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Question:

Explain Contract Law.

 

Answer:

 

Introduction

Contract law of UK states the different provisions for a contractual agreement between two or more persons[1]. The contract law states the legislations, which will help the parties at the time of breach of the contract terms. The assignment here focuses on the different aspects of the contract law. The first part of the assignment focuses on the different between the classical theory of Contract and the modern theory of contract. In the second part different aspects of oral contract, law of tort, promissory estoppels and law of negligence are discussed in the aspect of the given cases.

 

Discussion on philosophy of Laissez faire and freedom of choice on present law of contract

The Freedom of contract or the Laissez faire contract was introduced within the English contract law so that the parties entering into a contractual agreement can have a freedom of contract with minimal state of judicial or governmental interference.  The principles of European Contract Law states that freedom is legal only when the freedom is availed at good faith and fair dealings

The concept of freedom of contract arose from the following case:

 

Case law: Lochner v New York

In this case, the UK state law limited the rights of the New York baker Joseph Lochner as he was fined for violating the state law limiting the number of hours for which the employees within UK could work. Lochner claimed that he had the right to freely contract with his employees under his own legal terms and that the state had no right to intervene within the contract terms. Thus, the Liberty of Contract was applied in the future cases.

In the nineteenth century, the use of the concept of Laissez faire within the contract laws had become a very relevant concept. However, at the beginning of the twentieth century the concept of freedom of contract became unacceptable for many legal professionals. The legal professionals of the 20th century commented that the concept of Freedom of contract is a relevant concept in the political context however; it is difficult in case of implementation in the practical commercial market.

The law of contract, UK states that a contract is a mutual agreement between two or more parties giving rise to obligations that are enforced, recognized, and enforced by the law. The law iof contract states that the agreement between the two or more parties will be acceptable to be valid if the following conditions are satisfied namely:

  • One party makes a legal offer to the other party with a legal intention
  • Acceptance of the legal offer and information of the same transmitted to the offeror
  • Presence of a legal consideration between the contracting parties for the payment of services performed under the contract
  • The contracting parties should give legal consent free from any coercion, misrepresentation and force

Keeping the valid factors of the contract law in mind it can be stated that the concept of Freedom of contract had certain disadvantages that would have made the modern day commercial contracts unacceptable in the eye of the law.

The major reasons behind limitation of the Freedom of contract are the fear of commoditization of the goods and services, the effects of the third party interventions, instances of coercion, instances of production of improper information by one of the contracting parties, instances of discrimination of the contracting parties and unenforceability of the promises within the contract law.

The introduction of the Unfair Contract Terms Act 1977 stated the legislations restricting the operation and legality of certain contract terms[7]. This law provided the legislations under which the freedom of contracting became limited. At the time of application of freedom of contract norms the contracting parties had no or very less legal obligation related to the consideration and contract terms. Hence, in many case it was seen that the promise made within the contract was not followed resulting in a loss of the contracting party.

However, the contracting right is socially an independent right of all parties. As per the contract law the following parties are not legally liable to enter into a contract namely:

 
  • A minor who is below the age of 18 years
  • A person who is mentally incapable of performing any normal functions
  • A person who has been convicted by the law as having some past criminal record
  • A person who is financially insolvent

The contract laws restricting the acts of these parties from entering into a legal contract are generally done in order to limit the problems within the contract and also in order to protect the individual as being perceived as a weaker contracting party. However, the introduction of the concept of the Freedom of contract made it possible for the minors to enter into binding contracts under the parental guidance. Thus, it may be suggested that before the advent of the modern contract law the relevance of the law of freedom was prevalent in the society. In the nineteenth century the economic conditions of the people were focused on the laissez faire attitude thus the contractual agreement was viewed from the economic prospect. The freedom of contract had two major parts firstly the individual choice of entering into a contractual obligation. This allowed the parties entering into a contract to make choice of parties as per their convenience. Secondly, the contractual parties had the freedom to decide on the terms of the contract. Thus, these two aspects made the contract unfair since the contractual parties were able to include unfair terms and started discriminating on the grounds of gender and caste at the time of selection of the contracting party.

