Legal Term for False Advertising and Breach of Contract - PDF

Document Sample
Legal Term for False Advertising and Breach of Contract - PDF Powered By Docstoc
					   Topic 7

   Discharge of the contract and
   other remedies
          o How a Contract is Brought to an End

          o Other Remedies for Breach of Contract

TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s
     Learning objectives

     On completion of this topic, you should be
     able to:

     o     explain when a party to a contract has a
           right to bring the contract to an end;

     o     explain how to bring a contract to an

     o     explain what happens after the contract
           has been brought to an end;

     o     identify the damages the innocent party
           can claim;

     o     describe what other remedies apply; and

     o     apply the concepts and rules examined in
           this topic to factual problems.

56   B U S I N E S S   P R A C T I C E   A N D   L E G A L   I S S U E S

   This topic deals with the way in which
   contracts are discharged (in particular by
   one party’s breach of contract) and the other
   remedies that are available to an innocent
   party. The following remedies are available
   in appropriate circumstances.

   o Termination.

   o Recovery of Contract Price.

   o Agreed damages clause (‘liquidated damages’

   o Damages.

   o Specific Performance.

   o Injunction.

   Refer to flow chart titled ‘Termination of
   Contract for Breach’ in Reader (Topic 7).

TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s
     Key points

     How a contract is brought to an end
       • By actual performance.

         •   By agreement.

         •   By virtue of a term of the contract
             (condition precedent or condition

         •   By operation of law - such as merger or

         •   By frustration.

         •   By breach.

         •   When is the innocent party entitled to

                 −     Where there has been a breach of

                 −     Where there has been a serious
                       breach of an intermediate term.

                 −     Where there has been a repudiation
                       of the contract.

                 −     Where there has been an
                       anticipatory breach of the whole
                       contract or of a condition.

         •   How does the innocent party elect to
             terminate (or affirm) a contract?

                 −     The procedure for termination.

                 −     The effect of an election to

                 −     The effect of an election to affirm
                       the contract.

         •   What is the effect on the contract of a
             termination/ or an affirmation?

58   B U S I N E S S   P R A C T I C E   A N D   L E G A L   I S S U E S
   Other remedies for breach of contract

       Recovery of Contract Price

       Agreed damages


        •   Damages must not be too remote.

                 −    The rule in Hadley v Baxendale

                             losses which flow ‘according to
                             the usual course of things’
                             from the breach; or

                             the loss was within the actual
                             contemplation of the parties at
                             the time the contract was made.

        •   Plaintiff has a duty to mitigate losses.

        •   Calculating the amount of damages:

                      −   Expectation losses.
                      −   Personal injuries.
                      −   Disappointment, distress,
                      −   Reliance losses (where
                          expectation losses cannot be

       Specific Performance

        •   rarely ordered outside the area of sales
            of land.

        •   only available if an award of damages
            would not be an adequate remedy.

        •   will never be ordered where that would
            require on-going supervision by the
            courts or would require the defendant to
            undertake some personal service.

TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s

        Restitution (beyond the scope of this module)

     Examine the title (Flowchart title
     ‘Rescission of the Contract’ in Reader (Topic

        For misrepresentation

         •   Notifying the representor.

         •   Limitations on the right to rescind:
           - The representee has affirmed the
           - Substantial restitution is not
           - Third party rights will be adversely
           - The rule in Seddon’s case.

        For Unconscionable Conduct, Duress, Undue
        Influence or Mistake. These are beyond the
        scope of this module.

        Declaration that the contract is void on the
        basis of non est factum. This is beyond the
        scope of this module.

60   B U S I N E S S   P R A C T I C E   A N D   L E G A L   I S S U E S
     Learning activities

     Activity 1
         (a) Does a breach of contract entitle an
             innocent party to terminate that

                    Always / Never / Sometimes

            (b) What further information is required in
                order to answer the above question
                definitively? Why?

            (c)    An innocent party can lose the right to terminate a contract.
                   TRUE / FALSE

     Activity 2
     A agrees to deliver a consignment of machine
     parts to B by the 30 June. The goods arrive on
     the 1 July. Can B reject the goods?

     Yes / No (Explain)

     Activity 3
     A agrees to sell a block of land to B for
     $200,000. Settlement is to be on 1 June. The
     price goes up and A tells B on the 5 May that
     he will not go ahead with the sale. What can B
     do? There may be more than one correct answer.

            (a) Terminate contract and sue for damages

            (b) Immediately issue proceedings for
                specific performance

            (c) Immediately sue for damages without

            (d)     Wait until 1 June and then sue for specific performance

     Activity 4
     Failure to deliver goods on the date appointed
     by a commercial contract for delivery will

TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s

             (a) Give the buyer the right to damages

             (b) Give the buyer the right to elect
                 whether to terminate the contract.

