Land law. The purpose of this paper is to present an analytical and investigative study to examine the relationship between the identification of the causes of incomplete contracts and the extent to which this can help protect business interests. To asses

        An agreement entered into between two or more parties constitutes a contract, and is usually made for the benefit of one of the parties, two of the parties or all parties involved. The agreement is binding, not least because it is enforceable under the country’s formal and informal laws. Chapter 2 presents an analytical review of the legal measures aimed at the protection of the commercial interests of businesses in the event of breached contracts. Protecting the commercial and private interests of businesses when a contract is breached entails a distinctive analysis of various factors, such as the prevailing circumstances that prove a contract to be incomplete, the commercial consequences of incomplete contracts and the intention to enter into a contract.  

9. CIRCUMSTANCES THAT LEAD TO NON-COMPLETION

There are three basic grounds that make it possible for the parties to a contract to be discharged from their obligations under the contract terms. These include (a) contract frustration, (b) breach of the contract terms and (c) dissolution of the contract by mutual agreement. 

2. Agreement

The provisions in the contract that allow for the parties to be discharged from their obligations under the contract may be invoked leading to non-completion of the contract. In addition, to terminate a contract, the parties may enter into a new separate agreement or include new clauses in the initial agreement.

3. Discharge by Frustration

The contract frustration doctrine has seen multiple changes in common law to statutory treatments across different legal and judicial jurisdictions. A contract is deemed to be frustrated if, after its formation, the terms become impossible to carry out without any of the parties defaulting or due to an intervening impossibility that makes the performance of the contract substantially different from the terms that were originally contemplated. While in Paradine v Jane, absolute obligation was emphasized, subsequent developments, such as in Taylor v Caldwell, have generated mitigations against the harshness of absolute obligation.

In order for a contract party to be able to avail these mitigations, it is necessary that the factors which result in the impossibility to perform the contract are not contemplated in the express contracts terms by way of the Force Majeure Clause. The Force Majeure Clause may, for instance, occur if a contract to export goods by sea includes a clause providing for the possibility of loss or damage of goods in transport. The existence of specific clauses that provide for foreseeable specific risks precludes the defence of intervening impossibility. Frustrated contracts occur in the event of the following:

1. Supervening Illegality: If new laws are passed after the formation of the contract, which subsequently render the contract illegal, then the parties to the contract will be discharged of their contractual obligations. In Avery v Bowden, the outbreak of a war, which occasioned government decrees that made it illegal for ships to load or unload at enemy ports, rendered it impossible for the contracting parties to carry out their obligations without breaking the law. The contract was thus frustrated, and the parties were absolved from their contractual obligations.
2. Subject Matter Destruction: This is evidenced if, for instance, the contract to purchase a house is held frustrated if the house is destroyed.
3. Non-availability: This is when illness, death or other circumstances make it impossible for any of the parties to abide by the terms of the contract.
4. War/Natural Disasters: As in Horlock v Beal, the outbreak of war, which impedes the performance of the material terms of a contract, makes the contract impossible to complete and renders the contract frustrated. Similarly, the occurrence of natural disasters (Acts of God) of which the parties to the contract have no control, renders the contract impossible to complete; e.g. by rendering the contract’s subject matter unavailable, the contract will be deemed frustrated, effectively leading to the discharge of the contractors from their obligations.

        People normally wonder whether to take legal action after a contract is deemed incomplete. But the underlying factors of the matter depend on the nature of the contract itself. If the terms of the contract were vague, then proving that there indeed was a contract and that it failed may be very difficult. But if the terms were specific, it would be easier to prove that there was a contract and that it truly failed.

4. Breach of Contract Terms

        Contracts may prove incomplete from other perspectives as perhaps best evidenced by the following example. The relationship between spouses may be viewed as a contract. When one of the spouses behaves in a manner that is not in accordance with the laws of marriage, the marriage contract may be terminated. A case in study is that of a man who married a woman with whom he was cohabiting and for whom he was providing the necessities of life. All was well until the husband began drinking with his colleagues at work. Over time, he became an alcoholic and started beating his wife. This resulted in the wife seeking divorce. As studied, these factors contributed to the end of the marriage. The husband’s behaviour led to the automatic termination of the relationship. It is evident that, when one party contravenes a set rules and standards of a relationship, it adversely affects the basis of the contract. This is a major reason for contracts failing to complete.

        A valid contract is very specific: there is an offer and an acceptance of that offer (case scenario—if I offer to wash your car for a certain amount, and if you agree with me that the price indicated is sufficient to compensate you for your efforts, then a contract exists between us. Once I wash your car, you are obligated to pay me the agreed amount.) Most oral contracts may be binding but very difficult to prove; it is, therefore, necessary that contracts are made in writing.

