The Formation and Termination of a Contract - Assignment Example

1 (a) For the purposes the formation and termination of a contract explain the following: (i)Terms of the contract A contract comes into existence when there are offer and acceptance subject to rules applicable to them. If the offer and acceptance are not according to law, even if other elements of contract such as consideration, performance by one of the parties, there can no valid contract. Thus each party must have intended to enter into a contract. The voluntary nature of offer and acceptance is the foundation to enforcement of the contract. The terms of contract should not be mistaken by the parties in that there should be meeting of minds between them Thus there should be free offer, free acceptance, certainty and there should be an intention to cerate legal relations. It should have been mutual without being influenced by fraud, misrepresentation or mistake. The agreement consisting of valid offer and acceptance must be supported by consideration The contract can be also subject to certain implied conditions. The terms of contract as decided or intended by the parties determine its scope. But the intention must be assessed objectively. Rather than what the parties had in their minds, what a reasonable man put in their shoes might have reasonably intended will be relevant to decide the formation or termination of a contract. If the contract is not in writing, their intentions must be ascertained in the light of exchange of information between them prior to formation of contract must be. The general rule is that terms of contracts are as intended by the parties. (Gillies, 1988) (ii) Frustration of a contract Frustration is an event that prevents performance in a contract due to reasons beyond control of either party and which the contract also does not provide for. It follows therefore that this doctrine of frustration can only apply to unforeseen events. Rather unforeseeable events. This doctrine of frustration is aimed at allocating risks instead of burdening one or other of the parties. It is justifiable in terms of efficiency as if parties have entered into a contingent contract. It has also the credit of promoting fairness. (Beale, Bishop and Furmston, 2007, p 459) This impossibility of performance was first recognised in Taylor v Caldwell (1863) in which case the concert could not be held due to fire accident. As an unforeseen event, the concert hall-owner was held to have no liability towards the promoters of the concert for their lost profits. Thus the doctrine of frustration envisages discharge of contract by the impossibility of performance. Even crop failure has also been held as due to frustration over a particular tract of land. Thus it benefits poor-risk bearers such as agribusiness interests and non-profit corporations. But this impossibility doctrine has the tendency on the part of person such as the concert hall owner to be inefficient without taking adequate precautions. (Beale, Bishop and Furmston, 2007, p 459,460) In case of Sale of Goods Act however, similar situation will be treated differently. When goods already sold but not delivered to the buyer, good are presumed as lying at the seller’s godown at the buyer’s risk. Hence if fire breaks out at the seller’s godown and goods are destroyed, seller is not liable but the buyer will be still liable to pay the price to seller. Impossibility of performance will not apply in this case. Further, this doctrine will apply not only when subject matter is destroyed but also in case of subject matter becoming illegal. (Beale, Bishop and Furmston, 2007, p 462) In yet another case, reverse is the outcome. Lord Reid held in Davis Contractors Ltd v Fareham UDC (1956) that contractors were not benefited by impossibility of performance. The contractors who were the appellants belatedly completed construction of 78 council houses for respondents after 22 months as against the contract for 8 months. They demanded extra price on the ground of shortage of skilled labour and that long delay increased the cost of construction. Thus these events which were quite foreseeable could not get protection under the doctrine of frustration. The above principles would apply to both formation as well as termination of contract. Thus in unilateral and bilateral offers, there can arise certain situation by subsequent illegality of the subject matter offer which even if accepted by the other party, it can not enforced since formation of contract itself is frustrated by unforeseen events. Termination of contract by frustration arises where both offer and acceptance have been exchanged but subsequent unforeseen events prevent performance as stated above. (b) On Monday 8 September, Harry offers to sell his motor cycle to his workmate, Ian for £ 500 cash. Ian posts a letter of acceptance to Harry. Ian incorrectly addresses the letter and consequently it is delayed and does not reach Harry until Tuesday 16th September on. However, on Monday 15 September Harry, thinking Ian is not interested in buying the motor cycle, arranges to sell it to James for £ 450. The law relating to postal rule will apply in this case. Following are the general relevant principles and case law for acceptance by post. The general rule that offeror should receive the notification of acceptance for formation of a contract has an exception. That is, the postal rule by which if the acceptance is posted by offeree, the contract is deemed to have arisen. The conclusion of the contract need not wait till the post is received by the offeror. Thus the offeror cannot revoke his offer after the acceptance is communicated by post. The agency concept is behind this rule since post office is considered an agent. The postal rule was proposed in Adams v Lindsell (1818) however on the basis of speed, early reliance by the offeree and convenience than logic thus protecting the offeree at the expense of the offeror who stands committed even before the acceptance comes to his knowledge. Therefore an offer must be serious enough so as to lend credibility in business transactions. The postal rule also makes it open for the offeror to insist at the time of making his offer that postal rule would not apply. If he does not exclude, he is assuming the risk of postal acceptance. Thus in Household Fire Insurance Co v Grant (1879), the court observed that the offeror must be prudent enough to stipulate that acceptance of the offer will not be valid until its actual receipt by him. He is also free set a time limit for receipt. In Holwell Securities Ltd v Hughes (1974), it was stipulated that offer to sell a house should be accepted by notice in writing to the offeror. Since the acceptance by post never reached the offeror, it was held that that there was no contract and the construction of the terms of offer construed to mean that acceptance must be actually received by the offeree. (Mulcahy and Tillotson, 2004, p78) In view what has been stated above, it is because of Ian’s mistake of incorrectly addressing his letter of acceptance to Hary that the delivery of the letter was delayed. The postal rule is to wait for a reasonable time. Hary waited for sufficiently reasonable time before selling his motorcycle to James at a lesser price. Hary did benefit by selling at a higher price under the pretext of postal delay. Since the acceptance was not timely, there was no contract between Hary and Ian and hence Hary is not liable to Ian for breach of contract. 