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Case 1: Marcus the Builder

During the nineteenth century, paternalist ideas waned, as the philosophy of laissez-faire took root. Most educated people, including the judges, took laissez-faire to mean that the law should interfere with people as little as possible…Its main objective was to enable people to “realise their wills”, or, in more prosaic language, to leave them to get on with their business, to conduct their commercial affairs as they thought best, to lead their own lives unhampered by governmental interference, and so forth”

Discuss to what extent the philosophy of laissez-faire and freedom of choice underpins the law of contract today.

1. Marcus is a builder. He has recently worked on three old houses known as ‘Highgate House’,  ‘Apple  Cottage’  and  ‘Caldwell Court’.

Marcus lives next door to ‘Highgate House’. The owner, Elsie, is elderly and has had problems with a smoking chimney. She told Marcus about these problems.  He called and repaired the chimney. Elsie said that Marcus was such a good neighbour that she would give him £300 for the work he had done. She is now refusing to pay the £300.

Safina,  a  jeweller,  owed  Marcus  £8,000  for  fitting  a  new bathroom  in  ‘Apple  Cottage’.  Unable to  pay  Marcus  the  full amount owed by the date agreed, she offered to pay him £5,000 and to give him a ruby and diamond necklace. Marcus agreed.

Safina paid Marcus £5,000 and gave him the necklace. Marcus has now had the necklace valued and has  been told that the necklace is worth only £500.

Marcus renovated ‘Caldwell Court’ for Gary, who had a highly paid  job  with  an  investment  bank.  The  agreed  price  for  the renovation  was £100,000. Gary’s  employer  was subsequently forced to cease trading and Gary  was made redundant. After paying Marcus £30,000, Gary said that he was unable to pay any  more  at  present.  Marcus  has  now  received  a  letter  from Joan,  Gary’s  mother,  offering  Marcus  £35,000  in  full  of satisfaction of her son’s remaining debt of £70,000. The letter makes it clear that this is Joan’s final offer. A cheque for £35,000 is enclosed.

Marcus is now experiencing financial difficulties himself. He is eager to recover as much money as he can from customers.

Advise Marcus on whether he can recover the money that he believes is owed him by Elsie, Safina, and Gary.

2. Rosie wished to buy a show dog and asked Anthony to sell her his Irish Wolfhound Cassandra, which had won the Crufts Dog Show last year. Anthony asked whether Rosie wished to have a look at Cassandra but Rosie replied, “She won the Crufts Dog Show last year - there can't be much wrong with her, can there?

I'll give you £500 as agreed". Anthony said nothing. When Rosie had taken Cassandra home, she noticed that the dog was extremely restless. Rosie took the dog to a veterinary surgeon, Victor. Victor advised Rosie that the dog had been suffering from a nervous disorder for several months. He prescribed a new drug, Braslim, for the dog. The side effects of Braslim were not fully known and practitioners had been advised to warn customers of this. Victor informed Rosie that the drug may have certain side effects, but to keep using it.

After a month on Braslim, the dog still had not settled. Cassandra became extremely aggressive and attacked Rosie.

Rosie claims that Anthony misled her by not informing her of the illness and demanded her money back. Rosie also claims that Victor should have warned her of the side effects of the drug, and that he should compensate her for the consequences of his failure to do so.

Discuss whether Rosie can bring an action in misrepresentation against Anthony and/or Victor, and the remedies available.

3. Shabnam bought an old Georgian house, which she decided to convert into a modern discotheque. The opening night was planned for 1st September

On 15th July, Shabnam contacted DJ Charlz, who was the owner  of  ‘Sensational  Sounds’,  and asked DJ Charlz to provide a sound system for the discotheque.

She stressed that the system must be installed for the opening night  and  told  DJ  Charlz  that  she  expected  a  near  capacity crowd. However, she did not mention that, she had arranged a private party for fifty friends and business acquaintances at £25 per ticket,  to  take  place  just  immediately  before  the  opening night event. DJ Charlz agreed to install a suitable system for £10,000.