        Contracts between employers and employees are naturally binding, according to the rule of law anywhere in the world. A contract can prove incomplete when the employer and/or the employees neglect the subject matter of the contract and contravene the rules inculcated in place for safeguarding the interests of the parties. This is so for the employer when he fails to pay the employee and for the employee when he fails to adequately perform his job. These can lead to termination of the contract and the injured party claiming damages. Contracts are designed to profit both parties. Cases studies have shown that, once a contract is put into place, one party to the contract may act awkwardly with regards to it. He may use the resources and facilities, brought about by the setting up of the contract to make personal, undisclosed profits. In the long-term, this might prove to be disastrous to the relationship existing between the parties and is basis for termination of the contract. The contract might prove to be incomplete.

        The contract may also fail to be complete if it is invalid or illegal. There are several considerations in this regard, such as a minor (a person who is not of legal age) cannot enter into a binding contract, nor can a person who has been declared insane or mentally incapacitated by the state. These individuals are considered to lack contractual incapacity, and therefore are not able to enter into valid contracts. Any contract may be viewed as invalid or unenforceable if it was entered into by the parties described above. Therefore, a contract may be considered incomplete if it is entered into by parties who lack contractual capacity.

5. Performance

        Contracts must be performed to the letter of the terms of the contract. One party in the contract might be dissatisfied with the performance quality of the other party, and therefore try to hold him accountable for breach of contract. If one party is not satisfied with the performance and commitment of the other party, the displeased party may decide to terminate the relationship, on a basis of performance. Individuals entering into a contract are expected by law to participate according to the basis on which the contract was created; otherwise the contract will be viewed as null and void. (Using the previously mentioned case scenario—if the party sourced to wash the car does a bad job, the owner of the car may not pay him the agreed amount on the basis of performance).

        

COMMERCIAL CONSEQUENCES OF INCOMPLETE CONTRACTS

        Breached contracts affect the parties involved, in a negative or positive manner and contracts are initially entered into to protect the interests of the parties. The affected parties may be liable for the damage resulting from the breach or qualify for a number of remedies as may be determined by the court.  The parties concerned enjoy mutual economic and other benefits from the contract, but the economic benefits override any other benefits that may be derived from the agreement. Once one of the parties decides to disregard the terms of the contract, through any of the previously stated ways, the contract is liable for breach. Breaches of contract have adverse effects on the parties, leaving them unable to enjoy the advantages of the contract. No positive advantages can be derived from a breach of contract. The negative commercial negative effects of breach of contract are discussed below.

        Contract breach has a wide range of consequences to the parties involved in the contract. Breaches of contract have a negative commercial impact on contracts that were designed for the parties to enjoy monetary benefits. Breaches may result in the closure of a business set up by the contract. Parties to the contract would not be in a position to enjoy the advantages that might have been obtained from the completion of the contract depending on the circumstances of the contract and its conditions. 

         There are costs too, in the event of incomplete contracts involving institutions which form contracts with society to produce results and products that are beneficial to the environment and other third parties. If, in the long-term the organization fails to deliver according to the intended purpose of its initiation, the third parties or the environment fail to benefit from the contract. This could be disastrous to the image of the organization and to the organization itself over time, causing loss of customers and the inability to enjoy the economic benefits derived from the project. It is possible for individuals to experience these losses just because of acts of recklessness and inconsideration regarding the reasons that they originally entered into the contract. This is sufficient justification for the contract to be proved incomplete.

        Schools, churches, institutions, and all organizations are established for a purpose. They represent a need in society and contract to provide these needs when they are founded. If, in the long-run, they do not serve their purpose and are rendered valueless to society, their existence ceases and, therefore, their contract with society is incomplete. A similar case is when an organization fails to deliver and is consequently closed. When contracts fail to be complete, they damage the reputation of the business. If word of the breach reaches third parties, which may include outsiders and business competitors, the party is deemed to have not honoured their part of the contract. In future, other businesses would be reluctant to enter into contracts with them. Their image would be adversely affected, especially if it is evident that the mistake is intentional or part of business dealings that were illegal in nature.

        Breach of contract in cases where financial payment is involved predisposes one to legal actions, not excluding insolvency proceedings. Breach by defaulting to pay the other party will trigger the event of a default clause in many commercial contracts. The price one party has to pay to remedy a situation that he brought, which resulted in a breach of contract, will be a challenge on his part. This is so in scenarios where the injured party claims for damages in figures ranging in the millions. The price sometimes outweighs any benefits one might be able to receive from an intentional breach to the contract. Parties are, therefore, advised to be cautious in matters that might result in a breach of contract.

