Functionality of Contract Law - Essay Example

Introduction Contract Law has an important and central role to play in private civil law which has never been disregarded by any of the legal scholars or legal practitioners. Contract law in every legal system is considered to be the corner stone of the system and has been the most rewarded and most renowned field of the civil and corporate law1. The importance of contract law can also be evaluated by complexity of legal propositions and legal scenarios in both of its practical functions and in its jurisprudential functions. If we look at the English Law, it is stated that English law does not provide a precise and to the point definition of the contract law. According to Beatson and Anson, contract law is defined as the branch of law that ensures legal binding of the promise between two parties and makes them fulfill it. Whereas French Civil Code defines contract law as convention and agreement in which one party or several parties bind themselves to serve a specific purpose or to restrain from some. So, all in all what contract law adhere is that there lie a duty on both parties in a contract to execute their obligations. The ultimate examination of both the definitions of English Law and French Law confirms some essential features of the contractual relationship and that is the performance of the contract. Contractual performance is sole principle of contract law which must be kept and fulfilled at any cost. This principle of contract law is the backbone of the whole contractual relationship2. Generally the contract law is defined as an agreement that creates obligation enforceable by law. This obligation is based upon the mutual acceptance, consideration, legality and capacity to perform. In this process of conformity, fulfilment and binding, there may arise number of problems if in case contract is not implemented properly or if one party rejects to perform according to the obligations. Thousands of contracts are agreed upon and signed in the world every day and most of them are not performed in their full essence according to the terms3. Whilst many of them are resolved by negotiations and discussions but there comes cases under which hostilities are not that easy to resolve breach of contract informally. In this regard law provides remedial measures to provide justice to distressed party. These remedies help aggrieved party to either recover performance based upon the contract or ensure provision of some compensation for the damage caused by the breach of contract. Some possible remedies renowned for breach of contract are consequential damages, general damages, specific performance and reliance damages etc4. Now in case of The Wickwar Galleries Ltd hereinafter the gallery and Hot-Cold Services Ltd hereinafter hot cold had been in contract for the first year and have been pleased but after the incident of overheating has caused conflicts between parties. In this proposition, the breach of contract can be evaluated from three perspectives that hot cold company failed to service the air conditioning properly which resulted in mechanical loss hence non-performance on part of the service provider. Secondly the conflict led the gallery to terminate the contract with hot cold company which again is a debatable topic in contract law. Finally the breach of contract caused damage to both parties which will be discussed thoroughly in this paper. Fundamental Non-performance According to the principles of UNIDROIT (International Institute for the Unification of Private Law) Principles of International Commercial Contracts and the Principles of European Contract Law, non-performance is an analogous to the "breach of contract". It has been revealed in many studies that the matter of non-performance is not similar or unitary in legal systems around the world. Non-performance generally is associated with the attribute of negation to the original contract5. It refers to the failure of any party usually the service provider to perform any of their contractual obligations whether they are main obligations or auxiliary obligations. It has no concern that the obligation was specifically mentioned in the contract or not and for non-performance the breach of contract is deliberated to be fundamental.6 According to United Nations Convention on Contracts for the International Sale of Goods, the breach of contract is always assumed as non-performance irrespective of the fact that the service provider has grounds for exclusion or exemption from the breach7 which is specifically followed by the term failure and obligated to both parties. This aspect of fundamental non-performance eliminates the fact that hot cold company mentioned damage by the failure of their service to the property will not be their liability. Principles of European Contract Law and UNIDROTT principles state definition of the breach or non-performance as a failure by a party to perform in accordance with their promises including late performance or defective performance. Now the fundamental non-performance can be evaluated by two principle features. First defines that all forms of defective performances will be subject to non-performance as the company had failed to preserve quality and output. So, it will be a non-performance on the part of hot cold company that their air condition service on the last trip had defects which has also been confirmed by another air conditioning company too. If the hot cold would have taken proper care and servicing of the air conditioning system and would have replaced damaged