Influence of Equity Law on the Law of Contract - Essay Example

? Influence of Equity Law On law of Contract s) Introduction According to Marshall p.19), a contract is a relationship that subsists between two parties and is made effective by the law. A contract comes into existence when one party makes a promise to do or not to do something against the intention of the other party who acknowledge that promise. The two parties make a promise to each other and are bound by those promises. According to the common law, the parties in an agreement must exchange something of value as a sign of acknowledging the existence of the promises between them. Once the promise has been made by one party and acknowledged by the other, the contract becomes effective, and each party is required to fulfil the agreement they made to each other (Collins 1994, p.234). If either of the parties fails to discharge the obligations of the agreement, the common law requires that party to compensate the other party for failing to fulfil the promises. Usually, the compensation is in the form of money and is meant to ensure the offended party is placed in the same position they would have been if both parties completely discharged their obligations of the agreement as agreed upon (Paul 2007, p.23). Equity laws were developed to eliminate the unfairness in contract by establishing the nature of promises and construing the validity of the promises (Marshall 2012, p.38). Equity laws further ensures that each party executes their obligations in the agreement in order to ensure there is no party who stand to gain from his or misdemeanor against the other party. The aim is to ensure that each party gets what the contract initially offered and that each party performs according to the agreement (Williams 2006, p.341). The parties to a contract intend to form a legal union so that in case of breach of those conditions by either of the parties, the offender is held responsible for compensating the other party (Williams 2006, p.341). The other purpose is to set obligations each party owes the other in accordance to the promises they make to each other. 1. Promissory estoppels Under the common law, the promises in a contract are only enforceable if there was sufficient consideration provided by each party to the other during the time of making the contract. Promissory estoppels are a principle in the law of contract which enables the court to enforce promises made by the parties to the contract in the absence of consideration with an aim to avoid unfairness in the execution of the contract (Deakin, Johnston & Markesinis 2012). 1. The effect of promissory estoppel on formalities Promissory estoppels enable the court to avoid causing injustices to one party who fulfilled his or contractual obligations through the promises made by the other party even if they lacked consideration. For example, in the case of Central London Property Trust Ltd v, High Trees House Ltd [1947] KB 130, in which High Trees House Ltd rented premises from central London Property Trust Ltd in London. However, due to the consequences of 2nd world war in 1939, the demand for houses was low there were no occupants to fill the capacity (Beale, Tallon, Vogenauer, Rutgers & Fauvarque-Cosson 2010, p. 3). The landlord offered to reduce the rental feel by half, but they did not specify the duration in which the new fees would apply. Five years later, the demand for houses went up and by mid 1945 al houses were occupied. In 1946, the landlord sued the tenant (High Tress House Ltd) to recover the initial rental value for the houses. The court issued a verdict that in case the land lord was to make a similar claim in 1940, there could be no success since the demand was low. Therefore, even though the common law would require the tenant to pay the old rate the moment all houses were occupied, this was unfair to the tenants since the promises never stated the period in which the old rental fee would resume (Deakin, Johnston & Markesinis 2012). Therefore, the claim by the landlord was unfair and would not be granted. The creditor is not bound by the acceptance of a smaller amount in settlement of the full amount if the court believes that his promise was obtained unfairly (Slawson 1996, p. 63). 3. Promissory estoppels as a defense In some circumstances, fail to rule in favor of a party who imposed promissory estoppels the circumstance in which the other party acted in accordance to the promissory estoppels is considered to be unjust. An example is in the case of D & C Builders Ltd v Rees [1965] EWCA Civ 3, in which D & C builders Ltd worked for Rees and accumulated sum of 482 13s Id. Mrs. Rees called the plaintiff and asked to accept 300 in full settlement of the debt. She insisted that nothing more would be given. Due to financial challenges the plaintiff was facing at the moment, he accepted the amount, but sued Mr. Rees a year later to recover the other amount. The court concluded that it was inappropriate for a debtor to pay creditor lesser amount in full settlement of a larger amount. This would be unjust and propagate injustices to the creditors. This was against the common law which allowed payment of a lesser amount to settle large debt. 4. Doctrine of part performance Under common law, an agreement is recognized as existing by the court of law if it is put down in writing. However, in some cases the existence of a contract may be evidenced by the partial performance of the promises the parties made to each other. The fact that one party acted on the promises of the other party and incurred some expenses in try to fulfill those promises is enough evidence to make the court conclude that indeed there was an agreement between the two parties (Deakin, Johnston & Markesinis, 2012). Therefore, the court will issue ruling in favor of the party who performed some part of the contract. The law of equity provides the court with a base to ensure that one party to the contract does not take advantage of the other by failing to fulfill the promises they made to each other simply due to the fact that the parties did not put their promises in writing. Therefore, whether the promises were written or not does not