        An intentional breach of contract sours the relationship between contracting parties. These should be avoided at all costs because, in business, a good reputation is more precious than silver or gold. It is important that one retains the partners he gathers in his business dealings. It is evident that incomplete contracts bring only negative consequences to all parties concerned.

6. Case Study Scenarios

1. One case study regarding issues revolving around contract law is the case between Sondre Locke v Warner Brothers in which Locke sued Warner Brothers for breach of contract and failure to act in good faith.
2. XYZ Nation Media Group v The State, where five orphans claimed XYZ got them into a contract that allowed National Media Group to film their family, after which they were evicted from the home built by Nation Media Group.
3.  Cohen v Cohen - Dress allowance - no intention (1929) CLR

In which the husband challenged the court decision to give his wife a shared of his unvested pension upon a successful divorce petition, with the wife being believed to have sought the divorce in order to have a share in the retirement benefits.

7. Intention

        The intention to create a legal relationship is an important element, along with genuine consent, in creating a valid and enforceable contract. Contracts developed on this basis are presumed to be binding. Social nature contracts are not binding because there is no practicable means of ascertaining and enforcing them. While commercial contracts are assumed to be intended as binding contracts, they can be rebutted in court by producing tangible evidence to the contrary, according to the principle of Promissory Estoppel (if a person intends to create a legal relationship, it is possible to determine what the other party had done or promised to do as their part of the arrangement).

        There are proved and evident reasons why parties prefer to see their relationships as non- legal. Modern partnerships include cases of informal, moral agreements between concerned parties. These partnerships are meant to be unique and to specifically address any difficulties that might arise. A simple contract would not satisfy these partnerships; parties would, therefore, cloak their negotiations with immunity. Intention is necessary to be able to derive the final legal effect.

Case scenarios to illustrate Intention include:

Masters v Cameron (1954) 91 CLR 353, High Court)

Rose and Frank Co v Crompton [1923] Court of Appeal

Edwards v Skyways Ltd [1964] 1 WLR 349 - Queen's Bench Division

-Esso Petroleum v Customs and Excise - free gift non-contractual [1976] House of Lords

PRINCIPLES THAT MAY BE APPLIED IN EACH CIRCUMSTANCES

8. Intervening Impossibilities and Frustration

There are multiple circumstances affecting the performance and/or non-completion of contracts under common and statutory laws. Common law, as it existed in 1647, provided that duties made on reservation by the contracting parties, with a covenant to make payments, had to be made good. In Paradine v Jane, absolute liability was imposed on the contracting parties, regardless of any intervening illegalities, except in the event of Force Majeure provisions that foresee the intervening events. However, in Taylor v Caldwell, relief was availed to the contracting parties on the grounds of frustrated contracts in the event of the destruction of the material subject matter. A contract may not be termed frustrated if any of the contracting parties accepts the risks involved in the performance or failure to complete the contract through Force Majeure clauses. The Force Majeure provisions are absolute and binding and may only be limited by ambiguity or incompleteness of the clauses, as evidenced in Metropolitan Water Board v Dick, Kerr & Co Ltd.

In FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd, the contract was effectively terminated when impossibilities arose. Even so, contracts may only be discharged by the operation of existent laws in order to bar the parties from performing the contracts in radically different ways than anticipated by the conditions to the contract. However, under the imposed term theory, applied in Gamerco SA v ICM, where the impossibilities that led to the non-completion of the contract were not, and could not, be reasonably foreseen, it was necessary for the courts to mitigate against the liabilities arising from the failure to complete the contract.

9. Force Majeure Clauses

 If the occurrence of accidents of incidents that could not be foreseen by either of the contracting parties renders it impossible or burdensome for the contracting parties to carry out their obligations under the contract, then the parties can be discharged from their obligations, on conditions arising from Mersey Steel & Iron Co v Naylor Benzon & Co, which state that a contract is not absolutely or positively subject to implied or expressed terms that establish that the contract’s nature made it reasonably possible for the parties to foresee the impossibility. In addition, two crucial theoretical underpinnings for non-completion of contracts include (a) imposed term and (b) implied term theory. Under the implied term theory, the contracting parties accept that the contract will cease to be binding in the event of a supervening impossibility. The events that may lead to the non-completion of contracts must however, be foreseen by both the parties, and as such:

1.  Contracting parties cannot rely on events that were foreseen by one of the parties alone as a basis for pleading non-completion of a contract.
2. In Blackburn v Tsavliris, binding contracts may not be deemed frustrated by events that bar performance, in the way contemplated by one of the parties to the contract. Instead, an assessment of multiple material facts and circumstances of the contract and its performance must be taken into due consideration in order to determine whether the contract stands frustrated or not.
3. Deliberate acts by contracting parties do not render the contract frustrated as is held in Maritime National Fish Ltd v Ocean Trawlers Ltd, where the contracting parties fitted a ship with illegal equipment that subsequently led to the failure of the charter agreement. This situation was, however, held to be not in frustration of the contract, since the actions of the parties were self-inflicted, despite involving an illegality that had a bearing on third parties.

