Aspects of the Law of Contract - Essay Example

? Law of Contract [Sur Introduction Business in the modern world has become complicated. There are very many procedures and formalities involved in it. Unlike the olden day’s modern day business require a lot of attention and commitment, due to the high rate of competition among different industries1. Because of this, contracts have become a major part of every business. They are simply inevitable as people have to make sure that their businesses will achieve their set goals and objectives2. Business people hence use contracts whenever they are involving another party into their businesses, and whenever they enter into any business deal, so that they can be sure that they will not waste their time and lose their investment. A contract ensures that each party sticks to his responsibilities, and delivers them as, and per the agreed terms, for the success of that business. In case of a breach of contract, one will have to be compensated through the various remedies that will be stated. This paper will cover various aspects of the law of contract. It will start by offering an appropriate advice to Anila, who owns a fleet of freight aircraft, and Yogesh, an aircraft customer, before proceeding to discuss the issue of frustration in contract law. Issue 1: Case Description, in line with Contract Law Anila is a business person, who owns a small freight of aircraft. Anila enters into a contract with Yogesh, but fails to deliver, which results into a breach of contract. Anila was supposed to provide Yogesh with aircrafts for 3 years. However, for the first few months, the aircrafts get grounded by several mechanical problems. The contract is breached, and Yogesh responds by terminating it. Yogesh gets into a contract with another company, which provides them with the services that they wanted. The market expands rapidly, and their customers increase over time. However, towards the end of the year, some aircrafts also get grounded, and Yogesh has no alternative but to go back to Anila. Anila gives Yogesh an offer of $ 40000, but Yogesh declines to the offer. Advice According in Line with the Law of Contract In advising Anila and Yogesh, I would first of all ensure that they understand what they had entered into. I would help them to understand they had entered into a contract, and that a contract has some elements that must be upheld for it to remain valid. In a contract, each party must ensure that they stick to their responsibilities as stated in the contract. Each of them should be concerned about the needs of the other party, since it is a mutual thing. They should ensure that all the elements of their contract are upheld, since a breach of contract may lead to a problem on both sides. I would start by defining to them a contract before taking them into the elements of a contract, so that next time they enter into such an agreement, they will be fully aware of whatever they are doing, and will avoid a repeat of such problems again. Contract Definition in relation to the Case of Anila and Yogesh A contract is a formal type of agreement that involves two or more people, who have an interest or relationship to the subject at hand3. Contracts cover many matters, in various fields, like sale of goods, lease of goods, real property, or employment terms4. The agreement between Anila and Yogesh was a lease agreement, since Anila was leasing freight aircrafts to Yogesh. All valid contracts have terms and conditions which make them valid5. These are the elements of a valid contract. They are as follows: Mutual Consent This is where the parties to a contract come up with an agreement of what the contract involves, and both of them agree to one thing6. For example, in a contract of sale, if the buyer thinks that he will sell a house, while the buyer expects to get a donkey, then the contract is unenforceable. Anila knew that she would lease her aircrafts to Yogesh, and Yogesh expected good aircrafts to be delivered that was a mutual consent between them. In that case, all of them were supposed to stick to this mutual consent, if the deal was to go through. Offer and Acceptance All valid contracts must have an offer, which upon acceptance by the receiving party, validates the contract7. Anila offered to lease aircrafts to Yogesh at $25000 per month, and Yogesh accepted it. If Yogesh would have given another offer of say, $20000, it has been referred to as a counter offer. A counter offer is not an acceptance. Mutual Consideration Just like both parties of a contract usually have a mutual consent, a mutual consideration is also needed8. This is what is exchanged in the offer. If for example, some one is buying a car for $ 10,000. The mutual consideration will be the $10,000 for the seller and the car for the buyer. While Anila expected to be paid a total sum of $25, 000 per month, Yogesh expected to have good conditioned aircrafts. One, however, cannot escape the consequences of a bad negotiation. If a seller accepts to lease out property for $200, and later receives an offer of $500 for the same, he cannot revoke the first contract on grounds that the value of property was worth more than $200. Performance and Delivery This is one of the most important parts of a contract9. People enter into contracts to ensure that their businesses run successfully10. As a result, they expect that after the entering into a contract, their expectations will be delivered. Yogesh expected that after entering into a contract with Anila, he would be supplied with aircrafts in good condition. In a breach in alleged breach of contract, in