contingent conditions - theunitutor.com€¦ · Web viewAstra Trust v Adams ... The use of the word “deposit” by the parties is not conclusive. What is described as a deposit

1. CONTINGENT CONDITIONS________________________________________11.1 Introduction..........................................................................1

Overview 1Terminology & Identification 1

1.2 Approach...............................................................................2Determining whether the immediate duty of performance arises 21. Distinguishing Performance from Formation 32. Has the need for fulfilment been eliminated? 44. Implied Promise to Effect Fulfilment 45. Loss of right to terminate – Election, Estoppel 66. Termination 6

2. DEPENDENCY OF PROMISES________________________________________82.1 Introduction..........................................................................82.2 Are the Promises Dependent?...............................................82.3 Order of Performance in Dependency Situations....................9

Major performances due concurrently 9Other factors 10

2.4 Waiver.................................................................................102.5 Quality of Performance Needed...........................................102.6 Right to Withhold or Terminate?.........................................112.7 General Dependency...........................................................12

3. DISCHARGE BY PERFORMANCE____________________________________133.1 Nature of Duty to Perform...................................................13

Performance must be exact 13Performance due without prior demand 13Promisee’s conduct may excuse performance 14Performance at the last minute 14

3.2 Methods of Performance.....................................................15Payment by cash or equivalent 15Payment by cheque, bill of exchange or banker’s credit 15Payment by credit card15

3.3 Vicarious Performance.........................................................16

4. ACTUAL BREACH________________________________________________184.1 Introduction........................................................................184.2 Identifying Actual Breach.....................................................184.3 Consequences of Actual Breach...........................................19

5. TERMINATION FOR BREACH_______________________________________19When is there a right to terminate for breach? 19Termination for Breach of a Condition 19Termination for Breach of an Intermediate Term 21

6. NOTICES TO PERFORM___________________________________________226.1 Introduction........................................................................226.2 When to Issue a Notice........................................................226.3 Requirements......................................................................23

7. REPUDIATION & ANTICIPATORY BREACH_____________________________257.1 Introduction........................................................................25

Repudiation 25Anticipatory Breach 25

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7.2 Requirements......................................................................26Absence of Willingness or Ability 26

Generally 26Anticipatory Breach 26

Repudiatory Conduct 261. Express Statement 262. Words or conduct 273. Inability 284. Erroneous interpretation of the contract 285. Wrongful termination 29

7.3 Estoppel & Retracting a Repudiation....................................307.4 Limits on Termination for Repudiation.................................30

8. ENTIRE & SEVERABLE CONTRACTS__________________________________318.1 Entire or Severable?.............................................................318.2 Substantial Performance......................................................31

9. LIMITS ON TERMINATION_________________________________________329.1 Election to Affirm.................................................................32

Onus of Proof 32Knowledge required 32Unequivocal conduct 32Conduct required for imputed election via estoppel: 33

9.2 Estoppel..............................................................................339.3 Relief Against Forfeiture......................................................34

10.NO LEGITIMATE INTEREST IN AFFIRMATION__________________________35

11.CONSEQUENCES OF TERMINATION_________________________________3611.1 Damages for Anticipatory Breach.........................................3611.2 Accrued Rights.....................................................................36

Generally 36Total failure of consideration? 36Instalments 37Deposits 37

11.3 Penalties..............................................................................38

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LAWS2025: Advanced Contract Law Notes

1. CONTINGENT CONDITIONS

1.1 Introduction

Overview

Contingent conditions – A contingent condition is a term which provides that the duty to

perform a particular obligation does not arise until the occurrence (or non-occurrence) of

a specified event that neither party promises to ensure will (or will not) occur.

Timing – If no time is specified for the occurrence of the contingent condition, then a

reasonable time is implied: Perri v Coolangatta Investments Pty Ltd (1982).

Terminology & Identification

Conditions precedent – A ‘condition precedent’ is an event which must occur before a

contract comes into existence or before performance under an existing contract is

required.

Two types – There are two types of conditions precedent:

1. Promissory – Where party A’s obligation to perform a promise does not arise until

execution of some promise made by Party B.

Eg. X promises to wash Y’s car, and Y promises to pay him afterwards. X

washing the car is a condition precedent to Y’s duty (to pay X) arising.

2. Non-promissory (‘contingent’) – Conditions precedent to a duty of performance

where there is no promise that the conditions precedent will be fulfilled.

Eg. X promises to buy Y’s car, subject to him obtaining finance. X’s duty to

perform is contingent on him obtaining finance.

Factors considered – ‘Subject to’ generally expresses a contingent

condition: McTier v Haupt (1991). If the event defined in the clause is not

within the power of the vendor to bring about, then it will weigh towards

contingent condition rather than promise: McTier v Haupt (1991)

(although one can still promise to do something which is beyond control).

Conditions subsequent – A condition subsequent is one where the parties duty of

performance is immediately binding but will come to an end should the event specified in

the condition occur (or not occur).

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1.2 Approach

Determining whether the immediate duty of performance arises

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Condition precedent to performance or condition precedent to formation?

Performance Formation

Has the party failed to observe an implied promise to make appropriate

efforts to effect fulfilment?

Did the contingency occur within the allowed period of time?

Contract is voidable.

There is a right to terminate one’s duty of further performance.

NO

YES

Identify the contingent condition.

If condition unfulfilled then no contract.

The condition has been fulfilled. The duty to perform arises.

Has the need for fulfilment been eliminated prior to expiration?

(By agreement of the parties, or by waiver by a party having the primary benefit of the condition.)

NO

YESThe duty to perform arises.

NO

Breach of contract.Ordinarily disqualifies the party in

breach from terminating on the basis of failure of a contingent condition.

Also sounds in damages.

YES

NO

Has the party lost the right to terminate after expiration by an election or an

estoppel?

The contract remains on foot without the contingent condition.

YES

Is the condition entirely beyond the control of the parties, and is non-

fulfilment very clearly intended to effect automatic termination?

The contract automatically terminates.

YES

NO


1. Distinguishing Performance from Formation

A condition precedent may be:

o Precedent to formation – A condition precedent to the exercise of a binding

contract creates no rights enforceable by the parties unless and until the condition

is fulfilled, because until the occurrence of the event, there is no binding contract:

Perri v Coolangatta Investments Pty Ltd (1982).

o Precedent to performance – Where there is a condition precedent to the

obligation to perform promises of the contract which has been binding from the

outset, there are clearly rights created by the contract capable of enforcement.

(Although the obligation to perform depends on fulfilment of the condition.) Perri

v Coolangatta Investments Pty Ltd (1982).

Presumption as to performance – A provision will only be a condition precedent to

formation rather than performance where ‘the contract read as a whole plainly compels

this conclusion’: Perri v Coolangatta Investments Pty Ltd (1982) per Mason J.

o Rebutting the presumption – The presumption is usually displaced where the

parties provide that the agreement is ‘subject to formal contract’: Masters v

Cameron (1954) or ‘subject to satisfactory survey’: Astra Trust v Adams (1969)

(sale of yacht).

o Factors in favour of performance

Signature on a formal contract strongly indicates parties have entered into

agreement: Perri v Coolangatta Investments Pty Ltd (1982) per Gibbs CJ.

Also, whether any obligations of the parties can be found prior to the

condition coming into effect, for example payment of deposit, implied

promise to do what is reasonable to fulfil the contingent condition etc:

Perri v Coolangatta Investments Pty Ltd (1982) per Gibbs CJ.

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2. Has the need for fulfilment been eliminated?

The requirement for the contingency to be fulfilled before duty of performance arises can

be waived by means of a contractually agreed variation, an election or an estoppel.

