Discharge by Performance
Element 1: Definition of discharge by performance
- For discharge by performance to occur, the contract must be exactly or substantially
performed, to allow for recovery of the contract price.
- Partial performance does not allow for recovery of the contract price but payment
may be recovered in restitution for the work.
- Failure to perform a contract according to its terms will be a breach of the contract
Element 2: Nature of Obligations
Sub element 1: Independent Obligations
- On party must perform regardless of whether the other
- E.g. a sale of goods contract may provide for payment on a certain day whether or
not the goods are delivered by that day.
- Provided that any conditions precedent have been met, the contract price will be
payable.
Sub element 2: Dependent obligations
- One party must perform his or her obligations before the other.
- E.g. a sale of goods contract where the buyer is not required to pay for goods until
the seller ~ the goods and they are accepted by the buyer.
- Until the seller delivers the goods in accordance with the contract, the seller is not
entitled to sue for the contract price of the goods.
- If the goods are not accepted by the buyer, the seller's only claim is for damages for
breach and not for the contract price, because the contract price is payable for the
actual goods and not the promise to deliver them. Automatic Fire Sprinklers Ltd v
Watson
- Look to the performance.
Sub element 3: Dependent and Concurrent Obligations
E.g. in a sale of land contract where the purchaser pays the purchase price in exchange for,
and at the same time as, the vendor delivers title and possession of the property to the
purchaser.
Any failure to perform will generally NOT be considered of a minor nature.
Element 3: Type of Contract
Sub element 1: Divisible Contracts
This is a contract where the consideration and the payment thereof is apportioned or is
capable of apportionment according to the work to be done. (Steele v Tardiani)
- The Court considers: o Each divisible part separately as if they were different agreements.
o Only the obligations relating to that particular divisible part of the contract
- The party performing the contract is able to recover after each part of the contract
notwithstanding the whole of the contract is not completed.
Sub element 2: Lump sum contracts
A contract that provides for the payment of a specific sum for the completion of specific work.
- Court considers:o The whole of the performing party's obligations under the contract
o Whether the performance that was rendered satisfied the requirements of the
contract as a whole.
- Hoenig v Isaacs [followed in Queensland in Lemura v (Coppola)
Element 4 – Nature of the Obligation
Sub element 1 – Entire Obligations
- This requires exact performance of the entire contract before the contract price can
be paid. In the case of a divisible contract, it requires exact performance of that
particular part of the contract.
Usually occurs in contracts where the terms clearly indicate that 'the consideration for
the Payment of money or for the rendering of some other counter performance is
entire and divisible.' Baltic Shipping Co v Dillon
- Essential features are: o Complete performance is a condition precedent to payment of the contract
price
o The benefit expected by the defendant is to result from the enjoyment of
every part of the work jointly; and
o The consideration is neither apportioned by the contract nor capable of
apportionment.
Cutter v Powell
Facts:
- Seaman working on ship from Jamaica to Liverpool for 30 guineas on arrival provided
he worked for period of voyage died 6 weeks into 2 month voyage
- Administratrix commenced an action for the contract price or quantum meruit
HELD:
Contract entire and therefore could not recover either
- Court influenced by: o Cutter required to do duty for whole voyage
o Lack of prevailing custom
o Significantly high amount of money payable under contract comparable with
the monthly wage.
o Therefore parties intended an all or nothing result
-
Sub element 2 – Not entire obligations
The fulfilment of every part of the contract price is not necessarily essential to payment of the
contract price even though the obligations of the parties are dependent.
Element 5: Nature of Performance
Sub element 1: Exact Performance
If the contract was performed exactly the party is entitled to the contract price
Sub-element 2: Partial Performance
- Despite the fact the contract price may not be recoverable a party to the contract may
be able to seek alternative remedies.
- The first alternative is for the party who has undertaken work or provided goods to
seek damages for the breach of the other party.
o Damages may be claimed only if the party seeking them is not themselves in
breach.
- The second alternative is to make a claim in restitution for the return of a benefit
provided to the other part.
o The only type of restitutionary claim relevant to this context is a claim for
quantum meriut for the value of serves provide to the other party.
The party is entitled to a quantum meruit or the choice of quantum meruit and damages
depending who was in breach.
Application to Divisible Contract
- A party who only partially performs a severable part of the contract is not entitled to
the contract price for that part unless the other party has prevented performance or
the work has been accepted (Steele v Tardiani).
Application to a Lump Sum contract
- A party who partially performs a lump sum contract will not be entitled to the contract
price.
- They may be entitled to damages or a quantum meruit in certain circumstances. See
Appleby v Myers and Automatic Sprinklers v Watson
Sub element 3: Substantial performance
- Will occur where the defects in the services or goods are of a minor nature. The court
takes into account:
o The nature of the defect; and
o The cost of rectifying the defect compared to the contract price.
- Where the contract does not clearly and expressly provide that exact performance is
a condition precedent to the payment of the contract price, the court will lean against
a construction that would deprive the party any payment simply because of defects.
- If a contract or part of a divisible contract is substantially performed the party will be
entitled to the contract price less an amount for rectifying the defects in the
performance.
Hoeniq v Isaacs
Facts:
- P agreed to decorate and furnish D's flat for 750
- D paid 400 as progress payments
- When work was finished door of wardrobe needed replacing and too short book shelf
for 55.18
HELD:
- As p had substantially performed contract, he was entitled to payment less an amount
for rectification
Bolton v Mahadeva
Facts:
- P agreed to install water heater for 560
- Installed water heater gave out fumes and didn't work properly
- P claimed payment of contract price
- Court took into account
o Heating system did not heat house adequately
o Gave out fumes
o Cost of rectification 174 pounds
HELD:
P had failed to substantially perform obligations
The court took into account:
- Where nature of defect is minor and cost of rectification is 10% or less court will allow
recovery for substantial performance [Hoenig]
- Where nature of defect is minor and cost of rectification is 10% or more court will
allow recovery for substantial performance, subject to cost of rectification not
exceeding a reasonable amount
- Where nature of defect is serious and cost of rectification is 33% or more court will
refuse recovery for substantial performance [Bolton]
- Where nature of defect is serious and cost of rectification is 10% or less it is unlikely
contract price will be recoverable
Application to Divisible contract
- The principle of substantial performance will apply to each part of a divisible contract
as if it were a separate contract.
- Therefore, a person who has substantially performed a part of the contract is entitled
to be paid for that part less damages for any defective performance.
- Substantial performance will not apply if the severable parts of the contract are
considered to be entire (Steele v Tardiani).
Application to Lump sum contract
- The court will look to the whole of the performance as compared to the whole of the
required performance under the contract.
- If the obligations are entire, the doctrine of substantial performance will not apply.
Element 6: Effect of Termination
Termination by Party not in breach
- If the party obliged to pay the price has validly terminated the contract for a breach of
the party performing the work, it will generally mean that the party obliged to perform
the work has not substantially performed the contract
- If the D has substantially performed then the termination is invalid
Termination by Party in breach
- If the party undertaking the work has validly terminated the contract for a breach of
the party obliged to pay the price, a claim for the contract price will only succeed if
there is an accrued right to claim the right prior to the termination
Element 7: Recovery by Parties
To establish the rights of a party who has performed work under a contract it is necessary to
distinguish between a party in breach and one who is not in breach of the contract:
Quantum Meriut
- Quantum meruit is a claim for the reasonable value of the work performed by the
party. Only available for part performance
- The claim is only available once the contract has been terminated or rescinded. The
basis of the claim is the return of a benefit or monies worth, which has been given to
the defendant in circumstance where the defendant should be required to pay for the
benefit.
- Unlike contractual damages recovery of a quantum meruit is generally unrelated to
fault and is premised upon three elements:
o Has the plaintiff provided a benefit to the defendant?
o Was the benefit provided at the expense of the plaintiff?
o Is it unjust that the defendant retains the benefit?
Sub element 1: Party not in breach
- A party who is not in breach under a contract where services have been provided will
be able to seek compensation for the work performed. The party may elect to seek
compensation on the basis of either:
o A quantum meruit; or
o Damages.
- The party will not be entitled to both damages and a quantum meruit and will need to
elect between the remedies at judgment.
- If the party has performed his obligations exactly or substantially then a claim lies on
the contract price and quantum meruit cannot be sought as the contract cannot be
terminated for breach
Provision of Benefit
- Generally considered objectively
Sub element 2: Party in breach
- Where the party who has performed services is in breach of the contract the
potential for compensation is limited to a claim for quantum meruit because they
cannot rely on their own breach to obtain a benefit under the contract.
Provision of Benefit
- Will be unable to prove that a benefit was provided to the D because where a
defendant has not received what they expected under the contract, the defendant
may subjectively devalue the work.
o The defendant may allege that as the work is only partially complete, it is of
no benefit to him or her. For this reason services will generally only be
considered to provide a benefit if;
 The services performed were requested by the defendant; or
 The services were freely accepted; or
 The defendant has obtained an incontrovertible benefit from the
services.
Services
- It will be insufficient in a claim for quantum meruit by the party in breach to merely
show the services were requested.
- Despite the fact work may have been requested by the defendant, the problem will be
that the work provided will usually not match the request.
- It will be difficult for the plaintiff to convince a court that work that does not comply
with a request actually provides a benefit to the defendant except where the other
party prevents the performance of the agreement: Planche v Colburn
Freely Accepted
The concept of free acceptance means that the defendant has a choice whether to accept or
reject the work and has freely decided to accept the work that does not comply with the
contract. Where the work concerns improvements to land the plaintiff will have a very difficult
task in proving free acceptance.
