SECTION 1: THE CASE STUDY
Simon and Rebecca Anderson have been medical officers in the New Zealand
Army for the past 20 years. They both returned recently from East
Timor , where they worked in the military hospital in Swai.
The Andersons
The Andersons have lived frugally and because of this now have joint
savings of $250,000.They will also receive a payment of $125,000 each when they
leave the army being their superannuation contributions from the period of
their employment.
Simon and Rebecca are therefore in the rather interesting position of
having $500,000 to invest but with little experience in the worlds of business
and investment. They eventually decide that they would like to own and operate
a small business in which they could use the skills they gained in the Army.
In this last three years in the Army Simon had moved from patient care
to a senior administrative role and would like to continue in this capacity –
preferring it to direct patient care. Rebecca would like to continue nursing.
After a long search for suitable business opportunities Simon and
Rebecca decide that they would like to own and operate a small boutique rest
home for elderly people. They wish to have a maximum of six residents and offer
them each premium quality individual care.
The Andersons
The following questions all relate to the Andersons
part one: Intention to Create Legal Relations
The property which Simon and Rebecca have fallen in love with has been
used as a family home for an extended family for the past 25 years. While the
location is superb and the house is structurally sound it would need a lot of
internal renovation work before being suitable for use as a rest home.
The Andersons Andersons
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Professional Quote
Humphrey Plank – Builder
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For renovation work on Cashmere Road Property of Simon and Rebecca
Anderson
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Materials
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85,000
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Labour
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80,000
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Total
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165,000
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Please Note: this is a quote only
– while care is taken to ensure costs are kept under the figures quoted
above, all figures are approximate only
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The quote was $40,000 lower than each of the other three quotes received
by the Andersons
Humphrey arranged to meet the Andersons
Rebecca was furious. She said that they had a contract for $165,000
which covered completion of all work on the property. Humphrey replied that
that was only a quote and was not legally binding.
Required:
Consider the issue of Intention to Create Legal Relations and
advise Rebecca and Simon whether they have a contract with Humphrey to complete
the work for $165,000.
PART TWO: Offer and Acceptance
After the problems
with Humphrey, Simon and Rebecca decided to begin negotiations with a rival
builder – Premier Renovations. They have undertaken lengthy negotiations with
Premier’s owner Frank Fabel. The essence of which appears below.
the company and an administrative assistant posts
out a brochure outlining the type of work Premier do. The brochure states that
the company’s prices are competitive and their workmanship is professional. The
brochure invites potential clients to phone the Managing Director Frank Fabel
for further details.
3 Sept. Simon and Rebecca telephone Frank
and arrange to meet him at the site the next day
to discuss matters in more hdetail.
14 Sept The
parties meet at the property and discuss the renovation requirements. After two
hours spent discussing the renovations and looking at the property Frank says
that the work will cost $205,000 inclusive of labour, materials, taxes etc and
that his team can begin work on October 1.
Simon says that they have set a limit of
$200,000 for the renovations. Frank says that he cannot do the work to an
acceptable standard for this price.
15 – 20 Sept. Simon
and Rebecca meet with representatives of four different building companies
including Regency Revitalisations, all of which either quote more than $200,000
or do not promise work of such high a quality as Premier Renovations.
21 Sept. Simon
phones Frank to say that the deal is back on and that he and Rebecca are now
prepared to pay the $205,000 price provided work can be completed by December 1
2001 so that the resthome can have its first residents installed by Christmas.
Frank
says that this is not possible as he has taken on a new contract to refurbish a
large commercial building.
Required:
Considering
the issue of Offer and Acceptance determine whether a contact has been
formed between the Andersons
Part Three: Consent
Following
the debate with Premier outlined in part two of this assignment the Andersons Andersons
The
advertisement in the yellow pages had stated that Regency was competitive and
professional – both qualities the Andersons
Problems
began to occur shortly after the contract was signed, the work did not begin on
time and was not of a standard which Simon considered professional. He hired an
independent contractor who agreed that the workmanship was below industry standards.
