Business Law: Termination of Contract and Breach of Contract

This article discusses the issues of termination of contract and breach of contract in business law. It covers the laws, applications, and conclusions of two case studies. The article also mentions the relevant cases and journals.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Question 1:
Issue:
The issue associated with this case is that whether Terence is at the authority to terminate
the contract with Sara. There is an issue regarding the fact that whether Terrence can sue Peter
for breach of contract.
Law:
Termination of contract takes place when the agreement formed between the parties is no
longer recognized by the application of law (Bankins 2015). In this regard, it is worth noting that
termination of contract occurs when the parties to the contract are released from their contractual
responsibilities (Kraak et al. 2017). However, under the Australian law of contract, a termination
of contract can take place in various other ways-
1) When there is a breach of contract.
2) The inability to perform on the part of one of the parties.
3) By fraud.
4) By the performance of the contractual obligations of one of the parties.
5) By frustration.
A contract can be terminated by breach of contract when one of the parties to the contract
cannot perform their contractual liabilities (Arbel 2015). During this time, the parties fail to
deliver the contractual promises on their part by not performing their duties to the contract. A
contract can also be terminated when one of the parties is unable to perform the duties of the
contract as a result of sudden unforeseeable force which obstructs the parties from performing

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the contract. The termination of a contract occurs as a result of fraudulent act on the part of one
of the parties (Johnson and Sohi 2016). When one of the parties to the contract intentionally
misleads another party into entering into the contract by fraudulent means then the injured party
is at the authority to terminate the contract. The termination of contract takes place as a result of
frustration and due to this the parties can escape their contractual obligations. In this regard, it is
worth stating that termination of contract can come into effect by the performance of the
contractual obligations of the parties. In Airloom Holdings Pty Ltd v Thales Australia Ltd
[2011] NSWSC 1513, it was observed that the contractors claimed damages from the employer
for terminating the contract wrongfully. However, it was held by the Court that, the contractor is
not liable to recover the amount claimed as the contract was terminated on the basis of breach on
the part of the contractors.
A breach of contract takes place when there is a failure on the part of the parties to act
according to the terms of the contract. In this regard, the breaching party fails to act with the
responsibilities towards the contract. In NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC
604 it was held by the Court that the proof of damage lies on the plaintiff. However, in case of
failure on the part of the plaintiff to prove the loss incurred by him, he shall be entitled to recover
nominal damages. However, various remedies are available for breach of contract which can be
emphasized as damages, specific performance and injunction. In case of breach of contractual
obligations, the remedy for damages as proved to be beneficial in providing appropriate solution
to the injured parties. However, contractual damages are not meant to serve as a punishment for
the parties who failed to perform their contractual obligations. It creates an authority on the part
of the plaintiff to sue the defendant for breach of contract and claim damages for the injury.
Application:

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In the present case study, it can be observed that there was a failure on the part of the
Sara to inform Gabby regarding the fact that she actually worked for Terrence. Therefore, in this
case it can be stated that there was a breach of contract on the part of Sara. It is worth noting that
Sara did not perform the contractual obligations on her part. In this case, the essentials of
termination of contract can be referred which states that a contract can be terminated if there is
breach of contract on the part of one party and the non-performance of contractual obligations. In
this regard, it can be rightly stated that there is an authority on the part of Terrence to terminate
the contract with Sara. It is evident that Sara had a contract with Gabby and that she did not
inform him that she was working under Terrence. Therefore, it can be observed that Sarah has
breached the contract which existed between her and Terrence as she failed to inform Gabby her
contractual obligations with Terrence.
It can be observed that from the very beginning Terence informed Peter that he would
only buy silver. However, it was observed that, without informing Terrance, Peter bound himself
to a contract with Mary and bought 50 grams of gold. Therefore, it can be observed that the
decision on the part of Peter was taken without prior permission from Terrence. It can be noted
that in the present scenario, there is an authority on the part of Terrence to sue Peter for breach of
contract. It can be observed that after Peter was fired from his job by Terence on Monday, he
contracted with Gordon on Tuesday for the purpose of ordering diamond worth $5,000.
Therefore, it can be stated that there is still an existing authority on the part of Terence to sue
Peter for breach of contract.
Conclusion:

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In the conclusion, it can be stated that there is an authority on the part of Terence to
terminate the contract. Terence is at the authority to terminate the contract with Peter and sue
him for breach of contract.
Question 2:
Issue:
The issue in this case is that whether Roger is liable to damages for the claim made by
Industrial Machines Ltd for breach of contract. The issue is regarding the fact that whether the
Department of Industry is at the authority to decline the application made by Roger.
Law:
In the law of contract, damages can be regarded as a financial remedy which seeks to
provide appropriate compensation to the injured party as a result of breach of contract (Eisenberg
and Miller 2015). However, the person claiming damages cannot recover the amount in respect
of the loss incurred as a result of the consequences of breach of contract on the part of the
defendant. It is evident that the amount of damages payable to the claimant was not recognized
by the Courts until the case of Hadley v Baxendale [1854] EWHC J70 came into operation. In
this case, it was observed that the plaintiffs bought a claim of action against the defendant to seek
damages in order to compensate for the losses incurred due to breach of contract. In this regard,
the Court applied the test of forseeability for the purpose of determining the amount of damages
which the claimant is entitled to recover. In case of Victoria Laundry (Windsor) Ltd v Newman
Industries Ltd [1949] 2 KB 528, it was held by the Court that the plaintiffs are entitled to
recover the damages for the losses incurred in relation to the additional profit in the contract. In
this case, the nature of the additional loss was such as it was reasonable foreseeable by the

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Courts. Breach of contract takes place on account of failure on the part of the parties to perform
the terms and conditions of the contract. It is noteworthy to mention here that when a injured
party sustains loss due to breach of contract, a right is entrusted on him to claim damages or
compensation for the loss. However, the plaintiff shall not be entitled to compensation in case of
remote loss. In this regard, the test of reasonable foreeseability has been efficiently applied by
the Courts and the subject-matter of the case was viewed from the perspective of a reasonable
prudent man. The Court held that the act of the claimant was justified as he acted in the way as it
would have been done by any reasonable person of prudent nature.
A company can be defined as a separate legal entity which possesses separate identity
from their owners. In this regard, the concept of lifting of corporate veil can be emphasized
which separates the corporate personality from the liabilities of the shareholders (Howard 2015).
Therefore, the corporate veil can be lifted where there is an occurrence of fraudulent and
dishonest use of such legal entity (Lo 2017). However, the individuals involved in such dishonest
and fraudulent activities are not entitled to seek shelter behind the corporate veil. In Salomon v A
Salomon & Co Ltd [1897] AC 22 (HL), the principle of separate legal corporate personality has
rightly emphasized. In this case, it was held that the shareholders of a limited liability company
are not liable for the debts incurred by the company. There are various exceptions of the doctrine
of piercing of corporate veil which can be summarized.
1. Dishonest intention: If the business of the company is carried on with an intention to
defraud the creditors of the company, the Court is at the authority to order the company
to contribute its assets to the concerned creditors (Hawes, Lau and Young 2015).