Waiver

May waive prior to fulfilment time – A party may waive the need for fulfilment of a

contingent condition prior to the expiration of the time set for its fulfilment: Gange v

Sullivan (1966); Sandra Investments Pty Ltd v Booth (1983).

Benefit of waiving party – The right to waive rests with the party for whose benefit the

clause exists: Perri v Coolangatta Investments Pty Ltd (1982) per Brennan J, and ‘one

should not lightly imply a right of waiver in one party to the possible prejudice of the

other unless it clearly emerges on the face of the contract’: Sandra Investments Pty Ltd v

Booth (1983) per Wilson J.

o Sole benefit – The contingent condition must be for the sole benefit of the party

seeking to waive it: Sandra Investments Pty Ltd v Booth (1983) per Wilson J; Toga

Developments No 10 Pty Ltd v Gibson (1973) per Mahoney J; Bedroff Pty Ltd v

Rennie [2002] NSWSC 928 per Young CJ; Peatties Road Pty Ltd v Hanson [2004]

NSWSC 831 per Gzell J.

Onus – The party alleging the condition to be for its exclusive benefit has the onus of

proof: Raysun v Taylor (1971).

Substance – The substance of the term should be examined in order to determine

whether a party has the sole benefit of the condition: Perri v Coolangatta Investments Pty

Ltd (1982) per Brennan J. The temporal aspect is less important.

4. Implied Promise to Effect Fulfilment

Implied Term

o The principle – If the fulfilment of the contingent condition is to any degree within

the control of a party, that party is bound to do what is reasonably necessary to

enable the condition to be fulfilled, or at least so as not to prevent its fulfilment:

Perri v Coolangatta Investments Pty Ltd (1982); Kennedy v Vercoe (1960);

Bournemouth & Boscombe Football Club v Manchester United Football (1974) UK.

This is part of the wider duty to cooperate: Mehan v Jones (1982) per Mason J.

o Specific examples:

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Subject to finance – Where the obligation to complete a sale is subject to

the purchaser obtaining satisfactory finance, there will be an implied

promise by the purchaser to make all reasonable efforts to obtain that

finance: Meehan v Jones (1982).

Subject to sale of another property – Where a contract for the purchase

of one property makes the obligation to be completed conditional upon

the purchaser’s sale of an existing property within a reasonable time, it is

clear that the purchaser impliedly promises that the purchaser will make

all reasonable efforts to effect fulfilment of the condition: Perri v

Coolangatta Investments Pty Ltd (1982).

Subject to obtaining development approval within a prescribed period of

time – Italo-Australian Club Ltd v National Australia Bank Ltd (1989).

Subject to the purchaser being accepted as tenant by the landlord of the

premises – Kennedy v Vercoe (1960).

Effect of Breach of Implied Term

o Loss of right to terminate – Failure to cooperate is a breach of contract which

disqualifies the defaulter from reliance on non-fulfilment of the contingent

condition: Newmont Pty Ltd v Laverton Nickel NL (1982).

o Contingency satisfied irrespective of breach – The contract becomes performable

at the proper time: Zieme v Gregory (1963).

o Remedies – Damages: Perri v Coolangatta Investments Pty Ltd (1982) or specific

performance may be available: Masers v Cameron (1954).

Causation

o The defaulter only loses the right to terminate if the defaulter’s failure to observe

the implied promise to attempt to fulfil the contingency is an effective or material

cause of non-fulfilment: Nina’s Bar Bistro Pty Ltd v MBE Corp Pty Ltd (1984).

Unless contract provides – If the contract specifically provides that an

exercise of best endeavours to effect fulfilment is itself a condition

precedent to a failure of the contingent condition being a ground of

termination, then a lack of best endeavours will preclude termination for

non-fulfilment even though it is clear that it was not the cause of it: Italo-

Australian Club Ltd v National Australia Bank Ltd (1989).

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Onus

o A party ‘A’ who wishes to deny another party ‘B’ a prima facie right to terminate

for failure of a contingent condition (on the basis that B’s own fault contributed to

non-fulfilment) bears the onus of proof: Plumor Pty Ltd v Handley (1996).

5. Loss of right to terminate – Election, Estoppel

Election – A party may lose the right to terminate for failure of a contingent condition by

electing to affirm the contract. [See Election.]

o Note: – If both parties have the right to terminate, an affirmation of the contract

by one party only affects that party’s right, not the other’s right to terminate.

Estoppel – A party may lose the right to terminate for failure of a contingent condition

because they are estopped from exercising the right. [See Estoppel.]

6. Termination

Effect of non-fulfilment – If time has elapsed and contingency has not occurred EXACTLY

as stipulated: Perri v Coolangatta Investments Pty Ltd (1982), the contract becomes

voidable (not void): Suttor v Gundowda Pty Ltd (1950). There is no breach and hence no

damages are awarded, as neither party has promised to do anything: Perri v Coolangatta

Investments Pty Ltd (1982).

o Notice – Notice to complete is not required, but notice to terminate IS required.

Who can terminate – If one party is at fault for the non-fulfilment of the contingency, the

innocent party has the option of avoiding the contract. If the event failed to occur

without default on either side, then each party will be entitled to treat itself as discharged

from its duty to perform the contract: Tricontinental Corp Ltd v HDFI Ltd (1990); Suttor v

Gundowda Pty Ltd (1950).

Automatic termination – Courts are reluctant to find that a failure of a contingency was

intended to effect automatic termination of a contract: Gange v Sullivan (1966). This is so

even where there are provisions such as ‘the contract shall be deemed to be at an end’ or

‘shall be deemed to be cancelled’: Suttor v Gundowda Pty Ltd (1950).

o Exception – If the fulfilment of a contingent condition is entirely beyond the

control of the parties, and its failure is very clearly intended to effect automatic

termination, it will be given this effect: Charles Lodge v Menahem (1966).

6


o Example – Where a contract provides that it will be ‘null and void’ if certain

conditions are not fulfilled, because ‘[i]t is difficult to imagine language which

more strongly suggests that [automatic termination] was the parties’ intention’:

Rudi’s Enterprises Pty Ltd v Jay (1987) per Samuels JA.

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2. DEPENDENCY OF PROMISES

2.1 Introduction

Dependency of promises deals with promissory condition precedents.

Dependency of Promises – In modern bilateral contracts, the probable construction is

that some kind of interdependency between the parties’ respective duties of

performance of individual promises was intended. This means that there will be some

circumstances where one side’s failure to perform was meant to entitle the other to

withhold his or her own performance.

Issues – Because of the modern law presumption of dependency of promises, three main

issues generally arise in determining whether B’s duty to perform a particular promise in

a bilateral contract was due for immediate performance at a particular date:

o Was it a condition precedent to B’s duty to perform on that date, that A has

executed, or is ready, willing and able to immediately execute, a particular

promise of A’s?

o If there is such a condition precedent to B’s duty of immediate performance

arising, did fulfilment of this condition require that A execute or tender exactly

what A promised, or would the condition precedent be fulfilled by A’s executing or

tendering substantially what was promised?

o Where the contract required B to perform a particular promise at a date before A

is due to execute some major obligations, will B have to perform at the due date if

it has already become very clear that A will not execute the substance of the

bargain at the appropriate future time?

2.2 Are the Promises Dependent?

Presumption of dependency – The court will presume dependency of obligations:

Kingston v Preston (1773). However, this presumption will be rebutted by an express or

implied intention to the contrary: Automatic Fire Sprinklers Pty Ltd v Watson (1946);

McDonald v Dennys Lascelles Ltd (1933).