By this time work was significantly behind schedule and the relationship
between the Andersons
After a
tense few weeks Simon did some investigation into the company’s background and
was horrified to find that although Maurice had been in the industry for 45
years, Regency Revitalisations Ltd had only been established three months ago.
Maurice
had owned two previous construction companies – both had gone into liquidation
after being successfully sued by dissatisfied clients. In between times Maurice
had worked as a bricklayer’s labourer.
Simon and
Rebecca also find out that they are Regency Revitalisations’ first customers –
the testimonials had been written by Maurice’s mates at the pub the previous
Saturday night. Maurice had not done building or repair work for any of these people.
Required:
Considering
the issue of Misrepresentation determine whether Rebecca and Simon could
successfully claim against Regency Revitalisations Ltd. (You will need to
consider the issue of remedies in your answer).
Part Four: Capacity
Simon and
Rebecca reached an out-of-court agreement with Regency whereby they would pay
$100,000 for the work completed to date and Regency would clean up the site but
not undertake any new work. It was agreed that Maurice and his team would clear
the site by 31 October. The arrangement went smoothly and the clean site was
handed over on time. At this stage the work was about one-third finished.
The Andersons
Rebecca is
in charge of decoration and is keen for each of the guest bedrooms to have a
different theme to be consistent with their philosophy that each of their
guests be treated as individuals.
She puts
an advertisement in the ‘tradesperson required’ section of the local newspaper
for a person to paint and decorate the rooms. They got three replies and
accepted the quote provided by Todd and Amy. Todd is a 19 year old first year
Fine Arts student at the University of
Canterbury and Amy is a 16 year old Burnside High School
The
parties agreed on the design and Rebecca specified the materials to be used. It
was clear from the arrangement between the parties that Todd and Amy were
independent contractors and not employees of Simon and Rebecca. They began work
on 31 October full of energy and enthusiasm for the job. Their first week was
taken up with sanding and otherwise preparing the surfaces for painting. In the
second week they went to the supply stores to buy the materials Rebecca had
specified. They were horrified to find that the materials alone cost them
$1700. This would mean that they would only be paid $500 of their labour over
the six weeks they estimated it would take them to complete the job.
Amy and
Todd are doubly shocked when they learn that the two other bids for the job
were $5,300 and $6,500 respectively. They now wish to get out of the contract
so that they can pursue more lucrative work elsewhere.
Required:
Considering the issue of Contractual
Capacity determine whether Todd and Amy can avoid their contract with Simon
and Rebecca.
Part Five:
Consideration
Following
the intervention of an arbitrator from the Independent Building Contractors’
Society the renovations are now substantially complete with only finishing work
and landscaping still requiring attention.
Simon
engaged Landscape Architects Ltd and Fantabulous Foliage Ltd to design a garden
for the property and quote for the construction work and plantings required. He
asked both companyies to design a garden which is restful with strong clean
lines and one which is reasonably easy-care.
After
receiving both plans Simon decided to enter into a construction and planting
contract with Landscape Architects Ltd. He preferred their plan to that of
Fantabulous Foliage and their price was lower.
Two days
after advising Fantabulous Foliage of his decision, Simon received an account
from them for $450 for drawing up the plan which was very detailed and which,
they say, took 10 hours to complete. Simon was stunned to have received the
account because he had not discussed payment with the two parties prior to them
submitting the plans.
Landscape
Architects Ltd completed the work on schedule – by 15 November – and to the
satisfaction of both parties. The final account was $8,700 a little more than
Simon had budgeted for, although still within the price range quoted After a
little negotiation it was agreed that Simon would pay $4,000 immediately and
another $4,000 in two months’ time. Landscape
Architects agreed not to require payment of the additional $700.
Simon paid
the $4,000 and received a receipt for the money paid which indicated the
remaining balance to be $4,700. When he questioned this he was told that the
firm had decided to require full payment of the $8,700 account as they had
struck financial difficulties themselves and needed every cent they could get.
