Contract Formation and Termination in the Sale of a Violin

A contract is formed when there is a meeting of minds, that is, an offer is put forward and accepted. Riya placing an advertisement in the Classical Music Monthly Magazine is not exactly an offer but rather, an invitation to treat. Therefore, Gabriel wrote to Riya with an offer to buy the violin at £300. In response, Riya issued a counter offer to Gabriel requiring him to tender his acceptance within specified time, place and form of communication. Considering the form of communication used, the postal rule in acceptance will apply to the extent that acceptance takes place when the letter is posted and not when received. On authority of Adams v Lindsell, acceptance of Riya’s offer of £400 took place when Gabriel’s letter was after being stamped and addressed, placed in the post box. Consequently, Gabriel accepted the offer on 29th January before the offer expired on 1st February as indicated by Riya. An offer can be terminated by many ways one of which is acceptance as is in this scenario. It follows that Riya did not have the right to sell the same violin to another person and the sale of violin for £1000 to Liverpool Orchestra is void. Riya can thus approach the court for an order of specific performance of the contract and attendant damages.

Kieran, a sales manager made a false statement regarding a motor vehicle which induced Harinder to enter into a contract for sale of the same vehicle. This statement was made during the course of negotiations and it turned out to be untrue afterwards. Harinder is entitled to bring an action for misrepresentation against Marcello’s Motors if the representations made by Kieran meet a certain criteria prescribed by common law and Misrepresentation Act 1967. According to Bisset v Wilkinson, it must be a false statement of fact or law and not opinion. However, it has been held in Smith v Land & House Property Corp that actionable misrepresentation may lie where a statement of opinion is made by a person who is in a position to know the facts. Presently, Kieran

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1. Partridge v Crittenden (1968) 2 All ER 425
2. Hyde v Wrench (1840) 49 ER 132
3. (1818) 106 ER 250
4. [1927] AC 177
5. (1884) 28 Ch D 7

was in a position to know the actual mileage of the vehicle but for negligence. Additionally, Harinder must demonstrate that he laced reliance on that false statement causing him to enter the contract. In fact, he can rely on Redgrave v Hurd where it was held that the claimant was entitled to rescind the contract despite being granted the opportunity to check the veracity of the statements but chose to rely on the seller’s representations. Similarly, Harinder will be entitled to rescind the contract and claim for damages.

Performance by parties of their obligations results to discharge of a contract. The general rule is that if a party does not complete performance, there will be no payment as held in Cutter v Powell. However, this rule caused injustice where work was not completed by a party and they could not receive any payment for part completed. As a result there are exceptions to the general rule of perfect performance. This exception is based on judicial discretion such that if the court deems that there was substantial performance, then one will be paid for work done less the defects. Presently, the cost of defects against the cost of repairs leads to a conclusion of substantial performance as held in Hoenig v Isaacs. Therefore, Barry’s Builders have substantially performed the contract and are entitled to agreed cost of 8000 less 600 being cost of defects. However, the decision in Bolton v Mahadeva indicates that substantial performance will not apply if the cost of repairs is high in relation to agreed price.

The general rule is that past consideration is not good consideration. This rule is grounded in Re McArdle where a promise to pay the claimant for repairs done with no previous arrangement was found to be binding and consideration not valid. It means that a party who on his own volition performs certain obligations with no agreement for payment may not enforce a later promise to pay them for that work. However, past

consideration is valid where it was proceeded by a request as has been held in Lampleigh v Braithwaite. Where party is under an existing a contractual duty to perform a certain task, it cannot be used as consideration for a new promise. However, there are three exceptions to this general rule. First, performance of obligations under an existing contract will be valid consideration if it involves the party going over and above the existing duty. Second, if the consideration confers benefit to the defendants even though it is within the existing contractual duty, it will amount to valid consideration. Third, an existing contractual duty owed to a third party to a contract may be good consideration for a new promise.

Promissory estoppel is an equitable doctrine that prevents one from going back on a promise not supported by consideration. There are four conditions for the doctrine of promissory estoppel to apply and thus limits the extent to which it can be relied upon by a party to a contract. First, there should be an existing contract between the parties which is then modified as expounded in Combe v Combe. Second, the promise must be clear and unambiguous and this may be implied through conduct. Third, if the promisor changes their position. Lastly, it must be inequitable to allow the promisor to renege on their promise.

