Actions for Debt

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ACTION FOR DEBT DEFINITION.

The requirements for recovering debts are as follows:

  • A debt can be recovered for when sufficient performance of the corresponding obligation has been rendered. Sufficiency is determined according to the status of the obligation:
    • Entire obligations - debt only recoverable if obligation done in full.
    • Divisible obligations - debt recoverable according to the tasks he performed.[1]
    • Substantial performance - if performance is substantial, ie achieves the main purpose, obligation will be deemed as performed.[2]

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 717-732 [29.05-29.100].

Introduction

[3] An action to recover a debt or a liquidated sum is distinct from an action for damages.[4] It has the following advantages:

  • A liquidated sum may be recovered even if the party seeking to recover it has breached the contract causing termination.
  • In an action for a liquidated sum, the onus is on the defending party to prove his innocence.
  • The principle of mitigation does not apply to liquidated sums.

Requirements

[5] The general rule is that an action for a liquidated sum only arises upon executed consideration (the plaintiff must have already performed his obligations in order to recover a liquidated sum).

  • However, the courts have made an exception to that rule in the case of an instalment payable on a fixed day, regardless of whether the corresponding obligation has been performed.[6]

In the application of the general rule, it is necessary to determine what amounts to sufficient performance of the plaintiff's obligations in order for him to be entitled to claim a liquidated sum. This depends on whether the obligations were entire or divisible, and the doctrine of substantial performance.

Entire obligations

[7] An entire obligation must be wholly performed in order for a plaintiff to recover a liquidated sum for that performance. This is usually the case where the contract specifies a lump sum rather than various instalments.

Divisible obligations

[8] Divisible obligations exist where the contract has been divided into specific tasks and payment in instalments for those tasks. A plaintiff will be entitled to recover payment for each divisible obligations he has completed.[9] This is common in contracts of sale of goods which specify the price of each delivery or item.

Assessing obligations

[10] Assessing whether the contract is entire or divisible is a matter of construction (in view of the circumstances, what did the parties intend?).

  • A contract will be entire if it appears the parties intended that performance would only be acceptable if it is complete.
  • A contract will usually be entire where there is a single lump sum payable completion.
    • However, this is not conclusive.[11]
  • A contract will usually be be divisible if the payment and obligations are divided into corresponding instalments.
    • However, this is not conclusive.[12]

For further discussion, read Steele v Tardiani.

Legislation

[13] Legislation may sometime determine the right to recover money for work that has not been fully performed. This is discussed in Nemeth v Bayswater Road Pty Ltd[14]:

  • Appellants hired an aircraft for $2 000 a month (payable at the end of the month). The aircraft crashed halfway through the first month.
  • The question is whether a payment due at the end of the month should be divisible into a daily rate.
  • The British Apportionment Act 1870 was adopted in Qld in the Property Law Act 1986. It specifies that rent may be accrued on a daily basis, but is only due on the day specified.
  • Thus, the Appellant must pay for the 16 days it hired the aircraft for.

Substantial performance

[15] A plaintiff might still be able to recover money for partial performance if that performance is deemed 'substantial' by the courts.[16] In such cases, he will be entitled to the contract price minus the cost of remedying the defects in the performance (which he forfeits because he breached the contract).

When considering whether a performance is substantial, the courts consider the performance rendered and the nature of the defects.[17] This issue was discussed in Hoenig v Isaacas:

  • The plaintiff was hired by the defendant as an interior designer. He did his work but some of it was faulty.
  • The defendant refused to pay the last instalment on the basis that the work had not been properly performed.
  • The court found that the work was substantially performed, and was merely a bit defective.
  • The plaintiff was awarded his payment, minus the cost of remedying the defective work.

And also in Bolton v Mahdeva[18]:

  • Plaintiff installed a heating system in the defendant's home, but it failed to heat properly.
  • Cairns LJ:
    • This performance cannot be be considered substantial because the plaintiff failed to achieve the main purpose for which he was paid (install a working heater).
    • Thus, he was not entitled to recover payment.
  • Sachs J:
    • Similar judgement - primary objective not achieved.
    • Defects too important and costly for work to be considered substantial performance.

Payment independent of performance

[19] A payment may be made independent of performance by the parties. In such cases, the sum will become a debt as soon as the time for payment arrives, regardless of whether performance is completed.

This is discussed in McDonald v Dennys Lascelles Ltd (but in that case, the court ruled that the payment was not independent of performance. Retention of the instalments was conditional upon subsequent performance) .

Deposits

[20] A deposit is sometimes independent to performance. This is because a vendor is entitled to retain a deposit even if the transaction doesn't go through (and so, he doesn't execute his consideration).

In Bot v Ristevski, the court considered whether an unpaid deposit could be claimed as a liquidated sum even after a transfer has fallen through:

  • the question is "whether an unconditional right to recover and retain the deposit arose before the contract was discharged. If such a right did arise, it will survive the determination of the contract, and if the money has been paid before discharge the purchaser will not get it back, while if the money has not been paid before discharge the purchaser will be compelled to pay it.[21]"
  • "Whether the vendor obtained an unconditional right to recover and retain the deposit will depend upon whether the discharge of the contract will give rise to a total failure of the consideration for payment of the deposit.[22]"
  • "Why should it be implied that the purchaser is to be in a better position if, as a result of breaking his contract, he has not paid the deposit?[23]"

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Steele v Tardiani (1946) 72 CLR 386
  2. Bolton v Mahdeva [1972] 1 WLR 1009, 1013
  3. Casebook, p. 717 [29.05]
  4. Young v Queensland Trustees Ltd (1956) 99 CLR 560, 569
  5. Casebook, pp. 717-8 [29.10]
  6. MacDonald v Denny’s Lascelles Ltd (1933) 48 CLR 457
  7. Casebook, p. 718 [29.15]
  8. Casebook, p. 718 [29.20]
  9. Steele v Tardiani (1946) 72 CLR 386
  10. Textbook, p. 423 [29.25]
  11. Hoenig v Isaacs [1952] 2 AII ER 176, 178, 181
  12. Smith v Jones (1924) 24 SR (NSW) 444
  13. Casebook, p. 721 [29.35]
  14. [1988] 2 Qd R 406
  15. Textbook, pp. 423-4 [29.30]
  16. H Dakin & Co Ltd v Lee [1916] 1 KB 566
  17. Bolton v Mahdeva [1972] 1 WLR 1009, 1013
  18. [1972] 1 WLR 1009
  19. Casebook, pp. 726-7 [29.80]
  20. Casebook, pp. 729-30 [29.95]
  21. [1981] VR 120, 124
  22. [1981] VR 120, 124-5
  23. [1981] VR 120, 125
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