Required:
Considering
the issue of Consideration determine whether Simon is required to pay
Fantabulous Foliage for the plan and whether he is required to pay the full
amount claimed by Landscape Architects Ltd.
Part Six: Discharge
Rebecca
and Simon have entered into the following contracts which they now regret. They
seek your opinion about whether they can
be discharged.
(a) A contract with a gardening firm to mow the lawns, trim the edges and remove
all
garden rubbish on a weekly basis. The contract
is for a 12 month term at a set price of $98 per week. Simon now wishes to do
this work himself and save the money because the first two weeks work from the
gardening contractor has not been promising. The lawns were not mowed evenly,
some areas were ‘burnt off’ and in others the grass was left very long. The
contractors also failed to remove all of the rubbish, hiding some behind a
disused garden shed.
(b) A contract with a catering firm to
provide premium frozen desserts for the residents. Rebecca
agreed to purchase 60 of these on the first day
of each two month period for 24 months. At the time of making the contract
Rebecca had thought that they would have a large storage freezer on the
property but this is no longer possible as health authorities have required the
Andersons
(c)
A contract with Acorn Linen to supply freshly
laundered and starched linen for the guest rooms each week. While the contract
was originally for 12 months Acorn have agreed that if Rebecca and Simon use
the service for three months and then wish to discontinue it they may do so,
provided they pay a discontinuation fee of $100.
Required:
Considering
the issue of Discharge of
Contractual Obligations advise Rebecca and Simon whether they are able to
be released from these contracts.
Part Seven: Remedies
The
business is now ready to begin operations. The Andersons
The only
remaining problems are a few disputes they had with Heaven Scent Plumbing Ltd.
The firm were contracted to supply and install all plumbing necessary for the
kitchen and the six ensuite areas. Although the work was completed on time and
on budget there were serious problems with the standard of workmanship. The
District Court has accepted the Andersons
§ Tap fittings
were not (and were of a lesser quality than) those agreed to in the contract.
§ Plumbing
in the sink of one ensuite was deficient and two weeks after the installation
the pipes burst and water spilled out. Rebecca was able to get a plumber out
(the events happened at 11pm on a Saturday night) to stem the flow but two
rooms were water damaged, some expensive items of antique furniture had to be
replaced and Simon and Rebecca paid for one of the affected guests to stay in a
local motel until her room was ready to be occupied again.
§ Some of
the kitchen fittings which had been ‘plumbed into’ the walls by Heaven Scent
began to malfunction shortly after installation due to problems with the
plumbing. While this was relatively easily fixed it did necessitate that some
of the wall tiles be removed so that the repairers could gain access to the
fittings. In the process of removal three of the imported ceramic tiles were
broken. Simon contracted the supplier and was told that the tiles they had
bought were ‘end-of-line’ stock and no more could be supplied. The tiles
complete a pattern which runs around the entire kitchen area. An entire new
pattern would need to be laid around the area for a consistent look to be
achieved again.
Required:
Considering
the issue of Remedies advice Simon and Rebecca of any claims they may
have against Heaven Scent Plumbing.
NB: Please
remember that the District Court has determined that the contract has been
breached in these three respects. You only need to consider the issue of remedies.
SECTION 2: CASE STUDY ANSWERS:
by Juma C.J.O
The Andersons
The validity of any agreement is
pegged on the intention of the parties to create legal relations. In strategic management, focus should be on the need to ensure that the organisation's risks are minimised by entering into contracts that are legally enforceable; hence the need to be explicit about the intention to create legal relations. The intention
to create legal relations implies that the parties to an agreement are willing
to be held accountable to their actions as stipulated in the agreement
(Burrows, Finn and Todd, 2002). As a general rule, agreements between members
of a family are presumed to have no intention to create legal relations.
However, in specific cases, courts may determine that the agreement between
family members had the intention to create legal relations ab-initio. However, some agreements, by their very nature exhibit
the intention to create legal relations notwithstanding the fact that they are
among family members. This is especially common in agreements involving the
operation or the running of a business entity (Burrows, Finn and Todd, 2002).