Situations of dependency (able to withhold performance)

o Sale of land – concurrent obligations: Foran v Wight (1989).

o Sale of goods – concurrent obligations: Kingston v Preston (1773); Jones v Barkley

(1781).

8


Situations of independency (must always perform)

o Circumstances – Where the factual circumstances surrounding the transaction

suggest that independent obligations were intended: The Odenfeld (1978).

o Unequal promises – Independence will be more readily inferred where one of two

promises capable of being performed simultaneously is of far less significance than

the other: Huntoon Co v Kolynos Inc (1930).

2.3 Order of Performance in Dependency Situations

Major performances due concurrently

Concurrent obligations – Dependency in this context does not refer to performance,

rather, it refers to each party’s obligation to be ready, willing and able to perform.

o Note : – In the event that the vendor is ready and willing, but the purchaser fails to

accept the conveyance or take delivery of the goods at the proper time, the

vendor’s remedy is not an action for the price as a debt already due to the seller.

The remedy is an action for damages for the purchaser’s refusal to pay. (A debt is

conditional upon the actual execution of the vendor’s promise to transfer the

property.)

Specific situations:

o Sale of land – Concurrent obligations: Foran v Wight (1989).

o Employment contract – Work precedes payment. The employee’s promise to

provide services and the employer’s promise to provide work are to be performed

concurrently. However the work must be actually executed before the employer’s

promise to pay wages is due for performance: Automatic Fire Sprinklers Pty Ltd v

Watson (1946). The employee’s remedy is therefore not an action for the wages,

but rather an action for damages for the employer’s wrongful refusal to provide

work, and if the employee terminates the contract, for loss of the bargain.

o Independent contractor – Under a lump sum building contract, the presumption is

that the builder must perform first, and that the customer’s obligation to pay is

dependent on completion of the work: Sumpter v Hedges (1898); Ettridge v

Vermin Board of the District of Murat Bay (1928).

o Leases and similar arrangements – Promise to pay rent and promise to permit

access to the premises are mutually dependent promises.

9


Other factors

Feasibility – Where it is feasible for performance of major promises to proceed

simultaneously, this is generally presumed to be the parties’ intention, in order to avoid a

situation where one party would be required to take his or her turn first and thus in effect

give credit to the other who may then not perform: Restatement on Contracts [234];

Kingston v Preston (1793); Jones v Barkley (1781).

Probability of default – The order of performance may be significantly influenced by

judicial assessment of the likelihood of each party defaulting if the other performs first:

Prof Treitel, The Law of Contract (1987).

2.4 Waiver

Estoppel – Sometimes a promisor, who would normally have been entitled to withhold

performance of a promise on the ground that the other party has not yet fulfilled a

condition precedent, will be estopped from insisting on the need for such fulfilment.

The Principle – A plaintiff may be dispensed from performing a condition by the

defendant expressly or impliedly intimating that it is useless for him to perform it and

requesting him not to do so. If the plaintiff acts upon the intimation it is just as effectual

as actual prevention: Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty

Ltd (1954); Foran v Wight (1990).

2.5 Quality of Performance Needed

The issue – Where there is a promissory condition precedent to performance, what is the

quality of performance required for the condition precedent to be satisfied; exact or

substantial performance?

Time and substance – Every contractual undertaking contains a substantive and temporal

element. When the performatory order has envisaged that A should execute (or tender

performance of) some particular promise before B is due to perform B’s own

undertaking, then the full condition precedent to B’s duty to perform the dependent

obligation may take one of four basic forms, depending on the contract:

o Exact performance of the substantive undertaking at exactly the time promised; or

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o Exact performance of the substantive undertaking within substantially the time

promised (that is to say, within a period after the promised date that is sufficient

to avoid a delay that would frustrate the commercial purpose of the contract); or

o Substantial performance of the substantive undertaking at exactly the time

promised; or

o Substantial performance of the substantive undertaking within substantially the

time promised.

2.6 Right to Withhold or Terminate?

The issue – When A’s actions fall short of the standard required for the fulfilment of the

condition precedent to B’s duty of performance, can B withhold performance or

terminate immediately?

o Where time essential – Where the condition precedent to a party’s performance

requires exact compliance with the time set, then once the time passes without

exact performance, that party may terminate immediately.

o Where time not essential – If the condition precedent to a party’s performance

requires only substantial compliance with the time set, then once the time passes

without exact performance, that party may withhold performance while the

unfulfilled condition precedent remains capable of fulfilment. That party may

terminate altogether his performatory obligation in the event that the condition

precedent becomes incapable of ever being fulfilled (ie. a delay that would

frustrate the commercial purpose of the contract).

For concurrent promises

o The same principles apply, but on the date set for performance, both parties must

tender performance. Thus a party wishing to withhold performance or terminate

the obligation must be ready and willing to give an immediate performance of his

obligation at the time set.

11


2.7 General Dependency

General dependency of promises – In a bilateral contract, at any point when A has some

promise yet to be executed, A’s immediate duty to perform it will usually be subject to a

condition precedent that the other side B is presently willing and still able to perform the

substantial part of B’s whole set of promises (i.e. that B is not in present repudiation of

the contract).

Repudiation in the form of INABILITY

o If, at any point where A has executory promises yet to be performed, B becomes

disabled from delivering the substance of B’s side of the exchange, A can treat

himself as discharged for failure of the general condition precedent.

Repudiation in the form of UNWILLINGNESS

o Right to terminate – Upon repudiation by B, A will become entitled to terminate

the contract (and claim bargain damages from B) provided that up until that time

of the election to terminate, A has remained willing and able to perform at the

proper time.

Estoppel – If A communicates his election to terminate, B is estopped

from resiling from his repudiation.

o Right to withhold performance – Upon repudiation by B, A will be dispensed from

the duty to perform A’s obligations for as long as the repudiation remains

unretracted. (That is, even if A does not elect to terminate the contract, A can

decline to perform any of his promises within the period for which B is in

repudiation).

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3. DISCHARGE BY PERFORMANCE

3.1 Nature of Duty to Perform

Performance must be exact

Liability for breach – In order to avoid liability for breach, a promisor must do exactly as

was promised and do it within the time expressly or impliedly allowed for performance.

Otherwise, the promisor will be liable in at least nominal damages.

o Exception – De minimis non curat lex – Excuses extremely trivial defects in a

promisor’s performance (e.g. 55 pounds out of 4950 tonnes): Shipton, Anderson &

Co v Weil Bros & Co (1912). (Authority for the de minimis rule is sparse.)

Curing a defective tender – This can only occur where time has not expired. Where the

promisor tenders a defective performance, the promisor is normally entitled to make a

fresh tender (within time) which conforms exactly to the contract, and the promiseewill

be obliged to accept this tender: Borrowman Free (1878); The Kanchenjunga (1990).

Performance due without prior demand

No need for demand – When all contingent or promissory conditions precedent are

fulfilled, or the need for fulfilment eliminated, the promisor comes under a duty to

perform the promise before expiration of the time expressly or impliedly allowed. There

is no need for the promisee to make a prior demand for such performance.

o Unless provided by contract – Displacement by clear agreement would occur

when a contract provides that ‘payment is to be made on demand by the

creditor’ (or similar): Esso Petroleum Co Ltd v Alstonbridge Properties Ltd (1975). In

such cases, the debtor would not be in breach until there expired a reasonable

time from the making of the demand, without payment having ever been made:

Band of Baroda v Panessar (1986).

o Exceptions – In some cases, the nature of the promise will suggest the necessity of

a ‘demand’ for performance because, without such a demand, the promisor could

not reasonably be expected to know that the promise was due for performance

(e.g. landlords’ covenants to repair): Calabar Properties Ltd v Stitcher (1984).

o Waiver of need for demand – Where the contract requires that a demand be

made in order to activate a duty of performance, it is possible that the promisor’s

words or conduct (e.g. through an unretracted repudiation) will have waived the

need for fulfilment of this condition precedent: Short v Stone (1846).

