Issues Relating to Contract Formation and Breach of Contract - Case Study Example

BUSINESS LAW ASSIGNMENT Ian, rejected the offer made by Ben, to deliver a lecture to the latter’s class, due to the assumption that a better offer was available on the same date for some other party. However, Ian’s expectations regarding a better opportunity to provide a lecture did not materialise. Thus, on 1 June, Sharon and Ian presented themselves to Ben, in order to deliver the lecture. Ben informed Ian that his services were not required. Thereafter, Sharon assembled several astrological charts and declared that she would provide the audience with a free fortune telling session, after her lecture. At that juncture, Ben realised that Sharon was an astrologer. He informed her that he would not pay her for a lecture on astrology. I PROBLEM ONE This problem is concerned with issues relating to contract formation and breach of contract. For assessing the rights and liabilities of Ben and Ian, the following discussion needs to be taken up. An acceptance constitutes an unqualified and final expression of approval of the offer, in its totality.1 In addition, an original offer of the contract would be negated by the refusal or counter offer by the offeree. This was the ruling in Hyde v Wrench.2 A contract is deemed to be valid, only when it incorporates the following features. First, there is an intention to forge a legal relationship. Second, there must be an offer from the offeror and acceptance from the offeree. Third, there must be valuable consideration. Fourth, the parties to the contract should possess the legal capacity to form a contract. Fifth, the parties to the contract should have genuinely consented to the contract. Sixth, it should have been ensured that the object of the contract is not illegal. Seventh, there should be adequate certainty regarding the contractual terms.3 Nevertheless, an offer can be made to an entity or the world at large. This was the ruling in Carlill v Carbolic Smoke Ball Co.4 However, an offer has no effect, until it is conveyed to the offeree. Consequently, an offer cannot be accepted by the entity to which it is not made or to entities who are not aware of the offer. This is illustrated by Crown v Clarke.5 As such, an acceptance constitutes an unqualified and final expression of assent to the offer, in its totality. When the acceptance is qualified, it is deemed to be a counter offer and a rejection of the original offer. For instance, if a contractor offers to complete a project for a specific amount, and the principal consents to it with the condition that the project has to be completed by a certain date, then the contractor’s offer has been rejected. Moreover, the principal has made a counter offer to the contractor. In addition, the principal is precluded from withdrawing the condition stipulated by him and accepting the original offer of the contractor. The receipt of the qualified acceptance of the principal by the contractor extinguishes the original offer of the contractor.6 In our problem, on 1 April, Ian replied to Ben, by post that he would address the latter’s class. However, on 2 April, Ian sent an email to Ben, stating that he would be unable to accept his offer, due to other commitments. According to the above discussion, there should be an unqualified acceptance to the offer, in order to form a valid contract. In our present scenario, Ian sent an email to Ben, that he could not accept his offer due to his other obligations. This act of Ian constitutes rejection of the original offer made to him by Ben. For example, In Hyde v Wrench, the defendant made an offer to the claimant to sell his farm for £1,000. To this the claimant offered £950 to the defendant. The latter refused to accept this counter offer. Thereafter, the claimant attempted to procure the farm for the originally offered price of £1,000. When the defendant refused to sell the farm to the claimant, the latter brought an action for specific performance against the defendant. The court held that there was no contract, as the counter offer had served to extinguish the original offer.7 Similarly in our present case, Ian’s email dated 2 April, constitutes a rejection of the original offer. According to the case law and discussion, no valid contract had been formed between Ben and Ian. On 1 April Ian had sent a letter of acceptance to Ben, in connection with his offer. Subsequently Ian sent an email to Ben rejecting his offer. This rejection negates the original offer. Consequently, Ian cannot successfully claim breach of contract against Ben. II PROBLEM TWO This problem is concerned with issues relating to mistake in contract law and the related liabilities and defences of parties, in case of the commitment of mistake with regard to basic facts of the contract. For assessing the rights and liabilities of the parties, the following discussion has been made. The doctrine of mistake in equity states that a serious common mistake in contracts during the formation of a contract, accords the right to rescind the contract to the adversely affected party. This was the ruling in Solle v Butcher.8 In addition, a mutual mistake in a contract can be deduced when the parties to a contract are deemed be at cross purposes, and commit a mistake regarding a basic fact related to the contract. This was described in Raffles v Wichelhaus.9 An essential feature of a contractual relationship is the presence of consent of the parties to the contract