The nature of business operations is such that the parties to the business
would constantly be involved with third parties that cannot be party to their
domestic agreements hence such agreements constitute binding contracts even
when such an intention has not be clearly expressed. The same goes to the
agreements formed between the members of the family and the third parties as
pertaining to the execution of any agreed tasks. This can be illustrated in the
case of Carlil v Carbolic Smokeball Co. in 1893 where the company offered to
make a compensation amount if they used their products and still caught
influenza (Burrows, Finn and Todd, 2002). On refusal to pay, Carlil sued and
the courts ruled that the offer was binding as it implied an intention to
create a legal relation (Burrows, Finn and Todd, 2002).
Humphrey produces a quote promising
to renovate the house in exchange for a fee of $ 165,000. This represented an
offer that would be binding upon acceptance by the Andersons .
On the other hand, upon acceptance, the Andersons
would be bound to pay the stated amounts upon execution of the tasks outlined
in the offer. Therefore, the intention to create legal relations is
present.
The relationship in question is
first and foremost a business decision. It must therefore be concluded,
considering the nature of the agreements that there was an intention to create
legal relations. The resultant contract is legally binding and enforceable by
law.
Considering the chronology of the
events and negotiations between the Andersons
and Premier Renovation, has the elements of offer and acceptance been satisfied
in order to constitute a valid contract?
An offer is a promise to a second
party promising to fulfill certain obligations upon acceptance of the offer. It
is a tentative promise subject to given conditions or upon acceptance by way of
committing to honor the request contained therein (Benson, 2001). Offers are
specific to the offeree. This implies that a different party cannot adopt an
offer meant for another person and expect to constitute a contract on its
basis. Offers should be distinguished from invitations to treat which are
common in the case of advertisements. For valid contracts to be formed, offers
must be accepted within the time frame outlined and in the manner specified
(KcKendrik, 2005). The offer is revocable at any point before acceptance by the
offeror. This is provided that the revocation is properly communicated.
Acceptance of an offer forms the
contract. This must be done in the manner specified by the offer and within the
time allowed by the offeror. Any acceptance that does not follow the specified
procedures is null and do not amount to the formation of a contract. This may
either be verbal, written or in other specified forms. Acceptance must be
unequivocal and unconditional. The proposal of any new conditions by the
offeree amounts to a counter offer and must be then accepted by the initial
offeror unconditionally before the contract can be said to have been formed
(Maree, Graw and Tiong, 2006). The offer and acceptance can be said to be the
backbone of any valid contract and must be accorded the relevant level of
importance in all agreements.
The advertisements cited by the
Andersons on September 1 amount to an invitation to treat and not an offer.
Similarly, the consultations between the two parties on September 4 were just
that and cannot be categorized as an offer or acceptance. The first offer in
the study is made by Premier Renovations on September 14 who offered to
renovate the property at a price of $ 205,000. The Andersons propose a
different price of $ 200,000 amounting to a counter-offer and not an
acceptance. Premier Renovations subsequently decline the counter-offer and no
agreement is therefore made at this point. After this rejection, the Andersons
sought quotations from other companies that engage in renovation of properties
between September 15 and September 20. The quotations made by these companies
constitute offers with pricing and promise of quality standards that the
Andersons did not find acceptable. In the absence of acceptance by the
Andersons, no contract is formed at this point.
On September 21, the Andersons
phone Premier Renovation stating that they were prepared to pay the $ 205,000
stated earlier. This wan offer and it was rejected by Premier Renovation on the
grounds of lack of capacity after accepting a new contract to refurbish a
different property. On September 29, Frank sought to accept the offer by the
Andersons. However, the offer had lapsed on September 21 with his last
rejection. The communication should therefore be interpreted as an offer by the
Andersons who may accept is of they were still at liberty to work with Premier Renovations.
For a contract to be valid there
must be an offer and acceptance. The case above shows several incomplete
circles relating to offers and counter-offers where there was no valid
acceptance. In view of the foregoing, no valid contract was formed in this
case.
Regency Revitalisations Ltd
presented the Andersons with information that they later found to be untrue.