13


Promisee’s conduct may excuse performance

Specific requests not to perform – Where A has promised to perform at a particular time,

he may be excused from the obligation to perform at the agreed time if the promisee, B,

expressly requests A not to do so: Electronic Industries Ltd v David Jones Ltd (1954).

Estoppel – ‘You need not perform’

o The principle – Where B has initially stated that A need not perform at the

originally agreed time, and A has acted on this statement, B may be estopped from

retracting it prior to the time A’s performance is due. This would be so at least

where B does not retract the statement in sufficient time to give A a reasonable

opportunity of performing by the originally agreed time: Foran v Wight (1989).

But may have to perform later – Where B has stated that A need not

perform at the originally agreed time, and A has been excused from

performance at that time, A is likely to be obliged to perform at some later

point (unless B has repudiated the contract in a way that entitles A to treat

himself as altogether discharged from the unperformed obligations).

o Repudiation removes duty to perform – An implied request that A not perform

could be inferred where B has repudiated his own obligations in advance of the

time that A is due to perform, and B’s repudiation continues unretracted up until

the moment fixed by the contract for A’s performance. Here, in the event that A

does not terminate for anticipatory breach, A’s non-performance at the

contractually agreed time will not be a breach: Peter Turnbull & Co Pty Ltd v

Mundus Trading Co (Australasia) Pty Ltd (1954); Mahoney v Lindsay (1980).

Performance at the last minute

Performance at last minute allowed – A promisor can perform at the last minute allowed

by the contract. Where money is payable by a specified day, the debtor normally has until

midnight of that day to make the payment: Startup v Macdonald (1843). Where payment

is due to be made at a bank, and the fact of non-payment before closing time shows that

payment will not occur before by midnight of the day stipulated by the contract, the

creditor cannot normally say that a breach has occurred until midnight arrives without

the payment being received: The Afovos (1983).

14


3.2 Methods of Performance

Payment by cash or equivalent

Cash required – Unless the parties have agreed otherwise, the obligation to make a

payment of money can only be discharged by making a payment in cash (or its

equivalent). Payment by ‘interbank transfer’ is generally regarded as the equivalent of

cash: Anson’s Law of Contract (1984). Differing views have been expressed on the

question of when the payment will be taken to have been made: Mardorf Peach & Co Ltd

v Attica Sea Carriers Corporation of Liberia (1977); cf The Chikuma (1981).

Production of cash – Where a payment of money is required to be in cash, the debtor

should actually produce the money at the time and place agreed unless the creditor has

dispensed with the need for production: Farquharson v Pearl Insurance Co Ltd (1937). It is

not sufficient for the debtor to merely make some gesture suggesting that he or she has

the money if the creditor wants it: Finch v Brook (1834).

Correct amount – The correct amount should be offered to the creditor. Tender of part of

the amount is obviously insufficient: Dixon v Clark (1848), but so also is tender of too

large an amount where change is demanded: Robinson v Cook (1815).

Payment by cheque, bill of exchange or banker’s credit

Conditional discharge – Where a cheque is taken in lieu of a cash payment, it is presumed

that the parties intended the debtor to receive a conditional discharge – i.e. a discharge

from the liability to make the money payment conditional on the cheque being honoured

on presentation to the bank: Tilley v Official Receiver in Bankruptcy (1960). Generally, the

creditor impliedly promises not to sue for the original debt prior to the presentation of

the cheque or other instrument: Re Romer and Haslam (1893).

Letter of credit – In the event that the letter of credit is not honoured, the creditor can

sue the debtor on the original contract or sue the banker on the credit: WJ Alan & Co v El

Nasr Export & Import Co (1972); Saffron v Societee Minere Cafrika (1958).

Payment by credit card

Absolute discharge – Where a payment for goods or services is made by a credit card, the

card holder recipient of the goods or services obtains an absolute rather than a

conditional discharge from the duty to make payment to their supplier.

Liability passed to card company – The card holder becomes liable to the company

issuing the card in accordance with the terms of the contract between these two parties

15


regulating the use of the card. The supplier of the goods or services must seek payment

from the card issuing company. In the event that the company does not pay the supplier

(eg. due to insolvency), the supplier has no claim against the recipient of the goods or

services: Re Charge Card Services Ltd (1989).

3.3 Vicarious Performance

Generally – Vicarious performance (ie. performance by someone else on behalf of one of

the parties) is generally allowed, so long as there is no prejudice to the other party.

Contracts requiring personal performance

o The personal nature of the contract, such as will preclude a vicarious performance,

may be apparent where the subject matter and circumstances surrounding

formation show that the promisee manifestly sought the skill, judgment,

discretion or other personal qualities of the particular promisor.

o Examples:

Contract for services (e.g. estate agent agreeing to find a purchaser of a

house): John McCann & Co v Pow (1974);

Person agreeing to store another’s valuable goods: Edwards v Newland &

Co (1950).

o Exclusion clauses – Generally exclusion clauses only protect the promisor and not

delegates: Davies v Collins (1945).

Liability for defective vicarious performance

o Delegate has no contractual liability – Where vicarious performance of a promise

remains unfulfilled, the promisor remains liable for its proper performance. A third

party contractor who attempts to perform on another’s behalf will normally incur

no contractual liability to the promisee: Stewart v Reavell’s Garage (1952).

o Liability in negligence – The sub-contractor could, however, become tortiously

liable to the promisee where he causes actual detriment to the promisee as a

result of negligence in the course of vicarious performance: Learoyd Bros v Pope &

Sons (1966).

o Promisee’s consent not enough – Even where the promisee gives clear consent to

the promisor’s desire to have a delegate perform, the consent still generally falls

16


short of an agreement to release the promisor from liability: Stewart v Reavell’s

Garage (1952).

Novation

o As stated above, where A has made a promise to B, and it is permissible to have

vicarious performance by C, A cannot assign the burden of the promise to C.

However, where all three parties consent, the burden can be transferred to C.

o In cases of novation, a new contract is created between C and B, and the original

contract between A and B is discharged by agreement.

o Part performance by a third party C – this is permissible: Hiramchand

Punamchand v Temple (1911). C’s payment (or other vicarious part performance)

must be made for the benefit of B: Re Rowe (1904); Pacific Associates Inc v Baxter

(1990), and there must have been a clear agreement between C and B that the

latter would accept the part performance in full satisfaction of the whole debt or

other obligation: Waghorn v Linden Manufacturing Pty Ltd (1970).

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4. ACTUAL BREACH

4.1 Introduction

Definition – Actual breach can only occur if the agreed time for performance of the

promise in question has arrived (and passed) without exact performance.

Substance and time – Actual breach could take the form of a promisor’s failure to comply

with either the substantive content of the promise or the temporal content of the

promise.

4.2 Identifying Actual Breach

1. Are the promises of the parties independent or dependent?

If the promises in question are independent, then each party would be in

breach for failure to perform, regardless of what the other party has done.

2. What is the order of performance of dependent promises?

If a party has the right to withhold their performance until the other party

has performed, then they obviously are not in breach.

3. Is there fulfilment or elimination of all conditions precedent to duty of performance?

The immediate duty to perform may not have arisen until the condition

precedent is fulfilled (or the need for fulfilment eliminated).

