Contarct Essay Example

  • Category:
    Law
  • Document type:
    Article
  • Level:
    Undergraduate
  • Page:
    5
  • Words:
    3204

Title: Contract

The issue is whether Stephanie is obliged to pay $ 15,000 to Lee. Stephanie had selected an allergy free carpet for her 20 room motel from Lushplush Carpets supplies where Lee was the manager. Lee gave her a quote of $ 20,000 for the 20 rooms at the motel and Stephanie accepted it. Lee later discovers that he had run out of the allergy free carpet after carpeting 15 rooms. He cannot complete carpeting the other rooms as the manufacturer no longer manufactures the same style of allergy free carpet. As a result of this Lee sends Stephanie a $ 15,000 bill for the 15 room that had been carpeted. Lee has therefore not completed the task that he had agreed to accomplish in accordance to the needs of Stephanie.

According to the common law in Australia, a contract can be discharged through various means. A contract can be discharged through the performance by the parties in relation to their contractual obligations. In terms of contractual obligation and performance, the parties have to peform the contract exactly and completely as opposed to substantially (Poole, 2012). Some exceptions is however applicable during the discharge of the contract. During the process of discharging the contract, the parties are free to terminate their contract agreement. This however requires a termination clause in the contract. The parties are also free to develop a new or separate contract to govern the termination of the contract. According to the common law in Australia, a breach of contract by one party gives the non-breaching party the right to terminate the contract. However this can only happen if the breach is sufficiently serious. Minor or technical breaches cannot allow the non-breaching party to terminate the contract. A provision in the contract that allows for termination of the contract can also be applied during the discharge of the contract. A contract can also be terminated if one party repudiates the contract.

In Australia, the entire contract is regulated by the common law. According to the contract law in Australia, an entire contract is valid once there has been an agreement between two parties. One party has to make an offer and the other party accepts the offer. Once the offer has been accepted, the contract becomes valid. Consideration is an important part of the contract in the Australian contract law. Consideration is the price that the promissory asks in exchange for the promise (McKendrick, 2014). In the Australian contract law, the parties have to agree to the prices before the contract is made valid. In the enforcement of contracts in Australia, consideration is considered as a complex requirement. Intention to create legal relations is one of the conditions for a contract in Australia. Legal relations are created in the presence of consideration. The intention to create a legal relation makes the contract binding. The capacity to enter into contracts is a requirement in the contract law. Both parties need to have a legal capacity to enter into a contract in order to ensure that none of the parties is exploited. According to the contract law, there are no requirements for a contract to comply with any formalities.

A supervening event is one of the reasons that may contribute to a contract being brought to an end (Poole, 2012). Frustration is also a factor that may lead to the termination of a contract. However, the doctrine of frustration is only applicable to a limited range of circumstances. Any event that renders the contract fundamentally different from what the parties anticipated can be considered as frustration. However any event that could be anticipated is not considered as frustration and one party may be held accountable incase of breach. According to the common law, once frustration has been established, the contract has to be terminated automatically (Poole, 2012). The loss as a result of the termination of a contract due to frustration lies where it falls. This means that a party cannot be compelled to pay for the losses as a result of frustration. Each party to the contract may be required to bear the losses on their part as a result of the frustration. However, in some instances, there could be exceptions in case of losses as a result of the frustration. The doctrine of frustration indicates that the contract has to be terminated as there is no option to perform. According to the contract law, the court also has the powers to determine whether the event was as a result of frustration or not. Frustration has the potential of leading to losses to both parties and in most cases it affects both parties (Clarke, Clarke & Zhou, 2012).

Application

The discharge of the contract between Lee and Stephanie was based on performance. Each party was supposed to carry out their contractual obligations. The contract by the parties was supposed to be performed exactly and completely as opposed to substantially. However Lee was not able to perform the contract completely and exactly as he could not obtain the number of carpets required. However the failure to discharge the contract as required was beyond the control of Lee as he was relying on the manufacturer to obtain the allergy free carpets. The parties are free to terminate the contract through an agreement or development of a new contract. This is because the contract can no longer be discharged as the allergy free carpets are no longer available. There was no breach of contract during discharge by Lee. Stephanie can therefore not terminate the contract on the grounds of breach. During the discharge of the contract, none of the parties has repudiated their obligations. The entire contract between Stephanie and Lee was valid and a consideration was made. Lee sent Stephanie a quotation of $ 20,000 for the allergy free carpets for the 20 room motel. Since both parties had agreed to the amount to be paid for the contract, there was consideration. There was an agreement between both parties to enter into the contract. In the case of AGC (Advances) Ltd v McWhirter, the Supreme Court heighted that in an agreement, one party makes an offer that may or not be accepted (Clarke, Clarke & Zhou, 2012).