Thus, the underlying assumption of parties having a free right to enter into contractual obligations can be applied in the modern contract law in only one type of contract that is the Commercial contract for sale of goods. In the Sale of goods act, the party freely fix the selling terms and agrees upon a specific date in order to make the required payment. Although the classical theory of Freedom of contract has been highly criticized by the law personnel and the academic commentators, however the modern contract law is still having its roots in the depth of the Classical theory. The major aspects incorporated within the modern contract law like the free consent, voluntary transactions and capacity to contract are some of the instance s suggesting that the modern law is derived exclusively from the classical theory of freedom of contract.

Recovery of money

The case here deals with the legal contractual obligations between Marcus and the three other parties namely Elsie, Safina and Gary. The case shows that in all the three instances Marcus has delivered a service without any consideration. However, in all the three cases, Marcus was given the assurance of some form of consideration. In The first case, Elsie who was a next door neighbor of Marcus, requested Marcus to make certain repairs of the kitchen appliances. Marcus agreed to provide the services without any prior contractual term between him and Elsie about the consideration. However Elsie promised to pay £300 because she was happy with his work.

 

In the second case, Marcus made an agreement with Safina of £8000 for the service he would provide. However. Later Safina made a partial payment of £3500 and a ruby to Marcus. The valuation of the Ruby being less, Marcus suffered a loss on the consideration amount.

Similarly, in the third situation, Marcus did not receive his payment because the party Gary became insolvent; however, he was offered a check of £35000 as a full settlement of £70000.

In the first case, Marcus had not entered into any legal contract with Elise. There was no contractual terms, offers, agreements or any consideration before the services were rendered by Marcus. However, Elsie made gracious promise to Marcus that she would make a payment of £300. In the law of contracts, the doctrine that provides that if a party changes his or her position substantially either by acting or forbearing from acting in reliance upon a gratuitous promise, then that party can enforce the promise although the essential elements of a contract are not present. This doctrine is commonly known as the Promissory Estoppels. The principle of the Promissory Estoppels are applied for cause rather than action.

As per the principles of the Promissory Estopple certain elements must be present namely:

  • A promisor: The party who makes a promise and the promise should be of gratuitous in nature
  • A promisee: one to whom a promise has been made. The promisee relies on the promise and delivers the service accordingly with full due care
  • An economic loss: The loss which has arisen due to the unfulfilled of the promise

Case reference: McIntosh v. Murphy, 52 Haw. 29, 469 P.2d 177 (Haw. 1970)

In this case Murphy (D) made a verbal agreement to hire McIntosh (P) to work at his auto dealership for one year. McIntosh later sent Murphy a telegram stating that he would arrive in Honolulu the next day from Los Angeles. P began work the next day. D fired him two months later. P sued for damages and claimed that the contract was for one year. However, D defended stating that the contact was not written hence the contract was void and unenforceable. However, the court ruled in favor of P and stated that P had rendered the services by relying on the oral promise made by D. Hence, under the doctrine of Promissory Estopple D is legally liable to make the payment of the promised consideration that is keep the appointment of P within the dealership for at least one year.

Thus keeping the doctrine and the cases in mind it can be effectively stated that Marcus in the first scenario is entitled to receive the promised payment from Elsie on the grounds of Promissory Estopple. Since Elsie had made a gracious promise to Marcus that, she will make a payment of £300 in return of his good services hence by relying on the oral promise, Marcus gave his productivity and completed the job. However, Elsie refrained from her promise later which is a breach of the doctrine of promissory Estopple. Thus, legally Marcus has the option of claiming the consideration amount, which Elsie had promised, and thus he has the option of recovering the amount from Elsie.

In second case, the initial contract was made on the grounds of monetary payment. However, later the contract was amended with due regard of both the parties and the amendment included a part monetary payment and a part non-monetary payment. Hence, in this case Marcus had freely consented with Safina on the part payment system. In the amended contract Safina made an offer of part monetary payment and part non monetary payment in terms of jewelry. Marcus consented on the offer by freely accepting the same. Although there was no written obligation in the matter however, the offer and acceptance are the most valid aspects of even an oral contract. Thus, in this case Marcus should have initially determined the value of the jewelry before making the deal. In the second scenario, hence Marcus will not be able to make any claims and is not entitle to recover the money from Safina as the contract was not void and is legally enforceable.

