Subjective and Objective Theories Law of Contracting - Report Example

Contract Law Name: Institution: Course Title: Instructor: Date: Synopsis The purpose of the paper was to discuss critically the statement that “where a written contract exists, Australian courts do not provide (and should not provide) remedies for breach of any verbal promises that were made during contract negotiations, unless those verbal promises were included in the written version of the contract.” The analysis from the paper indicated two perspectives as argued out in subjective and objective theories law of contracting. In the first two instances based on parole evidence rule as adopted in Australia in the objective view, the statement is affirmed. This is because the court assumes that if one met the conditions of entering a contract and did so when sound mind and with no duress then there is no need for remedies. The same is affirmed buy collateral contract concept. On the other view, why should there be review is based on the concept of implied terms which the parties could have not provided in writing. In addition the concepts of bad faith are equally critical. The paper concludes that based on these two theoretical views, there is no absolute ground. However, conditions should be reviewed before a judge decides on what to implement, the reasoning behind this is that all of them have a basis that can be argued out. 1.0 Introduction In daily life, consciously or unconsciously people engage in numerous contracts. Contract is said to have occurred when two parties have an agreement that is enforceable by law. for the contract to be legally binding, there has to be offer and acceptance. Moreover, various elements of the contract have to be fulfilled.1 There are various laws pertaining to contracts depending on the sector one is in. Contract law in Australia is based on common law and supported by various statutory legislations at national or state level.2 The unique observation about the law of contract is that it does not pinpoint the rights and duties which it will guarantee. To contrary, it only avails wide ranging limiting principles. It is based on these principles that the two parties create the rules for their engagement. In a nutshell, contract law allows for the involved parties to define their level of engagement so long those rules do not surpass the established principles in the legislation.3 This paper seeks to analytically discuss the statement that “where a written contract exists, Australian courts do not provide (and should not provide) remedies for breach of any verbal promises that were made during contract negotiations, unless those verbal promises were included in the written version of the contract.” To explain the above the paper explores what is meant with written contract and the elements in a contract, legislation governing the same plus other forms of contract recognised by Australian law. To analyse this, the paper examines what is meant by “parole evidence rule” and “collateral contract”. Moreover, the paper discusses whether Australian law should (or should not) provide remedies for breach of contract where the promise concerned was not included in the written contract. 2.0 Written Contract As the name implies, this a kind of agreement where terms and conditions of the offer are penned down and the two parties engaged in same counter sign. This is the most recommendable form of agreement. The beauty of a written contract is that it can guarantee the use of precise terms, less opportunity of misunderstanding and less need to rely on memories as the point of reference.4 Apart from this, the laws of contract recognise other different types of legally binding contracts. The first example of this is verbal agreement where people enter in to a contract without any written document. This kind of agreement is technical to prove as statements leading to the agreement might not be easy to recall or parties in contention might twist them in their favour. The second example would be a mixture of the two. The next two paragraphs explore the concepts of “parole evidence rule” and “collateral contract” in relation to the phrase in contention.5 3.0 “Parole Evidence Rule” The concept of parole rule has evolved and taken different dimensions over time. In earlier years, when a contract was put in writing it would be final and binding. This meant that the rule excluded extrinsic evidence. This is referred as “hard parole evidence rule.” Over time, British courts started accepting what is known as “soft parole evidence” based on the fact that no evidence could be inadmissible before a court because of a binding document.6 Parole evidence rule can be best understood in the context of objective and subjective fundamentals of written contracts. According to subjective model of contracting, written document is mere show of the kind of agreement the concerned parties had reached and it is only seen as a persuasive document rather than the final straw as it can be contradicted by the opposing party to show that the agreement was something different. Under the subjective approach, it is the onus of the appellant to prove that what is written was not the actual intention. This means that the objective model is the exact opposite of objective model that takes the written agreement as the absolute truth and therefore should be followed.7 In Australia, admissibility of evidence in the context of evidence