LLB170 Lecture 6: Week 6 – Termination and Remedies

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31 May 2018

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Week 6 – Termination and Remedies

Termination for Delay

• Delay in performance gives rise to breach → right of termination in the same

circumstances as repudiation or other terms of a contract

• “time is of the essence”

At what time is performance required?

• Express term stipulating exact time to be performed?

• General time to be performed? E.g. within the month

• Or more generally – “within a reasonable time”

• No express time = construed to be a reasonable time

• Reasonableness depends on the circumstances of the case

Need to distinguish between a breach because something was not performed as contracted

to a breach by the passing of time

• Where a party isn’t meeting deadlines

• Just because there is delay doesn’t mean there is any loss

• Necessary to determine if the delay in time has caused economic loss

• Determine if the breach of time requirement will be grounds for termination

1. Determine if there is a date requirement in the contract (express provision)

- If no date stipulated, then imply a reasonable deadline (Perri)

- If the time stipulation in the contract is construed as a ‘condition’:

▪ Determine if time is a condition – express/implied

▪ Is time of essence?

▪ If so, has the deadline been met?

▪ Yes = good

▪ No = then there is a right to terminate the contract for delay (Carr v

Berriman). No notice needs to be given

▪ If not, was the missed date a serious breach of an intermediate term)

▪ Was the delay a repudiation – (must be substantial)

- If not a condition:

▪ Notice must be provided

▪ New date must be provided

▪ Reasonable period

▪ Time is of the essence

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Where time is of the essence

• ANY delay amounting to breach of time entitles the aggrieved party to elect to

terminate

• If there is no express stipulation:

- Time is only considered of the essence if parties intend this result

• Just because there is an express provision of time in the contract does not mean it is

a condition

• If the term is not expressly stated it may still be an implied condition

• Sale of goods and shipping contracts tend to have time of the essence

If the time stipulation is NOT a ‘condition’

• No automatic right to terminate for delay

• In the absence of notice, termination will only be justified where there is delay

amounting to repudiation

• A right to terminate will only arise where:

1. Missing the term stipulation was a serious breach of an intermediate term

(principles [23.40]); or

2. Delay was so substantial that it amounts to repudiation – i.e. it evinces an

‘intention, objectively ascertained, not to be bound’/’amounts to refusal to be

bound’ (Carr v Berriman); or

3. Notice is given to complete the requirement in a reasonable time (Carr v

Berriman; Perri v Coolangatta)

The notice procedure

• Where D is in breach by its delay in performing a non-essential obligation, P can

make time essential by:

- Serving a notice on the party in breach that requires D to perform the

outstanding obligation by a specified date, which allows a reasonable time for

performance; and

- Makes it clear that ‘time is of the essence’ in relation to the specified date, so

that P will consider itself entitled to terminate if deadline not met

- See Carr v Berriman; Perri v Coolangatta; Louinder v Leis

Notice Requirements

1. Must specify a time for performance

2. The time given must be reasonable

3. The notice states time is of the essence and the contract will be terminated if not

complied with (Laurinda Pty Ltd v Capalaba Park Shopping Centre)

• The party giving the notice must be ready and willing to perform his/her contractual

obligations at the time the notice is issued

• A notice that doesn’t satisfy the requirements will not be effective

• See Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd → principles pg 473

• Notice must be given in relation to the time stipulation that has been breached →

cannot be some other obligation (Louinder v Leis → principles pg 474)

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What is reasonable notice?

• Look at the subject matter of the contract

• What is left to be completed

• If performance has already been requested

• Whether there have been unnecessary delays on the part of the party in breach

before the notice was given

• Expert advice about the time required to perform the obligation

See principles pg 474

Where the contract is silent about the time for performance

• Term implied to be a reasonable time

• Only a breach of implied time if there is unreasonable delay

• To terminate for breach of an implied stipulation to perform within a reasonable

time, an aggrieved party must usually rely on either repudiation or non-compliance

with a notice by the party in breach

The effect of an extension of the time for performance

• Binding on the party who has granted it

• Extension may give rise to an estoppel preventing the party who has given the

extension from exercising his/her original rights under the contract

• If time was originally of the essence and the extension specifies a new time, time

generally will remain of the essence

• Party granting the extension entitled to terminate the contract immediately should

the obligation not be performed by the time specified in the extension

• If time was originally of the essence but extension doesn’t stipulate new time, only

that late performance will be accepted, time will no longer be of the essence

• To regain entitlement of termination, the party must give notice or show repudiation

