The Legal Issues of George - Essay Example

Please advise George on the legal issues arising in this matter. George relies on clause 5 of the contract and doctrine of frustration to avoid the electrical contract with Mike. The three questions arising out of this situation are examined below. a) whether he can argue successfully that the contract has been frustrated. From the facts and circumstances of the case, it is quite obvious that impossibility of completing the contract by 1 February 2010 has been of George’s own making and it is strange on the part of George to invoke the doctrine of frustration. Frustration arises only when the subject matter of the contract is totally destroyed rendering the performance of the contract impossible. Thus, frustration of a contract arises only if there has been or was a supervening event radically or significantly changing nature of contractual rights and obligations. Further, the supervening event should not have been caused by either of the parties to the contract. And the parties to the contract should not have contemplated the possibility of happening of any such event. To hold the defaulting party still liable would appear unjust.1 In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 2 , it was held that performance had been frustrated by the injunctions. The work which involved excavation of tunnels and concrete work for the construction of Eastern Suburbs Railway in Sydney in 1972 was to have been completed in 130 weeks. But due to noise and vibration as result of blasting and excavation, local residents obtained injunction restraining the contractor to carry out work during the night between 10 pm and 6 am, resulting in the contractor not being able to complete on time and he also incurred additional costs and loss of profit. This is a kind of frustration resulting in a radical change in the contractual performance. Hence the contractor won his claim for payment on a quantum meruit basis and he was excused from further performance. Basic rule is the destroyal of subject matter to avail of the frustration clause. For example, if specific goods agreed to be sold is perished before sale without any fault on the part of the seller or buyer, the agreement can be avoided. Sometimes when circumstances cease to exist rendering performance of either party impossible without any default by either of them, it is mutually excused. In Horlock v Beal [1916] 3 , a crew member who assigned half of his wages to P his wife under a contract with the ship owner, could not enforce the contract because of war that intervened and the ship was detained and could not sail. The ship-owner was discharged from the contract because detention frustrated the ship’s performance. In Krell v Henry [1903]4 , Henry had hired a flat from Krell to watch the coronation procession of King Edward VII and paid a deposit. However, the coronation was postponed due to the King’s sickness and hence Henry wanted the rent to be refunded. It was held that the agreement was in general only for hiring the room and not for watching the procession. Hence there was no frustration of performance. Henry could still continue to occupy the room.. First of all the destruction of subject matter must not have been due to the fault of either of the contracting parties. In the instant case, the electrician George is absolutely at fault having caused damage to the electrical wirings by giving wrong connection while he was in inebriated condition. On the other hand, if the damage had been due to any lightning resulting in total destroyal of the subject matter not being capable of being replaced, George could avoid the contract. But it is still possible to engage additional men and material and complete the contract by 1 Feb 2010 though question of deadline is debatable and which is being answered separately. In this part of the answer, the question is whether there has been a frustration as contemplated in common law. The answer is an“emphatic” no. Doctrine of frustration is a development of English law and hence mention of few English cases is inevitable. In Davis Contractors ltd v Fareham Urban District Council [1956]5, the case was that contractors could not build houses within the prescribed time of eight months due to shortage of labour and after completion of the houses after 22 months, they claimed that the original contract having been frustrated due to the delay, they were entitled to payment on quantum meruit basis. It was decided that there was no frustration since contractor’s obligations turned out to be more onerous than they had expected but the obligations remained the same as they were at the time of contract. Lord Reid observed that frustration did not depend on adding any implied term but on true construction of the contractual terms depending on the surrounding circumstances at the time the contract was made. And that it should be seen whether the construction was wide enough to apply to the new situation.6 There can be cases of self-induced frustration which also cannot qualify as real frustration as held in Maritime National Fish ltd v Ocean Trawlers Ltd [1935]7. In this case, the charterers had engaged the ship owned by Ocean Trawlers. Later, when they applied for permit for five ships, they were granted only for three ships which they utilized for their own ship and claimed inability to take in the hired ship of Ocean Trawlers on the grounds of frustration. It was held that the charterers chose to reject the hired ship when it was within their control to use one of the permits for the hired ship. Therefore, it was not frustration in the strictest sense of the Governmental action but as self-induced frustration.8 The act of George can also be interpreted as a self-induced frustration by deliberately including clause 5 and deliberately causing the electrical damage by wrong connection. Frustrated Contract Act 1978 (NSW) provides for readjustment adjustment of rights and liabilities of the parties on the happening of a frustrating event. When even for real frustrated contract, there is remedy now, a contract which is not at all coming under the protection frustration, there is no other way for George except performance or face action for damages from Mike. b) Whether he can rely upon clause 5. Clause 5 of the contract in a standard form states that the contractor accepts no responsibility. In the first place it is a standard form and since specific contents of which there can be future disputes, the contractor ought to have brought it to the notice of the other party. The contractor George has not done so. Besides the term”accepts no responsibility” is too vague. It is neither in the form of warranty or condition. In Bright v Sampson and Duncan Enterprises Pty Ltd [1985]9, a skater was injured when his skate got jammed in piece of loose flooring. The occupier was held responsible even though there was a notice on the board accepting no responsibility by the management for any injury to patrons due to skating. The court expressed that it meant only the inherent risks in skating and not the breach of warranty on