Termination for Non Fulfillment of Contingent Condition PDF

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Ann Apps and Kevin Sobell-Reid...

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Termination for Non-Fulfilment of Contingent Condition A contingent event: Used to address the risk of something that may or may not happen – Where a contract is coming into being or its continuation is contingent upon something happening.

Defining contingent conditions o Something that may or may not occur Parties can specify if the contract hinges on occurrence or non-occurrence – performance is conditional upon a matter occurring not a TERM in the contract, therefore non-promissory and breach cannot occur if the contingent condition does not happen eg ‘subject to’ – finance, land rezoning, property sales -required permit not being granted (Dougan v Ley; taxi regn)

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TYPES:

(depends on the INTENTION of the parties) 1) (condition of formation) contingent condition precedent o ‘subject to contract’, ‘subject to finance’. Example: Meehan v Jones (1982) 149 CLR 571 A contingent event: ‘subject to finance on satisfactory terms’ - if not fulfilled – contract may not come into existence 2) (condition of performance): Contingent condition subsequent: o after the contract entered contract/ comes into existence o is voidable at the election of the party not at fault. o Often used in land transactions eg ‘subject to sale of existing property’ o Courts prefer condition of performance rather than formation (Perri) NOTE: not promissory: o distinction between a condition that is contingent and one that is -

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promissory: Not an obligation to perform in that non-fulfilment of a promissory condition IS a breach of contract. It is not so if it is a contingent condition: if contingency does not happen either the contract does not come into existence OR parties are released from further performance obligations Determining the difference is a matter of construction of the contract

HOW EXACT MUST CONTINGENT CONDITION BE PERFORMED TO SATISFY ?  

Either performed or not – terms must be fulfilled exactly o No part performance ISSUE: difference in interpreting clause o Ambiguous – look at intention of what contingency was & whether slight variation was sufficient

WHEN IS CONTINGENT CONDITION PERFORMED ? 

When contract specifies o If not set in contract – REASONABLE TIME (Perri) o If date set, but not ‘time of the essence’ - Depends on the contract

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- Reasonable time Date with ‘time of the essence’ MUST be performed by the given date o Do not need to serve notice after a reasonable time ( Perri) o Can elect to rescind GOOD PRACTICE would suggest to give reasonable time to avoid dispute regarding reasonable time

TIME: 

‘Time is of the essence’: important in commercial contracts Not so important in non-commercial contracts

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If ‘time is of the essence’ is in the contract – noncompletion by the stipulated dates is a breach of a condition entitling the innocent party to rescind. -

If NOT, then the contract should be completed in a reasonable time

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Time may be made ‘of the essence’ if, after a reasonable time has elapsed or the date for completion has passed, by serving a notice to complete by giving the other party ad definite time that is reasonable

RULE: What is a reasonable time is a question of fact and depends on what is fair to both parties.’ Brennan J at [568] (Perri) RULE: Where a conditional contract fixes the date by which the condition is to be fulfilled the contract may be terminated if the condition has not been fulfilled when that date arrives, and that it is unnecessary to give any prior notice to the other party. The question is whether a similar conclusion should be reached when no time for fulfilment of the condition is fixed by the contract, and it accordingly must be performed within a reasonable time.” Gibbs CJ at [544] Perri EFFECT IF CONTINGENT CONDITION NOT FULFILLED:  

Voidable if not fulfilled Time itself not essential unless made essential

IS TERMINATION for NON-FULFILMENT of CONTINGENT CONDITION AUTOMATIC? Failure of a contingent condition may bring a contract to an end automatically OR it may require an election based on the fact that there is a right to terminate for non-fulfilment (S & E [20.8] The courts generally argue that depends on the construction of the clause: Roche v Metro Edgley However, even with the wording ‘contract shall be deemed to be at end’ - not conclusive, eg:

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Perri v Coolangatta Investments: - Brennan J: notice to complete not appropriate (no obligation to perform), but must be notice of election to terminate [570]; -Gibbs J: notice (forewarning) of election not required -Wilson J: suggests that where CC must be fulfilled within a ‘reasonable time’ notice effective to ‘fix’ what is a reasonable time for fulfilment -Mason J: agrees with Wilson but says that 17 July too soon for giving notice

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Gange v Sullivan: Barwick CJ: the contingent condition was held to be voidable requiring an election: suggests that it is automatic, where condition is for the benefit of one of the parties [430]: derived from Suttor. SUTTOR PRINCIPLE: guide only S&E [20.8] states that Suttor Principle does not apply where non-fulfilment is beyond the control/influence of one side or other

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Suttor v Gundowda (1950) HC: – [15] Where the event in question is one which cannot occur without default on the part of one party to the contract, the position is clear. The provision is then construed as making the contract not void but voidable: only the party who is not in default can avoid it … –

The question of who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him.