Stephanie accepted the quotation from Lee. On the other hand, Lee accepted to supply the allergy free carpets. This is a further indication that there was an agreement between the two parties which forms the basis of a contract. The contract between Stephanie and Lee is valid as there was an intention to create a contract between the two parties. Lee was in a position to know whether the company can supply the carpets to the Stephanie or not. According to the doctrine of frustration, a contract can be terminated when there is no option to perform. Frustrations also render the contract fundamentally different from what both parties expected. Lee was unable to complete the contract for the 20 rooms as a result of lack of availability of the allergy free carpets. This is because the manufacture no longer makes style of carpet that is required by Stephanie. This is an indication that there was frustration as the problem is beyond the control of Lee. In the case of Taylor v Caldwell, Taylor had rented a music hall from Caldwell in order to perform four concerts during the day and evening (Clarke, Clarke & Zhou, 2012). However, one week prior to the concert, hall burned down to the ground. Taylor Sued Caldwell for breach of contract. It was held that both parties were excused from their obligation to the contract as the burning of the hall was not the fault of either party. It led to frustration and hence the unintended outcome for both parties.

As a result of the frustration, Lee was unable to complete the contract and can therefore not be paid the full amount for the contract. Stephanie was also affected as the motel could not be fully carpeted. Both parties are therefore required to bear their losses as the frustration was not the fault of any parties. Stephanie cannot seek for remedy as there was not breach of contract. In the case of Paradine v Jane, it was held that if a party to a contract is unable to perform their duties as a result of default beyond their control, they will be excused by the law (Clarke, Clarke & Zhou, 2012). Lee can therefore be excused for his failure to honour the contract as a result of the reasons beyond his control. The decision by Lee to terminate the contract as a result of frustration is justified in the common law as there was no option to perform.

Conclusion

Stephanie should accept the $ 15000 bill as payment to Lee. The failure of Lee to complete the contract was as a result of frustration and hence beyond his control. There was no breach of contract on both parties during the discharge of the contract. In accordance to the common law, the contact has to be terminated and the loss for each party lies where it falls.

Introduction

In the common law, frustration mainly involves unforeseeable events which render the contractual obligations impossible. It also has the potential of radically changing the principal purposes of a party for entering the contract. The doctrine of frustration in Australia was established in 1863 after the case of Taylor v Caldwell. The intentions of the contracting parties are usually changed as a result of frustration and hence impacting negatively on the contract. Both parties stand to lose as a result of frustration as the parties will be unable to meet their goals and objectives. Frustration therefore presents a great threat to both parties in the contract. It is for this reason that frustration is considered as a grave threat to the contract (Cartwright, 2014). The parties to the contract need to be aware of the doctrine of frustration in order to be preparing in case of ineventualities.

Discussion

Doctrine of frustration application

The courts can play an important role in determining whether or not there was frustration in a given case. The doctrine of fraction therefore applies to a limited range of circumstances. The doctrine of frustration is only applicable to the events that render the performance of a contract different from what both parties were anticipating. An event cannot be considered a fraction if one of the parties was anticipating that it would occur (Restubog, et al, 2015). This is because it is likely to affect only one party while the other party may not encounter any loss. The doctrine of frustration is also in place to safeguard the parties to the contract. It avoids the incident of one party claiming frustration as a way of avoiding their obligations. The courts have to carefully analyse the circumstances in order to determine whether the frustration is applicable. Organizations entering into a contract have to fully aware of the doctrine of fraction. In most cases, the courts are usually unsympathetic if a party is trying to use frustration as a means of avoiding its contractual obligation.

In Australia, the courts have imposed limitation which determines if there was frustration in the contract. One of the main limitations of frustration is economic hardship. A party cannot claim frustration as a result of economic hardship which may end up affecting the contract (Goldberger, 2014). The managers have to understand the limitations of frustrations when entering into a contract. The cost of labour or materials during the contract may increase way beyond what the parties had anticipated. However, this cannot be considered as frustration as it involves economic hardship. The claim of frustration can be denied by the courts if the frustrating event is foreseebly induced. If both parties are aware of a foreseeable risk, the court cannot rule frustration (Goldberger, 2014). This is despite the parties experiencing losses. In the event that parties willingly decide to takes a risk, they cannot claim frustration. In some instances the frustration may be self induced and this cannot be accepted by the court. Where frustration is self induced the party involved is fully aware of the risk. Frustration has negative effects on the parties to the contract and it therefore a justification for the termination of the contract.

