Contract Law Termination Notes

7/22/2019 Contract Law Termination Notes

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NOTES:

Contracts can be terminated in the following circumstances:

By agreement or contractual right

By abandonment or waiver By election

By consent of the parties (accord and satisfaction, substituted agreement)

By performance on both sides

For non-fulfilment of a contingent condition of formation or performance

By the exercise of an express contractual right to terminate.

By operation of law (eg, frustration or bankruptcy)

For breach of an essential term, for repudiation and arguably for a serious breach of a so-called intermediate or

innominate term

Termination by Agreementa. Express Contractual Right to Discharge/Terminate

b. Termination for non-fulfilment of contingent conditions

Distinguishing preliminary agreements and contingent conditions

1. What are preliminary agreements?Examples:

Possession shall be given and taken on settlement upon signing and execution of a formal contract of sale within 28 days of

acceptance of this offer. (cl 3) Godecke v Kirwan

This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors onthe above terms and conditions. Masters v Cameron

Jaylor hereby offers Helmos the opportunity to purchase its 50% interest in Kingsleys Crab House for $$1,100,000 by notice

in writing no later than 15 April 2002Upon receipt of the exercise of offer, contracts for the purchase of Jaylors 50%

interest shall be sent to your office no later than five days from the exercise date. Helmos Enterprises Pty Ltd v Jaylor Pty Ltd

[2005] NSWCA 235

2: Main legal issues When do the parties intend to be legally bound?


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Are the parties obligations postponed, or is the agreement immediately binding.

3. Classification of preliminary agreementsA. Immediately bound, formal agreement to follow

B. Immediately bound, performance dependent on formal contract

C. No contract

D. Immediately bound, substituted contract to follow

Masters v Cameron(1954) 91 CLR 353 the court distinguished between three possible interpretations where a contract is

said to be conditional:

(1) The parties have reached a final agreement on the terms and intend to be bound to the contract at that pointandwant those terms to be made precise, but not in a materially different form concluded contract;

(2) The parties have reached finality and dont intend to change the agreement, but want to put off performance of the

contract until it has been made more formal concluded contract;

(3) The parties do not intend to make a concluded bargain unless and until they have signed a formal contractno

contract unless the contract is reduced to writing.

Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd(1986) ANZ ConvR 681.


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The parties will be bound immediately, but they will make a further contract in substitution of the first, which may

contain further terms.

Which of these four alternatives will be chosen depends upon what the parties intended. This will be determined by their

language and their conduct.

Language Detail

Nature and magnitude of the transaction

Circumstances surrounding the execution of the contract

A contingent condition on performance is an event which parties agree must occur before performance is due. There is a

contract, but the parties dont have to perform until the event occurs. If the event doesnt occur the contract will either

Come to an end automatically, or End when one party terminates Depending on what the contract says.

The High Court tends to prefer finding a contingent condition on performance rather than a contingent condition on

formation

1.What are contingent conditions? This agreement is made subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on

the above terms and conditions. See Masters v Cameron(1954) 91 CLR 353.

Possession shall be given and taken on settlement upon signing and execution of a formal contract of sale within 28 days of

acceptance of this offer. See Godecke v Kirwan (1973) 129 CLR 629.

In the event of the consent of the Treasurer not being obtained within two months from the its date the contract shall be

deemed cancelled. See Suttor v Gundowda(1950) 81 CLR 418.

2: Types of contingent conditionsContingent conditions may fall into one of two categories:

conditions of formation: Conditions of formation

If a contract contains a condition of formation and the condition doesnt eventuate there is no contract at all.

Thus, it is a condition precedent to the existence of the contract.

No obligation to co-operate.

conditions of performance.


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If a contract contains a contingent condition of performance and the condition does not eventuate then the contract

does exist, but the parties need not perform until the condition is fulfilled.

The court can imply (in law) an obligation on the party or parties to take all reasonable steps to bring about the

fulfilment of the condition.

3. The right to terminate for non-fulfilment of a contingent conditionIf a contingent condition has not been fulfilled, then either party can terminate the contract.

4. Procedure for termination The contract may specify the manner of exercise of the right to terminate for non-fulfilment of a contingent condition.

If it doesnt,it is sufficient if the party terminating simply communicates the decision to the other party.

(a) Conditions for terminationParty cannot normally terminate unless:

The time designated has elapsed; when no designated time, reasonable time implied

Condition still unfulfilled

(b) Party must elect to terminate The contract remains on foot until a party entitled to bring the contract to an end elects to terminate

Unless the condition is self-executing

(c.)Election to terminate or affirm irreversible

(E) Loss of right to terminate Affirmation/waiver

An election to affirm the contract in this way requires both conduct and knowledge on the part of the party alleged to have

affirmed.

Conduct:

To be affirmation conduct may be: Deliberate (conscious waiver) or

By default (by conduct inconsistent with the right to terminate)

Knowledge At the least, the affirming party must have knowledge of the facts that give rise to the right to terminate and,

with that knowledge, they must engage in conduct which is referable only to the continued existence of the contract.

