Contracts Frustration - Business Essay Example
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Discharging contractual obligations is a process that involves the primary obligations and secondary obligations. Primary obligations include the contract being carried out exactly as expected according to the terms. Secondary obligations involve the liability being carried out in the event that the contract is breached. To discharge the primary obligations, the parties must either fully carry out the terms of the contract or both agree that the contract is severable. To discharge the secondary obligations, the party that was unable to fulfill his part of the deal must pay damages either for a breach of warranty terms or a breach of condition terms.
Frustration is the event in which the making of the contract subsequently is found to be impossible, illegal or radically different from the terms first agreed upon. This results in a cause and effect relationship in which the causes are an external event, an unforeseeable event, or an event that is not the fault of either party. The remedial effects are the impossibility of carrying out the contract, the illegality of the contract or the result of the contract being far different than what was originally expected.
The absolute obligations rule has been used in esteemed cases such as Paradine v Jane and Taylor v Caldwell. This rule establishes legal excuses for failing to perform strict liabilities. To define the excuses of impossibilities, legal analysts will often look at the aforementioned cases of impossibility such as the destruct of subject matter, death injury or illness to one of the parties, and subsequent illegality.
While there are supervening impossibilities, there are of course, supervening possibilities which have been set by the precedents in Tskiroglou v Noblee Thond GmbH, Davis v Fareham, Krell v Henry, Heme Bay Steamboat v Hutton, and Jackson v Union Marine Insurance. These cases then made possibility of contracts feasible again despite the radical change in projected outcome. Possibilities include: Method of Performance Impossible, Non-occurrence of an event, and frustration of a common purpose.
Frustration claims can also be negated by some factors including self-induced frustration which is of course the responsible party member’s fault. On the other hand, when the contract is frustrated because of unforeseeable events, no one is at fault. For example, two men decide to form a contract. One owns a grocery store and the other owns an orange grove. The grocery store decides to pay for seven-hundred oranges a year, and creates a contract with the farmer to ensure he gets oranges before anyone else tries to buy from the farmer. Unfortunately, that year, an enormous cold front lasts too long, destroying all of the current orange trees and preventing anymore from being grown. Because of the unforeseeable event of the weather, the contract was frustrated without any penalty to either party.
The Law Reform Act of 1943 softens the harshness of the effects of common law. This law was established to prevent injustice, unfairness, and adjust losses. The act is only applicable to contracts that have become impossible and thus the parties have been discharged from further performance. However, the act is limited and cannot effect charterparties, carriage of goods by sea, insurance, and sales of specific goods.
Another important law regarding the breach of contracts is the Sales of Goods Act 15A in 1979. This alters the remedies for a breach of condition terms. This law affects non-consumer cases in which the goods or services provided to one party are not adequate or are in a terrible condition. For example, if one party agrees to buy bananas from a seller in Costa Rica, and contracts for a certain amount of bananas for a certain amount of money, and when the bananas arrive, they are rotten or damaged, then the contract is void (i.e. the party buying the bananas doesn’t have to pay or uphold his part of the bargain).
There are such rewards as valuable benefits and just sums established by this act. Valuable benefits may include money, Quantum Meruitaward, and valuation of the benefit. In these cases just sum is determined as a fair reparation to prevent unjust enrichment.