Termination of Contract and Legal Issues

This study material discusses the termination of contracts, breach of terms, frustration, and legal relief. It explores different scenarios and the rights of parties involved. Gain expert knowledge on contract law at Desklib.

Title Page
Student name
Student ID

Contents
Solution 1.........................................................................................................................................3
Area of law...................................................................................................................................3
Legal rules....................................................................................................................................3
Application of the legal rules to the factual problem...................................................................3
Conclusion...................................................................................................................................5
Solution 2.........................................................................................................................................5
Area of law...................................................................................................................................5
Legal rules....................................................................................................................................5
Application of the legal rules to the factual problem...................................................................6
Conclusion...................................................................................................................................8
Area of law...................................................................................................................................8
Legal rules....................................................................................................................................8
Application of the legal rules to the factual problem...................................................................9
Conclusion.................................................................................................................................10
Reference List................................................................................................................................11

Solution 1
Area of law
The law of contract – Offer, Acceptance, Counter Offer, Revocation
The main legal issue that arose was whether Robert has any contractual relationship with
Cameron?
Legal rules
An offer and an acceptance are the two contract ingredients which are required to initiate any
contractual relationship amid the parties.
An offer is an act carried on by an offeror wherein he conveys his terms to the offeree and
expects that the offeree will affirm to the same and is held in Smith v Hughes [1871]. An offer is
only considered to be binding when the offeree is in the knowledge of the offer and is held in
Felthouse v Bindley (1862). An offeree confirmation to the offer terms is considered to be an
acceptance in law and is held in Empirall Holdings v Machon (1988). An acceptance must be
made only after the offeree is in the knowledge of the offer. Any confirmation which is not in
response to the offer is no acceptance in law and is held in Carlill v. Carbolic Smoke Ball Co
(1891). Also, an acceptance must be communicated to the offeror. Silence is not an acceptable in
law and is held in Latec Finance Ltd v Knight (1969). (Latimer, 2012)
Further, an acceptance must be absolute and no changes must be made to the terms of the offer.
If the acceptance is made and variations are made to the terms of the offer, then, it is not an
acceptance and is called counter offer and is held in Stevenson Jaques& Co v McLean (1880).
Counter offer cancels the original offer and the counter offer so made is now considered to be the
new offer.
Application of the legal rules to the factual problem
As per the facts,
On 5th September, a letter is written by Robert and posted to Cameron wherein Robert offered
him to sell 50 metric tons of wheat at a price of $250 per metric tonne.
To start the contract, it is Robert who has taken the initiative and sends an offer letter to
Cameron on 5th September. The letter is received by Cameron before 7th September (as an

acceptance is send by Cameron on 7th September) and thus by applying the rule laid down in
Carlill v. Carbolic Smoke Ball Co the offer is considered to be completed as it comes in the
knowledge of the offeree, Cameron.
Now, there can be a concluded contract that can be established between the parties provided the
offer which is posted by Robert to Cameron is duly confirmed by Cameron without any
alterations,
On 7th September, a reply is posted by Cameron in response to the offer letter. In the letter
Cameron accepted the offer that is made by Robert, however, the acceptance was not absolute in
nature,. Rather, he included a term according to which if Cameron did not hear to the contrary he
would assume that the prince is inclusive of the delivery of the goods to the warehouse of
Cameron.
Now, as per Stevenson Jaques& Co v McLean, if Cameron would have inquired something or
have sought some sort of information then the acceptance would have been considered to be
absolute in nature. However, Cameron while accepting the offer of Robert brought a material
alteration to the terms of the offer by which he is considering the price to be inclusive of the
delivery to the warehouse charges.
Now, the acceptance that is made by Cameron is not an acceptance but is considered as a counter
offer and thus revoked the offer made by Robert on 5th September. So, the new offer that now
exists is the one made by Cameron on 7th September. Now, Robert is the new offeree.
It is now Robert who must accept the offer of Cameron in order to make a binding contract amid
the two.
However, before the new offer reaches Robert, he read a posting on the internet according to
which the price of the wheat was about to fall and thus he immediately sent an email to Cameron
wherein he stated that the price of the wheat is $250 and includes delivery.
It is now important to submit that the email that was sent by Robert to Cameron is not against the
offer that is made by Robert on 7th September. As per Empirall Holdings v Machon an
acceptance can only be made provided the offeree is in the knowledge of the offer. but, in the
present case, Robert was not in the knowledge of the offer when he sends the email. The mail

