Commercial and Contract Law - Assignment Example

Commercial Law Part A In his article, “Contracts of adhesion: Some thoughts about freedom of contract” Friedrich Kessler observes that, following the development of a free enterprise system which is characterised by a high division of labour and capitalistic ventures, the need for highly flexible legal structures to safeguard the exchange of goods and services was identified. In response to this need, common legal practitioners transformed “contract” from the limited institution that it was in the 16th century into a tool of unlimited flexibility and expediency. As a result, contract has become an indispensible instruments employed by enterprisers in order to enable them to undertake their various ventures in a rational way. Kessler further notes that, in this context, rational behaviour is possible only if agreements are respected. Furthermore, in this context rational behaviour requires that logical expectations created through a pledge or promises are protected under the law. This notion forms the entire basis of law of contracts. The law of contracts provides for doctrines that address contract formation, performance, damages and impossibility. In addition to this, within the free enterprise system, rationality with regards to the law of contract necessitates the need to keep pace with the consistent widening of the market thus legal systems have to regulate consequences of business transactions. Nevertheless, the law may not incorporate the content of an unlimited number of business transactions that members of the society may enter into. Therefore, parties have to be given the freedom to contract in order to accommodate the wide market and the business community1. Moreover, Kessler observes that the application of rules of common law depends on the intentions of the parties and on their negligence to define their intentions. For instance, if contract parties do not regulate the consequences of their contract in their own way, it is supposed that the common law will determine the consequences of the contract. The law cannot go beyond that, it delegates legislation to the parties entering into a contract. As far as contract parties are concerned, the making of the law of contract is solely their own responsibility. Therefore, Kessler concludes that, “freedom of contract does not commend itself for moral reasons only; it is also an extremely practical principle. It is the inevitable counterpart of the free enterprise system2”. Based on the sentiments presented by Kessler, it is evident that the concept of freedom of contract draws undeniable criticism and controversy .As a result, the concept of freedom of contract has over time come under severe attack. One of the key reasons why the freedom of contract is under severe attacked is mainly because it promotes and supports the interests of a limited group of people. 3Given the fact that the concept of freedom of contract accentuates on the autonomy of contracting parties in regulating the consequences of their contract, the courts cannot invalidate the terms of a contract on grounds that the terms are unfair to either of the contracting parties4. In Biotechnology Australia Pty v Pace, Kirby observed that; “the law of contract which support the economy, does not operate uniformly based on the principle of fairness. It is the essence of entrepreneurship that in some cases parties will act selfishly. This motivation may or may not produce fairness to the other party. The law could emphasise on the honesty of dealings. Nevertheless, I doubt that special cases or statue apart , it should enforce a regime of fairness on the multitude of transactions governed by the law or contract5” The views expressed by Kirby in this court case echo Kessler sentiments on the concept of freedom of contract. From Kessler’s sentiments it is apparent that the freedom of contract, does not necessarily commend itself for moral reasons particularly with regards to the need for fairness6. He further observes that contracts epitomise a spirit of individualism and laissez faire7. In view of Bentham’s philosophy which accentuates that “the law must strive to ensure the greatest happiness of the greater number”, today the freedom of contract is under severe attack mainly because it does not necessarily lead to fairness and it supports the interest of a limited group of people hence it facilitates an unparallel discrepancy between economic actors who are differently situated8. For instance, in Beaton v McDivitt, it is evident that freedom of contract may promote or support the interest of one party while neglecting the interest of the other contracting party9. Critics of this doctrine are quick to point out that the “freedom of contract” can only claim to be the foundation of a free enterprise system or a free society when there is equality when it comes to the bargaining power so as to ascertain that the enjoyment of freedom is not for only one party10. Another reason why the concept of freedom of contract has overtime come under severe attack is because it can contribute to the destruction of institutional framework in a capitalistic society. In proclaiming freedom of contract, society delegates a piece of sovereignty that enables contracting parties to constantly participate in the process of law making. Freedom of contract implies that the state does not have monopoly in the law making process. The consent given by parties entering into a contract also creates law, as a result the law making process becomes decentralised. Consequently, the law cannot be considered as an imposed order on citizens from the state but rather an order imposed from below11. Therefore, it is evident that, freedom of contract not only commends itself for moral reasons but it is also an extremely practical principle12. Nevertheless, issues and controversies involving the interpretation of the set contract terms or the laws developed by the contracting parties are bound to emerge13. In addition to this, the concept of freedom of contract is severely under attack mainly because it evokes controversies when it comes to the interpretation of contract terms this in turn undermines the practicality of this concept14. In Mobil Oil Australia v Welcome International the practicality of this concept is questionable. In this court case, Mobil had communicated to dealers that any dealer who performed at particular set level for six years, would be provided with a free franchise for nine more years. As a result, a good number franchisee deal spent a considerable amount of time and money working towards the attainment of the set standards. Subsequently, after four years, Mobil discontinued this deal and several dealers alleged that this was breach of contract. The key argument in this court case was that this unilateral contract could not be revoked after the set standards were partly performed. The trial judge held that Mobil’s abandonment of this deal implied that the franchisees could not meet the