this case, the party alleging the breach should some out clear and say that it performed all the responsibilities that had been assigned to it. In this case, Yogesh should come out clean and say that it performed all its part, which included paying for the monthly lease of Anila’s aircraft. On the other hand, if Anila was also alleging that Yogesh was in breach of contract, he was supposed to come out and prove that on his part, he delivered everything that was assigned to him, but Yogesh failed to deliver on his obligations. Good Faith It is also expected that in a contract, the parties concerned will act in good faith to each other11. For example if Anila agrees that he will provide aircrafts to Yogesh, he should not take money and secretly provide something else. Good faith ensures that each of the two parties acts in in the best interest of each other. I would advise them that next time they enter into a contract; they should ensure that they come up with good terms and conditions, which should be in agreement with the elements of a valid contract. They should ensure that each of their responsibility is well defined, and that their obligations are not ambiguous. In the contract between Anila and Yogesh, they did not come up with clear terms and conditions for their contract. For example, they did not state what would happen in the case of breach of contract, which means that they did not define the terms to remedy of breach of contract. Anila’s contract with Yogesh was in good faith, and in the element of mutual consent. However, Anila failed to deliver on the obligations of the contract because of unavoidable circumstances. Anila’s aircrafts may have been in good condition at the time of the lease, but in after the contract, it happened that the aircraft got a mechanical problem, and were grounded for some months. This may have been a breach of contract, since Anila did not deliver on his part when Yogesh had already paid for the delivery of services. Yogesh acted wrongly since he did not talk to Anila and ask them about how they would solve the problem that was at hand. Instead, Yogesh decided to dismiss the contract by terminating it. When Anila tried to remedy the contract by replacing the grounded aircrafts with new ones, Yogesh did not respond, but instead proceeded to another contract. This means that the first contract had been nullified. This was within legal terms, considering the ambiguity of the contract. However, if they had made it clear that incase of such a problem that occurred, Anila would replace the grounded aircraft with a new one; it would have been easy to handle the problem. In this case, in the event that Anila did not respond by obeying the terms remedy of the contract, Yogesh would be right to sue for damages. When Yogesh went on to make another contract with Zaffa, he did not enter into a clear contract again; he did not consider establishing a contract with remedies in case a repeat of the previous case happened. I would tell Yogesh to learn to get into contracts, instead of jumping from one supplier to another, because of something that can be handled easily. Contracts ensure that both parties enter into a commitment, whose breach will have consequences, thus forcing each one of them to work dedicatedly towards their obligations in the business12. If Anila had committed herself towards the contract, that she would not fail to deliver on the services, she would definitely have ensured that there was a spare aircraft to cater for such a situation. I would not forget to request Anila to reduce the offer that she had made for $40, 000, back to $25, 000. This is in line with the principle of consideration, in the law of contract. When Yogesh terminated the contract that he had entered with Anila, Anila made another offer to replace the grounded aircrafts with new ones. This would be at at the same price, and hence the offer was same as the previous one. Yogesh did not respond to the offer by either declining or accepting the offer. Since the first offer did not have a timeframe for expiry, the offer remained valid, even a year later. When Yogesh went back to Anila, he was simply accepting the offer. However, Anila declined to respect it, but instead made another offer of $40,000, which Yogesh refused. In this case, Anila was wrong. The first offer was still standing, and there was no protection whatsoever that would allow her to change the terms, if they were not included. Once the offer is accepted, the contract becomes valid. This contract hence became active when Yogesh accepted it, and any party that would be in breach from then on, would be liable for the damages. Anila, hence did not have any grounds of defense, to say that since the aircraft was new, the price would go high. At this point, I would ask them to consider two things, either end the contract, and negotiate for a new one, with well defined terms and conditions, or sue each other for breach of contract. However, the first option would be the best one for them since they had both breached the contract, at some point. Issue 2: Effect of Frustration In normal English, frustration may be defined as a state of chronic dissatisfaction, or disappointment, due to something that has not been fulfilled13. In the law of contract, frustration is almost the same as the normal English definition. If a contract is made, it is expected that all the parties should be responsible enough to deliver their obligations, so that each of them may get satisfied by the results. However, if one of them, for whatever reasons fails to deliver on his part, and it becomes