Contract Law Essay

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The law of contract achieves a fair and reasonable balance in resolving disputes between those who break their contractual promises and those injured by those breaches.

Contracts occur in our day-to-day life activities. It is very important, both in the business world and our everyday life. Businesses make multi-million pound deals, buying and selling. Our every day life also involves making a contract in one-way or the other. Maybe for example buying a car or even buying your travel card.

In this essay, I am going to look at how the balance is; resolving disputes between those who break their contractual promises and those injured by these breaches.

A contract is said to be breached one party performs defectively, differently from the agreement, or not at all. The basic legal means of enforcement of contractual obligations is by compensation for the loss caused, in other words, by the payment of damages for breach of contract. The general principle is that the victim should be placed in the position he would have occupied if the contract had been properly performed. This I think is a good balance, which is beneficial to both parties. However there are three limitations, which will be considered; causation, where a person will only be liable for losses caused by their breach of contract; remoteness, where the loss is considered too remote from the breach for it to be compensated for; and mitigation, where the claimant is under a duty to reduce their loss.

If contractual obligations are not respected, the delinquent party is said to be in “breach of contract”. Breach of contract allows a party to bring the party in default to court and to get the court to correct the situation, as best the court can. Because a contract is private law, the courts will not throw the full brunt of the law against a person found to be in breach of contract. On the other hand, as discussed below, a variety of tools are used by the courts in dealing with breach of contract and ensuring that the person who defaults on a contractual obligation adequately compensates the person who did not receive full contractual benefit.

Time Limits on Enforcing Contracts

It would make no sense if legal claims were allowed to exist forever. Signatories die and records are eventually lost. For this reason, any claim for breach of contract must be brought before the court within a certain period of time. This is called a “limitation period” and is usually set in a “statute of limitations”. In the case of non-real estate contracts, the standard limitation is six years from the date the party would have first been entitled to bring action (i.e. the date of breach. Five years in Quebec.) A partial payment will set the limitation period clock back to the start.

The Statutes of Limitation protects contractors from debtors that disappear by suspending the limitation period for the time of hiding.

Contracts related to real-estate have very special rules governing the time limits of legal action taken upon them and tend to vary from province to province.

Generally, damages cannot be recovered in contract for losses, which do not affect a pecuniary interest of the claimant. In addition to financial loss a claimant might suffer disappointment, inconvenience and distress as a result of the breach but damages for such non – pecuniary losses are generally not recoverable in contract. This rule stems from the House of Lords decision of Addis v Gramophone Co. Ltd [1909] AC 488, where it was held that it was not possible to recover damages for the distress caused by the nature of a dismissal from employment, as opposed to directly caused by the breach itself.

Damages can now be recovered for distress where that distress is directly consequent on physical inconvenience, caused by the breach. This principle which was decided in Perry v Sidney Phillips & Son [1982] 1 WLR 1297, was also applied in Watts v Morrow [1991] 1 WLR 1421, where it was decided that the claimant was allowed to recover damages for distress caused by the physical inconvenience of living in a property during repairs. Watts v Morrow [1991], also recognised that public policy circumscribed any general liability for contract breaches causing ‘distress, frustration, anxiety, displeasure, vexation, tension and aggravation. There are however two important exceptions.

These are where one of the object(s) of a contract is to provide pleasure, relaxation, or peace of mind and performance fails to meet the contractually specified standard. This was seen in Farley v Skinner (No.2) [2000] PNLR 441, where a surveyor failed adequately to assess the impact of aircraft noise on a property. Damages for distress were not available for the reasons cited in Watts v Morrow, unless the distress was consequent on physical inconvenience, and there was no physical inconvenience on these facts. The surveyor was instructed to report on this matter precisely because the house was close to the airport and this specific matter might have been separated from the general nature of the surveying contract.

The second important exception is where the breach causes foreseeable physical inconvenience and discomfort to the victim, including mental suffering directly related to that inconvenience and discomfort.

In these circumstances, where the contract is specifically intended to confer a benefit other than a pecuniary gain, damages for disappointment can be justified on the basis of compensating for the loss of expectation of that benefit. These exceptions can be seen as covering distress caused by the breach rather than the manner of the breach. In Jarvis v Swans Tours Ltd [1973] QB 233, the plaintiff booked a winter holiday which the defendants promised in their brochure would be like a ‘houseparty’, with special entertainments and proper facilities for skiing.

The skiing facilities were in fact inadequate, the entertainments were far from special, and in the second week the ‘houseparty’ consisted of the plaintiff alone. The Court of Appeal held that he was entitled to recover not merely the cost of the holiday, but a similar amount again as general damages for the disappointment suffered and the loss of the entertainment he had been promised in the brochure. Lord Denning pointed out that the plaintiff had entered the contract not merely to purchase the travel facilities and the board and lodging, but in order to enjoy himself, and he was entitled to compensation for the loss of that part of his expectation.

Courts also award damages on the basis of cost of cure, even when the difference in value is small relative to that cost, in order to meet the claimant’s particular expectation or ‘consumer surplus’. In Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344, Lord Mustill recognised the need to ‘cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure’. Lord Lloyd believed that in this case the owners subjective appreciation of the benefit of the contract could be catered for by making a modest award, for loss of amenity.

The courts have consistently refused to allow recovery of damages for disappointment and distress in the context of commercial contracts. In Hayes v James & Charles Dodd [1990] 2 All ER 815, the reason for disallowing the claim was a question of policy. The policy was to limit recovery for mental distress to categories of contract in which it was a central obligation to provide peace of mind or to relieve a source of distress.

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