Breach of the duty of co-operation

The universal duty to cooperate imposes an obligation on each party to do all that is reasonably necessary to secure

performance of the contract


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Estoppel Where there is a contingent condition as to formation, estoppel may occasionally be invoked to prevent an attempt to

eschew legal liability altogether.

Where there is a condition of performance which is not fulfilled it may still be possible to argue that the party seeking to

terminate, by their conduct, led the other party to believe that the contract would not be terminated or would not beterminated without notice.

5. Effect of election to terminateTermination is effective de futuro

ii. Unjust enrichment

A breach of contract by one party mayentitle the other party to terminate the contract.

Whether or not the wronged party is entitled to terminate for breach may be:

Set out in the contract itself

A right conferred by law.

The right to terminate is regulated: the method is prescribed, and the right may be lost because of the wronged partys ownconduct.

The right to terminate, if it exists, is in addition to the right to damages for breach.

Performance and breachStandard of performance

Performance means exact or precise compliance. However, sometimes the standard of performance might be open-ended,

so the question of breach is problematic. This is also a problem in the case of some implied terms.

Order of performance

There cannot be a failure of performance unless the obligation has become due.

This is a problem when one persons performance depends on the others they are dependent obligations.

Where obligations are independent one parties obligations arise regardless of the others performance.

Types of Breach

The law recognizes two forms of conduct as constituting breach:

a. failure to perform;Actual failure to perform the contract as and when agreedcan be:

Complete non-performance,

Defective performance

Delayed performance


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b. unwillingness or inability to perform (repudiation or renunciation). Unwillingness or inability to perform

A party indicates an unwillingness or inability to performrepudiation or renunciation.

This may occur before the time for performance is due, and may lead to termination by the other party.

3. Right to terminationExpress Contractual Rights to Terminate

If Contractor (R) misses deadlines, then Principal (MfPW) can demand Contractor show cause (please explain) as to why

contract should not be terminated (Renard)

Occurrence of following events shall constitute good cause for BKCto terminate this agreement: (d) HJ fails to comply with

any terms, conditions or provisions of this agreement (Burger King)

Either party may terminate this arrangement by giving to the other notice in writingeffective 32 days after posting. (Garry

Rogers)

a.Problems of construction

Express terms which confer a right to terminate need to be interpreted just like any other term of the contract.However, clauses conferring a right to terminate for breach are in general construed strictly, and may also be interpreted

contra proferentem.

Burger King:

clause 15.1: the occurrence of any of the following gave BK good cause to terminate the contract

(d) HJ fails to comply with any terms, provisions or conditions of this agreement or any other obligation owed to BK.

HJ was obliged to open 4 new restaurants a year. If they didnt, they were charged extra franchise fees for each restaurant

they fell short

but the extra fees werent leviedimmediately, and were waived if they if the failure was made good in the following year

(clause 8.1).Needed to be read in the context of the contract as a whole Burger King couldnt terminate until the end of a years leeway.

B Constraints arising from implied termsThe implied duty of good faith, and perhaps the implied duty to co-operate, might constrain the express contractual right to

terminate.

This may imply a requirement

that the terminating party substantiate the grounds for termination (Renard)

or use power for legitimate or proper purpose (Burger King and Garry Rogers)


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C: Damages for loss of bargainNormally the terminating party can claim compensation for loss of bargain. However, where the right to terminate only

arises in contract (ie it does not also arise in law) damages for loss of bargain are not availableShevill.

Make sure that the contract specifically provides damages for loss of bargain after exercise of the right to terminate by

contract.Termination without express contractual right (common law)

Arises where there is a serious breach, ie:

(a)Breach of an important term. (that is, a breach of a condition as opposed to a warranty)Breach of an important term

Condition = a contractual duty, the breach of which gives rise to the right to terminate

How do we work out if a term is a condition?

Parties may designate a term to be a condition

Where no express designation it is a matter of construction on the basis of the following factors:

Promise so important to promisee that s/he would not have entered into the contract unless assured of strictor substantial performance of the promise (Jordan CJ in Tramways)

Language

Nature of contract

Other terms of contract

(b)breach causing substantial loss of benefit (consequences)(c)repudiation or repudiatory conduct (including repudiation prior to moment of performance)

What is repudiation?

termination is justified when one party by his or her words or conduct manifests an unwillingness or inability to be bound bythe contract.

ii. What conduct amounts to repudiation?

indicates he/she will notperform

indicates he/she could notperform

maintained an erroneous interpretation of the contract

multiple minor breaches the cumulative effect of which was serious

unjustified termination

Repudiation or renunciation is clear when someone expressly asserts their unwillingness or inability to perform.


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Where there is no express indication, The question becomes whether the persons conduct would lead a reasonable person to

conclude that they no longer intend to perform their contractual obligations

Repudiation is indicated by

words,

conduct, or actual position: are they in a position that makes it impossible or unable for them to perform.

Repudiation can relate to:

All contractual obligations

Some contractual obligationsin which case the court will have to determine whether the partial renunciation is sufficiently serious

to allow termination by reference to:

whether he has refused to perform a condition or essential term,

or whether his refusal to perform a particular term go to the root of the contract.

When should you argue repudiation?

Often repudiatory conduct and breach will overlap, and both can be argued, although different evidence will be required.

