Professional Documents
Culture Documents
Law of Contract
Law of Contract
Law of Contract
AH
2012
EMD7M
ASSC PROF. IR DR
Law of Contract
Contract law is based on the principle expressed in the Latin phrase pacta sunt
servanda, which is usually translated "agreements must be kept" but more literally means
"pacts must be kept". Contract law can be classified, as is habitual in civil law systems, as
part of a general law of obligations, along with tort, unjust enrichment, and restitution. The
common law of contract originated with the writ of assumpsit, which was originally a tort
action based on reliance. The law of contracts differs from other branches of law in a very
important respect. It does not lay down so many precise rights and duties which the law will
protect and enforce; it contains rather a number of limiting principles, subject to which the
parties may create rights and duties for themselves, and the law will uphold those rights and
duties. Thus, wean say that the parties to a contract, in a sense make the law for themselves.
So long as they do not transgress some legal prohibition, they can frame any rules they like in
regard to the subject matter of their contract and the law will give effect to their contract.
At common law, the elements of a contract are offer, acceptance, intention to create
legal relations, and consideration. Offer or proposal include in section 2(1) which is when one
person signifies to another his willingness to do or to abstain from doing anything, with a
view to a obtaining the assent of that other to the act or abstinence, he is said to make a
proposal. Contracts are normally enforceable whether or not in a written form, although a
written contract protects all parties to it. Some contracts such as for sale of real property,
instalment, or insurance policies must be in writing to be legally binding and enforceable.
When have an offer or proposal, sure have an acceptance which is when a person to whom
the proposal is made signifies his assent there to, the proposal is said to be accepted. A
proposal, when accepted will becomes a promise. There is a method in acceptance of
proposal. It must be in some usual and reasonable manner although unless offer states
specific method of acceptance like in writing or phone call. It must be within the limit set in
offer or within reasonable time. Remember that silence is not as acceptance.
Parties may do this for tax purposes, attempting to disguise gift transactions as contracts.
Transferring money may be sufficient, particularly if there is accord and satisfaction.
However, consideration must be given as part of entering the contract, not prior as in
past consideration. For example, in the early English case of Eastwood v. Kenyon [1840], the
guardian of a young girl took out a loan to educate her. After she was married, her husband
promised to pay the debt but the loan was determined to be past consideration. The
insufficiency of past consideration is related to the pre-existing duty rule. In the early English
case of Stilk v. Myrick [1809], a captain promised to divide the wages of two deserters
among the remaining crew if they agreed to sail home short-handed; however, this promise
was found unenforceable as the crew were already contracted to sail the ship. The preexisting duty rule also extends to general legal duties; for example, a promise to refrain from
committing a tort or crime is not sufficient.
Capacity means every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is of sound mind, and is not disqualified
from contracting by any law to which he is subject.
There can be four different ways in which contracts can be set aside. A contract may
be deemed 'void', 'voidable', 'unenforceable' or 'ineffective'. Voidness implies that a contract
never came into existence. Voidability implies that one or both parties may declare a contract
ineffective at their wish. Kill fees are paid by magazine publishers to authors when their
articles are submitted on time but are subsequently not used for publication. When this
occurs, the magazine cannot claim copyright for the "killed" assignment. Unenforceability
implies that neither party may have recourse to a court for a remedy. Ineffectiveness implies
that the contract terminates by order of a court where a public body has failed to satisfy
public procurement law. To rescind is to set aside or unmake a contract.
Effect of voidable contract is valid at the time contract was entered into. Until it is
avoided by the innocent party. If so, the contract becomes void. It is due to coercion s.15
committing, or threatening to commit any act forbidden by the Penal Code, or the unlawful
detaining or threatening to detain, any property, to the prejudice of any person whatever, with
the intention of causing any person to enter into an agreement. Cause of undue influence also
considered as voidable contracts where the relations subsisting between the parties are such
that one of the parties is in a position to dominate the will of the other and uses that position
to obtain an unfair advantage over the other. Then it is about misrepresentation which is
making a false statement of fact. A person makes a statement which is not true, though he
believes it to be true. Besides, a lot of person a like to doing a mistake that makes a voidable
contracts. It consists of mistakes as to fact by both parties, mistakes as to law, and mistake of
one party as to matter of fact.
4. Punitive or exemplary damages are used to punish the party at fault; but even
though such damages are not intended primarily to compensate, nevertheless the
claimant (and not the state) receives the award. Exemplary damages are not
recognised nor permitted in some jurisdictions. In the UK, exemplary damages are
not available for breach of contract, but are possible after fraud. Although vitiating
factors (such as misrepresentation, mistake, undue influence and duress) relate to
contracts, they are not contractual actions, and so, in a roundabout way, a claimant
in contract may be able to get exemplary damages.
Damages may be general or consequential. General damages are those damages which
naturally flow from a breach of contract. Consequential damages are those damages which,
although not naturally flowing from a breach, are naturally supposed by both parties at the
time of contract formation. An example would be when someone rents a car to get to a
business meeting, but when that person arrives to pick up the car, it is not there. General
damages would be the cost of renting a different car. Consequential damages would be the
lost business if that person was unable to get to the meeting, if both parties knew the reason
the party was renting the car. However, there is still a duty to mitigate the losses. The fact
that the car was not there does not give the party a right to not attempt to rent another car.
To recover damages, a claimant must show that the breach of contract caused
foreseeable loss. Hadley v. Baxendale established that the test of foreseeability is both
objective and/or subjective. In other words, is it foreseeable to the objective bystander, and/or
to the contracting parties, who may have special knowledge? On the facts of this case, where
a miller lost production because a carrier delayed taking broken mill parts for repair, the court
held that no damages were payable since the loss was foreseeable neither by the "reasonable
man" nor by the carrier, both of whom would have expected the miller to have a spare part in
store.