BLAW1004 Study Guide - Final Guide: In Essence, The Seller, Reaper
Module 6 - Performance & Breach
Required performance - an
objective interpretation
The 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
Determining the
required performance
The following examples,
discern the different in the
performance required:
A agrees to sell B 50
tons of grapefruit
Sale of grapfruit
Quantity is 50 tons
Any type of grapefruit - there is no clarity
is what type of grapefruit sold
A agrees to sell B 50 tons of
Ruby pink grapefruit
Same quantity
Specific type of grapefruit that is being transacted is
Ruby pink grapefruit - if any other grapefruit was
delivered it would be a breach of contract
A agrees to sell B 50 tons of
grapefruit from Carnarvon
Confident that 50 tons of grapefruit can
be sourced from Carnarvon before
entering into the contract
Because you are going to have
to following through
Effect of performance
When 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
It is a breach of contract to not
perform the contract 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
Ordinarily, 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)
Frustration
Excusing Performance
If 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
Intervention 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
Necessary 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
Unjust to hold parties to
original bargain
Frustration not an excuse if
brought about deliberately
A person who has brought about a frustrating event or
circumstance because of their own decision or deliberate
act cannot rely on the doctrine of frustration to escape their
liability under the contract
Breach
Non-performance
A party to a contract might make
no effort to perform at all
Alternatively, the defaulting party might tender
performance of something that is completely
different from what the contract required
Both of these situations are treated as a
complete failure to perform
Where one of the parties has
completely failed to perform their
obligations under contract, by either
Not taking any actions to satisfy their
obligations under the contract
Doing something that was completely
different to what they were required to
do so under the contract
Partial performance
Where 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
Where 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
Substantial performance
If the breach of contract is minor, and the innocent party
still receives the expected benefit of the contract, this
amount 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
In essence, substantial
performance of a contract only
involves a breach of warranty
Late performance
Performance must be tendered when
it is due under the contract
Failure to perform in time is a breach of contract even
if the defaulting party remains willing to perform
Late 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
The 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
Breach before performance is
due - anticipatory 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
Upon being informed of an unwillingness to perform under the contract, the
innocent party can apply to the court, 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 party's actions constitute repudiation of the contract, otherwise the actions taken
to terminate the contract may themselves amount to an anticipatory breach
Breach of Contract
If 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
Hide & Skin Trading v Oceanic
Meat Traders (Performance) Facts
H&S were exporters of
animal products
The buyers of these products often paid for the, up to 6
months after purchase and, to finance their ongoing
business, H&S needed a third party to provide advance
payment for goods sold but not yet paid for
Oceanic arrange the necessary financial
facility for a period of two years
The facility was subject to
termination on six months' notice
When Oceanic gave notice to terminate the facility, they
argued that they were not obliged to give advance payments
for H&S for money that would only be repaid by the
purchases after the facility had ended
H&S argued that they should be given
advances right up to the end of the period of
notice, even if purchasers made repayments
up to six months thereafter
Issue Whose interpretation of the
agreement was correct?
Decision The agreement had the
meaning suggested by H&S
Reason
Giving 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
Basing the decision on the actual
agreed terms in the contract
ABC v Australasian
Performing Rights
Association (Performance)
Facts
ABC bound itself by contract to pay the APRA an
annual license fee for certain musical works
performed on radio or television
The contract laid down a formula for
the calculation of the fee
After some years, APRA contended that the
agreement was intended to provide against
depreciation in the value of money, and the
formula as implemented was not doing so
It argued that the formula must be
interpreted differently to ensure the
constant value of the licence fee
Issue Was it open to the court to interpret
the formula differently?
Decision
It is not the function of a court to attribute to
the parties an intention for which their
express words do not provide
Reason
The words in which the formula was expressed
were clear and gave rise to no ambiguity. The
courts construe such agreements uncritically in
accordance with the text
Maritime National Fish
v Ocean Trawlers (Frustration)
Facts
Maritime chartered the St Cuthbert, a
trawler, from Ocean Trawlers
To use the trawler for fishing, as was intended, it had to
be licensed, but the government issued only three
licenses to Maritime National, and that company had
five boats needing licences
Maritime allocated licences to three of their other
boats and asked Ocean Trawlers to take back the St
Cuthbert, claiming the contract had been frustrated
by the lack of a licence
Issue
Did the unavailability of a
licence for the St Cuthbert
frustrate the contract?
