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The Law of Contract (Termination and Remedies) - Coggle Diagram
The Law of Contract (Termination and Remedies)
Termination by Performance
Most desired termination of contract, when parties complete their promises
In order to be paid under a contract, the general rule is that exact performance is required
Exception; Divisible contract.
Legal entitlement to be paid if work is not fully and exactly completed if. This is a contract is to be performed (paid) in stages
To determine performance
Nature of contract
Nature of defects
Relative costs of correcting or completing the work
Performance not substantial?
No entitlement to be paid
Hoenig v Isaacs: substantial performance
Bolton v Mahadeva; not substantial performance
May agree to how contract is terminated in original contract
When specific event happens e.g. fixed term lease is automatically terminated at the end of the period agreed, such as 6 years.
There is no specific right to terminate after any particular period in the contract, but the court might imply a right to terminate on giving reasonable notice to the other party (implied terms)
Termination by breach
Where a
situation goes wrong;
contracts are always legally binding, and all breaches of terms are breaches of the contract, but some breaches allow a contract to be terminated
Repudiation;
rejecting the whole contract - when one party indicated, by words or actions, that it will not or cannot perform or complete the contract
e.g.
half way through construction, company informs developer that they cannot complete building. Repudiated contract.
Anticipatory breach:
occurs before the time when the contract was due to start being performed
e.g.
before starting construction, notifies developer they cannot undertake work. Repudiated contract through anticipatory breach.
What expresses repudiation?
Express refusal:
specifically stating that a party is unwilling or unable to perform the contract
Implied refusal:
inferred from the conduct of a party
Laurinda v Capalaba; Implied refusal
Progressive Mailing House v Tabali; implied refusal
Effect of repudiation?
Innocent party can: ignore the breach and insist upon performance
Accept repudiation and treat the contract as terminated
Breach in performance;
breaching one or more particular terms
Terms:
Conditions, Warranties, Innominate (Express contractual terms, previous topic)
Remedy?
Breach of
condition (or serious breach of an innominate term)
: terminate the entire contract and/or seek damages
Breach of
warranty (or minor breach of an innominate term):
damages only (cannot terminate)
By Frustration; circumstances have changed (very rare)
Needs five elements to be terminated
An event occurs
after
the contract is made
It causes a
fundamental change
to the nature of the contract and the obligations of the parties under the contract
The event was
not the fault
of either party
The event was
not foreseeable
by either party
It would be
unfair to enforce the contract under the changed circumstances
Taylor v Caldwell; destruction of the subject matter of the contract
Krell v Henry: Common objective of contract is no longer possible
Codelfa Constructions v State Rail Authroity of NSW; "radical difference" to performance of contract
Scanlon's New Neon v tooheys; not frustrating event by change in law
Tsakiroglou v Noblee Thorl; incurring cost and suffering inconvenience, contract not frustrated
Remedies
Damages
1. What is the measure of damages?
Expectation damages:
where a party sustains a loss by reason of a breach of contract, damages are to be awarded to the position that they would have been in if contract had been performed
Reliance damages:
where is it not possible to demonstrate whether performance would've resulted in profit, seek to recover expenses that they reasonable incurred in reliance on the breaching party's promise to perform its obligations under the contract
Robinson v Harman
Commonwealth Gov v Aman Aviation
2. Was the loss caused by the breach?
can only be recovered if loss suffered is caused by breach
"But for" test:
did the loss arise because of the breach, or because of something else it would've arisen anyway?
Reg Glass v Rivers Locking Systems
3. Is the loss too remote from the breach?
only be recovered if they are reasonably foreseeable at the time of contracting
Hadley v Baxendale
Victoria Laundry v Newman Industries
Day v O'Leary
4. Is the loss one that the innocent party should have taken steps to avoid, by a way of mitigation?
Even though other side breaches contract, you have to take reasonable steps to mitigate (limit) the loss suffered
Additional points
May be difficult to assess loss, but court will estimate
Howe v Teefy: custody of horse, hard to estimate loss
Damages not recoverable for inconvenience/disappointment/injured feelings
Equitable remedies
Specific performance:
an order of the court requiring a party to perform their obligations under the contract (rare)
Common law favours awards of damages, only specific performance applied where damages are inadequate compensation
Injunction:
an order of the court restraining a person from doing a wrongful act (like breaching a contract)
Termination