Business Law. Application of Contract Laws


A contract is an agreement that outlines specifics details of an issue between different parties regarding a certain matter; it is usually a written document, although it can also be verbal and is enforceable in a court of law (Turner, 2008). For a contract to be considered valid it must contain seven important elements: consideration, form, intention to create legal relations, agreement, genuine consent and capacity to implement the contact (Turner, 2008). When a contract has been broken a breach is said to have occurred, breach of contract in legal terms is used to describe actions that has been undertaken by one of the parties in contravention to the binding agreement as originally entered between the parties. It is also used to describe cases where the terms of an agreement as entered between various parties is not honored according to the articles of the agreement. In the preceding case scenarios we are going to apply the various legal principles that govern the law of contracts to determine the legal options that are open to Frank under the circumstances.

Issues Involved

An important fact which will be the prerogative of the arbitration court that will handle this case is whether Gordon actions as described in the case scenario constitute breach of contract. In fact determination of this fact is central to all the other issues that the court would be arbitrating on and will determine the nature of verdict that the court is likely to arrive on. Another issue that would need to be determined pertain fraud; under the circumstances it would be necessary to establish if Gordon’s introduction of additional contract document on disclaimer terms can be termed as fraudulent.

This is because of the manner that Gordon uses to introduce this additional contract terms and conditions which is tantamount to trickery. Finally, because the disclaimer on breach of contract notice was introduced by Gordon at a later stage from the date that the contract was mutually signed by the parties, another principle of law that is bound to be addressed is referred as Parol Evidence Rule (PER).

Parol Evidence refers to later stage statements made as evidence in a court of law for purposes of influencing a verdict. In context of contract law, Parol evidence refers to all forms of non-pertinent evidence presented by any party to an agreement that is not explicitly cited or which cannot be inferred from a written contract as it was finally written and agreed between the parties (Bossuyt, 2001). In the preceding section we are going to address all these issues one at a time in order to determine whether the actions of Gordon & Company amounts to breach of contract which would therefore qualify Frank to be financially compensated.

Application of Contract Laws

Ideally contracts are legally enforceable as long as such contracts are not illegal, trifling, indeterminate or impossible to implement. A good place to start in determination of whether a breach of contract did occur under the circumstances is an overview of factors that automatically render a contract breached or which could make it become, void, voidable or unenforceable. One, a breach in contract occurs where one of the party’s actions means that other parties to such a contract are unable to perform. Secondly, the law states that a contract is in breach where one of the parties undertakes actions that are not in accordance with the “intent of the contract” (, 2008).

Finally, a contract is said to have been breached where one of the parties refuses to completely discharge duties as required under the terms (, 2008).

Based on the circumstances of the case study, it would seem that Gordon has breached the contract on both the second and third ground as cited above. This is because the intent of the contract as agreed between him and Frank is very clear and consistent throughout the detailed contract agreement that both parties signed initially and even according to the design and drawings of the house that Frank was given to peruse through. Thus, we can say that failure by Gordon to build a house that conforms to the articles of the agreement and provide for contradicting provisions that are not included in the main contract agreement can be termed to be in breach of the contract. Even on the third ground, Gordon has breached the contract since he failed to completely discharge the duties required of him as clearly articulated by the contract and thus in clear breach of the contract. A cursory look thus far indicates that it is probable that Gordon would be found to be in breach of duty that was expressly stated in the contract. Now that we have determined that let us now move on and explore other issues that are pertinent to this case.

One of the seven essential elements that is fundamental in ensuring that a contract is valid states that a “contract should have no vitiating or negating elements” which include mistakes, undue influence, duress, misrepresentation, illegality and non est factum (Gibson, Rigby, and Tamsitt, 2005). Our focus will be on two of these factors, that of misrepresentation and non est factum which are the ones that are pertinent to our case scenario.

Non est factum refers to cases whereby a party to a contract “signs a deed which is completely different from what they thought they were signing and they were not careless in doing so” (Gibson et al, 2005). From the facts of the case scenario one thing is very certain; which is the fact that Frank signed a contract that he thought represented his design of new house which it was paramount for him to have a steel roof, but this was not the case.

