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The Essentials of a Valid Contract

Discuss about the Late Payment and Insurable Interest.

The essentials of a valid contract are intention, consideration, capacity and consent (Kong et al. 2016). Therefore, in order to make the contract legally binding upon the contracting parties, there must be an existence of an agreement, an intention to form an agreement, consideration, capacity of the contracting parties and legal consent. In this regard, it is noteworthy to mention here that a contract can be made verbally or in a written form (Munoz 2017). The existence of an oral assurance in a contract was first established with the help of Parole Evidence Rule. The Parole Evidence Role was first observed in the landmark cases of Sydney V Taylor (1891) 12 LR (NSW) 252 (at 262) [2] and Goss V Lord Nugent (1833) 5 B & Ad 58 (at 64-65) ; 110 ER 713 (at 716). In these landmark cases, the terms of contract in relation to oral and verbal contract were determined. The Courts in such cases generally assume that the terms and requirement contained in the contract are specifically planned by the parties however; lacked the confidence to perform the requirements of the contract. The Parole Evidence Rule focuses on the existence of unreliable evidence for instance management, an oral agreement and in some cases a written agreement that has not been included in the contract (Epstein, Archer and Davis 2014). Therefore, it is worth noting that in order to provide appropriate support to the intention of the parties to contract, the Parole Evidence Rule has been applied by the Courts. Applying the Parole Evidence Rule, the Court is at the authority to reach at a final decision in relation to the duties and rights of the parties to contract for the purpose of preventing imitation and deceptive claims (Veasey and Simon 2017). According to this rule, the consequences faced as a result of oral contract cannot be claimed or modified for the purpose of discharging the written contract. Various exceptions are there under the Parole Evidence Rule, that are

The nature of the written agreement in the contract may be such that may not form the part of the whole contract as intended by the parties; there may be the presence of an oral agreement (Arnold?Dwyer 2017). Therefore, the condition of oral contract can only allowed by the Court on the ground that the written agreement in the contract was not intended to form the part of the whole agreement (Zeng 2015). However in such cases, one of the parties to the contract may take unfair disadvantage of the other party which was held in Van den Esschert v Chappell [1960] WAR 114. In Van den Esschert v Chappell [1960] WAR 114 it was observed that before signing the contract for sale agreement the seller guaranteed the purchaser by way of oral assurance that there were no existence of white ants in the house. Afterwards the purchaser observed that as a result of the presence of white ants in the house it destroyed all the timber. The seller was sued and the purchaser received compensation for the damages. It was held by the Court that, the oral assurance given by the seller regarding the presence of white ants formed an essential part of the contract, although it was not mentioned in the written contract. Similarly in Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, it was observed that the defendant was sued by the plaintiff as the defendant assured that there were no additional charges in the contract. Later on identifying the additional charges from the written document the plaintiff sued the defendant.

Impact of Verbal Contracts and Parole Evidence Rule

In the present case study it can be observed that there was a oral assurance on the part of Kalpana when she mention that the form of the dance will be traditional, classical Indian dance. A contract was signed between her and Rafia where the form of dance was not mentioned neither Kalpana’s oral assurance. Therefore, the exception of party written and party oral contract can be applied here. It can be stated that the nature of contract which existed between Kalpana and Rafia was partly written and partly oral. Therefore, it can be stated that the verbal assurance on the part of Kalpana is a term of contract. The case study Van den Esschert v Chappell [1960] WAR 114. In Van den Esschert v Chappell [1960] WAR 114 can be referred in this regard where it was observed that the seller (defendant) has to compensate for the damages for not acting in terms of the verbal assurance given by him although there was a presence of a written contract. In the present case study, it can be observed that though the form of the dance was not mentioned in the contract is formed an important part of it by way of oral assurance from Kalpana’s part.

