Common Law and Contracts: Mistakes, Frustration, and Third Party Rights, Essays (university) of Contract Law

Download Common Law and Contracts: Mistakes, Frustration, and Third Party Rights and more Essays (university) Contract Law in PDF only on Docsity! 1 Question 4 According to common law, one of the elements claimed to void a contract is the parties' mistake, with common mistake being an example. A common mistake appears when both parties to a contract make the same mistake. With common mistakes, there is total agreement between the parties. However, both are erroneous about a basic issue about the existence or quality of the subject matter of the contract or the feasibility of performance. There are three kinds of common mistakes: res extincta, res sua, and mistakes as to quality. This paper will focus on the third principle; mistakes as to quality. A common mistake like the subject matter of the contract is not sufficiently fundamental to constitute an operative mistake under common law (Leaf v. International Galleries). Nevertheless, there are indicators that courts may rule a contract invalid and unenforceable due to a fundamental mistake in quality (Great Peace v. Tsavliris). Thus, this paper discusses a few judgements of cases throughout the 20th and 21st centuries that have raised confusion about the English justice system's inconsistent doctrine of mistake (DOM). This paper proves that the doctrine of mistake is still narrow, unclear and inconsistent. Over the last century, the courts have attempted to develop a set of reasonable criteria for when the doctrine of mistake should be applied. This doctrine can be illustrated in the case of Bell v Lever Brothers Limited [1931]. The case details are that Mr Bell served as the CEO of a Lever Bros. Ltd.-owned firm for five years. Mr Bell had violated his employment contract by trading for personal benefit while employed by the corporation. This was not disclosed to Mr Bell at the time of Lever Bros Ltd's redundancy offer, which terminated his job and offered a £30,000 lump sum as compensation. One of the most important questions, in this case, was whether or not Mr Bell's redundancy agreement, which he drafted and signed, could be declared void and invalid owing to a common mistake. Claiming that he had violated his employment contract, Lever Bros. Ltd. said that this cover-up and wrongdoing violated his obligation. However, the House of Lords decided that a common mistake did not void a contract in that instance. Because the mistake was not an 'essential component of the contract, the contract was not invalid'. Instead, the contract may only be dissolved if it was determined that the mistake was critical 2 to the performance of the contract in question. For the mistake to be considered significant, the nature (or, as the House of Lords put it, the identity) of the contract must be fundamentally different from what was originally agreed to. So much so that it would be "impossible to perform". In contrast, Treitel, one of the most eminent contract law scholars, disagrees with his approach. He mentioned that if a certain attribute is so significant to the parties that they utilise it to characterise the subject matter, this may be considered a mistake. The "impossible to perform" test was seen again in the case of Great Peace Shipping Limited v Tsavliris Salvage Limited [2002]. The court's decision was because the conditions in which a contract may be voidable in equity were similar to those in which the same contract would be void under common law. It was determined in Bell v Lever Bros. Ltd. that the criteria were to determine whether there was if the “mistake fundamentally altered the contract”. In Solle v Butcher, the case was decided based on a “fundamental misinterpretation of the facts”. The court in Great Pace was confused about both these issues. To tell the difference between these two sorts of mistakes, it is necessary to look at how they vary in terms of quality or qualities. In addition to asking whether the court in Bell v. Lever Bros. Ltd acknowledged a role for equity in circumstances of common mistake, the court in Great Peace believed that the authorities could not support the result in Solle v. Butcher. Lord Denning, who delivered the leading opinion in Solle v. Butcher, drew heavily on the 1867 House of Lords decision Cooper v. Phibbs, which he termed the "great case." However, the Court of Appeal in the Great Peace disagreed with Denning LJ's opinion that Cooper v. Phibbs gave birth to new equity about a common mistake regarding quality or qualities. In the case of Great Peace, Lord Phillips laid down the following criteria for a contract to be voided. Firstly, a consensus must exist on the presence of a state of circumstances. Also, there must be no assurance from either side that this condition exists. Moreover, the nonexistent condition of circumstances cannot be attributed to either party's responsibility. Furthermore, this presumed condition of events must exist for the fulfilment of the contract to be feasible. 