least eight hours should be taken to mean that each board was not exhibited for substantially eight hours per day

Conclusion

luna park wins because tramways, breached an essential promise - appeal allowed

Case name

Associated Newspapers v Banks

facts

- Under a ten year contract between the parties commencing 27 March 1949, Bancks, the defendant, agreed to provide weekly a full page drawing of “Us Fellers” or such other subject as might be agreed to from time to time, and Associated Newspapers,

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the plaintiff company, undertook to publish it each week on the front page of the comic section of the Sunday Sun and Guardian . - Until 11 February 1951, the company complied but on that day and the next two succeeding Sundays, owing to a shortage of newsprint, the comic was printed so as to appear on the third page which was headed “Sunday Sun Comics”. - On the ground that the company had repeatedly, without his consent, and in the face of protest, broken its undertaking, the defendant gave notice by a letter of 26 February 1951 that he was no longer bound by the contract. - The company began proceedings for an injunction restraining the threatened breach by the defendant of certain negative stipulations in the -

issue

Did banks have a right of termination 1. The first question is whether the company's undertaking to present the defendant's drawings on the front page of the comic is a condition or essential term of the contract going to its very root

Rule/ ratio decidendi

The test was succiently laid out in Tramways Advertising Pty Ltd v Luna Park (NSW) 1938

application

Why was it a condition? 1. It was of prime importance to the defendant that there should be continuity of publication so that his work could be kept continuuously before the public, - that his work should be published as a whole and not mutilated, and that it should be published on the most conspicuous page of the comic section. - there was an analogy to an actor: "It is like a contract under which an actor is engaged to act in a theatre. It is not sufficient if the employer pays his salary. He must find work for him to do in the sort of part, principal or subsidiary, for which he is employed … A failure to give an actor a proper part is a breach of contract which goes to its root and justifies the actor in treating the contract as rescinded" What were the breaches? The plaintiff committed three successive breaches of this condition and thereupon the defendant was certainly entitled to treat the contract as discharged. Such a failure of the plaintiff to perform the condition went to the root of the contract and gave the defendant as the injured party the right immediately to treat the contract as at an end: Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd. He exercised this right by his letter of 26 February.

Conclusion

banks wins it - Banks would not have entered into the contract unless there was the expectation that those things would be done. As a result, the breach is a breach of a condition, and therefore banks had a right to terminate

- Use tramways for the rule part of the answer- but use tramways for analogy

• Intermediate term - Conditions require an analysis of intention when the parties first formed the contract "would i have entered into the contract " - Intermediate terms requires analysis after the breach has actually occurred- what are the actual consequences as a result of the actual breach Case name

Hong Kong Fir shipping

facts

• Plaintiff [Hongkong] owned a ship and chartered it to the Defendant [Kawasaki] • A clause in the agreement guaranteed that the ship would be in good condition etc. • The ship in fact was not in good condition, and its repairs caused a lot of delays for the Defendant • The Defendant, after having problems with the bad state of the ship, notified the Plaintiff that the condition of the ship being in good condition was breached and therefore they elect to terminate the contract. • The Plaintiff notified the Defendant that they consider this wrongful termination, and sued them for repudiating the contract. -

issue

Termination by breach of an intermediate term Does the occurence of the event deprive the party who has further understandings still to

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perfomrm of substantially the whole benefit whih it was intended that he should obtain from the contract Rule/ ratio decidendi

Diplock LJ With intermediate terms, the judge must look and see what were the consequences of the breach - did the seriousness of the breach deprive the Aggrieved party from basically the entire benefit of the contract? if yes, he is allowed to terminate.

application

• n this case, the clause of good condition can only be seen as intermediate - obviously there could be a lot of small defects which would be easily dealt with and not deprive the Defendant from the entire benefit of the contract. It would be unjustified to give the Defendant the right to terminate for a tiny defect. • However, if the ship was completely out of order (a serious breach), and brought about such delays that the Defendant could not obtain benefit from having the ship (i.e. couldn't sail at all, arrived too late for all its shipments etc), then it would justify giving the Defendant the right to terminate. • In conclusion, such a serious breach did not occur here. The delays were not great enough to deprive the defendant of the substantial benefit

Conclusion

the concept of an intermediate term is approved, however it is not used successfully to allow termination of a contract

Case name

Koompahtoo Local Aboriginal Land Council v Sanpine (2007) HCA (leading case for intermediate terms)

facts

- Enters into a joint venture - Sanpine had reporting requirements (according to clause 12 and 16, he had to prepare and submit to the management committee reports showing the expenditure incurred by the joint venture and the progress development) - Sanpine's reporting requirements were not meant - Sanpine's breaches of the joint venture agreement were revealed when Koompahtoo went into administration and Sanpine was unable to inform the administrator of the true financial position of the joint venture and how the money borrowed from financiers had been applied. - The reporting requirements were not conditions - At trial, Campbell J assumed that the terms were intermediate terms and held that the repeated breaches of these terms amounted to repudiatory conduct - In the court of appeal, it was held that the terms breached were not conditions

issue Rule/ ratio decidendi

- Accepted the test in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen kaisha Ltd (1962) : A serious breach of an intermediate term is a breach that deprives on party- substantially the whole of the benefit of the contract then a right of termination arises - 539 reasons for intermediate terms: flexibility and justice - 540 - analysis of the terms - Koompahtoo is never able to know what happens with the funds

application

Majority - Because Sanpine hasn't reported to koompahtoo about the funds - koompahtoo was unable to know what was happening with the joint venture - There is a sufficient substantial breach that deprives koompahtoo of having any understanding of what was happening with the joint venture and the funds "the breaches of Sanpine were in a number of respects gross, and their consequences were serious. Once again, the experience of the administrator following his appointment, and ...