Discuss about the case study for Torts and Contract.
Based on the facts, the following issues needs to be addressed:
1. Whether, the contract between Adam and Jessa is valid and enforceable.
2. Whether, Jessa is liable of making the payment to Adam the value of $10,000.
The factor whether the contract that exists between the two is valid or enforceable depends on upon the discussion of the elements that are to be present in a valid contract that can be enforced in the court of law. There are several elements of a valid contract. Those elements are an offer, acceptance, consideration, legal age and intention. In the case of Jessa and Adam, there was existence of offer, acceptance, consideration, legal age and intention. A contract can be defined as a promise or a set of promises, which is enforceable by law. However, due to the presence of certain factors, the contract may become undermine and the execution of the contract may be hampered. These factors are known as vitiating factors such as misrepresentation, mistake, duress and illegality.
In the present case, Adam was aware that there is likelihood that Hannah may file a case against him for infringing rules related to council regulations. This worried Adam and he decided to sell the house to Jessa. Jessa was completely unaware of the differences that had taken place between Adam and Hannah and neither did he inform her about it. However, Jessa on a later date did not purchase that house, but Adam should have informed Jessa of the actions that may cause infringement of Council regulations. For this, Adam may be held liable for misrepresentation as he induced Jessa in forming contract of sale with her without showing to her the disadvantages related to this contract. Additionally, Adam can also be held liable for unconscionable contract, as Adam included a term in the contract, which can be regarded by law as unjust and unreasonable, that is if Jessa would not be able to secure a satisfactory finance she will have to pay Adam a compensation of 10,000 dollars. Such terms are regarded as unconscionable term in the eyes of law. A similar dealing was seen in the case of ASIC V. Lux , the Court held that the terms of the contract of sale with the buyer were unconscionable in nature as it was unlawful and unjust. In the same way, the imposition of 10,000 dollars can be considered by the Court as unconscionable, as Adam would not suffer any direct loss from the breach of contract. Hence, Jessa cannot be held liable for payment of 10,000 dollars to Adam, as there was no valid contract between Adam and Jessa due to the presence of vitiating factors in the contract.
Rescission means demonstrated avoidance of a voidable contract. The rights and obligations of parties to the contract remain in force, until the innocent party chooses to rescind the contract. The moment rescission comes into force; the existing contract becomes invalid and non-enforceable. A misrepresentation that is made negligently or fraudulently that leads to change of position of the representee by relying on the statement of the representator is known as actionable misrepresentation. Hence, contract rescission means cancellation or termination of contract. The purpose of rescinding a contract is to restore the parties to their original status before the contract was made. Rescission is used as a remedy in cases where there were issues with the formation of contract.
For cancellation of contract, the Judge must determine that there are sufficient reasons for cancellation of contract. A contract cannot be cancelled only because the parties to the contract changed their mind, there should be sufficient grounds for a contract to be rescinded. in the following circumstances, a contract may be rescinded:
In the case of Adam and Jessie, there were issues with their contract since the incorporation of contract. The contract that existed between Adam and Jessa had vitiating factors in it making the contract unenforceable and illegal. In the case of Museprime Properties v. Adhill Properties, it was held that any misrepresentation that induces a person to enter into a contract should be a ground for rescission of contract. If the misrepresentation induced a person to enter into a contract, depending on the representation made by the representator, the representee may rescind the contract. Hence, Jessa can rightfully rescind the contract as her contract was not valid due to the presence of misrepresentation in it.
The law relating to contractual penalties is a development of common law in England without the intervention of statutes. Penalties in English law are contractual terms that are not enforceable in the Court of law because of their penal character. It has been a matter of the English rule that if a contract contains penalty, then the parties to the contract shall disregard that provision and consider it as unenforceable. However, with the development of the common law the meaning of what shall be regarded as penalty has changed with time. However, apart from the common law rules that relates to onerous provisions, the Unfair Contract Terms also contains provisions relating to extravagant clauses.