Conditions, warranties and innominate terms are different categories of terms of a contract. Conditions are major terms of a contract and go into the root of the contract. It follows that a breach of a condition of a contract is akin to that of a major term and it entitles the innocent party to repudiation and claim for damages. In Poussard v Spiers

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6. [1615] EWHC KB J17
7. Hartley v Ponsonby [1857] 7 EB 872
8. Williams v Roffey Bros [1990] 2 WLR 1153
9. Scotson v Pegg [1861] EWHC Exch J2
10. Central London Property Trust Ltd v High Trees Ltd [1947] KB 130
11. [1951] 2 KB 215
12. Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741
13. Alan v El Nasr [1972] 2 WLR 800
14. D & C Builders v Rees [1966] 2 WLR 28
15. (1876) 1 QBD 410

a singer who failed to perform on the first night was found to be in breach of a major term hence the defendant was entitle to end the contract and claim for damages. Warranties are minor terms of a contract that entitles a party to damages but not repudiation. In Bettini v Gye, the employer was entitled to damages but not ending the contract since Bettini had merely breached a warranty by missing 6 days of rehearsal. Innominate terms were defined in Hong Kong Fir Shipping v Kawasaki Kisen Kaisha where it was found that an innocent party will only be entitled to end the contract where they are substantially deprived of the whole benefit in a contractual arrangement.

An Exemption clause is an agreement in a contract that provides that a party is excluded or limited from liability. Such clauses may be used unfairly by parties in a contract hence common law has restrictions to preclude unfair terms in contracts. An exclusion or limitation clause can validly be incorporated into a contract under common law through different ways. Contrary to the general rule, an exemption clause can be incorporated into a contract through previous dealings. Alternatively, such a term may be incorporated through trade customs- such terms are common in a given trade that both parties engage in.

Remoteness of damage is principle established in Hadley v Baxendale where it was stated that in the event of contractual breach, a claimant is only permitted to recover direct and consequential loss. In 2008, the case of Transfield Shipping Inc v Mercator Shipping Inc appeared to change the test in remoteness of damage such that the test was to look into the intention of the contracting parties. Subsequently, in 2010, Court of Appeal in Supershield Limited v Siemens Building technologies FE Limited reiterated that Hedley case was still the standard rule in remoteness of damage. Additionally, the court stated that where the standard approach does not reflect the parties’ intention then the Transfield case would be applicable. The overall effect of the three decisions is that there is an air of uncertainty and ambiguity around the remoteness test. Therefore, it is not clear which test is to be applied in determination remoteness of damage, although there is a general assumption that the standard rule in Baxendale will apply.

Continue your journey with our comprehensive guide to Construction Contract between Gregor and Finn.

Bibliography

Cases

Redgrave v Hurd (1840) 49 ER 132

Cutter v Powell [1795] EWHC KB J13

Partridge v Crittenden (1968) 2 All ER 425

Bisset v Wilkinson [1927] AC 177

Smith v Land & House Property Corp (1884) 28 Ch D 7

Hyde v Wrench (1840) 49 ER 132

Adams v Lindsell (1818) 106 ER 250

Stilk v Myrrick [1809] EWHC KB J58

British Crane Hire v Ipswich Plant Hire [1975] QB 303

Hartley v Ponsonby [1857] 7 EB 872

Supershield Limited v Siemens Building technologies FE Limited [2010] EWCA Civ 7

Williams v Roffey Bros [1990] 2 WLR 1153

Transfield Shipping Inc v Mercator Shipping Inc [2008 UKHL 58]

Hadley v Baxendale [1843] All ER Rep 461

Scotson v Pegg [1861] EWHC Exch J2

Hoenig v Isaacs [1952] 2 All ER 176

Re McArdle (1951) Ch 669

Lampleigh v Braithwaite [1615] EWHC KB J17

Combe v Combe [1951] 2 KB 215

Alan v El Nasr [1972] 2 WLR 800

D & C Builders v Rees [1966] 2 WLR 28

Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741

Poussard v Spiers (1876) 1 QBD 410

Bolton v Mahadeva [1972] 1 WLR 1009

Bettini v Gye (1876) QBD 183

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26

Legislation

Misrepresentation Act 1967