Restrictions on Termination

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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]; 579-586 [25.05-25.15]; 591-597 [25.50-25.65]; 597-603 [25.70-90] (but in Legione v Hateley only the facts, Gibbs & Murphy to end 3rd full para p.600, and Mason & Deane to end 2nd fullt para p.603).

Readiness and willingness

[1] A party can only terminate if it was 'ready and willing' to continue to perform the contract. In other words, an Aggrieved party will not be entitled to terminate if the Aggrieved party itself was not able (or did not wish) to perform. What must be done to satisfy this requirement, and at one point of time, was discussed in Foran v Wight:

  • "Under the old rules a plaintiff was required to plead that he was ready and willing but under the present rules that fact is implied with the effect that he is not required to prove it unless the defendant puts it in issue. In that event, the burden of proving readiness and willingness rests upon the plaintiff."[2]
  • To show that it was ready and willing, a party simply has to show that it is not 'substantially incapable' of performing at the time of repudiation (broad application).
  • In the case of an anticipatory breach, the Aggrieved party is often induced to believe that there is no point of continuing to perform since the other party will not perform. In such a case, the Aggrieved party will not be required to prove readiness and willingness.

Estoppel (termination)

[3] The right to terminate may be restricted by estoppel. That means that if a party has induced the assumption that it would not terminate the contract (and the other party relied on that assumption to its own detriment), it would be estopped from exercising that right. This was discussed in Legione v Hateley:

  • In this case, there was no estoppel restricting the right to terminate because the statement of the defendant's secretary did not constitute clear and unequivocal representation.

Waiver

[4] The courts often refer to a party as 'waiving' its right to terminate. This is usually misleading, and the judges are actually referring to the party forfeiting its right to terminate through either election or estoppel. A lot of judges see the term 'waiver' as interchangeable with an election to affirm the contract.

Relief against forfeiture

Forfeiture arising on breach of contract

[5] The termination of a contract may also bring about forfeiture. Forfeiture is when a party is forced to lose property because it breached the contract. For example, a lessee may be forced to forfeit the property he is leasing upon failure to pay rent. In some cases, the courts are ready to grant relief against forfeiture (that is, grant relief to the party in breach) and order specific performance of the contract (un-terminating the contract).


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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. Textbook, p. 358 [25.10]
  2. (1989) 168 CLR 385, 451-2
  3. Casebook, pp. 597-8 [25.70]
  4. Textbook, p. 368 [25.120]
  5. Textbook, p. 368 [25.125]
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