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2. War: During wartime, the Court is at the authority to ignore the piercing of corporate veil
which was observed in Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2
AC 307 (HL).
3. Sham: When the company has been designated in such a way for the purpose of
committing fraudulent activities by ignoring its contractual obligations, then the Court is
at the authority to ignore the existence of corporate veil (Vastardis and Chambers 2017).
In Gilford Motor Co Ltd v Horne [1933] Ch 935 (CA) it was observed that the defendant
being the former director of a company entered into an agreement that he not responsible
for soliciting the customer of his previous employer. However, he and his wife for the
purpose of conducting breach of agreement formed another company. In this case, it was
held by the Court that as the intention of the second company was to commit fraud,
therefore the defendant shall be held liable.
Application:
In the present scenario, it can be observed that there was a contract between Roger and
Industrial Machines Ltd which contained the fact that the total amount of $ 600 000 shall be paid
in three equal installments in the year 2015, 2016 and 2017. However, Roger failed to pay the
third installment for the year 2017. It is worthwhile to refer the case of Hadley v Baxendale
[1854] EWHC J70 where it was held that plaintiffs are entitled to recover damages if the nature
of the loss is such which can be foreseeable by a reasonable man. Therefore, in the present case,
it can be stated that Industrial Machines Ltd was aware of the fact that Roger was financially
stable and therefore he could pay the installments without failure. It can be stated that Industrial
Machines Ltd is liable to recover the remaining amount. The case of Victoria Laundry
(Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 can be applied in the present case

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study as Industrial Machines Ltd is entitled to recover the damages on account of additional
profit in the contract.
It is evident that for the purpose of extending the business fortune, Roger established a
second company with his wife as a shareholder which deals with the business of explosives. It is
important to refer the case of Gilford Motor Co Ltd v Horne [1933] Ch 935 (CA) as the
intention of the second company formed by Roger and his wife was to create fraud. Therefore, in
this cases Roger should be held liable.
Conclusion:
It can be finally concluded that Roger is liable to pay the damages claimed by Industrial
Machines Ltd. Therefore, the Department of Industry has the authority to decline the application
of Roger.

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References:
Cases:
Airloom Holdings Pty Ltd v Thales Australia Ltd [2011] NSWSC 1513.
Daimler Co Ltd v Continental Tyre and Rubber Co Ltd [1916] 2 AC 307 (HL).
Gilford Motor Co Ltd v Horne [1933] Ch 935 (CA).
Hadley v Baxendale [1854] EWHC J70.
NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC 604.
Salomon v A Salomon & Co Ltd [1897] AC 22 (HL).
Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.
Journals:
Arbel, Y.A., 2015. Contract remedies in action: Specific performance. W. Va. L. Rev., 118,
p.369.
Bankins, S., 2015. A process perspective on psychological contract change: Making sense of,
and repairing, psychological contract breach and violation through employee coping
actions. Journal of organizational Behavior, 36(8), pp.1071-1095.
Eisenberg, T. and Miller, G.P., 2015. Damages versus specific performance: lessons from
commercial contracts. Journal of Empirical Legal Studies, 12(1), pp.29-69.

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Hawes, C., Lau, A.K. and Young, A., 2015. Lifting the Corporate Veil in China: Statutory
Vagueness, Shareholder Ignorance and Case Precedents in a Civil Law System. Journal of
Corporate Law Studies, 15(2), pp.341-376.
Howard, C.H., 2015. Towards a Broader Understanding of Privity Exceptions in Contract Law:
Bestowing Limited Rights on Incidental Third-Party Beneficiaries in Construction Litigation to
Fulfill Public Policy Objectives. Gonz. L. Rev., 51, p.187.
Johnson, J.S. and Sohi, R.S., 2016. Understanding and resolving major contractual breaches in
buyer–seller relationships: a grounded theory approach. Journal of the Academy of Marketing
Science, 44(2), pp.185-205.
Kraak, J.M., Lunardo, R., Herrbach, O. and Durrieu, F., 2017. Promises to employees matter,
self-identity too: Effects of psychological contract breach and older worker identity on violation
and turnover intentions. Journal of Business Research, 70, pp.108-117.
Lo, S.H., 2017. Piercing of the corporate veil for evasion of tort obligations. Common Law
World Review, 46(1), pp.42-60.
Vastardis, A.Y. and Chambers, R., 2017. Overcoming the Corporate Veil Challenge: Could
Investment Law Inspire the Proposed Business and Human Rights Treaty?. International &
Comparative Law Quarterly, pp.1-35.