In the third scenario, the insolvency of Gary made it impossible for Gary to make the full payment as agreed upon within the verbal contract. The contract law states that as soon as one of the contracting parties become insolvent or bankrupt the contract is terminated. The agreement is legally terminated without any notice to any party at the instance of insolvency or bankruptcy of one of the party. In such a case, the insolvent may make the payment as agreed upon the contract in full settlements of the total debts. In the given case, Marcus has been offered a cheque of £35000 in full settlement of his debts. Thus, keeping the fact in mind that the contract has already been terminated, Marcus should accept the amount and should consider the rest as a bad debt amount.

Thus, analysis of the three different scenarios shows that Marcus is able to successfully recover he monetary payment from only the first scenario. In the next two scenarios, Marcus will not recover the money.

Action on misrepresentation and remedies available

The Misrepresentation Act 1967 formulated by the UK common law is a part of the contract act exists to protect consumers from false or fraudulent claims that induce consumers into purchasing something, or entering into a contract and allows individuals to claim damages in the case of fraudulent misrepresentation.

In the given case, Rosie had an intention to purchase a show dog from Anthony.  Although, before selling the dog Anthony had suggested Rosie to have a look over the dog, however Rosie did not take any initiative related to this. The dog was suffering from nervous disorders, which were known to Anthony. However, Anthony made a false representation or rather concealed the truth from Rosie. In the next part f the case, Rosie had taken the dog to Victor who was a veterinary in order to cure the strange behavior of the dog. There the doctor prescribed a strong medicine to the dog which was known to have large number of side effects. Though the doctor made a mention that the medicine will have certain side effects however, the doctor did not clearly state that the medicine may make the dog aggressive in nature. This further made Rosie a victim of false representations.

Section 2(1) of the Misrepresentation act provides the norms for the damages that are incurred due to acts of misrepresentation. The clause states that if the contracting party is harmed by the misrepresentation of another party and has suffered some kind of loss in that respect. Then the persons liable for making the misrepresentation is legally liable to make the compensatory payments for the damages that the other party has incurred

Relevant case: Royscott Trust v Rogerson [1991] 2 QB 297

The defendant, a car dealer, mis-stated the information of a sale by hire purchase to the finance company who was the claimant in the case. The finance company operated a rule whereby they would only advance money if the company paid a 20% deposit. The car company stated that price of the car was £8,000 and as per the norsm of the finance company made a 20% advance of £ 1600 leaving £ 6400 to be borrowed by the purchaser from the financial companies. However, the initial price of the car as stated by the car dealer was false. The customer later defaulted on the hire purchase agreement  and sold the car on. The customer was also not able to make the payment to the bank. The bank that is the claimant charged the car dealer for the misrepresentation of the information and demanded for the monetary loss compensation. The case was vindicated in favor of the claimant stating that it was an act of tort of deceit and act of misrepresentation. he car dealer was liable for all the consequences of his misrepresentation, and therefore had to pay off the debts owed to Royscot Trust Ltd.

In the given case, Rosie is liable under the Misrepresentation Act 1967 to claim for damages from both Anthony and Victor. Anthony had made a false representation of the statement thereby not stating the current condition of the dog. Hence, Anthony is also liable under the tort of deceit. The misrepresentation statement in this case has been taken to be true by Rosie and thus she entered into the contract however, she had knowledge of the untrue facts of the statements.

As a remedy to the breach of the contract on the grounds of the misrepresentation, Rosie is liable to make claims for the damages for rescission. In case of negligent misrepresentation the party is liable to make claim for damages. However, in such case actual losses only are recoverable. In case of intentional misrepresentation, the party who has been presented with the false statements has the option to rescind the contract that is to take back the contract.  The misrepresentee would then be entitled to compensation to put him back in the position as if the contract had not taken place. This concept is different from the termination of the contract. In the termination, the breach of the terms will lead to cancellation f the future performance of the contract. However, in rescission the claimant has the option to recover the monetary loss which the claimant has suffered due to the defendants misrepresentation. The claimant may also have a tort claim for any losses that had arisen. Thus, the act of misrepresentation gives the claimant an opportunity to recover the money, which the defendant has falsely taken from the claimant for the defendants benefit.

