ii) ‘S’ and ‘B’ have entered into a contract with eachother, this therefore shows that there has been an offer and an acceptance from each party. ‘S’ only agrees to the lower price (from £1000 to £700) because he is having cash flow problems, if these were not an issue then the full £1000 would be paid in full. When ‘B’ refuses to pay the original price he is in breach of the primary contract. Consideration is given in the contract, this transforms the agreement in to a bargain. The fact that ‘B’ has offered a lesser amount is a detriment to the promisee (‘S’). Under the rule in Pinnel’s Case [1602] this not a valid consideration: “that payment of a lesser sum on the day (that is due) cannot be any satfisfaction for the whole because it appears to the judges that by no possibility a lesser sum can be satisfaction to the plaintiff for a greater sum…” per Lord Coke. The House of Lords in Foakes v Beer [1884] confirmed the rule in Pinnel’s Case. The House of Lords were previously uncertain about its legitimacy because it was only an obiter dictum; it had rarely been used and was never called upon by the house itself. However, the authority of Lord Coke had been accepted as law by the legal profession so it was accepted as law. Due to this delegated legislation that was passed by the House of Lords, ‘S’ is wholly entitled to claim the remaining balance that is owed to him by ‘B’, this sum is £300 in total.
iii) This case refers to a part of discharge of contract called frustration. Frustration is when the parties of a contract are released from any further obligations set out by the contract where an unforeseen event occurs which makes further performance either: impossible, illegal or drastically different from those intended when the contract was initially made. In this precise case, it is impossible for the event to take place due to the fire in the hall (Taylor v Caldwell [1836]), “in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.” per Blackburn J. (Smith, page 199). Therefore each party is excused from its own liability to perform the duties set out in the contract, Law Reform (Frustrated Contracts) Act 1943 section 1, part 1. ‘A’ does not have to pay £100 to ‘B’. If the fire had occurred on the 2nd December and both or one of the parties knew of the fire, then the contract would not have been made anyway, the fact that the contract was made one day later will not change the outcome of the decision, again both parties are discharged from their duties outlined within the contract, the same remedy applies.
iv) When a person has been pressured in to entering in to a contract, two variations are recognised by law, duress and undue influence. The latter is applied here, where ‘H’ abuses his relationship with his wife to gain a bank loan whilst putting up his wife’s house as security for that loan. This is undue influence where there is an abuse of a privileged position of influence, this arises when the party is in a special fiduciary relationship with the other party. This type of case has caused much discussion within legal circles, and the judiciary has given many outcomes. However, the question asks specifically for advice to be given to the bank as regards its own position. The case Royal Bank of Scotland v Etridge can be cited here where the wife claimed that she was induced to sign by undue influence of her husband that the matrimonial home would be used as collateral by the bank. Many outcomes and conditions were derived from this case, but it remains that to be certain of innocence in any legal matter, the bank must take it upon itself to ensure that ‘W’ knows and infact consents to ‘H’s’ plans. When advising the bank, I would recommend that they draw up a written contract either between themselves and ‘W’ or between ‘W’ and ‘H’ agreeing to the decision that has been discussed in private between the married couple. This would therefore exonerate the bank from any possible future legal proceedings.
2. ‘The courts consistently speak of a duty to perform a contract and a duty to take reasonable care to avoid foreseeable harm to others. But such duties do not really exist. The courts in each case leave the duty-holder free from interference unless and until the duty is broken. Even then the courts merely require the payment of compensation.’
There is a definitive ethical duty that is imposed when two or more parties enter into a contract. It is to be expected of both parties that they honour their consequent duties and obligations, there is something that is inherently despicable in this country when a promise (or contract) is not kept. The view is that a modern day society such as ours cannot be seen to tolerate this. Whilst contracts are drawn up to the best of the abilities of all parties that are involved, it is irrational to expect mistakes not to occur and circumstances to change. We can therefore separate ‘failed’ contracts into two distinctive categories; those that have been unintentionally broken and those that have been maliciously broken. Those unintentionally broken such as Taylor v Caldwell [1836] where both parties were frustrated and the contractual breakage was through no direct fault of any party involved. However, those that are broken by not abiding to certain obligations set out in the contract are broken illegally and the only way of correcting this event can be by way of compensation.
