PART II THE PLACE OF CONTRACT WITHIN PRIVATE LAW I THE LAW OF OBLIGATIONS A Dctrinal Intersectin Private law deals with legal duties wed by individuals t ne anther. The law f cntract exists alngside dctrines f: trt; impses duties t avid certain kinds f cnduct liability Is fault based restitutin; equity; and statute Cntract bligatins are self-impsed (vluntarily assumed), whereas bligatins in trt, restitutin, equity, and statute are externally impsed. 1 Cntract and trt Cntractual liability ften exists alngside bligatins in trt. Fr example: a breach f cntract may invlve the cmmissin f a trt a false statement incrprated int a cntract may attract liability in bth cntract (fr breach f cntract) and trt (fr negligent misstatement) There are tw situatins where an actin in trt will succeed but an actin in cntract will nt: if the plaintiff is nt a party t the cntract, the dctrine f privity f cntract prevents them frm enfrcing its bligatins hwever, in trt, bligatins are wed generally t all parties, regardless f whether r nt they are signatries t the cntract where the assessment f damages is zer cntract law cmpensates expectatin lss ; it places the party in the psitin they wuld have ccupied had the cntract nt been breached cnsequently, if the party wuld nt have been in any different a psitin had the cntract nt been breached, there is n recvery trt aims t restre the party t the psitin they were in prir t the cmmissin f the trt cnsequently, thugh the wrnged party may nt suffer expectatin lss, they may have been in a better psitin prir t the defendant s trt Exam nte: mentin if a trt actin culd als apply, and nt any differences in damages. 2 Cntract and restitutin Restitutin is cncerned with the impsitin f bligatins t restre unjust gains. It was riginally based n the legal factin f an implied prmise, and was knwn as a quasicntract (since it was based n the implied agreement t restre unjust gains). Jaani Rirdan 2004 Page 1 f 5 http://www.jaani.net/
Dctrines f restitutin were emplyed where the cntract was unenfrceable fr whatever reasn, but justice demanded the plaintiff receive a remedy. Tday, the bligatin is impsed simply t prevent unjust enrichment in certain defined circumstances (Pavey & Matthews Pty Ltd v Paul). Exam nte: mentin if restitutin culd apply. Pavey & Matthews v Paul: Facts Pavey agreed t perfrm building wrk fr Paul Paul agreed t pay Pavey reasnable remuneratin fr the wrk The agreement was nt reduced t writing Upn cmpletin, Pavey claimed t be entitled t $63 000 Paul nly paid Pavey $36 000 Pavey sued fr the remaining $23 000 Issue The cntract was unenfrceable by s 45 f the Builders Licensing Act 1971 (NSW), which expressly frbade unwritten building cntracts Hwever, the meaning f the Act was in disagreement: majrity: the Act prtects building wners frm spurius claims fr payment by builders Brennan J (dissenting): the Act ensures building cntracts were reduced t writing Reasning D principles f restitutin subvert the intentin f the statute? majrity: n, since different dctrines (restitutin vs cntract) Brennan J (dissenting): yes, since remedy cntradicts aim f Act Did the unenfrceable cntract have any relevance? it was f evidentiary value, shwing that the benefits (imprvements) were nt intended by Pavey as a gift t Paul shwed the amunt Paul had paid, and that there was an intentin t pay fr perceived value hwever, there is n autmatic entitlement t the amunt prvided fr under the cntract; under restitutin, the curt undertakes a valuatin independent frm the cntract s terms Deane J: n reasn why the builder shuld be denied ther remedies; the legislatin nly denied a remedy in cntract, but did nt like ther, similar statutes explicitly negative all pssible actins the curt still has the discretin t deny spurius claims the decisin wuld nly subvert the legislatin if the amunt f mney claimed in the cntract were awarded as damages the law shuld nt negative the express intentin f parliament instead, the amunt awarded shuld be n mre than what is fair and reasnable in the circumstances (at 262); this des nt cntradict the statute Decisin Majrity: builder s claim successful as it was based n unjust enrichment (restitutin), nt (implied) cntract, s the statute des nt nullify the actin Minrity: builder s claim unsuccessful because the unenfrceable cntract was the sle surce f the parties bligatins Jaani Rirdan 2004 Page 2 f 5 http://www.jaani.net/
restitutin cannt step in t prvide the same remedy as cntract wuld have, if successfully pleaded if it were allwed t d s in every case, there wuld be n need fr cntract law at all 3 Equitable bligatins Several equitable bligatins are als relevant t cntract: equitable estppel (creates rights where the prmise des nt amunt t a cntractual bligatin) fiduciary bligatins (bligatins t act in the interests f thse wh place trust in the acting party; eg, a lawyer) cnfidential infrmatin (creates a duty t nt disclse sensitive infrmatin; ften embdied in a nn-disclsure clause) Exam nte: mentin fiduciary bligatins if applicable, as well as cnfidential infrmatin if there is a disclsure clause. 4 Statutry bligatins Statutry bligatins are impsed, where applicable, irrespective f the intentin f the parties. Fr example: Trade Practices Act 1976 (Cth) s 52 misleading and deceptive cnduct (Pt V) this is a very cmmn cause f actin implied warranties (Pt V) uncnscinable cnduct (Pt IVA) The assumptin in these cmpulsry bligatins is that ti is mre imprtant t prvide a base level f prtectin that t recgnise the will f the strnger party. Hwever, in sme circumstances there is a limited ability t expressly agree t exclude these prtective prvisins. Fr example: Legislative schemes designed t grapple with new mediums via which a cntract may be accepted (eg, electrnic) can be verridden by intentin B Cntract Thery Atiyah (1978) The paradigm f mdern cntract thery is prmissry in nature; a cntract reflects agreement between the parties. Atiyah challenges the prmissry ratinalism f cntract law. 1 Classical mdel f cntract law The fundamental purpse f cntract law, accrding t the classical mdel, is t give effect t the parties intentins. There is an essential distinctin between cntract, trt, and restitutin, accrding t the classical mdel: cntract law: parties accept bligatins trt and restitutin: bligatins impsed upn parties Jaani Rirdan 2004 Page 3 f 5 http://www.jaani.net/