In this case, thus Rosie can make a claim of damage from the doctor and apply the principles of rescission on the misrepresentation made by Anthony. Anthony has benefited from the money, which he has taken from Rosie by selling the dog. Anthony was previously are of the dogs condition but did not inform Rosie. Even when Rosie asked him about the well-being of the dog, Anthony remained silent. Silence on the part of Anthony was taken as a positive indication and thus Rosie was misinformed about the condition of the dog. In this regard Rosie will firstly cancel the contract then demand the refund of the money that has been paid to Anthony for the purchase of the dog. Moreover, Rosie can also file a suit against Anthony for the physical damage, which she has suffered due to the attack of the dog. Secondly, Rosie can claim the actual amount of damages from the doctor since the doctor was negligent in informing Rosie about the exact side effects of the medicines. However, since the doctor may not be totally aware of the practical side medicine.. Thus, the negligence and misrepresentation of the doctor is considered unintentional. Hence, the doctor will be made liable to pay only for the damages that Rosie has incurred due to the attack made by the dog.

Claim for damages

Analysis of loss of profits on opening night

In the given case, Shabnam had hired the DJ for the opening party of the new disco, which Sabnam had purchased. However, there was no valid written or oral contract between the DJ and Sabnam. Thus, there were no contractual terms, offer, acceptance and consideration in the situation. Sabnam had stressed on the opening day ceremony and the need of the DJ on the opening day however, she did not make the DJ aware of the financial loss that she would face if the DJ did not turn up on the day. In this case, the DJ would not be liable for any financial loss that Sabnam has suffered. The verbal contract that Sabnam had made with the DJ in order to appoint the DJ for the opening night had no conditions or warranties mentioned within the contract. The condition that the pre opening party was arranged by Sabnam for which she had charged certain ticket prices, was not mentioned at the time of the verbal contract. Moreover, Sabnam did not mention any clause in relation to the breach of the contract if the DJ is not able to present the system on the opening night. Hence, it was not a legally enforceable contract between Sabnam and the DJ.  Thus , Sabnam has no legal right to claim for damages or sue the DJ for the financial loss which she has suffered.

Analysis of loss of profit on the pre opening private party

The pre- opening private party which was organized by Sabnam on the opening night constituted a legal binding between the invitees and Sabnam whereby Sabnam had taken considerable amount of money from the invitees and in return promised a DJ showHowever, the failure of the DJ appearance was a breach of the contract on the part of Sabnam. In the previous question it has been evaluated that due the absence of any acceptance on the part of the DJ there was no legal contract between the DJ and Sabnam. Hence, the financial loss was not being claimed from the DJ. Sabnam had to bear the full financial loss. The invitees of the party had the option of filling act of deceit under the tort of deceit on Sabnam since she had falsely taken the money and not presented the promised act. Hence, Sabnam will be liable for the misrepresentation of the statement and may be labile for the compensation of the damages of the invitees. However, since the misrepresentation was not intentional on the part of Sabnam hence the claim for damages will be limited to the actual loss suffered by the invites. In this case, the invitees did not suffer any financial loss rather they suffered an emotional loss and loss of entertainment. Hence there was no actual loss for which Sabnam needed to compensate.

Analysis for damages for emotional distress

Non financial loss or emotional loss may be defined as the loss the customer of a business has suffered due to distress, inconvenience, pain and suffering and damage of reputation.

Distress – includes instances of being upset, humiliation, concern, distress, loss of hope and tension.

Inconvenience – including  the time the consumer has spent and/or trouble and effort the consumer has had to go to as a result of the business's faulty actions

Pain and suffering – any negative physical or mental effect on the consumer arising from the business’s false or negligent actions

Damage to reputation – where a consumer's personal reputation has been affected  negatively as a direct result of the business's faluty actions

