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Chapter Three: Contracts 1. Contracts : Contracts are an essential component of commercial law. Contracts are an essential component of commercial law.

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Presentation on theme: "Chapter Three: Contracts 1. Contracts : Contracts are an essential component of commercial law. Contracts are an essential component of commercial law."— Presentation transcript:

1 Chapter Three: Contracts 1

2 Contracts : Contracts are an essential component of commercial law. Contracts are an essential component of commercial law. A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. Contract Law is based on the latin phrase (pacts must be kept). Contract Law is based on the latin phrase (pacts must be kept). Breach of a contract is recognised by the law and remedies can be provided. Breach of a contract is recognised by the law and remedies can be provided.remedies Almost everyone makes contracts every day. Almost everyone makes contracts every day. Sometimes written contracts are required, e.g., when buying a house. However, the vast majority of contracts are made orally. Sometimes written contracts are required, e.g., when buying a house. However, the vast majority of contracts are made orally. 2

3 Quasi-Contract A quasi-contract an implied-in-law contract is a legal substitute for a contract. A quasi-contract an implied-in-law contract is a legal substitute for a contract. A quasi-contract used when a court wishes to create an obligation upon a non-contracting party to avoid injustice. A quasi-contract used when a court wishes to create an obligation upon a non-contracting party to avoid injustice. Quasi-contracts are the lawful and purely voluntary acts of a man, from which there results any obligation whatever to a third person, and sometime a reciprocal obligation between the parties. Quasi-contracts are the lawful and purely voluntary acts of a man, from which there results any obligation whatever to a third person, and sometime a reciprocal obligation between the parties. In contracts consent of the contracting parties produces obligations In contracts consent of the contracting parties produces obligations In quasi-contracts no consent is required the obligation arises from the law or natural equity In quasi-contracts no consent is required the obligation arises from the law or natural equity They are called quasi-contracts, because they bind the parties without being contracts. They are called quasi-contracts, because they bind the parties without being contracts. 3

4 An example a plumber accidentally installs a sprinkler system in the lawn of the wrong house. An example a plumber accidentally installs a sprinkler system in the lawn of the wrong house. Will the man be held liable for payment? Will the man be held liable for payment? Yes, if it could be proven that the man knew that the sprinklers were being installed mistakenly the court would make him pay because of a quasi- contract. Yes, if it could be proven that the man knew that the sprinklers were being installed mistakenly the court would make him pay because of a quasi- contract. No, he would not be liable if that knowledge could not be proven. No, he would not be liable if that knowledge could not be proven. Fair market value: The defendant's liability equal = to the value of the benefit conferred by the plaintiff not necessarily the subjective value that the defendant enjoys. Fair market value: The defendant's liability equal = to the value of the benefit conferred by the plaintiff not necessarily the subjective value that the defendant enjoys. e.g., an accountant prepares tax-payer's taxes, finding a way to get him a large refund. Tax-payer is only liable for the fair market value of tax preparation services is not inflated up to account for the large refund he enjoyed. e.g., an accountant prepares tax-payer's taxes, finding a way to get him a large refund. Tax-payer is only liable for the fair market value of tax preparation services is not inflated up to account for the large refund he enjoyed. 4

5 Contractual Formation: Three key elements to the creation of a contract. Three key elements to the creation of a contract. Offer and acceptance Offer and acceptance Consideration Consideration is the legal concept of value in the common sense, promised to another when making a contract. It can take the form of money, physical objects, services… is the legal concept of value in the common sense, promised to another when making a contract. It can take the form of money, physical objects, services… Intention to create legal relations Intention to create legal relations In addition, for some contracts formalities In addition, for some contracts formalities One of the most famous cases on forming a contract is Carlill v. Carbolic Smoke Ball Company, (in 19 th century England). One of the most famous cases on forming a contract is Carlill v. Carbolic Smoke Ball Company, (in 19 th century England). Carlill v. Carbolic Smoke Ball Company Carlill v. Carbolic Smoke Ball Company A medical firm advertised that its new drug, a smoke ball, would cure people's flu, and if it did not, buyers would receive £100. A medical firm advertised that its new drug, a smoke ball, would cure people's flu, and if it did not, buyers would receive £100.flu Many people sued for their £100 when it did not work. Many people sued for their £100 when it did not work. The court of appeal held that it would appear to a reasonable man that Carbolic had made a serious offer. People had given good "consideration" by using a faulty product. The court of appeal held that it would appear to a reasonable man that Carbolic had made a serious offer. People had given good "consideration" by using a faulty product.court of appeal reasonable mancourt of appeal reasonable man 5