4. Is there compliance with the promise as properly construed?

If there is not exact performance, there is a breach.

5. Does the promisor have any legal defence against liability for failure to perform at the

proper time when the immediate duty of performance had arisen?

Examples – supervening events, frustration, exclusion clause, etc.

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4.3 Consequences of Actual Breach

What are the consequences of A’s actual breach upon B’s duty to perform?

o Dependent Promises – If A’s breach amounts to non-fulfilment of a condition

precedent to B’s duty to perform, then B may withhold performance or possibly

terminate. [See Dependency of Promises.]

o Condition / Warranty – If there is breach of a condition, then the innocent party

will have the right to terminate. If there is a breach of a warranty, then the

innocent party will not. If there is a breach of an intermediate term, then it may be

so fundamental as to allow termination.

5. TERMINATION FOR BREACH

When is there a right to terminate for breach?

Breach of a condition – allows termination.

Breach of a warranty – does not allow termination.

Breach of an intermediate term – depends on the gravity and consequences of the

breach of the term. A fundamental breach allows termination.

Termination for Breach of a Condition

When is a term a condition?

o General test – A term will be a condition if it appears from the general nature of

the contract, considered as a whole, 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 assured of a strict performance of the promise,

and this ought to have been apparent to the promisor: Tramways Advertising Pty

Ltd v Luna Park (NSW) Ltd (1938); Associated Newspapers Ltd v Bancks (1951).

Other factors

o Circumstances in which contract is made: Tramways (1938).

o Who is using the term (layperson, etc): Tramways (1938).

o Commercial sense / need for certainty in the contract: Bunge v Tradax (1981).

19


o Labels (‘condition’, ‘of the essence’) indicative, but not conclusive. Where the

word such words are used, they will prima facie be given their legal meaning, but

this can be rebutted: Schuler AG v Wickman Machine Tool Sales Ltd (1974).

o When one construction will produce an absurd result, other possible

interpretations must be considered: Schuler AG v Wickman Machine Tool Sales Ltd

(1974).

o The susceptibility of the promise to being breached in a number of different ways,

some which would be trivial: Hong Kong Fir Shipping (1962).

Essentiality of time

o The Principle – Time is essential where it is clear (from words, conduct and the

factual context) that any failure in strict compliance with the promised date for

the thing to be done (1) has strong potential to deny the promisee the substance

of what he wanted from the exchange or (2) could have very strong potential to

create serious difficulties for the promisee in performing his own major

obligations: Bunge v Tradax (1981).

o Express – agreed by the parties in the contract (‘is of the essence’): Foran v Wight

(1989). However, if these words can plausibly be given some other meaning, a

court may do this: Schuler AG v Wickman Machine Tool Sales Ltd (1974). The

importance of the obligation in question should be considered: Foran v Wight

(1989). A general provision stipulating that all times are ‘of the essence’ is unlikely

to be effective: Citicorp Australia Ltd v Hendry (1985) per Mahoney JA.

o Implied – where the subject matter of the contract is so obviously of a commercial

nature as to suggest by implication that a specified completion date would have

been considered essential: Foran v Wight (1989).

o Sale of goods – parties to a commercial contract for sale of goods are usually

presumed to have impliedly agreed that the time for delivery (as distinct from the

time for payment) is essential: The Naxos (1990); Bowers v Chaleyer (1923).

Contractual right to terminate

o A contractual right to terminate for breach of a term does not make that term a

condition. One cannot therefore gain loss of bargain damages unless one has a

common law right to terminate (as opposed to a mere contractual right): Shevill v

Builders Licensing Board (1982).

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Termination for Breach of an Intermediate Term

What is an intermediate term?

o When a term is intermediate, the right to terminate depends on the nature of the

breach and its foreseeable consequences.

Right to terminate

o For a breach of an intermediate term to give rise to a right to terminate, the

breach must be serious or deprive the aggrieved party of ‘substantially the whole

benefit which it was intended that he should obtain from the contract’: Hong Kong

Fir Shipping v Kawasaki (1962); Ankar Pty Ltd v National Westminster Finance

(Australia) Ltd (1987).

21


6. NOTICES TO PERFORM

6.1 Introduction

Modern use

o Notices to perform can operate in relation to contracts other than sale of land.

o They now serve a broader purpose than simply to remove an equitable restraint

on a pre-existing common law right to terminate.

o Although it is often said that a notice to perform makes a time stipulation

essential, a warranty cannot be changed to an essential term. What a notice to

perform really does is to lay the grounding for an allegation of repudiatory

conduct.

Repudiation without notice – Note that repudiation can, in theory, still be

proved from an unreasonable delay without a notice to perform.

However, it is risky for the innocent party because if a reasonable time has

not elapsed then the innocent party purporting to terminate for the delay

may have wrongfully terminated. It is far more certain and probative to

show repudiation when there has been a notice issued. [See Repudiation.]

6.2 When to Issue a Notice

Party may give notice to perform – Where a contract contains a stipulation as to time

which is not of the essence of the contract, and one party is in breach, the party not in

default may give a notice fixing a reasonable time for performance and making time of

the essence: Neeta (Epping) Pty Ltd v Phillips (1974); Louinder v Leis (1982). [Note that

the notice only gives a right to terminate for that term.]

Situations – There are three relevant situations:

1. Where a time is stipulated for performance but is not of the essence;

2. Where no time has been stipulated in the contract; and

3. Where time initially having been of the essence is no longer so, usually as a result of an election by the non-defaulting party not to discharge the contract.

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6.3 Requirements

1. There must be a breach

o A notice, which requires the recipient to perform some significant substantive

obligation by a specified date, can have no legal effect unless the recipient has

already defaulted in observing the contractually stipulated (non-essential) time for

performance of this obligation: Louinder v Leis (1982).

2. Notice-giver must not have breached

o The party giving the notice must himself be free of default by way of breach:

Neeta (Epping) Pty Ltd v Phillips (1974).

3. Must give reasonable time

o The principle – The date for performance specified in the notice must allow the

recipient a reasonable time (from the date of its receipt) to perform the thing he is

being called upon to do: Laurinda Pty Ltd v Capalaba Park Shopping Pty Ltd (1989).

o What is reasonable time? – One guide is that the notice to perform should ideally

fix the longest time that could be reasonably required for the performance of the

acts which remain to be done: Abel v Boughen (1983).

o Time already had, a factor – In determining the reasonableness of the time

limited by the notice, it is relevant to take into account the time which the

defaulting party has already had to complete: Laurinda Pty Ltd v Capalaba Park

Shopping Pty Ltd (1989), per Mason CJ.

4. Notice must communicate right of termination

o The principle – A notice will be adequate only if it conveys (to the reasonable

person in the recipient’s position) either that the time fixed for performance is

made of the essence or that the party giving the notice will, in the event of non-

compliance, be entitled to terminate: Laurinda Pty Ltd v Capalaba Park Shopping

Pty Ltd (1989).

o No need to say ‘I will terminate’ – The notice does not have to state that the

notice-giver will terminate the contract in the event of non-compliance.

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5. Party alleging repudiation (by breach) must be ready and willing

o The principle – The party who serves the notice cannot allege that the recipient’s

failure to comply with its demands amounts to repudiatory conduct unless he can

show that at all times he was ready, willing and able to perform (at the

appropriate time) the substance of his own side of the bargain: Louinder v Leis

(1982).

o What is ready and willing? – Nothing but a substantial incapacity or definitive

resolve or decision against doing in the future what the contract requires is

counted as an absence of readiness and willingness: Rawson v Hobbs (1961), per

Dixon CJ.

