Tutorial Three-Contract II PDF

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Tutorial three in Contract II...

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Tutorial Three 1. Act of Parliament voting on making it illegal to import steel from China gives rise to frustration of contract- Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. =But she has the ability to source steel from Wales even though it would reduce profits by 13% and cause her a loss. Contracts cannot be frustrated just because they become more difficult or expensive to perform. Davis Contractors v Fareham UDC [1956] AC 696. 2. Mistake as to the quality of the good/service is not sufficiently fundamental to render the contract void. Davis Contractors v Fareham UDC [1956] AC 696. Mistake in the quality did not change the fact that contract that had been agreed upon was capable of being performed. Burt cannot announce the contract to be void. 3. The statement focuses on the juristic basis of frustration known as absolute frustration. -- "Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract." (Lord Radcliffe, Davis Contractors Ltd v Fareham U.D.C ) -In this case, Donna set out to import steel from China due to its cheap price and to be able to maximise profit, but due to the change in legislation, she cannot do so. Even though she is still able to perform the contract, it would cost her 13% more, absorbing her profits and causing her to make a loss. The circumstances of the contract render it a thing that is radically different from the purpose for which the contract was first undertaken, to maximise profits. -The multi-factorial approach seems more just and equitable because it considers all of the circumstances, both old and new and then sees if the contract can be frustrated. It avoids confusion which the implied theory approach creates as it presumes that both parties will have the same intentions at the same point in time and it considers foreseeability and the parties assumptions of risk at the time the contract was created which the radical change in obligations approach does not do. Notes: Frustration: =Taylor v Caldwell (1863)-allows for remedy in case of change of circumstances. =assumption made by both parties. =going through the remedy will discharge obligations of both parties =Only discharge if performance becomes a. Radically different b. Impossible =Assessment of frustration -Has the contract allocated the risk of the particular event occurring? =Allocation of risk of loss =Party has agreed to bear the loss/risk? =No requirement that the acceptance of risk has to be definite but only that there was some acknowledgement of the risk. -Has there been a radical change in circumstances?

=non-occurrence of an event =increased expense =Destruction of subject matter =illegality =alteration of manner of performance or impossibility by one party =outbreak of war =delay or interruption -Was the radical fault due to the fault of one of the parties? =fault or frustrating event, contract cannot be frustrated. =no element of breach or negligence, positive action is sufficient. =The Super Servant Two (1990). =The party who is at fault cannot claim frustration, innocent party can and can claim damages. =Negligence amounts to fault =DGM Commodities v Sea Metropolitan (2012)-case confirmed that fault has a very loose definition-can just be a positive action, does not need to be breach or negligence. Legal effect of frustration-bring contract to an end-Hirji Mulji v Cheong Yue Steamship Co Ltd [1926]-contract becomes void. =when contract becomes void, it is usually the parties decision to affirm or terminate it. =BUT…in frustration there is no such choice. Financial effects-all obligations cease to have effect. -The loss lies where is falls-Fibrosa Spolka v Fairbarin [1943]-(under two circumstances): =Where the money is paid in advance (could be recovered as failure of consideration by other party). =Where the money is paid on completion (unfair effect on party who partially fulfilled obligation). =Law Reform (Frustrated Contracts) Act 1943. Mistake: 1. Non-Agreement Mistake =Common mistake- refer to situations where both parties make the same mistakes in conjunction to the contract. There are two types: -The mistake matter must be one which is fundamental to the parties’ decision to enter into the agreement. -The party wishing to rely on common mistake (refer to situations where both parties make the same mistakes in conjunction to the contract) must have reasonable ground for their belief. 2. Mutual Agreement Mistake/Offer and Acceptance Mistake: -fundamental mistake relating to terms of contract. -prevention of formation of contract -parties subjectively believe that they have formed contract, but they have not. -courts apply objective reasonableness test to see if contract is valid-Smith v Hughes (1871). -consider parties intentions for entering into contract.

3. Unilateral Mistake-only one party is mistaken, and other party is aware of this fact and take advantage of it. -Two types of mistake: =mistake relating to terms of contract =mistake as to identity (of other party you are contracting with). PQ: 1. If Donna does not deliver to Toby, she is in breach of her contract. Toby can then claim for damages. Frustration is a potential release of her obligations. As a matter of public policy (illegality), the contract has become illegal to perform, so it can be frustrated (Fibrosa). But the contract is not impossible to perform because Donna can still import steel from Wales even though it is more costly. This is because a contract cannot be frustrated just because it is more expensive or difficult to perform (David Contractors). The 13% addition in costs is not much in comparison to the £500 it already costs Donna in metric tons. The additional losses will not be too radical from that which can be expected in a business such as the one that Donna owns. This has become a loss venture. Courts have also said that they will not allow parties to escape a bad bargain so Donna is not likely to succeed in her claim for frustrating the contract. Furthermore, it can be argued that the government intervention may have been reasonably foreseeable as, as a businesswoman, Donna would be interested in the politics of the country that she has located her business in. The fact that there has been a tide of nationalism in the country and if she was interested in her countries politics and how they may affect her business, the intervention in trading with China will have been reasonably foreseeable. If this is the case, then Donna’s claim to frustrate the contract will not succeed. Donna is better off importing the steel from Wales and taking on the 13% loss as it would mean that she would fulfil her contractual obligations and Toby will not be able to sue her for damages. =Courts will not release parties from a contract just because it is a bad bargainTsakiroglou Co Ltd v Noblee Thorl GmbH [1962] AC 93/ David Contractors v Fareham UDC [1956] AC 696. 2. Non-Agreement Mistake: = The mistake matter must be one which is fundamental to the parties’ decision to enter into the agreement. -Francis decided to sell the mural for £100,000 believing it to be the true worth of the painting when it was not because it was fake. -Burt decided to enter the contract thinking that the mural was created by Antsy, a famous street artist and paid £100,000, believing it was the true worth of the painting. =“In such a case [of mistake as to quality] a mistake will not affect assent unless it is the mistake of both parties and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be.” (Lord Atkin, Bell v Lever Bros). =confirmation of Bell v Lever case and is a question of construction of the contract at the time that it was made. Identity of the subject matter is destroyed by the mistake made by the parties- Great Place Case. 3. -Paradine v Jane [1647]-Absolute obligation approach.

-Taylor v Caldwell [1863]- music hall burnt down before concerts could take place. Departed from absolute obligations approach and stated that contract is subject to implied condition/terms.

-David Contractors Ltd v Fareham [1956]-contractual obligation has become impossible as change in circumstances render the subject of the contract something radically different from what it initially was. -Trakman-implied term approach criticised (Taylor v Caldwell)-runs risk of undermining contractual freedom without regards to business practices. =radical difference approach (Davis Contractors). -Discuss notions of justice-what is fair and reasonable-Lord Denning. -Explain frustration operation of rule of law. -Danger of releasing parties from their contractual obligations-goes against freedom of contract and security of contract....