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7 Offer and Acceptance: The most important feature of a contract one party makes an offer for a bargain another accepts concurrence of wills of two or more parties. The most important feature of a contract one party makes an offer for a bargain another accepts concurrence of wills of two or more parties. Parties must have been engaged in conduct manifesting their assent Parties must have been engaged in conduct manifesting their assent Objective perspective: it is necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person. Objective perspective: it is necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person. reasonable person reasonable person In the U.S., an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. In the U.S., an offer is interpreted as inviting the offeree to accept either by promising to perform what the offer requests or by rendering the performance, as the offeree chooses. 7

8 Offer and acceptance orally or in writing. Offer and acceptance orally or in writing. An implied contract some of the terms are not expressed in words. This can take two forms. An implied contract some of the terms are not expressed in words. This can take two forms. 1. Implied in fact: where the circumstances imply that parties have reached an agreement even though they have not done so expressly. e.g., by going to a doctor for a checkup, a patient agrees that he will pay for the service. e.g., by going to a doctor for a checkup, a patient agrees that he will pay for the service. 2. Implied in law: is also called a quasi-contract, because it is a means for the court to remedy situations in which one party would be unjustly enriched. Example of the plumber who accidentally installed a sprinkler system in the lawn of the wrong house. Example of the plumber who accidentally installed a sprinkler system in the lawn of the wrong house. 8

9 Consideration and Estoppel: Consideration is value paid for a promise. Consideration is needed for a valid contract. Consideration is value paid for a promise. Consideration is needed for a valid contract. e.g. If you sign a contract with a man, agreeing to buy his car for an amount of money, his consideration is the car, which he promises to give to you. Your consideration is the money that you pay for the car. e.g. If you sign a contract with a man, agreeing to buy his car for an amount of money, his consideration is the car, which he promises to give to you. Your consideration is the money that you pay for the car. In basic terms, the offeree must give something back to the offeror in return for his promise. In basic terms, the offeree must give something back to the offeror in return for his promise. Consideration must be sufficient. Consideration must be sufficient. Consideration of one party greatly exceeds that of another may be held invalid for lack of sufficient consideration == or == no consideration. Consideration of one party greatly exceeds that of another may be held invalid for lack of sufficient consideration == or == no consideration. Such contracts may also be held invalid for fraud, duress, unequal bargaining power, or being contrary to public policy. Such contracts may also be held invalid for fraud, duress, unequal bargaining power, or being contrary to public policy. 9

10 In Civil Law, Consideration is not necessary and it came under criticism. In Civil Law, Consideration is not necessary and it came under criticism. In civil law an exchange of promises / concurrence of wills is the correct basis rather than an exchange in valuable rights In civil law an exchange of promises / concurrence of wills is the correct basis rather than an exchange in valuable rights Consideration is a controversial requirement for contracts under common law the concept is based on Estoppel used to create obligations during pre-contractual negotiations if a party has given another an assurance and the other has relied on the assurance to his detriment. Consideration is a controversial requirement for contracts under common law the concept is based on Estoppel used to create obligations during pre-contractual negotiations if a party has given another an assurance and the other has relied on the assurance to his detriment.Estoppel A number of commentators have suggested that consideration be abandoned, and estoppel be used to replace it as a basis for contracts. A number of commentators have suggested that consideration be abandoned, and estoppel be used to replace it as a basis for contracts. 10

