Contract Portfolio
Agreement
A contract is an agreement between two or more parties
which is enforceable by law. The agreement aspect in a contract is the most
important element that is considered while ascertaining the validity of that
contract because without an agreement there is no meeting of minds and thus no
common purpose with respect to the parties. An agreement in a contract is
constituted by two salient elements; an offer and acceptance.
Offer
An offer is an unequivocal manifestation of a party’s
intention to contract. It ought to be clear and the offeror must intend to be
bound by their words.[1]This
statement of offer may be directed to a person, a group or even the whole world
as was the case in Carlil v Carbolic
Smoke Ball Company[2] in
which an advertisement in the newspaper was held to have been directed to the
whole world. With respect to the client’s position, the advertisement for sale
of the side board cannot be taken to constitute a valid offer because it was
ambiguous and there was no mention of a precise price of the furniture.
Instead, this was an invitation to treat. While an
offer is always met by an acceptance, an invitation to treat only intends to
prompt or attract a person to make an offer. For example, the passing of a
vehicle lures one to stop it and by stopping it he makes an offer. So in
essence, it was Miss Liam Mills who offered to buy the furniture at first. This
offer was however met by a conditional acceptance in which Miss Lola named her
price which the offeror was still not comfortable with. At this point, no valid
contract existed. The fifth e-mail can be said to be another offer from Liam
intending to buy at £350, the first having been rejected. The final expression
of intent to buy at £400 was still an improved offer. Considering these facts,
no valid contract subsisted and so the client was under no obligation to sell
the furniture to Liam Mills.
Acceptance
The second element of an offer is acceptance. An
acceptance is the unconditional assent to the offer by the offeree. It also has
to reflect an intention to be bound by the terms of the offer. Another aspect
of an acceptance is that it must be made with respect to all terms in the
offer. The acceptance may be made either by conduct or directly communicated to
the offeror. What culminates in a binding contract is the fact that the
acceptance has been communicated to the offeror or that the offeror has enough
reason to believe that the offeree has accepted his offer.[3]
Failure to respond to an offer cannot constitute an
acceptance. With respect to the case at hand, most of Liam’s offers were met
with silence and therefore she cannot purport to say that any of her offers was
accepted.
Regarding the client’s intention to have her offers
accepted or replied to by post, It would not be prudent for her to use this
model. In the case of Adams v Lindsell[4],
it was held that an offer is deemed to be accepted once the offeree has posted
the acceptance letter unless if in the original offer explicitly prohibited
that mode of acceptance. This would then be prejudicial to Miss Lola because
whether the posted letter reaches her or not is immaterial. The contract is
still in force.
Consideration
The general rule is that a promise cannot be binding
if it is not accompanied by consideration. Consideration is the benefit accrued
or detriment suffered in a contractual situation. In most cases the detriment
is to the promise and the benefit accrues to the promissor.[5]
This then implies that a gratuitous promise does not amount to a valid
contract. The fundamental rules surrounding consideration as a contractual
principle are illustrated below.
The basic principle that is applicable to the
circumstances of Lola Styne is that consideration must be sufficient but need
not be adequate as was manifested in the case of Chappell & Co Ltd v Nestle Co Ltd[6]. The
import of this principle implies that consideration need not be of economical
equivalence with the goods which are the subject matter of the contract. Courts
are not generally concerned with whether adequate value was given. This is
because of the doctrine of freedom of contract and in that case the courts are reluctant
to encroach in the specific terms of the agreement. In the case of Thomas v Thomas,[7]
the court distinguished between motive and consideration and reaffirmed the
position that it cannot at any point investigate the sufficiency of
consideration.
Therefore, according to the facts presented by the
client, the amount of £200 would be enough consideration in the eyes of the
court to sustain the contract. Since there was a bargain and the two parties
mutually agreed on the price, she cannot pull out of it.
The only avenue that she may use to escape this
obligation will be to claim that the mention of the initial price was an
innocent misrepresentation and that she instead meant £2000. This is governed
by the Misrepresentations Act.[8]
This was fully canvassed in the case of Hedley
Byrne Co Ltd v Heller & Partners Ltd.[9]
Though, if her claim goes through, she may be required to pay damages to the
other party.
