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LS4069 Contract Law

Published : 01-Sep,2021  |  Views : 10

Question:

Part A

Philip wants to sell his house and advertises it in the local newspaper at £370, 000, giving his telephone number. Jim sees the advertisement and rings Philip and makes an appointment to see the house. Jim likes the house but cannot agree a price with Philip, his highest offer being £367,000, while Philip insists on £370,000.On the following Monday Jim receives a letter from Philip offering him the house for £368,500 and saying that Jim can have until noon on Friday to think about it. On Wednesday evening Jim meets his brother Nick in their local pub. Nick tells him that Philip’s son-in-law (Chris) bought the house earlier that day for £367,000. Jim goes straight home and writes a letter to Philip, accepting his offer to sell at £368,500. He posts the letter immediately and Philip receives it on Thursday morning, but replies by return saying

Subsequently, the deal with Phillip’s son in law (Chris) breaks down – the sale goes ahead but Chris only transfers £350,000 in payment for the house to Philip.

Does Jim have a valid contract with Philip? If this is the case you should then decide if Philip has breached the contract and discuss any possible remedies that Jim may seek.

What is the position in contract law between Philip and Chris?

Part B

Dave is a car trader specialising in the luxury prestige market.

Dave has on his forecourt a number of luxury second hand cars. Bob has been on the lookout for such a car and visits Dave’s showroom. Bob asks Dave if he has any well vetted, good condition, low mileage prestige cars.

Dave has a Lexus which he feels suitable and recommends it to Bob. He told him that the car had been owned by a Professional Footballer and had been fitted with a replacement engine and gearbox and had only done 20,000 miles since the replacement. The car is advertised at £15,000. Bob states that he is willing to pay £12,500. Bob buys the car at this price.

Having purchased the car it soon developed faults. Dave agrees to do some work under the warranty but subsequently more faults develop. Eventually it transpired that the car had done nearer 100,000 miles since the refit.

Answer:

Part 1

Issue

Whether Philip and Jim had a valid contract between them, or not? Whether Philip can sue Chris for a breach of contract, or not?

Law

A contract shows that in exchange for a consideration, the parties who are willing to form a contract promise to do certain thing, which forms the basis of the drawn contract. Under a contract, one party pays the price to the other for doing the bid mentioned in the contract. The terms on which the contract is based can be spoken out orally, which would form an oral/ a verbal contract; and such terms which are stated on a document, which is ultimately signed by the parties, results in the formation of a written contract (Ayres and Klass, 2012). The validity of a written contract can be established with in comparison to that of an oral contract. A valid contract is only formed in such cases where the agreement has the “elements of contract”. These include the first being the offer and acceptance, which has to be accompanied by a consideration and the other elements of clarity, intent and capacity (Clarke and Clarke, 2016).

Discussing the first requirement, an offer initiates the process of contract formation, as under an offer, a party proposes certain task or terms to the other party. However, it has to be separated from an invitation to treat, which denotes the parties intent to initiate the negotiations regarding a contract (Andrews, 2015). The advertisements contained in the newspapers or magazines are taken to be invitation to treat usually. And in such cases, the individual is not required to go through with the sale, as has been held in Partridge v Crittenden [1968] 1 WLR 1204. However, where the advertisement contains a unilateral offer, which can be accepted by anyone, it would be deemed as an offer, and this was established long back in Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 and this continues to be a leading matter in this regard (Latimer, 2012).

The offer which has been made, has to be subsequently be accepted by the party to which it was made. And the same has to be accepted in the manner it was made. So, if the terms of consideration or the date of delivery is changed while giving acceptance, the same is considered as a counter offer, and this was held in Hyde v. Wrench (1840) 3 Beav 334, and this results in the original offer being no longer valid (Marson and Ferris, 2015). The acceptance has to be communicated to be valid and the date on which the same is communicated, is considered as the date of acceptance. However, in case of postal rules of acceptance, the date of posting the letter is the date of acceptance, and the same results in creation of a contract, with presence of other elements. Holding the validly of postal rules of acceptance, the contract was held valid in Adams v. Lindsell (1818) 106 ER 250 (Swarb, 2016).

An offer, after being made, can be revoked by the other party, through notice, lapse of reasonable period of time, counter offer or death or insanity. However, for a proper revocation of an offer, it has to be brought to the accepting party’s notice. The offer can only be revoked before the other party gives their acceptance. And if the same is followed by the acceptance, it would not be held as valid (Mulcahy, 2008).

