The Ruleof the Entire Contract Analysis - Essay Example

The entire contracts rule Introduction: The case of Cutter v Powell is important from the perspective of enforcement of a contract in its entirety, where complete performance by one party is a mandatory precondition to fulfillment of obligations by another party. However, this rule has been amended over the years by the Courts since it has been found to be inequitable in certain cases, especially when contracts are frustrated or rendered impossible through circumstances other than a default by either party. The introduction of the Human Rights Act which mandates the precedence of individual rights has further mandated a revision of the entire contracts rule. The case of Cutter v Powell and the entire contracts rule: The general rule that prevails within contractual law is that the performance of the contract must in every way comply with the terms that are written down in the agreement between the parties. The violation of any aspect of the contract could render the entire contract voided. For example, in the case of Re Moore and Landauer1 the mandate imposed by Section 13 of the Sale of Goods Act required that all delivered goods conform to their description in the contract. While the original contract specified 3000 tins of canned fruit with 30 tins packed in every case, the delivered consignment was found to contain some packs with only 24 cases, although the total number of tins delivered was still 3000. Despite the fact that no loss had resulted to the buyer, the Court of Appeals till held that the buyer had the right to reject the entire consignment because it did not conform to the description specified in the contract. This performance of the entire contract rule was found to cause considerable hardship in the leading case of Cutter v Powell.2 The case concerned a seaman who was to be paid his wages after the voyage had ended. However, he died just a few days away from port, before the entire voyage could be completed as spelt out in his contract with the shipping company. Despite the fact that wages were owing to him for the days that he had worked, his widow ended up receiving none of his wages, because the seaman had not performed his contractual obligations in their entirety and as a result, was not deemed eligible to receive any compensation as laid out in the contract. The entire contracts rule therefore framed on an all or nothing basis in so far as contractual obligations are concerned. It is derived from inflexible common law provisions that govern contract, but which would appear unfair from the perspective of equity3. In the case of Cutter, for example, the issue that arises for consideration is the question of equity in the refusal to enforce specific performance of the contract through payment of dues for the partial fulfillment of the obligations by the seaman. Grounds developed by the Courts to modify the entire contracts rule: In both the cases mentioned above, the question of a broader equitable jurisdiction arises, that could allow Courts to allow partial performance of a contract in the interest of equity. Therefore, the rigid adherence to contracts rule that was laid out in the case of Cutter has been later modified through various cases where different criteria have been set which will permit enforcement of a partially completed contract. For example, one of the grounds that has been raised is the question of quantum meruit, whereby a contract such as the Cutter contract could give rise to remedy on the grounds that it was rescinded due to special circumstances [the seaman’s death] and as a result the party is entitled to partially receive compensation for that part of the contract that he has fulfilled.4 A similar approach was applied by the Court in the case of Planche v Colbum5 where one party was prevented from completing his entire obligation under the contract by the other party. In this case, the Court held that the original contract had been discharged, however the plaintiff was entitled to recover fifty percent of the compensation that had been promised on a quantum meruit basis in what was essentially a quasi contract. Another aspect that may be considered is the fact that the seaman had only a few more days left to go to reach port and complete his obligations under the contract, therefore he had performed substantially, most of the obligations due under the contract. The Courts have held in subsequent cases that when a party to a contract has substantially performed his promise under the contract he may be able to recover compensation pari passu with the extent to which he had fulfilled his obligations. This was the case in Dakin v Lee6, where some minor defects in construction did not result in a complete denial of compensation to the builder. However in the case of Bolton v Mahadeva7 the central heating system installed by the plaintiff was found to be defective; as a result the Court held that the contract had not been performed and the plaintiff was therefore not entitled