11 Intention to be Legally Bound: The presumption in commercial agreements parties intend to be legally bound. The presumption in commercial agreements parties intend to be legally bound. Many domestic and social agreements are unenforceable lack of intention to be legally bound Many domestic and social agreements are unenforceable lack of intention to be legally bound The case of Balfour v. Balfour. Using contract- like terms, Mr Balfour had agreed to give his wife £30 a month as maintenance while he was abroad The case of Balfour v. Balfour. Using contract- like terms, Mr Balfour had agreed to give his wife £30 a month as maintenance while he was abroad Balfour v. Balfour v. Balfour They separated and Mr Balfour stopped payments. They separated and Mr Balfour stopped payments. Mrs Balfour brought an action to enforce the payments. Mrs Balfour brought an action to enforce the payments. The Court of Appeal, decided no enforceable agreement as they were not intending to be legally bound by the promise. The Court of Appeal, decided no enforceable agreement as they were not intending to be legally bound by the promise. 11

12 The Abstraction Principle: special approach to contracts abstraction principle special approach to contracts abstraction principle It means personal obligation of contract forms separately to the title of property being conferred. It means personal obligation of contract forms separately to the title of property being conferred. When contracts are invalidated for some reason When contracts are invalidated for some reason e.g. a car buyer was so drunk that he lacked legal capacity to contract, e.g. a car buyer was so drunk that he lacked legal capacity to contract, The contractual obligation to pay can be invalidated separate from proprietary title of the car. The contractual obligation to pay can be invalidated separate from proprietary title of the car. Unjust Enrichment Law, rather than the Law of Contract is used to restore title to the rightful owner. Unjust Enrichment Law, rather than the Law of Contract is used to restore title to the rightful owner. 12

13 Formalities and Writing: Exchange of promises can be binding and legally = as a written contract. Exchange of promises can be binding and legally = as a written contract. Verbal contract Any contract that uses words, spoken or written.Verbal contract Any contract that uses words, spoken or written. All oral contracts and written contracts. All oral contracts and written contracts. Non-verbal contract non-oral contract a contract implied by the acts of the parties, which can be either implied in fact or implied in law.Non-verbal contract non-oral contract a contract implied by the acts of the parties, which can be either implied in fact or implied in law.implied in factimplied in lawimplied in factimplied in law Most jurisdictions have rules which may render valid oral contracts unenforceable. Especially regarding contracts involving large amounts of money or real estate. Most jurisdictions have rules which may render valid oral contracts unenforceable. Especially regarding contracts involving large amounts of money or real estate. In the U.S., a contract is unenforceable for the sale of goods over US$500. In the U.S., a contract is unenforceable for the sale of goods over US$

14 The purpose of formalities and writing is to prevent false allegations of the existence of contracts that were never made The purpose of formalities and writing is to prevent false allegations of the existence of contracts that were never made Contracts that do not meet this requirement are unenforceable, but are not necessarily void. Contracts that do not meet this requirement are unenforceable, but are not necessarily void. However, a party unjustly enriched by an unenforceable contract may be subject to restitution. However, a party unjustly enriched by an unenforceable contract may be subject to restitution. In many jurisdictions (in common law) there is no requirement for the entire contract to be in writing, In many jurisdictions (in common law) there is no requirement for the entire contract to be in writing, Although there must be a note evidencing the contract. Although there must be a note evidencing the contract. The note must be signed in some way. The note must be signed in some way. It must contain all material terms of the contract, the subject matter and the parties to the contract. It must contain all material terms of the contract, the subject matter and the parties to the contract. In england, some agreements are made orally, but the guarantees must be in writing. In england, some agreements are made orally, but the guarantees must be in writing. 14

15 Signing a contract the person is bound by its terms whether they have read it or not. Signing a contract the person is bound by its terms whether they have read it or not. If a party wishes to use a document as the basis of a contract reasonable notice of its terms must be given to the other party prior to their entry into the contract. If a party wishes to use a document as the basis of a contract reasonable notice of its terms must be given to the other party prior to their entry into the contract. including tickets issued at parking stations. including tickets issued at parking stations. 15

