Contract Law Act in the UK - Assignment Example

?Introduction The basic rule of contract law is that the parties have freedom to contract. This would mean that the parties would be bound by the terms of the contract unless the terms are unconscionable. The UK instituted an Act, however, which limits this – the Housing Grants, Reconstruction and Regeneration Act 1996 . This Act appears to have been instituted to protect general contractors, as apparently there has been an issue with non-payment for work done in the construction industry. This Act further limits contract freedom in that there cannot be a condition in the contract which states that payment to the general contractor is contingent upon payment being made to the payer by a third party. The following will explain these terms in depth, as well as explain the basic requirements of a valid contract. Basic Requirements of a Contract The requirements of a valid contract are that there must be an offer, an acceptance of the offer and consideration, which means that there is either a promise for a promise in a bilateral contract or a promise for performance in a unilateral contract. Offers must be distinguished from invitations to treat (Spencer v. Harding (1870) LR 5 CP 561). An example of an invitation to treat is a shop owner who offers goods for sale to the general public, as noted by the case of Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. [1953] 1 QB 401. This case established the principle that sellers are not making a valid offer to customers, and that customers who bring goods to the counter are not making an acceptance, therefore a contract is not formed. This principle is further illustrated in the case of Fisher v. Bell [1961] 1 QB 394. This case notes that the shopkeeper is not making an offer, but the customer who presents the item to the cashier is making an offer to buy. When the cashier takes the customer's money, the cashier is, in effect, accepting the customer's offer to buy the good. Partridge v. Crittenden [1968] 1 WLR 1204 is another case illustrating this point, and this court held that offering birds for sale cannot be a valid offer, as the storekeeper might not actually own the birds, therefore he cannot be contractually bound to sell them. There also must be mutual assent to the contract, and this is known as the “mirror image rule.” This means that the acceptance must mirror the offer exactly. If the acceptance deviates from the terms of the offer, then the acceptance is deemed a counteroffer, in which case the original offeror is in the position to be the acceptee (Restatement 2d Contracts §59a). Moreover, the agreement must be certain and enforceable, which means that the terms must be ascertainable by either consulting reasonable standards or have objective terms which can be enforced. For instance, in the case of Scammell and Nephew Ltd v Ouston [1941] 1 AC 251, the court held that an agreement to buy a new van “on hire purchase terms” was too vague to be enforceable. In this case, there was no way of measuring the hire purchase terms, as the contract did not indicate whether the terms were to be reasonable, nor did it list a price. The court must have a way to determine what the parties intended, and this goes to the element of certainty and enforceability. Contract law traditionally required privity of contract – this means that the contract is only between the contractees, and any third party beneficiary to the contract would not have the capability of enforcing the contract. The Contracts Act 1999 changed this, as it specifically allows a third party to sue if the contract benefits the third party, and there is not a stipulation that the third party does not have the ability to enforce the contract (Contracts Act 1999). Therefore, a third party can sue to enforce the contract, which is an evolution from the common law rule regarding contract privity. Effects of Part II of the Housing Grants, Reconstruction and Regeneration Act 1996 This part of the Housing Grants, Reconstruction and Regeneration Act 1996 (HGRRA) focuses on payments under a construction contract. Specifically, the Act states that, when a construction contract is for 45 days or more that the party to the construction contract is entitled to installment payments (HGRRA 1996 §109). Section 111 of the HGRRA 1996 states that a construction contract shall stipulate the dates of the payments, and when the final sum comes due. Section 112 forms the basis on when and why one party may not pay the other party. This section states that a payment may not be withheld without notice. In order to be effective, the notice must state how much would be withheld from the payment, and why. Moreover, if there are multiple reasons why the payment would be withheld, that party must state to the other party all of the reasons for the withheld payment. The actual notice period, which is the amount of time before the payment becomes due by which the notice must be given, is a matter for the parties to decide. Section 108 of the Act further gives the parties to the contract the right to adjudicate the matter, and the decision of the adjudicator is final. If the adjudicator finds that the paying party must pay the contractor the disputed sum, then this amount must be paid to the contractor either 7 days after the decision, or by the final date of payment, whichever comes later. Further, if the paying party does not pay the installment due, then the contractor may suspend performance on the contract. In order for