Legal Aspects of Contract Administration - Assignment Example

Legal Aspects of Contract Administration In order to advise Ken regarding his rights and liabilities in the context of termination of his contract with Excavatious Machines Pty Ltd, the following issues have to be considered. Issue One Whether the statement made by Excavatious regarding the capability of the excavator constitutes a term of the contract. Rule of Law A statement tends to become a contractual term, if the party making that statement possesses special knowledge or skill, in comparison to the other party. All the same, if the agreement is subsequently, rendered in writing, then such statement should be included, if it is to constitute a term. This is the usual practice. It is usual for a party to make several statements, prior to the formation of the contract, with the intention of inducing the other party to enter into the contract. This could result in a dispute, later on, with regard to which of the statements are to be considered to be a part of the contract. As such, the parties are bound by the terms of a contract and not the peripheral statements made before the formation of the contract (Field, 2010). Application In our problem, Dino made a statement to Ken in respect of the capacity of the excavator, as being a guaranteed performer that would not cause any problem. Ken wanted to excavate the land within two months, since the developer wanted to start building an underground car garage after two months. While entering into a hire purchase agreement Ken enquired of Dino, the hire – purchase officer, regarding the capacity of the excavator in drilling the land within the specified time. Dino made a statement regarding the capability of the excavator stating that it would not create any problem in completing the task as per his requirement. In Henjo Investment Pty Ltd v Collins Marrickville Pty Ltd (No 1), the court held that liability for deceptive or misleading conduct could not be averted by means of a contractual provision. Moreover, in MBF Investments Pty Ltd v Nolan, it was held by the Victorian Court of Appeal that this principle would also apply to attempts to evade liability, in accordance with the provisions of the Australian Consumer Law (Fertile Grounds for Dispute, n.d.). Conclusion The statement made by Dino in respect of the excavator can be considered as a peripheral statement made by Dino to induce Ken into the agreement since it was not reduced into writing, while making the agreement. However, courts will take the reliance made by the innocent party into consideration, at the time of determining whether it is a term or mere statement. Issue Two Whether the statement constitutes a condition or a warranty. Rule Contracts consist of various types of terms, with different degrees of significance. The more important of these are termed conditions, whereas the terms of lesser importance are designated as warranties (Field, 2010). A condition in a contract is an essential term, and its breach entitles the innocent party to rescind the contract and claim damages. On the other hand, a warranty on being breached, merely provides a right to sue for the damages ensuing from the breach. A term is classified as a condition or warranty, on the basis of the common intention of the parties at the time of entering into the contract (Buchanan & Rees, 2009). Application In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd, the test of essentiality was employed by the court. This test considers whether the contract as a whole, or some specific term in the contract makes it very clear to the promisor that the promisee would have abstained from forming the contract, in the absence of explicit performance of the promise. Whenever, a party to a contract breaches a contractual term, the innocent party should resort to this test, in order to determine whether the breached term is an essential contractual term (Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd , 1938). If it is assumed that the statement made by Dino, regarding the capacity of the excavator is a term, it can be considered as a condition, since its breach makes the contract unenforceable. Conclusion The statement made by Dino can be deemed as a condition as per the above discussion. Issue Three Whether the parol evidence rule applies to this problem . Rule At the time of interpreting the contractual terms in a written contract, the courts attempt to ascertain the intention of the parties to the contract. During this exercise, interpretation cannot be changed by producing evidence that is extraneous to the contractual document. This constitutes the parol evidence rule, which comes into play whenever there is ambiguity in the content of the written document, and the parties had intended that document to be a record of their entire agreement. Application In our present problem, the parol evidence rule will not come into play, since the statement made by Dino is not extraneous evidence in respect of the hire – purchase agreement. Conclusion Hence, the parol evidence rule will not be applicable to the present scenario. Issue Four Whether there is collateral contract. Rule A distinct contract that subsists along with the main contract is termed a collateral contract. In general, the written terms of an agreement constitute the basis of a contract that is in writing. If in addition to this, statements have been proferred with the intention of being construed as a promise, and with the intention to induce the main contract, then a collateral contract is deemed to exist (Field, 2010). Application The courts have determined the existence of a collateral contract, whenever one of the parties to the contract had refused to form the main contract in the absence of assurances that one of the written terms of the contract would be enforced. The terms of the collateral contract have to be consistent with the main written contract (Field, 2010). In our problem, the statement made by Dino in respect of the functioning of the excavator is an important condition, the