16 Uncertainty, Incompleteness and Severance: The terms of the contract are uncertain or incomplete Legally no agreement. The terms of the contract are uncertain or incomplete Legally no agreement. Inability to agree on key issues, such as price or safety may cause the entire contract to fail. Inability to agree on key issues, such as price or safety may cause the entire contract to fail. Courts attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. Courts attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. Courts may look to external standards, mentioned in the contract or implied by common practice in a certain field. Courts may look to external standards, mentioned in the contract or implied by common practice in a certain field. Courts may imply a reasonable price if it is excluded, with the exception of land, and second-hand goods, which are unique. Courts may imply a reasonable price if it is excluded, with the exception of land, and second-hand goods, which are unique. 16

17 Uncertain or incomplete clauses in the contract + + all options in resolving its true meaning have failed Uncertain or incomplete clauses in the contract + + all options in resolving its true meaning have failed It may be possible to sever and void just those affected clauses if the contract includes a severability clause. It may be possible to sever and void just those affected clauses if the contract includes a severability clause. severability clause severability clause The contract standing without the clauses in the eyes of a reasonable person. The contract standing without the clauses in the eyes of a reasonable person. 17

18 Contractual Terms: A contractual term is any provision forming part of a contract term gives rise to a contractual obligation A contractual term is any provision forming part of a contract term gives rise to a contractual obligation Some terms are stated expressly Some terms are stated expressly some terms carry less legal gravity peripheral to the objectives of the contract. some terms carry less legal gravity peripheral to the objectives of the contract. Provisions appear at the end of the contract tell the parties how to govern their relationship have secondary importance but have significant business consequences. Provisions appear at the end of the contract tell the parties how to govern their relationship have secondary importance but have significant business consequences. Common provisions include: Common provisions include: 1. the governing law provision 2. assignment and delegation provisions 3. waiver of jury trial provisions In general, a party can only take legal action for the non fulfillment of a term. In general, a party can only take legal action for the non fulfillment of a term.legal actiontermlegal actionterm 18

19 Classification of Terms: First: Condition or Warranty: Conditions are essential in contract. Conditions are essential in contract. Breach of these terms will allow the other party to discharge (reject) the contract or seek damages Breach of these terms will allow the other party to discharge (reject) the contract or seek damages It is an objective matter whether a term is essential or not. It is an objective matter whether a term is essential or not. A warranty is not imperative so the contract will exist after a breach of a warranty, but gives rise to a claim for damages A warranty is not imperative so the contract will exist after a breach of a warranty, but gives rise to a claim for damages Statute may declare a term to be a condition or warranty Statute may declare a term to be a condition or warranty Statute e.g. the Sale of Goods Act 1979 provides that terms as to title, description, quality and sample are conditions save in certain defined circumstances. e.g. the Sale of Goods Act 1979 provides that terms as to title, description, quality and sample are conditions save in certain defined circumstances.Sale of Goods Act 1979Sale of Goods Act

20 Second: Implied Terms: Explicit terms is stated by the parties in a contractual document. Explicit terms is stated by the parties in a contractual document. Implicit terms are not stated but form a provision of the contract. Implicit terms are not stated but form a provision of the contract. 1. Terms may be implied due to the proceedings by which the contract was formed. 2. To determine situations where the facts of a case may imply term. ( working hours… time ) 3. Some jurisdictions, notably Australia, Israel and India, imply a term of good faith. jurisdictions 4. Other implied terms are through a previous course of dealing trade practice. 20