set standards of performance. Therefore, in this case it should be treated as if the dealers had finished their performance and were thus entitled to a tenure extension On the other hand, the full court held that Mobil had not given any offer to the franchisees and that the vague and uncertain terms of reward implied that there was no assurance, the scheme was merely in the development stages15. Similarly, in Baltic Shipping Company v Dillon16 and Walford v Miles17 the practicality of the concept of freedom of contract is demonstrated. From these court cases, we are able to deduce why the concept of freedom of contract is under severe attack. For instance, we are able to see that the practicality of freedom of contract evokes controversies with regards to its interpretation. As a result the courts are faced with the dilemma of honouring the terms of a contract or upholding fairness18. Bibliography Baltic Shipping Company v Dillon (1993) 176 CLR 344 Biotechnology Australia Pty v Pace (1988) 15 NSWLR 130 Friedmann Wolfgang, Legal Theory (Columbia University Press, 5th Ed, 1967) 400 Geraint, Howells, The potentials and limits of consumer empowerment by information (2005) 32 Journal of law and society 349, 350. Lanyon Elizabeth, Equity and the Doctrine of Penalties (1996) 9 Journal of Contract law 234, 250 Kessler, Friedrich, Contracts of adhesion: Some thoughts about freedom of contract (1943) 43 Columbia Law Review 629 Mill John, Remarks on Bentham’s philosophy (GRIN Verlag 2009) 2. Mobil Oil Australia v Welcome International. (1998) 81 FCR 475 Paterson, Jeannie, The Australian unfair contract terms law: The rise of substantive unfairness as a ground for review of standard form consumer contract (2009) 33 Melbourne University Law Review 934 Walford v Miles (1992)2 AC 128 Williston Samuel, Freedom of contract (Cornell University college of law 1921) 365. Wilson Nicholas, Freedom of Contract and Adhesion Contracts (1965) 14 The International and Comparative Law Quarterly 172, 193. Part B The key legal issue that arises in Crazy Ted versus Ben is whether Ben had the capacity to contract. For any contract to exist or deemed as enforceable, the parties involved must have contractual capacity. There are particular classes of people that do not have the capacity to enter into a contract that involve consequences particularly one that may not be enforceable against them. Minors are among this group of people that do not have the capacity to contract. Their lack of capacity to contract is often based on a fear of vulnerability to abuse or exploitation19. Given the fact that Ben entered into a contract when he was 17 years old, it is worth questioning whether in this case, the contract is void or enforceable. A critical look at past court cases and provisions under the common law and other relevant statues can provide legal grounds to determine whether Crazy Ted can enforce the contract against Ben. Both the statue and common law limit the capacity of minors to enter into a contract. Nevertheless, the current mix of multiple state legislative rules and the common law has made the evaluation of the contractual capacity of minors to become intricate. The basic rule of common law with regards to this issue is that a contract involving a minor is voidable. In this case, a minor is someone below the age of 18 years. However, there are a few exceptions. One of the key exceptions provided by common law with regards to this issue is that; where the contract involves a minor permanently acquiring property, the contract is binding unless avoided by the minor20. Moreover, according to section 7 of the Goods Act 1958(Victoria), the capacity to buy and sell is determined by the general law revolving around the capacity to contract, acquire and transfer property21. This Act provides that, where necessities are sold and then delivered to a minor or to a person in a state of drunkenness or mental incapacity, he/she must pay the reasonable cost thereof. In this section, “necessities” mean goods that meet basic human needs or goods that meet the requirement of that individual during the time of sale or purchase22. 23In Nash v Inman, Fletcher held that; “An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services so rendered, and will enforce that obligation against the estate of the infant or lunatic24” Basically, minors have a limited capacity to contract. Therefore, in order for a plaintiff such as to Crazy Ted to succeed in proving that a minor was within their limit to contract, Buckley held that; “An infant may contract for the supply at a reasonable price of articles reasonably necessary for his support in his station in life if he has not already a sufficient supply. To render an infant's contract for necessaries an enforceable contract two conditions must be satisfied, namely, (1.) the contract must be for goods reasonably necessary for his support in his station in life, and (2.) he must not have already a sufficient supply of these necessaries25”. Therefore, based on the highlighted evidence, it is apparent that Crazy Ted cannot enforce the contract against Ben mainly because, Ben signed the contract when he was still a minor and as a result, his capacity to contract is limited to the conditions held by Buckley in Nash v Inman and conditions provided in section 7 of the Goods Act 1958(Victoria). Given the fact that the contract between Crazy Ted and Ben are not within these limits, Crazy Ted has no legal grounds of enforcing the contract against Ben. On the other hand, Jane’s chances of succeeding in an action for breach of contract against Trusty Motors Ltd are limited mainly because personally, she did not enter into any legally binding agreement with Trusty Motors Ltd. A contract is a set of legally binding agreement, in this case, a promise can be considered as an undertaking by one person to do something if the other party does something else in return. A contract or a set of promises are legally binding when certain condition are met. In order to enact a legally binding agreement or a contract, there has to be an agreement which involves an offer and acceptance, compliance with legal formalities and capacity to contract26. In the case of Jane and Trusty Motors Ltd, it can be argued that there was no legally binding agreement since, there was no acceptance on the part of Trusty Motors Ltd. The company refused to supply Jane because they consider her a bad credit risk, this shows that she did not comply with the set formalities provided by the company. Therefore, Jane’s chances of succeeding in an action for breach of contract against Trusty Motors Ltd are very limited. Bibliography Australian Contract Law, Capacity to Contract (13 January 2012). Australian Contract Law, Goods Act 1958 (Victoria) (13 January 2012). Australian Contract Law, Nash v Inman (1908) 2 KB 1, CA (14 January 2012). Australian Contract Law, Overview of Australian contract law (14 January 2012). Goods Act 1958(Victoria) Section 7 Nash v Inman (1908) 2 KB 1, CA Read More