BU1112
Business
Law
Lecture 5
Contract Law: Discharge
& Remedies
TABLE OF CONTENTS
01.
Discharging a Contract
06.
Remedies
02.
Performance
07.
Damages
03.
Agreement
08.
Specific Performance
02.
04. Frustration
09.
Injunction
05.
10.
Restitution
Undue Influence
Discharging a Contract
All contracts contain rights and obligations. When a contract is
discharged, those rights and obligations come to end. This can
happen in 5 ways:
1.
by performance;
2.
by agreement;
3.
through frustration;
4.
through breach; and
5.
by operation of law.
Discharge by Performance
Discharge occurs when both parties have completely
performed their obligations under the contract.
Performance must be exact (Common Law rule)
Cutter v Powell (1795) 101 ER 573.
Exceptions to Exact Performance
○
Severable contracts;
○
The ‘de minimis’ rule;
○
Substantial performance;
○
Acceptance of partial performance; and
○
Obstruction of performance
Discharge by Agreement
In the original contract:
●
Condition precedent.
○ Something that must happen BEFORE performance is
required
○
●
(e.g. Student Pass Approval)
Condition subsequent.
○
Something that ENDS an obligation
Head v Tattersall (1871) LR 7 Ex 7.
Discharge by Agreement
In some subsequent agreement.
●
Unilateral discharge.
●
Bilateral (or mutual) agreement.
Discharge Through Frustration
When performance of the agreed obligation becomes IMPOSSIBLE through
NO FAULT of either party the contract terminates.
THEREAFTER, neither party can demand further performance.
Taylor v Caldwell (1863) 122 ER 309.
Discharge Through Frustration
Acceptable categories
○
Absolute impossibility;
○
Radical difference;
○
Supervening illegality; and
○
Futility (frustration of the contract’s
commonly understood underlying purpose)
■
Krell v Henry (1903) 2 KB 740.
Discharge Through Frustration
a.
the contract is discharged at the point of frustration;
b.
payments made up to that point cannot be recouped
UNLESS there has been a total failure of consideration;
c.
payments due after the frustrating event occurs cannot be
recovered.
Discharge Through Breach
When one party breaches a contract in a MAJOR way the other
party may choose to treat the contract as terminated.
(The breach is said to be a “repudiation” of the contract by the
guilty party and, if the innocent party “accepts the repudiation”
the contract comes to an end.)
If that happens, the innocent party can still sue for damages but
cannot be required to continue performing his or her part of the
contract.
Discharge Through Breach
ACTUAL breach.
- an actual failure to perform obligations as required when performance becomes due.
○
○
By failure to perform;
Size
24
By defective performance; or
Size 34
○
By one of the underlying terms of the contract proving to be untrue.
Discharge Through Breach
ANTICIPATORY breach.
- a clear indication by one of the parties that he or she will not
perform whatever is required when performance becomes due.
December
Payment
due
01/01/2023
1
2022
t/ y
o
n
a
n
I ca l not p
wil 01/01
on
Explicitly;
Hochster v De La Tour
(1853) 118 ER 922.
By implication;
Lovelock v Franklyn
(1846) 115 ER 916.
Discharge Through Breach
The Innocent Party can elect to:
a. ACCEPT the breach, terminate the contract and SUE for damages
Conditions
Innominate Terms
Warranty
Minor
breach
Major
breach
Discharge Through Breach
The Innocent Party can elect to:
b.
REJECT the breach, keep the contract on foot and attempt to
have it PERFORMED.
Discharge Through Operation of Law
Bankruptcy
Receiverships
Novation
Remedies
Breaches of contract are normally remedied by an award of
“damages” – an amount of money that is paid as
compensation, but equitable remedies may also apply.
●
damages;
●
specific performance;
●
injunction;
●
restitution.
Damages
A MONETARY amount
awarded to COMPENSATE an innocent party for
FORESEEABLE LOSS
arising naturally and consequentially out of a BREACH of
contract.
Damages
Was
there a
breach?
Yes
Did the
Yes
breach cause
the loss?
Is
this a loss
for which
damages are
awarded?
Yes
Is
No
the loss too
remote?
Yes
No
No
No
No damages are awarded.
Damages
will be
awarded
1. Was there a breach?
A question of fact
Actual breach – failure to perform when due
Anticipatory breach – clear indication that a party will not
perform when due
2. Did the breach cause loss?
CAUSATION
●
The plaintiff must prove the defendant’s breach caused
the actual loss.
●
The ‘but for’ test. ‘But for’ the breach there would be
no loss or damage.
3. Is this the type of loss for which damages
are awarded?
Measure of damages
●
The general rule is that the plaintiff recovers their actual loss.
●
Placed in the same position as if the contract had been performed.
But...
•
Exclusion clauses
3. Is this the type of loss for which damages
are awarded?
Damages can be pre-agreed
●
●
●
Liquidated Damages – a genuine pre-estimate of likely loss if there
is a breach.
Penalties – stipulations inserted not as estimates of loss BUT to
make it punitively expensive for one party to commit a breach of
contract.
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79.
3. Is this the type of loss for which damages
are awarded?
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79.
NG&M must pay
£5 for every tyre
sold below the
price stated in
the contract, ‘by
way of liquidated
damages and
not as a penalty’
• NG&M sold tyres below the price stated
• Dunlop brought suit for breach of contract
• Held, Lord Dunedin:
• Not a penalty
• Genuine pre-estimate of damages from breach
Calculation of damages
●
Calculated at time of breach
●
Calculated on a market value basis
●
Quantification problems not a bar to recovery
○
Chaplin v Hicks (1911) 2 KB 786.