Sumpter v Hedges
Facts:
- P agreed to build 2 houses and a stable for the D for 565
- P did part of the work amounting to 333 and received payment of part of it
- Informed D he could not go on
- D finished building using materials p left behind
Held:
- P was awarded value of materials left behind
- Refused claim of quantum meruit because in work done on land D does not have
much choice of free acceptance
Incontrovertible benefit
- Arises where the D has converted goods or services provided by the p into money in
the hands of the D
Steele v Tardiani
Facts:
- D employed P to cut firewood and alleged p were in breach because wood wasn't cut
into correct lengths
- However D sold all wood
HELD:
- Contract was divisible so p were entitled to be paid for any wood cut into correct
lengths
- Entitled to recover on quantum meruit for remaining timber split
Termination by Frustration
Termination by frustration will occur where subsequent to a contracts formation a change of
circumstances beyond the control of either of the parties renders the contract impossible to
perform because performance would render it a thing radically different from that -which was
undertaken by the contract. Codelfa Construction Pty Ltd v State Rail Authority of NSW
There is no frustration just because performance of a contract becomes more onerous or
inconvenient or expensive. The Eugenia
Element 1: Has Frustration Occurred?
Sun element 1: Destruction or unavailability of subject matter
- This occurs where without the fault of either party; the specific subject matter of the
contract is destroyed or lost to the parties e.g. through fire, or being resumed by the
government
- It will not occur where one of the parties has expressly or impliedly agreed to bear the
risk of destruction.
Taylor v Caldwell
Facts:
- Hall destroyed by fire
Sub element 2: Death or Incapacitation of person essential for performance
- Occurs in a contract for service
- Includes illness, imprisonment, conscription...
- The effect of illness will depend on: o Nature and probable duration of illness
o Terms and nature of contract; in employment contracts that provide for sick
leave, the contract may be frustrated when all the sick leave benefits expire.
- Simmons Ltd v Hay
- Carmichael v Colonial Sugar Ca Ltd
- Finch v Sayers
Sub Element 3: Failure of basis of contract
Occurs where an event that the parties have agreed to as the basis of the contract does not
occur
Krell v Henry
Facts:
- Coronation of Edward VII
- Hired a flat to watch the procession
- Coronation was cancelled
Held:
- Frustrated because watching the procession was the basis of the contract
Event must be true basis of contract and not mere co-incident:
Herne Bay Steam Boat Co v Hut ton
Facts:
- Coronation of Edward VII
- Hired a yacht to look at fleet
Held:
- Coronation was cancelled
- Not frustrated because he could still watch the fleet
Sub Element 4: Method of Performance Impossible
- Contract must expressly provide for a particular method of performance; OR
- It must be stipulated or contemplated by both parties in circumstances necessitating
that method: Codelfa
Sub Element 5: Excessive Delay
- Past or prospective delay in performance:
- Will depend on:
o The probability of the length of the delay
o The time left to run on the contract: Pioneer Shippinq Ltd v BTP Tioxide Ltd
- Sometimes a party is not bound to wait for the delay to occur but can immediately
treat the contract as discharged
- Others will require the parties to wait and see:
o Embiricos v Sydney Reid & Co
o Pioneer Shil1oinq Ltd v BTP Tioxide Ltd
- Events are not judged with hindsight: Court Line v Dant & Russell
Sub Element 6: Illegality
Performance rendered legally impossible by: - Changes in Law
o After the contract is performed, the law may change in such a way as to
prohibit further performance of the contract and the contract will be
discharged
o Attention must be paid to the terms of the contract and the surrounding
circumstances
Scanlon’s New Neon v Tooheys
Facts:
- Leased neon sign.
- Under war powers illumination was prohibited at night.
- P claimed K was frustrated.
Held:
- K was not frustrated because it was easily seen during the day and thus retained
significant advertising value, though less than what the P expected.
-
Contracting with the enemy
o Any contract between Aus and a country it is at war with will be illegal
o May also be illegal if the contract provides assistance to the enemy prohibits
the prosecution of the war
o Fibrosa v Fairbairn
o Hirsch Zinc Corporation Ltd
o Metropolitan Water Board v Kerr
Sub Element 7: Land Contracts
Sale contracts
- Upon execution of a contract of sale, the purchaser acquires an equitable interest in
the land
- If there is a radical change in circumstances between the time of the contract and the
time of settlement that prevents the vendor from transferring legal estate, specific
performance will no longer be available
- Therefore the purchaser cant be treated as the owner in equity and the contract will
be frustrated e.g. where
o Government resumes the land
o Landslide destroys the land
- In a sale of land that includes a building, and the building is destroyed, the contract is
not frustrated because the purchaser can still acquire legal interest of the land.
- Austin v Sheldon
- Holland v Gold trans Pty Ltd.
Leases:
- Agreement to lease confers an equitable interest on the lessee while an actual grant
of the lease transfers legal estate
-
In Codelfa, the court followed the English ruling of National Carriers v Panalpina
(Northern) Ltd. The court takes into account: o The duration of the lease and the time left to run on it after the frustrating
event
o The nature and object of the lease
o Length or prospective length of the frustrating event
Element 2: Are there any limits that apply?
Sub element 1: Express contractual provisions
-
The event must not be provided for in the contract:
Where the contract expressly provides for dealing with the event, the parties will be
taken to have provided for its occurrence
-
Claude Neon v Hardie
o K provided for P to ask for rent balance if interest of lessee in premises was
extinguished or transferred
o Premises resumed by Government
o D argued frustration
HELD:
o Resumption amounted to extinguishment of interest and therefore there was
no frustration because it had been provided for in the contract
o Must be distinguished from force majeure clauses, which provide for a
number of events and then provide for consequences in case the event
occurs e.g. "strikes, floods, war..."
-
Sub Element 2: Event Foreseeable
-
-
-
In general, the event must not have been foreseen by the parties, apart from the case
of intervening illegality:
Reference must be made to what was originally contemplated by the parties; this
depends on: o Express provisions in the contract
o Nature of the contract
o Surrounding circumstances
Where the supervening event was, or should have been, foreseen by the parties as a
serious possibility, but for which they did not make express provision, the inference is
that they have nevertheless assumed the risk of the event occurring.
Event must be a "serious possibility' and not 'reasonably foreseeable'
Even where the event is foreseeable, it may frustrate the contract where the effect of
the interference exceeded anything that was contemplated.
WJ Tatem Ltd v Gamboa
Facts:
- Vessel chartered for 1 month by Republicans to evacuate people
- Contemplated that vessel might be detained for a short while by Nationalists, so D
paid 3 times market hire rate in advance
- Vessel seized for 2 months
- P claimed additional payment for 2nd month
HELD:
- Although both parties contemplated the event it exceeded anything that was
contemplated therefore K frustrated and claimed hire not payable.
Sub element 3: Event induced by one of the parties
-
The event must not be due to the "fault" of one of the parties: o Where brought about by deliberate act of one of the parties, OR
o Due to the negligence of one of the parties depending on:  Degree of seriousness of the negligence

-
-
Closeness of the cause between the negligence and the frustrating
event
 Whether the negligent conduct was directed toward the performance
of the contract
 Whether contract commercial or personal
Where party enters into a no of contracts and has a real choice whether to fulfill one
contract out of a number, the act leading to the failure to perform may be self induced
frustration. Maritime National Fish v Ocean Trawlers
Onus lies on person who makes the allegation of self-induced frustration. Joseph
Constantine v Imperial Smelting
Element 3: What will be the effect of the frustration?
Discharge
- Frustration automatically discharges a contract as to the future at the time of the
frustrating event: Hirji Muiji v Cheong Yue Steamship Co Ltd.
- Discharge by force of law so not necessary to elect to terminate contract
Voidable
Unconditional rights accrued before frustration remains enforceable;
Obligations not yet accrued are discharged. But some clauses may continue to bind the
parties: eg arbitration clause: Codelfa
Total failure of consideration
- The loss arising from the discharge lies where it falls unless there is a total failure of
consideration.
- Rights accrued before frustration will be unenforceable if there is a total failure of
consideration. Fibrosa SA v Fairbairn. Lawson Ltd
Quantum Meruit
- Work done under the contract after frustration may be claimed on a quantum meruit
basis: Codelfa No.1
Damages
- Neither party is entitled to damages after frustration.
Termination by Agreement
Definition
- Parties to an existing contract can make an agreement to extinguish the rights and
obligations it has created
- An agreement is itself a binding contract provided it is either made under seal or
supported by consideration.
Element 1: Has there been an agreement?
There must be: - Offer
- Acceptance
- Consideration
- Clear intention to bring the parties obligations to an end
Sub Element 1: Is there consideration?
Where neither party has performed their obligations: - The consideration is the mutual release by each party of the other from performance
of outstanding obligations.
- Bilateral discharge may be an agreement to discharge the contract without replacing
it. Or to discharge the contract and replace it with another contract.
Where one party has completely performed his or her side of the contract: - Consideration must be under seal or be supported by fresh consideration. Accord and
satisfaction: McDermott v Black.
Compromise of a cause of action [Accord and Satisfaction]
- Agreement to relinquish a cause of action against a party may act as a discharge of
the original agreement
- The accord is the agreement by which the obligation is discharged
- The satisfaction is the consideration which makes the agreement operative
Accord Satisfaction
- The original agreement is discharged immediately the compromise agreement is
entered into
- The agreement itself releases the cause of action and is substituted in its place
- Discharges the original agreement immediately
Breach
- If a party breaches an accord satisfaction; the innocent party will be forced to
seek: - Damages for the breach of the compromise or
- Specific performance
- Original agreement will not be revived by the breach
Accord Executory
- The compromise is a promise to release the cause of action only once the event set
out in the compromise occurs
- The original cause of action will not be discharged unless the promised conduct
occurs
Breach
-
If a party breaches an accord satisfaction; the innocent party will be entitled to: Revive the original cause of action; or
Seek Specific performance
Fraser v Elgen Tavern
Element 2: Has there been a variation?