The next requirement is to have a consideration in the contract. The value of consideration is mutually decided amongst the parties, and is valid, till the time it has an economic value. In the case of Chappell and Co Ltd v Nestle Co Ltd [1960] AC 87, due to the context of the case, and the condition precedent, the court upheld the validity of the three wrappers (E-Law Resources, 2017a).

The next essential is that there should be a clarity regarding the terms on which the contract is based. The parties to the contract are required to have the capacity to enter into a contract and for this, they need to have a legal age, and they also need to be of sound mind. Lastly, the parties need to have the intent of forming legal relationship for forming a lawful contract (Lambiris and Griffin, 2016).

When one of the parties to the contract, fails to uphold the promise made under the contract, the aggrieved party can apply for remedies, which are in nature of damages, i.e., monetary compensation, and in nature of equitable remedies, i.e., specific performance, injunction and rescission. In the matter of Addis v Gramophone [1909] AC 488, the reasons for awarding the damages to the aggrieved party was given as the need to put the non-breaching party in a place where they would ultimately have been due to the proper performance of the contract (E-Law Resources, 2017b).

Application

In this case, the advertisement in the newspaper does not contain a unilateral offer, and so, as per Partridge v Crittenden, Philip is not required to sell the house to Jim. The negotiations were carried on where counter offer was made on the initial offer of Phillip; hence as per Hyde v. Wrench, the offer of £370, 000 expired. After negotiations, the final offer given for the house had a consideration of £368,500. This offer was open till Friday. The acceptance on this offer was given by Philip through post on Wednesday. And as per postal rules of acceptance, this would be deemed as acceptance. Hence, a contract was formed at this stage. Even though Jim had knowledge about the sale of house to Chris, the offer was not revoked, so the revocation could never reach him. So, by denying the sale of house, Philip would breach the contract. Jim can apply for the remedies arising out of breach of contract.

In the second case, after offer and acceptance, the house was decided to be sold at a consideration of £367,000 by Phillip to Chris. However, by not paying the full amount, and only paying £350,000, there was a breach of contract on part of Chris and this allows Philip to apply for specific performance of the consideration amount.

Conclusion:

Hence, Philip and Jim had a valid contract between them. Also, Philip can sue Chris for a breach of contract.

Part 2

Issue

Whether Bob has any rights against Davis, or not?

Law

When a contract is formed, it has to be formed on the basis of the elements mentioned in the previous parts. However, at times, the contracts contains certain elements, based on which, the contract becomes void or voidable. These factors are known as the vitiating factors in a contract. Broadly, there are five vitiating factors which can be found under a contract and these are undue influence, mistake, duress, illegality and misrepresentation (Turner, 2014).

When a false statement is made by one party, during the negotiations of the contract, so as to induce the other party to enter into the contract, it is a case of misrepresentation. In order to establish that misrepresentation was indeed present, reliance on the false statement has to be shown. The false statement has to relate to a statement of fact or law, and an opinion cannot be claimed under misrepresentation. The words have to be spoken and merely silence cannot be deemed as misrepresentation (Latimer, 2012).

One of the cases of misrepresentation is Horsfall v Thomas [1862] 1 H&C 90. In this case, the purchased gun of the plaintiff had certain concealed defects. However, the action which was brought forward under negligence was not upheld due to the failure on part of the plaintiff in checking the gun before purchasing the same. It was held that due to this, he was never induced to enter into the contract (E-law Resources, 2017c).

Regarding the damages pertaining to misrepresentation, in Doyle v Olby [1969] 2 QB 158, the Court held that for the undertaken misrepresentation, damages cannot be awarded as contractual damages, as false representation does not form a part or term of the contract. Hence, the damages have to be awarded under the tort of deceit (Poole, 2016).  

Misrepresentation can be broadly divided into fraudulent or innocent misrepresentation. In fraudulent misrepresentation, the false statement is made knowingly in a careless or reckless manner, without any supporting fact to believe that the statement was true. And an innocent misrepresentation takes place when the statement maker can show that he had valid grounds for making the statement, however, the same may be untrue (Latimer, 2012).  