Decision
The plaintiff was not entitled
to rely on frustration in these
circumstances
Reason
It was Maritime's own decision not to
allocate one of their available
licences to the St Cuthbert
In seeking to avoid the contract, Maritime was
not entitled to rely on a situation they had
deliberately Brough about
For frustration to discharge the contract, the changed
situation must arise without any fault or deliberate act
by the party who is seeking relief
Codelfa Construction v State
Rail Authority (Frustration)
Facts
Codelfa agreed to build two tunnels
in Sydney for the State Rail Authority
for an agreed price
When contracting, both parties believed that nothing could
prevent construction from continuing 24 hours a day
In particular, they thought that state
legislation protected Codelfa against the
possibility of injunctions for nuisance
However, the high levels of noise disturbed the
local residents, who managed to obtain an
injunction placing limits on the hours during
which Codelfa could work
Having to do the work more slowly
would could Codelfa extra money
Issue
Had the performance of the contract become
frustrated by the changed circumstances in which
construction now had to take place?
Decision
In a majority decision, the court held
that performance as originally agreed
had become frustrated
Reason
It was clear from what was said when negotiating the
contract, that both parties believed Codelfa would be
able to work continuoulsy
The unforeseen injunction made performance
possible only in a way that was fundamentally
different (and much more expensive) that what
was originally contemplated
The court took the view that it would be unfair to enforce the
original agreement in these changed circumstances, and the
contract was discharged for frustration
Codelfa was therefore not obliged to do the work for
payment as originally agreed, and it was open to the
parties to negotiate a new agreement
Associated Newspapers v Bancks
Facts
Bancks, a cartoonist, agreed to
produce a weekly full-page drawing
for Associated Newspapers
Associated Newspapers agreed to pay Bancks a
salary and to publish the drawing of the front page of
the newspaper's comic section
However, for three weeks, because of paper
shortages and consequent production
problems, Bancks' drawings appeared on
page 3 of the coming section
Bancks protested but Associated
Newspaper ignored him
Bancks then decided to terminate further
performance of the contract
Issue
Was the promise to publish Bancks' drawings on the
front page of the comic section an essential term,
breach of which would justify terminating further
performance of the contract?
Decision
The term was an essential one (a condition)
and Bancks was therefore justified in
terminating further performance
Bettini v Gye
Facts
Bettini, a singer, contracted to sing for Gye, a
promotor, at various events over a 15-week period
It was a term of the contract that Bettini arrive 6 days
early before the first engagement and attend rehearsals
Being ill, Bettini arrived late and
missed 4 days of rehearsals
Because of this breach Gye wanted to
terminate future performance of the contract
Issue
Was the term requiring attendance at rehearsals for six days a condition, breach of
which would justify terminating performance of the contract, or a mere warranty?
Decision
The term was a warranty, not a condition, and Gye was not entitled to
terminate further performance of the contract in response to Bettini's breach
Reason
Bettini had been engaged to sing at a
number of events over a long period
The requirement of attending rehearsals did not go 'to the root' of the contract
because, in view of the number of performances over a long period of time,
attendance at initial rehearsals would not vitally affect the whole contract
Varley v Whipp (Non-performance breach)
Facts
Varley and Whipp met in the
town of Huddersfield
Varley offered to sell a second-hand
reaping machine to Whipp for Ā£21
Varley said the machine was
in the town of Upjohn
He said the machine was a year old
and had only been used to cut 50
or so acres of crop
Whipp had not seen the
machine, but agreed to buy it
When delivered, the machine proved to
be a very old one, which had obviously
been broken and mended
Whipp returned it and
refused to pay the price
Issue
Had the seller delivered what was
promised, so that he was entitled to
be paid the agreed price?
Decision
The seller had not delivered
what had been promised
Reason
The thing sold was a specified machine,
but it was bought unseen and it was
identified by description
The description was 'a nearly new reaping machine then in
Upjohn'. The machine delivered was not 'a nearly new machine'
and the court held that it was not in the same class or category of
goods as had been described
The seller had therefore failed to
deliver the particular goods as
identified in the contract
This was a breach of the condition, implied
into sale contracts by law, that a seller must
deliver the goods as identified by
description in the contract
Failure to deliver goods as identified meant
that the buyer did not become the owner of
what had been delivered
Whipp was therefore entitled to
reject the machine and was not
obliged to pay for it
Hoenig v Isaacs (Substantial performance breach)
Facts
Hoenig was contracted to paint
Isaacs' apartment and supply
some furniture for Ā£750
After painting the apartment and
supplying the furniture, Hoenig
claimed payment in full
Isaacs complained that the
work had been done badly
It cost Ā£55 to have another
workman rectify the defects
In view of the imperfect work, Isaacs
paid only Ā£400 to Hoenig
Hoenig sued Isaacs for the
balance of the agreed price
Issue
Was Isaacs obliged to pay the
agreed price in full?