- Variation leaves the original contract on foot but modifies some particulars
- Requires all the things that a valid agreement requires
Element 3: Requirement of Writing
Discharge:
- An oral agreement to discharge a contract will be enforceable even if the agreement
was of a type required to be in writing. Tallerman & co v Nathan’s Merchandise
- The oral agreement is not in itself enforceable but will be enough to discharge the
original contract. Morris v Barron
Variation
- An oral agreement to vary an oral contract is enforceable; an oral agreement to vary
a contract in writing will not be enforceable. Tallerman
- In an oral agreement to terminate a contract required to be in writing and replace with
a new contract, the termination will be operative but the new contract will be
unenforceable. Tallerman
- Dispensation of mode of performance (i.e., extending time frame for performance) will
be enforceable even if the K is one required to be in writing. Phillips v Ellinson Bros
Writing then original contract remains on foot Australian Provincial Association Ltd v
Ragers (1943) 43 SR (NSW) 202.
Element 4: Non-Contractual Discharge:
-
-
Abandonment will occur where an inordinate length of time has been allowed to pass
during which time neither party has attempted to perform or called on the other to
perform
Fitzgerald v Masters
Termination for Breach
Element 1: Has there been a Breach
- A right to terminate for the breach of a term of a contract will arise either:
- Pursuant to the contract.
- Pursuant to common law. This will occur where there is: - A breach of an essential term, or
- A serious breach of an intermediate term.
Sub Element 1: Contractual Right of Termination
- Depends upon the construction of the contract
- Events that activate the contractual right must occur
- Innocent party must exercise the right of termination
- Contractual right will be construed strictly
- Claim for damages will depend on the injured party's proving that the term breached
is essential or that a repudiation has occurred
Sub element 2: Breach of an Essential Term
- Ascertained by reference to: o The contract as a whole and
o The intention of the parties
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd
- Test of essentiality
- 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
- All breaches of the term will allow the innocent party to terminate the contract
Express terms
- 'Time is of the essence' is strictly construed as an essential term
- A provision in the contract for a right to terminate the contract for a breach of the term
will also be construed strictly
- Innocent party will need to elect to terminate the contract
- Court will have regard to: o Conduct of the parties following a breach of the term
o Motivation for entry into the contract
o Whether the term itself was set out clearly and concisely
o What the consequences of breaching the term will be
Implied Terms
- Implied by statute
o Statute will regularly provide for the effect of breaching such a term
o Effect of the implied term may not as a rule be altered by the parties
- Implied by common law
o Classification depends upon the construction of the contract and possible
intentions of the parties
Sub Element 3: Serious breach of an intermediate term
Will give rise to a variety of breaches
Depends on:
o The seriousness of the breach and
o Consequences both actual and foreseeable
o If consequences deprive innocent party of substantially the whole of the
benefit of the contract termination will be possible
o Where consequences are less serious the innocent party will be limited to
damages
Hong Kong Fir Shipping case [1962] 2 QB 26
Bunge v Tradax [19BI] I WLR 711.
Termination by Repudiation
- A repudiation occurs when a party:
o Renounces his liabilities under the contract
o Evinces an intention either expressly by words or impliedly by conduct, no
longer to be bound by the contract; or
o Indicates clearly an intention to perform the contract in a manner substantially
inconsistent with is obligations
- The refusal or inability to perform must relate to the contract as a whole, or to an
essential respect
- Promisee must elect to terminate the contract
Element 1: Anticipatory Breach
- A repudiation before the time fixed for performance is called an "anticipatory breach".
- The innocent party may elect to treat the contract as discharged and sue for damages
without waiting for the time for performance to arrive.
o Breach must be of a sufficiently serious nature
o This right of termination is subject to the restriction that the innocent party
need only show that at the time of the anticipatory breach he or she was not
wholly or finally disabled from performing the contract; Foran v Wight.
- Promisee may wait until the time for performance and accept the failure to perform
as an actual repudiation of the contract or a breach of an essential term
o Breach must be accepted before it is acted upon
o If innocent party does not elect to terminate contract prior to time for
performance the contract will continue on foot for benefit of both parties
o Possible for repudiating party to change his mind and complete the contract
Element 2: Application to Leases
- Delivery of a notice to lessee to rectify breach will be a prerequisite to exercising a
right to terminate for repudiation
- Right to damages will depend on the existence of a breach of an essential term or a
repudiation of the contract notwithstanding there is a clause in the contract giving
the lessor a right to terminate if the lessee is in default of any clause of the lease
- Doctrine of surrender of leases; o If the ct considers that the lessor actually accepted a surrender of the lease
rather than terminating for repudiation no damages for future rent are
available
Element 3: Proof of Repudiation
- Reference to D's words or conduct
o No requirement for proof that the D is also unable to perform
- Reference to D's position; that is, whether on the basis of surrounding facts they are
in a position to perform
o P required to prove D was unable to perform at the time for performance
Element 4: Examples of Repudiation
Sub element 1: Repudiation by words or conduct
Express refusal
- Refusal to perform all the obligations will dearly amount to repudiation
o Hochster v de la Tour
o D agreed to employ p as a courier
o Before p started he was told his services no longer required
o HELD; D had repudiated all his obligations under the K
- Refusal to perform some of the obligations may amount to repudiation if refusal is of a
sufficiently serious matter
o Associated News v Bancks
Implied refusal
- May be implied from party's words or conduct where a reasonable person in the
shoes of the innocent party would clearly infer that the other party would not be
bound by the K or would fulfil it only in a manner substantially inconsistent with that
party’s obligations and in no other way. Laurinda v Capalaba Park Shopping Centre
Unjustifiable interpretation of the contract
- Party acts or; an erroneous construction and breaches one or more terms or
- Evinces an intention not to perform except in accordance with the erroneous
interpretation Luna Park (NSWJ Ltd v Tramways Advertising Pty Ltd
- DTR Nominees Pty Ltd v Mona Homes Pty Ltd
- However, before termination an attempt should have been made to persuade the
party of the error of its ways, or to give it an opportunity to reconsider
- Court distinguished two instances
- Where in the face of adverse comment a party insists on an interpretation of
the K which is not tenable [repudiation]
- Where the party although asserting a wrong view is willing to perform the K
rightly
Wrongful termination of the contract
- Where a party purports to terminate a contract in circumstances where he has no
legal right to do so the party's conduct will constitute a repudiation
- The termination will therefore not be effective
- Innocent party will still have to elect to terminate
- Braidotti v Qld City Properties Ltd
Commencement of proceedings
- Will not amount to repudiation unless proceedings commenced in such
circumstances as to make it plain that the party commencing them evinces an
intention not to be bound irrespective of the outcome
- Lombok Pty Ltd v Serpentine Pty Ltd
Sub element 1; Repudiation based on Inability to perform
- Express declaration by words or acts - Faran v Wight
- Implied inability - P must prove that the D is wholly and finally disabled from
performing Necessary to prove D's actual position rather than what he said or did
Element 5:
- Must be accepted by terminating the K
Element 6: Termination for Delay in Performance
A contract may be terminated for a delay in performance of the agreement. This is in essence
an example of a situation where a party may be entitled to terminate for breach of a term of
the contract or for a repudiation depending upon the circumstances.
- If time is expressly or impliedly of the essence of the agreement, failure to perform
on the date specified will be a breach of an essential term of the contract allowing
the innocent party to terminate.
- If time is not of the essence of the agreement termination is only possible where:
o A notice making time of the essence has been served and the other person
fails to comply with the notice; or
o No notice is served making time of the essence but the conduct of the person
is such to amount to a repudiation of the contract.
Sub Element 1: Time of the Essence
Timely performance will be of the essence where:
- The contract expressly so stipulates: Harold Wood Brick Co v Ferris; or
- The surrounding circumstances or the subject matter make it imperative that the
agreed date be precisely observed: Bunge Corp v Tradax SA; or
- The terms of the contract are such that time of the essence should be inferred: Wocal
Investments v Hurley
- See also Sale of Goads Act 1896 (Qld), s 13(1) which provides for the effect of time
stipulations in contracts for the sale of goods.
If a time stipulation is of the essence failure to perform the contract on time will allow the
innocent party to terminate the contract for breach of a term immediately.
Examples of time of the essence
Commercial contracts
- In commercial contracts time stipulations are generally regarded as essential: Bunge
v Tradax
- If a date for performance of the contract is stipulated then a failure to perform on that
date will entitle the innocent party to terminate the contract.
- In general equity follows and upholds the common law in these situations.
Land contracts
- Payment of a deposit on time is prima facie essential because of its special character
as an earnest of performance: Brien v Dwyer
- Failure to pay a deposit is a breach of an essential term entitling the innocent party to
terminate the contract.
- Payment of the balance of the purchase monies is subject to the rules of equity
concerning time performance in contracts for the sale of land.
-
-
-
-
At Common law, time is of the essence if the contract expressly so stipulated or
the contract named the date of completion. The innocent party could terminate
forthwith.
In Equity, however, time was not of the essence unless expressly stipulated.
Therefore, where there was only a date for completion stipulated equity regarded
time as not of the essence. The party not in default had to serve a notice to
complete giving a reasonable time to complete before that party could terminate
the contract for breach: Canning v Tem by.
Courts of Equity did however recognise that in some cases, other than where
time is expressly of the essence, time could be impliedly of the essence in equity:
see Stickney v Keeble (1915) AC 386. That is where the surrounding
circumstances or the subject matter makes it imperative that the agreed date be
precisely observed.
The ascendancy of the equitable rule was statutorily affirmed by s 25(7) of the
Judicature Act 1873 (UK): see now Property Law Act 1974 (Qld) s 62.