21 Implied in law: terms have been implied into standardised relationships. Implied in law: terms have been implied into standardised relationships. e.g., Liverpool City Council established a term to be implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in a reasonable state of repair. e.g., Liverpool City Council established a term to be implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in a reasonable state of repair. One of the important legislation under the UK law is the Sale of Goods Act 1979, which imply terms into all contracts whereby goods are sold or services provided. One of the important legislation under the UK law is the Sale of Goods Act 1979, which imply terms into all contracts whereby goods are sold or services provided.legislationSale of Goods Act 1979legislationSale of Goods Act 1979 These terms will be implied into all contracts of the same nature as a matter of law. These terms will be implied into all contracts of the same nature as a matter of law. Specialised statutes that deal with particular subjects set up rules by which many contracts are governed are provided with terms. Specialised statutes that deal with particular subjects set up rules by which many contracts are governed are provided with terms. Most countries, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices. Most countries, for example, have statutes which deal directly with sale of goods, lease transactions, and trade practices.countries 21

22 Setting Aside the Contract: Three different ways. A contract may be deemed Three different ways. A contract may be deemed 1. Void: implies that a contract never came into existence Void 2. Voidable: implies that one or both parties may declare a contract ineffective at their wish Voidable 3. Unenforceable: implies that neither party have recourse (resort) to a court for a remedy. Unenforceable 22

23 Misrepresentation: Misrepresentation is a false statement of fact made by one party to another and has the effect of inducing that party into the contract. Misrepresentation is a false statement of fact made by one party to another and has the effect of inducing that party into the contract. False statements regarding the quality or nature of the product may constitute misrepresentation. False statements regarding the quality or nature of the product may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission or causing damage. A finding of misrepresentation allows for a remedy of rescission or causing damage. Misrepresentation can be made either by words or by conduct Misrepresentation can be made either by words or by conduct Statements of opinion are not statements of fact in the context of misrepresentation. Statements of opinion are not statements of fact in the context of misrepresentation. But, if one party claims specialist knowledge on the topic then it is more likely for the court to hold a statement of opinion as a statement of fact. But, if one party claims specialist knowledge on the topic then it is more likely for the court to hold a statement of opinion as a statement of fact. 23

24 Mistakes : A mistake is an incorrect understanding by one or more party to a contract and may be used as bases to invalidate the agreement. A mistake is an incorrect understanding by one or more party to a contract and may be used as bases to invalidate the agreement. First: Unilateral Mistake -- one party to a contract is mistaken as to the terms or subject-matter. First: Unilateral Mistake -- one party to a contract is mistaken as to the terms or subject-matter. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage. The courts will uphold such a contract unless it was determined that the non-mistaken party was aware of the mistake and tried to take advantage. A contract may be void if there was a mistake in the identity of the contracting party. A contract may be void if there was a mistake in the identity of the contracting party. The plaintiff has to show that, at the time of agreement, he believed the other party's identity was of vital importance. The plaintiff has to show that, at the time of agreement, he believed the other party's identity was of vital importance. Mistaken to the credibility of the other party is not sufficient. Mistaken to the credibility of the other party is not sufficient. 24

25 Second: Mutual Mistake -- both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. Second: Mutual Mistake -- both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different. The court usually tries to uphold such a contract if a reasonable interpretation of the terms can be found. The court usually tries to uphold such a contract if a reasonable interpretation of the terms can be found. A contract based on a mutual mistake in judgement is not voidable by the party that is adversely affected. A contract based on a mutual mistake in judgement is not voidable by the party that is adversely affected. Third: Common Mistake -- both parties hold the same mistaken belief of the facts. Third: Common Mistake -- both parties hold the same mistaken belief of the facts. common mistake can only void a contract if the mistake of the subject-matter was fundamental to render its identity different from what was contracted making the performance of the contract impossible. common mistake can only void a contract if the mistake of the subject-matter was fundamental to render its identity different from what was contracted making the performance of the contract impossible. 25

26 Duress and Undue Influence: Duress: is a threat of harm made by one person to compel another to do something against his will or judgment (to a transaction without real assent). Duress: is a threat of harm made by one person to compel another to do something against his will or judgment (to a transaction without real assent). e.g., (in Barton v. Armstrong). Armstrong threatened to kill Barton if he did not sign a contract the court set the contract aside. e.g., (in Barton v. Armstrong). Armstrong threatened to kill Barton if he did not sign a contract the court set the contract aside. An innocent party has to prove that the threat was made and that it was a reason for entry into the contract An innocent party has to prove that the threat was made and that it was a reason for entry into the contract The onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. The onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. 26