On the second issue, performance of an existing
contractual duty cannot be taken to be consideration that is worth the other
party making additional payments. In the case of Stilk v Myrick,[10]
the reduction of the number of seamen was not enough to entitle the voyage man
to successfully claim for more pay due to increased work. It was underscored
that performance of an existing duty is not consideration.
Intention to Create Legal Relations
Any agreement is not binding unless if it can be
established that the parties intended to enter into a relationship which is
legally binding.[11]
For ordinary commercial transactions, it is always presumed that the intention
to create a legal relationship exists. In that case, the burden of proving
otherwise lies on the person disputing that that intention ever existed.[12]
The decision rendered in Edwards v
Skyways[13]
is a clear demonstration that Coopers Ltd is obliged to prove why the order
form would not be legally binding document. Filling of the order form
constituted an acceptance to the offer by the company and in that case the
contract is still in force.
When it comes to social agreements, this is where the
problem lies because most of them always lack the intention to create a legally
binding relationship.[14]
These are mostly agreements between husband and wife or between a parent and
child. The agreement between Lola and Lilly[15]
cannot at any point be taken to create a legal relationship. In Balfour v Balfour,[16] a
wife and husband entered into an agreement that the husband who was travelling
abroad to work would be sending £30 per week while away. Upon default of the
husband the wife tried severally to enforce this agreement but she was
unsuccessful because of the intention.
Terms of a Contract
There are two types of terms of a contract. These are
the express terms and implied terms.
Express Terms of a contract.
Express terms are the ones which the parties
themselves set out in the contract. These terms may either be written or
unwritten unless the statute expressly stipulates the form they have to take.[17]
They may also be made by way of reference in the case of standard form
contracts or they may otherwise be negotiated by the contracting parties.
Courts interpret express terms objectively laying
aside what a party really meant while suggesting the term and what the other
party may have understood the term to mean. An objective standard in this case
is the standard of a reasonable term. This construction factors in a range of
circumstances including the real words used by the parties, custom and usage of
certain terms, and also the terms of the contract have to be read alongside the
existing circumstances at the time of making the contract. The parole evidence
rule is also applicable to a large extent because it does not allow for
admitting of evidence basing on extrinsic circumstances to vary the express
terms of a contract. But this rule
applies strictly to the existence of the terms in the contract and does not govern
evidence that may be tendered to challenge the validity of the contract.
Implied Terms of a contract
Terms may be implied in a contract either as intended
by the parties or by statute.
Terms
implied in fact.
These are not expressly provided for in the contract
but it is implied that the parties intended to incorporate them. The test of
ascertaining these terms is two pronged.
‘First is the officious bystander’ test which anticipates that a term
which is deemed to be so obvious may be left out by the parties. This was
evident in the case of Shirlaw v Southern
Foundries.[18]
The second test is the ‘business efficacy’ test under which there are perceived
a set of terms without which the contract would have been impracticable to
perform without invoking them.[19]
As an example contracts entered into for use of a wharf, it was only reasonable
that the ship to lie at the wharf.
Terms
implied by Statute
Whether parties wanted to include them in their
contract or not is irrelevant. These terms are binding to the parties by
operation of the law and are contained in statute. An example of this is the
application of the implied terms in the Sale of Goods Act.[20]
These include sections 12 to 15 which stipulate various conditions and
warranties that parties have to conform to in order for the contract to be
valid. These terms touch on quality of goods, sale by sample and right to quite
possession.
The nature of the contractual relationship also
determines whether the contract may be governed by certain implied terms. This
majorly points to professional relationships. That an advocate has additional
obligations in a contract imposed on him by the Advocates Act which may not
even be known to his client.
Terms
implied by custom or usage
The court may admit evidence relating to a certain
custom that governs that trade only to supplement but not to vary the already
terms agreed upon by the parties.
Restraint of Trade
Restraints used to be prima facie valid if they were
supported by adequate consideration and they were not general. But in current
practice, restraints are prima facie void and the only justification for them
would be that the y are reasonable and do not contravene public interest.
It is no longer a requirement that a restraint must
not be general. This was evidenced in the case of Nordenfelt
v Maxim Nordenfelt Guns and Amunitions[21]
in which a sale agreement of an armament business restricted the seller not to
carry out the business any more, anywhere for 25 years. The court held this
covenant to be valid even though it prohibited competition from anywhere in the
world.
