Lecture notes - performance and breach PDF

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Performance and Breach...

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PERFORMANCE AND BREACH Reading: Paterson, Robertson, and Duke Textbook Ch 18

.1 Performance Required by K General rule: A party’s performance must correspond exactly with terms of K, if not, it would amount to breach of contract (Entire Performance Rule) Issues in assessing whether performance correspond with terms of K: 1 Time and order of performance required by K 2 Performance must be provided for parties to be discharged 3 Obligations each party must perform in order to enforce contract obligations of other party Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 Facts:  D was obligated to display signs on trams to advertise for P for 8 hours a day  Ads not displayed min 8 hours a day – P stopped paying because breach of condition  D admitted that ads not displayed for 8 hours a day but said its obligations under K were satisfied by having ads for an average of 8 hours per day Held:  HC – breach existed, K terminated because it required ads to be displayed for substantially 8 hours every day

.2 Time and Order of Performance Time for Performance  Time at which performance is required may be specified in K o If not, courts will imply a term requiring performance within a reasonable time o What constitutes a reasonable time is a matter of fact to be determined at the time when performance is alleged to be due Independent Obligations  Where one person must perform, regardless of whether the other does so  Either party may call upon the other to perform w/o having first performed his/her obligations  E.g. sale of goods K provides for payment on a certain day irrespective of whether goods are delivered by that time

Order of Performance  Depends on relation between parties’ obligations  Parties’ obligations under K will either be independent or dependent or concurrently

Dependent Obligations  Obligations are dependent where one party must perform his/her obligations before the other o Performance of K by second party is dependent on performance by first party o Most obligations in modern Ks for sale of goods, land or employment are dependent o E.g. buyer not required to pay for goods until seller delivers goods in accordance with K and accepted by buyer o K price is payable only in exchange for goods and not willingness or promise to deliver goods

Concurrent Obligations  Done at the same time  E.g. A purchaser of land will pay the purchase price in exchange for and at the same time the vendor delivers title and possession of the property to the purchaser

Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 Dependent obligations – right to wages dependent on performance of work

Facts:  Employee construed to present himself to work despite there not being any work for him after his dismissal; through wrongfully – employee knew but still went to work Held:  Entitled to damages for wrongful dismissal, not wages for service  Employer’s obligation to pay dependent on employee’s obligation to perform his tasks  Since employee not given any work, he did not complete any tasks – not entitled to pay  Employee argued that it is concurrent because K did not state who start first so default rule is concurrent – unless it is an employment K Foran v Wright (1989) 88 ALR 413 Dependent obligations

Facts:  K sale of land to be completed by 22 June 1983 – ‘time to be of essence’  20 June – vendors’ solicitors notified purchaser unable to complete K on 22 June as a result of their inability to complete registration of a right of way required by K  24 June – purchasers terminated K  Vendors challenged as, on that date, purchasers insufficient funds for completion Held:  Purchasers entitled to the refund of their deposit Principal:  To sue for other’s breach under K, must show they were ready and willing to perform their obligation under K as at the time of the other’s breach

.3 Breach of K – when things go wrong 2 Types of Breach Anticipatory breach Failure to perform  Can only occur after time for performance  Precedes time of performance has expired  Arises on termination of performance of K  Need not need give rise to a right to  If prior to time for performance, a promisor terminate repudiates (reject/refuse to accept) contractual obligations, breach only occurs if promise terminates performance Whether a breach has occurred depends on compliance with terms of K, not on whether party in breach was blameworthy, careless or affected by events outside his/her control  Consequences of breach will be in K o If not, consequences will depend on nature of term itself (condition, warranty or an intermediate term)  Party that has breach K may argue that:  K not property formed (agreement, consideration, intention, certainty etc); or  K was frustrated; or  Enforceability of K is affected by misinformation, an abuse of power or illegality 

Failure to Perform (Nature of breach) a) Non-performance  Where promisor fails to perform K – does not correspond with terms of K b) Defective performance  Where it is not of quality/quantity required by K or not fit for purpose required c) Late performance  Time

*Reg Glass Pty Ltd v Rivers Locking Systems Pty Ltd (1968) 120 CLR 516 Defective performance – implied term – measure of damages

Facts:  D supplied P a burglar proof door  Door did not keep burglar out – P suffered loss from break in  P sued D for breach of K – had not installed door that was reasonably fit for its purpose – left soft wood door frame and thieves levered open the door Held:  P able to recover for damages – quality of door was poor – ‘but-for’ test succeeded  Law will imply a term that the builder will use good quality materials and exercise reasonable care when doing building work – not liable for full extent of loss  Strict and Reasonable – they had the obligation to provide service and they also have to produce a specific door to not let thieves come in S. 11(7) Supreme Court Civil Procedure Act 1932(Tas) Stipulations in Ks as to time or otherwise which would not, in the Supreme Court when exercising its jurisdiction in equity before the commencement of the Legal Procedure Act 1903, or this Act, have been deemed to be or to have become of the essence of such Ks shall receive the same construction and effect as they would have received in such Court when exercising such jurisdiction before the commencement of the Legal Procedure Act 1903. *Holland v Wiltshire (1954) 90 CLR 409 Late performance – liquidated damages clause – effect of repudiation K for sale of land