The distinction between breach and repudiation is important in two cases:

Combination or series of breaches

Anticipatory breach

CASE: Laurinda Pty Ltd v Capalaba Park Shopping Pty Ltd (1989) 166 CLR 623

A time was not specified for registration;

Time was not of the essence;

It was an implied obligation to effect registration within a reasonable time.

Thus, there was a breach.

Did it amount to a repudiation?

The notice was not effective to make time of the essence, but there was nevertheless repudiatory conductThe difference between a contract which contains a stipulated day for performance of an essential term and a contract which,

expressly or impliedly, requires performance within a reasonable time is important when the question is whether, on failure to

perform within the time limited by the contract, the innocent party is entitled to rescind. In the former case, a right to rescind arises

at law when the stipulated day passes; in the latter, that right does not necessarily arise when the reasonable time expires but only

when repudiation is clearly to be inferred from the circumstances in which the delay occurs. Delay will amount to repudiation if the

defaulting party "evinces an intention no longer to be bound by the contract ... or shows that he intends to fulfil the contract only in

a manner substantially inconsistent with his obligations and not in any other way" (Brennan J, quoting Shevill)


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The absence of an effective notice means that the other evidence must be examined to determine whether a clear inference of

repudiation should be drawn, but it does not preclude the drawing of that inference.

Anticipatory BreachAnticipatory breach may arise in two ways:

either because a contractor indicated by words or conduct that he or she will not perform on the day; or because the contractor has put it out of his or her power to perform on the day.

This indicates three difficulties about deciding to terminate before actual failure to perform:

How certain must it be that the promisor will breach?

How serious must the breach be?

If seriousness depends on consequences, how are the consequences established?

Certainty

Seriousness

DelaySection 41 of the Property Law Actnow governs the approach to termination for delay in Victoria in relation to

contracts for the sale of land:

Stipulations in a contract as to time or otherwise which according to rules of equity are not deemed to be or to have

become of the essence of the contract shall be construed and have effect in law in accordance with the same rules.

Time Essential

Breach confers right to termination and damages

Time inessential

but a date for performance set in contract

no date for performance set in contract

Notice required which sets out:

A time for performance

A reasonabletime for performance The consequences of not performing

A: When is time of the essence? Contract states that time is of the essence

The time provision is an essential term: indications?

Specific dates for performance in commercial contracts

Requirement to pay deposit in land contracts

Tests relevant to determining essential terms generally?


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B Notice Procedure The notice procedure will be useful where:

a date for performance is stated in the contract, but the date is inessential; or

no date is stated in the contract.

Notice must: State a definite time for performance;

Set a time which gives a reasonable time for performance

Convey the consequences of any failure to perform: that is,

that the new deadline is an essential condition,

or that the innocent party is entitled to terminate if the new deadline is not met.

The effect of the notice is to make the new time fixed by the noticeessential

4: Restrictions on the right to terminate

(a)Election and waiver/affirmation

Has the party elected by unequivocal words or conduct? Did the party have the knowledge of necessary facts which gave rise to the right to terminate?

Ready, able and willing to perform

(B) In order to terminate the innocent party must be able to show that he or she was ready, able and willing

to perform his or her obligations This presents particular problems in the case of anticipatory breach. Put termination for breach in the context of other ways of ending a contract

Understand the tests used for determining whether the innocent party can terminate a contract for breach

Revisit the notion of election and affirmation in the particular context of termination for breach

Be aware of when the right to terminate can be lost

CONSEQUENCES OF TERMINATION:When a contract is terminated it is terminated prospectively (into the future, or de futuro).

The parties are released from any future obligations, but rights and obligations which have already accrued under the contract

remain intact.

What about the loose ends:

What about money which has been paid (deposits, instalments, etc)?

What about money duebut not yet paid?


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Because the termination only applies to the unperformed part of the contract, accrued rights are not divested. If an entitlement

under a contract accruedprior to termination, that entitlement may still be enforced.

There are two types of accrued right:

the right to damages

the right to recover sums due under the contract.1 Recovery of Sums Fixed by ContractLiquidated damages clauses

Recovery of a debt

Money sums fixed by contract may be recoverable in action for debt

Benefits of recovering a Debt as opposed to Damages

(a) Summary judgment procedure

(b)Different onus of proof

(c) No duty to mitigate

Prerequisites for a debt recovery action

2.2.2.1 The contract is for payment of a fixed or ascertainable sum

2.2.2.2 The debt has accrued

Question of construction

Depends upon one of the following factors:

Whether one partys obligations are dependent or independent of the other partys obligations

Whether a partys obligations can be classified as entire or divisible/severable.

Dependent/independent obligations

i. Independent obligations: right to payment arises independent of performance

Terms contracts - the purchasers obligation to pay the purchase price is independent of the vendors obligation to transfer

title Dependent obligations: right to payment arises out of exact performance

Contracts for the Sale of LandObligations usually dependent

Contracts for the Sale of GoodsObligations usually dependent (payment for transfer of title: s.55 (1) Goods Act 1958

(Vic)).

