Contract Law in the USA - Article Example

The USA Contract Law Introduction Contract law in the USA is focused on agreements expressed or implied by two or more parties. The standardization of such law has taken place due to the adoption of a uniform commercial code. There exist, however, significant differences in the interpretation of contract law depending on the extent to which a particular state has stipulated its common law on contracts (Speidel, Ayres & Murphy 1984). This paper seeks to present a comprehensive and incisive examination of various aspects of USA contractual law. The court case between Taylor versus Caldwell introduced the possibility of wider interpretation of the nature of contractual liability. IN addition, this paper contends that it is highly misleading to conclude that compensation of the plaintiff is the main or the only objective of contractual liabilities. Question 3: Taylor versus Caldwell The court case between Taylor and Caldwell (1863) 3 B. & S. 826, 122 Eng. Rep. 309, as referred to in the introduction raises legal issues regarding the nature of contractual liability. Caldwell, the defendant in this case, allegedly permitted Taylor, the plaintiff to use his property, the Newington Musical Hall. The two parties entered into a contractual agreement that Caldwell was to retain the ownership of the Hall while Taylor was merely allowed use of the Musical Hall for concerts which he would arrange and stage over four days. Specifically noted in the contract were the charges of hiring the Hall: a cost of 100 pounds per day. Also stipulated in the contract was the condition that the Hall needed to be in good condition. There were, however, no provisions that expressly referred to the possibility of a disaster occurring and hence altering the condition of the hall. Prior to the date of the concert the Hall was destroyed by fire. It could not be established that either party had any part in the disaster. The concert could, however, not take place since there was no other suitable location for the staging of the concert. Taylor thus felt it appropriate to sue Caldwell on the grounds of contract breach since he could no longer rent the destroyed music hall. The judge presiding over the case, Judge Blackburn, ruled in favor of the defendant, Caldwell. Essential to the judgment of this case was the question of whether or not the contract was still enforceable even after the Music Hall was destroyed by fire. Of further concern is whether the performance of a contract inherently depends on the presence or absence of an individual or an object. In this case Judge Blackburn argued that the rule of contractual liability had been set forth and that if the performance of the contract essentially depended on the continued existence of the asset in question – the music hall – then impossibility of performance was justifiable. Therefore, in instances where the parties involved acknowledge that the contract performance cannot be fulfilled due to the existence of a particular asset, a positive contract cannot exist as there is a condition that has been implied – that is: that parties can be excused from performance in instances when the alleged asset ceases to exist without the fault of the two involved parties (Speidel, Ayres & Murphy 1984). Despite this, if one of the involved parties has guaranteed that the asset will continue to exist this party is inevitably liable for contract breach if the asset ceases to exist. A positive contract would in such circumstances thus be able to be enforced and whenever such a positive contract is instigated, the contractors are to perform the agreements of the contract or pay for damages despite unforeseen tragedy, even if the performance of the agreed terms in the contract becomes impossible to execute. To re-iterate, this rule is essentially applicable in instances when the agreements of the contract are absolute or positive and any “subject to” (writer’s quotation marks) conditions have not been expressed. In contracts involving the services of a particular person, though, the contractor is not liable for any performance if that individual ceases to exist despite the fact that the terms of the contract will have been breached. This case distinctly highlights the objective of impossibility since it would have been impossible for either of the parties to perform according to the agreements of the contract. Such impossibility especially applies in a case where the involved parties did not overtly express risks during the time that the contract was being formulated. Therefore the court is bound to declare that the losses incurred cannot be effectively established. Either party is thus required to absorb his own costs. In this case the plaintiff suffered the loss of the income invested in preparations for the concert. The defendant suffered the loss of his music hall due to fire. It is worth noting that this rule can only be applied when neither party is allegedly or realistically responsible for the destruction of the asset or the removal of the person on which performance of the contract depends. Case Analysis This case – Taylor versus Caldwell – introduced significant new debate in the interpretation of the nature of contractual liability. Contractual liability proposes that obligation is assumed by either of the contracting parties for the terms agreed to in the contract. The contract that Taylor and Caldwell had entered into in effect leased the music hall to Taylor at a fee for the four-concert series. Preparations and arrangements required that Taylor spend money for advertising and incur other general expenses. In the contract no clause expressly spelled out what would take place in the event of