5 would get a promise from retailers that they would not sell the tyres for less than the list price set by the plaintiffs. However, some of the tyres were sold by Dew to the defendants, who then sold them for less than the list price. As a result, the plaintiffs asked for a court order and money damages. The court held that even though the defendants and Dew had a contract, the plaintiffs were not a part of it. According to Lord Haldane, only the party to a contract will be able to sue. The common law reasoned out the principle that consideration must move from the promisee. This paper now acknowledges the judgement; however, the difficulty remains. Lord Dunedin first pointed out the inconvenient and unjust nature of the DOP in Dunlop. This paper asserts that Privity and consideration have become interwoven yet remain different. The judgements in Tweddle and Dunlop demonstrate how similar the Privity principles are to the doctrine of consideration, particularly the requirement that consideration must move away from the promisee. However, these two rules do not necessarily generate the same consequences despite their connection. Lord Denning was against DOP in several cases throughout the 1960s and '70s. However, the House of Lords rejected his effort to eliminate DOP in Beswick v Beswick 1968. Mr Beswick sold his business to his nephew in exchange for lifelong income and a death pension for his wife. Even though it was intended that she should profit, Mrs Beswick could not sue on her behalf when her nephew failed to keep his commitment since she did not offer any value for it and was not a party to the contract. A particular performance order against her nephew was granted by her position as administrator of the estate. If she had not been the administrator of the will, she would not have been able to take action. This case illustrates the unjust of DOP. This paper asserts Mckendrick’s argument that four major complaints are raised against DOP. Firstly, because the legislation was very complicated and excessively artificial, it failed to affect the parties' declared intentions. Moreover, from a business standpoint, DOP was inconvenient. Furthermore, the application of DOP sometimes results in fundamentally unfair outcomes. However, a third party's loss may be considered the promisee's loss (Jackson v Horizon Holidays Ltd 1975). Jackson had scheduled a family vacation alone. Because of the substandard accommodation, food, services, facilities, and overall hotel quality to which they were brought, the entire family endured discomfort. Jackson sued the vacation business on 6 behalf of his family. The corporation contested compensating the family since they were not a party to the contract. However, the Court of Appeal ruled that the family's disappointment constituted a loss to Jackson and awarded damages to the entire family. When the HOL decided in Woodar v Wimpey, the courts were not always prepared to reject DOP, even when it resulted in seeming unfairness (as it arguably did to Plaintiff). This paper now claims that DOP is not fair in all circumstances. Many exceptions were to be found to the basic principle of contract privity. This shows that the courts have not been satisfied with the doctrine's rigorous application. Furthermore, this field of law has become increasingly complex due to the growing number of exceptions. As a result, legislative change was repeatedly called for because the situation was so difficult to understand and navigate. As a result, a draft bill was submitted to Parliament after consultation with the Law Commission, and this legislation was passed. It was enacted into law as The Contract (Rights of Third Parties) Act 1999 C(RTP). The legislation was enacted to resolve the doubts and ambiguity enclosing the doctrine and its exceptions under common law, namely denying a third party their enforcement right. The 1999 Law (section 1) introduced a two-part test to permit a third-party action or contract enforcement. This is where the contract allows for it or where the contract is intended to confer a benefit on the third party. This paper criticises the former and the latter. This section of the essay argues that C(RTP)A exceptions do not lessen the injustices create unjust on their own. For instance, some common law exceptions have a restricted scope, which results in unanticipated decisions in certain circumstances. This reduces legal certainty, making it more difficult for parties to plan and anticipate the legal ramifications of their decisions. Moreover, if the act is applicable, not every third party may enforce a contractual agreement; the standard for enforceability in s1 must be met. However, the common law exclusions will continue to apply, so the legislation and common law function together. A person who is not a party to a contract may enforce a contract provision in their own right if the test for enforceability is met, even if the third party beneficiary was uninformed of the contract when it was made (Chudley v Clydesdale Bank). This section of the essay discusses the test of enforceability. The Claimant (The Swedish Club) claimed reimbursement from the club for commissions paid to them by insurers and cargo owners. It was determined that this payment did not fall within section 7 1(1)(b) since it was essentially a commission paid to an agency. In addition, in the case of Nisshin Shipping Co Ltd v Cleaves & Co Ltd, Cleaves had arranged many commission-paying time-charters. Nisshin withheld payment because the agreement had been voided. Cleaves was entitled to payment under section 1(1). (b). The language claimed to provide Cleaves with a benefit, and there was no indication that the parties did not intend for Cleaves to have the power to enforce. Furthermore, in the case of Avraamides v Colwill, Colwill (C) was hired by Avraamides (A) to renovate A's bathroom. C's performance