part then the loss would have been neutralized8. Whereas defective servicing of hot cold led air conditioning system to collapse by overheating and ultimately it cost the gallery with £10,000 loss. The second principle include late performance which can also be minimized by the conformity of the late arrival but late performance along with non-conformity contribute to fundamental non-performance9. Here hot cold failed to deliver its services in time along with non-infirmity that no intimation or information from hot cold was given to the gallery about their unavailability due to public holiday which might have help the gallery to reschedule the service of air conditions and ultimately might have saved their fate from massive loss10. So, the gallery has a strong legal position that the conflict between the gallery and the hot cold was only because of the non-performance of the hot cold company because hot cold provided defective performance and did not comply with their obligations whereas for the next air condition service which could not take place due to public holiday, hot cold failed to inform about non-conformity and neither did they carry late performance11. Termination of the contract Usually the termination of the contract is assumed to be the most severe action and remedial measure to react to non-performance of the service provider. Since termination of the contract is the most drastic remedial tool which also reflect the gravity of damage on part of the client and reveals the negative effect of loss on the clients. Terminating the contract under severe effects also portrays that the clients cannot afford to be at loss and he wants to avoid future occurrences and in this regard avoidance makes it clear that clients can resell and repurchase the contract until the obligations are not fulfilled12. The right to termination of the contract remains with the client even if the service provider has already been excused from the non-performance. In the case of fundamental breach of the contract, the termination of contract is more justified than regular termination13. The sole objective of termination of contract in presence of non-performance will not be affected by the exemption or exclusion of the breaching party whereas it will only save breaching party from certain legal penalties. Well, termination is the right of clients but no doubt damages can be filed in accordance with the contract14. In this case of the gallery and hot cold, the hot cold company (service provider) have acclaimed that the gallery has violated the servicing contract. Henceforth it has also be proved that hot cold has violated the contractual obligations which has caused enormous damage to the gallery already. The gallery has not demanded for the damages because the breaching party has been excused from the damage but according to the PECL principles, the aggrieved party can terminate the contract whether the breaching party is excused from damages and specific performance or not. So, the notice for termination of contract by the client is valid and rightful. As far as the automatic termination of contract is concerned which on part of the gallery seems to be the case is not possible until or unless mentioned in the contract. Termination of the contract must be made by notifying the breaching party but one exception under PECL article 8, section 106 sub-section 4 states that if the breaching party is excused and excluded from damages under the PECL article 8:108 through some obstacles which are permanent as in case of the gallery versus the hot cold, hot cold company is excused from any damages which is permanent, then the termination will automatically be activated without any notification if the non-performance or any hindrance arises from seeking damages15. Furthermore in the absence of any impediment to damages the aggrieved party will have to notify within a given time period which does not require any involvement of the court rather simple notification will be enough. So, the right to terminate the contract resides with the aggrieved party but it also varies from the weight of conflict, non-performance and loss to the client too. The client can also terminate the contract if the performance and quality of service provider is far below the obligations that both parties agreed upon. There are also scenarios where client prioritize safety of its products or items more than damages and on the other hand if the defaulting or breaching party is exempted from the damages16. In the case of the gallery versus the hot cold, the service provider is excluded from damages besides the gallery cannot afford to lose artifact and painting. Secondly, in case of hot cold, they had already received the advanced payment for their upcoming services which makes a powerful argument of anticipatory non-performance. Mechanical carelessness was detected irrespective of the fact that hot cold did neither inform of the non-conformity due to public holiday neither they visited on the next working day. The termination includes all aspects which validate the breaching party’s termination as there exist a fundamental non-performance, there prevails anticipatory non-performance, fundamental non-performance for partial delivery of service subsists and finally the failure to perform within given Nachfrist had also passed since hot cold visited for next due service not for the skipped one. Effects of termination Termination is the process which releases both parties from their obligations but it is likely that both parties may have left or transferred