Contract Law - Cancellation

Procedure for Cancellation s 8(1) and (2)

(1) Cancellation of a contract shall not take effect - Before it is made known to the other party - Or before it becomes obvious on the facts you intend to cancel - Can only do this if it is not reasonably practical to communicate with the other party - Or the party cannot be contacted for some reason (2) Cancellation may be made know by words or conduct which show an intention to cancel

Repudiation s 7(2)

A party may cancel if another party repudiates the contract by words or conduct by making it clear that he does not intend to complete his obligations

Oxborough v North Harbour Builders (2)

Absence of any breach defeated O's right to cancel for a purported anticipatory breach Statute doesnt define substantial, court shouldnt give a definition either What is required is something more than trivial or minimal, but it does not have to change the contract entirely "Substantially to reduce the benefit of the contract, or substantially to increase the burden" Should be decided on its own facts Is it a case where damages will be the right remedy? Or is cancellation more suitable It can be appropriate to consider multiple breaches together which may amount to substantial consequences

Synge v Synge

Agreement to sell and purchase a house, just before settlement, vendor sells house to another party Performance made impossible by vendors breach, repudiation is clear

Andas Finance

Cancellation communicated by a third party may be effective

Steele v Serepisos

Cannot make a term essential by reasonable notice unless you have given the party a reasonable chance to perform

Garratt v Ikeda

Cessation of future performance Buyer pays a deposit on house Some paid on time, rest wasnt paid on time Vendor gave buyer notice he would cancel Obligation to pay arose before cancellation, still required to pay

Gray v Thomson

Contract for land Payment by instalments Payments were made still, even though (..) was unhappy about the size of the land and wanted compensation Later tried to cancel Court said continuing payments was affirmation Compensation = damages which are only available if contract is cancelled

MacIndoe v Mainzeal Group

Contract for unit title within new building Purchaser pays deposit plus instalments Share market subsequently crashes, purchaser unable to pay instalments Payment of instalments by certain dates not expressly essential in contract Vendor gives notice to the purchaser that time is of the essence Relevant factors Regular instalments designed to fund the building process Surrounding circumstances (other breaching parties) Cooke P's analysis whether payment of instalment by certain date was essential Is that breach serious enough to justify cancellation? Assuming times for payment were not originally of the essence, the purchasers obligation to pay was nevertheless an important one Each instalment was a large sum of money, obligation to make payment the sort which equity would make to be of the essence after the contract is signed If reasonable notice is supplied, term in contract can be essential No dispute about the notice in this case, term made essential *after* contract formation

Cameron v Warboys

Contract provided valuer would be appointed Buyer delayed on appointing a valuer for about 4 years Took far too long, settler wanted to cancel CA held such a long delay showed they did not want to perform, they had repudiated

Entitlement to cancel

Contractual Remedies Act s 7 - Repudiation s 7(2) - Serious Breach or Misrepresentation s 7(3) and (4)

Mersey Steel & Iron Co v Naylor Benzon & Co

Definition of repudiation Where a party effectively says to the other "I will not perform the contract", the other party has the right to treat the contract as having come to an end, sue for damages, and not perform themselves

Morrison

Failure to turn up for work after employee repudiated employment contract

Le Page

Instruction to builder to stop work and send final account

Mana Property Trustee v James Developments (facts)

M owned property in Cromwell J was a property development company Contract for sale and purchase of land signed, J specified the size of the land they wanted as to be no less than 4.715 Ha. After the property had been subdivided, the area of land only amounted to 4.69 Ha J wants to cancel, claiming size of land clause essential to him

Defining essential

Mana Property Trustee v James Developments MacIndoe v Mainzeal Group Steele v Serepisos

MacIndoe v Mainzeal Group (2)

Meaning of substantial is very fact specific

s 7 Notes

No right to cancel under s 7(3) and (4) unless notice has been given making time for compliance of the essence - Mana Property Cancellation for repudiation and cancellation under s 7 are not mutually exclusive - MacIndoe Some common law rules still apply - Cancellation for insufficient reason when sufficient (unknown) reason still exists (Thompson) - Cancelling party must be ready, willing and able to perform (Ingram)

Oxbrough v North Harbour Builders (What counts?)

