law of contract
24 January, 2019 in default category name

This paper presents an analysis and discussion regarding various aspects of the law of contract. This discussion is done with particular reference to a case involving a lender and borrower. In the case, the lender is referred as Sue while the borrower is Peter. Sue is said to lend Peter an amount of 25,000 on the 2nd of April 2012. The amount was to be repaid not later than 1st July 2012 with 12% interest. The contents of the case imply that the provisions of the law of contract would guide their relationship. The rights and obligations of each party would have to follow the guidelines of the law formulated on such relationships (Willmott, Butler & Dixon 2009). Required is professional legal advice concerning the scenarios as presented. The replies to the instances are given below.

On 2nd June, Sue accepted the sum of 20,000 from Peter in settlement of the debt. However, on 1st July, she decided to claim from Peter the outstanding balance of the debt plus interest. The legal matters raised in the above case can be answered with due reference to the provisions of the law of contract. A contract is defined as a legally binding agreement between two or more competent parties regarding doing or refraining from doing something for certain consideration (Scott 2009). The principle behind the formulation of the law of contract is that ‘pacts must be kept’. This simply means that promises must be fulfilled (Salmond 2007). Agreements that have a commercial nature or monetary value are of particular concern.

In the above case, Sue who had lent 25,000 to Peter on 2nd of April accepts a lower amount of 20,000 on 2nd June the same year as being the final settlement of the debt. This agreement is legally binding. Their prior agreement contained a condition that the settlement of the debt plus accrued interest was to be done not later than 1st of July the same year. There is no breach to that effect. The new agreement that came into force on 2nd of June reflects that Sue accepted an amount lower than the initial sum advanced. This represents another binding agreement that overrides the prior one. No party can be allowed by the law to renege on an agreement (McKendrick 2005). In this regard, Sue would be estopped from claiming any balance from Peter. This is covered under promissory estoppel. It would be unlawful for Sue to raise any claim from Peter since she had agreed the sum of 20,000 as being the final settlement of the debt owed.

On 1st July, the same year, Peter repays Sue a sum of 25,000, but without the agreed interest on the loan. Sue wishes to sue for recovery of the interest. The clause relating to the provision of the interest was material during the negotiations which influenced the advancement of the loan. Interest on money borrowed is an allowance for compensation to a lender (Bronaugh 2006). The concept of Time Value of Money is critical as advanced by studies of accounts and economics. By including the interest rate as a term in the contract, the parties agreed to observe the provision. Since Peter has failed to honour the term to repay the sum with interest, there is no doubt he has violated an agreement he is a party. That constitutes breach of a term contained in an enforceable agreement. Sue is within her rights to commence proceedings and recover the interest from Peter. Breach of a term as contained in the law allows the other party to sue for damages or other appropriate remedies as provided (Forman, 2011). Sue is legally right to sue for the interest accrued.

On the 1st of July, the same year, Peter gives Sue a cheque for 18,000 telling her that he is in a severe financial difficulty claiming that if she did not accept the payment, she would receive nothing. Sue reluctantly accepts and banks the cheque. A week later, Sue discovers that Peter has won a large sum in a lottery. She wishes to sue for the outstanding amount. One principle in the Maxims of Equity observes that Equity cannot allow a party to benefit from a wrong or its own inadequacies. In forming a contract, the parties are called upon to deliberate and commit themselves while under their free consents or minds. This means that the decisions made are to be freely made without any coercion, threats or any undue influence. No party is to put another one under conditions that are not comfortable for them to decide freely (Morrison 2006).

In the above foregoing case, Peter has put Sue under duress. The condition or assertion that she rejects the cheque amounting to 18,000 implying that she stands to lose everything is an unfair. There is no doubt such puts Sue in a state where she contemplates losing all her money. The consequent decision made by Sue of accepting the cheque does not entail a formation of a legally binding agreement. Her consent was never free at the instance of making the commitment. Peter cannot be allowed to benefit from a wrong of threatening Sue in order for her to accept a lower amount as a final and complete settlement of a debt. Sue is legally right to institute proceedings to recover the balance from Peter. This is not dependant on whether Peter has won in a lottery or not. Undue influence induced by one party serves to render a contract voidable (Douglas 2002).

