Week 2
Termination for Breach
Termination for Repudiation
Termination for Delay
Termination for Breach
 Discharges the contract
 Only relevant where breach occurs before
performance of all the obligations of the
contract
 Party ‘elects’ to terminate or to affirm the
contract
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Termination for Breach
 Breach of term expressly providing for
termination
 Breach of Condition
 Serious Breach of Innominate term
 Repudiation
2
Termination for Breach
 Tri-partite Classification of Terms
 Condition
 Warranty
 Innominate (aka Intermediate) Term
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Termination for Breach
 Tri-Partite Classification of Terms
 Condition - any breach will justify termination
 Warranty - termination not allowed
 Innominate Term - only serious breach justifies
termination
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Tri-partite Classification of Terms
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Test of Essentiality
Structure of Term
Structure of Contract
Importance of term, consequences of breach
Variety of breaches
Are damages assessable?
Nature of term, subject matter and contract
Policy Factors - encouraging performance,
promoting certainty, providing flexibility
5
Tri-partite Classification of Terms
 Express Agreement as to Character of
Term
 Term may be called a ‘condition’
 Not decisive - parties adopt language without
intending strict legal definition
 Term specifies that any breach allows innocent
party to terminate.
 Innocent party must comply with any
requirements outlined in term eg notice
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Tri-partite Classification of Terms
 Test of Essentiality - Luna Park v Tramways,
Jordan CJ
 ‘The test of essentiality is whether 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 he had been assured of a strict or
substantial performance of the promise… and this
ought to have been apparent to the promisor.’
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Tri-partite Classification of Terms
 Structure of Term
 Precise language
 Specific obligations
 Words such as ‘guarantee’
Support inference that term intended to be a
condition
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Tri-partite Classification of Terms
 Structure of Contract
 If some terms expressly provide termination for
breach, then inference is that terms which
don’t provide for termination are not intended
as conditions
 If a term specifies a sanction such as
penalties, inference that term is not a condition
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Tri-partite Classification of Terms
 Consequences of Breach
 If every breach of a term is likely to be serious,
then it is probably a condition
 If a term could be breached in a serious way or
a trivial way, then probably not a condition
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Tri-partite Classification of Terms
 Breach can have variety of consequences
 If a term can be breached in a serious way or
in a trivial way, it is probably an innominate
term rather than a condition
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Tri-partite Classification of Terms
 Are Damages Assessable
 If damages are difficult to gauge, then term
more likely to be a condition
 If damages not likely to compensate, then term
more likely to be a condition
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Tri-partite Classification of Terms
 Nature of term, subject matter and contract
 Term may have been interpreted by courts in
previous cases - eg template contracts
 Certain types of contract or terms may have
been classified as conditions or warranties in
previous cases.
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Tri-partite Classification of Terms
 Policy Factors
 Promoting Certainty - defining a term as a condition
promotes certainty because the parties know what
response to breach is allowed
 Encouraging Performance - defining a term as
innominate or a warranty encourages parties to perform
the contract rather than to terminate
 Providing Flexibility - one reason the courts favour
defining terms as innominate is that this provides
greater flexibility in response to breach - ie the
response to breach is proportionate to the actual or
foreseeable consequences.
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Termination for Breach
 Breach of express condition OR breach of term
expressly providing for termination
 Innocent party must follow whatever procedure is
required
 ie innocent party must comply with term if they want to
rely on it
 If innocent party fails to comply with term, they can still
argue under other grounds of termination such as
breach of condition, serious breach of innominate term
or repudiation
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Termination for Breach
 Breach of Condition
 Any breach justifies termination, even if the
actual breach or its consequences seem trivial
 When applying test of essentiality, do not
consider the actual breach
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Termination for Breach
 Breach of Innominate term
 Breach must be ‘serious’
 Deprive party of substantially the whole benefit
of the contract
 Go to the root of the matter
 Seriousness includes actual breach, its actual
consequences and its foreseeable
consequences
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Termination for Repudiation
 Repudiation
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Party is not willing and able to perform
Must be serious
Must relate to the whole of the contract
May be before time for performance ‘anticipatory breach’
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Termination for Repudiation
 Anticipatory Breach
 Innocent party may accept the repudiation, terminate
and sue for damages
 Innocent party may refuse to accept repudiation, affirm
the contract and ‘wait and see’ what happens. Can
only recover damages for actual breach.
 Actual Breach
 Could include breach of condition (though
unnecessary) or non-serious breach of innominate term
or breach of warranty.
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Termination for Repudiation
 Forms of Repudiation
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Express Statement
Words and Conduct
Actual Inability to Perform
Erroneous Interpretation of the Contract
Cumulative Breaches
20
Termination for Delay
 Contract may or may not contain time stipulations.
 If no time stipulated, courts will imply a term that
performance must be within a reasonable time
 If contract contains time stipulations, they may or
may not be conditions.
 “Time is of the essence” means that the time
stipulation is a condition.
 Delay may also amount to repudiation
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Termination for Delay
 In absence of ‘time of the essence’ general
rule is that time stipulations are NOT
essential.
 Innocent party can NOT rescind unless
they serve a valid notice to complete.
 Can not serve a valid notice to complete
until there has been a breach ie the nonessential time stipulation has been
breached, or a reasonable time has lapsed.
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Termination for Delay
 Notice to Complete
 Must specify a time for performance
 Time must be reasonable
 Must convey right to terminate if time limit is
not complied with eg state that ‘time is of the
essence’.
 Innocent party must be ready willing and able
to perform their contractual obligations
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