was deficient, and C would have been responsible for damages, except C had already sold the relevant company to a third party (B). B assumed C's obligations under the agreement. A was not named in the contract between C and B; consequently, section 1(1) did not apply, and A could not recover from B. Now, this paper raises the question if this is a fair situation? It has also been found that the act is intended to affect the contracting parties' intentions and that it only applies if and only if the test for enforceability is met. The C(RTP)A was introduced to divert from the strict application of DOP. However, the act has created its own unjust, resulting in parties not being able to benefit from it. Thus, this essay concludes that the DOP is still unjust even with C(RTP)A. 1504 words Question 6 The doctrine of frustration (DOF) would apply where the execution or continued performance of a contract has been rendered impossible or permanently postponed due to an event that was not and could not have been foreseen by the contracting parties (Lord Justice Griffiths- The Hannah Blumenthal [1983]). The frustration of a contract may be difficult to demonstrate in English law, and the conditions in which it can be claimed are limited. However, if the frustration of the contract is proved, the parties will have the option to terminate the contract. Firstly, this paper reasons out in circumstances where a contract may be frustrated. For example, a contract is frustrated when an unexpected incident happens after a contract is signed that is beyond the parties' control and results in the contract being either: cancelled, amended, or terminated. Moreover, when it is physically or financially impossible to perform. Furthermore, when the contract's performance is transformed into something fundamentally different from the 10 In a circumstance where the performance of a contract has been made illegal According to England's 2020 Health Protection (Coronavirus Restrictions) Act, coronavirus restrictions are enforceable by law. So it's possible that any contract's performance would be frustrated if it violated these rules due to its illegality. However, whether or if the contract can be performed in its original form now that lockdown has been loosened and whether or not time was of the essence will be critical. This may be evaluated if one party asserts that the contract has been frustrated. At the same time, the other insists that the lockdown is reasonable and that performance under the contract is still necessary under the circumstances. In a circumstance where a contract is radically different One way a party might claim that the contract has been frustrated is if they can show that the unexpected, frustrating occurrence altered the execution of the contract into something so radically different from the intended purpose that the court should not hold them accountable under their contract. This may be done by analysing and comparing the original responsibility to the current situation. There is a good chance that a contract has been violated if the new duty is significantly different from the previous commitment. However, when regarded objectively, an increase in expense or discomfort is not usually enough to make the new duty fundamentally different from what was previously agreed upon. When a business contract is frustrated, the Law Reform (Frustrated Contracts) Act of 1943 provides the recovery of prepaid payments under most commercial contracts entered into. Following the Act's implementation, a party may reclaim money granted to another party before the frustrating incident. The parties are released of any responsibility to pay any money due to them before the frustrating event but had not been paid. In some cases, a court may let a party who has spent money on the partial performance of a contract keep an amount from the other party equal to or more than the cost of the expenses. This amount could come from money paid before the contract was broken or from due money but had not been paid yet. Finally, a party that has already received a 'valuable non-monetary advantage' under the contract before it is frustrated may be ordered by the court to pay a 'just' amount to compensate the other party for the benefit, regardless of whether any money has been paid or was due. A contract may be terminated due to frustration. However, the outcome is 11 predetermined and does not need any action on the part of the parties involved. This means that parties should not attempt to utilise the concept carelessly, especially at the beginning of a long-term contract. In many circumstances, the parties will be better served by negotiating a different solution to the problem. In conclusion, this paper argues that not all in situations, an alternate performance may substitute for the performance of a contract. Contracting parties need to adhere to the Covid-19 restrictions and bear in mind that in frustration with the contract, the court will evaluate whether the incident in issue was foreseeable and if the parties’ contractual duties have become impossible to fulfil. In addition, it will examine if the contract provides provisions for a frustrating event to occur. Because of this, this paper suggests that frustration should only be used as a last option, especially if the parties involved want to maintain their business relationship or contract in the future or if finding an alternative customer or supplier is difficult. 1530 words