Topic 7: Discharge of Contract

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TOPIC 7: DISCHARGE OF CONTRACT

DISCHARGE (def): Ending a valid contract. No further contractual obligations imposed upon the parties.

Termination (valid contract):

·  Contract o.k. up to the point of termination, e.g., if title already passed then new owner gets good title.

·  discharged prospectively

·  Not rescinded from beginning

·  Rights are not divested or discharged which have already been unconditionally acquired

·  Liable for breach

·  McDonald v Dennys Lascelles Ltd (1933) 48 CLR, 467-477 per Dixon J

Vitiating Factors (defective contract):

·  Contract not o.k. from the very beginning, e.g., title cannot pass, purchasing party not get good title (but innocent third party without notice may get good title)

·  discharged retrospectively

·  Parties restored to position they were in before contract made.

·  McDonald v Dennys Lascelles Ltd (1933) 48 CLR, 467-477 per Dixon J

Prospective Termination

Surviving clauses:

·  exclusion clauses

·  confidentiality clauses

·  restraint of trade clauses

·  agreed damages clauses

·  dispute resolution clauses

·  force majeure clauses

Heymans v Darwin

Topic 7(a): DISCHARGE BY PERFORMANCE

Exact performance: each party performs contract exactly

§  Cutter v Powell: C was a seaman contracted to be paid upon reaching destination. Died at sea. C’s wife could not claim wages because C had not exactly performed contract.

Dependant and Independent Obligations

Dependant Obligation: is where one party must perform its obligation before any contractual obligation arises upon the other party. The obligation by the second party is dependant on completion of performance by the first party.

Independent Obligation: is where a party must perform their obligation under the contract regardless of whether the other party performs their obligation

Dependant and Concurrent Obligations: e.g., the payment of the purchase price is dependant on the vendor conveying title and possession, but this will occur at the same time as the purchaser pays over the balance at settlement.

Criteria to assist determining whether entire performance contract clause

·  Matter of construction looking at intention and circumstances. Hoenig v Isaacs

·  Entire likely

·  If provides for single sum of money payable on completion. Hoenig v Isaacs

·  If appears parties intended performance only acceptable if exact/complete.

·  difficult to apportion consideration (contract price)

Exceptions to exact performance rule

Severable / divisible contracts: parties intend price and performance to be divided into corresponding parts

§  Steele v Tardiani (1946): P employed to cut timber. Paid for each tone of wood cut. Timber had to be cut into 6 ft long and 6” diameter. D refused to pay. HC: held not an entire contract, entitled to payment of parts of work done.

§  Government of Newfoundland v Newfoundland Railways

de minimus non curat lex: law is not concerned with trivial things

§  Shipton Anderson v Weil Bros

Substantial performance: may recover contract price even though contract has not been fully performance, if performance is nonetheless substantial.

§  Issue: determine if performance was done (albeit with minor defects) or substantially unperformed?

§  Hoenig v Isaacs: D employed P to decorate/furnish D’s flat. Payment of 750, paid in installments with balance due on completion. D later refused to pay balance of 350 because of bad design, workmanship. Cost of remedying defects was 55. English COA: substantially performed. P entitled to balance but deduction of cost of remedying defects.

§  Bolton v Mahdeva: P to install a combined heating and hot water system for 560. Cost of remedying defect was 174. ECOA: not substantially performed – looked at proportion between price and cost of defects. Looked at nature of defect too.

§  May apply to severable contracts. Steele v Tardiani

Voluntary acceptance of partial performance:

§  Generally: if partial performance (not substantial) – cannot recover payment money

§  However: may be able to recover, if other party accepts partial performance.

§  MUST be voluntary acceptance though - if not voluntary, cannot get payment for performance

§  Sumpter v Hedges: P contract to erect buildings – abandoned halfway. D completed work using materials left behind. P sued for work and materials. Held: cannot get money for work (D had no choice but to accept the partly done building), but could recover material costs.

Obstruction of performance by other party: if party makes valid tender of performance but other party refuses to accept, party is not liable for non-performance so long as other party had reasonable chance to ascertain tender.

§  Startup v McDonald: contract for linseed oil in last 14 days of March. P delivered on last day at 8.30pm and D refused because of lateness. Held: tender equivalent to performance.