Entire/divisible contracts

Whether a contract is divisible or not depends upon the proper construction of the contract.

judicial preference not to construe a contract as entire


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Entire Contracts

An entire contract is one in which the parties have expressly or impliedly agreed that precise or exact performance by

one party is a condition precedent to the other partys obligation to pay.

. Severable or Divisible Contracts

The parties have agreed that contract payments are to be made for specified instalments of the goods or services - a partycan still be paid for each severable part of the work completed or for each part of the goods delivered, even if the whole of

the contract is not performed.

Parties (including those in breach) can recover sums for parts completed prior to termination even though another part not

complete

iii. Exceptions to the requirement of exact performance

a:The de minimus rule de minimis non curat lex the law does not concern itself with triflesthe court will disregard trifling departures from the

contractual obligations.

B Substantial performance In the case of substantial performance, the court may allow recovery of the contract sum (as a debt), with the possibility of

counter-claim and set off to deal with any defects.

Substantial performance is still a breach entitling other party to damages for cost of rectifying any defects

Innocent party must pay price, but entitled to deduct amount of any set off or cross claim for cost of rectification

C Acceptance of part performance Partial performance is not the same as substantial performance; partial performance is a breach, and entitles the other party

to terminate and sue for damages

UNLESS the innocent party has accepted part performance, which basically creates a new contract.

D Obstruction of performance Contract terminated by repudiation, and one party has therefore been prevented from performingrecovery through an

action in unjust enrichment:

Quantum meruit

Quantum valebat

2.3 Right to retain money

Generally, someone who has paid money under a contract wont be able to get it back as a liquidated or fixed sum they will

have to

sue for damages for breach,


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or bring a restitutionary action for monies had and received, provided that there has been a total failure of consideration.

. Contract has no forfeiture clause Where the contract does not have a forfeiture clause and the contract has been terminated for breach

the vendor must return the instalmentswhether or not the purchaser is at fault.

Contract contains a forfeiture clauseWhere a contract contains a forfeiture clause, and the contract has been terminated for breach, Then the common law will

not allow relief against forfeiture. BUT equity may give relief against forfeiture.

Right to retain deposit If the purchaser is in default , The deposit is normally retained by the vendor even in the absence of an express contractual

right to do so

Purchaser not in default:

Deposit must normally be returned in a restitutionary action for monies had and received

Can X terminate the contract?


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Sub-issue Index Sub-index Definitional

principle

[main]

ncillary principles lternative

arguments

Can X

terminate

the

contract

for failure

of a

contingent

condition?

Termination Contingent

Conditions

of

performance

(including

category 2

Preliminary

agreements)

Eg subject tocontract,

subject to

council

approval,

etc.

A condition

of

performance

is a

condition,

the effect of

which is to

defer

performanceunless and

until the

condition is

fulfilled. In

such cases, a

contract

does come

into

existence;

but one or

both parties

are exempt

from the

obligation to

perform

pending the

outcome of

the

condition. If

The classification of contingent conditions (as a

condition of performance or formation) is dependent of

the intentions of the parties having regard to:

o Language

o Level of detail

o Nature and magnitude of the transaction

o Circumstances surrounding the execution of the

contract

If a contingent condition if performance has not beenfulfilled, then typically eitherparty can terminate the

contract but whether both parties can terminate is

ultimately a question of construction

The contract may specify the manner of exercise of the

right to terminate for non-fulfilment of a contingent

condition. If it doesnt, it is sufficient if the party

terminating communicates the decision to the other

party.

The right to terminate has arisen because:

o The time designated has elapsed; or when no

designated time, reasonable time implied

o Condition still unfulfilled

The contract self-executes(Gange)or there is an

election to terminate. An election is irrevocable

(Tropical Traders)

Intention (is

there an

intention to

create legal

relations at

this point?

condition on

formation

seeflowchart

Certainty


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the

condition is

not

satisfied, the

contract cannormally be

terminated

[flow chart]

Can X

terminate

the

contract

for

breach?

Breach a breach of

the contract

may entitle

the innocent

party to

terminate

the contract

A breach occurs:

When youve shown that the promise is in the contract

(incorporated and promissory), including express and

implied terms

There has been an actual failure to perform an

obligation exactly as and when promised (consider

order of performance and dependent/independent

obligations)

Or the party has demonstrated unwillingness or inability

to perform (repudiation/renunciation)

A right to terminate arises:

According to the express terms of the contract

(regardless of how trivial the breach) (construed strictly

in the context of the contract as a whole, and subject to

the implied term of reasonableness and good faith)

At common lawo For breach of a condition (labelled as such in

the contract or otherwise its a matter of

construction)

o Breach causing substantial loss of benefit

(consequences test)

o Repudiation or repudiatory conduct

Damages for

breach


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Can X resisttermination of the contract?

Delay A breach of

a time

stipulation

will allow

terminationif the

provision is

essential.

If time is of the essence then any delay is a breach of

a condition (above)

If time is not specified to be of the essence notice

procedure with specific requirements:

It states a definite time for performance; That time is a reasonable time for performance

It must convey the consequences of any failure

to perform: that is, that the new deadline is an

essential condition (ie. new time is of the

essence) or that the innocent party is entitled to

terminate if the new deadline is not met.