Sub Element 2: Time not of the Essence
- If time is not of the essence failure to perform on time will merely be a breach of an
inessential term of the contract.
- Before the innocent party is able to terminate the contract it is necessary for the
innocent party to serve a notice to complete on the party in breach.
- The notice should give the party in breach a reasonable time to perform the obligation
before the innocent party is able to terminate the contract.
Time for giving notice to complete
Where Contract does not specify a date for completion
- There must be: o Failure to perform within a reasonable time
o The notice will then give a further reasonable time
Contract specifies a date for completion and time is not of the essence
- This will occur where: o The delay that extends beyond the date stated in the contract is so gross so
as to cause serious detriment to the other party.
o In a commercial contract where the delay is so unreasonable as to frustrate
the commercial purpose of the contract
- The notice to complete can be served immediately once the date of performance is
-
passed giving a further reasonable time for performance.
Failure to complete on that further date will be considered an unreasonable delay
allowing the innocent party to terminate.
Exception to the rule that a notice is required
- A right to terminate will arise for breach of a non-essential time stipulation without the
service of a notice where the delay is unreasonable: o Because of the serious consequences for the promisee, or
o Because the delay amounts to a repudiation of the party's obligations:
Laurinda v Capalaba Park shopping Centre.
Required content of the Notice
1. What the promisor must do to perform the contract
2. A reasonable time in which the contract should be completed; court will consider: - The nature of the transaction
- The remaining action$ a party is required to undertake to perform the contract
- How long the party has already been given to complete
3. A statement of the consequences of not performing in accordance with the notice
- Either that time is of the essence
- Or in the event of non-compliance the notifying party will regard itself as entitled
to terminate the contract Laurinda v Capalaba Park Shopping Centre
Element 7: Restrictions on the right to terminate
Sub element 1: Election
- A contract will not automatically terminate due to the breach of one of the parties it
must be terminated by one of the parties: Kelly v Desnoe.
- In general a party who has the right to terminate has a choice whether to affirm or to
terminate.
- If the innocent party elects to affirm the contract it will continue to subsist for the
benefit of both parties:
o Avery v Bowden
o Peter Turnbull Pty Ltd v Mundus Trading Pty Ltd.
- Reliance on a ground of termination, which proves untenable, does not prevent later
reliance on a then
- Existing ground which is adequate:
o Shepherd v Felt and Textiles of Australia Ltd (1931)
Sub Element 2: Further performance impossible
- Where further performance of the contract requires the co-operation of the other party
or is impossible, the innocent party may have no choice but to terminate the contract
for breach:
- White Et Carter (Councils) Ltd v McGregor
Sub element 3: Terminating Party not in breach
Dependent and concurrent obligations
- This will apply to the obligation to complete a land or sale of goods contract, which
are dependant and concurrent
- The terminating party must be able to show that they were ready, willing and able to
perform the contract at the time for performance. Foran v Wight
-
If the breach occurs at the time for performance of the contract the terminating party
must be ready willing and able at the time of performance.
o An innocent party who is not able to show they are ready willing and able
may not terminate the contract.
If the breach is prior to the time of performance, i.e. anticipatory breach, the terminating party
need only show that at the time of the anticipatory breach they were not wholly and financially
disabled from performing the contract. Foran v Wright
- Proof of this at the time of the anticipatory breach will enable the party to terminate
the contract
- However, if the party wishes to claim dama2es it will be necessary to show that they
would on the balance of probabilities have been ready willing and able on the date for
completion.
Obligations not Dependent and concurrent
- Where the obligations are not dependent and concurrent the terminating party does
not need to show they are ready, willing and able:
- Kelly v Desnoe
Sub Element 4: Terminating Party not in default
- Another restriction is that a terminating party cannot take advantage of their own
breach or default to terminate the contract or acquire a benefit under the contract:
Sub Element 5: Relief in Equity
Equitable Estoppel
See LWB136 notes on estoppel.
Relief against forfeiture:
Ct. exercising its equitable jurisdiction will prevent a vendor from relying on a forfeiture
clause. For the court to allow this remedy it requires: (Shiloh Spinners Ltd v Harding)
- That the object of the transaction and the insertion of a right to forfeit are essentially
to secure the payment of money.
- The party possesses a sufficient interest under the contract.
- The intervention of equity is appropriate, either because of unconscionable conduct
(exceptional circumstances) or because the forfeiture clause acts as a penalty.
The court will take into account when determining if exceptional circumstances exist:
- Whether vendor’s conduct contributed to the breach.
- How serious the breach was
- Whether the breach was wilful
- The damage actually caused to the vendor.
- The vendors’ gain weighed against the purchasers loss and whether an award of
specific performance is an adequate remedy for the vendor.
This remedy will usually not be granted where the failure to perform is a breach of an
essential time provision.
Sub Element 6: Right to terminate lost or excluded
- Right to terminate may be excluded by agreement, or legislation.
- The parties may expressly exclude the doctrine of repudiation.
- For example the contract may provide that the common law concept of repudiation
does not apply. It would be rare for a contract to expressly provide for this to occur.
However, the terms of the contract may provide for a code in relation to the
termination of the contract, which impliedly excludes the operation of the doctrine of
repudiation: Amann Aviation Pty Ltd v The Commonwealth (1990) 92 AlR 601.
Element 8: Effect of Discharge for Breach
Discharge of Obligations
- Both the party electing to discharge and the party in breach are released from all
future obligations under the contract. Some terms, however, intended to govern
liability for breach will continue to apply, eg arbitration clause, exemption clause,
limitation of damages clause.
Enforcement of accrued rights
- Unconditionally accrued rights, for example, fixed sums payable under the contract in
respect of performance rendered prior to breach, and causes of action which have
accrued because of a breach, are also unaffected by termination: McDonald v
Dennys Lascelles Ltd.
Recovery of Contract Price
- Contract price is only recoverable after termination if it has been earned prior to
termination. (Either exact or substantial performance)
- Will be able to claim completion of divisible parts if earned before termination.
- Defaulting party will not be able to resist a claim for payment on the basis of total
failure of consideration
Damages
Damages for breach of contract are awarded to compensate the person for their loss not to
penalise the wrongdoer
- Obligation to pay damages for failure to perform an obligation arises impliedly form
the entry into the contract.
o This is a secondary obligation assumed or agreed upon and not imposed
o Can be expressly excluded or limited
o Mere entry into contract is sufficient
Element 1: Is there a cause of action?
One of the parties fails to perform one or more of that party's obligations under the contract
Question of fact
Actual loss needs to be proved but proof of loss is not a precondition to damages
In the absence of actual loss nominal damages may be awarded
Onus of Proof
- Plaintiffs case on balance of probabilities
o Elements of cause of action
o Amount of loss suffered
o Causation
o Remoteness
- Defendants case
o Prove that plaintiff has failed to mitigate his loss
o If D does not argue above then it will be assumed P has mitigated loss
o Additional onus in cases where reliance loss is claimed Element 2: Causation
Did the wrong or breach of contract cause the loss?
Common law looks at whether: An act or omission contributed to the occurrence of a particular event (causation)
Responsibility should attach to that act or omission (remoteness)
Sub Element 1: the “But for” test.
- The traditional test for establishing causation in contract is the "but for" test.
- The loss would not have accrued but for the breach of the defendant.
- If the loss would have been suffered anyway no more than nominal damages will be
payable.
- It is not necessary that the D's conduct be the only factor as long as it's a cause of
the loss
Sub Element 2: Common sense approach and multiple causes
- Recognizes that the "but for' test is plainly inadequate where there are two separate
and independent events each of which alone was sufficient to cause the damage.
- Alexander v Cambridge Credit Corp the question should be; whether 'as a matter of
common sense, the relevant act or omission was a cause' of the loss.
- It is possible to apply the ‘but for’ test in a common sense way to determine whether
the breach ‘causally contributed’ to the damage.
- It is not necessary for the breach to be the only cause of the loss only that it was a
cause.
Sub Element 3; how causation can limit damages
Where the chain of causation between the defendant's conduct and the loss to the plaintiff
has been broken the defendant will not be liable for the loss.
Contributory Negligence
Where actions of the plaintiff contributed to the loss
In tort contributory negligence will not break the chain of causation but will reduce the amount
of damages
In contract, contributory negligence will only be relevant where the conduct is such as to
break the chain of causation between the defendant and the loss.
Lexmead (Basingstoke) Ltd v Lewis
- Farmer bought a towing hitch to connect his four wheel drive to a trailer
- Used it while broken for 3-6 months
- Trailer became loose and killed driver and son in a car
- Passenger brought action for damages for personal injury
- Farmer in 3rd party proceedings sought damages from seller of hutch claiming
breach of contract for goods no fit for purpose
Held:
- Loss arose from farmers negligence in not repairing hitch and not from seller so broke
chain of causation
Intervening acts or events
Action of 3rd party that is so substantial so it is no longer possible to conclude that the breach
of contract attributed to the loss
Intervening act must "act to supersede in potency" the breach of contract so that it can no
longer be considered as a cause either in common sense or in law
But where the D is under a contractual duty to guard against the very act of the intervener
there will be no break in causation e.g. writing a check in a careless way that allows someone
to change the payee
Where the intervening event is foreseeable by the parties this will not break the chain of
causation.
Mahoney v J Kruschich (Demolitions) Pty Ltd
- Causation may be broken by
o The relevant injury not reasonably foreseeable
o Chain of causation is broken by a noveus actus interveniens
o This is a Question of legal liability and not of fact
Monarch SS Co Ltd v AIB Karlshamns Oliefabriker
- Appellant breached its contract with the D to provide a seaworthy ship for the carriage
of cargo from Manchuria at o Sweden
- Vessel was delayed so couldn't reach Swede before WW2
- British ordered vessel to unload a Glasgow
- D had to arrange for cargo to be shipped to Sweden and Appellant was charged for
this cost
- Appellant argued that war intervened and broke chain of causation
- Held: appellant ought to have reasonably foreseen war might break out
Element 3: Is the loss suffered by the P not too remote?