rule of parole is limited. In most contexts in the law courts, what put in writing is assumed is absolute and the parties involved should adhere to it. In affirming the need to uphold this theory, the following are some of underlying arguments used to support it even with most liberal minded justice in Australia. The first is that if the language is clear then there is no need to give the clear words their legal effects. Parties should adhere to their written bargain if was not done under duress. This therefore means in Australian context, there is no admissible evidence under written contract.8 The primacy of the written document arises from the fact that when people want to reduce misunderstanding based on verbal agreement, they are best served with written document and thus, no need of contradicting the same through admission of other evidence.9 This concept then elicits two thoughts. The first is why should a court reject an evidence if it contributing towards justice even if the agreement was put into writing. The next is why someone would want new evidence yet he or she knew what he /she was engaging in. 4.0 “Collateral Contract” Collateral contracts are built on the promissory basis and run side by side with the main contract. In addition it is premised on “privity” so long as there was a legal relation.10 The aim of collateral contract is give intentions of conducting the main contract. The collateral contract in another view, normally adopts a unilateral approach where it is one party which promises to deliver on certain agreements. The basis of this is that the main contract should not contradict the collateral one.11 It is this basis that reinforces the argument that “where a written contract exists, Australian courts do not provide (and should not provide) remedies for breach of any verbal promises that were made during contract negotiations, unless those verbal promises were included in the written version of the contract.” 5.0 Should Law Provide Remedies Outside Written Contract? 5.1 “Implied Terms” The other perspective is whether Australian law should (or should not) provide remedies for breach of contract where the promise concerned was not included in the written contract. This can best be answered through two approaches. The first is the concept of Implied Terms and the second one is the concept of bad faith in contract. Clerk Jullie, (2011), observes that under Australian law we can have implied terms in the contractual agreements. She notes that these are what the law implies into the contract notwithstanding the fact that they have not been discussed by the parties or referred to in a contract. These implied terms, may be implied at common law or by statute. In another point of view, term implied in law is termed as incidents of a particular contract. They are situations attached to standardised contractual relationship.12 Indeed it is necessary to provide remedies where the promise concerned was not included in the written contract. The outcome of this is relative as it can favour the “offeror” and the “offeree”. However, the essence remains that it offers a platform for the aggrieved party to seek legal redress in a court of law where one feels aggrieved with the written contract. This approach can be applied when the contract was signed when one party was under duress or unfairly influenced. A case example where this can be applied is in employment contract and intellectual property issues. For example, there are instances where courts have applied the concept of implied terms between an employee and employer. These court cases gave one of the parties an avenue to redress outside the written contract. An example is as listed below. In the Australian history, before adoption of implied terms, employer was capable of claiming the rights or benefits of an invention developed by the employee in the course of their employment. The prerequisite fulfilment was based on only proving that they had a positive contract with that person.13 Moreover, this assertion is supported by numerous legal provisions. Section 35/6 of the copyright Act of 1998 states that works developed by an employee under a contract of service or apprenticeship is owned by the employer unless given situations apply. In addition, the design Act of 2003 precisely state that employer shall have the right of being registered as the owner of a design created while in the course of employment or serving under contract unless it was agreed in prior to the contrary.14 However, the contrary have been applied irrespective of the legal provisions. The case of University of Western Australia as the appellant against one of their former employee Dr. Gray provides a picture of how implied terms can be can influence the outcome of a judgement irrespective of the written contract. The case contention was centred on the intellectual property development in academics whereby the employer was claiming an invention done by their employee using their resources in the course of his work. In brief, Dr. Gray was mandated in his contract to teach and conduct research. Apart from the above Gray was based at Royal Perth Hospital. In addition he had an interest in research and Development Company through which he invented and obtained a method of treatment of liver cancer. In court findings, it was noted that he had prior to being employed at the university conceived the ideas and thus university’s contention of