2 What elements must a claimant prove if he wishes to make a claim under the tort of negligence? Liability for negligence is founded on the principles of duty of care, breach of that duty and the resultant damage and loss. The defendant must have been implicated in all these circumstances to become liable. The liabilities arising out of negligence are a part of Torts law known as civil wrong. When misfortune strikes, the victim suffers loss of money, property and even life. The costs of misfortune except those falling under torts are borne by the community. “Tort law is one of the institutions political communities develop in order to allow victims the opportunity to shift the costs that befall them to others” (Theories of Tort Law) There are three basic elements of civil wrong. There must be a wrong, harm must be caused by it, and there must be a connection between the wrong doer and the victim. However it can not be a tort if some one beats another in sports or competition because of which the loser suffers loss. Similarly in business, there is no tort if some body loses in the competition. The reason behind Tort liability therefore is committing a wrong and breaching a duty of care to the victim. Duty of care is the concept based on which courts have to treat cases in abstract as could be observed in Hill v Chief Constable of West Yorkshire (1989). In this case when the duty of police was discussed, it was observed that there was no duty of care existed on the part of the police. A woman was murdered by a criminal and it was argued by her estate that the Chief constable should have nabbed the murderer. It was held that there was no duty as such to nab the criminal on the part of the police unless there was a situation of police finding the murderer. Besides, there has to be proximity between the litigating parties without which it is not possible to hold a person liable. In the case of Caparo Industries Plc V Dickman (1990), investors sued auditors for having negligently prepared the accounts of the company and even though it was held that there was no proximity between the litigants and hence the accountant was held not liable, House Lords reversed it saying that a duty will be found under an authority and “new duties should be developed with reference to forseeabilty of damage, proximity between parties and what is fair, just and reasonable.” (Introduction to Tort Law) This will not be complete without the mention of the Scottish case law of Donoghue v Stevenson (1932) in which tortious liability for defective products was first propounded by Lord Atkin. This decision not only influenced product liability but also the law of torts. Earlier to this decision, manufacturer had no liability to the victim or the consumer if he had not purchased directly from him. Even otherwise, the liability was under contract and not under delict or tort. Donoghue decision that rejected the fallacy of no duty of care to the consumer either under contract or tort was perhaps motivated by the decisions in America in MacPherson v Buick Motor Co (1916) and in Canada in Buckley v Mott. (1920) wherein delictual liability of the manufacturer to the consumer had been recognised. Ferrari (1994) says that Donoghue decision is far more important to the law of torts than to its contribution to the concept of product liability. He predicts that the celebrated Snails case will have its influence forever as it revolutionised the law of negligence as noted by Williams and Hepple (1976) that Donoghue decision demonstrated the expansible nature of action of negligence. It has widened the scope of application of tort in negligence without being dependent upon precedents and makes categories of negligence limitless and consequently no precedents other than Donoghue need be mentioned in decisions ever since unless there is a valid explanation for its exclusion.(Ferrari1994) The neighbourhood principle that one must take reasonable care to avoid acts or omissions likely to injure persons who are so closely and directly affected by one’s act, was enunciated by Professor Pollock. (1889) Prior to Donoghue, similar claim in a typical product liability case was unsuccessful in Mullen v AG.Barr (1929) in which a dead rodent had been found in a bottle of ginger beer. The aerated water manufacturer AG.Barr was absolved of liability for the simple reason of no legal authority being available to allow such claim for damages which cause was espoused by the solicitor Leechman known for product liability claims. It is noteworthy it was the same Leechman who argued for Donoghue and finally succeeded. Thus a claimant must prove the duty of care by the defendant, neighbourhood i.e proximity of the causation, breach of that duty by the defendant and damage or loss caused by that breach to the claimant, for making a claim for tortious negligence. There need be no privity of contract between the parties. . References Adams v Lindsell (1818) EWHC KB J59 Beale, Bishop and Furmston, 2007 Contract Edn 5, Oxford University Press Buckley v Mott (1920) 50 D.L.R. 408, (N.S.S.C.) Caparo Industries plc v Dickman 1990 2 AC 605 Davis Contractors Ltd v Fareham UDC (1956) AC 696 Donoghue v Stevenson (1932) A.C. 562 Ferrari Franco, (1994) “Donoghue v Stevenson’s 60th Anniversary”, Annual Survey of International & Comparative Law, 1(81) p 85 Gillies Peter, (1988) Concise Contract Law, Federation Press Holwell Securities Ltd v Hughes (1974) 1 WLR 155 Hill v Chief Constable of West Yorkshire (1989) AC 53 Household Fire Insurance Co v Grant (1879) 4 Ex D 216 Introduction to Tort Law < http://www.powerapple.com/modules> accessed 8 Aug 2009 MacPherson v Buick Motor Co (1916) 217 N.Y. 383, 111 N.E. 1050 Mulcahy and Tillotson, 2004, Contract Law in Perspective, edn 4, Routledge Cavendish, Mullen v AG.Barr (1929) S.C. 461 Pollock Frederick (1889), The Law of Torts Taylor v Caldwell (1863) 3 B & S 826, 122 ER 826, Queen’s Bench Theories of Tort Law, Stanford Encyclopedia of Philosophy Oct 20, 2003. Williams Glanville & Hepple B.A., (1976) Foundations of the Law of Torts, 88 Read More