Decision
Isaacs was not obliged to pay the full price, but was only
entitled to deduct the actual cost of the necessary repairs (Ā£55)
Reason
Payment of the agreed price by Isaacs was due in exchange for
Hoenig's performance of his obligations under the contract
Although Hoenig had not performed perfectly, the
faults in his work were easily fixed at modest cost
In the circumstances, he had
performed substantially
Where substantial performance has taken place, the failure to
render complete, while still a breach of contract, will be treated as
a breach of a warranty rather than a breach of a condition (unless
the parties have expressly agreed otherwise)
The substantial performance must be
accepted and paid for proportionately
Isaacs was therefore required to pay the agreed
price, less the amount needed to rectify the defects
Steele v Tardiani (Partial performance breach)
Facts
Tardiani and others were employed
by Steele to cut firewood
The agreement provided that payment would be made
at the rate of six shillings per ton of wood cut in six
foot lengths and split six inches diameter
Tardiani and the others cut 1,500 tons of timber but split
into pieces ranging from 6 - 15 inches in diameter
IssueWas Tardiani entitled to payment for the work done?
Decision
Although performance was incomplete, Steele
did not choose to reject the work done
Having accepted it, he had to pay
for the value of the work
Reason
The contract was not substantially
completed: it was only partly performed
However, Steele was obliged to pay for the
value of the work done by the woodcutters
This was because, knowing that the woodcutters, were
splitting some of the wood to a diameter of more than 6
inches, Steele had nevertheless said he would pay the
woodcutters when the wood was eventually sold to customers
He also allowed Tardiani to finish working without
requiring him to split the thicker logs properle
Accordingly, the court decided that Steele had chosen not to
exercise his right to insist on complete performance
Furthermore, because the woodcutters on a quantum
meruit basis, that is, payment for the actual value of the
work they had done (as distinct from the agreed price)
Holland v Whiltshire (Late performance breach)
Facts
Wiltshire sold some land to Holland for Ā£3,750
The written agreement provided for payment to be made 'on the
day fixed for settlement namely January 14th 1952': At Holland's
request, Wiltshire agreed to an extended deadline, but Holland
failed to meet the extension
Holland then informed
Wiltshire he did not intend to
proceed with the sale at all
Wiltshire did not immediately terminate performance of the
contract but said that if Holland did not settle by 28 March, he
(Wiltshire) would commence legal action for breach of contract
Issue
Was Wiltshire entitled, failing payment by 28 March, to
terminate further performance of the sale, resell the land
to a third party and claim any loss from Holland?
DecisionWiltshire was entitled to these remedies
Reason
There were two breaches of contract by Holland
The first occurred when Holland failed to
perform at the agreed (extended) time
On the facts of this case, the court held that time of
performance was agreed to be of essential importance
This meant that Holland's failure to perform on time amounted to a breach
of condition and entitled Wiltshire to terminate the contract immediately
It was only after a second breach occurred, when Holland said he would
not proceed with the sale at all, that Wiltshire gave him a deadline for
performance and then terminated the contract when that deadline passed
Wiltshire then resold the property to a
third party, but at a lower price
He was entitled to claim as damages the
difference between the lower price on resale
and the original contract price
Mahoney v Lindsay (Anticipatory breach)
Facts
Mahoney agreed to sell some land and
the business conducted on it
Mahoney later made it clear that he did not intend to
complete the transfer; Lindsay sued for specific performance
Issue
Was Lindsay entitled to an order for specific performance?
Decision
The High Court held that Lindsay was entitled to an order for specific
performance because it was clear that any tender of performance would
be rejected, and attempted performance would have been pointless
The court also said if any one party to a contract prevents
the other from fulfilling a condition of the contract, then
that is equivalent to performance by the latter
Performance
in context
The 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 doing what they
have said they are going to do
in the contract
Document Summary
Bettini, a singer, contracted to sing for gye, a promotor, at various events over a 15-week period. It was a term of the contract that bettini arrive 6 days early before the first engagement and attend rehearsals. Being ill, bettini arrived late and missed 4 days of rehearsals. Because of this breach gye wanted to terminate future performance of the contract. Bancks, a cartoonist, agreed to produce a weekly full-page drawing for associated newspapers. Codelfa agreed to build two tunnels in sydney for the state rail authority for an agreed price. When contracting, both parties believed that nothing could prevent construction from continuing 24 hours a day. Associated newspapers agreed to pay bancks a salary and to publish the drawing of the front page of the newspaper"s comic section. The term was an essential one (a condition) Issue and bancks was therefore justified in terminating further performance.