problems with the location of the concerts .The contract was sealed with the phrase “God’s will permitting”. The two parties ought to have indicated specifically, within the contract, what would be done if a situation such as did were to arise: that is, an occurrence that would cause the performance of the contract to be impossible. It is apparent that this court case has exposed certain discrepancies in the nature of contract liability. One such discrepancy arises from Taylor’s rationale for the decision to sue Caldwell for breach of contract - it is legally contentious. Central to the argument for Taylor was that reliance damages compensation should be rendered to him for not being able to use the hall for his concert despite his investment and costs spent on advertising and preparations. The argument further proposes that Taylor should be given the benefits of bargain equal to the profit he would have made if the concert took place. An additional possibility would be for Taylor to mitigate the damages that had been incurred by him through hiring an alternative music hall, staging the concerts, and then suing Caldwell for the cost difference between that expense and £100/day. Conversely, Caldwell’s position presents the argument that the destruction of the music hall by fire was not due to him; therefore he was not to be held liable for breach of contract. The court nevertheless found that due to the fact that contract performance had become impossible neither of the two parties was to be excused from the duty that they had agreed upon in the contract. The rule of absolute liability must only be applied to definite and positive contracts and not to those that rely on the conditions underlying the contract (Speidel, Ayres & Murphy 1984). The continued existence of Caldwell’s music hall was inherently an implied condition – its continued existence would enable the fulfillment of the conditions in the contract. Neither of the parties was responsible for the fire’s destruction of the music hall and hence the performance of the contract by the two parties is rendered impossible. It is evident that both Taylor and Caldwell contracted on the basis of the continued of existence of the music hall. Despite the fact that the contract had no specified clause referring to the outbreak of fire, the court confirmed that the agreement could not be honored from the moment the music hall was destroyed by fire. In most cases when there is a definite and positive contract in regard to performance, the contractors must perform according to the agreed terms. Failure to do so has most often resulted in compensation rendered to the plaintiff (Mulcahy& Tillotson 2004). Tenets present in Roman law and the civil law of France strongly inform the decision of the court in the case under discussion. The stipulations of both systems declare that the existence of a particular asset is imperative in a contract and should that asset cease to exist or be destroyed through means that for which the two parties cannot be held culpable, both parties should be freed from the obligation of compensation in any form. The ruling of the court in this case has been compared to a situation whereby a contract requires the person to perform but the person dies before they are able to go on stage (Speidel, Ayres & Murphy 1984). Under the common law of England, the estate of the said performer would not be held liable. Breach of contract and loss is apparent – to whom compensation is due, however, is not as clear. Neither the defendant nor the plaintiff should carry the losses – it would be unfair to attribute such losses to either of these parties. It is therefore apparent that the court case of Taylor versus Caldwell introduced great uncertainty and even confusion in the interpretation of contractual liability. The essential question: “who is to absorb the losses?” (Speidel, Ayres & Murphy 1984) remains. Corresponding court cases Contract law, prior to the case of Taylor versus Caldwell, relied on a completely opposite interpretation to that evident in this case. In the landmark case of Parridine versus Jane (82 Eng. Rep. 897 (K.B. 1647), for example, Jane leased land in England from Parridine. Subsequent to the lease agreement, the land which Jane was to rent was invaded. Parridine, the plaintiff, consequently and later, sued Jane for failing to pay rental on the leased land for nearly three years. Jane, the defendant, argued that her possession had not realized, and that she was essentially frustrated with the performance of the contract. Absolute contractual liability is established in the ruling on this case. The judge ruled in favor of the plaintiff. Jane was therefore obliged to pay her rent. Within the parameters of most contract law, any party can be held liable even when they are not at fault for preventing the performance of the contract. In stark contrast to the Taylor versus Caldwell case, Parridine versus Jane accentuates the variability in the interpretation of contractual liability. More reminiscent of Taylor versus Caldwell is the court case Hadley versus Baxendale (9 Ex. 341 Ex.Ct. 1854). Here the ruling established that though the losses incurred were great the defendant was not to be held liable. The case between Krell versus Henry further highlights key legal aspects in the nature of contractual liability. In this court case the defendant, Henry, contracted with Krell, the plaintiff, to view King Edward’s procession. It was stipulated in the contract that Henry could use Krell’s flat for two days to view the procession. In return he was to give Krell 75 pounds. Nonetheless, the provisions in the contract did not expressly state the purpose of Henry’s use of Krell’s flat. When the King’s appearance was postponed due to illness, Henry dishonored the agreement in the contract. Krell responded by suing Henry. He demanded the balance of payment as stipulated in the contract, for the use of his flat. The defendant countersued for the return of his alleged deposit. Thanks to the citing of Taylor versus Caldwell, judgment was given in favor of the defendant. In this case the rule of performance was not implemented due to the fact that an unforeseen and supervening event had occurred (Speidel, Ayres & Murphy 1984). Another controversial aspect is added to the nature of contractual liability in the examination of Batsakis versus Demotsis (226 S.W.2d 673 Tex.Civ.App.