Sale of Goods Act (ss 32-34):

§  Delivery – if more or less quantity of goods, buyer may reject or accept (paying contract rate), if mixed with different items, buyer may accept contracted goods or reject whole

§  Installments – buyer not bound to accept delivery by installments, unless agreed. If agreed and buyer/seller fails in their part (delivery/acceptance) à question of each case’s facts as to whether this repudiates entire contract, or just gives rise to severable breach/compensation.

Topic 7(b): DISCHARGE BY AGREEMENT

Difference between Discharge and Variation

Discharge by Term in Original Contract:

·  Fixed time period – e.g. lease

·  “at will” - one party is given broad discretionary right to terminate

·  Fixed period of notice where no breach

·  Fixed procedure where breach – construed practically and not restrictively

·  “so as to give effect to their presumed commercial purposes”

·  Pan Foods v ANZ Bank: ANZ gave loans to P. In any no. of specified events of defaults, ANZ could terminate under agreement and demand money. Had to give notice by authorized representative of ANZ in writing. Later, ANZ got solicitors to prepare notice. Officer of ANZ took notice and gave to P, who tried to argue solicitor was not authorized. HC rejected P.

·  Indefinitely continuing contract – courts imply a right to terminate

·  Requirement of reasonable notice of termination (time depends on circumstances)

·  Crawford Fitting Co v Sydney Valve – est above.

·  State Bank of NSW v Commonwealth Savings Bank – held to be too short.

·  Implied right to terminate for failure of a contingent condition

·  condition precedent: term where no contract arises or no performance begins until specified event occurs.

·  condition subsequent: term where contract will end, or be varied, when a specified event occurs. (a sunset clause)

·  Contingent condition is not fulfilled if:

o  Events that occur are contrary to contemplated

o  Events not fulfilled in specified time.

o  If time not specified, courts will construe a reasonable period in circumstances. Perri v Coolangatta Investments

·  Objective or subjective test (one party “satisfied” or “approve) for fulfillment – has to be honest, but what about reasonable?

o  Not resolved in Australia.

o  Meehan v Jones: contract of sale of land subject to purchaser obtaining “satisfactory finance”. Gibbs CJ and Murphy J: purchaser only had to make honest assessment of finance. Mason J and Wilson J refrained from decision.

o  Renard v Minister of Public Works: clause that give principal power to terminate for certain breaches, but also contractor power to show cause why principal could not exercise power. Principal can exercise power if not satisfied with cause. Handley and Priestly JJA: must be reasonable. Meagher JA: narrow approach.

·  Waiver of contingent condition – one party may have right to waive if it is for their benefit. Perri v Coolangatta Investments

Discharge by Subsequent Agreement – new contract to terminate old

Mutual/bilateral – both parties performed (or partially so)

·  If no express term explaining relationship between new and old contract, then:

o  Look at intentions disclosed in new contract’s terms.

o  If conflicting à then new replaces old

o  If new cannot stand alone à then old contract is just VARIED.

o  Summers v Commonwealth

Release/unilateral – one party has not performed contract

·  accord and satisfaction – agreement to discharge obligation with fresh consideration

·  Dermott v Black – determine whether consideration is act or promise

Extra:

Novation – substitute old with new contract with different parties

Abandonment - mutual

§  Each is entitled to assure from conduct of other that contract is ended. Fitzgerald v Masters

§  May be inferred where parties indicate that neither considers contract should be further performed. DTR Nominees v Mona Homes.

§  May be inferred where an inordinate time has elapsed during which neither party has attempted to perform or call on other to perform. Fitzgerald v Masters

TOPIC 7(c): DISCHARGE BY OPERATION OF THE LAW

Merger

Operation of statute

Bankruptcy Act, 1966, C’lth

Corporations Act, 2001,C’lth

Topic 7(d): DISCHARGE BY BREACH

Right to terminate / discharge due to breach of contract

1.  EXPRESS right to terminate for breach given by contract

§  Shevill v Builders Licensing Board: S lease land to run business for 3 years. Clause said if S did not pay lease, B had right to terminate. S was constantly late or paid only part. B sued for back rent and future rent (rest of 3 years). Won back rent but not future.