6. Both parties must perform at time fixed

o If service of a valid notice to perform has validly made time of the essence of a

contractual obligation which requires tender/performance by both parties (eg.

completion/settlement of a sale of land), either party (not just the notice giver)

can become entitled to terminate if he duly tenders/performs when required by

the notice, but the other does not: Laurinda Pty Ltd v Capalaba Park Shopping Pty

Ltd (1989) per Deane and Dawson JJ; Balog v Crestani (1975) per Gibbs and Jacobs

JJ.

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7. REPUDIATION & ANTICIPATORY BREACH

7.1 Introduction

Repudiation

Definition – ‘Repudiation’ is a refusal by, or inability of, one party to carry out its

obligations to the extent that the other party is justified in discharging the contract.

Repudiation may be evidenced by:

1. Words – Repudiation by renunciation, eg. ‘I will not carry out the contract’.

2. Conduct – Repudiation by conduct.

3. Inability – Repudiation may be evidenced by an actual inability of a party.

4. Actual breach

Series of breaches – A series of actual breaches of non-essential terms, of

which each isolated breach does not constitute grounds for discharge, but

taken together may be evidence of repudiation.

Single breach – A single actual breach can also be a repudiation, but

obviously where the breach gives rise to a right to terminate (ie. for

breach of a condition or fundamental breach of an intermediate term),

then reference to repudiation is unnecessary. [The only relevant nuance in

practice may be when there is an alleged breach of an intermediate term.

Here the tests are different because the intermediate term test looks to

the effect of the breach, whereas the repudiation test looks to the

intention evinced by the party said to be repudiating. Although closely

related, if one test cannot be satisfied then perhaps the other might be.]

Anticipatory Breach

Definition – Where a repudiation occurs prior to the time appointed for performance by

the promisor, exercise of the right of termination by the promisee is said to give rise to an

anticipatory breach of contract. (That is, there must be an election to terminate for

anticipatory breach.)

Relationship with repudiation – Anticipatory breach is the primary subset of repudiation.

(The other possibility being a repudiation evidenced by a series of actual breaches.)

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7.2 Requirements

Absence of Willingness or Ability

Generally

Evinced intention not to be bound – There must be an evincing of an intention no longer

to be bound by the contract, or the showing of an intention to fulfil the contract only in a

manner substantially inconsistent with the contractual obligations: Progressive Mailing

House Pty Ltd v Tabali Pty Ltd (1985); Laurinda Pty Ltd v Capalaba Park Shopping Centre

Pty Ltd (1989).

Not lightly inferred – Repudiation is a serious matter and will not be lightly inferred:

Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985). Nothing but a substantial

incapacity or definitive resolve or decision against doing in the future what the contract

requires is counted as an absence of readiness and willingness: Rawson v Hobbs (1961),

per Dixon CJ.

Anticipatory Breach

Seriousness – The nature of a prospective breach must be such that if it were an actual

breach, the promisee would be entitled to terminate: Universal Cargo Carriers Corp v

Citati (1957); Foran v Wight (1989). This excludes mere contractual rights to terminate:

Afovos Shipping Co SA v Pagnan (1983).

Repudiatory Conduct

1. Express Statement

Express refusal – An express refusal to perform all executory contractual obligations is

obviously repudiatory conduct: Hochster v De La Tour (1853); Psaltis v Schultz (1948).

o Contingent conditions – Such a refusal will be a repudiation even though the duty

to perform an obligation has not yet arisen: Hochster v De La Tour (1853), and thus

there will still be a repudiation if a contingent condition has not yet been fulfilled:

Frost v Knight (1872).

o Inability same as unwillingness – A profession of inability is no different from an

express refusal to perform: Universal Cargo Carriers Corp v Citati (1957).

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2. Words or conduct

Objective test – The absence of readiness or willingness is an objective test. That is, the

promisor must behave in such a way as to indicate, to a reasonable person in the

promisee’s position that the promisor does not intend to perform (or cannot perform)

the obligations: Universal Cargo Carriers Corp v Citati (1957) per Devlin J; Laurinda Pty Ltd

v Capalaba Park Shopping Centre Pty Ltd (1989).

Conduct amounting to repudiation

o Not taking contract seriously – If a reasonable man could hardly draw any other

inference than that the party does not intend to take the contract seriously: Carr v

JA Berriman Pty Ltd (1953).

o Performance only when it suits – Conduct indicating that performance would be

carried out ‘only if and when it suited’: Carr v JA Berriman Pty Ltd (1953).

o Delay – For delay to amount to repudiation, the delay must be gross or

protracted: Neeta (Epping) Pty Ltd v Phillips (1974); Sindel v Georgiou (1984), so as

to frustrate the commercial purpose of the contract: Universal Cargo Carriers Corp

v Citati (1957).

o Combination of events – A repudiation can be inferred from a combination of

events: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985); Carr v JA

Berriman Pty Ltd (1953).

o Breach with more breaches likely – Where a breach occurs, and the

circumstances are that a reasonable person in the position of the promisee would

infer that further breaches are likely, the absence of willingness or ability can

amount to repudiation: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985).

Instalment contracts – For instalment contracts, two factors are to be

considered – the extent of the breach as a ratio to the remainder of the

contract, and the probability of the breach reoccurring: Maple Flock Co Ltd

v Universal Furniture Products (Wembley) Ltd (1934).

Other possible factors showing repudiation

o Contemptuousness – Where the party is contemptuous of the contract: Laurinda

Pty Ltd v Capalaba Park Shopping Pty Ltd (1989), per Deane and Dawson JJ.

o Procrastination – ‘Procrastination… so persistently practised as to make a most

serious inroad into the rights of the other party to a contract’: Forslind v Bechely-

Crundall (1922).

27


o Delay – Delay combined with other factors: Holland v Wiltshire (1954); Laurinda

Pty Ltd v Capalaba Park Shopping Pty Ltd (1989).

o No explanation – No explanation in the face of defaults, complaints or requests:

Laurinda Pty Ltd v Capalaba Park Shopping Pty Ltd (1989).

o Unfulfilled assurances – Dishonoured assurances: Laurinda Pty Ltd v Capalaba

Park Shopping Pty Ltd (1989).

o False statements – Misleading statements: Laurinda Pty Ltd v Capalaba Park

Shopping Pty Ltd (1989).

3. Inability

Inferred inability

o Where a promisor breaches the contract, in circumstances that would suggest to

the reasonable commercial person, that the promisor will be wholly and finally

disabled from performing the contract at the time when performance was to fall

due, the promisee will be permitted to terminate for repudiation: Universal Cargo

Carriers Corp v Citati (1957).

Factual inability

o Test – The promisee must prove that the promisor was at the time of the

promisee’s termination wholly and finally disabled from performing the contract

at the time when performance was to fall due: Universal Cargo Carriers Corp v

Citati (1957); Sunbird Plaza Pty Ltd v Maloney (1988).

4. Erroneous interpretation of the contract

A promisor who evinces an intention to perform in accordance with an honest but

erroneous construction may be found to have repudiated the contract: Luna Park (NSW)

Ltd v Tramways Advertising Pty Ltd (1938); Federal Commerce and Navigation v Molena

Alpha Inc (1979).

However, the High Court has held (somewhat questionably, one might say) that if a party

acts honestly or ‘bona fides’ with respect to an incorrect interpretation, this will be

relevant to whether there has been a repudiation. Factors to be taken into account

include:

28


o Whether the incorrect party seeks legal advice: DTR Nominees Pty Ltd v Mona

Homes Pty Ltd (1978) – if they have, then less likely for them to be at fault.

o Whether the incorrect party was acting honestly in the circumstances: Woodar

Investment Development Ltd v Wimpey Construction (UK) Ltd (1980).

o Whether the incorrect party has been met with a challenge to their interpretation:

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) – if they have not, then less

likely for them to be at fault.