-El Paso 1949). This case presents yet further elements affecting the interpretation of contractual liability. In this case Batsakis, the plaintiff, sued Demotsis. A contractual agreement was entered into specifying that Demotsis was to pay Batsakis 2000 dollars at an interest rate of 8% per year in exchange for 500,000 drachmae after the war. The plaintiff received the money (in drachmae) in reality but the amount of 500,000 Greek drachmae was calculated at the exchange value of $25. At the end of the contractual period, Demotsis refused to pay the loan proposing that the contract was inherently unenforceable due to the lack of valid consideration. The element of exchange was clearly essential to the authenticity of the contract according to the systems of the common law (Knapp & Prince2005). Hence the contract could not be formulated effectively without the specific exchange rate being noted in the contract. 500,000 drachmae according to Demotsis, with a putative value of $25, could not be considered adequate in light of the promised $2,000, making the contract unenforceable. The argument was made by Demotsis that the absurdly lower exchange, $25, was adequate to render the contract unenforceable. The court ruled that the contract was enforceable and Batsakis should be awarded $750 interest. Compared to the case of Taylor versus Caldwell the ruling of this court case further emphasizes the complexity of contractual liability. Question 4: Contractual remedies USA contract law tends to enforce certain provisions in the treatment of compensation. These provisions are designed to provide remedy. Typically, remedy is measured as monetary compensation, certain privileges or performance (Knapp & Prince2005). Breach of contract, it is consistently understood, occurs when a party fails to perform according to the stipulated agreements in the contract (Mulcahy& Tillotson 2004). Such breach can result in certain penalties intended to serve as remedy or compensation to the plaintiff. The awarding of damages is the basic remedy when contracts are breached and is consequently often sought by plaintiffs in the USA. Legal practitioners, though, have questioned the ultimate goal of contractual remedies. It is thought by many that the central goal of contractual laws is to compensate the plaintiff. This writer proposes, nonetheless, that it cannot be concluded with validity that the key goal of contractual remedies lies only in the compensation of the plaintiff. In the case of Hadley versus Baxendale 9 Exch. 341, 156 Eng. Rep. 145 (1854) it is evident that the ruling of this court with regard to contractual remedies inherently yielded lost expectations. Here, the plaintiff, Mr. Hadley hired Baxendale to transport his broken mill shaft to an engineer. Baxendale was supposed to transport the broken mill shaft to Green with immediately. He was, however, negligent and did not transport the mill shaft within the time frame as agreed in the contract. Consequently, Hadley’s mill had to close down for five days as direct consequence of the absence of the mill shaft. Hadley sued Baxendale for 300 pounds due to lost wages and profits. The court ruling contended that Baxendale had no knowledge of the mill closing down therefore both parties were not liable for loss of wages and profits given that Hadley had not communicated the special circumstances to Baxendale – the urgency of the situation was not clearly communicated. The court did state that the usual rule in regard to the amount that could have been received had the contract been kept should determine the damages to be awarded if and when the contract is breached. A critical analysis of this court case reveals that consequential damages are in most cases linked to ability to foresee likely events and knowledge. However, in this ruling, expressed tacit agreement in the contract discussion was incorporated in the court’s decision (Atiyah 1989). Drawing on this court case it is evident that the compensation of the plaintiff, in this case Mr. Hadley was not the main aim of the emergent contractual remedies. Rather the ruling reflects detailed examination and evaluation of the agreements in the contract to determine the extent of the damages. The objective of damage as remedy in this case is to ensure that the both parties return, in effect, a position that they would have been if the contract was fully implemented. Therefore it is highly misleading to conclude that the compensation of the plaintiff is the main objective of contractual remedies (Gillies 1988). The case of Reliance Cooperage Corp versus Treat 195 F.2d 977 (8th Cir.1952) provides yet more insight into the main goal of contractual remedies. In this case, the plaintiff entered into a legally binding agreement with the defendant .The agreement was that the defendant would buy staves from the plaintiff. The plaintiff then sued the defendant on the grounds that there was a considerable difference between the market price of the staves at the time of the contract agreement and the