On 30th August, DJ Charlz telephoned Shabnam and said he had been late returning from his summer holiday in Brazil, due to his flight being delayed. He told Shabnam that he would not be able to install the sound system until 3rd September.

Advise Shabnam whether she can  claim  damages  for  the following:

(a)  Loss of profits on the  opening  night.  Such  was the interest  from  the  public  that  she  could  have  filled the discotheque twice over;

(b) Loss of profits on the pre-opening private party;

(c) Damages for the emotional distress she claims to have suffered as a result of DJ Charlz’s failure to perform the contract on time.

Case 1: Marcus the Builder

It is now important to understand the extent the philosophy of laissez-faire and freedom of choice underpins the law of contract today.

Whenever a contract is amid the parties then they are considered to be the masters of their contract and they select the manner in which they choose the manner in which a contract is to be made, that is, either orally or in written form and the terms that they intend to abide with. In the 19th century, most of the people including the judges are of the view that the people must be given freedom so that they have the liberty to make their own contracts as per their own choice. The judges of the view that the time has come that to consider the process of contract formulation must be considered as a private affair and there should be minimal judicial intervention. The courts has considered that the initial approach that is taken  by the courts, that is, to ‘stretch out the hand of equity’ must be now restricted even if one of the party is having a bad deal and the parties must be given free will to decide the terms with which they want to abide with. This desire of voluntarism and contractual individualism has resulted in the presence of laissez faire.

The basic principle that underlines the freedom is contract is that the individuals has the power to choose freely the manner in which they want to deal with their contractual obligations and the way they want to bind themselves with each other. This principle is based on the concept that no party will decide the term which is not in their won favor. The courts want to put themselves in the position of the umpire and make sure that the parties are willing to hold their promises which are made by tem under a private document called contract. It is only in special cases that the courts are willing to interfere in the private relationship of the parties, that is, in the situations of undue influence, misrepresentation, etc so that fairness can be achieved.

The principle of laissez faire was the heart of the law of contract at the 19th Century. This principle of laissez faire was also found in several statutory acts and legislations. For instance, under the Sale of Goods Act 1893, section 55, there were terms that were permitted according to which the parties were given freedom to decide the terms to be made part of the contract which are based on the course of dealing that tale place amid the parties and they were also has the power to negativity any terms that they desire to seem fit. This liberalism has allowed the parties to decide as to when and to whom the risk is to be allocated.

Case 2: Rosie and the Show Dog

But, this liberalism has also resulted in a negative impact as the parties are now free to exclude themselves from their contractual obligations. The negative impact can be analyzed from the fact that the Sale of Goods Act 1893 which is framed to grant freedom of contract to the parties have lost its purpose and there was no party autonomy that is prevalent rather, the corporations or the dominant parties are not taking advantage of this concept of laissez faire and using their unequal bargaining power at their own advantage at the cost of the weaker contractual party. This has resulted in attaining the principle of laissez faire greater heights and the undesirable effects are attained at much faster pace in comparison with the desirable effects.

The main reason that has been attributed to restrain or limit the parties freedom to establish the contract on their own terms is because many a times one of the parties to the contract is not aware of the contract terms that should be made part of the contract and the risk involved if certain type of term is made part of the contract. Whereas there are parties who have the thorough knowledge of the kind of terms that should be made part of the contract. Thus, this difference that prevails in the kind of parties can be mis-ustilised by the stronger party at the cost of the weaker party.