A breach of contract gives rise to an action for damages or compensation under common law. In exceptional circumstances, the equitable remedies of specific performance and injunction may be available. The aim of financial compensation is to put the injured party, as far as possible, in their anticipated post-contractual position (Robinson v Harman [1848]). Damages are solely intended to compensate the injured party for any loss suffered as a result of the breach of contract. A claim for damages may take two forms; liquidated and unliquidated damages. Liquidated damages are where there is a provision made in the contract for compensation should there become a breach of the contract (note that this is only applicable if they are a genuine attempt to pre-estimate the loss that is likely to be incurred. However, a more dominant party may misuse these clauses to introduce penalties into the contract to ensure performance by the weaker of the two parties. If the courts decide it is a penalty clause, it will be struck out and the claim treated as one for unliquidated damages. The courts will regard it as a penalty clause where; the specified sum is clearly greater than any conceivable or likely loss, breach is a failure to pay sums due and the damages outweigh that sum and finally the same sum is specified for a number of breaches some of which are considered more trivial and some more serious (Dunlop Pneumatic Tyre Co. v New Garage & Motor Co. Ltd [1915]). Unliquidated damages are where there is no provision made in the contract for a possible breach of failure. According to Hadley v Baxendale [1854] (this was confirmed in the Heron II [1969])the injured party may recover damages for natural losses of the breach and losses that are not a natural consequence of the breach but both parties were aware of when the contract was made. Two further points that are of note are: speculation-the fact that the loss may be difficult to put into a definitive quantity is no bar to recovery, the court is entitled to speculate in estimating a loss (Chaplin v Hicks [1911]), mitigation-the injured party must take reasonable steps to moderate their loss, they cannot recover for loss due an unreasonable failure to mitigate (British Westinghouse Electric & Manufacturing Co. Ltd v Underground Electric Railways Co. of London Ltd [1912].
In more extreme cases specific performance and injunctions can be applied. Specific performance is a court order instructing the party that is in breach of the contract to perform their contractual duties. As with all equitable remedies, specific performance is discretionary and rewarded only in the most extreme of cases. It would not be awarded where: there is another possible adequate remedy available such as damages (Cohen v Roche [1927]), the contract has a certain lack of mutuality for the two parties (Flight v Bolland [1828]), the order would require constant supervision from the court (Ryan v Mutual Tontine Westminster Chambers Association [1893]) and if the contract is one for personal services (Rigby v Connol [1880]).
The courts and subsequently the judiciary are responsible for the well being of contract makers and therefore have to deal with the contract breakers. The debate about the courts and the means they use to deal with the party that is in breach of the contract has been long debated, but in my own view there is little else that the courts can do. The courts are correct to preach a ‘moral duty’ but seen as this is not binding their powers are limited, they must merely deal with breaches as and when they occur. There are currently few possible alternatives to this dilemma, a central contractual body could be set up where contracts are checked and kept on record, for this to work it would have to be law to register your contract when drawing it up, this process could be very expensive for both the government and also the consumer. The public could be banned from drawing up contracts without prior to seeking a solicitors advice, however this could be seen as a conspiracy by the judiciary to plough more money into the legal system further clogging it up while solicitors benefit, somewhat like the legal aid farce where solicitors spent longer than was needed on legal aid cases in order to gain an ‘over payment’. A free government run advisory service for contracts could be set up to deal with queries from the general public, although this again would prove costly. These suggestions are merely a small idea as to stem the problem of breached contracts, but the most central problem is not that parties break their contractual obligations because of their own misunderstanding or stupidity, they break contracts because they can not fulfil their obligations or it is no longer to their benefit to adhere to certain terms that they had previously agreed to.
In conclusion, the courts can advocate a moral and ethical duty to perform a contractees obligations however this has been proven not to work in the majority of cases. The only other avenue the courts can take is that of harsher punishment by way of increased compensation, fining and in the most serious cases a jail term. It is left purely up to the parties involved to exercise their own judgement and carry out their duties accordingly.
Bibliography
Smith, J.C. The Law of Contract (4th edition) 2002 Sweet & Maxwell
Upex, Robert Davies on Contract (8th edition) 1999 Sweet & Maxwell
Brownsword, Robert Contract Law 2000 Butterworths
Beale, H.G. Contract: Cases & Materials 2001 Butterworths
Bishop, W.D.
Furmston, M.P.
