Analysis of Contractual Issues

There are two issues in this scenario. The first issue is whether there is a contract between Amanda and Kamla. The second issue is whether there is a contract between Amanda and John. This essay first discusses the principles of contract applicable in this situation and then applies these principles to the facts of the scenario.

A binding contract is formed when the elements of the contact, which are, offer, acceptance, consideration, capacity, consensus, and intention to create legally binding relations, are met with. An offer may be made to one specific individual or generally to the world signifying the offeror’s intent to be bound by the acceptance and also making a promise to do something in return for something. Acceptance to this offer must be made unconditionally and unequivocally. Acceptance should also be made within a reasonable time period or the period specified by the offeror; the lapse of time would terminate the offer. If the offer is made to the whole world, then it is unilateral, and the offeror becomes liable to anyone who performs the given condition and the offeror in such a situation cannot do anything to prevent the condition from being satisfied. In unilateral contracts, no communication is required to signify acceptance and the performance of the condition will be sufficient to bind the offeror.

In cases where a person has placed an advertisement, the principle of invitation to treat applies as provided in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd. In this case, the court held that an advertisement of items for sale are invitation to treat and not offers. Similarly, in Fisher v Bell, it was held that display of an item with a price on it is not an offer but an invitation to treat. However, in case where the advertisement includes words like ‘First Come, First Served’, then the advertisement may be considered to be an offer because there is an intention on the part of the offeror to be bound by the acceptance of the first party. This is as per the principle laid down in Patridge v Crittenden, where the court held that if the advertiser indicates his willingness to be automatically bound to those who perform the condition stated in the advert, then the advertisement can be considered to be an invitation to treat. With regard to a notice providing ‘first come, first serve’ basis, it may be considered that the advert is an offer and not an invitation to treat. In such a case, the offeror is under a duty to not do anything to prevent the condition from being satisfied.

The postal rule relates to transactions that are done though post and it provides that when the offeree signifies acceptance of the offer in a is properly stamped, and addressed letter, the acceptance is effective when the letter is posted in the box. If the offeror does not want the postal rule to apply, then the offer should be explicit in

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1. Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
2. Jill Poole, Textbook on Contract Law (Oxford: Oxford University Press 2012) 54.
3. Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109.
4. Daulia v Four Millbank Nominees [ 1978] Ch 231 CA.
5. Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
6. Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795
7. Fisher v Bell [1961] 1 QB 394; also, Partridge v Crittenden [1968] 1 WLR 1204.
8. Partridge v Crittenden [1968] 2 All ER 421.

stating this condition. Moreover, the offeror can also stipulate that the offer can only be accepted once the offeror has notice of the acceptance. Thus, if the offeror expresses that he should receive the notice of acceptance by a certain date then the acceptance can be made only through such notice.

In this case scenario, Amanda advertised her Persian carpet for sale noting in the advertisement that it was on “First come, First Serve” basis. This advert was placed on the window of a local shop. This can be considered to be a unilateral offer, and not an invitation to treat. This is because the use of the words “First come, First Serve” signifies the intention of the offeror to sell the carpet to the first person who approached her. In such a situation, the first person to approach her would be giving an acceptance to the offer contained in the advertisement. However, acceptance to unilateral offers should be made within a a reasonable period of time. In this case, as Amanda did not specify the time period within which the offer was to be made, the time the advert was displayed can be taken to be the reasonable time within which the acceptance was to be made. As such, in a unilateral contract, there is no need for the acceptor to communicate acceptance. Being the first person to contact Amanda should be enough.

Regarding the letter posted to Kamla, this can be taken to be something done by Amanda to impede the performance of the condition made out in the advert with the notice of “First come, First Serve”. If the postal rule is applied here, it can be said that Kamla’s postage of the letter on the 19th May would signify her acceptance which is binding on Amanda as soon as it is posted. As Amanda told Kamla that she needed to have an answer by 1 June, this means that acceptance of the offer had to reach Amanda by this date. As this did not happen, Amanda is not bound by it.

There is no binding contract between Amanda and John because the carpet was to be sold on a first come, first serve basis. As John was not the first person to approach Amanda for the purchase of the carpet, there is no contract between them. Although he saw the carpet, he did not signify his intention to buy it. There is no binding contract between Amanda and Kamla, as the letter of acceptance did not reach Amanda as specified by her by the 1st June. Amanda is bound by the contract with the person to whom she sold the carpet as the conditions of contract have been met with in that situation. The unilateral offer is accepted by the person and the carpet has been bought by them.

The first issue in this scenario is whether there is a breach of contract by Valiant and if so what remedies are available to Helen. The second issue relates to the validity of the exemption clause and the applicability of the Unfair Contract Terms Act 1977 related to this exemption clause.