Hicks was a theatre manager. He invited women to enter a beauty contest by sending in
photographs to be placed in a newspaper. The readers of the newspaper would vote for their
winner, who would be awarded a paid engagement as her prize. Chaplin entered the
competition and came first in her group thereby affording her the opportunity to be
considered as a finalist. The letter inviting her to attend the next stage of the contest
arrived too late, and as a result she was denied the opportunity to be considered. She sought
damages.
Damages not recoverable
●
Discomfort, disappointment, or distress
(BUT Baltic Shipping Co v Dillon (1993) 176 CLR 344.)
Damages for disappointment and distress can be recovered only if they result
from physical inconvenience caused by the breach or if the object of the
contract is to provide enjoyment or relaxation or to prevent 'molestation’.
●
Loss of reputation
BUT Wilson v United Counties Bank (1920) AC 102.
Bank’s duty to client’s credit and reputation
Mitigation
●
Plaintiffs are required to take reasonable steps to minimise the loss
they suffer as a result of the other party’s breach.
Payzu Ltd v Saunders (1919) 2 KB 581.
The claimant breached a warranty by making payment late. The defendant refused to
continue with the original contract but told the claimant that he would deliver the goods in
future if the claimant paid cash on delivery and would still let him have the goods at the
discounted price. The claimant rejected this offer and purchased the good elsewhere at a
higher price. He then sued the defendant claiming the difference between the contractually
agreed price and what he actually paid for them.
Held:
The claimant was not entitled to damages. He was under a duty to mitigate his loss.
4. Is the loss too remote?
Damages will not be too remote:
if they may fairly and reasonably be considered either as arising from the
breach itself;
OR
may reasonably be supposed to have been in the contemplation of both
parties at the time they made the contract, as the probable result of the
breach.
4. Is the loss too remote?
Hadley v Baxendale (1854)
156 ER 145
Victoria Laundry v Newman Industries
(1949) KB 528
Defendant delivered crankshaft that had
been repaired a week later than agreed,
during which time the claimant’s mill was
out of operation. Claimant sought
damages for lost business.
Victoria Laundry Ltd (VLL) ordered a large
boiler from Newman Industries Ltd (NIL) in
contemplation of some lucrative dyeing
contracts. NIL were aware of the nature of
VLL’s business, and that it was intended for
the boiler to be put to use as soon as
possible. The delivery of the boiler was
delayed by five months and VLL claimed for
breach of contract.
Held:
VLL successfully recovered the lost profits.
Held:
Loss was too remote to be recoverable.
Baxendale had not reasonably foreseen
the consequences of delay
Equitable Remedies
Where damages are an inappropriate remedy the equitable remedies of:
● specific performance;
● injunction; or
● restitution,
may be ordered instead.
Equitable Remedies
Where damages are an inappropriate remedy the equitable remedies of:
● specific performance;
● injunction; or
● restitution,
may be ordered instead.
An order of the court requiring a party to
perform the obligations that he or she
undertook to perform under the contract.
An order of the court prohibiting someone
from engaging in specified behaviour.
Where one party is compelled to RESTORE
money or some other benefit to the person from
whom it was obtained
Limitations on Specific Performance
Not available when:
● Damages would suffice
● Would cause undue hardship
● Is not mutually available
● Used for contracts of personal service
● It would require constant supervision
● The contract is otherwise defective
Injunction
An order of the court prohibiting someone from engaging in
specified behaviour.
Warner Bros Pictures Inc v Ingolia (1965) NSWR 988.
Exclusive personal service contracts such as for actors, performers,
athletes, etc. may be enforced by use of injunctions. Specific performance
is not available to force the actor to work for the employer, but they may be
enjoined from working for a competing employer in the same field.
Injunction
It will not normally be granted
●
●
if there is no danger of the breach continuing; or
where its effect would be to require a person to do something
that he or she would be compelled to do by an order for specific
performance.
Page One Records Ltd v Britton (1968) 1 WLR 157.
Pop group entered a five year management contract with the plaintiff. During the
currency of the contract, the group wished to employ another manager and the
plaintiff sought an injunction to restrain the threatened breach. This application was
refused on the ground that this would have the effect of an order for specific
performance of a contract for personal services
Restitution
Where one party is compelled to RESTORE money or some other
benefit to the person from whom it was obtained BECAUSE it would
be UNJUST to allow him or her to keep it.
●
●
Recovery of money paid; and
Recovery of ‘reasonable remuneration’.
○ Quantum meruit (“As much as he has earned”)
○
Pavey v Matthews Pty ltd v Paul (1987) 162 CLR 221.
Oral building contract was unenforceable, but market value of the work was awarded
as it had been accepted by the homeowner. It would be unjust to allow the
homeowner to benefit form the services rendered without remuneration.
Rectification
Where there has been a clear mistake in the drafting of a contract,
parties may rely on the equitable remedy of rectification to correct it
to reflect the parties’ contractual intention.
“6 units at $10/unit.”
“I agree”
“600
units at
$100 /
unit.”
600
units at
$100 /
unit.
Loss of Remedy
The innocent party must act within a certain time period
Statutes of limitation – time runs from the cause of action generally
Simple contract - 6 years
Formal contract under seal - 12 years
Possible equitable defence – laches
Equity aids the vigilant, not the negligent (those who sleep on their
rights).
Questions?