Contractual Issues of Contract Law - Essay Example

Contract Law Assignment Raffia Khan, an interior designer has a number of contractual issues for which she needs your advice. Her business has beensuffering as a result of the credit crunch so she is trying to make, and save as much money as possible. Firstly, Raffia saw an advertisement in a newspaper which read: Raffia submitted her unmarked envelope with her tender of £3000 by the time and date specified. After the closing date, she heard that Fix It Up Ltd were awarded the job at a price of £4000. A year ago Raffia lent £1000 to her friend Angelo. Last month, she asked for this money back, he told her that he could not afford the full amount but instead asked if she would accept £700 in full satisfaction of the debt. Raffia agreed to this and took the payment. However she would now like the further £300 owed. Advise Raffia on her various contractual issues. In order to advise Raffia it is necessary to consider whether the Bradford Institute for Learning have any duty to accept her tender. This will involve considering whether the advert in the paper amounts to an invitation to treat or should be regarded as an offer to give the work to the lowest bidder. It will also be necessary to consider whether the Institute has an obligation to accept the lowest quote because of the advert in the paper. In relation to the money lent to Angelo, it will be necessary to consider the law in relation to part payment of a debt, to determine whether Raffia would be estopped from reclaiming the full amount as she had accepted the part payment in full satisfaction of the debt. From this it should then be possible to advise Raffia with regard to any potential claim she might have. In general terms an advert in a newspaper would be regarded as an invitation to treat. The key case in relation to invitations to treat was Carlill v Carbolic Smoke Ball Company [1892]1. In this case the court held that as the defendants had deposited money into an account in order to pay the reward if any of the customers contracted flu the advertisement should be regarded as an offer and that the purchasing of the smoke ball amounted to an acceptance of the offer. In determining whether a contract has been created between the parties the courts will require evidence that there has been an offer2, acceptance of the offer and consideration paid. When considering an invitation to tender, no contract is entered into by the parties until the tenderer has decided which tender they wish to accept. In the above, the advert states that the tender would be awarded to the lowest bidder. It is necessary to examine case law in order to determine whether the court would hold that the tenderer has acted wrongly in not accepting the tender from Raffia as it was the lowest tender. Where an invitation to treat has been made the offeror is entitled to revoke the offer at any time before the deadline, but will be not be allowed to do so if the other party has already started performance of the offer3, which is likely to be the case in a situation where the offeror is offering a reward for the return of a lost item4. In the case of Errington v Errington [1952]5, the mother-in-law was estopped from revoking the offer made by her husband as her daughter-in-law had continued to pay the mortgage instalments as agreed with the father-in-law in return for the transfer of the property to her. When considering the advert in relation to the tender it is important to note that if the tenderor declares that the tender will go to the lowest bidder, it is likely that the court will rule that they are bound by this term. In Harvela Investments Ltd v Royal Trust Co of Canada (1986)6 the court held that the vendor was duty bound to accept ‘the highest offer’ as this was one off the pre-conditions of the fixed bidding sale. In R v Canamerican Auto Lease & Rental Ltd7 it was stated that ‘the department will not necessarily accept the highest offer, nor will it be bound to accept any tender submitted’. The court, in the first instance, felt that the tenderer ought to be duty bound to accept at least one of the tenders made, and that the clause should be disregarded as it allowed the tenderer to select the successful applicant in an arbitrary fashion. However, on appeal the judge conceded that the tenderer discretion would be circumscribed by reasonableness and would not be arbitrary. The court felt that tenderers should not be bound by limitations such as the lowest price, and should be allowed to take into consideration the business record of the tenderor, as well as their financial stability and capacity to perform. In applying this to the situation above, the Institute might be able to persuade the court that they should not be bound by the clause to accept the lowest bidder, if they can demonstrate any other reason for the rejection of the tender made by Raffia similar to those mentioned above. In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council (1990)8 the court determined that an invitation to tender could be regarded as an offer to bid, and thereby create a contract between the parties. The court stated that the tenderor has an obligation to consider each bid received by them. However, in contrast, in Spencer v Harding (1870)9 the court held that despite the circular purporting to sell the items to the highest tender, the circular should be regarded as no more than an invitation to treat and therefore the applicant could not rely on averring that in placing his bid he was accepting an offer made by the respondent. Applying all of the above to the situation with Raffia, the court may decide that the insertion of the clause in relation to the lowest bidder is invalid, and that the tenderor has the right to reject the lowest offer if they can demonstrate appropriate reasons for doing so. When considering the part payment of the debt, it is necessary to examine case law to determine how the court has previously dealt with this issue. The first case to consider this matter was Pinnel’s Case (1602)10. In this case the court held that part-payment of a debt should not be regarded as good consideration as a promise on the part of the creditor to forgo the remainder of the debt. The court stated that it was equitable for the creditor to pursue the debtor for the remaining debt, as they had been under no obligation to accept the part-payment as full settlement of the debt. This was an important decision as it prevented future creditors from being subject to economic duress and forced to accept a lesser payment11. The court held that the part-payment may be valid if the creditor offered to accept a lesser payment in full settlement, without being under any undue pressure to make the offer. In Foakes v Beer [1884]12 the court allowed the defendant to recover interest against the outstanding amount of the debt, despite the fact that the defendant has agreed to accept repayment of the debt in instalments. This would seem to suggest that Raffia would be entitled to pursue Angelo for the remainder of the debt despite the fact that she allowed him to make a part-payment in settlement of the debt. There are, however, exceptions where the court have not allowed the creditor to pursue for the remainder of the debt, as was demonstrated in Hirachand Punamchand v Temple [1911]13, where the creditor had accepted part payment of the debt by the father of the debtor, as full settlement of the debt. The court stated that the part payment should be regarded as valid consideration and the creditor was estopped from claiming the remainder of the debt from the debtor. A composition agreement can also prevent the creditor from pursuing the debtor for the outstanding balance. This would occur where the creditor accepts a percentage of the outstanding balance as full settlement of the whole debt14. The principle of promissory estoppel can also prevent the creditor from claiming the full amount of the debt as was demonstrated in Central London Property Trust Ltd v High Trees House Ltd [1947]15, where the applicant had allowed the respondent to pay a reduced rent during the war, and had promised not to reclaim the other half at a later date. In Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955]16 the court held that as the respondent had acted upon the promise made by the applicant the applicant was not able to renege on that promise. To rely on promissory estoppel there has to be a clear and unambiguous statement made by the promisor that they will not enforce their legal rights17. The person relying on that promise must that take an action in reliance on the promise18. In the above, it could be argued that Angelo placed pressure on Raffia to accept the lesser amount as was proven in D & C Builders v Rees [1965]19. If this can be proven, the court might allow Raffia to revert her legal right and to be able to claim the outstanding debt. It can be concluded from the above, that Raffia might be able to insist on the Institute accepting her tender as it was the lowest. However, if the institute can show that this would be unfair, and that they should be allowed to take other factors into consideration, then Raffia could lose her claim. With regard to the part-payment, if Raffia can show that she was pressured into accepting the part-payment as she was experiencing financial difficulty at the time, she might be able to revert her legal right and claim the outstanding monies. However, if she cannot do this, the court might rule that a composition agreement was reached by the parties, and refuse to allow her to reclaim the extra money owed. 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 Rose, FD, (2000), Statutes on Contract, Tort & Restitution, 10th Ed, Blackstone’s Read More