• Not originally of the essence = still not of the essence = must show repudiation or

give notice

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Document Summary

Termination for delay: delay in performance gives rise to breach right of termination in the same circumstances as repudiation or other terms of a contract, time is of the essence . E. g. within the month: or more generally within a reasonable time , no express time = construed to be a reasonable time, reasonableness depends on the circumstances of the case. Need to distinguish between a breach because something was not performed as contracted to a breach by the passing of time. If no date stipulated, then imply a reasonable deadline (perri) If the time stipulation in the contract is construed as a condition": If so, has the deadline been met: determine if time is a condition express/implied, yes = good, no = then there is a right to terminate the contract for delay (carr v. If not, was the missed date a serious breach of an intermediate term: was the delay a repudiation (must be substantial)

Related Questions

Learning Activity 1

This assignment focuses on UCC contracts.

Scenario: Landmark Company is a US-based business that sells iron tables to retailers in the US. The tables are purchased from individual metalsmiths, from US wholesale suppliers, and suppliers in Mexico.

Landmark ordered by telephone 300 iron tables to be shipped by April 1 from Metal Elements, Inc., another US company. No other sales terms were discussed. Landmark followed up the telephone call with an email to Metal Elements confirming the number of tables in the order and the delivery date, but did not discuss price. Metal Elements did not respond but shipped the tables as ordered to Landmark by April 1 at a price of $700 each, totaling $210,000.

Landmarkâs new Director of Purchasing, Payton Mann, is concerned about whether Landmark is bound to accept the tables from Metal Elements since Landmark had no formal acceptance or written correspondence Metal Elements. Payton is also concerned about the price of the tables which is higher than she had expected to pay. She emails you, one of the Landmark owners, to explain the situation with Metal Elements and to seek your advice about the sales.

Respond to Payton via email including:

A. An analysis and explanation of whether this is a valid contract between Landmark and Metal Elements, and why or why not; suggest to Payton how this situation should be handled;

B. For Paytonâs future information, include in the email a hypothetical situation in which the same facts apply as in the Landmark â Metal Elements order except that, upon inspection, fifty of the tables delivered from Metal Elements were damaged; provide an analysis of Landmarkâs options and suggestions for resolving this situation with Metal Elements.

Sources: Saylor: Advanced Business Law and the Legal Environment

Chapter 8: Formation of Sales and Lease Contracts, Uniform Commercial Code, Contracts for Sale of International Goods (CISG)

Chapter 9: Title, Risk and Insurable Interest

Chapter 10: Performance, Breach of Sales Contracts and Remedies

Chapter 11: Sections 11.1-11.7 (Warranties and Product Liability)

Week 5 Overview

SALES AND LEASE CONTRACTS

Formation of Sales and Lease Contracts, Uniform Commercial Code, Contracts for Sale of International Goods (CISG)

Introduction: Contracts for the sale and lease of goods are based primarily on the Uniform Commercial Code (UCC), rather than common law contract principles. UCC Article 2 and Article 2A govern contract formation for the sale and lease of goods. The goal of the UCC is to provide a relatively simple, straightforward guide to commercial transactions without the formality and inflexibility required to validly form other types of contracts. The UCC has been adopted in all states; Louisiana has not adopted Articles 2 and 2A. Because globalization has increased the scope and number of international sales transactions, the United Nations Convention on Contracts for the International Sale of Goods (CISG) is a model uniform law that applies for those nations that have adopted it.

Title, Risk, and Insurable Interest

Introduction: The UCC addresses and clarifies the concepts of identification of specific goods to a contract, when risk of loss for goods passes from a seller to a buyer, and which party to a sales contract holds an insurable interest in goods. Under the UCC, typically title and risk of loss for the goods in a specific transaction pass from a seller or lessor to a buyer or lessee according to specific terms in the contract between the parties. Parties to sales and lease agreements often have insurance to protect against damage, loss, or destruction of goods.

Performance, Breach of Sales Contracts, Remedies

Introduction: Under a sales or lease contract subject to the UCC, the seller or lessor has the basic duty to transfer and deliver the goods according to the contract terms, and the buyer or lessee has the basic duty to accept and pay for the goods. Parties may also be bound to implied terms based on customs within an industry, or based on prior contracts and dealings between the parties. When a contract is breached, the non-breaching party has available remedies under the law, such as retaining the goods or requiring the breaching party to perform under the contract. As with common law contract principles, remedies are designed to put the non-breaching party in essentially the same position as if the contract had not been breached.