The condition in a contract is regarded as the fundamental term whereas a warranty is considered to be a statement in the contract which provides assurance to the parties about the factual matters present in the contract which was held in Poussard v Spiers (1875) L.R. 1 QBD 410 and Bettini v Gye (1875) L.R. 1 QBD 183. In this regard, the subject-matter of collateral contract can be discussed. Collateral contract is considered as a separate contract which exists in relation to the main contract. In case of collateral contract there is a possibility on the part of the parties to involve in an oral or verbal agreement which exists along with the written contract. In Heilbut, Symons and Co. v Buckleton [1913] AC 30, it was held that during the formation of a contract each and every agreement made by the parties should be taken into consideration. Similarly in De Lassalle v Guildford (1901) 2 KB 215 it was held that a verbal agreement must be consistent with the written contract. The definition of warranty can be emphasized in order to explain the importance of promise and assurance clearly. A warranty can be defined as a oral assurance given by the seller to the buyer prior to the contract in order to assure the buyer regarding the nature, quality and specific performance of the product (Dunt 2015). However, in certain cases, it can be observed that the warranties provided by the buyer to the seller fail to perform according to the assurance provided during the time of signing the contract. Therefore, warranty can be defined as the assurance or promise on the part of the buyer to the seller. In a recent case Royal Bank of Scotland plc v Carlyle [2013] CSIH 75, it was observed that promises, oral assurances and collateral warranties can be treated as important terms of a written contract. In this case it was observed that there was an existence of collateral warranty on the part of the employee for the purpose of providing oral assurance. It was held by the Court that collateral warranties plays significant role in a written contract which is often associated with verbal promise and assurance. In case of breach of such collateral warranty, the defendant shall be held liable. Therefore, it is important to note the verbal assurances or promises create an obligation on the part of the parties to complete the terms of the contract. The Court in this regard, investigated the fact that whether a telephonic conversation on the part of the defendant can actually be considered as a collateral warranty. The Court at this point of time expressed its doubt regarding the fact that whether collateral warranty can be defined as the element which exists as a distinct legal entity along with the main contract or whether it can be treated as an oral assurance which may or may not be used as an essential term in the contract. Therefore, in the conclusion, it was held by the Court that warranty can be treated as a free-standing legal entity and an oral assurance on the part of one of the parties. In British Workman’s and General Assurance Co v Wilkinson (1900) 8 SLT it was held by the Court that collateral warranties must be contractual in nature management.

Exceptions to Parole Evidence Rule


In the present case study it can be observed that there was a oral assurance on the part of Kalpana when she assured Rafia regarding the nature of the dance form. Therefore, the cases of Poussard v Spiers (1875) L.R. 1 QBD 410 and Bettini v Gye (1875) L.R. 1 QBD 183 can be applied in which it was held that warranty can be treated as a statement which assures the parties regarding the matters contained in such contract. The case study of Heilbut, Symons and Co. v Buckleton [1913] AC 30 can be referred as it was held that each and every agreement made by the parties during the course of contract must be taken into consideration. Similarly, in case of Kalpana and Rafia, there was an agreement that the dance from must be classical and traditional however; there was no mention of such dance form in the written contract. The agreement formed a collateral contract which existed along with the written contract. The case of De Lassalle v Guildford (1901) 2 KB 215 can be applied as the oral assurance given by Kalpana was consistent with the written contract. The case of Royal Bank of Scotland plc v Carlyle [2013] CSIH 75 can be referred as it was held by the Court that an oral assurance can be treated as a collateral warranty which exists in relation with the main contract. In the present case study, it is evident that there was a presence of oral assurance along with the written contract. The case of British Workman’s and General Assurance Co v Wilkinson (1900) 8 SLT can be referred as it was held that collateral warranties must bear contractual characteristics. Therefore, in the present case study it can be observed that the collateral warranty which existed between Kalpana and Rafia was contractual in nature.

In law of contract, for the purpose of making the contract enforceable, there must be an agreement between two or more parties. However, if one of the parties to the contract fails to act according the terms of the contract, there is a performance of breach of contract. The remedies for breach of contract under the common law can be divided into damages and liquidated claims.

  • Damages in case of breach of contract are often considered as a substitute for performance.
  • Liquidated damages shall be available as a remedy where there is a presence of a clause in the contract which has been agreed by the parties regarding a particular amount which shall be payable upon breach of contract.

There are equitable remedies as well which includes specific performance and injunctions. Specific performance is the order granted by the Court to the parties in breach of contract for the purpose of performing the contract in a specified manner (Ostendorf 2015). Specific performance can be ordered by the Court if it comes to its knowledge that damages are not enough to provide adequate compensation to the injured party. However, injunctions are orders directed by the Court towards the breaching party restraining him from doing a particular task. In Airloom Holdings Pty Ltd v Thales Australia Ltd [2011] NSWSC 1513 it was held that there is a right to sue for damages on the part of the contractors for the purpose of claiming damages for non-performance. In Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, it was held by the Court that the injured party should be placed in a position as it would have been occurred, if the terms of the contract were performed.

