Contract; Remedies and Contractual Terms

Contract; Remedies and Contractual Terms

Introduction

Contracts are an inseparable aspect of individuals’ daily life.  They form the foundation on which businesses and individuals interact. For example, transactions between businesses and individuals are conducted and established on the basis of predetermined contractual terms. Contract law, established under common law, is widely applied across the world in an effort to ensure that contracts are effectively formed and performed. Thus, contract law focuses on ensuring that the parties to the contract fulfil their respective contractual obligations. Contract law has stipulated the basic aspects that must be present in order for a contract to be formed. These aspects include offer, acceptance, and consideration.  Campbell asserts ‘a contract is perfected when there is an offer and a subsequent acceptance of the sale and purchase of certain goods. The offer entails an individual’s expression of willingness to enter into a contract agreement on the basis of specified terms while acceptance refers to the offeree’s manifestation of agreement to the stipulated terms.   The offer becomes binding upon being accepted by the second party.  On the other hand, consideration entails a token that is given in exchange for a contract that represents the value of the offer.  These elements lead to the establishment of contractual terms, which stipulate the contractual obligations of the respective parties.

 In spite of the successful formation of contracts, the parties to the contract might not adhere to the contractual obligations, which amounts to a breach of contract. Under common law, courts have the power to provide legal remedies in situations involving breach of contract. The motive is to protect the legal rights of the affected party.   This paper provides advice to Lewis regarding his contractual rights in relation to the scenario outlined below.   

Summary of the scenario

Jenny, a collector of classic cars has a limited edition of a mini convertible. In the quest to make a sale, Jenny Calls her friend Lewis who also has an interest in classic cars, and asks him whether he would be interested in buying the car, which in her opinion was in perfect condition. This aspect indicates that Jenny made an offer to Lewis. Jenny set the price of the classic car at £10,000, which represents the consideration. Lewis is interested in purchasing the car but explains to Jenny that he will need time to gather the required money.  Thus, the scenario depicts the existence of acceptance. In response, Jenny provides Lewis with four days to gather the money.  Thus, Jenny agreed to Lewis’ request. However, prior to the expiry of the time given, Lewis learns that Jenny had made a subsequent offer to Grant and had subsequently sold the car. Jenny apologizes to Lewis for the disappointment caused.

Analysis

The scenario underlines the existence of a contract between Jenny and Lewis.  Poole asserts that ‘if the statement-maker clearly intends to be bound by acceptance of the stated terms, the statement will amount to an offer and, on acceptance; there will be a binding contract’. According to MacLeod, some parties to the contract may make some statements either through silence or statement during the contract formation process. The statements may either have legal significance or not. For example, the statement may have legal significance if it constitutes a term of the contract. In this scenario, the notice by Jenny that he would give Lewis time to gather money makes the statement a term of the contract.  The scenario is characterised by pre-contractual statements or representations made by the two parties to the contract.  According to Turner, the impact of the pre-contractual statement depends on the context and character in which the statement is made. Some pre-contractual statements may not be enforceable while others may be enforceable hence requiring legal remedies.  

Evaluation of remedies and contractual terms

In this case, Lewis has sufficient legal ground to seek damages because Jenny had promised to keep the offer open to him for the stated period.  The fact that Jenny issued time to Lewis represents the existence of an option between the two parties.  According to Blum, ‘an option entails a commitment by a contracting party to keep an offer open for a stated period of time.' During this period, the offeror agrees not to revoke the offer issued and accepted by the party to the contract for the stated period before the expiry date.            

The contract between Jenny and Lewis is based on express terms. Express contract terms arise from situations whereby the parties to the contract expressly agree to the terms on which the contract is based. Express contractual terms can either be oral like in the case between Jenny and Lewis or written. Emmanuel asserts that breach of express terms forms sufficient ground which affords the affected party the right to sue for breach of contract. Jenny’s decision to sell the car to Grant prior to the expiry of the period issued to Lewis to gather the £10,000 amounts to a breach of contract.

In order for express terms to be legally binding, they must be adequately incorporated within the contractual agreement. Amongst the ways through which express terms can be incorporated entail the issuance of a notice or through signature. Kuhnel-Fitchen and Hough affirm that irrespective of whether a contract is incorporated through signature, issuing sufficient notice on the terms to the contracting party amounts to incorporation into the contractual agreement. This aspect is evidenced in this scenario whereby Lewis issues sufficient notice of additional time required to Jenny prior to the contract to which Jenny agrees.  Thus, on the basis of this aspect, Lewis has a right to sue Jenny for breach of contract because she acted contrary to the express terms by selling the car to Grant without informing him before making the sale.  This aspect is underlined in the case of Olley v Marlborough Court Limited [1949]. In this case, the court argued that the parties intending to incorporate a certain aspect in the contract formation process must ensure that the said aspect is adequately issued when the contract is made or before the time the contract was finalised.  Additionally, for a contract to be successfully incorporated by notice, the contracting party must prove that he or she took adequate steps to introduce the term and ensured that the underlined in the case of Parker v South Eastern Raily [1877].