agreed date of delivery. The court awarded the plaintiff damages mitigated as a result of the contract breach, given that the defendant could have procured the staves prior to the contract period. Subsequent to this ruling, though, judgment was reversed. In the reversal, the court concluded that damages as a result of breach of contract cannot be mitigated unless the actual damages have occurred. The revised ruling proves that contractual remedies do not only aim at compensating the plaintiff – these remedies seek also to offer legal restitution for defendants (Knapp & Prince2005). The Contractual Remedies Act of 1979 indeed goes a step further to allow a bargaining process between the plaintiff and the defendant. This Act allows the courts to evaluate the likelihood of misrepresentations of facts as they appear in a particular contract. In a case where the court considers the provisions in a contract to be unfair and unreasonable, the bargaining strengths of the plaintiff and the defendant are incorporated in the ruling. These provisions largely enhance equity and fairness in court proceedings attempting to rule on breach of contract. It is therefore highly misleading to state that contractual remedies essentially or only aim at compensating the plaintiff. The Act also provides conditions that allow the nullification of contracts. For instance, Section 7(2) has specifications that take into account the cancellation of contract exclusive of damage remedies. Studies in contract law assert, as previously noted in this essay, that there are two main remedies for contract breach: inclusion of equitable remedies and money damages. Equitable remedies can be specified as an injunction or a specific performance. Given the fact that these remedies are in nature equitable the presiding judge denies or awards remedy with interpreted equitable discretion. This implies that a plaintiff who is negligent can be denied equitable remedy. Again the conclusion must be hat contractual remedies are not geared towards the compensation of the plaintiff but offer neutral grounds for both the defendant and the plaintiff (Gillies1990). The case involving Hydraform Products Corp versus the American Steel and Aluminum Corp (1985) 127 N.H. 187, 498 A.2d 339, 345, firstly, and another between Spang Industries Inc Fort Pitt Bridge Division versus Aetna Casualty and Surety Co Torrington construction(1986) 787 F.2d 355 serve to illustrate this argument. These two situations significantly highlight the issue of necessary compensation of a plaintiff and the practicality of the compensation (Gillies 1988). In the first case, the contract was such that American Steels was to supply steel to Hydraform for the manufacture of woodstoves. A notice was sent to American Steels from Hydraform to inform them that delays in delivery of steel during the peak season could ruin Hydraform’s business for a whole year. Consequently, American Steel requested Hydraform to place an advance order to purchase an amount of steel equivalent to the manufacture of 400 woodstoves. American Steel would thus stock steel in advance. It was subsequently also agreed that the steel should be delivered in four installments – with each delivery Hydraform signed a receipt to specify that American Steel would not be answerable for any for any damages that may occur during delivery of the steel. The deliveries were late repeatedly, however, and there were some defects which American Steel promised to rectify. Hydraform realized that American Steel would not be able to keep their end of the bargain by performing as agreed and consequently tried to source steel from other manufacturers. This proved impossible as the company could not promptly raise the required finance which would make alternative supply possible (Corbin 2000). Resulting delays led to cancellation of orders allowing the manufacture of only 250 stoves. Eventually Hydraform sold the woodstove section of its businesses. After these events, Hydraform took legal action for breach of contract against American Steel claiming $100,000 in lost profits and $220,000 to offset the sale of the business (Berryman & Watts 2005). American Steel responded by lodging a motion for dismissal, basing their argument on the clause addressing consequential damages. The above mentioned events argue further to refute the assumption that compensation from the plaintiff was the sole purpose for the companies working together. Neither American Steel nor Hydraform anticipated the difficulties that would lead to the taking of legal action. Their sole purpose was obviously to make profits and advance in a mutually beneficial manner. The argument that plaintiffs enter contracts with compensation in mind is unfounded since the plaintiff would not be in the position where compensation would be required if the contract had been fulfilled. The consequential loss experienced is therefore sometimes necessary in order for the two parties to build consensus from a current stalemate (Baker 2002). In the second case a contract was sealed for Fort Pitt to deliver steel to Torrington by a delivery date that was to be agreed upon at a later occasion. Torrington needed the steel for the reconstruction of a highway and Fort Pitt assured them that the steel would be shipped early. However, the shipping was commenced later than anticipated and amounts shipped were too low to enable Torrington to begin work until far beyond their deadline. At that point the amount increased considerably. Torrington incurred huge losses from the additional costs prompting it to take action against Fort Pitt (Corbin 2000). The law found Fort Pitt answerable to the claims and the company was fined a huge sum of money in