Analysis of Relevant Case Law


Specific performance can be applied by the Court in case of breach of contract where monetary damages are not enough or adequate to fulfill the needs of the injured. However, it is a discretionary remedy which may not be imposed by the Court where damages will provide appropriate remedy (Veasey and Simon 2017). On the other hand, damages are losses or cost that can be incurred during the course of contract for breach of contract on the part of one of the parties. Therefore, in this regard, it is worth stating that on breach of contract, liquidated damages can be imposed. An injunction may be interlocutory, mandatory and prohibitory. An interlocutory injunction is granted by the Court for the purpose of the purpose of maintaining the status quo of the matter concerned. Mandatory injunction can be imposed by the Court for the purpose of directing something to do. The prohibitory injunction however, prohibits the party to do something.

In the present scenario, it can be observed that, USC invested thousands of dollars in advertising the multicultural dance program. However, the USC had to refund those tickets to the patrons on demand. Therefore, it can be stated that there is an authority on the part of USC to sue Kalpana for breach of contract and claim damages for the losses incurred. The case of Airloom Holdings Pty Ltd v Thales Australia Ltd [2011] NSWSC 1513 can be referred where it was held that the parties can sue and claim for damages for non-performance of contract. Similarly, in the present case scenario, it can be observed that there was non-performance on the part of Kalpana and therefore there is a right on the part of USC to sue for damages. The case of Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 can be referred in the present case as it is necessary to place Kalpana in that position which has been faced by USC, if she performed all the terms of the contract completely. It is evident that specific performances can be applied by the courts when monetary damages are not enough to incur the losses suffered by the injured party. Therefore, in the present case study, there is a possibility that the Court may grant specific performance, if the damages does not prove to be adequate for USC.

Conclusion:

In the conclusion, it can be opined that the remedies of liquidated damages and specific performance are available to USC.

References:

Airloom Holdings Pty Ltd v Thales Australia Ltd [2011] NSWSC 1513.

Bettini v Gye (1875) L.R. 1 QBD 183.

British Workman’s and General Assurance Co v Wilkinson (1900) 8 SLT .

Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64.

De Lassalle v Guildford (1901) 2 KB 215.

Goss V Lord Nugent (1833) 5 B & Ad 58 (at 64-65) 110 ER 713 (at 716).

Heilbut, Symons and Co. v Buckleton [1913] AC 30.

Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406.

Poussard v Spiers (1875) L.R. 1 QBD 410.

Royal Bank of Scotland plc v Carlyle [2013] CSIH 75.

Sydney V Taylor (1891) 12 LR (NSW) 252 (at 262) [2].

Van den Esschert v Chappell [1960] WAR 114.

Arnold?Dwyer, F., 2017. Insurance Law Reform by Degrees: Late Payment and Insurable Interest. The Modern Law Review, 80(3), pp.489-509.

Dunt, J., 2015. Warranties, conditions and exclusions. In Marine Cargo Insurance, Second Edition (pp. 167-186). Informa Law from Routledge.

Epstein, D.G., Archer, T. and Davis, S., 2014. Extrinsic Evidence, Parol Evidence, and the Parol Evidence Rule: a Call for Courts to Use the Reasoning of the Restatements Rather than the Rhetoric of Common Law. NML Rev., 44, p.49.

Kong, E., Goh, S.C.N., Gussen, B.F., Turner, J. and Abawi, L.A., 2016. Strategies on Addressing Contract Cheating: A Case Study from an Australian. Handbook of Research on Academic Misconduct in Higher Education, p.206.

Munoz, E., 2017. Teaching Comparative Contract Law through the CISG. Indon. J. Int'l & Comp. L., 4, p.725.

Ostendorf, P., 2015. The exclusionary rule of English law and its proper characterisation in the conflict of laws–is it a rule of evidence or contract interpretation?. Journal of Private International Law, 11(1), pp.163-183.

Veasey, E.N. and Simon, J.M., 2017. The Conundrum of When Delaware Contract Law Will Allow Evidence Outside the Contract's" Four Corners" in Construing an Unambiguous Contractual Provision. Business Lawyer, 72(4).

Zeng, R., 2015. Interactive Relationship between Property and Contract Law-Security Rights Perspective. US-China L. Rev., 12, p.1026.

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