Advanced Contracts: Defective Performance, Study notes of Law

Download Advanced Contracts: Defective Performance and more Study notes Law in PDF only on Docsity! 1 ADVANCED CONTRACTS – SPRING 2015 CONTRACT BASICS ............................................................................................................................................... 4 DEFECTIVE PERFORMANCE ................................................................................................................................... 5 ELEMENTS OF DEFECTIVE PERFORMANCE .............................................................................................................................. 5 IMPLIED TERMS ................................................................................................................................................................. 5 STANDARD OF CONTRACTUAL DUTY ..................................................................................................................................... 6 EXPRESS STANDARD .................................................................................................................................................. 6 IMPLIED STANDARD .................................................................................................................................................. 6 PERFORMANCE: NOT FIT FOR PURPOSE .................................................................................................................................. 7 PERFORMANCE: DEFICIENT IN QUALITY OR QUANTITY ............................................................................................................... 7 INDUSTRY STANDARD .......................................................................................................... ERROR! BOOKMARK NOT DEFINED. CONSTRUCTION ................................................................................................ ERROR! BOOKMARK NOT DEFINED. GENERAL RIGHT TO ENTIRE PERFORMANCE .................................................................. ERROR! BOOKMARK NOT DEFINED. MEANING.......................................................................................................................... ERROR! BOOKMARK NOT DEFINED. ENTIRE (PRECISE) PERFORMANCE CONTRACTS ......................................................................... ERROR! BOOKMARK NOT DEFINED. INDICATORS OF ENTIRE PERFORMANCE ..................................................................... Error! Bookmark not defined. WHERE THE ENTIRE PERFORMANCE RULE DOES NOT APPLY ..................................... Error! Bookmark not defined. EXPRESS PROVISIONS CREATING ‘ENTIRE PERFORMANCE’ ........................................................... ERROR! BOOKMARK NOT DEFINED. ENTIRE PERFORMANCE BY IMPLIED TERM ................................................................................ ERROR! BOOKMARK NOT DEFINED. THE DE MINIMIS RULE .......................................................................................................... ERROR! BOOKMARK NOT DEFINED. SUBSTANTIAL PERFORMANCE ............................................................................................... ERROR! BOOKMARK NOT DEFINED. CONTRACTING FOR SUBSTANTIAL PERFORMANCE .................................................... Error! Bookmark not defined. WORK THAT DOES NOT QUALIFY UNDER THE SUBSTANTIAL PERFORMANCE DOCTRINE........ Error! Bookmark not defined. SUBSTANTIAL PERFORMANCE IS ALL THAT IS INTENDED ........................................... Error! Bookmark not defined. SUBSTANTIAL PERFORMANCE IS SUFFICIENT ............................................................. Error! Bookmark not defined. SEVERABLE CONTRACTS ....................................................................................................... ERROR! BOOKMARK NOT DEFINED. DIFFERENT (BUT EQUALLY GOOD) PERFORMANCE .................................................................... ERROR! BOOKMARK NOT DEFINED. TERMINATION FOR BREACH .............................................................................. ERROR! BOOKMARK NOT DEFINED. RIGHT TO TERMINATE.......................................................................................................... ERROR! BOOKMARK NOT DEFINED. BREACH OF A CONDITION ..................................................................................................... ERROR! BOOKMARK NOT DEFINED. EXPRESSED TERM GIVING RIGHT TO TERMINATE ....................................................... Error! Bookmark not defined. IMPLIED RIGHT TO TERMINATE DISCERNED FROM THE AGREEMENT ....................... Error! Bookmark not defined. THE TEST TO DISCERN A CONDITION: ‘ESSENTIALITY’ OR ‘SO IMPORTANT’ .................................... ERROR! BOOKMARK NOT DEFINED. BREACH OF AN INTERMEDIATE TERM ...................................................................................... ERROR! BOOKMARK NOT DEFINED. BREACH OF AN INTERMEDIATE TERM ...................................................................................... ERROR! BOOKMARK NOT DEFINED. TEST FOR SERIOUSNESS OF THE BREACH .................................................................... Error! Bookmark not defined. ELECTION TO TERMINATE ..................................................................................................... ERROR! BOOKMARK NOT DEFINED. REPUDIATION OF CONTRACT ............................................................................. ERROR! BOOKMARK NOT DEFINED. ELEMENTS OF DEFECTIVE PERFORMANCE ............................................................................... ERROR! BOOKMARK NOT DEFINED. DEFINITION........................................................................................................................ ERROR! BOOKMARK NOT DEFINED. TYPES AND PROOF ...................................................................................................... Error! Bookmark not defined. CONNECTION TO ANTICIPATORY BREACH ................................................................................ ERROR! BOOKMARK NOT DEFINED. BASE REQUIREMENT ........................................................................................................... ERROR! BOOKMARK NOT DEFINED. STANDARD OF CONDUCT ..................................................................................................... ERROR! BOOKMARK NOT DEFINED. 2 REASONABLE (EXPERIENCED) PERSON TEST ............................................................... Error! Bookmark not defined. INFERRED REFUSAL TO PERFORM ........................................................................................... ERROR! BOOKMARK NOT DEFINED. INTERMEDIATE TERMS ......................................................................................................... ERROR! BOOKMARK NOT DEFINED. TEST FOR REPUDITORY BREACH .................................................................................. Error! Bookmark not defined. THREAT TO REPUDIATE WITHOUT INTENTION ........................................................................... ERROR! BOOKMARK NOT DEFINED. REPUDIATION BY DENIAL OF OBLIGATION TO PERFORM ............................................................. ERROR! BOOKMARK NOT DEFINED. REPUDIATION OF INSTALMENT CONTRACTS ............................................................................. ERROR! BOOKMARK NOT DEFINED. REPUDIATION BY SUBSTITUTED PERFORMANCE ........................................................................ ERROR! BOOKMARK NOT DEFINED. REPUDIATION BY WRONG INTERPRETATION OF THE TERM ENTITLING TERMINATION ...................... ERROR! BOOKMARK NOT DEFINED. OBLIGATIONS OF THE INJURED PARTY .................................................................................... ERROR! BOOKMARK NOT DEFINED. STATUTORY REQUIREMENT OF WRITING ........................................................... ERROR! BOOKMARK NOT DEFINED. NON-COMPLIANCE WITH THE STATUTE .................................................................................. ERROR! BOOKMARK NOT DEFINED. COMPLIANCE ..................................................................................................................... ERROR! BOOKMARK NOT DEFINED. ENFORCEMENT ................................................................................................................... ERROR! BOOKMARK NOT DEFINED. NON-CONTRACTUAL RIGHTS ................................................................................................. ERROR! BOOKMARK NOT DEFINED. EQUITY ............................................................................................................................. ERROR! BOOKMARK NOT DEFINED. QUANTUM MERUIT .......................................................................................... ERROR! BOOKMARK NOT DEFINED. ELEMENTS ......................................................................................................................... ERROR! BOOKMARK NOT DEFINED. UNJUST ENRICHMENT ......................................................................................................... ERROR! BOOKMARK NOT DEFINED. INHERENTLY INEFFECTIVE CONTRACTS .................................................................................... ERROR! BOOKMARK NOT DEFINED. CONTRACT BASED CLAIMS .................................................................................................... ERROR! BOOKMARK NOT DEFINED. LEADING CASE: PAVEY & MATTHEWS V PAUL (1987) 162 CLR 221 ...................................... ERROR! BOOKMARK NOT DEFINED. THE RELEVANCE OF THE CONTRACT ........................................................................................ ERROR! BOOKMARK NOT DEFINED. THE BENEFIT MUST FLOW FROM THE PLAINTIFF (BUILDER) TO THE DEFENDANT .............................. ERROR! BOOKMARK NOT DEFINED. THERE CAN BE NO CONFLICT WHERE THERE IS A VALID CONTRACT ................................................ ERROR! BOOKMARK NOT DEFINED. THE PRE-EMINENCE OF AN EXTANT [LIVE] CONTRACT ............................................... Error! Bookmark not defined. THE REQUIREMENT THAT A ‘BENEFIT IS ACCEPTED’ ................................................................... ERROR! BOOKMARK NOT DEFINED. THE BASE REQUIREMENTS .......................................................................................... Error! Bookmark not defined. EXCEPTIONS WHERE NO REQUEST OR ACCEPTANCE .................................................. Error! Bookmark not defined. THE RESPONDENT MUST RECEIVE A BENEFIT ............................................................. Error! Bookmark not defined. THE BENEFIT MUST NOT BE A GRATUITY .................................................................... Error! Bookmark not defined. HOW DO WE KNOW THE BENEFIT WAS NOT MEANT AS A GIFT? = THE REASONABLE PERSON TEST ............. Error! Bookmark not defined. REQUESTED AND ACCEPTED BENEFITS ..................................................................................... ERROR! BOOKMARK NOT DEFINED. NON-REQUESTED BENEFITS ................................................................................................. ERROR! BOOKMARK NOT DEFINED. (a) IMPLIED REQUEST/ACCEPTANCE ........................................................................... Error! Bookmark not defined. (b) ‘INCONTROVERTIBLE’ BENEFITS ............................................................................ Error! Bookmark not defined. ACCEPTANCE OF THE BENEFIT MUST BE ‘FREE’ ......................................................................... ERROR! BOOKMARK NOT DEFINED. NO LIABILITY IF DEFENDANT ‘FORCED’ TO ACCEPT .................................................... Error! Bookmark not defined. INTANGIBLE AND NON-ECONOMIC BENEFITS ........................................................................... ERROR! BOOKMARK NOT DEFINED. DETERMINING THE VALUE OF THE BENEFIT .............................................................................. ERROR! BOOKMARK NOT DEFINED. THE QUESTION OF AN ‘UNJUST FACTOR’ ................................................................................. ERROR! BOOKMARK NOT DEFINED. RESTITUTION AND PARTIAL PERFORMANCE ............................................................................. ERROR! BOOKMARK NOT DEFINED. INCOMPLETE PERFORMANCE ............................................................................ ERROR! BOOKMARK NOT DEFINED. TERMINATION FOR INCOMPLETE PERFORMANCE ...................................................................... ERROR! BOOKMARK NOT DEFINED. CONTRACT DAMAGES OR QUANTUM MERUIT AVAILABLE? ...................................... Error! Bookmark not defined. 1. WHERE THE BREACH PREVENTS PERFORMANCE, OR CAUSES THE PLAINTIFF TO TERMINATE THE CONTRACT ... ERROR! BOOKMARK NOT DEFINED. 5 Defective Performance A BREACH OF CONTRACT CAN OCCUR IN THREE WAYS: Late performance Contracts generally specify a time for performance; late performance is usually not a breach of contract that would allow the other party to be excused from performance. However if time is of the essence, late performance will be considered a material breach of contract. Can give rise to damages or cause the cancellation of the contract. Non-performance Failure by one party to fulfil their obligations under the contract Eg. not turning up to perform services/delivering goods at all. OR, where the promisee rejects performance due to non-conformity to the contract Eg. refuses to take possession of the goods/services in question. DEFECTIVE PERFORMANCE A breach of contract where the performance does not meet the requirements of the contract but the promisee retains the goods or service anyway. The promise is entitled to damages in compensation, the reasonable cost of rectifying the defect. Elements of Defective Performance Breach through defective performance occurs: 1. where the performance is deficient in quality or quantity as per the terms of the contract (usually associated with a failure to use reasonable skill and care); OR 2. where the performance is not fit for the purpose for which the goods or services were intended Implied Terms  TERMS IMPLIED BY STATUTE eg. Sale of Goods Act 1923 (NSW), Home Building Act 1989 (NSW)  TERMS IMPLIED BY THE COURTS There are limited circumstances where the courts will imply a term into a contract at common law: 1. Terms implied in fact Terms implied as fact are based on the imputed intention of the parties. So obvious it goes without saying. There are two tests: The business efficacy test Was the term was necessary to give the contract business efficacy ie. would the contract make business sense without it? - The courts will only imply a term where it is necessary to do so. The officious bystander test Had an officious bystander been present at the time the contract was made and had suggested that such a term should be included, it must be obvious that both parties would have agreed to it. 6 2. Terms implied at law Standard terms are implied in relation to certain categories of contract because they are considered a normal incident of that type of contract. May include general considerations of public policy. Eg. an obligation of cooperation will be implied where Party A’s cooperation is necessary to the performance of Party B’s fundamental duty under the contract. The implication of implied terms is always subject to the proviso that they will not be implied where the contract evidences a clear intention to the contrary. No term can be implied to create a duty that is contrary to an express term. Standard of Contractual Duty EXPRESS STANDARD WITHIN THE CONTRACT In this circumstance, the contract expressly states what the intended standard of performance. The meaning and scope of the standard of performance is a matter of construction to be gleaned from the surrounding circumstances (factual matrix) in which the contract was formed. The express standard