27 Undue influence: one person taking advantage of a position of power over another person. Undue influence: one person taking advantage of a position of power over another person. The law presumes that in certain special relationship, (such as between parent and child, or solicitor and client) there will be a special risk of one party unduly influencing their conduct for contracting. The law presumes that in certain special relationship, (such as between parent and child, or solicitor and client) there will be a special risk of one party unduly influencing their conduct for contracting. As an equitable doctrine, the court has the discretion to vitiate such a contract. As an equitable doctrine, the court has the discretion to vitiate such a contract. When no special relationship exists, but there was a relationship of trust and confidence it should give rise to such a presumption. When no special relationship exists, but there was a relationship of trust and confidence it should give rise to such a presumption. 27

28 Incapacity: Incapacity: the capacity of a person to either enforce contracts, or have contracts enforced against them is restricted. Incapacity: the capacity of a person to either enforce contracts, or have contracts enforced against them is restricted. e.g., children may not be held to bargains they have made, e.g., children may not be held to bargains they have made, people who are mentally incapacitated, either by disability or drunkenness. people who are mentally incapacitated, either by disability or drunkenness. When the law limits or bars a person from engaging in specified activities any contracts to do so are either voidable or void for incapacity. When the law limits or bars a person from engaging in specified activities any contracts to do so are either voidable or void for incapacity.law The law on capacity can serve either a protective function or a way of restraining people who act as agents for others. The law on capacity can serve either a protective function or a way of restraining people who act as agents for others. 28

29 Illegal Contracts: Illegal Contracts: are contracts based on an illegal purpose or contrary to public policy. - is void. Illegal Contracts: are contracts based on an illegal purpose or contrary to public policy. - is void. Example, a woman forged her husband's signature on 40 cheques. To protect her from prosecution, her husband signed a letter to the bank in which he agreed to assume "all liability and responsibility" for the forged cheques. However, the agreement was unenforceable by the court, because of its goal to "stifle a criminal prosecution." (contract's illegality). Example, a woman forged her husband's signature on 40 cheques. To protect her from prosecution, her husband signed a letter to the bank in which he agreed to assume "all liability and responsibility" for the forged cheques. However, the agreement was unenforceable by the court, because of its goal to "stifle a criminal prosecution." (contract's illegality).cheques Contracts agreeing to work for less than the minimum wage are unenforceable Contracts agreeing to work for less than the minimum wage are unenforceable minimum wage minimum wage 29

30 Remedies for Breach of Contract: Breach of contract is failure to perform as stated in the contract. Breach of contract is failure to perform as stated in the contract. There are many ways to remedy a breached contract assuming it has not been waived. There are many ways to remedy a breached contract assuming it has not been waived. Typically, the remedy is an award of money damages. Typically, the remedy is an award of money damages. When dealing with unique subject matter, specific performance may be ordered. When dealing with unique subject matter, specific performance may be ordered. 30

31 Damages : There are four different types of damages: There are four different types of damages: 1. Compensatory damages given to the party which was affected by the breach of contract. (consequential damages and direct damages). 2. Nominal damages include minimal dollar amounts (often sought to obtain a legal record of who was at fault). 3. Punitive damages used to punish the party at fault. possible in a fraudulent situation. 4. Exemplary damages used to make an example of the party at fault to discourage similar crimes. Fines can be multiplied by factors of up to 50 for such damages. Reliance measure: When it is not possible or desirable to award damages measured in above ways a court may award money damages Reliance measure: When it is not possible or desirable to award damages measured in above ways a court may award money damages designed to restore the injured party to the economic position that he had occupied at the time the contract was entered or designed to restore the injured party to the economic position that he had occupied at the time the contract was entered or designed to prevent the breaching party from being unjustly enriched. designed to prevent the breaching party from being unjustly enriched. 31