In order to curb the negative impacts that are created by the presence of excessive of laissez faire , there were few changes that were brought in numerous of legislations that were prevalent. For instance:

  1. There were several implied terms that were made part of the Supply of Goods Act 1973 which were not found to be present in the legislation of the 19th century, that is, Sales of Goods Act 1893 wherein there were hardly any provisions to provide protection to the consumers.  In the 1973 Act several provisions were made in favor of the business and consumer contracts so that a society can be achieved wherein both economic and commercial freedom can be attained. By doing this excessive freedom that is granted to the contracting parties were curbed and protection is granted to the consumers.
  2. The restrictions which the government intends to be imposed in order to provide protection to the consumers are also found by establishing provisions under the Unfair Contract Terms Act 1977. By enacting the 1977 Act the freedom of contract is not strictly prohibited but protection is granted to the consumers. For instance as per section 6 and section 12 of the Act  a contract can be termed as just when there is balancing of rights and obligations amid the parties and

These legislations are formulated in order to bring protection especially in the field of gender discrimination, employment law and this can be achieved by formulating the contract law in a manner which is beneficial to both of the parties and is not hampered because of the excessive freedom of contract. this concept of freedom of contract along with limited resections are found in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd whierein  it was held that there should be equality in the bargaining power along with the principle  of laissez faire  so that adequate results can be attained.

Protection provided by statutory controls on unfair terms therefore do not intend to discourage freedom but maintain it through balancing the lack of surety on behalf of consumers so that both parties enter contracts resourcefully equal. This is justifiable because with businesses having superior bargaining power, combined with the fact that they are gaining commercial credit, makes their gain much greater.

Case 3: Shabnam and the Sound System

It is thus can be submitted that a shift from the freedom of contract to a regulated contract law is incurred. But, these regulations are incurred by the courts wherever it seems necessary by the courts. The courts have limited their role and are not inclined in the formation of the contract but only in the interpretation of the contract whenever the disputes arises and the parties are willing to the move to the court for the settlement of the deputes instead of resolving it amicably.

It was held by the International Court of Justice that the domestic courts cannot rule that the contract that are made amid the parties can be negated on the ground that it is disadvantageous to one contractual party.  By relying on Article 6(1) Directive 93/13/EEC, it was submitted by the ECJ that if any contract is made amid the parties and the contract contain unfair terms then the contract cannot be held to be void provided the unfair terms can be segregated from such contract. Thus, the law has tried to retain the power of the freedom of contract but has also imposed certain restriction so that the power of freedom of contract should not be misused by the parties who are at dominant position. The concept wa rightly established in the leading case of Nicolene v Simmonds wherein any term which is unfair and which is divisible must be stuck down from the contract. So, the party autonomy is recognized but is curbed in a limited manner.

 It is thus submitted that the statutory controls that are impose by the legal framework of the country is not to curb the freedom of formation of the contracts and thus negating the commercial interest when compared with the consumer interest. When freedom is granted then it  does not mean that an unregulated power is given to the individual parties to make contract at their own free will without any control. In Shogun Finance Ltd v Hudson the parties were not allowed to provide extrinsic evidence to establish the true nature of the contract. However the ruling was not considered to be adequate as it is necessary that the true intention of the parties must be reached at even if at time extrinsic evidence is required to be proved. Thus, freedom is allowed but limitation is also necessary to maintain a true balance amid the intention of the parties to one end and to achieve social justice at another end. 

The Principle of Laissez-faire in the Law of Contract

Thus, it is clear that there has been a tremendous rise in the concept of laissez faire during the 19th Centaury wherein the courts, researchers and scholars analyzed the concept of freedom of contract and wherein parties were given power to make their own contract without the interference of any other person including courts. The courts were give the power to interpret the contract and not how the contract should be made.  However, will, the passage of time and with the increase in the bargaining powers of the [arties along with legislations that might hamper the party who is at weaker end there result a need that the freedom of making contract that is given to the parties through laissez faire should be curbed in limited manner so that no excessive control is given to the parties and such freedom should be curtailed.