to relief when the defendant refused to pay for the installation. Therefore, applying these criteria to the Cutter case, the seaman’s wife would have been entitled to relief since the seaman’s breach of the contract was only by a few days. Frustration of contract: Frustration of contract is another development not in accordance with the entire contracts rule. The doctrine of frustration establishes that where circumstances have changed pursuant to the formulation of the contract, in such a manner as to render the terms of the contract impossible to perform8 and such circumstances are not the result of default by either party, there may be grounds to waive the entire contracts rule and undertake a fresh examination of the contractual rights and obligations before and after the frustrating event. For instance the question of personal incapacity of one of the parties to perform the contract may frustrate the contract and void obligations under it. In the case of Graves v Cohen9 the death of the owner frustrated his contract with his employee who was a jockey. In the Cutter case also, the seaman had fulfilled part of his obligation, but was prevented by death by completing his obligation and his widow could have therefore been entitled to some part compensation of his salary. The question of time of performance: Common law enforces a rigid adherence to the time stipulations set out in contracts, wherein a failure to adhere to such lime limits could vitiate the contract. This was precisely the issue in the case of Union Eagle Ltd v Golden Achievement Ltd10 where a potential purchaser of land was late by ten minutes with his payment and sought the Court’s intervention to save the transaction on the basis of equity and enforce performance of the contract11. However the Court strictly upheld the terms of the contract which spelt out an absolute forfeiture if the Plaintiff failed to comply with the specific requirements of the contract, which included a time clause. The Court held that once the specific time of performance had passed, the performance of the contract could not be enforced except through some form of waiver or estoppel. Where time is of the essence and the crucial aspect of time is specified by the parties, the Courts have exercised their discretion in enforcing common law provisions and refusing to grant specific performance of a contract.12 In the words of Viscount Haldane, Courts are reluctant to exercise equitable jurisdiction “where the parties have expressly intimated in their agreement that it is not to apply by providing that time is to be of the essence of their bargain.”13. On the issue of repudiatory breach of the contract, the Court held that in view of the essence of the time factor, it could not be applied. However, in the case of Heyman v. Darwins Ltd14, the question of termination of a contract due to a repudiatory breach was held to discharge the parties only from performance of future obligations, which is distinct from discharging the contract in its entirety. This aspect is vital in cases such as Cutter where equity would require that partial performance of obligations may need to be honored since they must be separated from future obligations which could not be performed due to the seaman’s death and therefore did not strictly constitute a breach of the entire contract. Therefore the presence of an arbitration clause in a contract enables the parties to settle disputes arising out of non performance of a contract in its entirety for one reason or another. In the notes to the Cutter case, it has been stated: "So far, however, as arbitration is concerned, the injured party must abide by the arbitration clause, for it is severable and expressly inserted to deal with breaches, including such breaches by repudiation.”15 Legal developments pursuant to the Cutter case: The kind of hardship created in the Cutter case has been addressed through the provisions of the Merchant Shipping Act of 1970, which allows for partial recoveries when the entire obligation under a contract cannot be fulfilled for compelling reasons. Moreover the Law reform (Frustrated contracts) Act of 1943 allows for a just apportionment of profits and compensation due under a contract. For example, section 1(3) of the Act states that when one party has received a valuable benefit from the other party before a frustrating event has occurred, “he may be ordered to pay a sum in respect of it, if the court considers it just, having regard to all the circumstances of the case.” This would be particularly relevant in a case like Cutter where the employer had the benefit of the seaman’s services for a major portion of the time set out in the contract and therefore should have paid compensation proportionately. Moreover, this Act also allows for partial performance of a contract and separates out the obligations due before and after the frustrating event, hence facilitating a more equitable approach as compared to the entire contracts rule. Another significant development in the law is the