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Can X recover their deposit/instalments/money paid/services rendered under the contract?

Can X keep money already paid under the contract?

Constraints

on

Termination

Termination The right to terminate for breach can be lost if the innocent

party is not themselves ready and willing to performor, in

the case of anticipatory breach, they hadnt put it out of their

power to perform as at the time of the anticipatory breach

(grey areasee Foran)

The right to terminate can be lost by an election to affirm the

contract

with unequivocal words or conduct which is

referable only to the continued existence of

the contract

conscious waiver

affirmation

and knowledge of the facts that give rise to

the right to terminate

if it is an express contractual right

knowledge is deemed a solicitors right is deemed to be the

knowledge of the client

The right to terminate can be lost for breach of a an implied

obligation on the parties to make reasonable efforts to fulfil

that condition

The right to terminate may be lost by an estoppel if it can be

established that a party has relied to his or her detriment on

conduct that led the other party to believe that the contract

would not be terminated or would not be terminatedwithout notice

?unconscionable exercise of duty

?duty to exercise in good faith

Wrongful

termination

other

party in

breach


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Consequences

of Termination

Valid

termination

Termination is

de futoro -

Parties are

released from

futureobligations, but

obligations which

have already

accrued remain.

Recovery of

deposit

A reasonable

deposit will be

forfeited in the

event of a

wrongful

termination.

Whether or not a

sum is a deposit

or a penalty is

determined by

reference to

the

proportio

n of the

paymentin issue to

the

purchase

price and

the terms

of the

contract.

Has the deposit been forfeited?

When the contract is terminated for breach,

o And the purchaser is in default a reasonable

deposit is normally retained by the vendor, even

if there is no express contractual right to do so.

o and the purchaser is notin default, the deposit

must normally be returned and, if not, can be

recovered in an action for monies had and

received for a total failure of consideration

o If a contract is terminated for a failure to pay

the deposit, the innocent party may be able to

sue to enforce the recovery of the deposit as a

debt, even if the innocent party has not suffered

any loss.

when the contract fails for failure of a contingentcontingent - restitutionary action for moneys had and

received on or for a total failure of consideration.


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If excessive, it

may be subject

to relief against

forfeiture.

Recovery ofinstalments paid

Where the contract has been terminated for breachand

does not have a forfeiture clause the vendor

must return the instalments whether or not the

purchaser is at fault.

does have a forfeiture clause which specifies

that the deposit is forfeited, then common law

follows the contract but equity may provide

relief against forfeiture; usually if it is a penalty

ie not a genuine pre-estimate of loss.

Payment for

services

performed

Action for unjust enrichment - a restitutionary claim, on

a quantum meruit, for reasonable remuneration

the defendant has received a benefit,

at the expense of the plaintiff,

in circumstances which the law recognises as

unjust

and that there are no available defences.

Recovery of

money sums

Debts which

have

unconditionallyaccrued prior to

termination as

payment for the

other partys

performance are

recoverable,

regardless of

liquidated damages clause in contract which is a

genuine pre-estimate of loss (not a penalty)

recovery of unconditional debts which have accruedprior to termination (including an unpaid deposit)

through a liquidated demand where:

o the contract is for payment of a fixed or

ascertainable sum

o the debt has accrued


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fault

Damages Justifiable

termination will

give rise to a

right to damages

If termination is justified at common law, then loss

of bargain damages are available - equivalent to the

full value of the lost performance, including

expected income and other benefits that wouldhave been gained.

If termination is justified by the contract, loss of

bargain damages are not available but accrued

damages are available.

Questions and Answers

Question:

Liquidated damages clauses and penalties... the differences between these two seems simple enough where a penalty is a simply

number which has to be paid for a breach? Whereas liquidated damages calculates the amount suffered?

Although, liquidated damages will not always be enforced by courts I have read.. this I am unclear about.

Answer:

Re liquidated damagesliquidated damages clauses will not be enforced if they are penalties. The distinction is that a liquidated

damages clause is a genuine pre-estimate of damage (even if the damage ends up being less) whereas a penalty may be excessive or

is unrelated to the likely damage.

Question:

I have just been reanalysing my answers on the tutorial questions, and Foran V Wright has got me a bit confused.

- From my understanding, if a party repudiates then the other party does not have to fully prove they are willing and ready to enter

into the contract, as the repudiating party has effectively estopped them from doing so.

- If that is the case, unless it is a trick question, number 9 asks


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If the majority had found that the purchasers were not ready, able and willing to perform, would that have affected their ability

to recover the deposit?

What I am not sure of is, even if the majority had found the innocent party was not ready and willing, the fact that the vendor

repudiated would make this irrelevant? Or would it then determine that on a technicality the purchaser had also repudiated?

Answer:

The vendors have repudiated (in an anticipatory breach). The purchaser did not elect to terminate at that stage, thus waiting for the

settlement date. Neither attended settlement, and the purchaser terminated for actual breach (time was of the essence).

The purchaser sought return of the deposit (action for money had and received on a total failure of consideration), and was

successful.

The purchaser did not have the funds to settle on the date, because he took the view that because of the repudiation therewouldnt be any point attending settlement.