1. Non-performance

Under common and statute laws, the contracting parties must carry out their contractual duties without the slightest deviation, unless contemplated in the contract conditions. Under Section 13 of the Sale of Goods Act (1895), the goods delivered to the client must meet the description contemplated in the contract of sale and purchase. The failure of either of the contracting parties to adhere to the conditions of the contract would entitle the innocent party to rescission of the contract and possible remedies for the injury suffered. However, under Herne Bay Steam Boat v Hutton, contracts of service may be discharged by frustration in the event of the destruction of the subject matter, or death or illness of the contract parties, Cutter v Powell. In addition, the deviation from the contract terms must meet the materiality test in order to justify rescission or a plea for the damages resulting from the non-performance of the contract. 

        Strict performance is, however, mitigated in a variety of circumstances, which include the following:

1. Divisible Contracts

Contracts may be divisible or entire. Entire contracts comprise those where a complete contract by one party offers a precedent condition to the liability of the other contracting party, Sumpter v Hedge. In divisible contracts, on the other hand, partial performance of a party is set off in consideration for the partial performance of the other party to the contract, Roberts v Havelock. 

2. Partial Performance Acceptance

In Christy v Row, the party promised performance may benefit from the partial completion of the contract for which they are expected to pay a reasonable price, if they accept the partial performance.

3. Prevention by Promisee

In the event that a party to a contract is prevented by the other party from carrying out their contractual obligations, then the remedies to which the injured party is entitled are mitigated.

4.  Other mitigating circumstances include substantial performance, where the material deliverables of the contract are realized, and other circumstances under the Tender of Performance, where lack of cooperation on the part of the injured contractual party, leads to failure of the performance of the contract provisions, Startup v M'Donald.

1. Breach of Contract

Under Hochster v De La Tou, a failure to adhere to the contractual terms, amounts to a breach, which may be material to justify the injured party’s discharge from their obligations under the contract. This is said to occur if a party (a) implies or expressly states that they are unwilling to adhere to the contract provisions and/or (b) substantially breaks conditions to endanger the possibly agreed upon consideration.

2. Legislations

The following legislations are relevant to the protection of parties to contracts from non- completion: the Frustrated Contracts Act (1988), the Sale of Goods Act (1979) and the Trade Practices Act (1979). These legislations apply to all forms of contracts in the Commonwealth, with the exception of insurance contracts, carriage of goods contracts and the sale of perishable goods.

3. Remedies for Non-completion of Contracts

With regard to frustrated contracts, any monies paid at the time when the parties are discharged from their contractual obligations are fully recoverable if they are already paid, while if payable, they cease to be, on condition that the party incurred expenses before the discharge. In addition, common law and statute laws provide for the restitution of non-monetary benefits in the event of partial performance. Section 1(3) of the Frustrated Contracts Act provides that, where a party to a contract benefits from the contract, then they are obligated to make good by way of consideration for the benefits received. Further, in case any of the contract parties does or stands to benefit from the non-completion of the contract, then they may be required to advance adequate compensation to the other parties to the contract that stand to lose out.

The court may as well order specific performance to satisfy the injured parties as in Australian Woollen Mills Pty Ltd v The Commonwealth, where a contract to the party was ordered to furnish the goods contemplated in the contract in order to satisfy the injured party. However, specific performance is limited to given types of contracts whose non-completion is not affected by a time limit or the destruction of the subject matter in the contract.

10. CHAPTER THREE

The law governing the formation and subsequent implementation of contracts changes constantly with changes in common and statute laws in accordance with the equally changing world. This chapter aims to seek evidence of the changes in the laws, the nature of contracts, dispute resolutions and business in the modern world. It includes a number of areas drawing on the review of Australia’s contract laws and multiple case studies on the areas that need to be pursued by researchers in the future. The recommendations assess the possible role played by ‘good faith’ to supplement or replace ‘equity’ in Australia’s contract law.