§  Commonwealth v Amann

2.  implied right under common law to terminate if

·  any breach of essential term(breach of a condition)

·  serious breach of an intermediate term

·  repudiation - showing an unwillingness / incapacity to continue with the contract

ACTUAL BREACH

·  Total breach

·  Partial breach

·  Defective performance

·  Late performance

CONDITIONS, WARRANTIES AND IMMEDIATE TERMS

Breach of a Condition

Innocent party has right to elect to:

·  affirm; or

·  terminate and

·  damages

Tramways v Luna Park, Associated Newspapers v Bancks,

Breach of a Warranty

·  damages only

Breach of an Intermediate Term

·  depends on seriousness of breach

·  may allow termination

·  damages

Hong Kong Fir Shipping

TIME IN CONTRACTS

Time is a condition (‘of the essence’) where:

·  contract expressly says

·  type of transaction indicates parties intended time to be strictly complied with

·  mercantile or similar contracts (where chain of dependant contracts) - Bunge Corporation New York v Tradax Export SA Panama

·  not of the essence but ability to make time of the essence by giving defaulting party ‘notice to complete’

If no time specified – implies a reasonable time (Reid v Moreland Timber (1946)), depending on circumstances of case (Canning v Temby (1905))

At common law

·  Assumed as a condition (essential) – unless expression of contrary intention by parties

·  Bunge Corporation New York v Tradax Export SA Panama, Citicorp v Hendry

At equity (now prevails)

·  Assumed as warranty – only essential if concluded as parties intentions (matter of construction).

·  Legione v Hateley, Holland v Wiltshire

·  Conveyancing Act 1919 (NSW) s13

Notices to terminate:

·  Applies where time is not of essence, delay in breach does not amount to right to terminate.

·  No need for aggrieved party to wait for an unreasonable delay before giving notice. Louinder v Leis

·  If other party does not comply with note à right to terminate. Louinder v Leis

The notice must:

·  Target that term of the contract that has been breached by non compliance with time

·  Demand action now needed by recipient to perform contract

·  Within a definite time period

·  The time period is reasonable

·  What is reasonable depends on

§  Subject matter of the contract duty

§  What remains to be done at the date of the notice

§  Expert advice about the time required to perform

§  Whether the aggrieved party has been continually pressing for performance

§  Any unnecessary delay by the party in breach before the notice was given

·  Louinder v Leis

·  Clearly convey that notice may elect to treat the contract at an end if there is no compliance (statement of consequences)

·  Laurinda v Capalaba Park Shopping Centre

REPUDIATION

Definition: absence of willingness or ability to perform obligations under contract. Amounts to R if:

·  Relates to whole of contract

·  Relates to condition term

·  Fundamental – “would deprive aggrieved party of substantially the whole of the benefit of the obligations remaining to be performed under the contract” Progressive Mailing House v Tabali

Effect: aggrieved party entitled to elect to terminate contract.

ANTICIPATORY BREACH

Definition: one party repudiates prior to time set for performance their obligations.

Effect:

·  Aggrieved party can act as if breach already occurred. May (by accepting repudiation) elect to terminate and claim damages before actual breach. Progressive Mailing House v Tabali, Foran v Wight

·  BUT if aggrieved party already fully performed their obligations – cannot terminate and claim damages. Must wait until actual breach. Mackenzie v Rees, Progressive Mailing House v Tabali

TYPES:

·  Express Repudiation – express statement

·  Foran v Wight

·  Implied Repudiation – from words or conduct

·  Objective test: whether reasonable person would conclude party did not intend/unable to perform contract. Laurinda v Capalaba (1989)

·  May be inferred from combo of events. Laurinda v Capalaba (1989) – L lease shop. C supposed to register formal lease. 10 months later, still no lease. Contacted C’s solicitors who did not respond with any certainty. Delay in lease would not constitute repudiation, but in looking at combo of events (solicitor’s inadequate response) à HC: lessee had right to terminate.

·  In installment contracts – look at ratio of breach to whole contract, and degree of repeatability. Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd

·  Erroneous interpretation of contract:

·  May be found to have repudiated contract. Luna Park (NSW) v Tramways Advertising

·  However honest belief is relevant to whether repudiated (may not be rejecting contract – may just be confused. DTR Nominees v Mona Homes: contract for sale of land subdivided by vendor. V thought allowed to subdivide in two parts – incorrect. P sought to terminate on grounds that V repudiated (unwilling to do contract correctly). V argued that P’s termination was wrongful and itself a repudiation. HC: neither party repudiated.