The aim of this section is to establish whether the misinformation constituted
misrepresentation and whether the Andersons can invoke the legal provisions on
misrepresentation to claim for damages from Regency Revitalisations.
The presentation of falsified
statements of fact or law presented to one of the contracting party by the
other (s) prior to the formation of the contract and which is relied upon by
the aggrieved party in forming the contract (Coote, 2006). In New Zealand,
misrepresentation is recognized under the Contractual Remedies Act which
classifies misrepresentation into two categories: innocent and fraudulent
misrepresentation (Parliamentary Council Office, 2011c). It further prescribes
remedies for misrepresentation in sections 6 and 7 which provide for damages
and the cancellation of the contract respectively. Section 6 (1 and 2) provides
that where a misrepresentation occurs whether fraudulently or innocently, the
aggrieved party is entitled to damages as if the misrepresented fact were a
term of the contract that has been breached (Parliamentary Council Office,
2011c). By implication, this means that where misrepresentation occurs, the
aggrieved party would be entitled to damages covering all the direct and
indirect costs resulting from such misrepresentation. Sections 7 (4, 5) and
section 9 refer to the conditions that need to be satisfied for a contract to
be cancelled due to misrepresentation. While section 7(4) provides that a party
would be entitled to cancel a contract if the nature of the misrepresentation
is such that it would greatly affect the execution of the contract (Parliamentary
Council Office, 2011c). Subsection 5 however withdraws the right if the
aggrieved party is known to have consented to the contract in full knowledge of
the misrepresentation (Parliamentary Council Office, 2011c). Section 9 provides
for cancellation by seeking such actions from the courts of law.
The Andersons entered into
negotiations with Regency Revitalisations whose managing director, Maurice,
intimated to them that he had been in the industry for 45 years and without a
single dissatisfied customer. This statement implied that the company had been
in operation for as long and with an impeccable record over the stated time.
This information was aimed at building confidence and lead to the formation of
the contract. After the formation of the contract, the Andersons observed that
the work being done was of poor standards and worse than they had envisaged
when signing the contract. This was coupled with the fact that the work was
behind schedule. As a result, the Andersons sought a second opinion which
confirmed their observations about the quality.
A background check revealed that
the company was barely 3 months old and that the Andersons were their first
customers. The information presented by Maurice was false and misleading. The information by Maurice constituted
fraudulent misrepresentation. Maurice further engaged in falsification by
getting individuals to pose as customers and write recommendations which were
used by the Andersons as the basis for entering into the contract. According to
the provisions of the Contractual Remedies Act 1979, which provide for damages
irrespective of whether the misrepresentation was innocent or fraudulent (Parliamentary
Council Office, 2011c). Given that the Andersons were not aware of the
misrepresentation prior to the signing of the contract as provided for in
section 7 (5), they would be entitled to cancel the contract. This is because
the section 7(4) which provides that the misrepresentation should have an
adverse effect on the contract for it to warrant for cancellation. The
Andersons could also invoke the provisions of section 9 of the Contractual
Remedies Act in order to have the contract annulled. Moreover, section 6 of the
same act provides that the Andersons are entitled to claim damages from Regency
Revitalisations as a result of the misrepresentation. The damages could include
a wide range of costs including the actual amount incurred in paying the
company, loss of projected revenues and other losses that could be linked to
this misrepresentation.
Misrepresentation involves
presentation of false information by one party to the contract which is relied
upon by the other party to enter into the contractual agreement. The law allows
for the aggrieved parties to claim damages for the losses incurred as a result
of such misrepresentation once they can prove that indeed misrepresentation
occurred and that they relied on the information presented to enter into the
contract. Having considered that the provisions for damages and cancellation as
provided for in the Contractual Remedies Act 1979 have been satisfied, the
Andersons are entitled to damages and cancellation of the contract.