This freedom of contract with limited control on the freedom has made a mechanism which produces a result which us beneficial and position to both the parties of the contract and thus permits then to reach at the desire conclusion without hampering the interest of any of the parties to the contract. by curbing the freedom of the parties, both the parties and the law and the society is put at a platform wherein the parties were given choice to make contract with the terms that they want to incorporate but this power is also curtailed to an extend that the terms that are made part of the contract does not hamper the society or any other person. The law has also made sure that any of the party to the contract should also not face any kind of setback just because a term was made part of the contract and now they have no choice but to abide by the same.

So, with minimum interference of the contract in the formation of the contract but the presence of the courts while interpreting the true meaning of the contract has made a balance wherein the authenticity of laissez faire is maintained but is also curtailed in a limited manner.

Thus, laissez faire is relevant but limited control is required in order to attain the just result of the freedom.

Whether Marcus can recover the money that he owed from Elsie, Safina, and Gary?

A contract is an arrangement amid the contracting parties to comply with the agreed terms of the contract. One of the significant terms of any contract is the presence of consideration.

Negative Impacts of Laissez-faire in the Law of Contract

When the promisor promises to do or abstain from doing anything and the price that is asked by him to keep such promise is called consideration in law. No contract is valid unless it is supported by consideration otherwise the contract is considered to be gratuitous in nature. Consideration can be anything of value and must cause detriment to the promisee and is held in Carlill v Carbolic Smoke Ball Co. As per Biotechnology Australia Pty Ltd v Pace a consideration is required to be sufficient and not necessary to be adequate.

However, a past consideration is not held to be a good consideration in law and is held in Roscorla v Thomas and Harrington v Taylor. Any consideration that comes in the contract after the promise is made then it is no consideration. It must exist before or at the time of exchange of promises.

Further, in Pinnel case and Foakes v Beer it was held that if any debtor pays part payment for the settlement of the entire debt then it is not a good consideration in law towards the creditors and such part payment has no relevance in law. But, this rule was found to be harsh few exceptions are established:

  1. When before the due date the debtor is paying part payment of the debt then this earlier payment in itself is consider to be a good consideration in law.
  2. When the debtor is paying the part payment of the debt along with something else apart from money, such as book, necklace and the same is accepted by the creditors in consideration of full settlement of the claim then it is good consideration in law;
  3. When it is not the debtor but a third party pays the part payment of the dent in full settlements of the claim and which is accepted by the creditors then it is good consideration in law and is enforceable.

Marcus is a builder and had built three old houses, ‘HighgateHouse’,  ‘Apple  Cottage’  and  ‘Caldwell Court’.

Marcus and Elsie

The owner of ‘Highgate House’ was Elsie and Marcus lives next to the house. Elsie was old and had problems with smoking chimneys. Marcus on getting aware of the problem repaired the chimney. Elsie on being happy with the acts of Marcus promises that she will gave him £300 for the work he had done.

It is submitted that when Elsie promised to gave £300 to Marcus, then, the act for which the promise is made, that is, repair of chimney was already completed by Marcus. The promise was not made when Marcus was repairing or before the repairs.

Thus, the promise by Elsie is an act of past consideration and thus Marcus cannot enforce the same.

Marcus and Safina  

Safina is a jeweler and owned £8,000 to Marcus for fitting  a  new bathroom  in  ‘Apple  Cottage’.  However, she was not able to pay the full amount to Marcus.

Now, she is offering part payment for full settlement of her debt but as per Foakes v Beer the same is not permissible.

But, she is now offering an amount of £5,000 along with a ruby and diamond necklace worth £5,000 before the due date of the debt. Now, this earlier payment which is made by Safina is a good consideration in law. also, she is paying not only money but something additional to that, that is, necklace and this is also one of the exceptions of Foakes v Beer to hold a good consideration.

Statutory Controls on Unfair Terms

Thus, the dent is settled and Safina now does not have to ay anything to Marcus.

Marcus and Gary

 Marcus renovated ‘Caldwell Court’ for Gary. The renovation work was settled at a price of £100,000.