Facts:  P sought to purchase land from D  Contract contained termination clause default in payments vendor has option of seeling land, rescind K and retaining deposit paid as liquidated damages  Purchaser could not complete K  June – vendor sold property to 3rd party Held:  .4 Actions for Debt: Effect of failure to perform on recovery of K price Reading: Paterson, Robertson, and Duke Textbook Ch 18 and Ch 29 What is an Action for Debt?  K price = sum which one party has promised to pay as price of performance by other party  It becomes debt due to party who has performed exactly in accordance with terms of K  Where a party is not in breach of K, action in debt may be brought as an alternative to, or in conjunction with, an action for damages

Advantages  Action to recover a debt is distinct from an action for damages  Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567 per Dixon CJ, McTiernan and Taylor JJ: o “CL does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of K: it is rather the detention of a sum of money”

Action for Debt  To bring an action to recover debt: o K must impose an obligation to pay a certain or ascertainable sum of money o Right to payment of the sum must

Action for damages  Party claiming damages must prove: o Breach of K o Loss suffered  Principle of mitigation of loss applicable to

have “accrued” (benefit/sum of money received by someone in regular or increasing amounts over time)  May be entitled to recover debt: o Where He/she has breached K; and o Where K has been terminated in response to breach  It is for the party against whom the debt is being claimed, to prove any defence of payment

claim for damages does not apply to the recovery of a debt

 A party discharged by performance, may enforce obligations of other party  E.g. seeking damages, pursuing an equitable remedy or claiming K price, as a liquidated sum  Sometimes, even if a party has not performed exactly (and is not discharged), he/she may still be able to recover K price  Depend upon nature of K (entire, lump sum or divisible) and type of performance required (exact or substantial) Nature of K (Entire, Lump Sum or Divisible) a) Entire K  Where parties have agreed that complete and exact performance by one party is a condition precedent to other party’s obligation to perform (to pay K price) Cutter v Powell (1795) 6 TR 320; 101 ER 573 Facts:  P (sailor) employed to serve on a ship sailing from Jamaica to Liverpool  K stated that P would be paid 30 guineas provided he completed whole journey  P died during journey  P’s widow sued for his wages up until his death – claim was unsuccessful Held:  K required entire performance – since P had not completed performance under K (travelling whole journey), his widow not entitled to payment b) Lump sum K  Provides for payment of a specific sum upon completion of specific work  Unlike an entire contract, fulfilment of every term is not a condition precedent to payment of K price Hoenig v Isaacs [1952] 2 All ER 176 Facts:  P (Interior decorator) contracted to decorate and furnish D’s flat for £750 by 2 instalments and the balance on completion  D paid £400 in advance, but refused to pay remaining £350 because work was defectively done even though P completed the work  Cost of defects in furniture was £56 Held:  P had substantially performed – entitled to balance of £750 less £56 (£694) *Bolton v Mahadeva [1972] 1 WLR 1009 Facts:  Contractor had agreed to install a central heating system for 560 pounds  Work was defectively done, cost 174 pounds to remedy these defects  P claimed K price, less 174 pounds, on the basis that he had substantially performed, but Court of Appeal rejected claim

Held:  P could not recover K price – no substantial performance  Small domestic building Ks are usually treated as requiring entire performance  Builders have to complete all work contracted for before they are entitled to be paid  In determining whether there is substantial performance, important to take into account both nature of defect and proportion between cost of rectifying them and K price c) Divisible K  Where parties have divided K price into a number of instalments, each corresponding to a definite proportion of the other party’s performance  Each divisible part may be entire or lump sum Steele v Tardiani (1946) 72 CLR 386 Facts:  Ps were employed to cut timber for D  K did not specify any particular amount; Ps were to be paid for each ton of wood cut  K required timber to be cut into lengths each 6 feet long and 6 inches wide in diameter  Ps had cut 1500 tons of wood at lengths varying from 6-15 inches in diameter  D refused to pay for work and Ps sued to recover some payment Held:  K did not employ Ps to do a single piece of work for a lump sum under an entire K  K was instead “infinitely divisible”  Ps were entitled to recover K price in respect of those tons of firewood which qualified by substantial compliance with K specifications