the invention being developed in the course of the work was rejected.15 5.2 “Bad Faith” in Contractual Agreements The next reason why laws should provide remedies outside the written contract is on the need to address the likelihood of bad faith in the process of or after agreement. In academics, the term bad faith can be traced from the philosophical works of Jean-Paul Sartre who did a lot of analyses in relation to double speak16. In philosophical view, double mindedness can be through intentional deceit of other or through self deception. This kind of work views the concept as one who is having two semi- independent acting minds within one mind. Moreover, this concept can be seen as a situation whereby one acts as if he or she is influenced with certain ideologies yet in the back of his or her mind she or he has a different thought or belief17. Connected to this line of thought is the Kantian philosophy. This kind of approach encourages one to do what is ought to be done. This is a normative kind of thinking that is abstract and oriented towards ethics.18 Thus, the two theories connect by embracing ethics and honesty rather than deceit, ill will, fraud or misleading information.19 In a nutshell it is a deception.20 In legal context, it is observed that the term bad faith is subjective. However, the positive aspect is that the conceptual framework is built on ill will or deceit in order to gain unfair advantage.21 These unfair advantages can also be seen in terms of sinister motives and withholding of information so that one could inflict revenge or subvert the course of justice. From the above observation, it seems that the concept of bad faith is adopted in most judicial systems so as to guarantee morals. This kind deviates away from basing most cases and judgments of technicalities and implied terms to a moral point of view. It is indeed true that if judiciary is to achieve its purpose of transmitting justice to both parties, then the intention of both the plaintiff and the defendant should be taken into consideration22. An example where this can be applied is in the context of unfair contract that abets crime or defrauds another party. For example, bait advertising is now criminalised as bad faith by section 56 of Trade Practices Act 1974 and Fair Trading Act of various states in Australia. The two Acts after amendment in 2010 is now known as Competition and Consumer Act 2010. On the other hand, good faith concept in contractual agreement requires that one acts honestly and fairly in meeting his contractual obligation.23 6.0 Conclusion The aim of the paper was to critically discuss if “where a written contract exists, Australian courts do not provide (and should not provide) remedies for breach of any verbal promises that were made during contract negotiations, unless those verbal promises were included in the written version of the contract.” The finding elicits a mixed reaction between subjective approach to law of contracting and objective approach. In first perspective, the paper supports the statement based on the fact that if all the parties met all the requirements of entering into a contract why would one reneged on the same. This is clearly supported by the evidence parole rule through an objective view. However, on the other hand why would a court deny admissibility of evidence if it is to serve justice? Moreover, other factor like implied terms in contract negates the statement. Lastly, if justice is to be achieved the concepts of bad and good faith can be applied to review a written contractual agreement. References Andrews, Neil, Contract Law (Cambridge: NY, Cambridge University Press, 2011). Arthur L Corbin, “The Parole Evidence Rule”, The Yale Law Journal, 53/4 (1944), 603-663. Australian Government, Department of Innovation, Industry, Science and Research, “Working with Contracts: Practical Assistance for Small Business Managers”, Citese er [web document] (2011), , accessed 31 August, 2012. Brian A Blum, Contracts: Examples and Explanations (New York: Aspen Publishers, 2007). Carsley, Fredrick L. and Mendelsohn R Shacter, ‘Good faith and fair dealing in the commercial context’ in Campbell, Denis and Susan Cotter, Comparative law yearbook of international business, (London: Kluwer Law International, 1997). 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Keim, D. Willard, Ethics, morality and international affairs, (Lanham, Maryland: University Press of America, 2000). Nicholson, Andrew, “without employment contracts-employers risk loosing IP”, [Website] (2011) < http://www.findlaw.com.au/articles/2269/without-employment-contracts--- employers-risk-losi.aspx> accessed 31 August 2012. Simpson Solicitors, “The Principles Of Contract”, Citese er [web document] (2000), < http://www.simpsons.com.au/documents/visarts/visarts89/1Princip.pdf >, accessed 31 August, 2012. Solomon, Robert C. From rationalism to existentialism: the existentialists and their nineteenth century backgrounds (New York: Rowman & Little field, 1972). Svantensson, Jakers B. Dan, ‘Codifying Australia’s Contract Law: Time for a Stock Take in the Common Law Factory”,Bond Law Review, 20/2 (2008), 1-26. Wood, W. Allen, ‘Self deception and bad faith’ in McLaughlin, Brian P. and Amelie Oksenberg Rorty (eds), Perspectives on self-deception, (California: University of California Press, 1988). Zeller, B., "Good Faith - Is it a Contractual Obligation?”, Bond Law Review, 15/2 (2003), 1-16. Read More