Limits – A party who asserts an incorrect interpretation, albeit honestly, will have

repudiated where that party has also engaged in conduct detrimental to the aggrieved

party or inconsistent with the contract remaining on foot: Vaswani v Italian Motors Ltd

[1996].

Termination by correct party – Note that the ‘wrongful’ termination by the correct party

for an erroneous interpretation of the contract by the mistaken party which is not a

repudiation, will not constitute repudiatory conduct, since the incorrect party cannot take

advantage of its own wrong: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978).

5. Wrongful termination

Repudiatory conduct – A wrongful termination of the contract will constitute

repudiation: Commonwealth v Amann Aviation Pty Ltd (1991).

Other (valid) reason at the time – Termination based on an invalid ground will be valid if

there was another valid legal right to terminate at the time: The Mihalis Angelos [1971];

Laurinda Pty Ltd v Capalaba Park Shopping Pty Ltd (1989).

29


7.3 Estoppel & Retracting a Repudiation

Retraction – Until the promisee has accepted a repudiation, the promisor has a period of

repentance (locus poenitentiae), during which the promisor can retract a verbal

repudiation which has not yet been accepted (and call upon the promisee to perform):

Ogle v Comboyuro Investments Pty Ltd (1976).

o Reasonable notice required – A promisor wishing to retract a repudiation must

provide notice to the promisee, allowing the promisee reasonable time to

perform: Cohen & Co v Ockerby & Co Ltd (1917) CLRs at 298 per Isaacs J; Peter

Turnbull and Co Pty Ltd v Mundus Trading Co (Australia) Pty Ltd (1954) CLRs at 250

per Kitto J; Foran v Wight (1989) CLRs at 420-421, per Brennan J.

Estoppel – A promisee may be dispersed from performing at the appointed time if the

promisor expressly or impliedly intimates that it is useless for the promisee to perform:

Peter Turnbull and Co Pty Ltd v Mundus Trading Co Australia Pty Ltd (1954); Mahoney v

Lindsay (1980); Foran v Wight (1989); Austral Standard Cables Pty Ltd v Walker Nominees

Pty Ltd (1992).

7.4 Limits on Termination for Repudiation

Must be willing and able – In order for the innocent party to be entitled to terminate for

anticipatory breach, that party must, at the time of its acceptance of the repudiation, be

willing and able to perform the contract on its proper interpretation: Foran v Wight

(1989).

o Light onus – This is a lighter onus than proof of willingness and ability at the time

for performance. Nothing but a substantial incapacity or definitive resolve or

decision against doing in the future what the contract requires is counted as an

absence of readiness and willingness: Rawson v Hobbs (1961), per Dixon CJ.

o Mitigation – Note that if a party terminates for anticipatory breach, the duty to

mitigate will immediately arise.

Damages – To claim damages, the party terminating for repudiation must prove, on the

balance of probabilities, that it would be willing and able to perform at the time of

performance: Foran v Wight (1989).

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8. ENTIRE & SEVERABLE CONTRACTS

8.1 Entire or Severable?

Matter of construction – The question of whether an obligation under a contract is entire

or severable depends upon its construction in the light of all the circumstances. The

question is whether the completion of the entire contract (or obligation) is a condition

precedent to payment.

o Courts prefer severable – The courts lean away from construing the obligations as

entire: Hoenig v Isaacs (1952).

o Where a lump sum payment – A lump sum payment usually indicates an entire

obligation because it is not capable of being apportioned: Hoenig v Isaacs (1952).

o Paid at a rate – Where the amount is to be paid at a rate, the contract is divisible:

Markham v Bernales.

o Instalments – Where payment and services are divided into instalments, the

contract will generally be divisible: The Hansa Nord.

8.2 Substantial Performance

Definition – Where a plaintiff has substantially performed his obligations, then recovery

of the contract price, less a payment of damages to the other party for the incomplete

work, will be allowed.

o Broader than de minimis – Substantial performance allows for defects which are

more significant than the de minimis doctrine.

What amounts to substantial performance?

o When the work is finished “in the ordinary sense”; when the main purpose of the

contract is fulfilled: Hoenig v Isaacs [1952]; Bolton v Mahdeva [1972].

o The court will take into account the nature of the work and the defect, and the

cost of making the performance rendered conform to the contract: Hoenig v

Isaacs [1952]; Zamperoni Decorators Pty Ltd v Lo Presti [1983].

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9. LIMITS ON TERMINATION

9.1 Election to Affirm

Onus of Proof

The onus of proof is on the promisor to prove the promisee had elected to continue

performance: Tropical Traders Ltd v Goonan (1964).

Knowledge required

Requirement – Depends on whether actual election is to occur, or imputed election via

estoppel is being argued. In both cases, knowledge of the circumstances giving rise to a

right to terminate is required: Sargent v ASL Developments Ltd (1974); Khoury v

Government Insurance Office (NSW) (1984); Immer (No 145) Pty Ltd v Uniting Church in

Australia Property Trust (NSW) (1993). For actual election, knowledge of the right to

terminate is also required: Peyman v Lenjani. But not for imputed election via estoppel:

Coastal Estates v Melvende.

Where express contractual rights – Where election involves an express right to terminate

that is part of the contract, knowledge of the right to terminate does not need to be

shown, because parties are deemed to be aware of their own contractual rights: Sargent

v ASL Developments Ltd (1974).

Unequivocal conduct

Requirement – Election must be clearly communicated to the other party such that there

is unequivocal conduct consistent only with a choice to continue the contract: Immer (No

145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993). That is, the words

or conduct must be inconsistent with the exercise of the right to terminate: Tropical

Traders Ltd v Goonan (1964).

o Unequivocal acts – An unequivocal act is an act which is justifiable if the party had

elected one way, but not justifiable if the party had elected the other way: Scarf v

Jardine (1882); Tropical Traders Ltd v Goonan (1964).

o Delay in terminating – The failure to terminate performance immediately will not

be regarded as an election to affirm: Tropical Traders Ltd v Goonan (1964).

o Acceptance of interest payments – This depends on whether the right to the

payment has arisen unconditionally before the incident which gives rise to the

right to terminate. Tropical Traders Ltd v Goonan (1964).

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o Extensions of time – An extension of time by the promisee which is for a specified

time and coupled with a warning that failure to perform may lead to termination is

not an election to continue performance unless the promisor actually performs:

Tropical Traders Ltd v Goonan (1964).

Conduct required for imputed election via estoppel:

Coastal Estates v Melevende:

- With knowledge of the facts giving rise to right to terminate, contractual rights are exercised to

the detriment of the other party.

9.2 Estoppel

Requirements – If the party entitled to terminate has represented that the right of

termination would not be enforced, and there was reasonable reliance on this

representation to the detriment of the other party, and if the party entitled to terminate

were permitted to enforce the right it would be unfair, unjust or inequitable, then there

will be an estoppel: Legione v Hateley (1983); Waltons Stores (Interstate) Ltd v Maher

(1988).

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9.3 Relief Against Forfeiture

Introduction – The termination of a contract may result in one party suffering the

deprivation of a proprietary interest. In equity, a court may in its discretion provide relief

against such forfeiture, and order specific performance of the contract in favour of the

party in breach if it would be unconscientious for the vendor to rely on its legal right to

terminate for breach of an essential time stipulation.

Requirements

Narrow approach – The onus of proof is strict and such relief will only be granted in

exceptional circumstances: Tanwar Enterprises Pty Ltd v Cauchi (2003).

