Performance and breach of contract:

Discharge of contractual obligations

CRICOS Provider Code 00301

What to do this week

Attend a seminar and/or listen to the iLecture
recording;
Read chapter 6 of the Understanding Business Law
text book; and
Do 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.
CRICOS Provider Code 00301J

Learning outcomes
After 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; and
distinguish between actual and anticipatory
breach.

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

Determining the required performance

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:

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

Hide & Skin Trading Pty Ltd v

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

Hide & Skin Trading Pty Ltd v

Oceanic Meat Traders Ltd
(1990) 20 NSWLR 310
Therefore, we are
No, we
Weshould
would be
likegiven
to
not obliged to give
advances
terminate
right up
the
to the
advance payments
end
contract.
of the period
Our six
of
for money that
notice,months
even if repayment
notice
would only be paid
by the
takes
purchasers
effect from
took
after the contract
place up to
today
six months
has ended.
thereafter.

Hide & Skin Trading Pty Ltd v

Oceanic Meat Traders Ltd
(1990)
20
NSWLR
310
1. Giving the words their ordinary and natural
meaning;
2. Applying an objective test to ascertain the
intended meaning of the terms;
3. Resolving ambiguities in commercial
agreements to avoid commercial
inconvenience or nonsense; and
4. Basing the decision on the actual agreed
terms in the contract.

Australian Broadcasting Commission

v Australasian Performing Right
Association Ltd (1973) 129 CLR 99
ABC

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

Australian Broadcasting Commission

v Australasian Performing Right
Association Ltd (1973) 129 CLR 99
ABC

The agreement intended

to CONTRACT
provide against
depreciation
value of
ABC is to payinAPRA
money
andlicence
the formula
an annual
fee
implemented
into the
for certain musical
contract
doesnt.
works
performed
on
the radio and TV.
FORMULA

APRA

Determining the required performance

In 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 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.

The effect of performance

It 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.

The effect of performance

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).

Excusing performance: Frustration

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.

Excusing performance: Frustration

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.

Excusing performance: Frustration

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; and
unjust to hold parties to original bargain.

Maritime National Fish Ltd v Ocean Trawlers [1935] AC

524
Codelfa Construction Pty Ltd v State Rail Authority of
NSW (1982) 149 CLR 337

Maritime National Fish Ltd v

Ocean Trawlers [1935] AC 524
St Cuthbert

I would like to
charter the St
Cuthbert from
you to use for
fishing.

Sure!

Maritime National Fish Ltd v

Ocean Trawlers [1935] AC 524
St Cuthbert

I 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.

Codelfa Construction v State Rail

Authority NSW (1982) 149 CLR 337

Codelfa Constructions

Codelfa Construction v State Rail

Authority NSW (1982) 149 CLR 337

NOI

SE!

BANG!

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.

Breach of contract
We will now look at the different ways that a
breach of contract can occur:
non-performance;
partial performance; and
substantial performance.

Non-performance
Where 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; or
Doing something that was completely
different to what they were required to do
under the contract.
Varley v Whipp [1900] 1 QB 513

Varley v Whipp [1900] 1 QB 513

TOWN
OF

Whipp,
would you
HUDDERSFIELD
The machine is in the
like to buy my
town of Upjohn. It is
second-hand
a year old andSound
has good!
reaping machine
only cut 50 or so
for 21 pounds?
acres of crops.

Varley v Whipp [1900] 1 QB 513

The machine is old!

It was obviously
broken and mended
too! I refuse to pay
for this!

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.

Partial performance
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.

Steele v Tardiani (1946) 72 CLR 386

Steele v Tardiani (1946) 72 CLR 386

Tardiani,
your
jobbe
is
The wood
must
to cut
cut into
firewood.
You
six foot
will paidand
at aspilt
ratesix
of
lengths
six
shillings
per ton Ok.
inches
in diameter.
of wood cut.

Steele v Tardiani (1946) 72 CLR 386

But you didnt cut

We cut
them
to1,500
the
tons of wood.I
specifications
provided!

Substantial performance
If 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.

Substantial performance
In essence, substantial performance of a
contract only involves a breach of warranty.
Hoenig v Isaacs [1952] 2 All ER 176

Hoenig v Isaacs [1952] 2 All ER

176
Hoenig, can you
paint my apartment
Sure!
and supply me
furniture for 750
pounds?

Hoenig v Isaacs [1952] 2 All ER

176

Hoenig v Isaacs [1952] 2 All ER

176
No, the work has
been badly
I am finished.
Can Idone. I
only
pleaseam
have
mygoing to
pay you 400 pounds.
payment?

Degree of performance

NON
PERFORMANCE

PERFORMANCE

PARTIAL
PERFORMANCE
OR
SUBSTANTIAL
PERFORMANCE

Late performance
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:
Holland v Wiltshire (1954) 90 CLR 409

Holland v Wiltshire (1954) 90 CLR

409
SALE OF LAND
Payment of 3,750
pounds to be made
on the day fixed for
settlement, namely
January 14th 1952.

Holland v Wiltshire (1954) 90 CLR 409

Holland, if you do
not settle by March
Whitshire, Ican
do not
we
28, I willOk.
take action
please
intend to
extend
proceed
the
for a breach of
with deadline?
the sale at all.
contract then.

Late performance
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.

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.

Anticipatory breach
Upon 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.

Mahoney v Lindsey (1980) 33 ALR 601

CONTRACT
SALE
OF LAND

MAHONEY
WANTS OUT

LINDSEY
INTENDS TO
COMPLETE

LINDSEY
MISSED
MEETING

29 JUNE

Anticipatory breach and late

performance
ANTICIPATORY BREACH

ENTERED
INTO CONTRACT

LATE PERFORMANCE

PERFORMANCE

Topic 6 case study

Performance and breach of contract

1. 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

2. 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?

If 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?

3. 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?