Introduction

• Pages: 1-6

NATURE AND FUNCTIONS OF CONTRACT LAW

The law of contract may be defi ned as that branch of the law which determines the

circumstances in which a promise will be legally binding on the person making the

promise (the ‘promisor’) and enforceable in a court of law by the person to whom

the promise was made (the ‘promisee’). A well- accepted defi nition is that contained in

section 1 of the American Law Institute’s Second Restatement of the Law of Contracts:

‘A contract is a promise or a set of promises for the breach of which the law gives a

remedy, or the performance of which the law in some way recognizes as a duty.’

The rationale for the enforceability of contracts is essentially the promotion of

trade and commerce, which would be seriously hampered if contracting parties

could not be held to their bargains. Accordingly, a party which enters into a valid

contract can be assured that it will be able to recover compensation from the other

party in the event of the latter’s repudiation of the agreement or failure to perform

its obligations, and the ‘measure’ (i.e. the amount) of damages recoverable in contract

law is intended to compensate the innocent party not only for any material or fi nan-

cial damage sustained on account of the other party’s breach, but also for any loss of

profi ts or other benefi ts which it would have received if the contract had been

performed by that other party.

Enforceable contracts appear in a great variety of forms, ranging from, on the

one hand, ‘everyday’ contracts entered into by consumers, such as those for the sale

of goods in a supermarket, or for transportation of a passenger in a bus, train or

plane, or for professional services to be rendered by a dentist, plumber or hairdresser

to, on the other, complex commercial agreements such as large- scale building and

civil engineering contracts affecting several corporate parties, any breach of which

could infl ict serious fi nancial damage on one or more of the parties. An example of

such complex relationships in the Caribbean might occur in the context of the

construction of a resort complex involving the following parties and transactions:

(a) A property developer purchases a site for building, with money obtained by way

of a loan on mortgage from a bank.

(b) The developer appoints an architect to design the buildings, a landscape artist to

design the gardens, a quantity surveyor to draw up bills of quantities, and an

attorney to do the conveyancing work.

(c) Tenders are invited for the building work, and the contractor whose tender is

accepted is appointed as ‘main contractor’ under the contract between him/it

and the developer.

(d) The main contractor subcontracts various parts of the building work to specialist

subcontractors, thereby creating contractual relations between the main

contractor and the subcontractors.

In such a scenario, each of the parties will depend on the others to carry out their

contractual obligations and, in the event of a breach by a promisor, the innocent

promisee under the particular contract will have a right of action for breach of

contract against the defaulting promisor. Thus, for example, an architect who

CHAPTER 1

INTRODUCTION