Normally he would have had to show he was ready and willing to settle, but the vendor would have been estopped from claiming

that because the vendor was the one to lead him to believe that there was no point in attending settlement.

The main issue was whether the vendors conduct in repudiating the contract before settlement date estopped him from later

arguing that the purchaser was notready, able and willing to perform. The conduct was there, and was relied upon and the

purchaser had sustained detriment in the form of a loss of chance to tender money (the elements of estoppel).

So the purchaser got his money back.

So normally they would have had to show that they were ready and willing to perform, because this was a termination for actual

breach, but the repudiation had come first and that was the thing that led them to believe that there was no point in tendering the

money.

Question:

in Masters v Cameron :


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-Masters brought the action against Cameron wanting the deposit back. Masters lost because there was found to be a contract so he

didn't get his deposit back.

-Masters appealed to the HCA and won because it was found there was no contract and he got his deposit back ?

Answer:

The reason it is relevant to termination is that it draws the distinction between a contingent condition on formation (condition

precedent) (if the condition doesn't eventuate the contract has not been formed at all) and a condition on performance (condition

subsequent) - if the condition doesn't eventuate the contract can be terminated.

If there's no contract because the condition on formation didn't eventuate, then the deposit would be returned. The action

(although it doesn't say so in the case) is a restitutionary action for moneys had and received on a total failure of consideration.

Question:

in Sargent v ASL Developments from what I understood:

-Mrs Sargent sold her land to ASL Developments and in their contract either party was allowed to terminate if the land was aff ected

by town planning schemes in a certain period of time. But she didn't know about this clause? And so 2 and a half years later she

terminated because the land was in fact involved in a town planning scheme. But before this time she has received payment and

assisted the purchaser brining the land under the Real property Act.

-Im not sure what happened in the courts prior to the HCA but in the HCA it was held her termination was ineffective because by her

taking payments she had 'waived' her right to terminate.

Answer:

In Sargent by acting inconsistently with termination (by accepting the payments) she waived her right to terminate. This is a form of

affirmation - she lost her right to terminate by affirming the contract. Even though she didn't personally know of the right to

terminate, her solicitor did and his knowledge was imputed to her, so the affirmation occurred with the relevant knowledge.


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Question:

in Godeke v Kirwin

-kirwin sold his land to Godecke there was a clause to say if either party wanted to change the agreement or make additions they

could so in 28 days. Godecke made some changes and Kirwan refused to proceed.

-it was first help there was no binding agreement, then in the HCA it was help there was.

-so does that mean the main issue of the case was whether there was a binding contract or was it just a preliminary agreement?

-I don't understand what sort of condition was the requirement to exercise the formal contract and what were the indications they

intended to be immediately bound?

Answer:

In Godecke there was a preliminary agreement (which also gave rise to a certainty argument) by which the parties agreed that they

would 'execute a further more formal contract.' There are a number of questions arising out of Godecke, including whether they

intended to be bound at that point or not (they were) and whether the uncertainty could be cured (it could). The types of things

that led the court to say that they intended to be bound at that point included the amount of detail in the preliminary agreement.

CASES:

Case analyses

Masters v Cameron(1954) 91 CLR 353(E)1. In the case above, who were the parties to the contract and what type of contract was in dispute?

Violet Christina Cameron and Norman James Masters were the parites to the contract. The type of contract that was indispute was a sale of land contract, between a vendor and a purchaser.

2. What was the main issue in this case?

3. What sort of condition was the requirement to exercise the formal contract of sale?

An agreement was reached to sell a farming property on certain terms. It was stated that, "this agreement is made
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subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and

conditions."On the same day a deposit of 1750 was paid to the vendor's agent. When the purchaser refused to proceed

with the sale, both parties claimed the deposit - the purchaser on the basis that there was no contract, therefore money

paid should be returned - the vendor claiming that there was a contract and in the event of a failure to proceed, the

money was forfeited. The judge held that there was a contract. The purchaser appealed.

4. What were the three possible classes of into which this case could fall? Into which class did it fall? Why?

The parties have finalised their agreement and intend to be bound straight away, but intend to put it into more precise

form. Lord Blackburn in Rossiter(1878) - said that the mere fact that you have indicated a desire to have a more formal

expression of the terms does not mean that negotiations are still continuing. An assent without power to vary the terms

indicates a completed contract.

2. They have agreed all the terms, but have made performance of one or more terms conditional upon the execution of a

formal document.

3. The parties do not want to be bound until they have completed the formal document. Here, the parties may wish to

retain the right to withdraw, if agreement cannot be reached on outstanding matters.

In the first two cases we have a binding contract. In the third case we merely have a record of the terms which are

intended to form the basis of a contract to be finalised.

The question is to be determined by the parties intention as disclosed by their language. If "subject to contract" means

there are terms to be agreed, or conditions to be fulfilled, then there is no contract until those things have been done. Sir

George Jessell in Winn v Bull (1877) said that where a proposal or agreement is "subject to contract", it means what it

says, that it is subject to a formal contract being prepared. When not expressly stated to be so, then it is a matter of

construction. Similar views have been expressed in Spottiswoode [1942] and Keppel [1927]. No reason why those

principles should not apply here, and thus we conclude that no contract has been formed.