- The law places a limit on the amount and time over which losses are recoverable
o A loss, which is causally related to the breach, will nonetheless not be
compensable if it is too remote.
- Remoteness operates as a policy factor in the courts decisions
o Remoteness of damage is governed by the rule in Hadley v Baxendale.
o Alderson- parties to a contract should only be liable for loss that could be
fairly and reasonably contemplated by both parties when making the contract.
o The principal is that damage is not too remote if it is such as may reasonably
be considered:
Sub element 1: First limb of Hadley V Baxendale
Damage that arises naturally according to the usual course of things from the breach will be
recoverable
- Court looks to the reasonable contemplation of a reasonable person on the position
of the parties to the contract.
- Alderson. The loss would be loss flowing naturally from the breach of the contract
in the great multitude of such cases occurring under ordinary circumstances
- Parties to a contract will have in their contemplation a result which will happen in
-
the great majority of cases (Koufos)
Test of reasonable foreseeability should not be applied to contract law (Koufos)
There have been several formulations of what is meant by the first limb of the rule:
Hadley v Baxendale
- In this case the 1st limb wasn't satisfied
- P, owner of a flour mill contracted with the D, a common carrier, to convey a broken
crankshaft to engineers to manufacture a new shaft
- Delivery was delayed so mill was stopped for 5 days longer and profit was lost
Held:
- D not liable for lost profits as he was a mere carrier who didn't know mill would be
stopped. Not a result that could have occurred in a multitude of cases
Koufos v Czarinkow
- 1st rule was satisfied
- D agreed to carry sugar form Constanza to Basrah but deviated taking 10 days
longer.
- Sugar prices fell in Basrah and P suffered loss of profit by selling at lower price
Held:
- Loss occurred in usual course of things because D knew
- P were sugar merchants
- There was a market for sugar in Basrah
Victoria Laundry Windsor Ltd v Newman Industries
- Part of the loss was recovered under the l' limb but the balance of the loss was too
remote
- P purchased a boiler from D to use in dye and dry cleaning business
- D damaged machinery while moving it and P refused to take it until fixed
- D delayed for 5 months
Held:
- D liable to P for an amount for loss of business in respect of reasonably expected
dyeing contracts- ordinary contracts
- But not for more lucrative contracts
Notes
- In Koufos v Czarinkow Ltd the House of Lord unanimously considered a test of
reasonable foreseeability was not appropriate to contract.
- Burns v MAN Automotive (Aust) Pty Ltd at 667 i.e. what is the loss that is "sufficiently
likely to result".
- H Parsons Livestock Ltd v Uttley Ingham & Co It is only necessary to foresee the
type of damage, not necessarily the degree of damage that would result from the
breach:
Sub element 2: Second limb of Hadley v Baxendale
- A plaintiff who claims loss not arising in the usual course of things must come within
the second limb if the loss is to be recovered- This limb relies on actual knowledge possessed by the defendant.
o The basis of this rule is said to be that the defendant with actual knowledge
of special facts is undertaking to bear a greater loss: Koufos v Czarinkow Ltd.
- In addition to actual knowledge of the special circumstances it is necessary for the
defendant to either
o Acquire this knowledge from the P, or
o For the P to know the D is possessed of the knowledge at the time the
contract is entered into, and so could reasonably foresee that an enhanced
loss was liable to result from a breach.
- Only a loss that is likely to occur in a majority of cases will not be too remote
McRae v Commonwealth
- An example of damage that falls within the second limb
- D had warranted to P that a tanker lay on a coral reef and needed salvage
- P expended moneys to locate vessel which wasn't where D said
- Held: expenditure fell within the 2"' limb because of the D's actual knowledge of the
need for a salvage operation
Contrast with Victoria Laundry {Windsor Ltd v Newman Industries Ltd
- Even though D had knowledge of the business of the p and the fact that the p wanted
to put boiler into immediate operation, this wasn't sufficient to bring knowledge into
second limb
- D did not have actual knowledge of the specific contracts p had entered into
Sub Element 3: What is the extent of loss that can be recovered
Exactly what must the parties contemplate?
H Parsons (Livestock) Ltd v Uttley Ingham & Co
- P's pigs died as a result of eating contaminate nuts from a faulty hopper bought from
D. The loss had been caused by the negligence or breach of contract of D
- Although' it couldn't be considered that the parties would have contemplated the
death of the pigs as a probable result, ct held D was liable for loss of pigs
o Majority considered that as p was suing for breach of an implied term, that
hopper would be fit for purpose, the question was whether the parties
considered that breach of an implied term would lead to loss of pigs
o Parties should have considered that if the hopper was not suitable for storage
of pigs nuts then it was a serious possibility that the pigs would become ill
o Accordingly the parties need only contemplate the type of injury that has
occurred not the full extent of the loss
- Lord Denning: in cases of physical damage forma breach of contract the test applied
should be one of reasonable foreseeability and not reasonable contemplation
Element 4: Has the P acted reasonably to mitigate unnecessary loss?
- The general rule is that a plaintiff should mitigate his/her loss.
- The plaintiff is not entitled to claim for loss, which the plaintiff could have avoided by
taking reasonable steps: Dunkirk Colliery Co v Lever
- The onus of proving the plaintiff acted unreasonably is on the defendant.
Sub Element 1: Has the P Acted reasonably
- P is only required to take those steps. Which are reasonable and is not required to resort
to steps. Which are costly or extravagant:
- Whether the p has acted reasonably or unreasonably is a matter of fact and will depend
on the individual circumstances of the case.
o As long as P's have acted reasonably they should not be debarred from
recovering actual loss because D can show that if p had taken another course,
the loss would have been lower
o Likewise if P's loss diminished s a result of its actions, this must be taken into
account
 British Westinghouse Electric and Manufacturing Co Ltd v Underground
Electric Railways Co of London Ltd
Sub Element 2: Should the P enter into a further contract with D
If the parties had the opportunity of entering into a new bargain after breach, which might
have eliminated the loss suffered, the issue is whether the plaintiff has acted reasonably in
refusing to enter into a new contract:
Commercial Contracts
- Where the D makes a reasonable offer to resume the contract, it should generally be
accepted by the p
- Question is whether the refusal is reasonable
o
o
Where the new contract may cause risk to P, refusal may be reasonable
Refusal to negotiate because of any ulterior motive may also deny the
plaintiff any damages
Employment Contracts
Overriding consideration is whether the refusal is reasonable. It may be reasonable where: - The new offer of employment is at a lower status
- The new offer of employment requires the p to abandon his legal rights arising from
the breach
- The new offer of employment is made during the course of proceedings to claim
damages where the offer is made to reduce the damages awarded
Sub Element 3: should the P purchase a substitute in the marketplace?
In the ordinary course, an injured party would attempt to avoid loss by making a substitute
arrangement
Sub Element 4: Reductions or Increases In the amount of loss
Increase in loss
- The mere fact the loss of the p has increased will not bar the p from recovering the
loss from the D.
- If the p has acted reasonably then the loss may be recoverable: Banco de Portugal v
Waterlow & Sons Ltd
Decrease in loss
- Where the p obtains extra benefits as the result of the breach of the D then these
benefits must be accounted for in assessing the damages.
- For example where an employee is unfairly dismissed the damages payable will be
reduced by the amount earned from another employer after the dismissal: Lavarack v
Woods of Colchester Ltd
- Or the advantage of newer and more efficient machinery purchased to replace
defective machinery may have to be taken into account: British Westinghouse
Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London
Ltd.
Sub Element 5: Limitations on the mitigation principles
Anticipatory breach and mitigation
- No question of mitigation can arise until there is an actual breach of contract or an
anticipatory breach that is accepted as repudiation
o In most cases the innocent party should consider mitigation prior to
termination of the agreement.
- The exception occurs in the case of anticipatory breach where there is no breach
until such time as the breach is accepted and the contract terminated.
o Where repudiation precedes the time for performance, there can be no issue
of mitigation until termination has taken place: White and Carter (Councils)
Ltd v McGregor.
- The mitigation principles do not apply unless the plaintiff's claim is for damages as
distinct from an action for a debt or a liquidated sum: White and Carter (Councils) Ltd
v McGregor.
Element 5: Assessment of Damages
Principle in Robinson v Harman
- Where a party sustains a loss by reason of a breach of contract, the party is, so far
as money can do it, to be placed in the same position as if the contract had been
performed.
o The P will be awarded damages commensurate with the loss of expectation
or profits from the contract
- In a contract for sale of goods or land the general measure of the loss of expectation
is the difference between the contract price and the market value of the Roods or
-
-
land at the time of breach.
In other cases where the breach has prevented the opportunity to earn the
expectation or profits from arising, the court will have to estimate the value of the
potential expectancy.
Fact that damages are difficult to calculate is not a bar to recovery
Date of Assessment
- Damages are usually assessed at the date of the breach. However, the date may be
altered so a Pl gets the amount that most fairly compensates them.
