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CRICOS Provider Code 00301

Performance and breach of contract: Discharge of contractual obligations

1CRICOS Provider Code 00301JAttend a seminar and/or listen to the iLecture recording;Read chapter 6 of the Understanding Business Law text book; andDo the E-tutorial Contracts - Termination and Breach.

NOTE: The principles relating to divisible contracts and breach of innominate terms are not examinable in this course.

What to do this week

2Learning outcomesAfter completing this topic you should be able to:

explain what degree of performance is required to discharge a contract;understand how performance might be excused on the grounds of frustration; explain when and how a breach of contract may occur; anddistinguish between actual and anticipatory breach.

3Performance in contextThe terms of a contract create legally enforceable obligations (rights and duties) for each of the parties to it.

To meet these obligations and discharge them, each of the parties must perform under the contract.

This involves them doing what they have said they are going to do in the contract.

4Determining the required performanceThe particular terms of a contract will determine what performance is required.

When performance under a contract is disputed, the court must interpret the terms of the contract to ascertain exactly what the obligations were.

The court takes an objective approach to interpreting those terms:

Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310;Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

We are exporters of animal products.Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310Given that our customers do not pay for the goods up to six months after the purchase price, we need a third part to provide advance payment for the goods sold but not paid for.We can arrange the necessary financial facility for your business.

6 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310We would like to terminate the contract. Our six months notice takes effect from todayTherefore, we are not obliged to give advance payments for money that would only be paid after the contract has ended.No, we should be given advances right up to the end of the period of notice, even if repayment by the purchasers took place up to six months thereafter.

7 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310Giving the words their ordinary and natural meaning;Applying an objective test to ascertain the intended meaning of the terms;Resolving ambiguities in commercial agreements to avoid commercial inconvenience or nonsense; andBasing the decision on the actual agreed terms in the contract.

8 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99ABCCONTRACT

ABC is to pay APRA an annual licence fee for certain musical works performed on the radio and TV.FORMULA

9 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99ABCCONTRACT

ABC is to pay APRA an annual licence fee for certain musical works performed on the radio and TV.FORMULAThe agreement intended to provide against depreciation in value of money and the formula implemented into the contract doesnt.APRA

10Determining the required performanceIn the following examples, can you discern the difference in the performance required:

A agrees to sell B 50 tons of grapefruit.

A agrees to sell B 50 tons of Ruby pink grapefruit.

A agrees to sell B 50 tons of grapefruit from Carnarvon.

The effect of performanceWhen both parties voluntarily perform their obligations under a contract, these obligations are discharged and the contract comes to an end.

In some rare situations, performance of the contractual obligations is excused e.g. when a frustrating event occurs that makes performance impossible.

12The effect of performanceIt is a breach of contract to not perform the contractual obligations that have been agreed upon.

A contract is not discharged when a breach occurs. The aggrieved party will seek to enforce the unmet obligations through a court action.

13The effect of performanceOrdinarily, the court will award damages to remedy a breach of contract, rather than compelling the defaulting party to perform. However, in certain circumstances, the court may order the defaulting party to specifically perform their obligations under the contract.

When the court makes an order or awards a remedy for breach of contract, this discharges the outstanding obligations under the contract (it comes to an end).

14Excusing performance: FrustrationIf a frustrating event occurs, making performance of the contract impossible, each of the parties to it are excused from performing their contractual obligations (the contract is discharged).

If, at the outset of the contract, it is impossible for the parties to perform under it (initial impossibility), then no enforceable obligations are created.

15Excusing performance: FrustrationIntervention of event after contract entered into making agreed performance impossible (supervening impossibility).Discharge is automatic, and applies from the time of the frustrating event. Rights that have already accrued under the contract are not necessarily lost.

16Excusing performance: FrustrationNecessary conditions for frustration of contract:must be a supervening, post-contractual, event;which causes fundamental change to nature of contractual rights;neither party responsible for the supervening event;supervening event must have been unforeseeable; andunjust to hold parties to original bargain.

Maritime National Fish Ltd v Ocean Trawlers [1935] AC 524Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

17 Maritime National Fish Ltd v Ocean Trawlers [1935] AC 524

St CuthbertI would like to charter the St Cuthbert from you to use for fishing.Sure!

18 Maritime National Fish Ltd v Ocean Trawlers [1935] AC 524

St CuthbertI had applied for five licences, but the Government only issued me with three. As a result, I was unable to obtain a licence for St Cuthbert. Can you please take the trawler back as our contract is frustrated.

19 Codelfa Construction v State Rail Authority NSW (1982) 149 CLR 337 Codelfa Constructions

20 Codelfa Construction v State Rail Authority NSW (1982) 149 CLR 337

BANG!NOISE!

21Breach of contractIf a party does not perform as agreed, there will be a breach of contract, which will entitle the innocent party to claim a remedy.

It is important to establish what term of the contract has been breached, and whether it is a condition or warranty, as this will determine what remedy will be available.

22Breach of contractWe will now look at the different ways that a breach of contract can occur:

non-performance;

partial performance; and

substantial performance.

23Non-performanceWhere one of the parties has completely failed to perform their obligations under the contract, by either:Not taking any actions to satisfy their obligations under the contract; orDoing something that was completely different to what they were required to do under the contract.

