1. Copyright Guy Harley 2008 1 Revision

2. Copyright Guy Harley 2008 2 Discharge of Contract A contract can be brought to an end by: 1.Performance 2.Agreement 3.Frustration 4.Breach 5.A Term of the Contract 6.Operation of Law

3. Copyright Guy Harley 2008 3 Entire Contract  If contract requires entire performance then obligations must be strictly completed  Entire performance required where anything less than full performance would significantly devalue the worth of the contract to the other party

4. Copyright Guy Harley 2008 4 Entire Contract Exceptions  Substantial performance  Partial performance  Divisible contracts  Tender of performance  Prevention of performance

5. Copyright Guy Harley 2008 5 Substantial Performance  Contract discharged by completion of main part of contract  Performing party paid full price less value of shortfall

6. Copyright Guy Harley 2008 6 Partial Performance  Innocent party accepts incomplete work  Quantum meruit paid to performing party for reasonable cost of completed work  Acceptance must be a genuine choice

7. Copyright Guy Harley 2008 7 Divisible Contracts  Contract split into divisible parts for purposes of payment  Performance of each part requires party to pay for that part  Treated as several separate contracts

8. Copyright Guy Harley 2008 8 Tender of Performance If preforming party offers to complete contract and offer refused then performing party is discharged

9. Copyright Guy Harley 2008 9 Prevention of Performance  Where performing party is prevented from completing his obligations by the other party  Performing party is discharged from contract

10. Copyright Guy Harley 2008 10 Discharge by Agreement  Parties to the contract agree to discharge their obligations to one another  This latter agreement will only be binding if:  It is a valid contract; or  Promissory estoppel arises

11. Copyright Guy Harley 2008 11 Termination by Frustration Contract is automatically terminated where:  An intervening event;  Not contemplated by the parties;  Makes performance  impossible; or  Radically different to that originally contemplated

12. Copyright Guy Harley 2008 12 Termination by Frustration (Cont.) Frustration does not apply where:  The event was caused by the party seeking to rely on the frustration  Contract makes specific provision for the event  The party seeking to rely on frustration foresaw the event

13. Copyright Guy Harley 2008 13 Effect of Frustration  Contract is void from date of frustration (not ab initio)  Parties released from all further obligations  All contractual obligations owed before date of frustration must be performed  Prepayments can be recovered where a compete failure of consideration

14. Copyright Guy Harley 2008 14 Frustrated Contracts Act 1988 Court may order  a refund of monies paid under a frustrated contract  Compensation for any performance that occurred prior to frustration

15. Copyright Guy Harley 2008 15 Discharge by Breach  Cannot terminate for any breach no matter how slight  Can only terminate for breach of a  condition  Other terms are called  “warranties”

16. Copyright Guy Harley 2008 16 Discharge by Breach Types of Breach  Failure to perform contract  Anticipatory breach

17. Copyright Guy Harley 2008 17 Anticipatory Breach  Before time for performance, one party indicates intention not to perform contract Anticipatory breach  Contract not automatically discharged  Innocent party may:  Treat contract as repudiated and claim damages, or  Perform the contract and claim contract price

18. Copyright Guy Harley 2008 18 Restraint of Trade  A restraint of trade clause is only enforceable to the extent that it is reasonable  It will only be reasonable if it is  In the public interest (having regard to protection of competition), and  no wider than is reasonably necessary to protect the legitimate interests of the party relying on it

19. Copyright Guy Harley 2008 19 Remedies

20. Copyright Guy Harley 2008 20 Types of Remedy  Termination  Rescission  Recovery of Contract Price  Damages  Equitable Remedies  Specific Performance  Injunction  Rectification  Restitution

21. Copyright Guy Harley 2008 21 Damages  Every breach of a contract gives a right to damages  However, sometimes there will be no damage caused by the breach  2 Types  Liquidated Damages  Unliquidated damages

22. Copyright Guy Harley 2008 22 Liquidated Damages  Available where price, or mechanism for fixing price, is stated in the contract  Called “liquidated damages”  Preferable to damages because there are no problems with establishing the amount claimed  Can claim if there has been substantial performance of the contract unless there is a term in the contract to the contrary

23. Copyright Guy Harley 2008 23 Agreed Damages  The contract may provide for agreed damages  Saves an expensive assessment of damages by a court  Party cannot recover sum greater than agreed amount even if actual losses greater  Cellulose Acetate Silk v Widnes Foundry  Agreed damages must be a genuine pre- estimate of damages  Courts will not enforce a penalty