32 Specific Performance: There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. There may be circumstances in which it would be unjust to permit the defaulting party simply to buy out the injured party with damages. The court may order a party "specific performance", requiring that the contract be performed. The court may order a party "specific performance", requiring that the contract be performed. or issue an order, known as an "injunction," that a party refrain from doing something that would breach the contract. or issue an order, known as an "injunction," that a party refrain from doing something that would breach the contract. In most jurisdictions, both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Thus, a court will not normally order specific performance. In most jurisdictions, both an order for specific performance and an injunction are discretionary remedies, originating for the most part in equity. Thus, a court will not normally order specific performance.equity Moreover, the defenses to an action in equity may act as a bar to specific performance. Moreover, the defenses to an action in equity may act as a bar to specific performance. Thus, neither performance nor injunction are available as of right to parties Thus, neither performance nor injunction are available as of right to parties 32

33 Procedures: In the U.S. to obtain damages for breach of contract or to obtain specific performance, the aggrieved party may file a civil lawsuit in state court. In the U.S. to obtain damages for breach of contract or to obtain specific performance, the aggrieved party may file a civil lawsuit in state court. If the contract contains an arbitration clause the aggrieved party must submit an arbitration claim. If the contract contains an arbitration clause the aggrieved party must submit an arbitration claim.arbitration Many contracts provide that all disputes arising will be resolved by arbitration Many contracts provide that all disputes arising will be resolved by arbitration Certain claims held to be non-arbitrable if they implicate a public interest that goes beyond the narrow interests of the parties (e.g. civil rights violations). Certain claims held to be non-arbitrable if they implicate a public interest that goes beyond the narrow interests of the parties (e.g. civil rights violations). Arbitration judgements enforced in the same manner as court judgements. However, arbitral decisions are generally immune from appeal unless the arbitrator's decision was irrational or tainted by fraud. Arbitration judgements enforced in the same manner as court judgements. However, arbitral decisions are generally immune from appeal unless the arbitrator's decision was irrational or tainted by fraud. 33

34 In England, Wales and the U.S. a contract may be enforced by use of a claim, or by applying for an interim injunction In England, Wales and the U.S. a contract may be enforced by use of a claim, or by applying for an interim injunction To prevent a breach of a contract where such a breach would result in irreparable harm To prevent a breach of a contract where such a breach would result in irreparable harm A breach that could not be adequately remedied by money damages. A breach that could not be adequately remedied by money damages. 34

35 Third Parties: The doctrine of privity of contract means only those involved in striking a bargain would have standing to enforce it. The doctrine of privity of contract means only those involved in striking a bargain would have standing to enforce it. Only parties to a contract may sue for the breach of a contract Only parties to a contract may sue for the breach of a contract In recent years third party beneficiaries have been allowed to recover damages for breaches of contracts they were not party to. In recent years third party beneficiaries have been allowed to recover damages for breaches of contracts they were not party to. In England, Rights of Third Parties Act was introduced In England, Rights of Third Parties Act was introduced Insurance contract! Insurance contract! 35

36 Contractual Theory: Contract theory is the body of a legal theory that addresses normative and conceptual questions in contract law. Contract theory is the body of a legal theory that addresses normative and conceptual questions in contract law. One of the most important questions is why contracts are enforced. One of the most important questions is why contracts are enforced. 1. One prominent answer focuses on the economic benefits of enforcing bargains. 2. Another maintains that the purpose of contract law is to enforce promises. 3. A third dimension is its relationship to the wider Law of Obligations. Contract is the total legal obligations which results from the parties' agreement Contract is the total legal obligations which results from the parties' agreement Obligations resulted from contracts, which are voluntarily undertaken and owed to a specific person Obligations resulted from contracts, which are voluntarily undertaken and owed to a specific person Obligations in tort which are based on the wrongful infliction of harm to certain protected interests Obligations in tort which are based on the wrongful infliction of harm to certain protected interests Restitutionary obligations, based on the unjust enrichment. Restitutionary obligations, based on the unjust enrichment. 36


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