was sent by him in regard to the offer that was sent by him on 5th September which was already
revoked by Cameron.
The email was received by Cameron on 8th September at 10AM. Now, Cameron accepts the offer
that is made by Robert. However, Cameron cannot make any acceptance as there was no offer
that stands valid from the side of Robert. The original offer that was send by Robert on 5th was
already revoked. The mail sent by Robert was not an offer at all. Thus, there cannot be any
acceptance that can be made by Cameron.
The only offer that is valid is by Cameron which is sent by him on 7th September through a letter.
Now, by mid day, Cameron is also now aware that the prices of the wheat is about to fall and
thus sent a letter stating that he did not accept the offer of wheat. The revocation that is sent has
no validity as there was no acceptance that was made by him at the first place.
So, the price fell to $230 and Cameron as right not to accept wheat from Robert as there is no
contract amid the two.
Conclusion
The offer made by Robert was revoked by Cameron by counter offer. This counter offer was
never accepted by Robert. Thus, there was no concluding contract that exists amid the parties.
Solution 2
Area of law
The law of contract – Terms of a written contract, Illusionary promises, and exclusion clause.
The main issue that arose amid the parties includes whether Robert is bound by the two clauses
made part of the contract?
Legal rules
When any contract is made amid the parties then it is the duty of the contracting parties that they
must honor the terms of the contract. However, there are two important terms which require
specific analysis and the same are illusionary promises and Exclusion clauses.
Illusionary promises or terms

Illusionary promises or the term are the terms or the promises wherein the promisor has an
undisputed discretion with respect to the performance of the contract. In Placer Development Ltd
v Commonwealth (1969) the court has held that the term of the contract is considered to be
illusionary when the promisor is free to decide as how much it must pay or perform in the
contract. the courts consider such terms as of no relevance and non binding in nature. In
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) the court
held that when one of the party to the contract is permitted to cancel the flights without bearing
any liabilities then the promise that the airline will carry on the passenger is illusionary in nature
and thus the term itself is not binding. (Bailey, 2014)
The impact of the illusionary promises is very significant as it does not stand good consideration
in law. If any illusionary promise is supported with other promises, then, the other promise is not
enforceable for lack of consideration and the contract stand terminated. If one of the essential
term of the contract is to be decided at the will of one of the party to the contract then the
contract is illusory.
Exclusion terms
Exclusion terms are one of the significant terms that are normally found in the contacts. These
are the clauses which try to exclude, transfer or limit the obligation or liability of one of the part
to the contract upon the incurrence of any ore decided event. The significance of exclusion
clause was rightly evaluated in Darlington Futures Ltd v Delco Australia Pty Ltd (1986).
It is the party who is availing the benefits of the exclusion clause has the obligation to prove its
sanctity and enforceability. The clause enforceability is considered by determining the party’s
bargaining powers, unconscionability, etc.
Now, when the clause is made part of a contract which is signed by the parties, then, the clause is
considered to be binding and enforceable upon both the parties even if the clause is not read by
any of the parties and is rightly evaluated in L'Estrange v Graucob [1934]. However, as per
Curtis v Chemical Cleaning Co [1951], if any misrepresentation is incurred by the relying party
while making the clause as part of the contract, then, the clause is not enforceable in law.
The law is now applied to the facts of the case.
Application of the legal rules to the factual problem
As per the facts,