this to be valid, the contractor must not have been given notice of the intention to suspend the payment, and the contractor must also give the paying party seven days notice of his intent to suspend performance. If the payee party pays the disputed sum, then the contract no longer has the right to suspend performance, and, if the contractor does suspend performance on the contract, then the suspended time cannot be computed into the prescribed length of the contract. Moreover, any provision in the contract that states that the payments are conditional upon the payer receiving payment from a third party is invalid, unless the third party is insolvent (HGRRA 1996 § 113). This would prevent any scenario where two parties contract for a construction project, and one party performs on the contract by undergoing the work necessary to complete it. Then, after the party completes his work, the other party either does not pay that party because he or she is insolvent, or the other party does not pay the constructing party because he or she is allegedly displeased with the work. In this case, because the constructing party would be entitled to installment payments, both parties would have the opportunity to evaluate the work that is proceeding and resolve any differences that they might have regarding the work, and this would be done in a timely manner. Therefore, if the party who hired the contractor is displeased with the work after a month, then the parties have the change to course correct, as opposed to a different scenario where the contractor outlays time, money and other resources for the project, only find in the end that he is not receiving payment because the work was less than what was contracted for. In particular, the Act states that the paying party must give timely reasons why the payments would be withheld, and the contracting party then has the right to adjudicate these reasons. What this prevents is scenarios where one of the parties refuses to pay because of a style issue or some other subjective issue in which the party is not satisfied with the construction work. The adjudicator puts an end to this, as the adjudicator, as a neutral third party, would have access to the contract, and all the specifics on how the contractor is fulfilling the requirements of the contract. The adjudicator would then use these resources to make a binding decision. This means that the contractor has recourse to force the other party to fulfill his end of the contract, as opposed to the other party refusing the pay on a subjective whim. This Act also gives the contractor further recourse by allowing the contractor the ability to stop performance on the contract if he is not getting paid. This section puts an end to any scenario where the contractor is working essentially for free, as the payee is not paying. This section essentially establishes that the failure to make a timely installment payment is a breach of contract, such that the other party may legally refuse to perform. This gives further protection to contractors in that they are not under an obligation to go forward if the payee is not paying because of dissatisfaction or some other reason. Moreover, it gives both parties time to seek the counsel of an adjudicator, which is necessary to mediate the dispute. Section 113 is an interesting clause, as it seemingly voids the freedom to contract and the freedom to choose one's terms. Under the ordinary common law definition of a contract, if both parties bargain for a term, that term would be valid. This would ordinarily mean that, if both parties agree to a term that states that payments to the contractor would be conditional upon a third party paying the payee, this term would be valid, as this was a term to which both parties assented. This section, however, states that such a provision has no effect, which essentially takes away the parties' freedom to contract. This term was seemingly implemented because of the privity issue – since the third party is not a party to the contract, then the contract cannot be based upon any actions that this third party might make. This part of the Act limits the rights of third parties to have an impact on contracts. What this part of the Act also seems to limit is any kind of clause where a payee makes payment conditional upon receiving money from a lender. Perhaps the reason for this is because the UK Government wants to prevent this clause because receiving money from a lender might be too speculative. It also seems that the UK Government , in particular, wants to protect contractors, as the contractors are not necessarily privy or aware of the terms that the payee and the lender might have, nor is the contractor aware of any kind of terms that a payee and any third party might have. This section also seems a bit paternalistic, as perhaps the implication is that contractors are not sophisticated, therefore they need special protection, and one of these protections concerns the right to void any kind of stipulation where the payment is dependent upon a third party. Local Democracy, Economic Development and Construction Act 2009. This Act appears to give further protections to contractors. For instance, the provisions in section 139 states that all construction contracts must be in writing. This is important, once again, because perhaps unscrupulous payees to construction contracts were making verbal agreements with contractors, then renege on the contract once the contractor has completed the work. Another provision of