Warranties and Product Liability

Introduction: A warranty is a promise, or guarantee, by a seller or lessor that certain facts are true of the goods being sold or leased. Types of warranties include (1) warranties of title guaranteeing that the goods have clear and valid title, (2) express warranties promising specific facts about the goods, and (3) implied warranties of merchantability, or fitness for a particular purpose. A warranty creates a legal duty for the seller or lessor; a non-breaching party can recover damages for breach of warranty(ies). Because warranties are associated with the sale or lease of products, breach of warranty claims are a part of product liability claims and manufacturers and sellers of goods can be held liable for breach of warranty for defective products. Warranties are subject to regulation under the UCC, product liability tort law, contract law, and the Magnuson-Moss Warranty Act.

Comparison of Common Law vs. UCC Contracts

Introduction: Common law contract principles are stringent, specific, relatively rigid and rules-laden, and require clarity in the formation and performance of agreements. Common law contract rules focus on protecting the rights and interests of parties to an agreement. UCC contract principles are more flexible, looser, permit implied terms in agreements, focus on âkeeping the deal togetherâ, and expediting business transactions. The UCC rules rely on prior dealings between the parties, customs within an industry, and reasonableness to complete contracts that may have omitted or implied terms. Both common law and UCC principles are based on fairness for the parties, and provide remedies, such as compensatory damages or specific performance, for contract breach. The goal of remedies for breach under both common law and the UCC contracts is to restore the non-breaching party to essentially the same position as if there had been no breach.

1.(Please Note: There may be more than one correct answer)

If Peggy says to Larry, "I'll give you $50 if you stand on your head for one hour":

	a.	Larry must verbalize his assent in order to render effective acceptance.
	b.	The statement can form the basis for a unilateral contract.
	c.	Larry must stand on his head to accept Peggy's offer.
	d.	Peggy and Larry have created a contigent cont

2. An acceptance is effective as soon as it is dispatched if the offeree uses:

	a.	any reasonable means of communication.
	b.	only a stipulated means of communication.
	c.	only an authorized means of communication.
	d.	an authorized as well as the stipulated means of communication.

3.Under the UCC, an order requesting "prompt" shipment of goods:

	a.	impliedly invites acceptance only by a prompt promise to ship.
	b.	invites acceptance by either a prompt promise to ship or by prompt shipment of goods.
	c.	requires acceptance via writing within a "reasonable" time frame.
	d.	impliedly invites acceptance only by a prompt shipment of goods.

4. (Please Note: There may be more than one correct answer)

On February 21, 2012, Stateville College President Erhlich sent a letter to Lt Governor Alfred E. Neuman asking Neuman to speak at theStateville College commencement on the topic "Do Brains and Politics Mix?" On February 24, Neuman responded in a fax, "I'll speak if you will pay a $50,000 speaking fee." On February 25, President Erhlich heard Neuman say something unintelligent on the morning news program and sent an email to Neuman which said "I revoke my offer for you to speak at commencement." Ten minutes later, Neumanchecked his email on his smartphone, and five minutes after that Neuman called Erhlich and said, "I've changed my mind. I accept your offer and I'll be glad to speak for free." Which of the following is a correct statement of the law?

	a.	Neuman's fax was a counter-offer which terminated Ehrlich's offer.
	b.	If Neuman's February 24 fax can be viewed as an inquiry rather than a counter-offer, and Ehrlich had received Neuman's call before Neuman received Ehrlich's email, Ehrlich would have been bound to a contract with Neuman despite his attempt to revoke because his revocation would only have been efffective when received by Neuman.
	c.	Under these circumstances, Ehrlich had no right to revoke his offer at any time before receiving Neuman's call.
	d.	Even if Neuman had phoned to accept before reading Erhlich's email, no contract would have formed because the February 25 email was not effective to revoke the offer made on February 21.

5. Browse wrap agreements are:

	a.	in paper form.
	b.	viewed by some courts as voidable.
	c.	per se illegal.
	d.	viewed by some courts as illegal.

purplehippopotamus358

B offered to sell a boat to C for $35,000. Câs response statedâI accept your offer but I will also need the boat moved to my boatslip at the same marina.â Is there a contract? If so what are theterms? Explain.

