A Contract Is a Lawfully Obligatory - Essay Example

22 July Contract Law Background A contract is a lawfully obligatory and enforceable exchange of promises or accord between parties. Contract law is part of the daily economic activities undertaken by individuals and businesses in their capacities as legal persons. It is all about voluntary agreement and cooperation through bargain and exchange. The role of contract law is to protect expectations by private counterparties on bargains agreed upon and aids in planning for the future. A good example of a contract is the case of a business agreement where a seller promises to deliver certain specified type and quantity of goods on a particular date in the future and the buyer, on the other hand, agrees to pay a specified price and amount of money for the goods on the dame date. If the seller does not deliver the goods as promised and the buyer has to seek alternative sources to acquire the same goods with perhaps a higher price than the earlier agreed upon price, then the buyer has legal redress because his expectations have been compromised and the contract was aimed at protecting his interests in terms of a future rise in the price of the goods he intended to acquire (Feldman and Teichman 46). On the other hand, the seller’s interests of safeguarding against reduction in price are also protected at the time of making the contract. Any failure to meet the terms of the agreement by the two parties is against the provisions of Contract Law and calls legal compensation through court or arbitration process. The drafting of doctrines of Contract Law and the subsequent operationalization in England and USA1 began in the middle of the 19th century when rules of contract law were first put in place in cases such as Hadley v. Baxendale2 in 1894, Raffles v. Wichelhaus3 in 1864 among others. These are historic legal cases that law students all over the world read to better understand contract law. With the development of free markets and expansion of free economies together with laissez faire management, the legal framework of the free market4 was predominantly the contract principles (Hunt 695). Common law is the chief source of the law of contract, and is a makeup of many judicial decisions by courts on similar disputes over a long time in the past. Courts use earlier precedents as sources of law as input to determine the principles of present and future decisions on similar or related disputes. Another source of contract law in the USA has been the restatements of the law promulgated by the American Law institute5, which are a mixture of past cases and predictions of future cases together with prescriptive pronouncements from different fields such as Contracts, Torts, Property, Agency, Employment, Franchising relationships, constructions and others. Closely related to contract law and specific to a myriad of commercial subjects is the Uniform Commercial Code (UCC) which is yet another source of contract law and which contains separate articles like bank deposits and collections, negotiable instruments and letters of credit and security interests. Article 2 in this code governs transactions in the sale of goods. The other source is the CISG6 or the Vienna Convention which governs international sales transactions thus applying to sale of goods and services between parties who operate in different countries but both countries must have agreed to the provisions of the convention (Marquez-Escobar 122). The UCC has not received Federal legislation attention because it is still being enacted separately by different states with no notable effort to unify it at national level. Features of Contract Law Offer and acceptance, consideration and an intention to create legal relations are the key elements to the creation of a contract in common law. Offer and acceptance which may be written, oral or implied is the most important feature where one party offers a bargain that is accepted by the other party, a scenario also referred to as concurrence of wills for which concrete evidence of assent by both parties must exist or manifest. Where there is doubt, an offer in the USA is taken as an invitation to the recipient to accept an offer by the party making the offer, either by promising to perform in accordance with the terms of the offer or by rendering the performance. There is a general consensus in contact law that the party making the offer is its master and, therefore, may revoke the offer at any time provided that a legitimate acceptance has not taken place. This principle also holds in instances when the maker of the offer makes a promise to hold the offer for a specified time or the person being offered makes some consideration in order for the offer to be held for some specified period of time (McCarnus 152). In both cases, revocation cannot occur until the expiry of that time period. An example here would be when John offers to sell goods to Martin for some amount of money and promises Martin that he will extend the offer for a month and Martin accepts the offer, John cannot revoke that offer until the expiry of one month. Similarly, if Martin paid some consideration (a part of the total sum) and promises to clear by the end of a time period specified by him7 and John assents to that, then John cannot revoke the offer until the expiry of that time period. An express or implied conduct to show agreement to the terms of the offer is called acceptance and is a critical part of an enforceable contract, without which no contract would be recognizable in the eyes of the law. Battle of forms is a term used to mean that a contract may still be formed by implication, in fact, even without following the process of offer and acceptance. The doctrine of consideration is another unique feature of contract law where bargain is a key component of promises worth of enforcement. In other words, one party must offer something to the other party as an incentive to get something else in exchange. Virtually all commercial deals can be described as a mutual exchange of promises to be honored in future. This sort of contract is also referred to as “executory” contract. Any agreement that places the obligation of performance on both parties is said to be supported by consideration (Rubin 25). Though the courts do not in most cases measure or weigh the adequacy of consideration, it must be sufficient otherwise if grossly inadequate, it may be regarded as unconscionable. An important aspect of consideration is that past consideration does not amount to consideration. This applies in cases where promises for future obligation arising from present contract are made after the expiry of the contract. A good example would be the case of an employee who claims pension from his employer only after the expiry of the employment period whereas the employer did not provide