Robert is the owner of a dairy farm business.
Camille is the products acquisition manager for a large super market chain, Super Supplies Ltd.
They both met at a recent industry event and had a conversation in which Camille made an offer
to Robert to do business with him. According to the deal, Robert has to supply milk to Super
Supplies Ltd for a trial period of 6 months. A standard form is given by Camille to Robert who
contains the quantity and the dates on which the milk is to be supplied by Robert to Camille. The
form is signed by Robert without reading the same.
Now, an offer is made by Camille which was duly accepted by Robert and thus there is a binding
contract that is made amid the parties. Both Camille and Robert must comply with the terms of
the contract.
However, there were two clauses that were made part of the contract which was on the back in a
fine print.
Clause 1.5 ‘Super Supplies Ltd reserves the right to cancel the order at any time.’
It is submitted that the Clause 1.5 is a clause according to which Super Supplies Ltd is the only
party who has the absolute discretion to cancel the order at any time and that too without giving
any notice to Robert. This promise that is made part of the contract is illusionary in nature as
held in Placer Development Ltd v Commonwealth Thus, the confirmation of Robert by signing
the contract and agreeing to the said term is not a good consideration and thus the said term has
no relevance in law.
Cause 1.7 ‘Supper Supplies Ltd limits its liability for any damage whatsoever and howsoever
caused in the performance of its contractual obligations to $1000.’
Now, Super Supplies Ltd has tried to limit the liability and the clause was made part of the
contract. The contract was not read by Robert and the same was signed. Now, this exclusion
clause was made part of a signed contract and thus as per L'Estrange v Graucob the exclusion
clause is binding in nature.

But, because of the presence of the illusionary clause the entire contract stands terminated and
this exclusion clause also has no relevance.
So, after four weeks, when an email is received by Robert wherein he was told that Super
Supplies Ltd is no longer interested in the contractual relationship with Robert and the contract
stands terminated immediately, then, Super Supplies Ltd has no right to do the same.
Thus, Robert has every right to seek the loss of $6,000 in profits.
Conclusion
Robert has the right to seek the damages that are suffered by him as the exclusion clause has no
relevance as the contract stands on the basis of illusionary promises.
Solution 3
Area of law
The law of contract – termination of contract, Breach of term frustration, relief.
There are few issues and claims that are raised:
i. Whether Robert has any right to seek refund when he heard about the substitute
ii. Whether Robert has any claims against the theatre when the show was cancelled
iii. Whether Robert can sue if the flood was caused by a cleaner smoking in the
auditorium and being unable to turn off the sprinklers that were set off by the smoke?
Legal rules
The presence of offer acceptance, legal intention and consideration together formulates a
contract and the parties are termed as offeror and offeree. When a contract is established amid
the parties, then, it is obligatory in the parties that they must comply with their contractual
obligations. However, at times before the contract is concluded, that is, both the parties comply
with their respective obligations, the contract stands terminated. Thus, the various scenarios
under which the contract stands terminated includes: (Latimer, 2012)
i. Breach of term – when any contract is made then the terms of the contract should be
fulfilled by the parties at any cost. When any one party to the contract does not
comply with the term of the contract then the aggrieved party has the right to

terminate the contract. however, the termination right depends upon the term that is
breached, that is:
a. If a condition is breached, then, the aggrieved has the right to cancel the contract
and seek damages. A condition is a term which is so essential to the contract that
in the absence of which the contract losses its essence and is held in Poussard v
Spiers (1876). It is a kind of a term which is considered as the soul and heart of
the contract and is the main reasons because of which the contract is established
between the parties. if these terms are not fulfilled by the parties then there remain
no reasons as to why the contract should still be continued.
b. If a warranty is breached, then, the aggrieved has no right to cancel the contract
and can only seek damages. A warranty is a term which is not essential to the
contract and is only secondary in nature and is held in Bettini v Gye (1876). These
terms are called the part and parcel of the condition and are required so that the
contract can be effectively performed. When these terms are not comply with
effectively, then, it is only the functioning of the contract that is affected and it
does not bother the sanctity of the contract.
ii. Frustration – when the parties to the contract are not able to complete their
contractual obligations because of the happening of some supervening event which
was not present when the contract was established, then, the contract is considered to
stand terminated on account of frustration. It is necessary that the event because of
which frustration took place is not foreseeable by the parties at the time of entering
into the contract. If the event is foreseeable by the parties to the contract then it
cannot be regarded that the contract is terminated because of the incurrence of
frustration. In Taylor v Caldwell [1863] when the subject matter itself is destroyed
then the contract is terminated on account of frustration. The aggrieved party has the
right to go to court and seek damages.
The law is now applied to the facts of the case.
Application of the legal rules to the factual problem
As per the facts,