Johnson v Agnew
- Where a debt is payable in a foreign currency- date when the debt should have been
paid
- A sale of goods for which there is no available market- reasonable time after the
breach
- Cases of anticipatory breach- date for the performance of the contract
- Court assess the damages once and for all and as per a particular date therefore it
takes into account
o Market value at the date
o Whether the loss is capable of mitigation
- Events that occur after the date of the breach are irrelevant unless
o The p gets a benefit that would not have occurred but for the breach.
o Loss of an income earning asset occurs
Sub Element 2: Once and for All Rule
- Court assess the damages once and for all and there is a lump sum payment
- There is no right to return to court to recover additional loss accrued at a later date
unless:
o There is more than one cause of action
o There is a continuing breach
- In each of these cases the court will award damages for the loss sustained at the
date of trial and any additional loss may be recovered in a further action
Sub Element 3: Net Loss only recoverable
- Court takes into account any benefits or saved expenses received by the p as a
result of the breach due to:
o Contract has been prematurely terminated
o Due to the acts of the p to mitigate the loss
- P should not be placed in a better position as a result of the breach
- Court therefore takes into account: o The value of any asset in the hands of the p- if p retains any asset he has
purchased, ct takes into account the residual value of assets. Cth v Amann
Aviation Pty Ltd
Sub Element 4: Expectation of loss
- The value of the expectancy that the promise created.
- This can be compensated in a suit for specific performance or by making the guilty
party pay the money value of the promise (usually equated with loss of profits)
- As damages for breach of contract are designed to place the injured party so far as
money can do it in the same situation as if the contract had been performed, they are
normally assessed on the basis of expectation loss or loss of profits.
- Loss of profit or value
o Difference between the contract price and the value of the subject matter of
the contract at the date of the breach
o Applies inc contracts for sale of real property and sale of goods
- Loss of opportunity
- Cost of rectification of defective work
- Delay in the payment of money
Sub element 5; Reliance loss
- Where one party in reliance on the promise of another expends money (eg purchaser
-
-
of land expends money on investigating the title).
The object of reliance loss is to put the innocent party in the same position he/she
was in before he/she entered into the contract.
Damages for breach of contract are not usually calculated on the basis of reliance
loss (expenditure) but in some cases calculation of damages on the basis of
expectation does not adequately reflect the loss of the plaintiff.
As a general rule damages may be recoverable on the basis of reliance loss where:
o There is no way of quantifying the expectation loss; or
o No profit will be made on the contract
Losing Contracts
- Reliance loss is not available if the defendant can prove the plaintiff had entered into
a losing contract and would not have been able to recoup the expenditure even if the
defendant had performed all his/her obligations.
- The plaintiff may however. Be able to recover some amount for wasted expenditure
- The Commonwealth v Amann Aviation (this is an example of where no profit was
going to be made on the contract). It also discusses the proviso relating to losing
contracts (see below for losing contracts).
Sub element 6: Recovery of both reliance and expectation loss
Anglia Television Ltd v Reed
- It was suggested that a plaintiff cannot pursue a claim for both expenditure (reliance
loss) and loss of profits (expectation loss) as this would lead to double recovery and
the Plaintiff would be in a better position than if the contract had been performed
- The preferable view is that lost expenditure and expectation loss are both
recoverable where the lost expenditure forms part of the profit expected to be made
by performing the contract. - Gates v City Mutual Life Assurance Society Ltd
Sub Element 7: Kind of Damages
Damages may be recovered for - Physical injury caused by breach of contract: Cullen v Trappell .
- Disappointment: Jarvis v Swan Tours but not for injured feelings: Addis v
Gramophone Co Ltd
- Mental distress: Baltic Shipping v Dillon.
- Delay in performance. This now extends to delay in the payment of money:
Hungerford’s v Walker.
- Lost opportunity: Commonwealth v Amman Aviation Pty Ltd
- The Court also has a discretion to award interest on damages under the Common
Law Practice Act 1867, ss 72, 73.
Sub Element 8: Issues impacting on the recover of damages
- Is termination of the K required
- Should the P be ready willing and able to perform
- Is accrued right to damages lost after termination or breach
- Does affirmation of a K waive damages for breach
Sub Element 9: Agreed Damages Clauses
- The contracting parties may agree what sum shall be payable by way of damages in
the event of breach.
- If the sum so fixed is a genuine pre-estimate of loss, it will be accepted by the court
and awarded
o As "liquidated damages".
 A liquidated sum is also referred to as a debt.
 The main advantage in seeking to recover a debt as opposed to
damages is that a plaintiff does not have to prove the amount of the
debt. Unlike a claim for damages, the plaintiff is entitled to seek the
amount specified in the contract irrespective of any loss suffered.
-
-
Where the sum fixed by the contract bears little relationship to the loss incurred, that
clause of the contract may be struck down as being a penalty.
Factors the court takes into account in determining whether a particular clause is a
penalty, include:
o The bargaining power of the parties;
o The intention of the parties;
o Whether the stipulated sum is clearly in excess of the greatest possible loss
that might be expected to follow from the breach;
o The presumption that the stipulated sum is a penalty if it is payable on the
occurrence of one or more of several events, some of which will result in
serious, and others in only trifling damage.
However, genuine pre-estimates stipulated in the contract make it unlikely to be
considered a penalty.
Where a damages clause is struck down for being a penalty, the innocent party will
be left to prove their loss in the normal way.
Restitution
Element 1: Introduction
The principle of unjust enrichment involves three things:
1. The defendant has been enriched by the receipt of a benefit;
2. The defendant has been enriched at the expense of the plaintiff; and
3. It would be unjust to allow the defendant to retain the benefit.
Element 2: Recovery by the party not in breach
Money
- The injured party is entitled to recover sums paid for which there has been a total
failure of consideration.
- Alternatively, he or she may claim damages (any award taking into account any
prepaid sum which has not been recovered).
- It is not possible to claim both restitution and damages:
o Rowland v Divall
o Fibrosa v Fairbairn
o Baltic Shipping v Dillon (1993) 67 ALJR 228 at 230-236.
Services
- Where an injured party, who has performed work for the party in breach, elects to
discharge for breach, the injured party may, as an alternative to a damages claim,
claim on a quantum meruit for the value of the work done (a quasi-contractual claim).
- This form of relief will be particularly relevant where the effect of the breach prevents
further performance by the injured party:
- Planche v Colburn
- Automatic Fire Sprinklers v Watson.
- Also where the contract is unenforceable because of a statutory provision requiring
the contract to be in writing, the party who has completed the contract may be able to
claim on a quantum meruit for work done: Pavey v Matthews Pty Ltd v Paul (1987)
162 CLR 221
Element 3: Recovery by the party in breach
Money
- The party in breach is entitled to recover any part payments of the contract price for
which no consideration has been received.
- The party in breach is not, however, entitled to the return of a pre-paid "deposit" (as
sum paid as an earnest or guarantee of due performance, commonly 10 per cent or
less of the contract price), or any other payment, which is forfeited pursuant to a
provision (express or implied) in the contract: McDonald v Dennys Lascelles.
- Note, however, the existence of an equitable power to relieve against forfeiture, that
is, where the agreed contractual provision forfeiting the payment is in the nature of a
penalty and it would be "unconscionable" for the other contracting party to retain the
money:
o Pitt v Curotta (1931) 31 SR (NSW) 477
o McDonald v Dennys Lascelles (1933) 48 CLR 457.
Services and goods
- The party in breach is generally not entitled to a restitutionary claim unless the other
party has freely accepted the goods or performance of the services by the other party
or converted the services or goods into money in their hands. Steele v Tardiani
- In each of the above cases, the party in breach will be able to say that the other party
has received a benefit, which it is unjust to retain unless payment is made
Equitable Remedies
1. Introduction
Under specific circumstances, a promise to do a thing may be enforced by an order for
specific performance and an express or implied promise to forbear by an injunction.
These remedies are equitable remedies and are therefore discretionary. They will not
normally be granted if the common law remedy of damages is adequate in the
circumstances.
2. Specific performance
This is an equitable remedy by which a court orders a defendant to perform the contractual
obligations. Its main application is in the case of contracts for the dale or other disposition of
land.
However, by s 53 Sale of Goods Act 1896 (Qld) the court may, if it thinks fit, direct that a
contract for the sale of goods be specifically performed. Such order will not be made except
where the chattel sold is unique in some way. In some way, an order to pay an agreed sum of
money may be obtained; Berwick v Berwick [1968] AC 58.
3. Injunction
This is also an equitable remedy. It is dealt with in more detail in the Equity course. It will be a
particularly effective remedy where the plaintiff seeks to prevent breach by the defendant of
an express negative promise (a promise not to do something), eg breach of an enforceable
"restraint on trade" clause:
Lumley v Wagner (1852) 1 De GM&G 604; and
Warner Bros v Nelson [1937] 1 KB 209.
Limitations of Actions
1. Common law
In Queensland, the period within which an action founded on simple contract must be brought
is six years from the date upon which the cause of action arose (s 10(1)(a) Limitation of
Actions Act 1974). A court will dismiss an action brought outside of this time period.
The cause of action accrues on the date the breach of contract is committed: Ward v Lewis
(1896) 22 VLR 410.
2. Exceptions to the rule
a. Where a cause of action is based on fraud or for relief from the consequences of mistake,
the period of time before the aggrieved party discovers (or any have with reasonable
diligence discovered) the fraud or mistake is not included within the six year time period
(s 38).
b. Where a person is under a disability (eg an infant or a person of unsound mind) at the date
on which a right of action accrues, the limitation period is extended for a period of six
years from the date on which that person ceases to be under a disability (s 29(2), (3)).
3. Equity
The courts exercising their equitable jurisdiction are not bound by the time limitations
imposed for actions under the common law in the limitations of actions act. However, the
courts exercising their equitable jurisdiction will only hear a case if it is brought within a
reasonable time – a maxim of equity is that “Equity favours the diligent not the tardy”. This
may mean that an action in equity may expire faster than one under the common law
depending on its nature.
S.43 of the LAA 1974 provides the act does not affect the rules of equity concerning the
refusal on the grounds of acquiescence or otherwise.