some payment. In this context, both parties can claim for restitution of whatever the price they have or have to be paid under the contractual obligations17. The leading effect will involve the relief of future performance, restitutions, after termination obligations and unaffected rights etc. Since termination releases both parties from obligations except the obligation to pay damages and make restitutions18 which under PECL article 9: 305 (1) states that the aggrieved party may either refuse to perform its obligations which also include withholding performance, refusal of future performance and temporary refusal but in case of the gallery, the services from hot cold were totally refused either future performances or the defective performances. Moving forth to the effect of termination whether it will be prospective or retrospective has always been a topic of discussion under different legal systems but according to common law and PECL guideline (Article 9: 305 (1,2)), the effect of termination is announced to be perspective. Prospective effect states that claims before the conflict and termination are not problematic except for payments to be paid or received. After implication of termination effect there comes the continuing right to claim damages since the contract states hot cold an exclusion from damages so that would not be a problem but the damages arising from the avoidance of contract will need to be discussed according to the contract. Besides availing the remedy other than damages cannot preclude claim off damages.19 After termination whenever some payment is left or transferred to other party then both parties would desire to either recover money or get rid of the performance received. In short and plain words the attempt to undo the last transaction is made. Article 9: 307 clearly states that the money of restitution is to be paid under the circumstances that if the party has already paid for performance but did not receive the performance or had properly rejected it20. The law states that if the money has been paid before the date of termination and it was not paid as a deposit then the money will be retrieved irrespective of the fact that the recovery is made to the aggrieved party or the breaching party21. Since the gallery did not receive any performance and refused to have them in future. So, the money can be claimed back. PECL guidelines provide a liberal approach towards restitution which can be received through the court or the arbitrator for settlement of conflicts22. Damages for breach of contract and after termination Damages are the best remedial measure in which the contractual relationship of both parties can be saved even after non-performance and allows the service provide to comply by its contractual obligations. As a remedy to non-performance, the client can acquire the cost incurred by the breach of the contract and on the proposed achievements which were promised but never delivered23. Since in the given case the service provider has been excluded from any damages so, there remain no point of demanding the damages of £10,000 caused by the overheating of air condition due to non-performance of the service provider. The right to termination of the contract has already been established but there are some cost or damages to be paid for avoidance. If the gallery has terminated contract under article 1:115 of the PECL then service provider is titled to receive damages equal to the opportunity cost of the service provider. On the other hand if payment of a rice was decided in contract then the subtracted amount of expenses and benefits will be paid. If the contract was signed under payment of a specific rate then the service provider will be paid for the services utilized at the decided rate. Finally under last contractual agreement if the services was decided upon no cure no pay then the breaching party will be paid for the performance exploited including the service that he has been deprived of. Conclusion The contract law no doubt is the complex part of private civil and corporate law and has great significance in resolving matters24. In case of the gallery and the hot cold company, this paper has provided extensive insight about the non-performance on part of service provider, the termination of the contract and its effects have thoroughly been examined and finally the gallery has also been enlightened about the damages, they could acquire from the service provider and which the gallery must have to pay in accordance with the avoidance of the contract. References Anna, K., The Remedy of Avoidance under the Vienna Convention on the International Sale of Goods: Pace Review of the Convention on Contracts for the International Sale of Goods (Kluwer 2000). Beale, H. 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Hachem, P., International Commerce and Arbitration: Agreed Sums Payable upon Breach of an Obligation, Rethinking Penalty and Liquidated Damages Clauses (Eleven International Publishing 2011). Jelena, V., ‘Provisions Common to the Obligations of the Seller and the Buyer’ (1996) Dubrovnik Lectures, 257.  Jianming, S., ‘Declaring the Contract Avoided: The U.N. Sales Convention in the Chinese Context’ (1997) 10 International Law Review 1, 33. Knapp, C. L.; Crystal, N. M.; Prince, H. G., Problems in contract law: cases and materials (Aspen Publishers/ Wolters Kluwer Law & Business 2007). Liu, C.; Newman, M. S., Remedies in international sales: perspectives from CISG, UNIDROIT principles and PECL (Juris Net 2007). 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