Breach of contract means breach of a condition in the contract, allowing the innocent party to treat the contract as voidable. Terms in the contract are conditions, warranties and innominate terms. Condition is fundamental to the contract and breach can lead to the treatment of the contract as voidable. Stipulations as to time

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9. Holwell Securities Ltd v Hughes [1974] 1 All ER 161.
10. Ibid.
11. Poussard v Spiers and Pond (1876) 1 QBD 410.

within which contract must be performed, can lead to breach of contract. Statutory conditions are provided in the Sale of Goods Act 1979.

The breach of contract is related to the faulty instalment of the washer, which led to the leaking into four of the upstairs bedrooms leading to £5,000 repair as this breaches the conditions related to the quality of the work; and delay in completion of the work, as this breaches stipulation of time.

An exclusion clause excludes the liability of a party under specific conditions. In order to be validly made, exclusion clause must be an integral to the contract and included into the contrast, and must be displayed prominently and brought to the attention of the other party. Exclusion clause can be tested for validity based on the Proper Incorporation test and the Clear and Precise test. The Proper Incorporation test provides that the party making the clause must give information of its existence to the other party and brought to the attention of the other party. The Clear and Precise test provides that the clause should be clear, precise and unambiguous. In this case, the exclusion clause is validly made and brought to the notice of Helen. However, the test of reasonableness in UTCTA 1977 is not satisfied. UTCTA 1977 prohibits certain kinds of exclusions and requires reasonableness for testing exclusion clause in case the negligence leads to damage to property or financial loss (Section 3). Importantly, in cases of limitation clauses, that is, clause that limits the liability to a specific sum of damages, Section 11(4) provides that the court should see whether the person limiting the liability has the resources to cover the liability and whether they could have obtained insurance. Section 3 is related to a situation when one party deals with the other party’s written standard terms of business. Section 3(2)(b)(i) applies to bar exclusion of liability for rendering a contractual performance substantially different from that which was reasonably expected of him. In this situation, the reasonable expectation was of completion of work within a set time and up to a reasonable standard. This did not happen. Therefore, exclusion of liability in such a situation may be considered to be unreasonable.

Regarding the exclusion clause in the contract, this exclusion clause is provided in Clause 7 of the standard terms contract as per which Valient shall not have liability for any loss of profit or loss of business caused by delay in completion of the contract works unless such delay exceeds three weeks and any liability for loss of profit or loss of business is limited to £2,000. This is a limitation clause. As per UTCTA 1977, Section 11(4), the court should see whether the person limiting the liability has the resources to cover the liability and whether they could have obtained insurance for the same. In this case, Derek had advised Helen that she should check her insurance as Valient could only get insurance for damage to property and not for customers’ loss of profit. The liability to provide insurance is on Valiant as they have included the exclusion clause.

The breach of condition may allow the innocent party to claim termination of contract and/or damages. The remedies available to Helen are those of damages for breach of contract. The general principle is that damages are to be paid based on the losses arising naturally from the breach of contract or reasonably in the contemplation offer

both parties. In the latter case, unspecified damages that can be paid for the abnormal or special loss that does not arise as a usual consequence but was within the knowledge or contemplation of parties. These special circumstances, if communicated by the plaintiff to the defendants, entitles the former to recover special damages. In this case, damages are sought for the repair work of £5,000 as well as the loss of bookings of £10,000 and £3,000. The 60th birthday party booking worth £4,000 may not be recoverable because this was not in the contemplation of the parties. However, as Helen had informed Valiant that they would have to close for the work to be done and a date had been provided for completion of work to avoid booking loss, this special damage may be claimed by Helen.

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Table of cases

Adams v Lindsell (1818) 1 B & Ald 681.

Bunge Corporation v Tradax Export SA [1981] UKHL 11.

Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.

Clegg v Olle Andersson T/A Nordic Marine [2003] EWCA Civ 320.

Daulia v Four Millbank Nominees [ 1978] Ch 231 CA.

Fisher v Bell [1961] 1 QB 394.

Hadley v Baxendale [1854] EWHC J70.

Holwell Securities Ltd v Hughes [1974] 1 All ER 161.

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6.

Partridge v Crittenden [1968] 1 WLR 1204.

Parker v South Eastern Railway Co. [1877] 2 CPD 416.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795

Poussard v Spiers and Pond (1876) 1 QBD 410.

Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109.

Thornton v Shoe Lane Parking Co. [1970] EWCA Civ 2.

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.

White v Blackmore [1972] 3 WLR 296.

Books

Poole J, Textbook on Contract Law (Oxford: Oxford University Press 2012).