damages for the costs incurred by Torrington. However, Fort Pitt appealed against this decision believing that increased expenses involved special damages not catered for in the agreement reached in initial negotiations. Another contentious issue according to Fort Pitt was that the agreement between the two parties implied that the work was scheduled to be completed much later in December. Hence the work could not possibly have been expedited and completed at a period other than this set time. Moreover, Fort Pitt claimed that the notice for any eventualities of special damages should have been mentioned during initial contract formulation as expected in the rules (Gillies1990). This process, however, had not been followed and Fort Pitt relied on this as the basis for its defense in the court of appeal. The argument relied on the fact that the events which occurred were not foreseeable and that the plaintiff – Torrington – should have realized that Fort Pitt did not participate in the contract with the subliminal aim of acquiring compensation. When entering into the contract, the two parties notably agreed that the delivery date would be negotiated at a later stage, after mutual agreement. This implied that the knowledge of any default at the time the contract was made was not possible – no agreed-upon time had been decided. Fort Pitt should have acknowledged their mistake since they knew initially, and from experience that Torrington would be subjected to rules governing being a mini-contractor of the government – the company would lose greatly for any breach. Torrington’s action was in good faith since they would have incurred an even bigger loss had they waited for another year (Berryman & Watts 2005). Fort Pitt should have realized this and also acted in a reciprocal manner since it was partly to blame for the huge loss experienced by Torrington. Should a dispute arise in setting a date for performance of a certain task that all parties agree should be conducted later, then all parties have knowledge of the consequences of this arrangement. Fort Pitt should have agreed to share the blame since they were required to deliver the material, irrespective of set time frames. The company ought not to have taken the advantage offered: that the time was not set earlier on during the contracting stage (Corbin 2000). Conclusion The focus remains USA Contract law with particular emphasis on the nature of contractual liability and contractual remedies. This essay’s argument has established that the court case of Taylor versus Caldwell introduced significant scope for the interpretation and inherent difficulties in interpretation of the nature of contractual liability. This case highlights controversial elements pertaining to whom should absorb losses in the event that a situation arises causing the performance of the contract to be impossible. Moreover, the objective of impossibility in this case implies that neither party could have fulfilled their obligations with regard to the contract. This is particularly true in cases where involved parties do not express their perceived risks during the time that the contract is being drawn up. Therefore the court was bound to declare that the losses incurred could not be directly apportioned to either party (Meiners & Edwards 2006). Conversely, the issue of contractual remedies has raised concern as to whether the intentions of such remedies are geared towards the compensation of the plaintiff. The assertion of this paper is that it is not accurate to argue that compensation of the plaintiff is the goal of contractual remedies. Basing arguments on several contract court cases and the Contractual Remedies Act of 1979, it is apparent that contractual remedies do incorporate matters besides compensation of the plaintiff. For instance, as mentioned, contractual remedies allow bargaining between the plaintiff and the defendant. These remedies also ensure that both the plaintiff and the defendant are materially in the same position as they would have been, should the contract have been fully implemented (Berryman & Watts 2005). Bibliography Atiyah, P, 1989, .An introduction to the law of contracts, Clarendon Press, New York. Baker, R, 2002, Gilmore and the Strange Case of the Failure of Contract to Die After All, 18 Journal of Contract Law 1, Vol. 53, No. 4, p.775. Berryman, J & Watts, P, 2005, Contractual remedies, Continuing Legal Education Press, UK. Cappelletti, M & Garth, B, 1997, International encyclopedia of comparative law, Brill Publishers, New York. Corbin, L, 2000, Cases on the law of contracts: selected from decisions of English and American courts, Harvard University Press, UK. Gillies, P, 1990, Business law, Federation Press, California. Gillies, P, 1988, Concise contract law, Federation Press, New York. Knapp, N & Prince, H, 2005, Rules Of Contract Law: 2005-2006, Aspen Publishers, New York. Meiners, R& Edwards, F, 2006, Legal Environment of Business, Cengage Learning, UK. Mulcahy, L & Tillotson, J, 2004, Contract law in perspective, RoutledgePublishers, New York. Samuel, G, 2001, Law of obligations and legal remedies, Routledge publishers, New York. Speidel, R, Ayres, I & Murphy, E, 1984, Studies in contract law, Foundation Press, California. Court cases Taylor versus Caldwell (1863) 3 B. & S. 826, 122 Eng. Rep. 309 Reliance Cooperage Corp versus Treat (1952) F.2d 977 Hydraform Products Corp versus American Steel and Aluminum Corp (1985) 127 N.H. 187, 498 A.2d 339, 345 Spang Industries Inc versus Aetna Casualty and Surety Co (1986) 787 F.2d 355 Hadley versus Baxendale (1854) 9 Exch. 341, 156 Eng. Rep. 145 Parridine versus Jane (1647) 82 Eng. Rep. 897 Contractual Remedies Act of 1979, Section 7(2) Read More