However, later Gary only paid £30,000 to Marcus. However, in place of Gary, her mother (Joan) has offered £35,000 in  full  of satisfaction of her son’s remaining debt of £70,000. The offer was final considering that a cheque for £35,000 is enclosed.

Now, as per the exception of Foakes v Beer if any third party is paying the part payment  of dent then the same is valid and permissible, provided accept the part payment.

Thus, if Marcus accepts the part payment then the debt is settled.

Conclusion

Marcus does not own anything from Elsie and Safina. However, if Marcus does not accept the part payment from Joan then he can sue Gary otherwise his dent is also settle debt the cheques encloses is accepted by Macros.

Whether Rosie can bring an action in misrepresentation against Anthony and Victor, and the remedies available?

The law of misrepresentation is applied.

The law of misrepresentation is a law that imposes a duty on the defendant that when he makes any representation then the same must be made with utmost due care and the same must be true. But, when the defendant knowingly makes a false statement to the plaintiff in order to induce and lure the plaintiff so that the plaintiff makes a contract with him then the representation so made is a misrepresentation and any contract made on such misrepresentation can be rescinded. It is important that before making the contract the plaintiff must have relied on the representation so made by the defendant.

To prove that a misrepresentation is incurred by the defendant, the main elements that are required are:

  1. A false statement of fact must be made by the defendant. The statement must be of law or of any opinion but the statement must be of fact (Bisset v Wilkinson);
  2. The statement must be positive which implies that it must be asserted by the defendant. Silence is not considered to be a statement of fact. But at times silence is also considered to be a positive assertion when the defendant is in the better position to know the truth of the matter (Smith v Land & House Property Corp.
  • The statement of fact that was made by the defendant t is false;
  1. That the defendant is aware that he is making  a false statement;
  2. The defendant is also aware that the plaintiff is relying on the statement so made by him;
  3. That the plaintiff has actually relied on the said statement (Museprime Properties v Adhill Properties;
  • That because of reliance the plaintiff has suffered damages.

It is thus considered that the contract suffers from misrepresentation and the plaintiff has the right to terminate the contract and sue for damages.

The law is now applied.

Contract amid Rosie and Anthony

 It is submitted that Rosie has the right to terminate the contract made with Anthony on the basis of misrepresentation and seek damages because:

  1. Rosy wants to buy the dog of Anthony as she is aware that the dog has won the Crufts Dog Show last year;

Now, it is the duty of Anthony that he must disclose any factual information regarding the dog to Rosie before the sale;

  1. Anthony asked Rosie that if she wishes than she can have a look at the dog. Anthony said the same because he was aware that the dog is suffering from nervous disorder. Anthony did not replied to Rosie when she asserted that since the dog has won a competition thus there can be noting wring with him.

So, this is a statement of fact which even though not said by Anthony but keeping silence is a kind of positive assertion that is made by him to Rosie;

  • So, a statement of fact which is not true is made by Anthony to Rosie;
  1. Anthony is also aware that Rosie is relying on the statement so made by him and it is on such basis that she is entering into a contract with Anthony @ £500;
  2. Rosie suffered loss as the dog that is purchased by her was suffering from mental disorder.

Thus, Rosie has been misrepresented by Anthony and so she can terminate the contract with Anthony

Contract amid Rosie and Victor (Cassandra home)

Rosie can also sue Cassandra home (Victor) for misrepresentation because:

  1. The dog was found to be suffering from mental disorder when Rosie has taken the dog to Cassandra home;
  2. During the visit, victor prescribed drug, Braslim, to the dog. Victor is aware that the medicine has side effects and the doctors must warn the customers for the same. However, victor knowing the said truth conceled the same from Rosie. Thus, a statement of fact was intentionally not told by victor to Rosie;
  3. Because of the concealment the dog become aggressive and attacked Rosie. Thus, loss is caused to Rosie.