Causing a breach – The conduct of the vendor must have, in some significant respect,

caused or contributed to the breach of the essential time stipulation: Tanwar Enterprises

Pty Ltd v Cauchi (2003).

Fortuitous windfall not enough – The fact that a vendor will receive a windfall gain will

not alone make termination unconscientious. The increase in land value is merely a

benefit which runs with the land and whoever is entitled to it: Tanwar Enterprises Pty Ltd

v Cauchi (2003).

If vendor contributed to the breach, consider all of the factors below to determine

whether relief will be granted: – Legione v Hateley (1983):

o Where the breach is trivial or slight.

o Where the breach is inadvertent and not wilful.

o Where there is no proportionality between the loss caused to the aggrieved party

by the breach, and the penalty of forfeiture. (eg improvements to the land.)

o Where the vendor’s loss is adequately safeguarded by an order for specific

performance and compensation.

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10. NO LEGITIMATE INTEREST IN AFFIRMATION

What if you elect to affirm, but the other party is uncooperative?

o Where the other party’s duty to perform is dependent on you first performing,

and you cannot perform without their cooperation (eg. employment contracts),

you have practically no choice but to accept the repudiation: Automatic Fire

Sprinklers Pty Ltd v Watson (1946).

o You cannot obtain the performance or damages not yet due (eg. wages).

o The contract therefore carries on.

What if you elect to affirm, but the other side doesn’t want your performance, and your

performance is a waste of time?

o Whilst not a bar on election to affirm, equity will not grant specific performance

where there is no legitimate interest in affirming (other than to claim damages as

a debt, which would not enliven the duty to mitigate loss): White and Carter

(Councils) Ltd v McGregor [1962];

o For there to be no legitimate interest in affirmation, it must be shown that it is

entirely unreasonable for him to affirm. Clea Shipping Corp v Bulk Oil International

Ltd (The ‘Alaskan Trader’) (No. 2) [1983].

o This will usually be argued in cases where it would be much cheaper for the

defaulting party to pay damages for loss of bargain than actually pay what would

eventually become due under the K.

o However, even slight interests in performing would be enough – eg if a shipowner

needed to make sure he kept his crew intact, and has no other offers for

employment in the period of the defaulted on contract, he might have an interest

in affirming so that he can keep his crew on – if he didn’t affirm he might have to

lay them off to mitigate loss.

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11. CONSEQUENCES OF TERMINATION

11.1 Damages for Anticipatory Breach

Compensation for Actual Loss – In calculating damages for anticipatory breach, the court

will consider what the position pf the parties would have been if the defaulting party had

not repudiated: The Mihalis Angelos [1971]. If the innocent party would have lost

nothing, then only nominal damages will be awarded.

11.2 Accrued Rights

Generally

Accrued rights unaffected – Termination does not affect rights which have been

unconditionally acquired (that is, rights which are not conditional upon executory

performance): McDonald v Dennys Lascelles Ltd (1933), unless the contract provides.

Recovery in restitution – A payment made for a consideration which has wholly failed is

recoverable in restitution: Baltic Shipping Co v Dillon (1993).

o Entire contracts – If a contract is entire, payment is conditional on completion. If

there is a total failure of consideration then any payments made by the purchaser

can be recovered, and no action is maintainable by the vendor to seek payment.

This does not include deposits, [See Deposits, below.]

o Severable contracts – If a contract is divisible, then the relevant amount must be

paid for each executed segment of the contract.

Total failure of consideration?

Has there been a total failure of consideration?

o The inquiry is not a matter of looking at any mere benefit reaped. The correct

approach is whether any of the obligations promised as consideration to that

party have been performed. This is answerable by asking: (1) what has been

bargained for, and (2) what has been received?: Shaw v Bell (1962).

Examples where total failure of consideration – Sale of goods, sale of land.

Examples where not a total failure of consideration – Construction of a vessel: Hyundai

Heavy Industries Co Ltd v Papadopoulos [1980]; Enjoyment of the first 8 days of a cruise:

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Baltic Shipping Co v Dillon (1993); possession and management of business for a number

of months Shaw v Bell.

Instalments

Recovery of instalments (where contract is silent) – Instalments already paid may be

recovered by a defaulting purchaser when the vendor elects to terminate if there has

been a total failure of consideration: McDonald v Dennys Lascelles Ltd (1933).

o This is a legal claim, not an equitable principle.

o The vendor can of course sue for damages.

o Recovery of instalment payments for total failure of consideration does not

depend on who is in breach.

Recovery of instalments (where contract allows forfeiture) – Where the contract

specifically provides for the forfeiture of instalment payments, the court may grant relief

against forfeiture if the term allowing retention of instalments is a penalty (that is, the

amount is designed to ensure payment and exceeds damages for loss). [See below]

Deposits

Is there a deposit?

o A deposit is an earnest representing a genuine pre-assessment of a suitable sum

to be forfeited in case of the purchaser’s default: Howe v Smith (1884).

o The use of the word “deposit” by the parties is not conclusive. What is described

as a deposit might really be a part payment: Coates v Sarich [1964].

o It is not conclusive that the parties expressly agree that it should be forfeited upon

default: Delbridge v Low [1990] (Qld SC).

o The court will grant relief against forfeiture of the amount in excess of a

reasonable deposit, but what is reasonable depends on the circumstances. Where

the transaction represents a larger risk for the vendor, a larger deposit is

permissible. (Coates v Sarich )

Where vendor in breach – If the vendor, in breach of contract, does not complete the

transaction, then the purchaser can recover the deposit in restitution.

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Where purchaser in breach – If the transaction is not completed by reason of the

purchaser’s default, the vendor will retain the deposit, and a deposit that is unpaid at the

time of termination will have to be paid: Bot v Ristevski [1981].

Where failure of contingent condition, or abandonment – Where the contract is

abandoned by the parties, or the contract has otherwise been discharged, without breach

or repudiation on the part of the plaintiff, for failure of a condition precedent, the deposit

will be recoverable by the plaintiff, on the basis that the inapplicability of the express or

implied right of forfeiture shows the intention of the parties that retention of the sum

would be unjust: Clifton v Coffey (1924).

11.3 Penalties

Introduction – Parties to a contract may specify an amount in the contract which is

payable to the plaintiff in the event of breach. This is known as a liquidated damage

clause. Courts will draw a distinction between liquidated damages clauses which are valid

and penalty clauses, which are invalid.

The rule – The rule against penalties renders void a clause which requires payment of a

sum which is extravagant or unconscionable having regard to the greatest loss which

could be suffered by the plaintiff following the breach of contract: AMEV-UDC Finance Ltd

v Austin (1986); Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915].

o Dunlop Pneumatic v New Garage 1915 Eng Clause in a K stipulating what liquidated damages may be claimed in breach is presumed

not to be a penalty, but this is rebuttable.

Liquidated damages is a genuine pre-estimate of damage.

Judge whether a sum stipulated in a K is a penalty or liquidated damages upon the terms and inherent circumstances of each K AT THE TIME OF MAKING.

Presumption that a clause is a penalty when it is a single lump sum payable on the occurrence of one or more of several events, some which may be serious and others trifling.

When pre-estimation is almost an impossibility, it will make it more probable that the sum in the K IS a genuine pre-estimate.

o Although the clause will be invalid, a plaintiff can still recover damages: AMEV-

UDC Finance Ltd v Austin (1986).

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contingent conditions - theunitutor.com€¦ · Web viewAstra Trust v Adams ... The use of the word “deposit” by the parties is not conclusive. What is described as a deposit