The University of Queensland LAWS1702: Law of Contracts II
Course Notes
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Table of Contents
Week 1: Basic Concepts and Contractual Performance ... 3 Week 2: Discharge by Consent and Termination by Repudiation ... Error! Bookmark not defined.
Week 3: Termination for Serious Breach and Delay ... Error! Bookmark not defined.
Week 4: Election to Terminate and the Consequences of Termination .. Error! Bookmark not defined.
Week 5: Frustration of Contract, Privity and Enforcement ... Error! Bookmark not defined.
Week 6 and 7: Damages for Breach of Contract ... Error! Bookmark not defined.
Week 8: Overview of Vitiating Factors, Mechanics and Effects of Recission ... Error!
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Week 9: Vitiating Factors – Misrepresentation ... Error! Bookmark not defined.
Week 11: Misleading or Deceptive Conduct under ACL and RemediesError! Bookmark not defined.
Week 12: Vitiating Factors – Duress, Undue Influence and Unconscionable Dealing ... Error!
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Week 13: Statutory Unconscionability and Third-Party Impropriety ... Error! Bookmark not defined.
Key Terminology/Tips:
Prima Facie – on first impression
e.g. If Paula affirms the contract, then prima facie she is entitled to receive $100,000 in compensation for losses she has incurred in reliance on Douglas’s representations.
In conclusion, state what solution would be in P’s strategic interest.
If the property has passed to a third party, P is no longer able to rescind the contract (for misrepresentation).
When examining misrepresentation/unconscionable conduct, must be examined under both contract law and ACL (consider trade/commerce requirement for m) views.
In repudiation, check whether contract requires cooperation (such as acceptance of deliveries) – White & Carter Councils.
When considering damages, always discuss causation, remoteness and mitigation.
A failure to disclose is not actionable as a misrepresentation at common law.
4 Week 1: Basic Concepts and Contractual Performance
Contractual Liability:
• Contracts are binding in the sense that they are legally enforceable – binding obligation arises from the terms (express, implied by fact, implied by law, construed)
o As contracts are binding, they are enforceable
• Enforcement of contractual promises is effectuated through remedies, to give sufferers of any non-compliance the benefit that they are entitled to
• The party in breach of contract is liable to either:
i. Coercive enforcement of the contract
a. Specific Performance: positive remedy – order of the court to a party to perform their obligations under the contract
b. Injunctions: negative remedy – court prohibits commission or continuance of a wrongful course of action
ii. A monetary substitute for performance in the form of damages Breach of Contract:
• A breach is a failure to perform in accordance with the agreed terms: non-performance, late or defective performance
o Actual breach results in the immediate right to damages o Serious breach results in the right to elect to terminate
o An anticipatory breach is a breach of the obligation to be ready, willing, and able to perform the contract
Debts and Damages:
• Debt is a liquidated amount (exact, or fixed by formula or operation of law) o Two main categories:
i. Liquidated sum: primary obligation under the contract (e.g. purchase price)
ii. Liquidated damages: sum agreed upon by the parties in the event of a breach (e.g. Delay liquidated damages in construction contracts) o Quantum Meruit (amount deserved) is fixed by the contract
o Not subject to duty to mitigate (attempt to minimise losses)
• White & Carter (Councils) v McGregor (1961)
• Damages are usually an unliquidated amount that provides the monetary equivalent of performance upon breach
o Quantum Meruit must be proved by the plaintiff o Subject to duty to mitigate
Discharge of a Contract:
• A validly formed contractual obligation can be discharged (brought to an end as to the future – with no further primary obligations under the contract) by:
o Mutual performance of the contract itself (automatic discharge)
§ No residual liability o Consent (“at will”)
§ What is created by consent can be undone in the same way
§ Formality or consideration is usually required o Non-fulfilment of a contingent condition of performance
§ Example: ‘Subject to finance’
§ Depends on election (choice of the contracting party to terminate or affirm), unless an unequivocal agreement that discharge will occur exists
o Termination for a serious breach of contract or repudiation
§ Dependent upon the unilateral election of the innocent party
§ The right to sue for damages survives termination o Operation of law as a result of a frustrating event (automatic)
§ No residual liability if nothing has unconditionally accrued prior to termination
Termination and Rescission:
• Termination discharges a contract prospectively, whereby unconditionally accrued rights and obligations are unaffected
o Requires repudiation (unwilling to perform obligations) or serious breach o Discharges future obligations
• Recission unwinds the contract, attempting to put the contracting parties in the position they were prior to contract formation
o Requires a vitiating factor (e.g. duress or misrepresentation)
o Takes the parties back to their original position (as much as legally possible) Obligations:
• Obligations may be:
o Independent (order of performance is immaterial)
§ Example: A has an obligation to mow B’s lawn on Friday. B has an obligation to pay A on Wednesday.
o Dependent (obligation to perform one duty is dependent upon the performance of the other)
§ Example: If A mows B’s lawn on Friday (condition precedent), then B has an obligation to pay A the following Monday.
o Concurrent (Co-dependent)
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§ Example: If A transfers his cat to B on Friday at 9 am, B has an obligation to pay A $100 on Friday at 9 am. If B pays A $100 on Friday at 9 am, A has an obligation to transfer his cat to B.
• Whilst the structure of a contract’s obligations is a matter of interpretation, courts will sometimes prefer one interpretation over another in cases of ambiguity
Discharge by Performance:
• Performance refers to the acts that a party must do, or cause to be done, in order to fulfill (perform or discharge) the primary obligations created by the contract
• Exact Performance Rule: only exact and literal performance by both parties can discharge the contract unless the contract provides for substantial performance
o Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938)
§ ‘… we guarantee that these boards will be on your tracks at least eight hours a day throughout your season’.
§ It may not require ‘mathematical exactitude’ (Latham CJ), but close to exact performance would be necessary.
The Doctrine of Substantial Performance:
• Applicable to both entire contracts or to individual parts of a divisible contract (exception to the Doctrine of Entire Contracts)
• A promisor who has rendered an imperfect performance may recover the contract price if the performance received by the promisee was a substantial one
o The obligation is not discharged, and rather is breached
o Payment is subject to offset or counterclaim for defects and damages – given that the obligation has still been breached
• Courts prefer to interpret contracts as requiring substantial performance as the true condition of payment unless the exact and complete performance is an explicit condition precedent
o Hoenig v Isaacs [1952] (substantial performance warranted payment) o Bolton v Mahadeva [1972] (substantial performance was not satisfied)
• Determining if the doctrine applies requires the court to examine the following:
o Construction of the contract – Cutter v Powell (1795)
§ Is the contract sufficiently clear in requiring exact and complete performance?
o Cost of completion – Bolton v Mahadeva [1972]
o Nature of the clause
§ How fundamental is this clause to the contract?
o Severity of the breach – Bolton v Mahadeva [1972]
o Harshness of strict enforcement - Jacob & Youngs Inc v Kent (1921)
§ Would it be cruel (use ‘punitive’ instead) to construe the contract as requiring entire and complete performance?
• A party wronged by a serious breach may elect to:
o Affirm the contract; or
o Exercise an inconsistent legal right to terminate the contract
• If they have affirmed, then they must await a fresh reason to terminate
• If they have terminated, then the contract cannot be unilaterally revived
• The doctrine also applies to the rescission of a voidable contract (e.g. for fraud)