Lola’s intention to restrain her employees from
working 100 miles within that area for two years is valid in law and cannot be
challenged successfully. For a restraint in trade to be valid, the following
elements must be satisfied.
Interest
The party imposing a restraint must have an interest
it is dearly protecting. Such interests include confidential trade secrets
which an employee may be privy to, probability that an employee may solicit for
the employer’s customers after they part and also goodwill of a business. In
the case of Eastham v Newcastle United
Football Club,[22]
the defendant club could not establish any interest that would warrant a player
seeking consent from both clubs before signing for another club. So in this case, Lola has a legitimate
interest she is protecting and she should go ahead to insert the claim.
Reasonableness
The restraint imposed must always have an equivalent
scope to the interest it is trying to protect. For example, a covenant
restricting working in an area can only be valid if the stipulated area is not
beyond the area of operation of the business as was addressed in the case of Mason v Provident Clothing and Supply Co.[23]
This can be contrasted with Fitch v Dewes[24]
in which a restraint on a solicitor’s clerk not to work for another law firm
during his lifetime was held to be valid. For Lola’s situation, a restraint for
2 years is clearly reasonable and equally justifiable.
Public
Interest
It is also a settled rule that a restraint must not be
prejudicial to the public as to jeopardize subsequent relationships in the
society.[25]
The burden of proving reasonableness of that term lies on the person relying on
that statement.
Duress
Duress is one of the vitiating factors of any
contract. A contract made through inducement of force or illegitimate pressure
where one party is under coercion is generally invalid. Duress may take several
forms.
Economic
Duress
Illegitimate economic pressure which leads to the
pressured party consenting to the contract also amounts to duress. This
position was adopted in the case of D &
C Builders v Rees[26]
in which a creditor’s undertaking to accept part payment as full payment was
made under duress.
From the facts provided, Gills LLP attempted to use
the financial situation of Lola to blackmail her into accepting to sell at a
reduced price. A contract made under duress is voidable and the right to
rescind such a contract is highly dependent on such factors as third party
rights, reasonability of time and impossibility of the offensive party making a
counter restitution.[27]
According to the decision entered in the case of DSDN Subsea Ltd v Petroleum Geo Services ASA,[28]
there are so many elements that would illegitimate the actions of the
partnership. First, their call to lower the price is not in good faith and
there is an ulterior motive attached to it. If Miss Lola does not have any
practical alternative to selling the item, she can go ahead to sell it, having
protested a little bit and later on rescind then rely on illegitimate pressure
successfully.
Performance
Impossibility to perform a contract may lead to
discharge of the parties under the obligation. This is called frustration of a
contract.[29]
Lola is in a difficult position because she may not be able to finish supplying
all the ten refurbished wardrobes due to the Christmas period.
However, the current situation Lola is facing right
now should not be a great worry to her. This is because partial performance of
a contract is also acceptable in law. She can sustain a claim under the
doctrine of quantum meruit for the
five wardrobes she will deliver. In the case of Sumpter v Hedges,[30] the
judge acknowledged that the plaintiff had an option of suggesting to the
defendant that they should only factor in the amount of work done and quantify
the cost for payment.
Breach
A party occasions a breach of contract if they fail to
perform their part of the obligation or performs inadequately or they are
altogether incapacitated to perform that part. But still it is acceptable that
failure to perform a contract owing to supervening circumstances which may
discharge the contract in accordance with the doctrine of frustration.[31]
A breach of a contract may either lead to repudiation
of the contract or seeking of damages by the aggrieved party. The applicability
of these two options solely depends on the terms which have been breached. In
case of breach of a condition which goes to the root of performance of the
contract, then the offended party is at liberty to repudiate or terminate the
contract altogether. On the other hand, if the breached term is a warrant
antecedent to the performance of the contract, then the only remedy available
to the aggrieved party is damages.[32]
TABLE OF CASES
v
Adams
v Lindsell (1818) 1 B & Ald 681
v
Balfour
v Balfour [1809] EWHC KB J58
v
Carlil
v Carbolic Smoke Ball Company [1893] 2 QB 256
v
Chappell
& Co Ltd v Nestle Co Ltd
v
D&C
Builders v Rees [1965] EWCA Civ 3
v
DSDN
Subsea Ltd v Petrolum Geo Services ASA [2000] BLR 530
v
Eastham
v Newcastle United Football Club [1964] Ch. 413
v
Edwards
v Skyways Ltd [1964] 1 WLR 384
v
Fitch
v Dewes [1921] AC 158
v
Mason
v Provident Clothing and Supply Co [1914] AC 245
v
Nordenfelt
v Maxim Nordenfelt Guns and Amunitions [1894] AC 595
v
Shirlaw
v Southern Foundries (1926) Ltd [1939] 2 KB 206
v
Stilk
v Myrick [1964] AC 465
v
Stover
v Manchester City Council [1974] 1 WLR 1403.