24. Copyright Guy Harley 2008 24 Penalty An agreed damages clause will be a penalty if  It is extravagant  Where breach is failure to pay money and clause provides for a greater payment  Applies to several different types of breach  Ford Motor Co v Armstrong (Dunlop Pneumatic Tyre v New Garage & Motor Co)

25. Copyright Guy Harley 2008 25 Unliquidated Damages  Amount fixed by the court  Aim is to  Put plaintiff in same position as if breach had not happened  Not to punish (Addis v Gramaphone Co Ltd)  The losses must be caused by the breach of contract  Reg Glass v Rivers Locking Systems

26. Copyright Guy Harley 2008 26 Calculating Damages  The amount of damages should place the innocent party in the same position that he would have been in had the contract been properly performed  The court cannot refuse to award damages just because they are difficult to calculate  Damages can include  Expectation loses  Personal injuries  Disappointment, distress and discomfort

27. Copyright Guy Harley 2008 27 Expectation Losses  Expectation losses include loss of profits  Loss of a promised chance or commercial opportunity may be claimed  Damages will be awarded by “reference to the degree of probabilities, or possibilities, inherent in the plaintiff’s succeeding had the plaintiff been given the chance which the contract promised” – Sellars v Adelaide Petroleum (S&O p275)

28. Copyright Guy Harley 2008 28 Expectation Losses  If loss of a bargain cannot be calculated then plaintiff can claim reliance expenditure  McRae v Commonwealth Disposals Commission  Commonwealth v Amann Aviation

29. Copyright Guy Harley 2008 29 Expectation Losses  Can include loss of a chance  Chaplin v Hicks  Howe v Teefy  If there is a market for the goods then the expectation losses will be the difference between the market price and the contract price  If there is no market then specific performance is a better option

30. Copyright Guy Harley 2008 30 Damages for Disappointment etc  Courts have been reluctant to award damages for disappointment, distress and injured feelings  Not awarded for breach of most commercial contracts

31. Copyright Guy Harley 2008 31 Damages for Disappointment  Two cases where may be awarded;  Distress flows from physical inconvenience  Where enjoyment or entertainment or freedom from molestation is an essential feature of the bargain  Cases  Jarvis v Swann Tours  Baltic Shipping v Dillon

32. Copyright Guy Harley 2008 32 Causation  Damages must be caused by the breach  The “but for” test

33. Copyright Guy Harley 2008 33 Remoteness of Damage Damages must not be too remote  Such losses “as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time the contract was made, as the probable result of the breach of it” - Hadley v Baxendale

34. Copyright Guy Harley 2008 34 Remoteness of Damage (cont.) A two part test  Losses that flow ”according to the usual course of things” from the breach  Koufos v Czarnikow Ltd  Hadley v Baxendale  Losses within the actual contemplation of the parties at the time the contract was made  Victoria Laundry v Newman Industries

35. Copyright Guy Harley 2008 35 Mitigation of Damages  Plaintiff has a duty to mitigate losses  Cannot claim losses which could have been reduced or avoided by the taking of reasonable steps  Brace v Calder

36. Copyright Guy Harley 2008 36 Equitable Remedies  Specific Performance  Injunction  Rescission & Restitution  Equitable Damages where:  Rescission is barred or  Complete restitution is not possible

37. Copyright Guy Harley 2008 37 Specific Performance  Court orders a party to carry out their contractual obligations  Not available if:  Damages would be an adequate remedy  Court has to continually monitor performance  Used to enforce a contract for personal services  Against a minor  Often used in land contracts  If order disobeyed, can be imprisoned for contempt of court

38. Copyright Guy Harley 2008 38 Injunction  Court orders a party to a contract to refrain from breaching their contractual duty  Not available if damages would be an adequate remedy  There must be evidence that the breach will continue or will occur again  If order disobeyed, can be imprisoned for contempt of court  Can award damages & and injunction  Warner Bros v Nelson

39. Copyright Guy Harley 2008 39 Non-Contractual Remedies  Action for Money Had and Received  Where Total failure of consideration  Unjust Enrichment  Where a party obtains a benefit at the detriment of the other party  Quantum Meruit

40. Copyright Guy Harley 2008 40 Quantum Meruit  Where one party requests goods and\or services without specifying a price  Implied promise to pay a reasonable amount  Need not show loss by plaintiff only benefit by defendant  Applies where  Contract formed but no agreed price  Partial performance of a contract has been accepted  Contract is void  Contract is breached