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Commercial Contracts - Essay Example

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Introduction Lord Staughton identifies that the issue of interpreting written contract is one of the most popular conflicts and issues in the Law of Contract1. Since commercial contracts often have great worth, there are numerous forms of litigation that come with them which requires the court to examine the deeper meaning of the contract…
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Commercial Contracts
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Download file to see previous pages This paper examines two approaches for interpreting commercial contracts in courts of law. The paper assesses the literal and purposive approach to examining and interpreting contracts in courts of law. The paper will assess the advantages and disadvantages of the two approaches and come up with a conclusion on the subject and the evolution process. Literal Approach In commercial contracts, the parties come up with their own terms for the exchange of consideration between them. As such, they write down the terms and conditions for the exchange of consideration. According to Lord Staughton, where there is a dispute in such a contract, the court needs to detect the meaning of the terms and this is a question of law for the judge and not a question of fact for the jury4. Hence, the Judge presiding over the case needs to use an approach to ascertain the facts and what the parties in the contract meant in order to resolve the issue at hand. In the past, most courts used the literal approach, this is steeped in the objective approach to the interpretation of contracts5. This is based on the premise that “... the intentions in the heart of a person is not in man's ability to judge, but change caused by reason of the promise”6. Traditionally, the law of contract is based on negotiations and the promises that were exchanged during negotiations. Also, some of the core maxims of the law of contract made it difficult for the judges to use any other methodology than the literal approach. For instant, English law states that consideration must be sufficient and not adequate. This therefore means that the doctrine of “caveat emptor”, which requires the parties entering a contract to be careful, will act as an estoppel to prevent judges from interpreting the law in any system or structure that would support an attempt to assess intent. Strictly speaking, the objective approach should be the basis for the interpretation of contracts even if it causes serious hardships for one of the parties. In the case of Arcos Ltd V E. A. Romaasen and Sons7, it was held that any express term that is breached in contract renders it null and void. This is because the express terms often form conditions and these conditions must be discharged, otherwise the aggrieved party gets the right to back out of the contract. In Bunge Corporation V Tradax SA8, there was a contract for the mercantile supply of goods. Clause 7 of the contract gave one of the parties the right to terminate the contact if there was a delay. Lord Wilberforce held that time was of the essence in the contract and in the mercantile industry, time lapses were severe enough to merit a cancellation of an entire contract. Lord Scarman and Lord Roskill concurred. Some judges like Lord Staughton hold the view that the court needs to be very careful not to overlook the original terms of the contract to apply new interpretations9. This means that the literal approach is the default Common Law approach to cases relating to the law of contract. Purposive Approach In Codelfa V State Rail Authority10, Lord Brennan stated that “the symbols of language convey meaning according to the circumstances in which they were used”. This therefore means that words in itself are meaningless and the literal application of such words might be devoid of the bigger picture and have some limitations. As such, a Judge will need to use a purposive approach to integrate the context, ...Download file to see next pages Read More
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