mean one party should benefit at the expense of the other. The court will consider the fact that one party accomplished took certain action in regard to the promises they made to each other hence the court assumes there must have been a treaty between the parties. In part performance of the contract, if for example a person delivered goods to another person and that other person accepts those goods, regardless of whether the recipient of the goods had ordered them or not, the equity law will require that person to pay for the goods as long as he or she has accepted to receive them (Deakin, Johnston, & Markesinis, 2012). This is because, it will be unfair for one party to accept delivery of goods and fail to pay for them on the claim that they had not ordered for those goods and yet they took their possession. The common law requires the contract terms to be put in writing although at times some parties may state their promises orally (Trakman1983, p. 42). When the terms of the agreement are put in writing the court will not have problems in deciding the state of the relationship between the parties and who the offender may be. In most cases, even written terms may be unclear and pose a challenge to the judges in deciding what the motives of the parties were when making the agreement (Marshall 2012, p. 33). In construing the objectives of the parties, the court will consider what the words used by the parties would mean to a rational person. The use of laws of equity enables the court to establish fairness in deciding the interpreting the meaning of the words as used by the parties in the contract (Glachant 2002, p.296). For example, in Quirke v FLC Interstate Transport Services Pty Ltd, FLC provided Quirke with services for shipping fruits. FLC requested for assurance from the management of the company regarding the payment for the services. Since FLC was only offering transport services and was not selling any goods, the assurance provided in the agreement did not include the services since it stated that the assurance was for the goods sold by FLC. Therefore, the use of equity in a contract has resulted to the use of common sense by the judges in examining the cases (Beale, Tallon, Vogenauer, Rutgers & Fauvarque-Cosson 2010, p. 8). 5. Promissory estoppels effect on parole evidence rule Parole evidence rule requires that in a written agreement, there no way a party to the contract can provide oral substantiation of the contract performance if that proof is likely to alter the facts of the written agreement. Therefore, whenever there is a written promise, the court will rely on the promises written down rather than spoken words. This protects the parties from frauds from the other parties if they introduced spoken words which do not match words that were put down in writing. For example, in the case of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170, the court issued a verdict that all materials of the contract must be put down in writing if the parole evidence rule has to apply. Therefore, if some promises were orally stipulated the equitable estoppels will allow the parties to the contract to provide evidence both written and unwritten hence parole evidence rule will not apply. 6. Equitable causes of action The legal agreement requires the parties making promises to each other to ensure each party performs the part of the contract according to the promises. The offer as stated by the offeror states clearly the conditions which the offeree has to adhere to before accepting to be bound by the terms of the contract. However, if one of the parties fails to deliver what he she had promised, the other party has a right to petition the court to request the failing party to deliver the promise. Therefore, injustice in an agreement is triggered by failure of one party to partially or wholly deliver the promises made to the other party. The common rules of acceptance require the offeree to communicate to the offeror the intention to agree to be bound by the terms of the contract (Marshall 2012, p. 31). It would be unfair for offeree to refuse to declare to the offeror that they have actually agreed to be bound by the conditions of the contract and yet claim to be party to the contract. In Felthouse v Bindley (1862) 11 C.B.N.S 869; 142 ER 1037, uncle and his nephew intended to enter into a contract for the sale of farming stock but were incapable of agreeing on the price of the horse. Uncle wrote to his nephew and informed him that in case he did not hear anything from him (uncle) the nephew should expect the uncle to take the horse at 30-15 pounds. His uncle never said anything to his nephew, but accidentally the auctioneers sold the horse although the nephew had informed the auctioneer that the horse had been sold. If judges were to construe the plans of the parties, the words spoken by nephew could mean that he intended to sell the horse to his uncle. However, silence should not be treated as an acceptance of the offer. It would be unfair to treat the uncle as the new owner of the horse after failing to communicate (Deepa 2001, p. 43). If the auctioneers assumed the horse was sold ad yet the uncle refused to take its ownership since there was no legal agreement between him and his nephew, this would be unjust to the nephew. Therefore, in order to create fairness in legal agreements, silence is no treated as an acceptance by any means (Posner 2006, p.56). In order to ensure no person make claim for breach of a contract accepted beyond the period agreed, equity laws require the offeree to acknowledge the contract within a specified time. This was the case in Dicknson v Dodds and Routledge v Grant (1876) LR 2 ChD 463, CA. In the same case, the judge stated that the information regarding the acceptance of an offer does not have to be conveyed by the offeree in person, but an also be declared by a third party. This creates fairness by preventing one party from disowning the obligations of the contract in the claim that there was no contract at all because the information of acceptance was conveyed by a third party. Irrespective of who conveys the information, the intention of the parties will have been communicated hence creating a valid agreement. An offer can be revoked by the offer before acceptance unless the offeree had given the offeror some consideration to keep the offer open. In Hyde v. Wrench, [1840] 3 Bea 334; 49 ER 132, Wrench had made an offer to sell estate to Hyde at a value of 1000 pounds. However, Hyde declined the offer and set new agreement to buy it at 950 pounds. The seller rejected and withdrew the offer. Hyde tried to buy the estate at the original price of 1000 pounds, but the seller refused. Hyde sued the seller, but the court argued that the first offer was cancelled by the second offer of which the offeree (seller) declined. Therefore, the law of equity shields the offeror against counter offer in the case would be offeree makes a counter fresh offer for personal gain (Collins 1994, p.217). 