implementation of the Human Rights Act of 1988, which mandates that the individual rights that are set out in the European Convention of Human Rights16 must be incorporated into the framework of UK law.17 For example, Section 3 of the HRA mandates that legislation must be framed and interpreted in accordance with Convention rights in so far as it is possible to do so, while Section 4 allows for a judicial declaration of incompatibility of national law with the aims of Convention rights. In fact, the courts now have the “statutory duty to act….in conformity with the Convention rights….”18 As pointed out by Feldman, the increasing importance that is being accorded to individual rights by the incorporation of the Human Rights Act helps “to establish the conditions of free speech, tolerance, equality and mutual respect for people’s dignity…”19 which form a part of true democracy. He contends however that it is important to balance those individual rights against social goals.20 Common law is that which is generally acceptable in society, however equity adopts an approach that has a greater focus on the individual. As a result of the increasing importance being accorded to preservation of individual rights, the strict common law perspective advocating the entire contracts rule is now yielding to equity wherein the performance of a contract must be evaluated by taking into account, factors and extenuating circumstances that would render enforcement of the entire contracts rule unconscionable. Conclusions: The Law Commission has mooted a proposal to introduce a lump sum payment clause in addressing disputes arising out of contractual disputes. However, as illustrated above, there is considerable disparity in enforcing performance in individual contracts and an equitable exercise of the Court’s jurisdiction will be mandated to achieve justice in accordance with the circumstances of every case. Moreover, contract theory is founded upon the basic premise of the free will of the individual parties, which could be undermined if one set standard, such as lump sum payments is applied to every case. Several exceptions that have been mooted by the Courts to the entire contracts rule, to enforce equity, as it exercises its discretion in circumstances where specific performance of a contract is concerned. While common law and Parliamentary sovereignty dictated strict adherence to the entire contracts rule, the Human Rights Act introduces a range of “substantive constitutional values”21 in the form of Convention rights which mandate the precedence of equity in the exercise of court jurisdiction where enforcement of contracts are concerned. Moreover, with the introduction of the HRA and the function of declaration of judicial incompatibility, there is greater power accorded to the judiciary. As pointed out by Lord Browne Wilkinson, despite Parliamentary sovereignty, British judges have already used their judicial power in several cases to protect fundamental rights22 and therefore, the adjudication of equitable remedy in individual cases of contractual obligation and performance, including determinations about lump sum payments are best left to the judicial authorities. A standard lump sum contractual arrangement included in legislation is unlikely to address the disparity and diversity in enforcement of contractual obligations. Word count (including subheadings): 2198 Footnotes: 319 Total 2517 Bibliography * Lord Browne Wilkinson, 1992. The infiltration of a Bill of Rights. Public Law 397, at 409. * Feldman, David, 2004. The Impact of Human Rights on the UK legislative process Statute Law review 25(2):91 * Feldman, David, 2000. Civil Liberties and Human Rights in England and Wales. 2nd edn. Oxford: Oxford University Press, p. 4 * Feldman, David, 1999. “The Human Rights Act 1988 and Constitutional principles.” Legal Studies, 19(2): 165 * Halson, R, 2001. “Contract Law-First Edition – Paper” Longman. * LeSueur, Andrew and Comes, Richard, 2001. “The future of UK’s highest Courts” London: Constitution Unit at page 42 * 2 Smith’s leading cases, 13th edn at pp 37, cited in Heyman v Darwins Ltd (1942) AC 356 * Stevens, J, 1998. “Having your cake and eating it” 61, Modern Law Review, 255 Legislation: * European Convention of Human Rights and Fundamental Freedoms. [Online] Available at: http://www.pfc.org.uk/legal/echrtext.htm * Human Rights Act of 1998 [Online] Available at: http://www.opsi.gov.uk/acts/acts1998/80042--a.htm * Law of Property Act of 1925 * Law reform (Frustrated contracts) Act of 1943 * Merchant Shipping Act of 1970 Cases: * Bolton v Mahadeva (1972) 2 All ER 1322 * Cutter v Powell (1795) 6 Term rep 320 * Dakin v Lee (1916) I KB 566 * FC Shepherd v Jeromm [1986] 3 All ER 589. * Graves v Cohen (1929) 46 TLR 121 * Heyman v. Darwins Ltd. [1942] A.C. 356 * Planche v Colbum (1831) 8 Bing 14 * Re Moore and Landauer (1921) 2 KB 519 * Steedman v. Drinkle [1916] 1 AC 275 * Taylor v Caldwell (1863) 3 B&S 826 * Union Eagle Ltd v Golden Achievement Ltd (1997) (Privy Council) 1 HKC 173 Read More