Atiyah argues that restitutin can prvide a mre cherent apprach generally. In certain situatins, the validity f traditinal understandings f cntractual bligatin must be questined. Assumptins f the classical mdel: cntract law is abut what parties intend, nt what they d tday, intentin is bjective; intent is inferred frm cnduct a cntract is a thing alleviates the need t cnsider fairness r justice; the cntract is the entity the rle f the curt is t encurage parties t adhere t prmises by enfrcing them there is nly ne mdel f cntract the unificatin f cntract thery enhances its idelgical effect Exam nte: identify differences in judicial appraches and tie these appraches t their theretical underpinnings. Evaluate the law and the validity f each apprach, where relevant. 2 Criticism f the classical mdel An executry cntract impses a present bligatin t perfrm a future act. Atiyah suggests that it is wrng t fcus slely n the executry cntract, because it is artificial in many cntexts (eg, bus passenger purchasing fair and being driven t destinatin). The classical thery is simply nt realistic. Specifically, it des nt: Fit many cmmn types f cntract Give sufficient recgnitin t the nature f the benefits cnferred Give sufficient recgnitin t reliance Atiyah s criticisms are perhaps less relevant tday than when written (1978), due in part t the develpment f the dctrines f estppel and equity t fill gaps in cntracts and place greater emphasis n reliance and benefits cnferred, respectively. There is still a rle fr a bdy f law that enfrces executry cntracts; thugh less prevalent, they are nnetheless imprtant. Many large, cmmercial cntracts, fr example, are executry in nature. Nte Pavey: incmpatible with Atiyah s criticism f cntract thery, since it clearly blurs the distinctin between cntract and unjust enrichment. It lks nt just at prmissry intentin, but als at fairness. In this way, cntract principles are mving beynd the classical mdel and becming mre like restitutinary nes. C Remedies in Cntract The award f damages fr breach f cntract aims t place the injured party in the psitin he r she wuld have ccupied if the cntract had been perfrmed. Awarding expectatin damages is justifiable fr several reasns: It allws P t derive the benefit f the cntract rather than allwing the breaching party t rescind In this way, future rights are prtected, nt just past rights If breaching parties were nt liable fr what they were expected t perfrm, it allws an easy way ut f a cntract where the breaching party is yet t perfrm their part and wuld be disadvantaged by ding s Jaani Rirdan 2004 Page 4 f 5 http://www.jaani.net/
Fr example, if an insurer upn being frced t pay ut a large claim is able t breach the cntract and nly be liable fr the claimant s lsses t date, then they may nly have t refund their premium payments, which culd be significantly less than the claim payut In shrt, it wuld render ineffective many cntracts, and reduce the certainty with which all transactins were perfrmed Gates v Mutual Life Assurance: Facts Mr Gates entered int an insurance cntract with Mutual Life Mr Gates alleged that the agent wh sld him the plicy tld him that he wuld be entitled t cmpensatin if he were unable t attend his ccupatin fr 90 days In fact, the plicy nly cvered him if he were unable t attend any gainful emplyment Mr Gates sustained an injury, rendering him unable t attend his ccupatin as a builder Hwever, as his injury did nt prevent him frm attending a different jb, Mutual Life refused t pay the benefit Issue What shuld the measure f damages be? Reasning Gates argued that a secnd cntract arse frm the statement made by the agent In trt (negligence being the cause f actin), the plaintiff s damages wuld be based n the defendant s negligence ie, a refund f the mney he paid fr the premium and any additinal expectatins r pprtunities that were frustrated when he entered int the cntract with the defendant Thus, Mr Gates reasned that, had the agent nt made the statement, he wuld nt have entered int the cntract and instead entered int anther ne with anther insurer that did cnfer the benefit he expected Inter alia, his lss (in thery) wuld be the csts assciated with his premium payments and the payut he wuld have received frm the alternate insurer HCA: as a finding f fact, Mr Gates wuld nt have entered int anther cntract, bth because n premium existed at the time that culd satisfy the agent s representatin, and because Mr Gates had made n indicatins that he was actively seeking ut insurance Nte, hwever, that cmpensatin fr expectatin lss wuld have been available if the plaintiff culd have established that but fr the trt f the defendant anther insurer wuld have paid ut his claim Because the statement f the agent did nt frm part f the main cntract (the premium) r an ancillary cntract (the statement), there was n breach f cntract Decisin Mt Gates was unable t btain damages fr breach f cntract, because he was unable t establish that the agent s statement frmed either part f the cntract r a cllateral (secndary) cntract Thugh this decisin may appear unfair, it is imprtant t nte the effect f the findings f fact made by the High Curt f Australia. Namely, that Mr Gates was unlikely t have pursued a different surce f insurance even if he had nt been misinfrmed by the agent. Essentially, the plaintiff is (rightfully) being given n refund fr his plicy since the benefit derived frm the plicy (namely, insurance) was still cnferred t him. This benefit is simply nt what he expected. If the circumstances were apprpriate (detriment may be difficult t establish n the facts), he may be able t pursue a claim in equity r estppel. Jaani Rirdan 2004 Page 5 f 5 http://www.jaani.net/