Varley v Whipp [1900] 1 QB 513

24 Varley v Whipp [1900] 1 QB 513TOWN OFHUDDERSFIELDWhipp, would you like to buy my second-hand reaping machine for 21 pounds?The machine is in the town of Upjohn. It is a year old and has only cut 50 or so acres of crops.Sound good!

25 Varley v Whipp [1900] 1 QB 513

The machine is old! It was obviously broken and mended too! I refuse to pay for this!

26Partial performanceWhere some level of performance has been rendered by a contracting party, but as a whole, performance of their contractual obligations is incomplete.

Because complete performance is required to discharge a contract, rendering incomplete performance will constitute a breach of contract.

27Partial performanceWhere there has only been partial performance of a contract, the innocent party will be entitled to terminate the contract and to claim damages.

In essence, partial performance of a contract amounts to a significant breach of condition.Steele v Tardiani (1946) 72 CLR 386

28 Steele v Tardiani (1946) 72 CLR 386Tardiani, your job is to cut firewood. You will paid at a rate of six shillings per ton of wood cut. The wood must be cut into six foot lengths and spilt six inches in diameter.Ok.

29 Steele v Tardiani (1946) 72 CLR 386We cut 1,500 tons of wood.But you didnt cut them to the specifications I provided!

30Substantial performanceIf the breach of contract is minor, and the innocent party still receives the expected benefit of the contract, this amounts to substantial performance.

When substantial performance has been rendered, the innocent party is entitled to claim damages to compensate for the minor breach, but they cannot terminate the contract.

31Substantial performanceIn essence, substantial performance of a contract only involves a breach of warranty.

Hoenig v Isaacs [1952] 2 All ER 176

32 Hoenig v Isaacs [1952] 2 All ER 176Hoenig, can you paint my apartment and supply me furniture for 750 pounds?Sure!

33 Hoenig v Isaacs [1952] 2 All ER 176

34 Hoenig v Isaacs [1952] 2 All ER 176

I am finished. Can I please have my payment?No, the work has been badly done. I am only going to pay you 400 pounds.

35 Degree of performance NONPERFORMANCEPERFORMANCEPARTIALPERFORMANCEORSUBSTANTIALPERFORMANCE

36Late performanceLate performance occurs when performance takes place after the time that is specified in the contract.

If complete performance is not tendered on time or within a reasonable time after it is due, it may amount to a repudiation of the contract that would entitle the innocent party to terminate the contract and claim damages:

Holland v Wiltshire (1954) 90 CLR 409

37 Holland v Wiltshire (1954) 90 CLR 409SALE OF LAND

Payment of 3,750 pounds to be made on the day fixed for settlement, namely January 14th 1952.

38 Holland v Wiltshire (1954) 90 CLR 409Whitshire, can we please extend the deadline?Ok. Whitshire, I do not intend to proceed with the sale at all.Holland, if you do not settle by March 28, I will take action for a breach of contract then.

39Late performanceThe inclusion of a time clause in a contract could make the consequences of late performance more severe.

Termination for late performance might not be justified because, although the common law treats time clauses as conditions, equity treats them only as warranties, unless the parties have expressed a contrary intention.

40Anticipatory breach

Is a breach that occurs after the contract is made but before, or at the time, performance is due.

This type of breach may be evidenced by the words or inaction of a party, who does not intend to undertake performance of their contractual obligations.

Where there has been an anticipatory breach, the innocent party may rescind the contract and claim damages.

Anticipatory breachUpon being informed of an unwillingness to perform under the contract, the innocent party can apply to the court for a remedy (they do not have to wait until performance is due).

A party wishing to terminate a contract on the basis of anticipatory breach must ensure that the other partys actions constitute repudiation of the contract, otherwise the actions taken to terminate the contract may themselves amount to an anticipatory breach.

CONTRACTSALE OF LAND29 JUNEMAHONEY WANTS OUTLINDSEY INTENDS TO COMPLETELINDSEY MISSEDMEETINGMahoney v Lindsey (1980) 33 ALR 601

Anticipatory breach and late performancePERFORMANCELATE PERFORMANCEANTICIPATORY BREACHENTEREDINTO CONTRACT

44Topic 6 case studyPerformance and breach of contract

451. The local rural fire service in WA has entered into a contract to buy fireworks for its annual bonfire and cracker night. As a rural fire service, it has always received the necessary permission for this from the relevant government department, and expects that the same will occur this year. After the contract is made, however, the government regulations are changed and as a result the fire service does not receive the necessary permits. The service has paid a deposit on the order but has yet to pay the balance. Advise the captain of the fire service.

462. Alice ordered a new car from Braggart Motors on 10 January. She specified that it was to be red, with air conditioning, power steering, lambswool seat covers and a Wizzo brand CD player, and it was agreed that the car would be delivered on 24 January. On that day, Alice went to the dealers premises and found that the car was ready. She checked that all of her requirements had been filled and, on being satisfied, drove the car away. Does that bring the contract to an end?

47If Alice had been given a black car instead of a red one, would she have been obliged to take it? What if the CD player was a Nerd brand rather than Wizzo?

483. Abigail enters into a contract to buy 200 Avogle toys. A deposit has been paid and delivery is to be in three months time. After the contract is signed but before the date for delivery the supplier advises Abigail that they will not be fulfilling the contract as the company has permanently ceased production of the toys. Does Abigail have to wait until the delivery date before she can take any action?

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