Misrepresentation
Element 1: Definition
It is a false statement of existing or past fact, which is addressed to the representee, before
or at the time when the contract was made; and which was intended to and did induce the
representee to make the contract.
Element 2: A false statement of existing or past fact
- The statement need not be made in writing; a misrepresentation can be made by
means of conduct. Waiters v Morgan
- However, a representation of fact must be distinguished from:
Sub Element 1: A representation of law
- One can only ever express an opinion as to the law on an issue until a court
adjudicates on it.
- However this will be a misrepresentation where: o The stmt is made fraudulently
o It is given in a situation whet the representor owes the representee a duty of
care to ensure any advice given is accurate and it is reasonable for the
representee to rely on it
o It would be unconscionable to allow the representor to escape liability
(estoppel)
Sub Element 2: Representation as to future intention, promise or assurance
- This will not amount to an operative misrepresentation. For a statement of future
intention to have any effect, it must be a term of the contract or part of a collateral
contract.
- The exception is where the intention was never held: Edgington v Fitzmaurice.
Sub Element 3: Statements of Opinion
- The expression of an opinion or belief cannot amount to a misrepresentation unless
fraud can be established or the opinion was unreasonably held (Bisset v Wilkinson)
or
- The representor had no facts to support such an opinion: Fitzpatrick v Michael.
- An opinion given in circumstances where the representor alone is in a position to
know the facts upon which that opinion is based can also amount to a
misrepresentation if the opinion is erroneous: Smith v Land & House Property
Sub Element 4: Silence
- Generally, mere silence cannot constitute misrepresentation. There are, however,
circumstances under which silence may amount to a misrepresentation:
o Half truths- non disclosure by one party can amount to misrepresentation
where the silence distorts a positive representation: Dimmock v Hallet
o Statement becomes false prior to contract -There is a duty to correct a false
statement if the representor later discovers its falsity: Davies v London
Marine Insurance Company
o Duty of Disclosure
 Where there is a fiduciary relationship between the parties: rate v
Williamson
 Or in the case of contracts uberrimae fidei (i.e. contracts requiring
utmost good faith), eg contracts of insurance: see s 21 Insurance
Contracts Act (Cth) 1984.
Element 3: Addressed to the representee by the other party
- Misrepresentation must be made by other party to the contract. A person cannot be
induced to act by a statement addressed to someone else. McCormack v Nowland
- If induced representee to enter contract with 3rd party then he will not be allowed to
rescind the K but the representor may be liable to compensate the representee if
reliance on the statement can be proved. Shaddock v City of Parramatta
Element 4: At or before the time when the contract was made
A statement after the contract is made cannot have induced the contract.
Element 5: Which was intended to and did induce the representee to enter the contract
A representation need not be the sole or decisive Inducement -it suffices if it was the real
Inducement: Edgington v Fitzmaurice [1881-5] A11 ER 856.
-
-
The rules of inducement were fully stated by Wilson J in Gould v Vaggelas:
o Notwithstanding that a representation is both false and fraudulent, if the
representee does not rely upon it he has no case.
o If a material representation i5 made which is calculated to induce the
representee to enter into a contract and that person in fact enters into a
contract there arises a fair inference of fact that he was induced to do so by
the representation.
 The inference may be rebutted, eg by showing that the representee,
before he entered into the contract, either  Was possessed of actual knowledge of the true facts and knew them
to be true or - alternatively, made it plain that whether he knew the
true facts or not he did not rely on the representation.
 Carelessness of representee to discover the truth of the stmt has no
relevance
Onus of proof of inducement rests on the representee but that onus may be
discharged in circumstances where, as a matter of common sense, an inference can
be drawn that the statement did induce if it was calculated to induce. An evidentiary
onus may then shift to the representor, as shown by rule 3. Peek v Gurney.
Element 6: Types of misrepresentations
Sub element 1: Innocent misrepresentation.
- The representor has neither been fraudulent nor negligent.
- The maker of the statement honestly believes the statement to be true.
- Representor under no duty of care
- Remedies
o Remedy in equity for the misrepresentation- rescission
 Election must be made in reasonable time
 In sale of land/shares must be before completion of K
 In equity, the contract is voidable by the representee who has a right
to resist an action for specific performance or to institute an action for
rescission
o There is no common law right to damages for innocent misrepresentation:
Redgrave v Hurd.
Sub element 2: Fraudulent Misrepresentation
- Fraud is proved when it is shown that a false representation has been made;
o Knowingly; or
o Without belief in its truth; or
o Recklessly, careless whether it is true or false with the intention that it should
be acted upon by another party who is thereby induced to act upon it.
- The test is subjective; Derry v Peek
- "Fraud" embraces situations in which the representor lacked belief in the truth of the
representation or made it recklessly, not caring whether it is true or false; Gould v
Vaggelas; Peek v Gurney.
o The representor will not be guilty of fraud unless the representee can prove
that the former did not honestly believe the representation to be true in the
sense in which he understood it; Akerhiem v De-Mure.
o See also Alati v Kruger (1955) 94 CLR 216.
Remedies
-
-
Remedy in equity for the misrepresentation- rescission
o Election must be made in reasonable time
o In equity, the contract is voidable by the representee who has a right to resist
an action for specific performance or to institute an action for rescission
Damages for any losses suffered as a result. Calculated in the same manner as
damages for the tort of deceit.
Sub Element 3: Negligent Misrepresentation
- Does not require a statement of past or present fact.
- It merely requires the giving of information or advice.
- This includes statements of opinion and statements of intention.
- These principles apply also in relation to misrepresentations made in the course of
pre-contractual negotiations:
Elements
- A duty of care owed by one person to another;
- A breach of that duty; and
- Loss or damage that is not too remote.
Hedley Byrne v Heller & Partners
- A person to whom a negligent statement was made could recover damages in tort for
losses caused to that person by the negligence, if the person making the statement
owed the other a duty by reason of a special relationship between them.
Special relationship
- MLC Assurance v Evatt applied in Shaddock v The Council of the City of Parramatta
o A person gives information or advice to another
o Upon a serious matter,
o In circumstances where the speaker realises, or ought to realise, that he is
being trusted to give the best of his information or advice as a basis for
action on the part of the other party and
o It is reasonable in the circumstances for the other party to act on that
information or advice, the speaker comes under a duty to exercise
reasonable care in the provision of the information or advice he chooses to
give." per Mason J in Shaddock relying on views of Barwick CJ in MLC v
Evatt.
Remedies
- Remedy in equity for the misrepresentation.
Rescission
- Damages for any loss suffered same as those of the tort of negligence
- Contract is voidable at the option of the representee
Element 7: Remedies
Sub-element 1: Rescission
An election by one party to rescind a contract must normally be communicated to the other
party: Car Finance Ltd v Caldwell
Limits on the right to rescind
The right to rescind may be lost in a number of circumstances: Red grave v Hurd; McKenzie
v McDonald:
-
-
Affirmation: The right to rescind the contract will be lost if the party who has suffered
the misrepresentation has elected to affirm the contract: Coastal Estates v
Melevende
Lapse of time: The right to rescind will be lost if the injured party does not exercise
-
-
-
their right promptly: Leaf v International Galleries.
Impossibility of restitutio in integrum: In order for the court to allow rescission for a
pre-contractual misrepresentation, it must be possible for the parties to be returned to
the pre. Contractual position: Brown v Smit; Alati v Kruger.
Where a third party bona fide and for consideration acquires an interest In the subject
matter It is important to note that if the property is purchased in good faith by an
innocent third party prior to the rescission of the voidable contract, the third party
obtains good title. No title will pass in any property transferred after the rescission of
the contract: McKenzie v McDonald; Phillips v Brooks Ltd.
Contract is completely performed (Innocent Misrepresentation only) – A contract that
is completely performed is not capable of being rescinded if the misrepresentation is
innocent. Seddon v North Eastern Salt Company Ltd. However, commentators have
stated a preference that this rule only applies to sale of land and contracts for the
purchase of shares, not sale of goods.
Trade Practices Act 1974 (Cth) s 52 / Fair Trading Act 1989 (Qld) s 38
A corporation shall not in trade or commerce, engage in conduct that is misleading or
deceptive or is likely to mislead or deceive.
Section 53 prohibits the making of false representations in connection with the supply of
goods or services. Note ss 53(a), 55 and 59.
Section 51A applies to representations as to the future. The section provides that the person
making the future representation has the onus of showing the person had reasonable
grounds for making the statement. If reasonable grounds were not held the representation is
deemed misleading or deceptive for the purposes of s 52.
Element 1: Is D a corporation
- Defined in s.4 (1) TPA – Corporations. Operation of section extends to natural
persons in limited circumstances s.6
- It should be noted that s 52 is limited to conduct engaged in by corporations,
however, s 52 is extended to persons by s 6 when
- The conduct is in relation to trade or commerce with places outside Australia,
between the States or between the States and Territories; or
- The conduct involves the use of postal telegraphic or telephonic services or takes
place in a radio or television broadcast.
Element 2: Is D involved in trade or commerce?
- Defined in s4 TPA
- Given wide interpretation and covers most commercial transactions
- Conduct in the course of dealings, activities or transactions which of their nature bear
a trading or commercial character.
- The Act will only apply if the corporation is acting in trade or commerce.
- The meaning of "trade and commerce" was fully canvassed by the Full Court of the
Federal Court in O'Brien v Smolonogov and Concrete Constructions (NSW) Pty Ltd v
Nelson
- However, the sale of a private dwelling even through an agent is not in trade or
commerce: O'Brien v Smolonogov,
- The sale of any business will be in trade or commerce: Bevanere Pty Ltd v
Lubidineuse
Element 3: Engaging in conduct
- Also defined in s 4(2) includes doing or refusing to do any act.
- This includes refraining) otherwise than inadvertently) from doing an act.