The English Tort law, which includes the provision for both intentional tort and negligence, provides the provisions for the emotional distress caused by a faulty or negligent action of the business towards its customers. In this case, although Sabnam cannot claim for any financial loss however under law of tort she can make legal suit against the DJ for the intentional tort and claim the compensation for the loss that Sabnam suffered due to the emotional distress. Sabnam had repeatedly informed the DJ to make the appearance on the opening night. Thus, it was within the duty of care of the DJ to organize the service on the stipulated mentioned date. However, the failure on the part of the DJ made it difficult for Sabnam to cope with both financial and non-financial loss. Due to the intentional negligence on the part of the DJ, Sabnam had to suffer emotional distress in terms of loss of reputation, anxiety and tension resulting to physical loss, inconvenience and also distress. Thus Sabnam will successfully file the case against the DJ since her reputation was disturbed in front of the invitees and her attempt to make a new venture was unsuccessful. Although, Sabena cannot make any financial claim for the emotional distress. If the emotional distress would have resulted in high physical loss or pain and sufferings for a long period of time then the party would have been able to make financial claims. In this case, Sabnam can only sue the DJ in terms of legal consequences and not financial consequences.

 

Conclusion

The assignment thus highlights the different aspects that are useful for the contracting parties at the time of breach of contract Different cases present within the assignment also highlights the aspects of the terms that would make a written as well as verbal contract valid and enforceable. Thus with the legal knowledge of the different provisions available to the contracting parties the parties entering into a contract in their own free will has the option to claim for damages for the los suffered within the contract.

 

Reference list

Andrews N, Contract Law (Cambridge University Press 2011)

Basedow J, 'The Optional Instrument Of European Contract Law: Opting-In Through Standard Terms – A Reply To Simon Whittaker –' (2012) 8 European Review of Contract Law

Bermingham V and Brennan C, Tort Law (Oxford University Press 2010)

Brodie D, 'How Relational Is The Employment Contract?' (2011) 40 Industrial Law Journal

Butler D, Contract Law (LexisNexis Butterworths 2012)

Castermans A, 'Towards A European Contract Law Through Social Dialogue' (2011) 7 European Review of Contract Law

Chen-Wishart M, Contract Law (Oxford University Press 2012)

Chen-Wishart M, Contract Law (Oxford University Press 2010)

Christandl G, 'The ‘Dying’ Offer Rule In European Contract Law' (2011) 7 European Review of Contract Law

Ciacchi A, Brüggemeier G and O'Callaghan P, Personality Rights In European Tort Law (Cambridge University Press 2010)

Collins H, 'Cosmopolitanism And Transnational Private Law' (2012) 8 European Review of Contract Law

Djurovic M, 'Serbian Contract Law: Its Development And The New Serbian Civil Code' (2011) 7 European Review of Contract Law

Fafinski S and Finch E, Contract Law (Longman 2010)

Geistfeld M, 'Tort Law And The Inherent Limitations Of Monetary Exchange: Property Rules, Liability Rules, And The Negligence Rule' (2011) 4 Journal of Tort Law

Gerhart P, Tort Law And Social Morality (Cambridge University Press 2010)

Grondona M, 'Lucinda Miller, The Emergence Of EU Contract Law – Exploring Europeanization, Oxford: Oxford University Press, 2011, Xxii + 255.' (2012) 8 European Review of Contract Law

Hesselink M, 'Five Political Ideas Of European Contract Law' (2011) 7 European Review of Contract Law

Howells G, 'European Contract Law Reform And European Consumer Law – Two Related But Distinct Regimes' (2011) 7 European Review of Contract Law

Koziol H, Steininger B and Alunaru C, European Tort Law 2010 (De Gruyter 2011)

Lahe J, 'Punitive Damages In Estonian Tort Law?' (2011) 2 Journal of European Tort Law

Mau S, Tort Law In Hong Kong (Hong Kong University Press 2010)

Merrill T, 'Is Public Nuisance A Tort?' (2011) 4 Journal of Tort Law

Meyer L, Non-Performance And Remedies Under International Contract Law Principles And Indian Contract Law (P Lang 2010)

O’Callaghan K and Hutt G, 'Harmonisation Of European Contract Law' (2011) 11 Internationales Handelsrecht

O'Sullivan J and Hilliard J, The Law Of Contract (Oxford University Press 2012)

Riesenhuber K, 'A Competitive Approach To EU Contract Law' (2011) 7 European Review of Contract Law

Shapo M, Principles Of Tort Law (West, a Thomson Reuters business 2010)

Stefanicki R, 'Civil Law Remedies For Violation Of Competition Law' (2012) 8 European Review of Contract Law

Stone R and Stone R, Contract Law (Routledge 2011)

Suharnoko, 'Contract Law In A Comparative Perspective' (2012) 2 ILREV

Turner C, Unlocking Contract Law (Hodder Education 2010)

van Dam C, 'Tort Law And Human Rights: Brothers In Arms On The Role Of Tort Law In The Area Of Business And Human Rights' (2011) 2 Journal of European Tort Law

 Chris Turner, Unlocking Contract Law (Hodder Education 2010).

