Law for Business Students - Essay Example

Law for Business Students Repudiation of contract means the cancellation of terms of the agreement or rejection of the agreement. The party can repudiate a contract if the second party violates the terms of the contract and leads to the breach of the agreement. However doing so is justified under the following circumstances: If a party violates the terms of the contract severely with out consulting the other party, the second party has every right to cancel the contract in the form of rescission. Rescission also implies to the right of an individual in canceling the agreement if the provisions of the original contract become void due to the acts of the other party. Some times it makes the contract completely cancelled and the precondition of the contract has to be considered for legal status of English law. In other words, it is also described as the right of an individual who is signatory to a contract to return to the similar state as earlier before entering into the agreement, if the courts doubt legal status. The repudiation may be in the form of mutual consent or individual action. It can also be practiced by issue of decree by the court. Even though the invalidation of original contractsults in repudiation, it may also be exercized under the circumstances of fraud, duress, material breach or default and misrepresentation. An oral or written contract can be rescinded on the ground of fraud. The right to rescind for fraud is allowed because of the logic that the defrauded party has failed to perform. However all situations will not be declared as correct grounds for rescission based on fraud. False statements of value, or the failure to perform a promise to do something in the future without fraudulent intent, should not be considered as a basis for rescission for fraud or misrepresentation. The strong proof for fraud or misrepresentation is required to be produced for justifying the repudiation of the contract. Once sufficient grounds were found confirming the involvement of the fraud, the victimized party can affirm the contract and can also sue for damages. Similarly, if any party violates the norms or provisions of the contract by involving in duress, the other party can repudiate the contract. It is also found that the same rules apply for repudiation of contract as in the case of fraud. However the sufficient ground of duress ahs to be proved in the English court of law. This is to protect the interests of the innocent people. Similarly in cases of either unilateral mistakes or bilateral mistakes relating to the breach of material facts the contract can be repudiated. Even the affected parties can claim for the recovery of their losses due to the unfair terms of the contract. A contract can be repudiated if it is made by a person of unsound mind and the parties can be restored to the status quo. One should note that this rule applies even if the opposite party was unaware of the mental condition of the second party. Even when a party is intoxicated the contract cannot be repudiated as there is a chance of misutilization by some people. Nonperformance or Breach of any party once it is confirmed strongly will become a legal ground for repudiating the contract. In other words, the right to repudiate does not arise just from every breach but is allowed only when the breach is so substantial and remarkable that it defeats the objective of the other parties involved in agreement. One more important factor that decides the legality of repudiation of contract is the stipulated time in which the agreement has to be followed. Any party once committed to complete the contract in defined time limit must complete it with strong evidence successfully, other wise the contract can be repudiated 1 and 2. Similarly the party which has to repudiate the contract must do it in a stipulated time and repudiation will not become valid if third party rights interfere with repudiation 3. Some cluases in English private law protect the person’s interests involved in contracts. For example, in England and Wales, the court has the discretion to award damages instead of rescission (S. 2(2) of the Misrepresentation Act 1967). 1. Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas. 308. 2. Long v Lloyd [1958] 1 WLR 753 3. Leaf v International Galleries [1950] 2 KB 86. The need of the hour is to strongly analyse the various principles and provisions of contract law which will help in repudiating contracts under necessary situations. This needs thorough undestanding of contract law by reviewing some useful books (Poole, 2006 and Adams, 2006). The book “Business law” written by Keenen and Riches (2005) also throughs light on contract law in relation to business transactions and hence would be of immense help to the common people who need to repudiate the contracts under English contract law. (b) Should damages for defective performance be assessed on the basis of difference in value or cost of cure? There have been several cases where people debate over the basis for judging or estimating the damages. Some may favor on the basis of difference in value of goods and services due to non implementation of the contract and some may prefer the measurement of damages on the basis of cost of cure or recovery once the management process starts. It may be proper to state that the damages can be estimated on the basis of both the factors mentioned above which may vary from situation to situation. In some of the cases like Henderson v Jaouen (2002) 4 the damage got enhanced further as it was found to be continuous and hence the compensation has to be made at higher extent. In some of the cases the damage may be felt out side the England even though the incident of damage occurs in England (Roerig v Valiant Trawlers Ltd., 2002) 5. In those cases the applicability of English contract law in estimating the damages in terms of loss of value will not be as significant as its efficacy for the contrcts inside the country. In some of the cases the estimation of damages might be erroneous or under valued in terms of cost of cure due to inflation or bad bargaining 6. The damages can be recovered if the sufficient ground of breach of contract is found and justified. Other wise the damages may not be recovered 7. All act of the defendant in a sequence of events leading to a loss of value might not be held to be the cause of the loss. In case of natural calamities, the transactions 4 : Henderson v Jaouen (2002) 2 AER 705 5 : Roerig v Valiant Trawlers Ltd. (2002) 1 Ll Rep 681. 6 : Dunlop Pneumatic Tyre Co v New Garage [1915] AC 79. 7 : The Monarch SS Co Case [1949] AC 196. may be delayed or affected severely for which the parties cannot be made responsible and recovery of damages in terms of cost of cure under those circumstances is not possible. Similarly damages in the from of loss of value are recoverable only when they are arising naturally from the breach and are reasonably be supposed to have been in the contemplation of the parties, as liable to result from the breach, at the time of the contract. 8 At the same time, one should not misutilize in the name of recovery of damages. Hence it was mentioned that the affected party must try to minimise the loss resulting from the breach by taking all possible steps available and if he fails to do so, then he cannot recover anything in respect of that extra loss 9. It may so happen that some times this provision may affect some genuine customers’ interests. Hence the courts have ruled that the customer is not expected to take risks in order to mitigate losses caused by the defendant's breach and there should be balance between the customers interests and genuineness of defendants 10. In case of Peevyhouse v Garland Coal Co (1962) 11 the court ruled that two forms of recovery of damages were to be exercized i.e. cost of cure and difference in value. In the majority of cases the courts will exercise the discretion to use the most appropriate basis of 8 : Hadley v Baxendale (1849) 9 Exch 341. 9 : Payzu v Saunders [1919] 2 KB 581. 10: Pilkington v Wood [1953] Ch 770. 11 : Peevyhouse v Garland Coal Co (1962) 382 P 2d 109. assessment in the case. Some rules also exist for working out the appropriate mode of assessment which will be analyzed by the courts while deciding the type of assessment. (a) If a defect can be cured at a reasonable cost in sale of goods contracts, the cost of cure will be awarded, otherwise the difference in value may be awarded. (b) Similarly in building contracts, cost of cure basis is usual, and the builder should put the defects right. However, if the cost of cure is higher than the whole value of the building, then only the difference in value shall be awarded. This issue was considered by the House of Lords in Ruxley Electronics & Construction v Forsyth [1995] 12. Hence it may be concluded that the damages can be estimated by both difference of value and cost of cure. The courts play vital role in deciding the suitable type of assessment depending upon the context. 12: Ruxley Electronics & Construction v Forsyth [1995] 3 WLR 118. References: Adams, A. (2006) Law for business students. Harlow: Pearson Longman, 4th edition. Keenan, D. and Riches S. (2005) Business Law. Harlow: Pearson/Longman, 7th edition (or any other edition) Poole, J. (2006) Casebook on contract law. Oxford: Oxford University Press, 8th edition. P: 792. ISBN-10: 0199290296. Read More