1. Contract & Consumer Law Chapter 5
Contractual Performance, Managing Termination and Breach

2. 5.1 Privity of Contract Common law doctrine
Only the parties to a contract have rights and obligations under it and can sue or be sued pursuant to it.

3. Privity of Contract
Exceptions to privity of contract include: - 1. Contracts of insurance 2. Contracts of agency. 3. Where a contracting party can prove that it is acting as trustee for a third party. 4. Under the Australian Consumer Law the absence of privity between the parties will not prevent a claim for: - - Misleading and deceptive conduct – ACL s18 - Misleading representations - ACL ss Unconscionable conduct – ACLss Actions against manufacturers and importers – Part 3-5

4. Privity of Contract
Incurring Liabilities – ‘Interference with Contractual Relations by a Third Party’
A third party, or ‘stranger,’ who induces a party to the contract to breach its terms, may be found to have committed a tort, (a civil wrong), if the injured party can prove the breach was deliberately and knowingly encouraged.

5. Privity of Contract Equitable Assignment of Rights
At common law, it is not possible to assign your legal rights to another person. However, equity permits the assignment of contractual rights in certain circumstances: -
Novation
Assignment of Debts
Assignment by Statute
By Operation of Law

6. Privity of Contract Novation Example
A partner in a partnership dies resulting in the old partnership being dissolved and replaced by a new one. If the creditors of the old partnership continue to deal with the new partnership, they are considered to have accepted the parties in the new partnership as their debtors.

7. Privity of Contract Assignment of Debts Example
Nathan is a retail supplier of office furniture and obtains his stock mainly from the wholesaler supplier Narelle. Nathan recently sold office furniture to Lisa and she now owes him a debt of $10,000.
Nathan and Narelle enter into a contract to assign Lisa’s debt to Nathan to Narelle, in return for Narelle providing extensive advertising of Nathan’s shop on her company website and in all other promotional material.

8. Privity of Contract Assignment by Statute
Property law statues of the states and territories in Australia provide for the assignment of rights and for the assignee to sue in their own name as long as:
The assignment is absolute and unqualified.
The assignment is in writing and signed by the assignor.
Notice is given in writing to the debtor or person liable under the contract.

9. Privity of Contract
By Operation of Law In certain cases, assignment of rights can take place due to operation of law, such as: • The executor of a will can enforce the rights that a deceased person had in contracts at the time of the person’s death. • The estate of the bankrupt vests in the Official Receiver in Bankruptcy or the appointed trustee. • Under the Australian Consumer Law - the consumer in a consumer-retailer contract can sue the third party manufacturer or importer.

10. 5.2 Discharge of Contract

11. Discharge of Contract Performance must be Exact and Complete
Generally, performance must be strictly and exactly in accordance with the terms of the contract, otherwise it will not count as performance.
If the Variation from the Terms is Slight or Trivial, then the Courts Will Not Pay Attention to it.

12. Discharge of Contract Discharge by Frustration
The following circumstances may give rise to frustration of the contract: -
Physical impossibility because of destruction of subject matter.
Physical impossibility under contract of personal service.
Change in law making performance legally impossible.
Impossibility due to non-occurrence of event central the contract.
Government interference.
State legislations

13. Discharge of Contract Circumstances Where Frustration Does Not Exist
Frustration will not exist where:
The parties have thought ahead and have already made specific provision in the contract for what would otherwise have been a frustrating event.
The subject event should have been foreseen by the parties, but for some reason was not.
The subject event was caused or induced by the party seeking to plead frustration.
There is only hardship or inconvenience.
There is only a change in expense in performance, such that the contract is no longer profitable to perform.
With respect to a contract of employment, there is only temporary injury or incapacity.

14. Discharge of Contract
Force Majeure Clause – Important Exception to Principles of Frustration
Force majeure is a Latin phrase which translates as ‘superior force’.
A force majeure clause is a clause which is placed into a contract by the parties when they have thought about and discussed what should happen if matters over which they have no control actually take place.
It basically sets out the consequences for the contract and the respective parties if certain disastrous events take place.

15. Discharge of Contract
Force Majeure Clause – Important Exception to Principles of Frustration The following types of events beyond the control of the parties are commonly addressed in force majeure clauses: • War. • Strike. • Terrorism. • Riot. • Crime. • Act of God, which is a legal term referring to natural disasters such as flood, bushfire, hurricane, volcanic eruption, earthquake, tsunami and the like.

16. Discharge of Contract
Legislative Modification of Effect of Frustration
At common law, the effect of frustration on a contract can sometimes result in an unfair outcome for the parties.
Legislation in Victoria, New South Wales and South Australia all take different approaches in an attempt provide a more balanced outcome if a contract is frustrated.
They can be found in: -
Part 2C of the Fair Trading Act 1999 (Vic)
Frustrated Contracts Act 1978 (NSW) Part 3
Frustrated Contracts Act 1988 (SA)

17. Discharge of Contract Waiver
This occurs where one party leads the other party to reasonably believe that they will not be insisting on strict performance of the agreed terms.
Usually such a waiver will provide some convenience or benefit to one party and may be inferred or implied from the conduct of the party.
Once given, the party granting the waiver must honour that agreement.

18. 5.3 Discharge by Performance
Disputed cases represent a small proportion of contracts
Vast majority of which are performed effectively by the parties.
If any issues do arise, in most cases parties are able to resolve the matter without resorting to litigation.
Discharge by performance means each party properly performs their contractual obligations.

19. Discharge by Performance

20. 5.4 Discharge By Agreement
Parties may agree to include a term in a contract that provides for its termination if a particular event does not occur, or if a particular event does occur.
The former is a condition precedent and the latter, a condition subsequent.
If the condition precedent is not fulfilled, or the condition subsequent is fulfilled, the result is that the contract between the parties is discharged, either automatically or by the choice of one of the parties.

21. Discharge By Agreement
Contracts may therefore be terminated by agreement in the following ways:
By condition precedent.
By condition subsequent.
By mutual discharge.
By release.
By novation.
By satisfaction and accord.
By waiver.

22. 5.5 Discharge by Frustration
This essentially means that if a party promises to carry out a particular act, the law will hold them to their promise.
One of the exceptions to this rule is the principle of ‘frustration’.
Frustration of a contract occurs when neither party is at fault, but there is an unforseen event meaning it is impossible for the parties to perform the contract.

23. 5.6 Discharge By Operation of Law
In certain circumstances, the law will operate to discharge a contract, regardless of the wishes or the conduct of the parties. Such circumstances include the following: • Bankruptcy • Merger • Material alteration of a written document • Death • Lapse of time under the statute of limitations legislation of the states and territories will discharge a contract. • By lapse of time at common law.

24. 5.7 Discharge By Breach
Where a party fails to perform their obligations as agreed, they are in breach of contract.
Breach may be: -
Actual
Anticipatory
Total
Partial.

25. 5.8 Remedies for Breach of Contract
Time Limits for Seeking Remedies
For simple contracts, the Limitation Acts in each State and Territory generally say that a party has six years to start proceedings.
For formal contracts, the limit is generally twelve years, apart from Western Australia where it is twenty years and fifteen years in Victoria and South Australia.

26. Remedies for Breach of Contract

27. Remedies for Breach of Contract