Election

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Election the choice of a party whether to terminate a contract or not. When a party becomes entitled to terminate a contract (ie because of breach, failure of a contingent condition, delay etc), it is confronted with a decision termed 'election'. When a party faces election, it can either affirm the contract (ie, continue it) or terminate it. The rules regarding election are as follows:

  • In order for a party to be deemed as having elected to affirm a contract, the party must have:
    1. Known about the factual situation which entitled it to terminate.[1]
    2. Acted in a way which unequivocally constituted an intent to affirm.[2]
    • A party does not have to elect immediately - it can delay election as long as it does has done nothing to affirm the contract and so long as the other party's position was not prejudiced in consequence of the delay.[3]

If the party elects to terminate, the contract is terminated then and all further performance is excused. However, previous rights (accrued rights) are still recoverable. If the party elects to affirm the contract, the consequences are as follows:

  • The contract remains on foot and all rights remain binding to both parties.[4]
  • The right to terminate for that particular cause is forfeited.
  • In a case of repudiation, a party would re-acquire the right to elect if the actual breach occurs.[5]

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. 573-577 [24.05-24.35]; 591-597 [25.50-25.65].

Introduction

[6] When a party gains the right to terminate (whether by breach, repudiation or other causes), the decision whether to terminate or not is called election. The Aggrieved party must elect whether to terminate the contract, or to affirm it (and thus continue it). Once a decision is made, it cannot be reversed.

  • Note that even if the Aggrieved party affirms the contract and continues it, it will still retain its right to claim damages despite forfeiting the right to terminate.

In order to affirm the contract, two requirements must be satisfied:

  1. The Aggrieved party must know that it is entitled to terminate.
  2. The Aggrieved party's conduct must unequivocally constitute an intent to affirm.

The concept of election and the second requirement is considered in Tropical Traders v Goonan:

  • A party does not have to elect immediately - it can delay election as long as it does nothing to "affirm the contract and so long as the respondents' position was not prejudiced in consequence of the delay[7]."
  • Granting an extension does not mean that the Aggrieved party has affirmed the contract. It merely delays election.

The first requirement is discussed in Immer (No 145) v Uniting Church in Australia Property Trust (NSW):

  • Conduct cannot constitute affirmation if the Aggrieved party was unaware of the factual situation (i.e., that the situation calling it to make an election came about).
    • This roughly means that election cannot be made unconsciously on the facts.
    • "A basic requirement of an election between alternative rights arising under a contract is that a party electing should know the facts which give rise to those rights[8]."
  • "An act amounting to an election must be unequivocal[9]"

Consequences of affirmation

The Aggrieved party

[10] In the case of affirmation, the Aggrieved party effectively forfeits its right to terminate the contract and only retains the right to receive damages for the breach.

This was discussed in Foran v Wight, which dealt with anticipatory breaches:

  • In the case of an anticipatory breaches, even if the Aggrieved party affirms the breach, it will acquire the right to terminate again if the anticipatory breach becomes an actual breach.

The Non-performing party

[11] If the contract is affirmed, the Non-performing party is absolved (besides damages) and is now treated as a normal party (entitled to all usual rights). This means that it would be entitled to rely on subsequent events such as:

This is discussed in Bowes v Chaleyer:

  • The plaintiff then had a right of election: he could have concurred with the defendant in rescinding the contract, and bring an action for the breach; or he could have treated the notice as inoperative, and proceed with the contract. The plaintiff chose the latter course; and thereby he remained subject to all his own obligations under the contract, and the defendant remained in a position to take advantage of any failure of the plaintiff to do his part."[12][13]

In Foran v Wight, the court considered the consequences of affirmation:

"If the other party keeps the contract alive, he does so not only for his own benefit but also for the benefit of the party guilty of repudiation. The latter may, upon giving reasonable notice, withdraw his repudiation and complete the contract and, subject to a qualification with which I shall deal, the other party remains bound by the contract, enabling the repudiating party to take advantage of any breach by the other party or any supervening event which would discharge him from liability."[14]

Consequences of termination

[15] When an Aggrieved party elects to terminate the contract, the contract is at an end and both parties are discharged from performing any future obligations. However, previous rights (accrued rights) are still recoverable. This means that anything already owing to the either party can still be recovered, for example:

  • Payment for performances already rendered.
  • Damages for previous breaches.

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. Immer (No 145) v Uniting Church in Australia Property Trust (NSW) (1992) 182 CLR 26, 30
  2. Tropical Traders v Goonan (1964) 111 CLR 41
  3. Tropical Traders v Goonan (1964) 111 CLR 41
  4. Foran v Wight (1989) 168 CLR 385; Bowes v Chaleyer (1923) 32 CLR 159, 190
  5. Foran v Wight
  6. Casebook, pp. 573 [24.05]; 591 [25.50]
  7. (1964) 111 CLR 41, 55
  8. (1992) 182 CLR 26, 30
  9. (1992) 182 CLR 26, 30
  10. Casebook, p. 573 [24.05]
  11. Casebook, p. 573 [24.15]
  12. (1923) 32 CLR 159, 190
  13. (1923) 32 CLR 159, 190
  14. (1989) 168 CLR 385, 441-2
  15. Casebook, pp. 576-7 [24.30-24.35]
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