11. RECOMMENDATIONS FOR FUTURE RESEARCH

The remedies provided by both common law and statutory law are sufficient to satisfy aggrieved parties in the event of non-completion of contracts. However, difficulty arises with the fact that every contract is unique and the material facts are difficult to ascertain. There is a controversial and yet potentially useful principle, which has, however, not been explored by legislators, lawyers and policy makers—good faith. It is necessary to establish whether contract law is best facilitated by equity or good faith principles, especially with regard to the efficiency of implementation and fairness. The Royal Botanical Gardens & Domain Trust v South Sidney City Council established that there was implied fair dealing, care and good faith on the part of the contracting parties.

This could possibly be helpful in determining the facts of every case of non-completion of contract, as opposed to delving into the details of each individual case. Good faith has informed decisions on the range of remedies that have been used to satisfy plaintiffs under common law and statute law, but it could serve an even more significant role in decisions regarding cases of non-completion. In addition, there is need for scholarly attention to the exact definition and meaning of good faith as a basis for determining the material facts of each case. This will be particularly helpful in the resolution of implied and informal contracting environments, which are often difficult to adjudicate by formal legal means. These research efforts should also explore the possibility of integrating good faith into Australia’s contract law.

In addition, in order to better protect consumers and other contracting parties, such as businesses, from illegal contracts or the failure of contracting parties to complete contracts, it would be helpful to pursue alternative means of conflict resolution. These mechanisms would be especially critical in the establishment of material cases far more accurately than by the formal court systems. There is also need to better explore the possibility of integrating these channels to help satisfy the aggrieved parties in cases of non-completion of contracts.

        While there is legal uniformity around the world as regards common law, there have been significant variations in the sources of law and the paths of development in different countries, especially due to statute law. Some legal jurisdictions, either by design or accident and experience have fared better, and as a result, have better legal protections to parties in the event of non-completion of contracts than have other jurisdictions. It is important that scholars explore successes in different jurisdictions, and integrate them in Australia’s statute and other laws in order to make them more relevant and effective.

12. CONCLUSIONS

The existence of information asymmetry between consumers and business remains a difficult problem that must be addressed by contract laws in order to best protect consumers from non-completion of contracts. Contract laws seem to assume information symmetry between the contracting parties, effectively rendering it difficult for aggrieved contract parties to obtain satisfaction. This fact, coupled with other legal requirements for valid, enforceable contracts which are not easily accessible by the majority of the contracting parties, make Australia’s contract laws extremely slow in rescuing aggrieved contract parties from their contractual obligations. The difficulties are perhaps best underlined by the unique development of different principles and doctrines of law, and the effects that these unique developments in common and case laws have had on the formation, implementation and enforceability of the contracts through the courts.

        There is a rich possibility for Australian contract law to strengthen its strongest aspects, while at once seeking to minimize the effects of the weakest areas of its laws, by using the laws from other judicial contexts and jurisdictions as a basis for consumer protection policies and legislations to render them more efficient. This paper details the sources of laws in Australia, which are largely similar to the many other major judicial jurisdictions across the world; by their very nature, these sources are bound to give rise to different laws and approaches for more effectively addressing the various aspects of contracts. The major aspect highlighted by this paper involves the determination of the validity and the enforcement of the contracts, which is heavily reliant on equity maxims. In contrast to Australian contract laws, the United States and other major legal traditions have increasingly emphasized good faith as opposed to equity. This paper suggests the possibility of a greater role for good faith in supplementing equity principles. 

The paper details the remedies available to aggrieved parties for non-performance or non-completion of contracts. The remedies provided under common vary, but efforts are made to render them fair and equivalent to the monetary and other injury incurred by the aggrieved parties. The benefits to the parties of the contract arise once contracts are initiated, and breaching of contract terms will not allow the individuals to enjoy those benefits. It is in the interest of justice to offer suitable remedies to the plaintiffs to restore them to their original position. While these remedies are sufficient in most instances, what is lacking is the capacity of the law to determine the circumstances of each individual case, applying different principles, which are largely supported by laws, but perhaps most crucially, by the legal traditions that exist in a country. 

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Case law

Brownlie v Campbell (1880) 5 App Cas 925, 954

FA Tamplin Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397

Commercial Bank of Australia v Amadio (1983) 151 CLR 447

Commercial Banking Co (Sydney) Ltd v R H Brown & Co (1972) 126 CLR 337

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

Esanda Finance Corporation v Peat Marwick Hungerfords (1997) 142 ALR 750

Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524

Mersey Steel & Iron Co v Naylor Benzon & Co [1884] 9 App Cas 434

Smith v Land & House Property Corp (1884) 28

Taylor v Caldwell (1863) 3 B & S 826

Legislation

The Trade Practices Act 1979 (Cth)

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