The Contract between Posh Posters and Pretty Paintings - Essay Example

In order to advise Posh Posters with regard to its rights against Pretty Paintings Limited it will be necessary to evaluate the following Whetherthere was in fact a legally enforceable contract between Posh Posters and Pretty Paintings; 2) If there was a legally enforceable contract whether Posh Posters are entitled to revoke the contract thereby negating any claim by Pretty Paintings for breach of contract; and 3) Alternatively, the legal implications for Posh Posters if the revocation is found to constitute breach of contract. The law of contract stipulates three fundamental requirements to establish a legally enforceable contract; namely offer, acceptance and consideration (it is important to note that parties entering into a contract must also have legal capacity to do so and it is presumed from the facts given that capacity is not an issue in this case). Lord Wilberforce asserted the rule for formation of contract in New Zealand Shipping Co Limited v A M Satterthwaite, The Eurymedon1: “English law having committed itself to a rather technical….. doctrine of contract, in application takes a practical approach…… into the marked slots of offer, acceptance and consideration”2. An “offer” in the context of contract law has been described as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree.3” The “expression4” may take different forms. The intention element is an objective consideration and the case of Smith v Hughes 5emphasised the relevant consideration as being a focus on how a reasonable person would view the situation. The facts of the current scenario indicate that there is no contention that Pretty Paintings made a distinct offer to sell the posters, which was accepted by Posh Posters. The issue of contention here is the nature of acceptance, the exact terms of the contract and whether Posh Posters’ proposed termination of contract constitutes breach of contract. Valid acceptance in law follows a valid offer and the formation of a contract follows immediately. Furthermore, valid acceptance is final and unqualified acceptance of an offer as demonstrated in the case of Peter Lind Limited v Mersey Docks & Harbour Boar6, highlighting the “mirror image” rule, where acceptance must be unequivocal and unconditional, therefore acceptance must “mirror” the offer. Moreover, acceptance is a “final and unqualified expression of assent to the terms of an offer”7. As Posh Posters wrote to Pretty Paintings Limited indicating that it was happy to accept the offer and unequivocally communicated acceptance, the general presumption as illustrated in Adams v Lindsall8 is that if post was the normal and anticipated method of acceptance, then the contract will be formed when the letter is posted and not when it is received by the offeror. If we apply these principles by analogy to the current scenario, there is clearly a contractually binding agreement between Posh Posters and Pretty Paintings Limited. However, the central issue in the current scenario is whose terms of conditions were applicable to the contract. Contractual negotiations will often involve several exchanges between the commercial parties involving offers and counter offers9. The case of Hyde v Wrench10 established that a counter offer brings an end to the original offer. The parties will negotiate through exchanging correspondence, with a series of counter offers as to price and the contract terms, which has been referred to as the “Battle of the Forms”11. The difficulty with this as evidenced with the current situation is determining the exact terms of the eventual contract. Indeed “Chitty on Contracts” underlines this problem and concludes: “Thus it is possible by careful draftsmanship to avoid losing the battle of the forms, but not…….. to win it. The most that the draftsman can be certain of achieving is the stalemate situation where there is no contract at all12.” Despite the possibility of conflict in the current situation as to the exact terms of the contract, there is clearly a contract between both parties by virtue of course of conduct13. However, to clarify the issue of whose terms are applicable, the courts have adopted the “last shot principle”, which was established in the case of Butler Machine Tool Co –v- Ex Cell-O-Corp14 . According to this principle, the presumption is that the last offer which has been accepted without qualification will be determined as covering the conditions of the contract. If we apply this reasoning by analogy to the current scenario, the acceptance of the offer to sell posters was on Posh Poster’s terms and conditions. This was then signed and returned by Pretty Pictures with an express note that they were insisting on the applicability of their terms and conditions. Posh Posters then waited a further two weeks before making a payment of £5,000 to Pretty Pictures. In this period it does not appear that Posh Posters objected to Pretty Pictures’ insistence on the applicability of their terms and conditions, therefore under the “last shot principle”, it would appear that Pretty Pictures’ terms and conditions were applicable to the contract. On this basis, the contractual conditions contained an express term that terms regarding delivery would not constitute a condition. Accordingly, whilst the failure to meet the specified June delivery technically constitutes a breach of contract, it will not entitle Posh Posters to terminate the contract per se. As such, Posh Posters’ attempt to terminate the contract could arguably render them in breach vis-à-vis Pretty Pictures. Alternatively, it is arguable that persistent failure to deliver whilst constituting minor breaches under Pretty Pictures’ terms and conditions may, nevertheless constitute a fundamental breach of contract by 5th July 2008 under the last straw principle; whereby a series of minor breaches are sufficient to constitute a fundamental breach of contract when considered in conjunction15. The onus would be on Posh Posters to prove this. If Posh Posters can establish breach of contract against Pretty Pictures, it would have two options. Firstly the remedy of specific performance, which would then effectively force Pretty Pictures’ hand in ensuring prompt delivery of the posters16. I would then recommend that Posh Posters re-negotiate contractual terms with Pretty Pictures to preserve commercial certainty going forward and redress the bargaining imbalance between the two under the contract. Alternatively, Posh Posters could terminate the contract and sue for damages for loss caused by the breach. Posh Posters would have to establish that it suffered loss as a result of the breach and that the loss was not too remote. The principles of remoteness were set out in the case of Hadley v Baxendale17, which provided that the following losses are recoverable: 1) All loses which flow naturally from the breach; and 2) All loss which was in the contemplation of the parties at the time the contract was made. This rule has been interpreted to mean that only loss which is within the reasonable contemplation of the parties can be recovered18. Accordingly, it is possible that Posh Posters may be simply be able to claim for reliance loss where the objective is to place the innocent party into the position they would have been in had the contract never been made, which is effectively an indemnity for out of pocket expense incurred in reliance on the contract as evidence in the case of Anglia TV v Reed19, which in this case is the £5,000 paid by Posh Posters. Posh Posters also have a positive duty to mitigate its loss and this will again reduce any damages awarded to it for breach of contract. In conclusion, it is evident that there is a contractually binding agreement between the parties. Moreover, under the last shot principle, it appears that Pretty Pictures’ terms and conditions are applicable to the contract, which means that failure to deliver on time will not constitute a fundamental breach of contract entitling Posh Posters to terminate the contract. Accordingly, Posh Posters’ attempt to terminate will constitute breach of contract. Alternatively, Posh Posters’ could argue that the persistent failure to deliver in conjunction constitute fundamental breach of contract entitling Posh Posters’ to specific performance or termination of the contract with a refund of the £5,000 paid to date. BIBLIOGRAPHY Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. John Adriaanse (2004). Construction Contract Law: The Essentials. Palgrave Macmillan. G. H. Treitel., (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. John Uff (2005). Construction Law. 9th Edition Read More