Fundamentals of Law (BL502)

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THE LAW OF COMMERCIAL CONTRACT
Remedies
(Sweeney & O’Reilly 2nd Ed. Chapter 9 pp 245 –
257 and pp 279 - 283)
THE LAW OF COMMERCIAL CONTRACT
Types of Remedy





Termination
Rescission
Recovery of Contract Price
Damages
Equitable Remedies
 Specific Performance
 Injunction
 Rectification
 Restitution
THE LAW OF COMMERCIAL CONTRACT
Termination of a contract
A contract can be brought to an end by:
1. Performance
2. Agreement
3. A Term of the Contract
4. Frustration
5. Breach
6. Operation of Law
THE LAW OF COMMERCIAL CONTRACT
Termination by Performance
 Where the parties wholly or substantially
perform their obligations under the contract,
the contract is discharged
 Hoenig v Isaacs (S&OR p269)
THE LAW OF COMMERCIAL CONTRACT
Termination by Agreement
 Parties to the contract agree to discharge
their obligations to one another
 This latter agreement will only be binding if:
 There is consideration; or
 Promissory estoppel arises
 The contract to terminate the earlier contract
is subject to usual contractual rules e.g.
economic duress
THE LAW OF COMMERCIAL CONTRACT
Termination by a Term of the Contract
 Parties may have agreed that the contract
would be terminated upon the happening or
non-happening of a certain event
 The term may be automatic or merely provide
an option to terminate
 Term may give only one party the option to
terminate
THE LAW OF COMMERCIAL CONTRACT
Termination by Frustration
 Where:
 An intervening event;
 Not contemplated by the parties;
 Makes performance
 impossible; or
 Radically different to that originally
contemplated.
THE LAW OF COMMERCIAL CONTRACT
Termination by Frustration (Cont.)
 Examples (S&OR p246)
 Taylor v Caldwell (S&OR p247)
 Davis v Fareham United District Council
(S&OR p247) – compare with Codelfa
Constructions v State Rail (S&OR p247)
THE LAW OF COMMERCIAL CONTRACT
Termination by Frustration (Cont.)
 Frustration does not apply where:
 Contract makes specific provision for the
event
 The party seeking to rely on frustration
foresaw the event
 The event was caused by the party
seeking to rely on the frustration
THE LAW OF COMMERCIAL CONTRACT
Termination by Frustration (Cont.)
 Frustrated Contracts Act 1959 (Vic)
 Court may order
 a refund of monies paid under a
frustrated contract
 Compensation for any performance that
occurred prior to frustration
THE LAW OF COMMERCIAL CONTRACT
Termination for Breach of Contract
 Cannot terminate for any breach no matter
how slight
 Can only terminate for breach of a condition
 Other terms are called “warranties”
 Breach of conditions allows the innocent party
to terminate the agreement and sue for
damages
 Breach of a warranty only entitles the
innocent party to seek damages
THE LAW OF COMMERCIAL CONTRACT
Conditions and Warranties
 Not all terms carry the same importance
 A condition is a core term of the contract
 Goes to the essence of the contract
 Tramways Advertising v Luna Park (S&OR
p248)
 Associated Newspapers v Bancks (S&OR
p249)
 Warranties are non-core terms of the contract
THE LAW OF COMMERCIAL CONTRACT
Conditions and Warranties (cont)
 Intermediate terms will be conditions or
warranties depending on the seriousness of
the breach
 A breach so serious as to deprive the
innocent party of substantially the whole
benefit of the contract
 Hong Kong Fir Shipping Co v Kawasaki
(S&OR p252)
THE LAW OF COMMERCIAL CONTRACT
Termination by Breach
 Breach of a condition, or a serious breach of an
intermediate term, will allow termination
Condition
Intermediate Term
If Serious
Damages and\or
Termination
Warranty
Not Serious
Damages
Only
THE LAW OF COMMERCIAL CONTRACT
Conditions and Warranties (cont)
 To determine if a condition, courts will examine
 The way in which the term is expressed
 The likely consequences of a breach
 The objective importance of the term to the overall
contract
 Whether damages are likely to be an adequate
remedy (see Shevill v Builders Licensing Board –
S&O p252)
 The use of the word “condition” is not conclusive
 Wickman Machine Tool Sales v L Schuler AG
(S&OR p250)
 Parties can expressly state that it is an essential term
THE LAW OF COMMERCIAL CONTRACT
Conditions and Warranties (cont)
 Terms implied by statute are often expressly stated to
be conditions or warranties
 Time
 In a mercantile contract the presumption is that it
is a condition
 Bunge Corp of NY v Tradax Export SA Panama
(S&OR p250)
 In other contracts it is usually a warranty
 Bettini v Gye (S&OR p251)
 Often made a condition by express words “time is
of the essence”
THE LAW OF COMMERCIAL CONTRACT
Termination for Repudiation
 Repudiation
 One party indicates that they will not perform the
contract
 Must be substantial repudiation to entitle other
party to terminate the contract
 Anticipatory breach is a form of repudiation
Examples – S&O p 254
 If other party elects not to terminate contract then
must remain able to perform contract
THE LAW OF COMMERCIAL CONTRACT
Termination by Operation of Law
 Bankruptcy
 Cooling Off Periods (e.g. Sale of Land)
THE LAW OF COMMERCIAL CONTRACT
Procedure for Termination
 Terminating party must not affirm contract
 Once terminated, terminating party cannot
change mind
 Termination means that the parties are
relieved from all future obligations.