failure of which makes the entire contract unenforceable. Conclusion Hence, in accordance with the above discussion, a Collateral contract can be deduced from this statement. Issue Five Whether there is any misrepresentation due to the statement of Dino. Rule In Derry v Peek, the House of Lords held that fraud was established on demonstrating that not only a false misrepresentation had been made. Although the plaintiff has to show that there had been fraudulent misrepresentation it is also necessary that the defendants were aware that they would be unable to continue with their misrepresentations. Such false misrepresentation could have occurred knowingly, or without belief in its veracity or recklessly and with total disregard as to whether that statement was true or false (Mulcahy, 2004, p. 110). The case of Erlanger v New Sombrero Phosphste Com, involved the working of a phosphate mine by the plaintiffs, who had purchased the same. Thereafter, it came to their notice that the defendants had indulged in a non – disclosure that was actionable. This act was of sufficient gravity to enable the plaintiffs to rescind the contract. All the same, it was impossible to arrive at an exact restitution as the plaintiffs had derived profit from their purchase of the mine, due to their having worked it. This difficulty was overcome by requiring the plaintiff to pay for the benefit derived by him (Oughton & Davis, 2000, p. 678). Application In our present problem, Dino made a false statement in order to induce Ken to enter into the agreement . In Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale, a fundamental breach was deemed to have transpired with regard to the contract in its entirety, as the performance had no bearing whatsoever to what had been stipulated in the contract (Lioe, 2011). Under certain circumstances, the aggrieved party can demand a cancellation of the contract. A month after commencing the excavation work, Ken discovered that the excavator was not as effective as asserted by Dino. Hence, the statement made by Dino constitutes a fraudulent misrepresentation. Conclusion Fraudulent misrepresentation has transpired in the present scenario, since Dino has made a false statement with respect to the excavator. Issue Six Whether The penalty clause included by the developer for the late completion of the excavating task by Ken is valid, as per the law. Rule Some contracts tend to include onerous and unusual terms. The task before the courts, in such instances is to determine, whether these terms, whose inclusion the promisee has not anticipated, are to constitute a part of the contractual terms. With the exception of cases wherein such terms had been properly brought to the notice of the promisee, such terms are not to form part of the contractual terms (Collins, 2003, p. 233). Application Thus, in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, the plaintiff included an unusual term in the contract. This was not noticed by the defendant. Subsequently, the plaintiff made a claim for additional charges, on the basis of this contractual term. In addition, these additional charges were exorbitant. The court held that the plaintiff had failed to adopt all reasonable measures to bring the contents of this unusual clause to the notice of the defendant. Consequently, the plaintiff’s claim was rejected (Collins, 2003, p. 234). Furthermore, in Le Mans Grand Prix Circuits Pty Ltd v Illiadis, the Victorian Court of Appeal rejected the claim of a go – cart operator that was based on an exclusion of liability clause. In this instance, the exclusion clause had been included in a contractual document that had not been perused, but merely signed, by the respondent. In addition, the go – cart operator was unable to establish that the respondent was aware of the contractual nature of that document (Sharp, 2005, p. 210). Conclusion The agreement clause, included by the developer in respect of deductions in case of late completion of the work, is unusual and onerous. Since penalty terms were not brought to the notice of Ken before entering into the contract, they are not enforceable as per the above discussion. Remedies for Misrepresentation The remedies for misrepresentation are rescission, as well as a claim for damages (Restitution, 2005). Since Dino had made a fraudulent misrepresentation to induce Ken into the contract, Ken can rescind the contract and also make a claim for damages for breach of contract. In addition he can claim damages from the excavation company, for loss of profits due to the penalty imposed by the developer in case of non – completion of the task in the stipulated time. References Buchanan, L. & Rees, S 2009, It's over! When (and how) can you terminate a contract?, viewed 10 September 2012, . Collins, H. 2003, The Law of Contract, Cambridge University Press. Derry v. Peek [1889] LR 14 App Cas 337. Erlanger v. New Sombrero Phosphate Co [1878] 3 App Cas 1218. Fertile Grounds for Dispute, n.d, Fertile Grounds for Dispute, viewed 10 September 2012, . Field, C 2010, What are the Terms of a Contract, viewed 10 September 2012, . Henjo Investments Pty Ltd v. Collins Marrickville Pty Ltd (No 1) [1988] 39 FCR 546. Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1987] EWCA Civ 6. Le Mans Grand Prix Circuits Pty Ltd v. Iliadis [1998] 4 VR 661. Lioe, E 2011, Exclusion clause; Function, Application, and Effectiveness, viewed 10 September 2012, . MBF Investments Pty Ltd v. Damien Nolan [2011] VSCA 114 . Mulcahy, L. 2004, Contract Law in Perspective, 4th edn, Routledge. Oughton, D. W. & Davis, M. 2000, Sourcebook on Contract Law, 2nd edn, Routledge. Restitution, 2005, Restitution, viewed 10 September 2012, < http://sydney.edu.au/lec/subjects/contracts/summer_05_06/2005%20Lecture%2010%20Notes.pdf >. Sharp, C. P, 2005, ‘Revisiting the Rule in L'Estrange v F Graucob Ltd’, Bond Law Review, vol. 17, no. 2, pp. 204 – 14. Suisse Atlantique Societe d'Armament SA v. NV Rotterdamsche Kolen Centrale [1967] 1 AC 361. Tramways Advertising Pty Ltd v. Luna Park (NSW) Ltd [1938] SR (NSW) 632. Read More