So, a misrepresentation is incurred upon Rosie by Victor and she can rescind the contract with him.

Conclusion

Thus, Rosie can sue both Victor and Anthony under the law of misrepresentation and can rescind the contract and sue for damages.

Whether Shabnam can claim damages regarding :

 (a)  Loss of profits on the  opening  night.  

(b) Loss of profits on the pre-opening private party;

(c) Damages for the emotional distress she claims to have suffered as a result of DJ Charlz’s failure to perform the contract on time.

Whenever a contract is made amid the parties, then it is obligatory on the parties that the terms of the contract must be comply with in order to avoid any kind of damages. However, still if any of the parties to the contract does not comply with the contractual terms, then, it is the aggrieved party who has the right to seek damages.

The quantum of damages depends upon the kind of loss that is suffered by the aggrieved party. The same includes:

  1. Compensatory – These are the direct damages that are suffered by the aggrieved because of the breach of contract on the part of the defaulter. These damages can be categorized as:
  2. Special damages – these are the damages that covers property damages, loss of earnings, medical expenses.
  3. Non-economic damages – these are the damages that are suffered by the person and which include pain, suffering, emotional distress, etc.
  4. Punitive – when the damages are imposed on the defendant to act as a deterrent then punitive damages re imposed upon the defendant.

It is submitted that an old Georgian house is purchased by Shabnam and she decided to convert into a modern discotheque. The opening night was planned for 1st September. On 15th July, Shabnam contacted DJ Charlz and asked him to provide a sound system for the discotheque. She stressed that the system must be installed for the opening night  and  told  DJ  Charlz  that  she  expected  a  near  capacity crowd. DJ Charlz agreed to install a suitable system for £10,000. On 30th August, DJ Charlz telephoned Shabnam and said he had been late returning from his summer holiday in Brazil, due to his flight being delayed. He told Shabnam that he would not be able to install the sound system until 3rd September.

Now, Shanbman can sue DJ Charlz for:

  1. Special damages of the loss of earning that she can earn if the party as expected is performed. She was considering the interest from the public and she could have filled the discotheque twice over. Thus, since sue for the loss of earning;
  2. She can also sue general damages for the distress and pain that she has suffered because of the cancellation of the night;
  3. However, no loss can be claimed for the cancellation of private party of fifty friends and business acquaintances at £25 per ticket to take place just immediately before the opening night event. This is because the same was not communicated to DJ Charlz and thus she cannot recover the same.

Conclusion:

Shanbman can sue DJ Charlz for the loss of earning and mental distress. But, she cannot recover the loss of private party as the same was not part of the contract with DJ Charlz and thus is not incurred because of breach of contract.

Books/Articles/Journals

Atiyah, P The Rise and Fall of freedom of contract (OUP 1979) 148.

Casas, A  and others, ‘Cases: ECJ – Recent trends of the ECJ on consumer protection’ (2014) 10(3) European Review of Contract Law 444.

Grundmann, S ‘The future of contract law’ (European Review of Contract Law 2011) 490, 506.

McLauchlan, D‘Case Comment, Parol Evidence and contract formation’ (Law Quarterly Review 9, 2005).

Korde, R ‘Good faith and freedom of contract’ (UCL Jurisprudence Review 2002)  142, 143.

Case laws

Bisset v Wilkinson [1927] AC 177.

Carlill v Carbolic Smoke Ball Co [1893].

Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130.

Foakes v Beer (1884) 9 App Cas 605.

Harrington v Taylor 36 SE 2d 227 (1945).

Museprime Properties v Adhill Properties [1990] 36 EG 114

Nicolene v Simmonds [1953] 1 QB 543 (CA)

Shogun Finance Ltd v Hudson [2004] 1 AC 919 (HL)

Roscorla v Thomas (1842) 3 QB 234

Smith v Land & House Property Corp (1884) 28 Ch D 7.

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