 Termination does not affect rights and
obligations that have already accrued
 If not terminated, other party must continue to
be able to perform contract
THE LAW OF COMMERCIAL CONTRACT
Rescission
 Available for:
 Misrepresentation
 Undue influence
 Unconscionable conduct
 Duress
THE LAW OF COMMERCIAL CONTRACT
Rescission (cont.)
 Effect
 Contract is terminated ab initio (i.e. it is as
though there never was a contract)
 Compared to Termination (e.g. for breach)
 Termination only cancels the contract from
the point of termination
 Procedure
 Innocent party rescinds by giving notice to
the other party
THE LAW OF COMMERCIAL CONTRACT
Rescission (cont.)
 Not possible if:
 Contract has been affirmed by innocent
party
 parties cannot be restored to substantially
the same position they were in prior to the
contract (restitution)
THE LAW OF COMMERCIAL CONTRACT
Recovery of Contract Price
 Available where price, or mechanism for fixing price,
is stated in the contract
 Preferable to damages because there are no
problems with establishing the amount claimed
 Can claim if there has been substantial performance
of the contract unless there is a term in the contract
to the contrary
 If cannot sue for a contract price (e.g. because work
substantially incomplete) must rely on “Quantum
Meruit”
THE LAW OF COMMERCIAL CONTRACT
Damages
 Every breach of a contract gives a right to
damages
 The object of damages is to compensate for
loss actually suffered not to punish
 Addis v Gramaphone Co Ltd (S&OR p270)
 The losses must be caused by the breach of
contract
 Reg Glass v Rivers Locking Systems (S&OR
p271)
THE LAW OF COMMERCIAL CONTRACT
Agreed Damages
 The contract may provide for agreed
damages
 Saves an expensive assessment of
damages by a court
 Agreed damages must be a genuine preestimate of damages
 Courts will not enforce a penalty
THE LAW OF COMMERCIAL CONTRACT
Mitigation of Damages
 Plaintiff has a duty to mitigate losses
 Cannot claim losses which could have
been reduced or avoided by the taking of
reasonable steps
THE LAW OF COMMERCIAL CONTRACT
Remoteness of Damage
 Damages must not be too remote
 Such losses “as may fairly and reasonably be
considered either arising naturally, i.e. according
to the usual course of things, from such breach of
contract itself, or such as may reasonably be
supposed to have been in the contemplation of
both parties at the time the contract was made, as
the probable result of the breach of it” - Hadley v
Baxendale (S&OR p272)
THE LAW OF COMMERCIAL CONTRACT
Remoteness of Damage (cont.)
 A two part test
 Losses that flow ”according to the usual
course of things” from the breach
 Koufos c C Czarnikow Ltd (S&OR p273)
 Hadley v Baxendale (S&OR p273)
 Losses within the actual contemplation of
the parties at the time the contract was
made
 Victoria Laundry v Newman Industries (S&OR
p274)
THE LAW OF COMMERCIAL CONTRACT
Calculating Damages
 The amount of damages should place the
innocent party in the same position that he
would have been in had the contract been
properly performed
 The court cannot refuse to award damages
just because they are difficult to calculate
 Damages can include
 Expectation loses
 Personal injuries
 Disappointment, distress and discomfort
THE LAW OF COMMERCIAL CONTRACT
Expectation Losses
 If there is a market for the goods then the
expectation losses will be the difference
between the market price and the contract
price
 If there is no market then specific
performance is a better option
THE LAW OF COMMERCIAL CONTRACT
Expectation Losses (cont.)
 Expectation losses include loss of profits
 Loss of a promised chance or commercial
opportunity may be claimed
 Damages will be awarded by “reference to the
degree of probabilities, or possibilities, inherent in
the plaintiff’s succeeding had the plaintiff been
given the chance which the contract promised” –
Sellars v Adelaide Petroleum (S&O p275)
THE LAW OF COMMERCIAL CONTRACT
Expectation Losses (cont.)
 If loss of a bargain cannot be calculated then
plaintiff can claim reliance expenditure
 McRae v Commonwealth Disposals
Commission (S&OR p275)
 Commonwealth v Amann Aviation (S&OR
p276)
THE LAW OF COMMERCIAL CONTRACT
Damages for Disappointment etc
 Courts have been reluctant to award
damages for disappointment, distress and
injured feelings
 Not awarded for breach of most commercial
contracts
THE LAW OF COMMERCIAL CONTRACT
Damages for Disappointment (cont.)
 Two cases where may be awarded;
 Distress flows from physical inconvenience
 Where enjoyment or entertainment or
freedom from molestation is an essential
feature of the bargain
 Cases
 Jarvis v Swann Tours (S&OR p277)
 Baltic Shipping v Dillon (S&OR p277)
THE LAW OF COMMERCIAL CONTRACT
Equitable Remedies
 Specific Performance
 Court orders a party to carry out their
contractual obligations
 Only available if an order for damages
would not be an adequate remedy
 Usually restricted to sale of land
 Never awarded to enforce a contract for
the provision of personal services
THE LAW OF COMMERCIAL CONTRACT
Equitable Remedies (cont.)
 Injunction
 Court orders a party to a contract to refrain
from breaching their contractual duty
 Only granted if necessary
 There must be evidence that the breach
will continue or will occur again
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