In the case of Parking Eye v. Beavis, the Court held that an unfair term of the contract could not be enforced by any of the parties to the case. In this case, the defendant was held liable for payment of 85 pounds since he overstayed the two hour parking limit in a car park at a retail outlet. The claimant filed a suit against the defendant for obtaining the sum from him as it caused indirect loss to the claimant. The Court, initially, agreed with the claim of the plaintiff and ordered the defendant to pay the sum of compensation; however, the defendant in response to this stated that the claim made for compensation actually exceeded the loss for which he was held liable[10]. The claimant requested the Court to consider the principles of extravagance and unconscionability, and that their charges did not comprise of these. Though the claimant did not suffer any direct loss, however, if the claimant did not regulate the use of the car park, he would be at the risk of losing its contract with the landowner. Hence, the Court held the terms of the contract as valid, fair and not extravagant and hence ordered the defendant to pay the compensation.
Likewise, in the case of Adam and Jessa, Jessa receives a notice from a local council that informs her that the council is ordering immediate cessation of the activities at Brownstone. Jessa suffers losses because of this. Particularly, she faces loss of contract to make an entire set of lounge for 150,000 dollars, loses existing clients of 10,000 dollars, and incurs medical expenses of around $3,000. Hence, Jessa may file a case against Adam for compensation for the losses she has suffered. In this case, the Court will have to review extravagant and exorbitant clauses and will assess if the compensation claimed by Jessa is in excess of the losses she has suffered. If the answer to this question is no, then the Court may pass on order to Adam for payment of the compensation along with the penalties for misrepresenting facts of the case.
In the case of AMEV – UDC Finance Ltd v. Austin, Justice Mason and Justice Wilson held that since the establishment of the judicial system, a penalty provision is regarded as unenforceable. The reason behind this was that since a clause that contains penalty is used as a defense to the claim of contract, one might declare it as unenforceable and void. In the case of Mardessi, the Supreme Court laid emphasis on the word unenforceable rather than making the contract void.
References:
Bant, Elise, and Michael Bryan. “Fact, Future and Fiction: Risk and Reasonable Reliance in Estoppel.” Oxford Journal of Legal Studies 35.3 (2015): 427-452.
Brereton, Paul. “Binding or bound to fail?: Equitable remedies and rectification of financial agreements.” Australian Family Lawyer 23.2 (2013): 31.
Fu, Junwei. “Freedom of Contract in the EU and China.” J. Int’t Com. L. & Tech. 8 (2013): 274.
Hoffer, Peter Charles. “Principled Discretion: Concealment, Conscience, and Chancellors.” Yale Journal of Law & the Humanities 3.1 (2013): 4.
Hunter Jr, Richard J. “Statutory Override of an as Is Sale: A Historical Appraisal and Analysis of the UCC, Magnuson-Moss, and State Lemon Laws, A.” U. Mass. L. Rev. 11 (2016): 44.
Jiang, Hao. “The Fictitious Freedom to Contract Around Fraud under Delaware Law. pdf.” (2016).
Rodrigo, Thanuja. “Toward Fairness in the Guarantee Market: The Rationale for Expanding Interventions from Fraud to Unconscionability in the Enforcement of Demand Guarantees.” Int’l Trade & Bus. L. Rev. 16 (2013): 225.
Rycroft, Alan. “Settlement and the law.” S. African LJ 130 (2013): 187.
Stoop, Philip N. “The Consumer Protection Act 68 of 2008 and procedural fairness in consumer contracts.” PER: Potchefstroomse Elektroniese Regsblad 18.4 (2015): 1092-1124.
Thanasegaran, Haemala. “Utmost Good Faith and Takaful in Malaysia.”Good Faith in Insurance and Takaful Contracts in Malaysia. Springer Singapore, 2016. 145-165.
Travalio, Gregory M., and Mark Troutman. Anderson’s Ohio Consumer Law Manual. LexisNexis, 2012.
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