this Act, section 142, appears to address the issue of subcontractors. Specifically, it states that any provision where payment is conditional upon performance of obligations under another contract, or a decision made by another person as to whether the obligations under another contract have been performed, is void. The terms are void, in that the time to make payment to the contractor cannot depend upon the performance of the other contract. This seems to specifically address subcontractors, and any kind of clause which might state that the general contractor will get paid if the subcontractor has performed his duties. This also seems to limit the freedom to contract, yet this clause recognizes that general contractors cannot be held responsible for the work, or lack thereof, of subcontractors, and that general contractors are entitled to be paid, regardless of whether the subcontractor has performed his end of the bargain. Likewise, this would also protect subcontractors in the reverse scenario – just because the general contractor did not perform, the subcontractor is still entitled to be paid on time. This way, the payments may not be conditional on whether all the contractors have performed, but, rather, each contractor must be treated individually. While this section of the Act appears to negate the freedom to contract, another section restores it, somewhat. The section in question is that of Section 143, which states that, if the payer does not give five days notice to the payee that he would not be making payments under the contract, then this may still not be a breach of contract. In this case, Section 143 recognizes that the parties may create their own date for when the notice is given, and this section gives effect to this. It states that the notice may be given when the parties agree that the notice has to be given. This section of the Act recognizes that the parties may determine their own terms for when notice may be given, and has given effect to this. This section might be recognizing that there might be extenuating circumstances under which the payer may need an extended time to pay, and contracts may cover these individual circumstances. Giving the payer just five days after the payment comes due to give notice does not give this kind of flexibility, and the parties may have agreed to the conditions by which the payments may be late, and how late the payments may be under X, Y or Z circumstances. This section gives effect to this agreement. Section 143 also gives effect to the parties agreement, as this section states that the payer may pay less than the agreed-upon sum, and that he must give notice within the prescribed period. Once again, the legislation has given effect to parties’ agreements, as the statute specifically states that the prescribed period for the notice is the period by which the parties agree. The contractor is further protected by section 145. In this section, it amends the previous act, which states that, if the contractor ceases performance because the payee is in default, then the contractor must resume performance if the payee pays the full amount due. Under section 145, this amended, in that the payee must not only pay the full amount due, but must also pay the amount that the contractor incurred by exercising his right to cease performance. This presumably means that, perhaps the contractor upon ceasing performance still has to pay the subcontractors who are not working, and his employees, etc. Just because the general contractor does not perform does not necessarily mean that the people under him are not getting paid. Therefore, the general contractor would be out the money that he paid the people under him during this period of time. Under section 145, the payee must reimburse the general contractor for these expenditures, and any other expenditures incurred by the general contractor as a result of exercising his right to suspend performance. Conclusion Contractors under the old way of doing business in the UK apparently were at the mercy of unscrupulous individuals who appeared to have found different ways not to pay for work done. Contractors are especially at risk, because they outlay resources, tools, materials, etc., to get a job done. The Acts above appear to address this by stipulating the exact terms which supplant the contracts that people have already made. While these Acts appear to limit the freedom of contract, they were apparently necessitated in the industry because of unequal bargaining power between the parties, so they probably are a good thing. Sources Used Contracts Act 1999 Fisher v. Bell [1961] 1 QB 394 Housing Grants, Reconstruction and Regeneration Act 1996 §108 Housing Grants, Reconstruction and Regeneration Act 1996 §109 Housing Grants, Reconstruction and Regeneration Act 1996 §110 Housing Grants, Reconstruction and Regeneration Act 1996 §111 Housing Grants, Reconstruction and Regeneration Act 1996 §112 Housing Grants, Reconstruction and Regeneration Act 1996 §113 Local Democracy, Economic Development and Construction Act 2009 § 139. Local Democracy, Economic Development and Construction Act 2009 § 142. Local Democracy, Economic Development and Construction Act 2009 § 143. Local Democracy, Economic Development and Construction Act 2009 § 145. Partridge v. Crittenden [1968] 1 WLR 1204 Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. [1953] 1 QB 401. Restatement 2d Contracts §59a Scammell and Nephew Ltd v Ouston [1941] 1 AC 251 Spencer v. Harding (1870) LR 5 CP 561 Read More