Examples of frustrating events in a contract

It is important for the managers to understand the events that may be considered as frustration when entering into a contract. The destruction of the subject matter is one of the examples of frustrating events that may result to the termination of the contract (Cartwright, 2014). The destruction of equipment or building that is essential to the contract renders the contract impossible. However it can be considered frustrating if the destruction was not the fault of any of the parties involved. The destruction of the subject matter is what formed the basis of frustration in the contract law during the case of Taylor v Caldwell. The agreement made by the parties during the contract is also an important factor that can be used to determine whether or not there has been frustration in the contract. When selling goods, the managers have to be aware of the doctrine of frustration. The doctrine of frustration is applicable when the goods being sold are specific in nature, for instance the allergy free carpet in the case study which was specific in nature. The courts may however not consider the destruction of good which renders it commercially non-viable. The risks that can be avoided cannot be considered as frustration by the courts. In case of war, some of the trades may end up becoming illegal leading to effects on the termination of a contract (Cartwright, 2014). In most cases, businesses involving the sale of arms may be made illegal and hence leading to the termination of any contract.

It is also important for the mangers to be fully aware of different laws and regulations regarding the tenders. The fundamental principle of contracting may be rendered illegal incase new laws and regulations are passed (Poole, 2012). This circumstance may be considered as a frustration as it may prevent the contract from being carried out in accordance with the anticipation of the parties involved. The laws and regulations have the potential of declaring some of the building materials or methods illegal. This has the potential of frustrating a building contract. In some of the contracts, some of the materials required to carry out the contract may be unavailable due to various reasons beyond the control of the parties to the contract and hence affecting the contract. Incapacity or death is also a factor that can lead to frustration. When the key personnel to the contact die or fall ill, the contract may not proceed and hence causing frustration (Poole, 2012). This is common when a person directly involved in the contract dies or falls ill, for instance a music concert which has to be performed by a specific band or musician. The death of the band members or musician before the concert automatically leads to the frustration of the contract.

Effects of frustration

Frustrations have negative effects on the contract and it affects both parties. The obligations of all the parties end once the contract has been declared frustrated. The contract is also terminated automatically once frustration has been established. According to the common law, there is no option to perform and hence the leading to the automatic termination of the contract (Goldberger, 2014). Any loss resulting from frustration lies where it falls. This means that one party may end up with more negative effects as compared to the other in case the contract is terminated. In some instances, one party may have already paid for goods and services. Pre-payment made by one of the parties to the contract may not be recovered as a result of frustration (Goldberger, 2014). This therefore leads to the issue of equity in terms of frustration. Inequitable results may be witnessed due to frustration. Inequitable results are one of the major effects of frustration. The recovery of the pre-paid amount may also be difficult in case of the death of the principal parties to the contract. The managers entering into a contract therefore need to understand the negative effects that frustration may have on their organization. Although there have been attempts to ensure that the parties are able to recover part of their pre-payment amount, it has largely not been successful. The parties to the contract have to suffer losses in case it is terminated as a result of frustration.

Modification

Termination of the contract as a result of frustration has widely been criticized for inequity with one party suffering more losses. In Australia, attempts have been made to modify the common law in order to ensure that no party is subjected to inequality when the contract is terminated as a result of frustration. The attempts to carry out the modification process are mainly through the user of the statutory laws. The harshness that results from the common law is being addressed through the statutory law. This has however been unsuccessful since some of the aspects of the contracts can also be addressed through the use of the common law. In Victoria, Fair Trading Act 1999 (Vic) was established to deal with the issues of harshness in the common law as a result of frustration (McKendrick, 2014). The court has the responsibility of analyzing the condition in order to ensure that frustration is proved beyond reasonable doubt.

Conclusion

In conclusion, it is evident that the frustration automatically leads to the termination of the contract. The termination of the contract leads to both parties suffering losses as a result of frustration. One part may however suffer more losses as compared to the other. The doctrine of frustration is governed by the common law which governs the contracts. The managers entering a contract have to fully understand the doctrine of frustration in order to avoid inconveniences. Some of the events that can lead to frustration include destruction of subject matter, supervening illegality and incapacity or death. Some of the events such as economic hardships cannot be used to claim frustration. Any risk that both parties had anticipated before the contract cannot be used to claim frustration.

List of References

AGC (Advances) Ltd v McWhirter, Supreme Court of New South Wales (1977) 1 BLR 9454

Taylor v Caldwell [1863] EWHC QB J1

Paradine v Jane [1647] EWHC KB J 5

McKendrick, E, 2014, Contract law: text, cases, and materials, Oxford University Press.

Poole, J, 2012, Casebook on contract law. Oxford: Oxford University Press.

Clarke, P, Clarke, J, & Zhou, M, 2012, Contract law: commentaries, cases and perspectives, Oxford University Press.

Cartwright, J, 2014, Contract law: an introduction to the English law of contract for the civil lawyer, A&C Black.

Restubog, S, L, D, et al, 2015, If you wrong us, shall we not revenge? Moderating roles of self-control and perceived aggressive work culture in predicting responses to psychological contract breach, Journal of Management, 41(4), 1132-1154.

Goldberger, J, 2014, Contract law in the cases: 2013 in review, Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 28(2), 12.