v
Sumpter
v Hedges [1898] 1 Q.B. 673
v
Thomas
v Thomas (1842) 2 Q.B. 851, 114 E.R. 330.
TABLE OF STATUTES
v Advocates Code of Conduct
v The Misrepresentations Act 1967
v The Sale of Goods Act 1979
REFERENCES
v
Austen-Baker,
R. (2011). Implied Terms in English
Contract Law. Cheltenham: Edward Elgar Pub.
v
Bar,
C., Drobnig, U., & Alpa, G. (2004). The
interaction of contract law and tort and property law in Europe: A comparative
study. München: Sellier.
v
Chen-Wishart,
M. (2012). Contract law. Oxford:
Auckland
v
Chitty,
J., & Beale, H. G. (2012). Chitty on
contracts: Vol. 1. London: Sweet & Maxwell.
v
Di
Matteo, L. A. (2013). Commercial contract
law: Transatlantic perspectives.
v
Marsh,
P. D. V. (1994). Comparative contract
law: England, France, Germany. Aldershot u.a: Gower.
v
McKendrick,
E. (2010). Contract law: Text, cases, and
materials. Oxford: Oxford University Press.
v
McKendrick,
E. (2014). Contract law: Text, cases, and
materials.
v
Meena,
R. L. (2008). Textbook on law of contract.
Delhi: Universal Law Pub. Co.
v
Stone,
R. (2003). Contract law. London:
Cavendish.
v
Whincup,
M. H. (2006). Contract law and practice:
The English system, with Scottish, Commonwealth, and Continental comparisons.
Alphen den Rijn: Kluwer Law International.
[1] Stover
v Manchester City Council [1974] 1 WLR 1403.
[2] [1893]
2 QB 256
[3] Chen-Wishart
M (2002) Contract Law
[4] (1818)
1 B & Ald 681
[5] Di
Matteo (2013) Commercial Contract Law:
Transatlantic perspectives
[6] [1960]
AC 87
[7] (1842)
2 Q.B. 851, 114 E.R. 330.
[8]
1967
[9]
[1964] AC 465
[10] [1809]
EWHC KB J58
[11]
Stone (2003) Contract Law
[12]
Edwards v Skyways Ltd [1964] 1 WLR 384
[13] [1964]
1 WLR 349
[14] McKendrick
(2014) Contract law: Text, cases, and
materials
[15]
Mother and daughter
[17]
For instance the Law of Property (Miscellaneous Provisions) Act 1989 provides
that all contracts relating to land must be in writing.
[18] (1926)
Ltd [1939] 2 KB 206, 227 per MacKinnon LJ.
[19]
Basic Principles of English Contract Law, by Advocates for International
Development.
[20]
1979
[21]
[1894] AC 595
[22]
[1964] Ch. 413
[23]
[1914] AC 245
[24]
[1921] AC 158
[25]
Chitty & Beale (2012) Chitty on
Contracts
[26]
[1965] EWCA Civ 3
[27] Meena
(2008) Textbook on law of contract
[28] [2000]
BLR 530
[29]
Austen-Baker (2011). Implied Terms in English
Contract Law
[30] [1898]
1 Q.B. 673
[31] Whincup
(2006) Contract law and practice: The
English system, with Scottish, Commonwealth, and Continental comparisons
[32] Marsh
(1994). Comparative contract law:
England, France, Germany.
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