O entered a contract with N to build a house Building commences in March May onwards, O complains the builders are not performing to the required standards Builders respond, saying they are happy to perform O concerned this wasn't enough - want order for specific performance Court rejects N had repudiated When O had first sought the proceedings on N, N had replied saying the proceedings are premature N was happy to meet their expectation and issue their own inquiry into the circumstances Did not refuse to perform, quite clear they intended to fix the problem Have to be sure party will not perform

Ingram v Patcroft Properties

Obligation in lease to be paid fist day every month Lease had clause which allowed lessor to take occupation after failure to pay 14 days from when rent was due Lessor re-entered 1 day before he was allowed to Lessee then sues for damages later Lessee argued lessor was not ready willing and able when he changed the locks one day earlier Court says the common law rule still applies If the lessee's failure to pay is because of the lessors fault, then the lessor cannot claim cancellation Breach was connected to lessors actions Breach must be causally connected between the lessor and lessee

Aerial Advertising Co v Batchelor Peas

Pea company hired AA to fly a banner behind planes advertising their peas AA pilot was supposed to telephone in to the pea company every day before taking off One day the pilot forgets on Armistice Day Consequences of the breach were huge, they looked like they didnt care about the war Court said pea company was entitled to cancel Effect of breach incredibly substantial and damaging to brand representation Effect of the breach, not the breach itself, must be substantial

White and Carter v McGregor

Plaintiff ran advertising business for rubbish bins Defendant had contract, extended it for a further 3 years On the same day, the defendant changed his mind Signs still kept up for another 3 years Plaintiff, rather than cancelling on the defendants repudiation, affirmed the contract HoL said this was a legitimate course of action

Bentham v Margetts (partial repudiation)

Right to cancel does not stem from every claim of non-performance. A statement that is a departure from literal compliance (i.e exactly how it was set out in the contract) will not without more amount to repudiation. Unless that term is deemed essential to the innocent party or carries consequences that are serious if not performed properly

Thompson v Vincent

Sale and purchase of motel with 24 units, vendors to do some building work, buyers to pay rent until next purchase is completed Buyers left after disagreement about building work and rental assessment, vendors wanted to cancel for buyers repudiation and wanted to sue for damages Buyers then discounted motel, did not have any planning permission to operate as 24 units = misrep by the vendors Couldnt support 24 units Consequences of breach substantial Why should a party which by the time of trial can demonstrate it was entitled to cancel nevertheless be held to have acted wrongfully because they didnt know they could do so What would a reasonable person think in the circumstances known to the buyer

Schmidt v Holland

Sale of house, purchaser had concerns that it could not raise the proper funds Asked for permission to be released from the contract Doesnt amount to repudiation, merely an inquiry about an exit

Auckland Waterbed

Statement made that cheque was being stopped, in response to the other's breach

What counts?

Synge v Synge Cameron v Warboys Oxborough v North Harbour Builders Schmidt v Holland Starlight Enterprises v Lapco Enterprises

McLachlan

Threat to find another buyer is equivocal conduct, consistent with contract remaining in force

Starlight Enterprises v Lapco Enterprises

Travel bags, price in contract $3 per bag After dealing of some bags, L says the rest of the bags need to go up in price S says that notice is effectively repudiation But L is still willing to sell for $3 because they were unaware the contract did not include a price variation clause Not repudiation, party must be given a chance to perform when they have indicated it would be possible Emphasis on S having cancelled without even discussing it with L Must be a need for a chance for the other party to respond

Hochster v De la Tour

When can it occur? D runs touring company, hires H as a guide and plans to employ him in June. In May they reply H is not needed any more. This is repudiation, H can sue for damages Can happen before performance is due

Mana Property Trustee v James Developments (results)

Whether a term is essential will depend on the intentions of the parties, deduced from other terms of the contract and the surrounding context it was made. Either the parties will expressly say so, or it will be implied into the contract Useful test as to whether the term is impliedly essential - term is of such importance that without it, the party not in default may have never entered the contract at all Although the difference in the size of the land is arbitrary, nevertheless the clause was still important However, J did not have a right to cancel Although the size of the land was essential, time to produce the right size section was not essential M was given no chance to correct the mistake, which M could have done and was willing to do

s 7(5) Affirmation

White and Carter v McGregor Gray v Thomson Oxborough v North Harbour Builders

Serious Breach or Misrepresentation

s 7(3) - First, there must be a misrepresentation, or breach, or anticipatory breach AND which is s 7(4) - Essential to the innocent party OR entails substantial consequences