that as part of his offer at initiation of employment. The employer might promise the pension at the end of employment, but that cannot be regarded as consideration for the earlier employment contract. The rightful consideration for employment in those terms is probably partly the salary paid out to the employee, which qualifies for enforcement under contract law. The intention for legal bondage especially for commercial agreements is another feature of contract law. Social agreements, on the other hand, have traditionally been formed on the basis of public policy and hence unenforceable under the law because there are no legal relations. Although not all contracts need to be written to be enforceable, certain contracts require documentary agreement in writing in order to reduce instances of frauds (Marquez-Escobar 117). This in the US constitutes the statute of frauds which encompasses certain types of contracts such as those involving land, goods worth more than UDS 500, longer than one year period and promises to guarantee debt or default by another party. Exceptions here are contracts made for a lifetime because life can end anytime before one year8, goods having been received and accepted, payment made and accepted goods whose market is not readily available and where a party against whom enforcement is being sought admits a certain quantity of goods under UCC. Several reasons may compel an aggrieved party in a contract to take legal action. The major cause of action in contract law is breach of contract which simply means breaking the contract terms or failing to meet the promise made by either party in a contract. Other causes recognized in contract law as well are the promissory estoppel which in most of the cases has been substituted for consideration by common misconception, quasi-contracts which may be an action in restitution and unjust enrichment and restitution9. Restitution occurs when a party forces acceptance of contract when the counter party is unaware, does not consent or is not in the right status to consciously take up the terms of the contract, for example, when the latter is incapacitated, unconsciousness, is a minor or is incompetent. A number of remedies exist for the different causes of action mentioned. Expectation damages also called benefit of the bargain is the remedy for violation of contract and is usually a monetary value, includes among other things specific performance or injunction. The remedy for quasi contracts, on the other hand, is Quantum meruit that simply implies the reasonable equivalent of fair market value of the disputed contract terms in monetary value. Promissory estoppel is usually remedied through reliance damages. One of the ways through which disputes from contracts may be resolved is arbitration. The Federal Arbitration Act provides recourse for all contracts made under federal or state law. At a personal level, I have encountered contract law in a number of scenarios. Every ticket I have bought on bus transport has been a form of a contract between me and the service provider, the bus company. This is a pact of services and most of the terms was implied rather than express because there exist a list of terms on the flipside of a ticket as to the responsibility of the transport provider to the commuters (Weber and Meyer 55-71). The agreement between an employer and an employee is another example of a contract setting out the rights and prospects (of both parties) and inferring a number of basic rights for the employee. The contract contains an offer and acceptance in taking up the new job by the employee. The consideration is the days of work by the employee and the pay from the employer. The contract has formality in a legal sense because the relationship leaves no room for doubt even though the intention may not necessarily be so obvious. The traction of buying a house or other property involves a contract through exchange of agreements. The contract is pivotal in the ownership of a property. In case of breach, the specific terms of the contract must be assessed to dictate the appropriate remedy available even when a caveat emptor exists. Conclusion Exchange of promises or agreement between parties legally constitutes a contract. A good example of a contract is the case of a business agreement where a seller promises to deliver certain specified type and quantity of goods on a particular date in the future and the buyer, on the other hand, concurs to pay a specified price and amount of money for the goods on the same date. Common law is the chief source of the law of contract, and is a makeup of many judicial decisions by courts on similar disputes over a long time in the past. Other sources include restatements of the law promulgated by the American Law institute, the Uniform Commercial Code (UCC) and the CISG or the Vienna Convention which governs international sales transactions applying to sale of goods and services between parties who operate in different countries. The key constituents to the formation of a contract in common law are offer and acceptance, consideration and an intention to create legal relations. Offer and acceptance, which may be written, oral or implied, is where one party offers a bargain that is accepted by the other party, a scenario also referred to as concurrence of wills. The doctrine of consideration emphasizes that bargain is a key component of promises worthy of enforcement. Any agreement that places an obligation of performance on both parties is said to be supported by consideration. The major cause of action in contract law is breach of contract but even promissory estoppels, quasi-contracts and restitution may constitute a cause of action. Remedies for these causes of action include expectation damages also called benefit of the bargain for breach of contract, Quantum meruit for quasi contracts and reliance damages for promissory estoppel. Works Cited Feldman, Yuval and Teichman Doron. “Are All Contractual Obligations Created Equal? Georgetown Law Journal; Vol. 100 Issue 1, (2011): p5-52 Hunt, John. “Taking Bubbles Seriously In Contract Law”. Case Western Reserve Law Review; Vol. 61 Issue 3, (2011): p681-751 Marquez-Escobar, Pablo. “Contract Law and Economics: Cycles and Equilibrium In The Cannon Of North American Legal Thought”. Revista de la Maestria en Derecho Economico; Issue 5, (2009): p115-130 McCarnus, John. “Elements of Contractual Interpretation/Canadian Contractual Interpretation Law/Interpretation of Contracts: Part One.” Canadian Business Law Journal; Vol. 52 Issue 1, (2011): p136-153 Rubin, Paul. “Treatment Decisions: Tort or Contract?” Regulation; Vol. 22 Issue 1, (1999): p25 Weber, Libby and Mayer Kyle. “Designing Effective Contracts: Exploring The Influence Of Framing And Expectations”. Academy of Management Review; Vol. 36 Issue 1, (2011): p53-75 Read More