In such a case under the laws of contract, a court can declare the contract void whereby it can provide for rescission and award damages to Frank. This principle of contract law is well elaborated in the cases of both Gallie v. Lee, 1968 and Foster v. Mackinnon, where the court concluded that “the absence of negligence was a condition of the plea of non est factum” thereby asserting this principle. Thus, on this ground alone it is probable that the court will provide Frank with financial compensation. On the second issue of misrepresentation, there are three forms of misrepresentations that are summarized under the contract law; fraudulent, negligent and innocent misrepresentation. Because we know that Frank was not negligent in failing to notice the added provisions on the terms and conditions of the contract, let us shift our attention to Gordon who we can conclude that his later stage alteration of the contract to alter the terms of the contract to be deliberate.

So let us see what is implied by fraud in contract law; in the context of breach of contract fraud is used to describe situations where one of the parties misconstrues facts in the process of agreement formation (Bitner, 2010). Determination of fraud is a central issue in the breach of contract suit and is also used to determine the nature of damages to be awarded.

On the surface of it, Gordon’s actions of sneaking what would have been an important article in the agreement at a later stage can be interpreted as fraudulent for two reasons; one, because Gordon is deliberately tricking Frank to oversee this provision of terms and conditions by introducing it together with the structural designs of the house which he knows are too many for Frank to find time to go through them all. Secondly, the fact that he introduces a provision that should have ideally been included in the original 50 page contract agreement at an unlikely place and at a later stage implies that Gordon was deliberately trying to pass this provision unnoticed.

But let see what the contract law says about fraud in agreements; generally the law does not require any of the party’s during the process of entering to a contract to inform the other party about a fact that they are aware even if it is important for them (Elias and Levinkind, 2005). The mere act by party A of failing to state a fact to party B does not make them fraudulent since party B is expected to exercise reasonable cautiousness when entering on a contract. This principle is well expounded in the case of Smith v. Land and House Property Corporation (1884) in which the court held that “silence is not normally misrepresentation but can be sometimes” (Gibson et al, 2005). This is because the law places the responsibility to Frank to determine the full terms of the contract using all the facts that have been availed to him. Now this would be the case except that this provision was not originally introduced in the 50 page document and therefore not part of the articles that Frank signed on 1st July. But because this was not covered by any of the articles in the original contract agreement we can emphatically determine that Frank is in no way under obligations to comply with this provision of terms and conditions. And this is where the principle of Parol Evidence Rule comes in.

Normally, PER is taken to mean evidence that is presented in form of verbal statements, however it actually refers to any form of evidence written or verbal in nature that contradicts the terms of an agreement (Broude, 1970). The implication of PER in our context is that a court of law will classify all later stage evidence presented by any party contesting to an agreement as Parol Evidence that is subject to dismissal for two reasons; one, because it was introduced at a later stage, and secondly because it contradicts the term of the original contract as agreed between the parties (Broude, 1970). Indeed both of these conditions perfectly fits this case since this provisions on terms and conditions that Gordon eventually introduced in the documents is not clearly articulated in the original contract agreement, and neither does it conform with it. This is because the court assumes that any evidence presented and which is not supported by the articles of an agreement must be for purposes of altering the intention of the contract since it is not contained in the agreement.


Thus based on the circumstances of the case it would appear that Frank has more than one ground of proving that Gordon is in clear breach of the contract that he entered with him. Note that since Frank can prove that Gordon breached the contract in more than one way, it would mean that he has a strong case against him and therefore can expect to win damages if this case was to be arbitrated in a court of law. Strictly speaking, this last provision on terms and conditions should have no relevance simply because it was not included anywhere in all the articles that binds both the parties together and should not even be admissible in a court of law.


Bitner, S. (2010). Breach of Contract Cases. Web.

Broude, Richard., (1970). The Consumer and the Parol Evidence Rule: Section 2-202 of the Uniform Commercial Code. Duke Law Journal, (881), pp. 134-157.

Bossuyt, M., 2001. The Principle of Parol Evidence Rule. Digest of United States Practice in International Law, 303 (4), pp.310-323.

Elias, S & Levinkind, S. (2005). Legal Research: How to Find & Understand the Law. 14th ed. Carlifornia: Berkeley.

Gibson, A., Rigby, S. and Tamsitt, G., (2005). Commercial Law: In Principle. 3rd edition, Sydney: Thomson Law Book Co. (2008). Nonperformance and the Breach of Contract. Web.

Turner, C. (2008). Australian Commercial Law, 27th edn. Victoria: Thomson Reuters.