This leaves the question of the status of the deposit. Was the payment anticipatory, to become a deposit under the

contract, or was it intended to be an interim guarantee that the purchaser would enter a reasonable contract. As noted inChillingworth v Esche (1924), prima facie, the latter is not common sense. We conclude that the payment was merely

anticipatory.

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd(1989) 166 CLR 623(E)Laurinda and Capalaba Park had entered an agreement by which Laurinda was to receive a lease over premises in the Capalaba Park

Centre. There was an obligation on Capalaba Park to supply a lease in registrable form to Laurinda. Laurinda took possession of the

premises in December 1985. Laurinda fulfilled all of its obligations, and forwarded the lease to Capalaba to complete. Time was not

of the essence (as a consequence of clause 15.7). Capalaba was considering changing its financial structure, and delayed completing
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the formalities that would make the lease registrable for a total of 9/10 months. In that time, Laurinda had decided it wanted to sell

its business, and needed the lease to complete the sale. It sent letters to Capalaba asking them to return the lease. Capalaba gave

the impression that they would comply with their obligations in the near future, but took no action. In August 1986, Laurinda sent a

letter giving Capalaba 14 days notice to complete, with which Capalaba did not comply. Laurinda terminated the agreement.

What is the nature of repudiatory breach and the nature of a notice to complete?Mason CJ, Brennan, Deane, Dawson, Gaudron JJ

One party may rescind a contract if the other party (a) repudiates it generally, or (b) repudiates an important term in the contract

(Brennan, 642). Repudiation may be inferred where "one party renounces his liabilities under it - if he evinces an intention no longer

to be bound by the contract ... or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his

obligations and not in any other way" (Shevill, cited by Mason and Brennan). This inference is to be drawn objectively - i.e. it is

determined by whether a reasonable person in the shoes of the innocent party would infer that the other party's actions fulfilled the

Shevilltest (Brennan). Where time is not of the essence, mere delay does not necessarily satisfy this test (Mason and Brennan).

The rights and obligations of parties upon the giving of a valid notice to complete are mutual. The notifier and the notified both have

a right to rescind if the notice is not complied with by the other party on the given date. If a notice to complete needs to threaten

termination for non-compliance, that would remove the mutuality (as the notified party would have a right to elect to leave thecontract on foot after non-compliance that the notifier would not have) (Deane and Dawson). The notice must still convey the fact

that the notifier wishes to have time regarded as being of the essence. This can be done by implication, especially if it is

correspondence between solicitors. The time set out in a notice to complete must be sufficient for a reasonable person to complete

the actions mentioned. The onus is on the notifying party to show that the t ime specified is sufficient.

HELD Deane and Dawson JJ

Breach of a fundamental obligation by unreasonable delay will justify recision at law, but not at equity. A valid notice to complete

effectively makes time of the essence in equity, non-compliance thereby removing the right to equitable relief.

HELD Gaudron

The special relationship between creditor (the directors of Laurinda, who were acting as guarantors for the company) and suretymay ground the inference that time is of the essence, even in the face of a contractual clause seemingly to the contrary.

As a question of fact, 14 days was an unreasonable time in which to expect someone to procure a lease in registrable form - the

notice to complete was not valid. However, the unjustified delay by Capalaba, coupled with its incorrect statements and unfilled

assurances permitted the inference that it intended to perform the contract only in a manner substantially inconsistent with its

obligations. Laurinda was within its rights to rescind for this reason.

Godecke v Kirwan (1973) 129 CLR 629

Background facts:
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Agreement made with principal terms set out

Clause 6 specifies that if the vendor requires, the parties will sign a further agreement prepared by the vendors solicitors.

Legal issues

Illusory promisesExemptions,matters to be determined by a third party

Judgement

Clause 6 did not require a further agreement, only allowed vendors solicitor to add terms unilaterally.

Solicitors can only add terms which are consistent with the original offer and are reasonable in an objective sense (court determines

what is reasonable objectively).

The TJ held the agreement was not binding.

On Appeal shown to be binding.

1. In the case above, who were the parties to the contract and what type of contract was in dispute? Godecke (purchaser) and Kirwan (vendor) entered into a written agreement for the sale of land

2. What was the main issue in this case?

Illusory promisesExemptions,matters to be determined by a third party

Kirwan subsequently refused to proceed with the sale

3. What sort of condition was the requirement to exercise the formal contract of sale?

in cl 6, that, if K irwan required it, Godecke would execute a further agreement containing the terms of that agreement

and any other as determined by Kirwan's solicitors (within reason).

4. What indications were there that the parties intended to be immediately bound?

Walsh J:A binding agreement may be made leaving some important matter to be settled by a third party or even, in mostcases, by one of the parties. The parties set out all the principal terms governing the sale of land, including an obligation

to execute a formal contract and a promise by Godecke to execute, if required , a further agreement. Walsh

considered that requirement should be limited to permitting the insertion of covenants and conditions not inconsistent

with those contained in the offer and such additional conditions needed to be reasonablein an objective sense. This

was not an agreement to agree on additional provisions but an agreement by Godecke to accept additional provisions

if reasonably required.
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This was, therefore, not a case in which all the terms of the contract had not been settled. A bindingagreement had been made. Appeal allowed.