The Andersons contracted two
persons to engage in the decoration of their property, Todd and Amy aged 19 and
16 respectively. This section seeks to determine whether they had the
contractual capacity to enter into the contract and whether they were therefore
bound to honor the contract
For a contract to be valid, the
parties to the contract must have the legal capacity to enter into contracts
(Phillippa and Martin, 2006). Such persons generally do not include minors,
persons of unsound mind, aliens, people who have been declared bankrupt,
persons under the influence of alcohol and others as specified by the
provisions of the law of contract. In New Zealand, the majority age is 18 years
and it is therefore not possible to enter into binding contracts with persons
under the specified age as outlined in the Minors Contracts Act 1969
(Parliamentary Council Office, 2011b). Such minors would therefore be at
liberty to disown the contracts and the aggrieved party would not be in a
position to enforce the contract. However, the courts can at their liberty determine
that certain contracts can be enforced, especially those that relate to the
welfare of the minors such as insurance contracts.
The Andersons engaged the services
of a 19 and 16 year old persons, both of whom would jointly carryout the tasks
agreed upon as independent contractors at the given price. The two contractors
later find it impossible to execute the contract at the price they had quoted
earlier and are in a dilemma on whether to abdicate their duty or not. When
considering their options, the validity of the contract based on their
contractual capacity must be examined. Amy and Todd signed the contract jointly
as one party. However, it must be noted that Amy, 16, is a minor and therefore
with no contractual capacity. Amy, a minor, can opt to walk out of the contract
without attracting actionable penalties. However, in the event that she pulls
out, Todd would be forced to conclude the work alone since he had entered into
the contract jointly with a minor to execute the task set and could not walk
away since he had the contractual capacity when entering into the contract.
The parties to a contract must have
the requisite contractual capacity for such contracts to be binding on them.
Persons who are under the age of majority (18 years), persons of unsound mind,
and persons under the influence of alcohol do not have the contractual capacity
and cannot therefore form binding contracts. Amy is therefore free to abdicate
her responsibilities as outlined in the contract.
Fantabulous Foliage demanded for
the cost of designing the layout after the Andersons settled for a competitor’s
quotation. Should the Andersons pay the $ 450 demanded? Secondly, after
Landscape Architects agreed to waive the sum of $ 700 from the fees, they
demanded for it. Should the Andersons pay that as well?
Consideration is something of value
that is exchanged between the offeror and the offeree in exchange of the offer
specified in the contract (Valente, 2010). It comes from the offeree to the
offeror. For instance, where a contractor offers to redesign a house in
exchange for a $ 50,000 fee, the consideration is the 50,000 the offeree is
expected to pay to the offeror. The consideration does not need to be adequate.
However, both the offeror and the offeree must be fully aware of the
consideration in question before they enter into a contract (Chen-Wishart,
2007). A party to a contract cannot therefore demand for a consideration that
was not agreed upon prior to entering into the contract. Consideration needs to
be a promise for future undertaking, and not an action that happened in the
past. Past consideration is not enforceable except where it involves services
of a business nature that were offered at a persons request and other
circumstances as would be determined by the courts of law
After failing to capture the
substantive contract on landscaping, Fantabulous Foliage demanded for $ 450
from the Andersons as the charge for designing the layout. As stated above,
consideration needs to be known to all parties of the contract prior to the
contract. Since no consideration was agreed upon at the time that Fantabulous
was agreeing to avail the designs, the agreement between them and the Andersons
cannot be termed as a contract. Moreover, the request for a proposed layout did
not come with a promise to have Fantabulous handle the substantive contract.
The layout would therefore amount to an offer (albeit detailed with requisite
designs) which was not accepted. Therefore, the Andersons are not bound to pay
the amount demanded.
On the case between Landscape
Architects and the Andersons, the consideration was predetermined at $ 8700.
This is the amount due to them at the end of the contract. The promise to waive
the $ 700 does not amount to an alteration of the consideration as envisaged at
the formation of the contract. Given that Landscape has fulfilled their
responsibility as outlined in the contract, and given that the promise to waive
the fees was negated before the final payment was done, the Andersons are bound
to pay the $ 8700 to the full.