Cees van Dam, 'Tort Law And Human Rights: Brothers In Arms On The Role Of Tort Law In The Area Of Business And Human Rights' (2011) 2 Journal of European Tort Law.

 Max Young, Understanding Contract Law (Routledge-Cavendish 2010).

Janet O'Sullivan and Jonathan Hilliard, The Law Of Contract (Oxford University Press 2012).

Karl Riesenhuber, 'A Competitive Approach To EU Contract Law' (2011) 7 European Review of Contract Law.

Robert Stefanicki, 'Civil Law Remedies For Violation Of Competition Law' (2012) 8 European Review of Contract Law.

Max Young, Understanding Contract Law (Routledge-Cavendish 2010).

 Lars Meyer, Non-Performance And Remedies Under International Contract Law Principles And Indian Contract Law (P Lang 2010).

Kieron O’Callaghan and Giles Hutt, 'Harmonisation Of European Contract Law' (2011) 11 Internationales Handelsrecht.

Richard Stone and Richard Stone, Contract Law (Routledge 2011).

Marshall S Shapo, Principles Of Tort Law (West, a Thomson Reuters business 2010).

Gregor Christandl, 'The ‘Dying’ Offer Rule In European Contract Law' (2011) 7 European Review of Contract Law.

Stephen D Mau, Tort Law In Hong Kong (Hong Kong University Press 2010).

Suharnoko, 'Contract Law In A Comparative Perspective' (2012) 2 ILREV.

Janno Lahe, 'Punitive Damages In Estonian Tort Law?' (2011) 2 Journal of European Tort Law.

Aurelia Colombi Ciacchi, Gert Brüggemeier and Patrick O'Callaghan, Personality Rights In European Tort Law (Cambridge University Press 2010).

 Mindy Chen-Wishart, Contract Law (Oxford University Press 2012).

Alex Geert Castermans, 'Towards A European Contract Law Through Social Dialogue' (2011) 7 European Review of Contract Law.

Hugh Collins, 'Cosmopolitanism And Transnational Private Law' (2012) 8 European Review of Contract Law.

D. A Butler, Contract Law (LexisNexis Butterworths 2012).

 Mateja Djurovic, 'Serbian Contract Law: Its Development And The New Serbian Civil Code' (2011) 7 European Review of Contract Law.

 Stefan Fafinski and Emily Finch, Contract Law (Longman 2010).

D. Brodie, 'How Relational Is The Employment Contract?' (2011) 40 Industrial Law Journal.

Helmut Koziol, Barbara C Steininger and Christian Alunaru, European Tort Law 2010 (De Gruyter 2011).

Mauro Grondona, 'Lucinda Miller, The Emergence Of EU Contract Law – Exploring Europeanization, Oxford: Oxford University Press, 2011, Xxii + 255.' (2012) 8 European Review of Contract Law.

Mark A Geistfeld, 'Tort Law And The Inherent Limitations Of Monetary Exchange: Property Rules, Liability Rules, And The Negligence Rule' (2011) 4 Journal of Tort Law.

 Vera Bermingham and Carol Brennan, Tort Law (Oxford University Press 2010).

Peter M Gerhart, Tort Law And Social Morality (Cambridge University Press 2010).

Geraint Howells, 'European Contract Law Reform And European Consumer Law – Two Related But Distinct Regimes' (2011) 7 European Review of Contract Law.

jürgen Basedow, 'The Optional Instrument Of European Contract Law: Opting-In Through Standard Terms – A Reply To Simon Whittaker –' (2012) 8 European Review of Contract Law.

Neil Andrews, Contract Law (Cambridge University Press 2011).

Martijn W. Hesselink, 'Five Political Ideas Of European Contract Law' (2011) 7 European Review of Contract Law.

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