to be bound by the agreement. This is indispensable, if the agreement is to possess legal validity. Thus, the court, whilst determining the validity of a contract, presume that an agreement has been arrived at, only when all the parties involved are in agreement.10 Moreover, with regard to a mistake in a contract, one of the options is to render the entire transaction null and void from the very beginning. As such, a contract can be made void, only when it is based upon a factual mistake. The courts adopt the approach that contracts are void, when a common mistake had occurred. In addition, the mistake should have been directly related to the subject matter upon which the agreement has been founded.11 Nevertheless, the consequence of a fundamental common mistake in contract formation has proved to be very difficult to comprehend, for English Contract Law. In Bell v Lever Brothers Ltd, the court acknowledged that a common mistake that serves to totally undermine a contract, has the effect of extinguishing it. In Solle v Butcher, the court acknowledged the doctrine of mistake in equity. In accordance with this doctrine, a serious common mistake during the formation of the contract provides the adversely affected party with the right to rescind the contract.12 In addition, the contract law has described a common mistake. Such mistake is shared by both the parties to the contract. In addition, it has to pertain to an extant fact or law. Such mistakes have the capacity to influence the contract by; first, preventing the conclusion of an agreement, via the failure of the parties to produce a matching offer and acceptance regarding an issue that is indispensable for an agreement. Second, the parties to a contract, having achieved an agreement, share an error regarding an essential contextual circumstance. With regard to the first category of mistake, there is no contract between the parties. With respect to the other category of mistake, there is apparently a contract between the parties. However, it has to be determined whether the contract has been vitiated to the extent that it has totally undermined the contract and rendered it void.13 In our present problem, Sharon and Ben shared an error regarding the subject, on which the lecture was to be given to Ben’s class by Sharon. Ben realised that Sharon was an astrologer, after she assembled astrological charts and declared that she would provide the audience with a free fortune telling session. As such, the parties to a contract are considered to be at cross purposes, when they commit a mistake regarding a basic fact related to the contract. In such cases, the offer and acceptance pertain to different things. Hence, there is disagreement and no convergence of minds. In Raffles v Wichelhaus,14 the defendant consented to purchase 125 bales of Surat cotton. The consignment was to be dispatched via the Peerless from Bombay. However, there were two ships, with this name, one sailing in October and the other in December. The Plaintiff’s offer related to the ship sailing from Bombay in December, whereas the defendant’s acceptance related to the ship sailing from Bombay in October. As these vessels were different, it was held that there was no contract between these parties, due to the absence of consensus ad idem.15 Similarly in our problem, Sharon and Ben committed a mistake regarding the basic fact related to the contract. Ben thought that Sharon was an astronomer, due to her name being listed under astronomy, whilst Sharon thought that she would be delivering a lecture on astrology. Neither of them were cognisant of the error in the staff page, which had categorised her as an astronomer. The remedies for mistake are as follows. First, at common law, if the mistake affects the very existence of the contract, then it is deemed to void ab initio. Second, in equity, rescission, restitution or rectification is permitted where the contract has been incorrectly written. The Australian Consumer Law at Section 18 deals with misleading or deceptive conduct.16 Similarly in our present problem, the mistake affects the very essence of the contract. Hence the contract is void ab Initio. In our present problem, since Ben and Sharon were at a mutual mistake regarding a crucial feature of the agreement, the contract can be deemed void ab initio. According to the above discussion and the decision in Raffles v Wichelhaus, Ben can rescind the contract based on the concept of mutual mistake under the provisions of contract law. Hence, Sharon cannot make a successful claim for breach of contract against Ben. BIBLIOGRAPHY A Articles/Books/Reports Capper, D, 2009. Common Mistake in Contract Law. Singapore Journal of Legal Studies, Issue December 2009, pp. 457-473 Gibson, A, and D Fraser, Business Law (Pearson Higher Education AU, 2014) Latimer, P, Australian Business Law (Barton, ACT, Commonwealth of Australia: CCH Australia, 2012) Oughton, D, and M Davis, Sourcebook on Contract Law (Cavendish Publishing Limited, 2nd ed, 2000) Uhner, T E, and P Davenport, Fundamentals of Building Contract Management (University of New South Wales Press, 2nd ed, 2009) B Cases Bell v Lever Brothers Ltd (1932) AC 161 Carlill v Carbolic Smoke Ball Company (1892) EWCA Civ 1 Crown v Clarke (1927) 40 CLR 227 Hyde v Wrench (1840) 49 ER 132 Raffles v Wichelhaus (1864) 159 ER 375 Solle v Butcher (1950) 1 KB 674 C Other When there is a mistake in the terms of a contract: can it be made void? (2015) FindLaw Australia Read More