4. Perfect Poultry Company offers to sell a specified number ofchickens and turkeys to Quick Markets. Without including anyadditional terms in the proposal it is a valid offer to form acontract? Explain.

5. Daveâs uncle tells Dave that if âhe feels thatDave deserves it,â he will give Dave $10,000 when Dave graduatesfrom college. Dave agrees to the deal. Is the uncleâs promiseenforceable if Dave graduates? Explain.

6. Jennifer was about to be struck by a speeding car. Eva pushedher out of the carâs path, just in time to save her from beingstruck. However, Eva was herself struck by the car and wasseriously injured. Several weeks later, Jennifer promised Eva thatshe would pay her $1,000 per month for life. Is Jenniferâs promiseenforceable? Explain.

7. Vincent entered into a contract to sell his laptop to Millie,age 17. Millie took possession of the computer and continued to useit for five months after reaching her 18^th birthday. Howsignificant is her continued use of the computer?

8. Baker, a real estate broker, only licensed in Oregon,concluded a land sale in California. If the California clientrefuses to pay Baker the commission on the sale may he successfullysue the client for breach of contract? Explain.

9. DG Corp. has recently created a genetically modified cow,which they named Elsie. The MJ Dairy Co. contacts DG about buyingElsie. On November 1st, DG and MJ sign a contract stating that DGwill sell Elsie to MJ for $50,000. What neither party knows is thatElsie died during the preceding night. Explain the significance ofthat event.

10. Gene sells a trail bike to Hollis without disclosing thatthe odomeÂter, which reads 10,000 miles, was disconnected 90,000miles ago. Does Hollis have to pay the contract price? Discuss.

11. Mona is induced by her guardian Newt to sign acontract to invest her student loan funds in Overseas Bank throughNewtâs investment firm. Unknown to Mona, Newt realizes ongoingcommissions from the investment. On what basis could Mona rescindthe contract? Discuss.

12. Carl leases 2 acres of land to his friend, Larry. Larryintends to build a house on the property which will significantlyincrease its value. Larry applies for a $1 million loan from FleetBank to build the house. Carl orally promises the bank that he willbe responsible for paying back the loan if Larry does not. On thatbasis the loan is approved.

Is Carlâs promise enforceable if Larry fails to pay back theloan? Explain.

13. Guardian Security, Inc., and Hedge Fund Corporation enterinto an oral contract under which Guardian Security agrees toprovide security services for Hedge Fund offices for as long asHedge Fund needs them. This contract is/is not enforceÂ¬able?

14. The Caplans contract with Fain Construction tobuild a house on their lot for $300.000. The written contractspecifies that Fain is to satisfactorily install Crane brandbathroom fixtures. Fain completes construction but the Caplansrefuse to pay the full contract price because they are notsatisfied with the bathroom fixtures installations. Discuss whetherFain is or is not entitled to the full contract price.

15. Polly agrees to buy Quinnâs Cycle World but only ifRidgeline Credit Union approves the financing. This approval isa:

a. Condition precedent.

b. Condition subsequent.

c. An illusory promise.

16. Edâs Electric substantially performs its contract withForest Hills Apartments, Inc., to deliver and install an alarmsystem and parking lot lighting. Edâs is entitled to

a. Nothing due to the breach of contract.

b. Payment to the extent that it performed the contract.

c. Full payment of the contract price since it did substantiallyperform.

17. Gliding Light, LLC, and Hang Gliders, Inc., are parties to acontract. They subseÂquently agree that High Riders Inc. shouldtake Gliding Lightâs place and assume all of its rights and dutiesunder the contract. This is:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

d. A settlement agreement.

18. Omar and Penn want to discharge their contract by executinga new agreement with performance by Penn to be different from whatwas originally promised. This can best be accomplished by:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

19. Nina contracts with Office Suites Corporation to buy a suitein its Prospect Point Tower at a premium because of its undisturbedview of Quay Harbor. Unforeseeably, the town of Quay Harbor changesthe zoning law, and Resort Hotels, Inc., constructs Seaview Resort,blocking what would have been Ninaâs view. Ninaâs best argument fora change in the Office Suites contract or its price is:

a. Frustration of purpose.

b. Objective impossibility of performance.

c. Anticipatory repudiation.

d. Commercial impracticability.

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LLB170 Lecture 6: Week 6 – Termination and Remedies

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