7. Defense of Unconscionability In Currie v Misa, (1875) L. R.10, for a legal agreement to be established between two parties there must be an exchange of something of interest or benefit which moves from the offeree to the offeror in reliance on the promises made by the offeror. This must either have benefited the defendant or caused harm to the plaintiff (Marshall 2012, p. 35). Equity laws protect the plaintiff against loss suffered or stops the defendant from enjoying gains flowing from the plaintiff on the base of insufficient consideration. This ensures that all parties get what the contract promised so that no party benefits at the loss of the other party (Slawson 1996, p. 61). The court has mandated under the equitable estoppels to protect the parties by failing to enforce the contract in the absence of sufficient consideration. 8. Equitable remedies In some cases, the court can only require the offended party to the contract to be compensated in financially for failure by the other party to perform according to the agreement or by performing against the agreement There are some situations in which monetary award to the offended party cannot take that person to the state they would be if both parties discharged their duties effectively in accordance to the agreement. The only means in which the offended party can obtain adequate compensation from the other party is by having that person discharge their obligations as per the agreement (Marshall 2012, p. 19). For example, some persons have emotional attractions to some properties hence if a person enters into a contract with another person in which one party lends out property and the only way they can have fair compensation is by having that particular property given back to the lender and not giving anything else even if they have equivalent value (Collins 1994, p.221). Although under the common law, the offended party should get monetary compensation in full payment for the property, equity law recognizes the issue of emotional attraction to property and will only require the offending party to perform according to the original plans of the parties to the agreement. Conclusion Under the common law, new cases presented in the court were solved in reference to the similar case decided previously by the court with similar or higher jurisdiction (Marshall 2012, p. 26). Contracts laws are parts of the common law and had a lot of inadequacies which left either of the parties dissatisfied in case the parties failed to perform contact according to the terms set by the parties. Equity laws were made to supplement the inadequacies of the common law of contract. Under the common law of contract, if one party to the contract failed to perform his or her duties or performed against the set terms of the contract, the common law did not provide adequate compensation to the injured party (Beale, Tallon, Vogenauer, Rutgers & Fauvarque-Cosson 2010, p. 7). For example, the common law did not require the offending party to execute the part of the contract omitted or did not stop a person from carryout specific duties that would result to injury of the other party. The work of the court is to assist in interpretation of the purpose of the terms of agreement as stipulated in the agreement. In order to achieve this goal, the court will consider the words used by the parties to the agreement and examine how a common an ordinary person would understand by the terms stated in the agreement. Bibliography Beale, H., Tallon, D., Vogenauer, S., Rutgers, J. W., & Fauvarque-Cosson, B (2010). Cases, Materials and Text on Contract Law. Hart, Pp. 2-8 Carlill v. Carbolic Smoke Ball Co. [1893] Q.B. 256 (C.A.) Central London Property Trust Ltd v High Trees House Ltd [1947] KB130 Collins, H (1994). Good Faith in European Contract Law. Oxford Journal of Legal Studies, 14(2), 212-247. Crown v Clarke (1927) 40 CLR 227 Deakin, S., Johnston, A., & Markesinis, B (2012). Markesinis & Deakin's Tort Law. Oxford University Press. Deepa, V (2001). Tortious Interference and the Law of Contract: The Case for Specific Performance Revisited. The Yale Law Journal, 111(3). Pp. 32-62 Dicknson v Dodds and Routledge v Grant (1876) LR 2 ChD 463, CA Felthouse v Bindley (1862) 11 C.B.N.S 869; 142 ER 1037 Glachant, J (2002). The Economics of Contracts: Theories and Applications. Cambridge University Press, Cambridge, England. Pp. 289-386. Gordley, J (2001). Enforceability of Promises in European Contract Laws. Cambridge University Press, Cambridge. Pp. 104-153 Hyde v. Wrench, [1840] 3 Bea 334; 49 ER 132 Paul, K. F (2007). Judicial Review and the Limits of Arbitral Authority: Lessons from the Law of Contract. St. John's Law Review, 81(1/2). Pp. 14-58 Posner, R. A (2006). Common-Law Economic Torts: An Economic and Legal Analysis. Ariz. L. Rev. Pp. 31- 75. Quirke v FLC Interstate Transport Services Pty Ltd Slawson, W. D (1996). Binding Promises: The Late 20th Century Reformation of Contract Law. Princeton University Press, Princeton, NJ. Pp. 54-86. Trakman, L. E (1983). Frustrated Contracts and Legal Fictions. The Modern Law Review, 46(1). Pp. 37-48. Marshall, A. B (2012). Reconsidering the Proper Law of the Contract: Melbourne Journal of International Law, 13(1). Pp. 17-46 Williams, K (2006). Politics, the Media and Refining the Notion of Fault: Section 1 of the Compensation Act 2006: Journal of Personal Injury Law. Pp.341 Read More