the safe upkeep of the premises which formed part of duty of care. Earlier, the Australian courts used to prevent a party in fundamental breach of contract from relying on the exclusion clause in the contract. Thus, when a car was delivered with lot of changes from what was originally ordered, the buyer refused to accept the car. Thus seller’s exclusion clause could not succeed The fundamental breach doctrine is not being approved by the courts in Australia and the U.K., unless there is clear and express provision in the contract to do so. In George’s case there is no clause expressly providing for such a breach. Simply stating “accept no responsibility” does not carry any meaning.10 In Darlington Futures Ltd v Delco Australia Pty Ltd[1986[11, the broker acting outside his authority was not allowed to take advantage of the exclusion clause in the contract with the investor who sued him for loss incurred because of the broker’s conduct. Applying this, George too has acted without exercising his professional skill in a drunken state. He cannot, therefore, be allowed to take shelter under the exclusion clause which is already vague. Moreover, scope of such exclusion clauses is now being restricted by legislation. An exclusion clause of unconscionable nature with unequal bargaining power between parties is prohibited. For example, an unjust clause is prohibited as per section 9(2) of the Contracts Review Act 1980 (NSW) if it is of “material inequality in bargaining power” between parties. Under section 74 K of Trade Practices Act, manufacturers’ liability for merchantability is not excluded. As such, George cannot escape from the consequences of his professional incompetence through an exclusion clause.12 The negligence rule permits to exclude negligence if is clear and unambiguous as held in White v John Warwick & Co ltd [1953] 13 wherein personal injuries to the riders of the vehicles hired for delivering news papers were excluded. In this case the rider was injured as the seat of the vehicle tilted after few minutes of the first ride. As the wordings did not cover negligence explicitly, the vehicle owner could not exclude liability for negligence though his breach of contract was excluded by the said clause. Further, the “four corners rule” or “deviation” rule also permits exclusion clause only if a loss occurs when a party is performing the contract as envisaged within four corners of the contract. As George performed outside the contract i.e in inebriated condition.14 , he cannot invoke exclusion Clause. c) Whether he can argue successfully the 1 February 2010 completion date is not an enforceable term of the contract in any event? It is arguable that 1 February 2010 as completion date is enforceable as it has not been mentioned. In the first place, in the absence of certainty of contractual terms as to the time of performance, reasonable time can be taken as the date of completion of contract. But having orally agreed to the completion date of 1 February 2010, it is unreasonable on the part of George to deny such a date merely because it was omitted to be mentioned in the contract. Parol evidence rule maybe invoked to prove that the 1 February 2010 was indeed the contemplated and agreed date of completion of contract. The parole evidence applies only where the contract is wholly in writing and not oral alone or mixed by oral and written. In such a case, evidence surrounding the contract including the conduct of parties before and after the contract can be adduced.. The only evidence that Mike can bring in, is evidence of the meeting with George at the common friend’s place where George agreed with Mike to complete by 1 February 2010. Leaving the completion date blank may have been by oversight and had it not been for the mishap, the completion date would have been accomplished. Hence it is only an afterthought of George to deny the completion date to escape liability. In fact it is he who is invoking clause 5 to escape agreed completion date. This in itself is evidence that completion date agreed upon was indeed 1 February 2010, Parol evidence can therefore be invoked by Mike against George. Mike was induced to enter into a contract only because of the promise to complete the work by 1 February 2010. Only it should not fall into the following four exceptions. They are, contract is already in existence without the dispute and that it was only at the drafting stage and never executed. Secondly, a stand of one of the parties that contract term was varied subsequently due to happening of an event. Thirdly, evidence of the surrounding circumstances brought in aid of understanding the contract’s background. The extrinsic evidence that can be brought in by Mike is with the purpose of ascertaining the presumed intention of the parties.15 If Mike is successful in invoking the parole evidence rule, the completion date of 1 February 2010 can be admitted against George. Discussion and conclusion In view what has been explained above, George cannot successfully argue that contract has been frustrated, that he can invoke clause 5 and that the completion date of 1 February 2010 can not be enforced. In case of no frustration, the only course left for George to deploy additional workforce to complete the work by 2010 besides repairing the damage caused to the electrical wires unless Mike wants to avoid the contract and seek damages from George. If George does not honour the contract for which there is still some time left by taking immediate steps to the satisfaction of Mike, the latter can proceed against George for anticipatory breach of contract and seek damages from him. Mike can,therefore, proceed for breach of a condition and not a warranty. Under the common law, remedy for breach or anticipatory breach is awarding of damages i.e monetary compensation. Damages may be liquidated or unliquidated. First, Mike can ask for specific performance and seek injunction against breach of contract.16. As held in Robinson v Harman [1848]17.” Where any party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position with respect to damages as if the contract had been performed.”.18 Thus Robinson Harman principle allows the party to recover the damage done to the electrical wiring besides cost of replacement. . . Bibliography Books Giles Peter, 1988, Concise Contract Law, Federation Press. Kelly David, Holmes Ann E.M, 2002, Business Law, Routledge, ed 4 Latimer Paul and CCH Australia Limited, 2008, 2009 Australian business law, ed 28, CCH Australia Ltd. Salzedy, Brunner Peter and Ottley Michael, 2004, Briefcase on Contract Law, Routledge Ed 4 Cases Bright v Sampson and Duncan Enterprises Pty Ltd [1985] 1 NSWLR 346 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) HCA 24; (1982) 149 CLR 337; 17-620 Darlington Futures Ltd v Delco Australia Pty Ltd [1986[161 CLR 500 Davis Contractors ltd v Fareham Urban District Council [1956] HL Horlock v Beal [1916] 1 AC 486 Krell v Henry [1903] 2 KB 740 Maritime National Fish ltd v Ocean Trawlers Ltd [1935] Robinson v Harman [1848] 1 Ex 850 at 855. White v John Warwick & Co ltd [1953] 1 WLR 1285 Read More