The section seeks to establish
whether the Andersons can legally be discharged from their contractual
obligations for the contracts they no longer need to keep
There are various ways in which a
contract can be discharged. The first way is through the completion of the
tasks set out in the contract (Trebilcock, 1993). Where both parties to a
contract have fully discharged their duties, the contract can be said to have
been fully discharged. It can also be discharged due to proven underperformance
of the duties outlined in the contract. The second way in which contracts can
be discharged is through frustration (Parliamentary Council Office, 2011a).
When it reaches a level where one or both parties to the contract are no longer
able to execute the duties outlined by the contractual agreement, the contract
discharge is possible (Parliamentary Council Office, 2011a). The contracts can
also be discharged by agreement. The contracting parties could agree that if
one of the parties decided to discontinue at any point, they were at liberty to
do so provided the outlined conditions are fulfilled.
The Andersons need to exit some of
the contracts they had entered into. A
contract was entered into with the gardener whose performance has been far from
satisfactory. Since the gardener has failed to fulfill his duty to the letter
and spirit of the contract, the Andersons were at liberty to discharge the
contract. In second case, the Andersons enter into a contract to purchase 60
desserts each month for 24 months. The regulations by the health authorities
made it impossible for them to continue having storage facilities (freezers)
and they could no longer store the desserts. This is a frustrated contract due
to factors beyond the control of either party to the contract. The Andersons
can cite frustrations and discharge the contract. The third contract involves a
scenario where the contract had outlined mechanisms for discharge in the event
that the Andersons needed to pull out of the contractual agreement. This
involved Acorn Linen with whom they had agreed that a surcharge of $ 100 would be
needed if the Andersons needed to terminate the contract prematurely. The
Andersons therefore had this option of termination.
Termination or the discharging of
contracts can be done differently depending on the prevailing circumstance. The
most common ways of doing so involve mutual agreement between the parties to
the contract, discharge due to unsatisfactory performance, and discharge due to
frustration where one of the parties is no longer able to discharge the
responsibilities allocated by the contract.
7.0
Remedies
A contract with Heaven Scent
Plumbing had been poorly implemented and led to significant losses by the
Andersons. This section seeks to determine the remedies available to the
Andersons in this regard
The remedies available to the
Andersons are outlined under the Contractual Remedies Act 1979 of the law of
New Zealand (Parliamentary Council Office, 2011c). The act stipulates that an
aggrieved party can claim damages relating to the losses incurred as a result
of failure by the other party to the contract to execute their duties as
outlined in the contract. The damages recoverable include the direct costs as
well as the indirect costs that can be linked to such omission or commission
(Parliamentary Council Office, 2011c). This was illustrated in the case of
Riddell v Porteous (1999) where Porteous (the contractor) was required to pay
damages to the plaintiff for breaching contractual obligations (Contract law,
2011).
Heaven Scent Plumbing Ltd were
contracted to provide plumbing services to the resort. The plumbing company had
used tap fittings of lower quality than specified in the contract. Secondly,
due to the plumber’s poor performance, the kitchen pipes had burst forcing the
Andersons to engage another plumber to rectify the problem and to transfer one
of their guests to another motel. This was later followed by malfunctioning of
the fittings fixed into the walls which necessitated the removal of the tiles
in order to fix them. The damages claimable by the Andersons would therefore
include the following: the cost of paying the emergency plumber, the cost of
fixing the fittings in the walls; the cost of replacing the tiles affected; the
cost of hosting the client in a neighboring hotel; and the cost of replacement
of all the fittings supplied in order to install the desired quality.
Contractual obligations need to be
carried out with utmost precision to ensure that losses are not incurred
unnecessarily. This is because the aggrieved parties are entitled to damages
that arise from any failure to discharge the outlined duties. Under normal
circumstances, the damages claimable by the aggrieved parties are dependent on
their ability to prove that the arising costs were as a result of the failure
by the other party to discharge their duties.
Burrows, J.F., Finn, J., and Todd, S. (2002). The
Law of Contract in New Zealand. 2nd Ed. LexisNexis NZ:
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