impossible for either one, or both parties to perform their duty, it becomes frustration. Frustration is hence about impossibility that is subsequent and not for the first time14. If one party fails to deliver for the first time, it may be termed as a normal mistake, however, if this continues, and that the possibility of the party being able to deliver continues to grow smaller, then this is a clear frustration in contract law. There should be the “force majeure clause” which means that the particular reason of frustration has been covered in the contract. The doctrine of frustration is not to be abused, it should be kept within very light limits and it should not be extended so much15. People enter into contracts for various reasons. At the time of entering into a contract, they are usually positive of the outcomes of their contract, each one of them expects that he will deliver on his part, and there will be a mutual benefit from the contract. It is expected that each party will stay committed to the terms of the contract16. This means that people enter into contracts for serious reasons, which should be upheld. In the case of a breach of contract, one can be sued for damages. If people are allowed to enter into contracts and frustrate them, as and when they wish to do so, then contracts will lose their meaning, since people will be able to enter in them and leave any time, even without delivering their promises of the contract. It is, therefore, important to ensure that there is a tough condition for frustration, so that people will not take it on a light note. The English court was discussing this issue, and it appeared that they had to come up with a test for frustration17. They rejected the ideas of a “just choice” on the “foundation of contract” and other things like “implied terms18.” On the other hand, they took up the task of determining a test, which is currently being supported by many courts, as the most preferred approach. It was set up by House of Lords in Davis Contractors Ltd v Fareham. According to them, frustration takes place when the law establishes that although none of the parties defaulted on the contract, it became impossible to deliver on it, due to unavoidable circumstance that created a barrier to one or either party, which led to failure of the contract “Non haec in foedera veni.19” Although it does not mean that is only hardship or such difficult situations that lead to the existence of frustration, there should be a clear distinction between breach of contract and frustration. There are situations when a breach of contract can lead to frustration, while in other cases, the opposite is true. If frustration is by accident,and neither of the parties can perform, then both of them are in breach, even though it was not intentional. On the other hand, if one of the parties is continuously in breach of contract, then frustration can still be achieved. Frustration is not advocated for, since people enter into a contract for a reason, and none of them wishes to waste their time and energy doing things that yield not results. At common law, when frustration occurs, the contract should be brought to an end. Any pre-payments made should also be returned with the termination of the contract. However, frustrations are not a good thing. When people get into business, they do so because they want to merge ahead and succeed in whatever they are doing. This means that they will always try to make sure that the business succeeds. In the event that they fail to achieve their business goals, or their set goals and objectives, they may end up in big losses, which they had not prepared for. One may argue that there is always a court option when one of the parties is in breach, but people do not want to waste their time in court; they have other important issues to attend to, and court cases may end up being another unplanned expense. A company may also lose a lot of money in the event that it enters into a contract and frustration occurs. If a company enters into a contract, and it happens that later, as the contract is being delivered by the other party, an accident occurs, forcing the mission to stop, and hence preventing the contract from taking place. Assuming that this happened to the company that was delivering the contract, and it had already spent a significant amount of money, preparing for the delivery of its part, then it will incur a lot of financial losses. Frustrations are a normal part of a contract, but they can be avoided. Everyone who enters into a contract does so hoping to see the end of the project20. No one likes to enter into a contract thinking about the losses that he would incur. Besides, even if any pre-payments will be refunded, it is still not very useful since significant time will already have been wasted. It is hence important to ensure that whenever entering into a contract, all factors should be considered to prevent any situations that can lead to frustrations. References Andrews Neil. (ed) Contract Law (The Modern Law 3rd edition Cambridge University Press 2011) 698-703 Bix Brian. Contract Law (Rules, theory ad context 2011) 116 Cavendish. (ed) Contract Law (5th ed Routledge, 2006). 45-47 Hoskisson, Robert, et. al. Strategic Management: Competitiveness and Globalization: Cases. Hong Kong (John Wiley and Sons Publishers, 2010) 89-91 Marnet, Ontast. Behaviour and Rationality in Corporate Governance. (Routledge Publishers). 49 Nell, Milk. Corporate Governance. (John Wiley & Sons). 56 Philip, Kotler and Gary Armstrong. Principles of Marketing. 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