Right to sue for non-delivery

In addition to this aspect, Lewis has also a right to sue Jenny for non-delivery. Section 51 of the Sales of Goods Act 1979 stipulates that a buyer can sue the seller for non-delivery.  The section stipulates that if a seller unfairly refuses or neglects to deliver the goods as stipulated under the contract, the buyer may sue for damages. Under such a situation, the buyer may measure the estimated loss either naturally or directly as a result of the seller’s breach of contract.   Baskind, Osborne, and Roach assert ‘time for delivery will not be of the essence unless the date for delivery has been agreed and is construed as a condition of the contract.’ In this scenario, Lewis had issued a notice requesting additional time in order to perform his contractual obligation of paying the amount required. Thus, in this scenario, the significance of time in the sale of goods is of the essence, which makes it an important term to the contract. This aspect is underlined in the case of Bunge Corporation v Tradax Export SA.

Breach of contract

Lewis can further sue Jenny for anticipatory breach of contract. Anticipatory breach arises in situations whereby one party to the contract notifies the other party that he will not undertake his or her contractual obligations before the stipulated time for performance.  Jenny acted wrongfully by selling the classic to Grant and hence she should be punished. This arises from the fact that Jenny did not perform her contractual obligation which entailed waiting for the expiry of the time issues to Lewis before making the decision to sell the car. In seeking legal action for anticipatory breach, Lewis has an obligation to prove breach of contract. As a party to the contract, Lewis can underline the fact that Jenny had agreed to provide him additional time to gather the money hence making the element of time an essential term of the contract.

Misrepresentation

In addition to adopting the above approach in seeking legal redress, Lewis can also seek damages due to misrepresentation. According to McKendrick and Cohen, misrepresentation occurs in a situation where one party to the contract makes a false representation during or before the contract is made. Thus, the statement should not be made by a third party or an agent.

In order for an action to be actionable on the basis of misrepresentation, the following aspects must be taken into account. First, there must be a material fact issued by one party in the contract to the other.  McKendrick and Cohen further assert that ‘the statement made should form the ground on which the other party to the contract is intended to enter into the contract but was not intended to be a binding obligation under the contract.’  The statement must be untrue, false, or incorrectly stated. In this case, Jenny communicated to Lewis that she would allow her adequate time are requested for him to gather the money needed. This communication constituted a statement of material fact as opposed to an opinion.

In the case of Peyman V Lanjani [1985] 2 WLR 154, the court ruled that an agent cannot represent another party to represent him in entering into a contract. On the contrary, the party to the contract must be present. In this case, Jenny was the one who made the communication agreeing to the contract.  

Remedies

There are different types of damages that Lewis may seek. One of the most applicable types of damages, in this case, entails nominal damage. The rationale for this type of damage is underlined by the fact that Lewis can successfully prove that Jenny broke her contractual obligations. However, he cannot successfully prove to have incurred any loss as a result of the breach.  However, the amount of nominal damages that the court may require the liable party to pay is substantially small.  This aspect is underlined in the case of MTW Investment Co. v. Alcovy Properties, Inc., 616 S.E. 2D 166. In this case, Regency Forrest Association, a partner to MTW Investment, sold land to Alcovy. However, MTW sued Regency arguing that it did not have legal authority to sell the land. As a result of its legal action, Alcovy argued that it lost a substantial amount of speculative profit that it would have gained by subdividing the land and reselling it. Considering the fact that the loss to Alcovy was only speculative, the court held that MTW was liable for paying Alcovy nominal damages. In addition to nominal damages, Lewis can also sue for punitive or exemplary damages. Rush and Ottley assert that punitive damages are intended at punishing the defendant as opposed to compensating the claimant.   

In suing for anticipatory breach of contract, Lewis has two options. First, he can sue Jenny prior to the expiry of the period issued and immediately after learning of Jenny’s intention to sell the car. The rationale for bringing legal action against Jenny is to caution her against performing the intended contract with Grant. Therefore, through this action, Jenny may decide to retract her intended anticipatory reparation hence restoring the original contractual relationship between Jenny and Lewis.  According to Miller, ‘the repudiating party can retract her or his anticipatory repudiation by issuing proper notice and restore the parties to their original obligations.’ On the basis of this aspect, Jenny would have to wait until the expiry of the period issued to Lewis. Alternatively, Lewis can wait until the expiry of the period requested to gather the £10,000 before seeking legal action.