The next vitiating factor, which is commonly found, is mistake. It can be a mutual mistake or a unilateral mistake. A mistake denotes an erroneous belief regarding the some facts being true. Mistake is often cited as a defense in contract law and has the power of rendering the contract voidable or void ab initio. A mutual or multilateral mistake takes place where both the parties are mistaken about certain aspect of the contract and thus, the parties are stated to be at cross-purposes. The parties are mistaken, even with the presence of meeting of minds (Latimer, 2012).

In unilateral mistakes, only one of the parties is mistaken about the terms or the subject matter of the contract. In the case of Hartog v Colin & Shields [1939] 3 All ER 566, due to the mistake in the selling price of the hare skin, the contract was held to be void due to mistake (E-law Resources, 2017d).

The other forms of vitiating factor include duress, where the individual can establish that he entered the contract, not of his free will but due to the threat of physical violence. And in similar lines, another vitiating factor is present and this is known as undue influence. Under undue influence, the individual is forced to enter into a contract on the basis of the dominating position, which the other person has. It is a doctrine where a person is taken advantage of another as a result of the position of an individual. And the last vitiating factor in a contract is illegality. If the terms of the contract are drawn for an illegal purpose, the contract cannot be enforced (Andrews, 2015).

Application

In the given case study, Dave had offered to sell a car to Dave. An offer was made by Dave to sell the car to Bob for a value of £15,000 on the basis of advertised price. However, Bob presented a counter offer to Dave whereby he agreed to get the car at a price of £12,500. Bob gave his agreement to this counter offer, and hence, a contract was formed in this case. The other elements are assumed to be present in this case.

However, after the sale, the car developed problems and it was established that instead of what was claimed by Dave, regarding the car only having run for 20,000 miles, the car was actually run for 100,000 miles. So, this was a fraudulent misrepresentation on part of Dave and this allows him to claim actions on the basis of Doyle v Olby. However, Bob himself failed to check if the engine was indeed new and so, the part of misrepresentation about the new engine cannot be claimed by him as per Horsfall v Thomas.

Apart from this, when a claim of misrepresentation is made by Bob, Dave can prove two points. The first is that Dave failed to check the engine for himself. And for the part about miles the car had run for, Dave can show that he believed that statement which he made and he had valid reasons to believe that car had only run for 20,000 miles. Hence, instead of holding a case of fraudulent misrepresentation against him, the mistake should be established.

Conclusion:

Hence, Bob does have rights against Davis for the fraudulent misrepresentation owing to false statement of fact. However, Bob take defense in the failure of Dave in checking the engine himself and even the unilateral mistake made on his part.

References:

Andrews, N. (2015) Contract Law. 2nd ed. UK: Cambridge University Press

Ayres, I., and Klass, G. (2012) Studies in Contract Law. 8th ed. New York: Foundation Press

Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed. South Melbourne: Oxford University Press.

E-Law Resources. (2017a) Chappel v Nestle [1960] AC 87 House of Lords. [Online] E-Law Resources. Available from: http://www.e-lawresources.co.uk/Chappel-v-Nestle.php [Accessed on: 18/05/17]

E-Law Resources. (2017b) Addis v Gramophone [1909] AC 488 House of Lords. [Online] E-Law Resources. Available from: http://e-lawresources.co.uk/cases/Addis-v-Gramophone.php [Accessed on: 18/05/17]

E-Law Resources. (2017c) Horsfall v Thomas [1862] 1 H&C 90. [Online] E-Law Resources. Available from: http://www.e-lawresources.co.uk/Horsfall-v-Thomas.php [Accessed on: 18/05/17]

E-Law Resources. (2017d) Hartog v Colin & Shields [1939] 3 All ER 566. [Online] E-Law Resources. Available from: http://www.e-lawresources.co.uk/Hartog-v-Colin--and--Shields.php [Accessed on: 18/05/17]

Lambiris, M., and Griffin, L. (2016) First Principles of Business Law 2016. Sydney: CCH

Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.

Marson, J., and Ferris, K. (2015) Business Law. 4th ed. Oxford: Oxford University Press.

Mulcahy, L. (2008) Contract Law in Perspective. 5th ed. Oxon: Routledge.

Poole, J. (2016) Textbook on Contract Law. 13th ed. Oxford: Oxford University Press.

Swarb. (2016) Adams v Lindsell: KBD 5 Jun 1818. [Online] Swarb. Available from: http://swarb.co.uk/adams-v-lindsell-kbd-5-jun-1818/ [Accessed on: 18/05/17]

Turner, C. (2014) Unlocking Contract Law. 4th ed. Oxon: Routledge.

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