could require ‘perfect’ performance or it may be ‘reasonable’ performance or the exercise of ‘reasonable skill or care’. IMPLIED STANDARD (TWO SUBSETS) A standard of performance will often be an implied standard. In such circumstances a court will have to decide what standard of performance the parties impliedly agreed to. This is unique to every agreement. Two Categories of Implied Standard: (1) The ‘fit for purpose’ standard (a strict liability standard). The product produced or service provided must actually do the job it was designed to do. (2) The ‘reasonable diligence, skill and care’ standard (the ‘professional’ standard). The result is not guaranteed, merely that in delivering performance the promisor will do so with care and skill. THE EXPERT AND NON-EXPERT STANDARD The general standard applied is that of a "reasonable person" The professional standard applied is the standard of “the ordinary skilled person exercising and professing to have that special skill” Eg. “reasonable professional” car mechanic, dentist, engineer: Chin Keow v Govt of Malaysia THE ROLE OF CIRCUMSTANCES In applying the contractual standard of duty, circumstances play a role in determining the necessary measures to be taken. Eg. If the purpose of installing flooring is to carry heavily laden trucks, and the engineer was warned of the dangers of vibration and did not take this into account = the resulting design is inadequate for the purpose TEST: in the circumstances of this case what special steps was it necessary to take to achieve the duty of care? 7 Performance: not fit for purpose Performance: deficient in quality or quantity NOTE: Usually associated with failure to use reasonable skill and care, may also constitute negligence at common law. Derbyshire Building Co Pty Ltd v Becker (1962)  Issue: Implied warranty that goods are fit for use  Facts: B (contractor) suffered injury using defective circular-saw provided by D. Was D in breach of the contract? What was the standard of duty applicable to the supply of the tool?  Held: HC found for Becker Use of the saw became an implied term of the agreement; therefore the defect was a breach of the contractual standard of duty. Three points to look for: 1. The characterisation of the contract; 2. The analysis of implied terms; and 3. The resolution of the standard of duty issue by reference to the content of the implied term. Greaves & Co (Contractors) Ltd v Baynham Meikle & Partners [1975]  Issue: The ‘expert’ and ‘non-expert’ standard  Facts: G (contractors) engaged to construct a factory. B (structural engineers) employed to design structure. Floors had to take weight of heavy forklifts. Finished building was structurally unsound: subject to vibration, cracks and further damage. Was the standard of contractual duty strict or merely required exercise of care?  Held: The design was unfit for purpose. Engineers were in breach of contract. Requisite standard of care is implied in fact (based on the imputed intention of the parties) and implied in law (imposed by the court in contracts of a defined type). 1. Engineers had a general obligation (law) to exercise reasonable skill and care 2. Engineers had a specific obligation (fact) to ensure the design was fit for purpose. Chin Keow v Govt of Malaysia [1967] Referenced in Greaves v Baynham Meikle  Issue: The ‘expert’ and ‘non-expert’ standard  Facts: Doctor was found negligent because he failed to act on information which showed patient was allergic to penicillin.  Held: The professional standard of contractual duty is the standard of “the ordinary skilled person exercising and professing to have that special skill”. Extent of the duty is not an absolute warranty of fitness but that the good/service will be reasonably fit for purpose. Measures taken are assessed against the circumstances. Reg Glass Ltd v Rivers Locking Systems Pty Ltd (1968)  Issue: The ‘expert’ and ‘non-expert’ standard  Facts: Rivers was employed to install security door in shop, burglary occurred with loss of stock. Considered causation.  Held: Implied term that the door was ‘burglar proof’, relied on the skill and ability to hang and fit a door that offered reasonable protection from theft. Work was not fit for purpose. Reg Glass received damages for faulty door and theft of stock because the loss suffered was due to the breach. Bolam v Friern Hospital management Committee [1957] Approved in Chin Keow v Govt Malaysia  Issue: Ordinary standard versus expert standard  Facts: Electro-shock therapy patient suffered injury.  Held: Where performance of contractual duties requires some special skill or competence the test cannot be the ‘man on the Clapham omnibus’ because he does not have that special skill. Standard is that of a reasonably competent [skilled professional] at that time. Doctors were not negligent because their actions met industry standards. There was no breach of professional standard of care. Carew Counsel Pty Ltd v French [2002]  Issue: Ordinary standard versus expert standard  Facts: Whether a solicitor was negligent in failing to take proper steps to protect his indigent client from claims by his creditors.  Held: Solicitor was not negligent, found to have used reasonable skill and care. The standard is not one of perfection, but of a reasonably competent professional.