.4.1

Rule of Substantial Performance

Doctrine of substantial performance Permits recovery of the K price where performance has been substantial but not complete or exact Debate exists as to what constitutes substantial performance In the absence of agreement to the contrary, substantial performance will not discharge a party from his or her contractual obligations Therefore, although K price is enforceable, the sum required to remedy the defects in the performance can be deducted from the K price It is unclear whether the doctrine of substantial performance applies where contractual obligations are entire *Bolton v Mahadeva [1972] 1 WLR 1009 Facts:  Contractor had agreed to install a central heating system for 560 pounds  Work was defectively done, cost 174 pounds to remedy these defects  P claimed K price, less 174 pounds, on the basis that he had substantially performed, but Court of Appeal rejected claim Held:  P could not recover K price – no substantial performance  Small domestic building Ks are usually treated as requiring entire performance  Builders have to complete all work contracted for before they are entitled to be paid  In determining whether there is substantial performance, important to take into account both nature of defect and proportion between cost of rectifying them and K price

*Hoenig v Issacs [1952] 2 All ER 176 ; PR&D[29.55] Facts:  P (Interior decorator) contracted to refurbish a flat for 750 pounds  D paid 400 pounds in advance, but refused to pay remaining 350 pounds because work was defectively done  Court agreed that there were problems with work done, but cost of putting these right would only be 56 pounds Held:  P had substantially performed, and was entitled to the balance of K price, less the 56 pounds needed to put right the defects Zamperoni Decorators Pty Ltd v Lo Presti [1983] VR 338 Facts:  K for the decoration of D’s premises for $1200. Work was defectively done and cost of rectification was $600 Held:  Magistrate held that there was substantial performance. On appeal to the SC of Victoria, the court held that substantial performance was a matter of fact in each case. Each case would have to be treated on a question of merit. Since the magistrate correctly applied the relevant legal principles to the fact before him, the decision of the Magistrate would not be disturbed  “What amounts to substantial performance is a question of degree in each case, and little guidance can be obtained from the decided cases” What does emerge from a consideration of the cases is, I think, that in each case it is essentially a question of fact as to whether there has been substantial completion or performance, and this is so determined on the facts and circumstances of each case Once performance of a divisible part of K is completed, payment for that part can be claimed. Steele v Tardiani (1946) 72 CLR 386 Facts:  The plaintiffs were employed to cut timber for the defendant. The K did not specify any particular amount of timber but the plaintiffs were to be paid for each ton of wood cut. The timber was to be cut into lengths of 6 feet long and 6 inches wide each. The plaintiffs cut 1500 tons of wood at lengths varying from 6 to 15 inches in diameter. Held:  As the K was not for a single piece of work under an entire K, the plaintiffs were entitled to recover the K price with respect to the tons of wood, which complied substantially with the K specification Note the Apportionment Act 1871 (Tas) s 2 which provides that all rents, annuities, dividends and other periodical payments in the nature of income are considered as accruing from day to day and are apportionable in respect of time accordingly. Partial Performance A party who only partially performs cannot enforce the K price. However, the other party may do something to indicate that he or she has voluntarily accepted the benefit of that partial performance. In such cases the court may find that the original K has been terminated by the agreement of the parties, and that a new obligation has been undertaken to pay a reasonable sum for the work completed. The performing party can recover that sum by suing on a quantum meruit for the value of work done.

Steele v Tardiani (1946) 72 CLR 386 Facts:  The plaintiffs were employed to cut timber for the defendant. The K did not specify any particular amount of timber but the plaintiffs were to be paid for each ton of wood cut. The timber was to be cut into lengths of 6 feet long and 6 inches wide each. The plaintiffs cut 1500 tons of wood at lengths varying from 6 to 15 inches in diameter. Held:  As the K was not for a single piece of work under an entire K, the plaintiffs were entitled to recover the K price with respect to the tons of wood, which complied substantially with the K specification Sumpter v Hedges [1898] 1 QB 673 Facts:  Parties entered into a K to build houses. P did part of the work and then abandoned the K. D finished the remaining work and P sues for money for part performance Held:  When K is abandoned after part performance, the party who abandoned the contract can only recover on quantum meruit for the work already done if: The circumstances give the other party an option to take or not take the benefit of the work done, thus creating an inference of a new K

Mitigation and Action of Debt  Mitigation – a principle requiring for a party who is affected by breach of contract to take reasonable steps to limit (mitigate) loss  Principle of Mitigation – Mitigation requires reasonable steps to be taken by P to reduce the loss cause by D’s breach of K 3 aspects: 1) P cannot recover for avoidable loss 2) P can recover for loss incurred in reasonable attempts to avoid loss 3) P cannot recover for avoided loss  Principle of Mitigation does not apply to an action for a debt due under a contract. Where a party is faced with repudiation, the party may decide to accept the repudiation or to affirm the contract. If the party does not accept the repudiation, the party can perform his or her obligations under the contract and sue for the contract price. White v Carter (Councils) Ltd v McGregor Facts:  Parties entered into a contract for the display of advertisements of the D’s garage by P on rubbish bins for three years. On the same day the contract was made, D advised P he did not intend to proceed with the contract. P did not accept the repudiation and went ahead to perform his obligations. He sued in court for the full contract price. Held:  The Court found for the plaintiffs....