Question 5.15 Essay

Question 5.15

Areas of Law

            Making a contract signifies that a certain party has made a promise with another for the fulfilment of a certain agreement (Smith, 2001, p. 2). A contract is an agreement between two parties which is enforceable in a court of law. The law of contract demands that both parties in the contract should fulfil their obligations in the contract without fail. In other words, a contract binds two agreeing parties legally (Collin, 2003, p. 3-4). Failure to honour a contract amounts to a breach of contract which results in civil liability for which the law can provide a remedy. Remedies include damages and specific performance (Smith, 2001, p. 39). There are four ways in which a contract can be terminated: through performance; frustration or the impossibility of performance; rescission which includes agreement; and breach of contract.

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Main Legal Principles

Contract enforcement

            A contract is a legally enforceable agreement between two people to fulfil particular obligations. The two parties must enter into the contract willingly in what is ensured by the principle of offer and acceptance (Smith, 2001, p. 4). This means that one party makes an offer which the other willingly chooses to take and together they form a contract.  Each party should promise to fulfil the promise made under the contract.

Breach of Contract

            Breach of contract refers to the situation in which one of the parties in the contact agreement fails to fulfil his side of the deal (Bennet, 2009, p. 1). This could either be in the form of defaulting payment or through failure to supply the items included in the contract. Since the defaulting party has caused inconvenience and loss to the other party, this can be said to be an infringement of his rights. The wronged party hence has a right to sue the defaulter in a court of law for a breach of contract (Collin, 2003, p. 356).


            Remedies are meant to indemnify the wronged party by either providing payment for the losses made by requiring the defaulter to satisfy his side of the deal. When a court of law instructs the defendant to pay a certain amount to the plaintiff for the losses and inconveniences caused, this remedy is known as damages (Smith, 2001, p. 68). The remedy of specific performance is enacted when the defendant is required by the court of law to fulfil his obligations as was required under the contract (Smith, 2001, p. 70).

Contract termination

            In normal circumstances, a contract is terminated once the parties involved have satisfied their obligations (Bennit, 2009, p 1). Problems may however arise and the parties may not be able to fulfil their obligations so that the contract would have to be terminated. A contract may be terminated because of impossibility of performance which is also referred to as termination by frustration (Bennet, 2009, p. 1). For example where the subject matter has been destroyed, purpose of the contract is destroyed or as a result of any other unavoidable circumstance. Another way is rescission in which parties may terminate a contract if they have a legal right to rescind the contract.  An agreement can also be made together by the two parties to end the contract (Smith, 2001, p. 85). The other way in which a contract can be terminated is through a breach of contract where one party refuses to honour his part of the agreement (Issacon, 2002, 4).

Application of the Principles

            PSB Holdings has already signed two contracts; one with the Malaysian government and the other with South African government for the supply of bridge manifolds at A$10,000,000 and A$20,000,000 respectively. PSB Holdings has an obligation to supply both governments with the bridge manifolds and failure to do so may result in the civil liability for the company. If the company breaches the contract of either country, it may face a civil liability case where it may be required to pay for damages or to supply the required bridge manifolds whose supply it may not be able to meet. As a result, the company is likely to make a huge loss.

            The company has two options in ending one of the contracts. PSB Holdings could table meetings with the country representatives involved in making the contract to try and convince them to terminate the contract by explaining the circumstances that they are in. The other option would be to prove that the company is not in a position to provide the bridge manifolds to both countries which will enable it to cancel one of the contracts. The cancellation could use the first come fist served basis or take the contract with the highest amount. An agreement with the affected party remains the best option because this will avoid unnecessary procedures required to cancel the contract.


            PSB Holdings can succeed in avoiding the fulfilment of one of the contracts. This would however not be easy because singling which country’s contract to fulfil and which one to leave out may be a hard decision. This is considering that both countries may not be willing to step aside to allow the other to obtain the supplies. The best choice for PSB Holdings is to make an agreement with one of the countries to terminate their contract. In case this is not possible, they may prove in the presence of a lawyer that they are not in a position to supply both countries and this evidence can be used to justify its termination of one of the contracts. Failure to fulfil either contract without such procedures may lead to prosecution which could be detrimental to the company.

Word Count: 940


Bennet Sherrie. Contract Termination.  Retrieved on May 21, 2009 from http://consumer-  

Collin Hugh. The Law of Contract. UK: Cambridge University Press, 2003.

Issacon. (2002). Contract Termination. Retrieved on May 21, 2009 from   

Smith, P. (2001). The Law of Contract. New York: SAGE