ONCE AUTOMATIC RESCISSION – contract does not come into effect Roche v Metro Edgley

if not automatic – WHO CAN TERMINATE ? … A matter of construction: 

Immer: the clause made it clear that only the purchaser could terminate o Right to terminate might be lost if contract is affirmed or if the right to insist on the fulfilment of the CC is ‘waived’ o This will depend on whether or not there has been an ‘election’ to affirm. The legal principles are set out in Sargent v ASL Developments Ltd (1974)

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Sargent v ASL Developments Ltd: (HC): here the right to rescind was a continuing one i.e. ‘at any

time thereafter’. The action of keeping the contract on foot was not unequivocal, …”less unequivocal conduct may suffice if coupled with actual knowledge of the right of election” 

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Stephen J [645]. Perri v Coolangatta Pty Ltd: held that implied condition that the clause would be fulfilled in a reasonable time enured for the benefit of the vendor and purchase – both are under a contingent obligation to complete the sale – therefore Vendor could terminate. Sandra Investment v Booth: termination tied up with the right to waive the contingent condition: where benefit not expressed in favour of purchaser, the issue is whether the beneficiary must show that it was exclusively for their benefit, or primarily for their benefit, to be able to waive the condition.

ELEMENTS of termination for non-fulfilment of a contingent condition RULE of cooperation: Implied condition of cooperation so that if there is a contingent condition, parties impliedly promise not to hinder fulfilment and breach of this duty would be a breach of the contract.

1. did the CONTINGENT condition occur/carried out? o YES = contract continues and can only terminate for breach of another term o

NO = right to terminate arises  NOTE: in order to have a right to terminate, the conduct must be exact (Gange v Sullivan) – must be performed in full, if not, then it has not been performed at all

2. Restrictions on the right to terminate o

Breach of duty to cooperate (Perri v Coolangatta) 

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Failure to cooperate so as not to fulfil a contingent condition on which performance is dependent means unable to rely on the ‘non-fulfilment’ to demand termination.

Unconscionable to terminate  Either by statute or at common law - Where fulfilment depends on discretion of a party, must be exercised honestly, or honestly and reasonable, or in good faith, or not unconscionably Eg if you terminate by relying on contingency when in reality the party is terminating for an unrelated reason (Hungry Jacks) -

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Cannot take advantage of own wrong (Gange v Sullivan)

Right to terminate not exercised in time 

Time specified OR if not, must be ‘reasonable’ time ( Perri) – above ^

see RULE

3. Other restrictions on the right to terminate: the right to terminate can be lost by:o AFFIRMATION (Immer) 

Refers to election of termination or election to leave the contract: (Not the situation where parties intend contract to end automatically) o Must be unequivocal - (leaving no doubt; unambiguous) o Only the party NOT AT FAULT can affirm o No need to have knowledge of the right to affirm but may need to show knowledge if conduct not sufficiently unequivocal TEST: (Immer Pty Ltd)  Have to know you have a right to rescind or a right to terminate  Entitled not to make decisions straight away  Consider options for reasonable time

RULE: “The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other.” ( Immer) “A person confronted with a choice between the exercise of alternative and inconsistent rights is NOT BOUND TO ELECT AT ONCE. He may keep the question open, so long as he does not affirm the contract and so long as the delay does not cause prejudice to the other side. AN ELECTION TAKES PLACE WHEN the conduct of the party is such that it would be justifiable only if an election had been mad one way or the other. So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract MAY NOT AMOUNT TO AN ELECTION to affirm the contract.” o

ESTOPPEL (discussed in Immer and MK & JA Roche) A party who induces the assumption in the other party in that they will not utilise their right to terminate may be estopped from departing from this assumption. “Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. … [T]here is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship …Just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact From Con-Stan Industries v Norwich Winterthur Insurance - Referred to in MK & JA Roche v Metro Edgley 

Roche: Metro Edgely argued a conventional estoppel or common assumption estoppel to prevent Roche from asserting that the contract automatically came to an end Hodgson JA [68]

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Anaconda Nickel v Edensor Nominees: established elements of promissory estoppel: Annaconda induced Edensor to assume that Anaconda would complete the purchase on certain date

WAIVER – arises where condition not fulfilled, one party wants out and the other wants to enforce. Party elects to terminate, the other party waives the benefit of condition S&E [20.13]: “A contingent condition may entitle both parties to rely on its nonfulfilment or only one of them” 

Only the party whose benefit the condition was inserted for, can waive – primarily (Perri) or solely (Sandra Investments) for their benefit o Time limit will benefit both parties ( Perri)

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Only party who is not at fault with the contingent clause to their benefit can waive (Perri). o If you waive, it must be before the other party elects to terminate ( Perri; Gange).

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PROCESS to WAIVE: -before terminate, affirm. -before elect to terminate, if to the benefit can waive – contract is still on foot.  Right to Waive is lost: wrongdoing (Perri; Annaconda – against Edensor Nominees for equitable remedy).

OUTCOME ON THE CONTRACT Contract is usually voidable:  If condition affects the full contract, the whole contract will be voidable  If condition applies to a specific obligation, only that obligation will be removed o Contract can be void if the contract specifies this to happen – automatic termination upon non-fulfilment o No damages unless implied duty to cooperate has been breached...