On the 1st of July, Peter informs Sue that he has lost all the monies on the Stock Market and that he is unable to repay her. Initially feeling sorry for Peter, Sue tells him that she will write off the loan. Several days later, Sue changes her mind and now wishes to claim all monies due to her. For the formation of a valid contract, another important condition is the free consent of the parties as discussed above. In this case, Sue was not under any coercion whatsoever. The commitment or promise she made to write off the debt is understood to be legally binding before the law.

Sue can only claim to renege or repudiate the promise if she realizes or learns that Peter had misrepresented facts regarding the monies or she was unduly induced to make the promise as observed by Bronaugh (2006). None of these has been shown to account for the decision taken by Sue to write off the debt. Legally, Sue would be estopped from reneging on the promise she made to Peter. As far as the law is concerned, the debt is written off. Her attempts to commence proceedings to regain the money would be futile and a waste of resources. Her claim can only succeed if she proves that her consent was not free at the time of making the decision, or Peter had misrepresented facts in order to induce her into making the decision. Sue should not take the path she is contemplating since she would lose in the case.

Sue accepts Peter’s grand piano, believing it to be worth 25,000, though Peter understands it to be worth 16,000. Peter is said to withhold this information from Sue. Upon Sue discovered these facts shortly afterwards and, she wishes to sue for recovery of the outstanding balance plus interest. Disclosure of all the material facts concerning commitment prior to entering into an agreement is another prerequisite towards the formation of a contract (Barnett 2003). Peter believes the worth of the piano to be less than the amount he is supposed to settle, but fails to notify Sue of the facts. This represents misrepresentation of material facts that are important in forming a contract. Any agreements made under such conditions are voidable at the option of the innocent party.

Sue is right to repudiate the contract and sue for the difference plus the interest accrued. This is because she was tricked into accepting the piano, which was not worthy the amount she had lent to Peter. On realizing that, she has the right to sue for recovery of the amount she is intending to recover. In addition to recovery of the amount, she can also report Peter to the relevant authorities who would in turn take action against Peter for fraud. His intentions were in bad faith. Peter should be compelled to repay the difference with interest. He should also be prosecuted for the intention of defrauding another person, which is a criminal offense. A conspiracy to defraud another is a crime (Friedman 2005). Sue should go ahead and institute proceedings to recover what in equity is due to her from Peter.


The above case presents instances where the provisions of the law of contract are invoked. The aim of the provisions of the statute is to protect persons from unfair practices of fraud and dishonesty. It also seeks to uphold the notion or principle that promises are to be met. There are various conditions necessary for courts to determine whether there came into being a contract or not. The absence of any of those means that no contract or legally binding agreement was ever made. No responsibilities can be passed in a case where no contract is in place (Michida 2002). Parties are called upon to acquaint themselves with the provisions of the law of contract. Such would help them understand the various associated aspects of the law. Ignorance of the law is no defence (Atiyah 2009). Since knowledge is power, everyone would be informed on their rights and obligations. This would ensure justice and harmony prevail in the society and the business world.

Reference List

Atiyah, S 2009, The Rise and Fall of Freedom of Contract, Clarendon Press, Oxford

Barnett, E 2003, Contracts, Aspen Publishers.

Bronaugh, R 2006, ‘Agreement, Mistake, and Objectivity in the Bargain Theory of Conflict’, William & Mary Law Review.

Douglas, D 2002, ‘Contract Rights and Civil Rights’, Michigan Law Review.

Forman, C 2011, Witches, Wife Beaters, and Whores: Common Law and Common Folk in Early America, Cornell University Press, Ithaca, NY.

Friedman, L 2005, A History of American Law, 3rd ed., Simon and Schuster, New York.

McKendrick, E 2005, Contract Law - Text, Cases and Materials, Oxford University Press.

Michida, S 2002, ‘Contract Societies: Japan and the United States Contrasted’, Pacific Rim Law & Policy Journal.

Morrison, B 2006, Fundamentals of American Law. Oxford University Press, Oxford.

Salmond, J 2007, Jurisprudence: The Theory of the Law, Stevens and Haynes, London.

Scott, F 2009, ‘Reciprocal Altruism as the Basis for Contract’, 47 University of Louisville Law Review, 489

Willmott, L, Butler, D & Dixon, B 2009, Contract Law, 3d ed., Oxford University Press, North Melbourne.

24 January, 2019 in default category name
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