Tropical Traders v Goonan (1964) 111 CLR 41D agreed to purchase land in Perth in Jan 58. Price to be paid by deposit, four instalments due in 59, 60, 61 and 62 with final

payment in 63. Cl 12 made time the essence of the contract in all respects. Cl 11 said that if D failed to make payments at the propertimes, all the money paid by them would be absolutely forfeited. This clause also allowed them to "rescind" the contract without

notice and to retake possession of the property. Title was to be transferred on payment of the full purchase price.

D took possession and paid deposit. The first 3 instalments were each a few days late, and the 4th a few days early. Final payment

due on 6 Jan 63. Interest was paid on the following day and an extension of time requested. On 8 Jan P informed of right to rescind

for breach but said the right would not be exercised before 11 Jan. On 15 Jan P wrote to say money forfeit and agreement rescinded.

31 Jan P issued writ for declaration that rescission lawful and claiming possession.

HELD Kitto J

Each acceptance of a late payment operated as an election not to rescind for non-payment by the due date, but to read into it

anything of a promissory nature with regard to future payments and non-reliance on Cl 12 would be unwarranted. Repeated

acquiescence in non-observance by the other of, say, a time provision may make it no longer 'of the essence', and it may not matter

if it is described as a promissory estoppel, a waiver or a variation by mutual consent. The extension granted in relation to the final

payment goes against the argument concerning a waiver. What the extension may do, is indicate that time is no longer of the

essence. Barclay (1874) the effect of the extension is only to substitute the new deadline for the old, and does not destroy the

essential character of time. The extension is a qualified and conditional waiver of the original stipulation. The acceptance of the

interest did not affect the right to rescind - it was money due and was not an election to affirm for the future. Contract validly

rescinded, but remit to Supreme Ct to consider the question of relief against forfeiture.

Foran v Wight(1989) 168 CLR 385HELD Mason CJ, Brennan, Deane, Dawson, Gaudron JJ

Contract for sale of land. Time was of the essence. Some days prior to the completion date, the vendors represented that theywould not be able to complete on time. At that time the purchasers did not have enough finance to purchase the house. Neither

party acted on completion date. Two days later purchasers purported to rescind the contract, and seek their deposit back.

Did the purchasers need to show they were ready and willing to perform? (no) If so, at what time? Was an estoppel created by the

vendor's representations? (yes)

When one party, A, purports to repudiate the contract, the other party, B, may either (i) accept the repudiation, and rescind the

contract or (ii) allow the contract to remain on foot. There is no third option (Fercometal Case (1989, UK)). If the contract remains on

foot, it does so for the benefit of both parties. For one party to sue for the other's breach under contract they must show that, under
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ordinary contract principles, they were ready and willing to perform their obligations under the contract as at the time of the other's

breach. Where A represents to B that B needn't perform B's obligations under an executory contract (i.e. one to be performed in the

future), or that it would be pointless for B so to do, B is released from the performance of those obligations until such time as A

withdraws that representation [Peter Turnbull, (1954, Aust). If B wishes to sue under the contract for A's failure, B must be able to

show that they were ready and willing to perform their obligations as at the receipt of A's representation. The onus of this isdischarged if they can show they were "not incapacitated from [performing their obligations] and were not decided against doing

so".

In this case, the repudiation was not accepted (i.e. it was an action for actual breach), but (per Brennan, Deane, Dawson) the

vendor's representation estopped them from arguing that the purchasers needed to be ready and willing to complete on time. To

rely on the estoppel, the purchasers had to show that they were ready and willing to complete as at receipt of the repudiation. They

discharged this onus. The vendor's consideration totally failed, so the purchasers were entitled to the return of the entirety of the

deposit (Fibrosa).

HELD Gaudron

Not based on estoppel. The vendor's representation waived their benefits under the "essentiality of time" clause, thereby removed

the need for the purchasers to complete on time.HELD Deane

Readiness and willingness is only relevant where the plaintiff is attempting to recover damages for breach. It is not necessary to

rescind a contract.

HELD Mason CJ dissenting

There was no relevant detriment to the purchaser on which to ground an estoppel. The purchaser was therefore required to show

that they were ready and willing to perform as at the completion date. This onus had not been discharged.

Sargent v ASL Developments Ltd (1974) 131 CLR 634(E)This case considered the right of rescission of a contract and whether or not the conduct of a party amounted to a waiver of their

right to rescind a contract where they had knowledge of this right to rescission and did not act on it immediately. An issue waswhether the party had satisfied the doctrine of election in relation to their right of rescission.

In Sargent by acting inconsistently with termination (by accepting the payments) she waived her right to terminate. This is a form of

affirmation - she lost her right to terminate by affirming the contract. Even though she didn't personally know of the right to

terminate, her solicitor did and his knowledge was imputed to her, so the affirmation occurred with the relevant knowledge.
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Contract Law Termination Notes

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Transcript of Contract Law Termination Notes