The Formation of a Contract - Case Study Example

Case The key elements for the formation of a contract include the offer1, followed by acceptance2, and then consideration. When all 3 elements arepresent the court will generally hold that a valid contract has been created. Difficulties can arise if the actions of the parties appear to suggest that they are still in negotiation. This can occur when a counter offer has been made by one of the parties. Traditionally the courts will only view the contract as valid when the parties have agreed on the price. From the above it can be noted that a contract is a promise made by one party to the agreement, to the other party, to perform a particular activity in return for the consideration promised. Failure by one of the parties to abide by this agreement will result in a breach of the contract, and the aggrieved party will be entitled to sue for that breach. In order for the parties to be able to enter into a contract, both parties must have the capacity to enter into the contract and the contract has to be able to be performed. If the courts later find that one of the parties lacked the capacity to enter into the contract then the contract might be regarded as void or voidable. In order for Katie to safeguard her interests she can include express terms into the contract. Express terms can be either oral or in writing and are statements that are made by one of the parties with the intention that these terms be incorporated into the contract. Implied terms are terms which are deemed to be necessary in order to bring the contract into line with the presumed intention of the parties3. Implied terms are often used in order to make an incomplete agreement complete. An agreement to complete a project by a specific date would be regarded as an express term of the contract. Failure of the party to complete the work by the agreed date would amount to a breach of the contract, entitling the aggrieved party to be able to claim for any losses incurred as a result of that breach. Terms can be implied by the courts in cases were there has been regular contracts between the parties. In such cases the courts might determine the existence of a term through trade or custom4. The courts might also apply this principle of the work is being completed in stages. In such circumstances, the continued trade between the parties would allow the court to imply terms into the contract. She could also create a unilateral contract rather than a bilateral contract. With a bilateral contract both parties make specific promises to each other. A unilateral contract would allow Katie to avoid making payment to the builder unless the builder expressly complied with her requirements. Unilateral contracts are common when one of the parties is offering a reward for the finding of a specific item. The person offering the reward would only have to make the payment if the other party found and returned the lost item. Katie could also safeguard her interests by the inclusion of conditions or warranties into the agreement. In Poussars v Spiers (1876)5 the court concluded that the obligation to perform was a condition of the contract and as Poussard was unable to perform the respondent was entitled to repudiate the contract. In Bettini v Gye (1876)6 the court held that a breach of warranty had occurred when the plaintiff failed to arrive for rehearsals as promised. The respondent was not entitled to repudiate the contract but was entitled to compensation for the breach of the warranty given by the plaintiff in which he agreed to arrive in London 6 days before the concert for the rehearsals. It is often easier for the courts to determine the intention of the parties if the terms of the contract are in written form7. Oral agreements can be difficult to enforce, as the party relying on the oral agreement has to prove that such an agreement was in fact made8. It might also be advisable for Katie to hire an architect or surveyor before undertaking the work, as they would be able to advise on the necessary work required. Case 2 In contract law an offer is deemed to have been made when that offer has been communicated to the other party. This means that if the offeror offers to sell an item either verbally or in writing, the person receiving the offer is entitled to accept the offer and enter into a contract with the offeror. Until the offer has been accepted and consideration has been paid the contract will not be regarded as binding on the parties. If an offer is communicated in writing, and includes a deadline by which acceptance must be communicated, the offer remains valid until the deadline date has expired. The courts have recognised the difficulties in ascertaining the validity of an acceptance of an offer in relation to the communication of that acceptance. This was first recognised in Adams v Lindsell9 in which the court was asked to decided when a contract is deemed to have been formed if acceptance is communicated by post. This case posed difficulties due to postal delays and the parties not being simultaneously aware of the communications. In Adams the court stated “Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted10”. It is now traditionally accepted that acceptance should be regarded as valid from the date on which the acceptance was posted11. The courts, generally, will uphold the postal rule and deem the contract to be valid from that date, even if the offeror does not receive the communication until some time later. If the communication of the acceptance has been by email or fax the court generally regard such communication in the same way they would regard communication by telephone. It is the generally held view that although the parties are not in close proximity to each other electronic communications are ‘substantially instantaneous as a two-way communication.’ Under Article 15 of the United Nations Convention on the International Sales of Goods (UNICTRAL) an electronic record is deemed to be sent when it is properly addressed or directed to a recipient and when it us out of the control of the sender. Therefore, the date of sending will be the effective date for the acceptance of the offer. The courts have also deemed communication of acceptance to be valid in cases where a message has been left on an answer phone, even if the message has not been received by the offeror due to some kind of failure with the equipment. This, in essence, means that the revocation of the offer through the message left on the answer phone would be valid, even if the offeror does not actually receive the message. In law a consumer has the right to cancel under the Distance Selling Regulations 2000 if the contract was made away from the business premises of the seller12. In such cases the potential buyer is entitled to a cooling off period in which they can retract their offer to buy. In the case above this would mean that Eric should be able to withdraw from the contract without incurring any penalty13. The validity of the contract will be determined by the court through examining the conduct and the communications of the parties. In this particular instance, it is likely that the court will consider the answer phone message to be a rejection of the offer, which would mean that Eric would not be bound by his original acceptance of the offer14. Case 3 In order to advise on liability in this case, it is necessary to determine whether the guarantee included in the transaction amounts to a warranty. It is also necessary to consider whether there has been any breach of the Sale of Goods Act 1979, in relation to the condition of the vehicle. It is also necessary to consider whether the attempt to exclude liability can be deemed to be unfair as defined by the Unfair Contract Terms Act 1977. The guarantee issued by the garage is likely to be regarded by the courts as a warranty as it stipulates that the garage will put right any defects found with the car within the first 5,000 miles of use, or within the first 6 months following the purchase. However, the guarantee does state that this only applies to defects that were not apparent upon inspection. The garage might be able to aver that the problems with the car would have been apparent upon inspection, in order to try to avoid liability. A claim could be brought under s14 of the Sale of Goods Act 1979, as it could be argued that the goods are not of a satisfactory quality and fit for a particular purpose15. The fact that the engine seized up after 3,500 miles could allow the court to determine that the car was not of an acceptable quality. In such cases where the goods are not of a satisfactory quality the buyer has the right to reject the goods and receive a refund16. The doctor might experience difficulty in rescinding the contract, as the courts do not allow buyers who are buying items as a business customer, rather than an ordinary customer, to rescind the contract17. If the doctor had not been buying the vehicle primarily for business use then he would have been able to rescind relying on the ‘quality and fit for a purpose’ element of the Sale of Goods Act 197918. The doctor might also experience difficulty in rejecting the car as he has had the car for 4 months before it broke down. In Bernstein v Pamson Motors (Golders Green) Ltd19 the plaintiff had had the car for 3 weeks before it broke down. When the plaintiff took the car to the garage and told them that he was rejecting the vehicle because it was not in merchantable condition. The court refused to allow rescission on the grounds that the plaintiff had had sufficient time in which to discover the fault, and therefore was only awarded damages limited to the amount it had cost him to get home. In relation to the disclosed mileage of the car, the doctor might be able to purse an action under the Trade Description Act 196820, as the garage stated that the mileage of the car was low, when in fact it was over 100,000 miles. Under section 1 of that Act it is an offence to apply a false trade description to any goods offered for sale. It could be argued that describing the mileage as low was a breach of the 1968 Act, which could be used by the court to award compensation for the false description. In R v Bore21 the defendant was found guilty of selling autographed photographs of celebrities where the signature on them where found to be fake. The doctor might be able to rely on cases such as these to show that the car was not as described. With regard to the exclusion clause it is important to note that under s5 and s6 of the Unfair Contract Terms Act 1977 a seller is unable to exclude liability for the goods they sell. The UCTA 1977 is primarily applied in business liability. Where goods are proven to be defective a buyer has the right to reject the items regardless of any exclusion clause. This was deemed to be the case in Scheps v Fine Art Logisitic Ltd [2007]22 where the court held that the defendant could not avoid liability by the inclusion of a limitation clause. In this case the court stated that the plaintiff had a right to expect that the goods would be safely transported to their required destination. Similarly in Sterling Hydraulics Ltd v Dichtomatik [2006]23 the court refused to allow the defendant to include limitations which had the effect of absolving them for liability for the quality of the goods supplied. In Woodman v Photo Trade Processing [1981]24 the respondent was held liable for the lost photographs as it was deemed that the respondent’s negligence had caused the loss. The respondents had hoped to rely on a clause in the contract limiting liability to the cost of a replacement film. In this case the court stated that under the Supply of Goods and Services Act 1982 s13 the respondent had been negligent and the plaintiff was entitled to compensation for this. Although the garage cannot exclude liability for the vehicle, the right of the doctor to rescind the contract would be limited by the rules regarding transactions carried out as part of a business. This could mean that the garage might be able to avoid liability for the repairs to the vehicle. Bibliography Beale, HD, Bishop, WD, Furmston, MP, (1995), Contract Cases and Materials, 3rd Ed, Butterworths Bixby M.B., Beck-Dudley C., Cihon P.J. (2002), The Legal Environment of Business, Prentice Hall, New Jersey. Civil Litigation Study Manual, (2008), BPP Learning Media Dignam, A J., (2006), Company Law, 4th ed. Oxford University Press, London Elliott, C and Quinn, F, (2005) Contract Law, 5th Ed, Pearson Longman Goode, R M, (2004), Commercial Law , 3rd Edition, London, Penguin. Keenan, D and Riches, S, (2005), Business Law, 7th Ed, Longman Treitel, G H.(1999), Law of Contract, 10th Ed, Sweet & Maxwell Newdick, C, (1987), ‘The Future of Negligence in Product Liability’ 103 LQR288,291 Newdick, C, (1988), The Development Risk Defence of the Consumer Protection Act 1987 47 CLJ 455 Rose, FD, (2000), Statutes on Contract, Tort & Restitution, 10th Ed, Blackstone’s Whittaker, S, (1985), ‘The EEC Directive on Product Liability’ 5 YEL 233,242. Read More