Modern Contract Law - Assignment Example

Qn 1. Modern contract law developed following the laissez-faire policies of trade during the nineteenth century though its origins can be traced back to the common law of Middle ages when the law was concerned with only property rights since at the time society was more concerned with land ownership. And the agreements used to be extremely formal executed under seals. It was only with the advent of laissez-faire practices, informal agreements came to be recognized by law known as “parol agreements”. Later on, the doctrine of consideration was recognized as one of the essential elements of contract. (unlockingthelaw.co.uk, 2004) Contract law has been serving many purposes one of which is to consolidate several millions of agreements to form a market economy (Beale, Bishop and Furmston, 2001).The market economy is characterised by continuous cycle of exchange of resources involving purchase and sale of goods and services and payment of wages for labour driven by promises for honouring of which binding contracts came into being. Thus making the contracts binding without being casual in nature, market economy became efficient by people honouring their commitments with each other avoiding penal consequences of breaches if any. One aspect of contract law to show that it promotes market efficiency is offer and acceptance. An agreement borne out of offer and acceptance need not be in writing though it is at the risk of the parties to the agreement in proof of it. Once an offer is made, it should be accepted within a reasonable time. This requirement saves the offeror from being tied up with his commitment indefinitely so as to render the wheels of commercial activities move rapidly and smoothly without being stuck up. And if the offer is countered with a fresh offer by the offeree, the original offeror is relived of his commitment without being bound by his original offer any longer. Once the offer is accepted in a mirror like manner, it becomes a binding contract with such a lightning speed as if the fire is lit with the lighted match to the train of gun powder. All these perfect mechanisms in a scientific manner make the contract law a promoter of economic efficiency. Qn Negligence was recognised as a separate tort only recently. It was unknown to medieval or early modern law period. Notions of fault had rather been overlooked by the writ system of early common law. In the writ language there was no need to plead the state of mind or culpability of the defender. Earlier, injuries resulting out of negligence had been treated as part of trespass. And such negligent actions were recognised where there had been pre-existing relationships such as buyer and seller, innkeepers and common carriers and did not develop any further. There was no scope for pleadings as observed in Beaulieu v Fingham (1401) as “the common custom of this realm is common law and need not be pleaded”. It was perhaps treated more strictly than at present with modern conception of negligence. Pure negligence was not separately actionable since most of the wrongs had been covered by the laws already prevailing then. It must be noted that development of fault-based tort of negligence had not been allowed by any doctrine but it was due to the fact of such wrongs were being satisfactorily corrected by the then existing remedies. It was only when the lawyers wanted to change the legal rules for the benefit of their clients during the later half of the seventeenth century, writs were made laying the foundations of development of separate tort of negligence. Mitchil v Allestree (1676), sowed the seeds for negligence as a separate tort. In this case, the plaintiff was injured by the defendant’s horse and this was prima facie a forcible wrong for which remedy was available under trespass vi et armis. The defendant argued that was an independent action of the horse against the defendant’s will and hence he could not be held liable. This prompted the plaintiff to plead the case holding that it was because of improvident action of the defendant in choosing a wrong place to break in the horse, that horse came into contact with her resulting in injury. Hence the plaintiff succeeded in the case. The plaintiff chose the vicarious liability instead of trespass vi et armis. This case probably gave rise to actions either based on wrongful act negligently or vicarious liability of the defendant. Thus, during the eighteenth century, employers were held vicariously liable for the tort committed by their employees. The same course of action came to be regarded as correct even if the employer was directly responsible. The case Reynolds v Clarke (1726), sought to distinguish between direct and indirect actions of trespass and case. Judge Fortescue ruled: if a man throws a log into the highway and in that act it hits me, I may maintain trespass because it is an immediate wrong; but as it lies there, I tumble over it and receive an injury, I must bring an action upon the case; because it is only prejudicial consequence, for which originally I could have no action at all. Though the distinction could not be asserted in several subsequent cases, the twentieth century witnessed the well known case of Donoghue v Stevenson (1932) in which the single principle of neighbourhood was established holding all the instances of negligently inflicted harm liable. While Wilkinson v Downtown is known for the rule established for intentionally inflicted harm, the Donoghue, gave the rule for negligently inflicted harm. Ever since, the tort negligence has got “majestic pre-eminence in the words of Milliner (1967). Thus negligence as a separately actionable tort has only developed in the last seventy five years. The reasons for the pre-eminence of negligence among all the torts are attributed to the economic changes during the twentieth century which made corporate defendants that included Railway companies and rationale of proceeding against wealth defendants under the maxim” it is no sin to rob an apparently rich man” and the emergence of liability insurance. (Lunney and Oliphant, 2008, p 7-14) Qn 3 Business essentially involves huge investment and undertaking of risks which no few individuals collectively in partnership can afford to undertake. Corporate form of constitution facilitates subscription of small value capital in the form of shares of face value of as little as $10 from several million of individuals who can become shareholders and jointly share the risks of business with liability limited to their share values including unpaid amount of shares, if any. Thus, the obvious advantages in the corporate form of business are (1)availability of unlimited capital, (2) limited liability unlike in partnership, (3) sharing of risks without much burden, (4) professional