Business Law Contract Law

Introduction

A contract is a legally binding agreement or transaction, which, when breeched, can involve several different remedies as contracts are legally enforceable. There are several different types of contracts and the legal effect of these agreements fall into the following four categories: valid contracts, void contracts, voidable contracts and unenforceable contracts. Valid contracts are contracts which are binding and enforceable, parties part of a valid contract gain rights and responsibilities. Void contracts are, in fact, not contracts at all due to an illegal factor which makes the contract unenforceable. A voidable contract is a contract which is valid until one of the parties opposes it and declares it void for one reason or another, then if the contract is found to be void, compensation can be claimed by the innocent party. An unenforceable contract is a contract which is legal but cannot be enforced in court for a particular reason stated in the contract, for example, a time limit for enforcing the contract may've expired. The termination of a contract can happen for several reasons. For an agreement to be valid in the first place, it must contain offer and acceptance, consideration, intentions to create legal relations, actual consent and parties must know the consequences.

Performance

Contracts can be terminated for factors related to performance. Substantial performance can lead to the contract being terminated and consequences for the offending party. An example of this is the Hoenig v Isaacs (1952) case. The contract stated that Hoenig would decorate Isaacs flat for £750. Once the job was done, due to damage that Hoenig caused to furniture, Isaac only paid £400. Hoenig sued Isaac but the courts deemed the contract to be terminated due to substantial performance and Isaac didn't have to pay the full £750, in the end he paid £55 less as that was how much damage was caused, this is an example of how substantial performance can cause a contract to be terminated.

Voluntary acceptance of partial performance (quantum meruit) can also be a reason for termination of contract. For example, if an artist agreed to paint a portrait of someone which took 5 hours for £500 and the painting was finished in under 3 hours and to not as good a quality as expected then the artist may voluntarily accept the fact that he only partially performed his side of the contract and only charge £250 (hence the Latin term quantum meruit which means "what one has earned").

Prevention of performance by one party is another factor. In the Planche v Colburn (1831) case one party was supposed the pay the second party £100 to write a book for a series. However, the party paying the other to write the book decided to cancel the series after the second party had already written a great deal of the book. The first party refused to pay the second party and therefore the second party sued him. The case was resolved and the first party had to pay the second party £50 because the defendant had prevented the performance.

Breech of terms concerning time can also cause a contract to be terminated. For example if you buy a CD and then try to return it a month later when it says on the receipt, "no refunds or exchanges available after 28 days" then the contract is terminated because the time limit has expired and the 28 days is over, meaning you cannot return the product.

Contracts can also be terminated due to vicarious performance (permitted unless contract requires personal performance). For example if somebody hired a gardener to personally trim all the trees and bushes in their garden for £150 and then the gardener paid somebody else £75 to do it and kept half the money for himself then this would cause the contract to be terminated due to vicarious performance as he hasn't completed his duties in the contract himself. This could lead to the person who hired the gardener only having to pay £75.

Frustration

Several frustrating factors can occur which results in termination of the contract. One is when performance is deemed impossible. For example in the Taylor v Caldwell (1863) case, Caldwell had agreed to rent out his music hall for a few days (£100 per day) to Taylor so he could host events. Unfortunately, the hall burnt down to the ground the week prior to when the renting should have begun. Taylor sued Caldwell for failure to rent the hall out but in the court the contract was deemed terminated as it was impossible for Caldwell to rent out the hall as it had burnt down.

The Fibrosa case (1943) is an example of a case frustrated due to performance being illegal. In this scenario it involved a British and Polish company trading but due to the outbreak of War, it became illegal to trade with enemies and therefore the contract was terminated. The Polish firm had already paid a deposit and the courts decided the appropriate remedy would be for the Polish to recover their deposit and the contract to be terminated.

The Krell v Henry (1903) case is