             (c) Terminate the contract.

             (d)       Affirm the contract.

      Activity 5
      A agrees to deliver 100 Phillips televisions to
      B on 1 June. A makes a mistake in ordering the
      goods and finishes up with 100 National
      televisions instead. A notifies B of the
      mistake on the 26th May. B tells A that she will
      give him another 5 days to deliver the correct
      televisions. Next day B changes her mind and
      telexes A that she has cancelled the contract
      because of A’s breach. Comment.

      Activity 6
      A agrees to sell a block of land to B. B pays a
      deposit of 10%. Settlement date is 1 June. The
      contract declares that ‘‘time is of the
      essence’’. On 1 June B is unable to pay the
      balance of the purchase monies owing to a delay
      in arranging finance. B asks for another 5

             (a) A can terminate the contract and keep
                 the deposit.

             (b) A can terminate the contract but has to
                 repay the deposit.

             (c) A cannot terminate but can sue for

           (d)   A can affirm the contract but would
          not be able in that case to sue for damages.

      Activity 7
      A agrees to sell his house to B for $100,000. A
      deposit of $10,000 is paid. House prices
      increase and A refuses to proceed. What options
62   B U S I N E S S   P R A C T I C E   A N D   L E G A L   I S S U E S
     does B have?
     worth a further $50,000. The hire of the
     replacement machine is $5,000.

     What damages can Alpha Pty Ltd claim? (Explain)

     Activity 8

     Alpha Pty Ltd hires a machine from Beta
     Machines Ltd. The machine has been negligently
     maintained by Beta. It breaks down and Alpha
     Pty Ltd is forced to find a replacement for
     hire. There is none available for a week and
     Alpha Pty Ltd is forced to close his factory
     during this period. Normal losses amount to
     $1,000 a day. Alpha Pty Ltd has also lost a
     lucrative government contract

     Activity 9
     A has recently negotiated the purchase of a Van
     Gogh painting. He has also signed all relevant
     contractual documents. However, on the due
     date, B the owner, changes his mind. What
     remedies are available to A? What remedy/ies
     will A seek?

     Activity 10
     A Pty Ltd (a retailer) engaged B (an
     advertising agency) to create, produce and
     place a series of advertisements for TV. The
     agreement was to last for two years. The agreed
     price was $100,000, plus the costs payable to
     the TV stations. It was further agreed that B
     would book the TV slots, but that A would have
     the right at any time up to four days prior to
     the broadcasting date to cancel any particular

     A sells expensive imported sports cars and the
     ads play up the exclusiveness, power and speed
     of the cars. A usually takes a number of slots
     during the 8.30pm to 10.30pm Sunday night
     movie. On hearing that the TV station was
     planning to run a movie based around the search
     for the wealthy driver of an exotic, imported
     sports car who carelessly knocks down two
     children, killing them, and then callously
     drives off, A phoned B and told them to cancel
TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s
      that week’s advertising slots. B neglects to do

      The ads are run during the movie and A is
      swamped with calls from irate watchers. Even
      the newspapers refer to the blatant
      insensitivity of the ads calling them ‘‘an
      outrage’’ and ‘‘crass, unfeeling
      commercialism.’’ The current affairs programme
      on a rival TV station runs the story with the
      pointed question, ‘‘Would you buy a car from
      this mob? I wouldn’t.’’

      A is irate with B and wants to cancel the
      contract without any further payments. The
      contract has 18 months to run. Advise A Pty

      Activity 11
         (a) The representor bought a camera from the
             representee with a false cheque. The
             camera has been sold to a third party.
             What evidence do you require in order to
             advise the representee whether rescission
             is possible?

          (b) The representee bought a business from the
              representor on the basis of incorrect
              profit figures provided by the
              representor. Twelve months after
              discovering the mistake the representee
              wants to rescind. Is this possible?

          (c) The representee bought a quantity of
              cattle feed from the representor on the
              basis of a false representation as to the
              ingredients. The mistake was not
              discovered until the cattle had consumed
              50% of the feed. The representor wants his
              money back. The representation was not a
              term of any contract. Can the representee
              demand his money back?

64   B U S I N E S S   P R A C T I C E   A N D   L E G A L   I S S U E S
        This page has been left blank

TOPIC 7: D i s c h a r g e o f t h e c o n t r a c t a n d o t h e r r e m e d i e s

Description: Legal Term for False Advertising and Breach of Contract document sample