Robert and his wife are the huge fans of the characters in the Don Quixote book. Sancho Panza
musical his coming to his town and he was told that his favorite actor, Alfonso Pereira, would be
starring in a leading role in that show. So, Robert wanted to surprise his wife for their wedding
anniversary and thus in order to watch Sancho Panz, he purchased two tickets to the theatre.
Now,
i. The leg of Alfonso was broke and thus he was replaced by a substitute. Robert tried
to cancel the tickets. However, the theatre responded that they cannot refund the
amount but they would hold the seat for the reservation made.
Considering the facts, the major term of the contract that is made amid Robert and the
stadium is that Alfonso must be part of the performance.
However, Robert has no right to terminate the contract when he heard about the
replacement of Alfonso with a replacement as the main reason of watching the show
was not only the presence of Alfonso, rather, Robert and his wife are fond of all the
character the book. Presence of Alfonso is not the condition upon which the tickets
were purchased by Robert. Thus, the presence of Alfonso is not so essential and thus
is only a warranty. The non compliance of this warranty will not hamper the sanctity
of the contract. Thus, Robert cannot cancel the ticket but can only seek the damages
and the essence of the contract is not defeated.
ii. The show was cancelled as the night before the show the theatre was flooded when a
water main in the road outside burst. It is submitted that the theatre was on all good
condition when the tickets were booked. The flood that took place was due to some
supervening intervention and not because of the fault of the owners of the show.
Thus, the contract amid the show owners and Robert stand terminated on account of
frustration. The subject matter in which the show is likely to take place is destroyed
without any fault of either of the parties. There is no other manner in which the show
can be carried on and thus the essence of the contract is totally frustrated resulting in
the termination of the contract. The event that took place cannot be predicted by a
reasonable prudent person in the similar situation and thus the contract suffers from
frustration.

Now, since the theatre is now refusing to refund the ticket price so Robert has an
option to go to court and seek damages since the contract is terminated on account of
frustration and not because of the fault of either of the parties. Though the parties are
willing to perform but the contract stand discharged on account of frustration.
iii. If the flood was caused by a cleaner smoking in the auditorium and being unable to
turn off the sprinklers that were set off by the smoke, then, in such case, Robert can
easily sue the theatre owners and seek refund as the subject matter is damages not
because of some supervening event but because of the wrongful actions of the staff of
the theatre and the effect of which was reasonably foreseeable by the owners. The
acts of the staff were reasonably predictable and can be easily avoided by taking
proper precautions. Thus, in such case Robert can seek refund of his ticket and
damages.
Conclusion
To conclude, Robert cannot seek refund the ticket when Alfonso broke his leg as it is not an
essential term that Alfonso must be part of the show and thus is not a condition. However, if
flood is incurred in the theatre because of the breakage of the pipe then Robert can cancel the
contract as the contract stand concluded once account of frustration. Further, if the theatre is
destroyed because of the negligence of the staff then also Robert can easily claim refund of the
ticket as the contract is not terminated on account of frustration.

Reference List
Books/Articles/Journals
Bailey, J. (2014) Construction Law. CRC Press.
Latimer, P. (2012) Australian Business Law 2012. CCH Australia Limited.
Case laws
Bettini v Gye (1876) 1 QBD 183.
Carlill v Carbolic Smoke Ball Co. Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
Curtis v Chemical Cleaning Co [1951] 1 KB 805.
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Felthouse v Bindley (1862) EWHC CP J 35;
Latec Finance Ltd v Knight (1969) 2 N.S.W.R. 79, N.S.W.
L'Estrange v Graucob [1934] 2 KB 394.
MacRobertson Miller Airline Services v Commr of State Taxation (WA) (1975) 133 CLR 125.
Placer Development Ltd v Commonwealth (1969) 121 CLR 353.
Poussard v Spiers (1875) LR 1 QBD 410.
Smith v Hughes [1871] LR 6 QB 597
Stevenson, Jaques, & Co v McLean [1880] 5 QBD 346;
Taylor v Caldwell [1863] EWHC QB J1
Online Material

MacMillian & Stone. (2012) Elements of the law of contract. Available from
<http://www.londoninternational.ac.uk/sites/default/files/programme_resources/laws/
ug_subject_guides/elements_law_contract-subjectguide4chapters.pdf>. Accessed on 15th October
2019;