management, (5) management undertaken by paid directors who will be impartial in balancing the interests of all the stake holders such as shareholders, employees, suppliers, creditors and such others for whom safety of the company is of prime concern, (6) economies of scales by which cost of production of goods and services are kept at a minimum, (7) responding to globalization, (8) generation of large scale employment, (9) generation of tax revenues to the State through proper accounting of transactions and (10) last not but not the least, perpetuity of the organization as a separate entity wherein any number of shareholder can come in and go out through transferable shares .Thus, death or leaving of any shareholder does not wind up the company unlike in partnership. The disadvantages are (1) Since the agents of the shareholders of the company are entrusted with the management, they are likely to mismanage the affairs of the company in order to serve their self-serving interests. (2) Since the organization is huge, overheads will be huge and there can be avoidable expenses due to large scale nature of the business, (3) Shareholders cannot directly participate or intervene in the day to day affairs of the company, (4) There are possibilities of oppression of minority by the majority share holders and it can be prevented or stopped only by proper procedures as per the corporation law. (Tomsaic, Bottomley and McQueen, 2002) Qn 4 Doctrine of restraint of trade in contract law is designed to prevent unreasonable restriction placed on business or employment thus stifling competition. For example an employee who has worked with an employer cannot be prohibited by the employer, on his leaving of service from taking any employment from his competitor or start a similar business in the vicinity of his business for longer than a reasonable period. By 19th century, contract law came to be associated with the free market economy. Hence the doctrine of freedom of contract necessarily meant freedom of trade. Hence, contract principles promote public policy which included freedom of trade. Thus, the contract law can not allow any contract that is opposed to public policy. Such restriction promotes economic efficiency amongst the traders or any persons engaged in economic activities. This prevents prices being fixed prohibitively ensuring huge profits to the detriment of the consumer. Moreover, such a restriction of restraint of trade practices promotes competition encouraging many people to engage themselves in economic activities. Fear of competition and loss of business, keep them more efficient which in turn help economic growth of a country. (Mulcahy and Tilllotson, 2004) Qn 5 There is no statute enacted to govern contracts law though some special situations called for enactment such as Sale of Goods Act etc during the twentieth century. But bulk of what governs the business agreements to day is the law developed during the 19th century through case laws developed by judges while settling disputes in courts of law. They are called precedents as part of common law for which there is no statute book available except the case law. Thus, the common law system came to be a legal system of precedents preventing treatment of similar facts differently on different situations. Thus, rules of contract as essential elements such as offer and acceptance, consideration, legality of object, fraud, misrepresentation, breach of contract have all been developed through precedents handed out by the judges of the 18th and 19th century. These elements of contract have their roots in precedents developed by common law. And these are the rules applied even today by courts to rule on contractual disputes. Though there may be new statutes enacted such as Sale of Goods Act, Uniform Trade Practices Act to cater to the newer requirements of modern times, they are not in derogation of common law.(Contracts law) Qn 6 Legal system was left to be developed by the Judges in passing precedents which ought to be followed in subsequent cases of similar nature in all respects. Even a slight difference in facts of the case could prompt a judge to deviate from the precedent. Thus, State had left it to the discretion of the judges to make laws as long as they served the interest of the society. If the judge made law is bad, the State can enact new law invalidating the judge-made law for future applications. Similarly if the State made laws are bad, the judiciary can intervene and strike the State’s new laws as unconstitutional. However both the judiciary and the State have to act within the frame of work of constitution of a country. Section 52 of the Trade Practices of Act 1974 (Cth) (TPA) makes its obligatory for a corporation not to engage in trade or commerce that is misleading or deceptive or likely to mislead or deceive. The sections 53, 53 A, 55A and 59 provide for absolute liability. (Gillies, 2008) This section is in conflict with the provisions corporations’ law dealing with fund raising and takeovers which provide for duty of full disclosure. But in contrast, section 52 of the TPA does not impose a duty of disclosure. This results in inappropriate combination of mandatory disclosure and strict liability provisions.(The Treasury, Australian Government) But both being State enacted laws, it is for the judiciary to step in to decide which law would prevail. References Beale HG., Bishop W.D., and Furmston M.P. (2001) Contract Cases and Materials, 4th edn, Butterworths. Beaulieu v Fingham (1401) Contracts Law , Commentaries of the Laws of England, Treatise on The Law of Contract, Corbin on Contracts, Contracts, available < http://law.jrank.org/pages/18429/Contract-Law.html> accessed 25 Jan 2010 Donoghue v Stevenson (1932) AC 562 Gillies Peter (2008) Avoiding Infringement Of Section 52 – Misleading Or Deceptive Conduct – Media Entities ‐ Reconciling The Information Provider’s Defence And The Conduit Defence, Macquarie University Sydney, avialbe at. < http://ssrn.com/abstract=1296186 > accessed 25 Jan 2010 Lunney Mark and Oliphant Ken (2008) Tort Law; Text and Materials, ed3, Oxford University Press Millner M (1967) Negligence in Modern Law, London, Butterworths, p 227 Mitchil v Allestree (1676) Mulcahy Linda and Tillotson John, (2004) Contract Law in Perspective, Routledge Cavendish Reynolds v Clarke (1726) 2 Ld Raym 1399 The Treasury, Australian Government, Section 52 Trade Practices and Dealings in Securities, available at < http://www.treasury.gov.au/documents/289/HTML/docshell.asp?URL=TPA.asp > accessed 25 Jan 2010 Tomsaic Roman, Bottomley Stephen, and McQueen Rob (2002) Corporations law in Australia, 2nd ed revised, Federation Press Unlockingthelaw.co.uk (2004) The Origin and Character of Contract Law, available at accessed on 24 Jan 2010 Read More