week 5 - terminatin and remedies

• Terminating contracts (slide 1)

  • Contractual termination – bringing a contract to an end
  • doesn't just mean it ended for a BAD reason, it can be for good and bad reasons
  • eg. good reason: when both parties do what they need to for a contract, it can be terminated (ie. termination by performance)
• Termination by performance

  • occurs when a contract is fully performed (ie. both parties did what they were required)
  • general rule: exact performance is required
  • exception to this rule: when a contract is to be performed in different stages
• Substantial performance

  • payment for a less than exact performance (another exception to general rule)
  • some payment is due: if performance is SUBSTANTIAL (minor defects)
  • no payment is due: if performance is NOT substantial (major defects - even if some performance occurred)
• Termination by agreement

  • parties can agree to terminate the original contract
  • express power - when specifically stated in contract (eg. expiry of lease term)
  • implied power - terminates on reasonable notice when not written in contract
  • condition precedent - an event must occur before contract is performed (eg. deposit must be paid)
  • condition subsequent - termination when a specific condition is satisfied (eg. if employee breaches rules, their contract subsequently terminates)
• Termination for breach

  • termination where something has gone wrong (ie. breach of terms)
  • NOT ALL breaches of contract can be TERMINATED
  • REPUDIATION - rejecting whole contract
  • BREACH IN PERFORMANCE - breaching one or more terms
• repudiation

  • rejecting the whole contract
  • either REGULAR repudiation or ANTICIPATORY breach
  • regular : when a party states they reject the contract AFTER performance
  • anticipatory: when a party rejects contract BEFORE performance
  • the innocent party HAS A CHOICE to terminate
• repudiation

  • express: specifically stated rejection of contract
  • implied: implied rejection of contract through actions
• the innocent party HAVING A CHOICE

  • why would an innocent party ignore repudiation and want performance? what are the risks?
  • if the innocent party accepts the repudiation and allows the contract to be terminated, they can claim damages
  • the risk is that if the contract keeps going, the innocent may be unable to keep performing, thus breaching a contract
  • risk: not having the right to terminate but doing so anyway
• Repudiation vs breach in performance

  • reputation: words or conduct to reject the contract
  • breach in performance: breaching one or more terms
  • overlaps: breaching terms repeatedly could lead to repudiation
• 1. contracts - sets of legally binding promises
  2. promises become terms
  3. if the terms aren't met, they are breached

  NOT ALL BREACHES lead to termination, but can allow a claim for damages
• Breach in performance

  • condition: breach of a condition = termination + damage claim
  • warranty: breach of warranty = NO termination + damage claim
  • intermediate term: breach of this = sometimes termination + mostly damage claim
  • the TEST used: the essentiality test
• nature of terms

  A) condition

  B) innominate

  C) warranty

  
• essentiality test

  • determine the significance of a term
  • assesses whether a term is so crucial to the contract that its breach would largely disadvantage one party of the benefits they expected from the agreement
  • eg. I hire company to build my house by 1st Jan (in contract) and plan my whole move-in based on that date. If they breach that term, its a breach of an essential term. The delay disadvantaged me of the benefits i expected from the contract (ie. having a completed house by 1st Jan).
  • thus, i can terminate the contract and claim for damages
• Termination by frustration

  A) different

  B) terminated

  
• Termination by frustration vs Breach of contract

  • breach of contract: YOU are responsible if you fail to do what the contract requires
  • termination by frustration: NO ONE is responsible due to unpredictable events happening after a contract is formed
• Requirements for frustration

  1. An event occurred after the contract was made
  2. It caused a fundamental change to the nature of the contract and the obligations of the parties
  3. It was not the fault of either party
  4. It was not foreseen by either party
  5. It would be unfair in the circumstances to enforce the contract under the changed circumstances
• Frustration wont occur:

  1. Where the contract itself covers the event (including in cases of force majeure clauses)
  2. Where the frustrating event could have been foreseen
  3. Where there was fault, or self-induced frustration
  4. Where the event simply makes the contract harder and/or more expensive to perform
  5. Where the impact of the change is not sufficiently long in the context of the particular contract
• majeure clauses

  • clauses that detail what happens when specific unlikely events happen
• The effects of frustration

  • in repudiation, innocent can choose to end contract
  • in frustration, the contract is AUTOMATICALLY ENDED
  • ie. parties don't have to perform future obligations, but past obligations remain
  • Australian Consumer Law and Fair Trading Act 2012 (Vic) ss 37– 38: The court has discretion to fairly distribute the loss
• types of remedies when a breach occurs

  • Damages: monetary compensation for loss
  • Termination: bringing contract to an end
  • Equitable remedies: provide fairness and justice when legal remedies (eg. damages) are inadequate.
• Damages - one type of remedy

  • Damages are the main remedy awarded for breach of contract in Australia
• damages

  • Definition: monetary compensation awarded to a party who has suffered a loss due to a breach of contract by the other party.
  • Purpose: The purpose of damages is to put the innocent party in the position they would have been in if the contract had been performed as agreed.
• steps for working out whether damages can be claimed

  1. What is the measure of damages?
  2. Was the loss caused by the breach (‘causation’)?
  3. Is the loss too remote from the breach (‘remoteness’)?
  4. Has the innocent party taken steps to avoid the loss by way of mitigation?

  note: even if one is not satisfied, refer to all in response to get full marks