The scenario indicates that Jenny has already sold the car but Grant he is yet to collect it. In this situation, Lewis can seek an injunction that entails an equitable remedy in situations of anticipatory breach.  One can apply equitable remedies if a non-breaching party cannot be protected by monetary damages. Wilkie, Malcolm, and Luxton assert that the aggrieved party as a result of anticipatory breach may sue for specific performance, which entails undertaking specific terms of the contract. 

If an offer in a contract has not been accepted, the offeror may successfully revoke the contract. However, in this case, Lewis had accepted the offer and duly notified Jenny who in response agreed to issue Lewis the requested time.  Jenny was only capable of withdrawing the offer if Lewis declined to accept the offer within the stipulated time. This aspect is underlined in the case of Dickenson v. Dodds, (1876)2 Ch. D. 463.  In this case, the defendant had made an offer involving the sale of his house to the claimant and agreed to keep the offer open for some time, until Friday. However, the offeror accepted another offer from a third party on Thursday relating to the purchase of the house. The offeror subsequently requested his friend to communicate the news of the withdrawal of the offer to the claimant on Friday morning and purported to have accepted the offer.  The claimant further brought an action against the defendant seeking specific performance on the contract. In this case, the court held that the offeror had successfully revoked the offer because the claimant had not accepted the offer. Thus, there was no formal contract binding the two parties and hence there was no contractual obligation that the offeror was required to observe.  However, in this case, Lewis had accepted the offer which means that Jenny was bound to the resulting contractual obligations. According to Arvind, a contract that is duly accepted cannot be unilaterally revoked. In this case, Jenny and Lewis had concluded the contract on the sale of the classic car. Thus, Jenny was in contravention of the law of contract by unilaterally revoking the contract.  

Lewis’ probability of succeeding in seeking an injunction against Jenny is underlined by the fact that the classic car entails a limited model. Ashcroft and Ashcroft emphasises that success in suing for specific performance is relatively high in limited cases such as contracts involving the sale of real estate or rare personal property whose actual value cannot be determined like the classic car in this case. The scenario indicates that Lewis has a special interest in classic cars. However, his interest cannot be actually determined which means that monetary damages cannot adequately compensate the extent to which Lewis is injured by Jenny’s decision to repudiate the sale contract. In this scenario, Jenny erred by failing to act in accordance with the earlier agreement with Lewis. On the basis of the injunction, Jenny would be barred from undertaking a particular act. In this case, Jenny would be barred from transferring the car to Grant.

Conclusion

The scenario underlines the fact that parties to the contract have rights that are entrenched under the contract law. One of the areas protected under contract law relates to the sale of goods between individuals or businesses. Contract law is aimed at governing the relationship between the parties to the contract hence ensuring that the respective parties perform their contractual obligations. Contract law further underlines the actions that the injured party during the contract may take in seeking remedy in the event that one of the parties to the contract acts contrary to the agreed term of the contract.

In the scenario, Lewis and Jenny entered into a legally binding contract by agreeing to the express terms issued by the two parties. Lewis agreed to the offer made by Jenny to sell the car at a consideration, of £10,000.   Similarly, Jenny agreed to the request made by Lewis that he be provided additional time to gather the money.  Jenny agreed to the request and communicated that he would keep the offer open to Lewis. Thus, Jenny did not have the capacity to revoke the offer since it had already been accepted. Jenny not only acted wrongfully but also breached the contract by agreeing to sell the car to Grant before the expiry of the time issued to Lewis. Thus, Lewis has a right to sue Jenny for breach of contract. In seeking legal redress, Lewis should prove the existence of an anticipatory breach of contract which may compel the court to hold liable Jenny for nominal damages. Alternatively, Lewis has a right to sue Jenny for punitive or exemplary damage, with the intention of punishing Jenny for her wrongful action. In addition to this approach, Lewis may also seek legal remedy by suing Jenny for non-delivery. This arises from the fact that Jenny did not adhere to her contractual obligation which entailed waiting for the expiry of the time issued to Lewis before making a decision to sell the car to Grant.   

Despite the fact that Jenny had sold the car to Grant, the scenario indicates that she had not actually delivered the car to Grant. Upon learning of the issue, Lewis may consider seeking an injunction against Jenny, which would bar him from making the delivery to Jenny. The applicability of an injunction, in this case, is underlined by the fact that the car had sentimental value to Lewis, which could not be measured in monetary value.  By taking into account these aspects, there is a high probability that Lewis would succeed in bringing legal action against Jenny. In spite of the fact that she might not be compensated in monetary terms, there is a high probability that the court may rule the transaction between Jenny and Lewis null and void.

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