- This means that conduct will include silence: Demagogue v Ramensky; Warner v
Elders Rural Finance Limited.
Element 4: Is the conduct misleading or deceptive
- Is a question of fact to be determined in the context of the facts and surrounding
circumstances.
- This is an objective test.
- It is not necessary to show an intention to mislead or deceive: Parkdale Custom Built
Furniture Pty Ltd
- Viewed from the perspective of recipient
o Mislead: to believe that a thing is true which is false and which the person
practicing the deceit knows or believes to be false
o Deceptive: to lead astray in action or conduct to lead into error
o Objective test: Consideration of all surrounding circumstances.
 Entirety of D's conduct
 Evidence of actual deception is not necessary
 It just has to be a possibility that you will be deceived
Conduct that Is not fact
- 54 definition "conduct" not limited to representations of fact
o
o
Statements of law capable of being misleading or deceptive
Opinion can be breach if no reasonable grounds for holding opinion
Silence
- Silence or refraining from conduct can be misleading or deceptive
- No fiduciary relationship etc required under 552
- Question of fact based on all the surrounding circumstances
- Whether the circumstances are such as to give rise to a reasonable expectation that
if some
- Material or relevant fact existed, it would be disclosed: Demagogue v Ramensky
Intention
- Not an element of 552
- Required in limited circumstances
o Statement of opinion or intention or concerns future matter
o Liability arising under section 756
o Silence as conduct
Element 4: Remedies
- Sections 80,82 and 87 TPA
- Damages Is principal remedy
- Courts prefer tortuous assessment of damages than contractual
o Section 80 injunctions to prevent the conduct from continuing;
o Section 82 damages; and
o Section 87 Court can make other orders. This would include rescission of the
contract: s 87(2).
A remedy can be sought against the person engaging in the conduct and any person
Involved in the contravention". "Person involved in a contravention" is defined in s 756. The
person must have knowledge of the essential facts of the contravention: Yorke v Lucas
(1983) 68 FLR 268.
Fair Trading Act 1989 (Qld)
- Section 38.
o A person shall not in trade or commerce engage in conduct that is misleading
or deceptive or is likely to mislead or deceive.
- Applies to persons not corporations
- Restricted to remedies for "consumers"
o Definition 56
- Sections 37 and 38 of the Fair Trading Act reproduce ss 51A and 52 of the Trade
Practices Act.
- Trade and commerce" and "misleading and deceptive" have the same meaning as in
the Trade Practices Act.
- Note the definition of "business" and the definition of "services" (s 5) and the meaning
of a "consumer" (s 6).
- Section 40 of the Fair Trading Act reproduces s 53 of the Trade Practices Act
concerning misleading representations.
Remedies under the Fair Trading Act
- Section 98 – Power for the court to grant injunctions
- Section 99: gives an action for damages In certain circumstances; and
- Section 100: other orders, Including rescission of the contract.
Note that the only limitation under the Fair Trading Act is that the person seeking a remedy
must be a consumer" which is defined in s 6.
In addition a breach of s 92 of the Act attracts a criminal sanction.
Note also the defences for an offence under the Act as set out in 5 97 of the Act.
Note: An action for misrepresentation under the common law will still have its place where
the parties do not come within the ambit of the Act -eg the representor has not engaged in
trade or commerce. An example of this might be the private purchase of a motor vehicle by
one individual from another individual.
It should be noted that it is necessary to go to Court for a Trade Practices Act or Fair Trading
Act remedy (including s 87 rescission) whereas common law rescission can be done without
recourse to the courts.
Mistake
-
-
Mistake is concerned exclusively with mistakes made by one or both parties at the
time of contract formation.
Mistake can operate at different levels, for example it may be a mistake as to the
subject matter of the contract, or the contractual terms or the effect of contractual
terms.
A mistake of law is no ground for release from a transaction.
Element 1: Common Mistake
Common mistake occurs where both parties make the same mistake.
Common law
Res extincta
- At common law the contract is void if the specific subject matter of the agreement is
non-existent
- Couturier v Hastie
o It was the view of the House of Lords that everything depended on the
construction of the contract.
- S.9 Sale at Goods Act (Qld)
o "Where there is a contract for the sale of specific goods, and the goods
without the knowledge of the seller have perished at the time when the
contract is made, the contract is void".
- Res extincta will not apply where:
o Contract for an adventure- p has agreed to take a chance on whether or not
the subject matter is in existence
o Warranty as to existence - A party to a contract can, of course, guarantee or
warrant the existence of the subject matter. In such cases a non-existence
will not be grounds for having the contract set aside: McRae v
Commonwealth Disposals Commission.
Res Sua
- Contracts where, unknown to either party the purchaser is in fact buying his/her own
property
- Bell v Lever Bros. Ltd (1932) AC 161 (per Lord Atkin at 226-227)
- Cochrane v Willis (1865) 1 Ch App 58 at 63.
Qualities or Attributes
Common mistake as to the qualities or attributes of the specific subject matter of the contract
does not make the contract void at common law.
Equity
Rescission
- Those contracts declared void for mistake at common law would also be regarded as
void in equity. – Maxim of equity “Equity will follow the law”
- Will operate to deny a party unconscionability or fraud
- Equity may declare the contract voidable where the common mistake relates to the
fundamental nature or quality of the subject matter and the party alleging mistake is
not at fault (Solle v Butcher. This requires 3 elements
- A common misapprehension as to the facts or the parties rights
- Which is of a fundamental nature
- And an absence of fault on the part of the party seeking to have the K set aside
-
Fundamental nature relates to: o Nature or quality of subject matter
-
o Value of subject matter
Also applies to total failure of consideration
Lucas v Long
See previous reference to limitations on the right to rescission: Taylor v Johnson
Rectification
- It may order rectification of an agreement because the written instrument does not
accurately reflect the agreement.
- Where there is a common mistake, not in the formation of the contract, but in its
reduction into writing the court can order rectification of the written agreement to
correct the mistake.
- Rectification is only possible if:
o There was a prior complete agreement and the parties then erroneously
record that agreement in a written document; or
o There is evidence that the written document does not give effect to the
parties common intention not amounting to a concluded contract;
o The bona fide rights of a third party are not prejudiced.
- Maralinga Pty Ltd v Major Enterprises Pty Ltd.
-
Clear evidence of a mistake common to both parties must be adduced and
The burden lies on the person alleging the instrument needs to be altered. They must
be able to show precisely the correction that is needed: Pukallus v Cameron.
The court may not order rectification if third parties' rights will be affected: Smith v
Jones.
In Warburton v National Westminster Finance Aust, it was held that a document
might be rectified if, by an honest mistake, incorrect material is inserted.
Element 2: Mutual Mistake
Common Law
- Mutual mistake occurs where the parties misunderstand each other.
- The court must try to ascertain the sense of the promise from an objective point of
view; that is how would a reasonable person understand the contract? Smith v
Hughes.
- If no meaning can be attributed to the contract it is void. If the sense of the promise
can be ascertained objectively, the contract (given that meaning) is valid and binding
on both parties:
- Raffles v Wichelhaus. Peerless ships
- Goldsborough Mort Ltd v Quinn
Equity
Equity generally follows the common law in the case of mutual mistake.
Element 3: Unilateral Mistake
- This is where one party is mistaken and the other knows, or ought to know of the
mistake: Taylor v Johnson
- The appropriate test is the objective test and that in applying such a test; the contract
is not void at common law if all outward appearances show that the parties have
reached an agreement.
- However, the contract may be voidable where the conduct of the party not mistaken
amounts to “sharp practice”.
The elements that must be shown for rectification for unilateral mistake;
- The p wrongly believes that the written document contains a particular term or does
not contain a particular term
- The D is aware of the P's belief
- The D says nothing to correct the P's wrong belief
- The mistake either provides an advantage to the D is or a detriment to the P
Mistake as to identity
-
Where one party claims to be mistaken as to the identity of the other party such
agreement will be void if:
o At the time of the apparent agreement the identity of the other party was
material;
o There was an intention to contract, not with the other party, but with a
separate entity; and
o This intention was known or ought to have been known to the other party.
The presumption in face-to-face dealings, and the relevant remedy:
o Where parties make the contract in each other's presence, a rebuttable
presumption arises that the contract is concluded with the person who is
present.
o Philips v Brooks- looking up name in directory is insufficient to rebut
presumption
o Ingram v Little -checking directory is sufficient
o Lewis v Avery- Phillips was preferred
o In relation to element (ii), a plea of mistaken identity will succeed only where
two distinct entities are involved: Kings Norton Metal Co v Edridge Merritt Et
Co
- If a contract is void on the basis of unilateral mistake as to identity, then title in the
goods will not be able to pass to a third party.
- However if the contract is not void for mistake but only voidable for a fraudulent
misrepresentation that induces the mistake, then it will only be able to be set aside at
the instance of the mistaken person, so long as this is done before third parties have,
in good faith acquired rights under it.
Non Est Factum
- In certain circumstances the courts recognise a particular kind of mistake concerning
written contracts,
- Where one party alleges that the document signed was of a wholly different nature to
that which he intended to sign (non-Est Factum; not my act).
Three conditions are necessary:
- The claimant must belong to the class of persons able to recover under the plea.
"Those who are permanently or temporarily unable through no fault of their own to
have without explanation any real understanding of the purport of a particular
document, whether that be from defective education, illness or innate incapacity":
lord Reid Sounders v Anglia Building Society
- The claimant must show that the document was signed in the belief that it was
radically different from what in fact it was.
- As against innocent persons, the failure of the claimant to read and understand must
not be due to carelessness on his part: Petelin v Cullen
- The claimant's mistake may be as to the character of the document or as to its
contents but not as to its legal effect: Gallie v Lee