Contract Law - Central London Property Trust Ltd v High Trees House Ltd - Essay Example

Contract Law Part Question In the present problem, Joe had completed the work relying on the promise made by Sid to pay an extra amount of £25,000. Since, Sid had already sold many of the houses and had thereby entered into agreements with third parties, promising occupation in July; he would have undergone considerable loss, if the houses had not been completed within the promised time. For assessing whether Sid is liable under the principle of promissory Estoppel, the following case law has been examined. The principle of promissory estoppel emerged in Hughes v Metropolitan Railway Co1. Initially, it was not given much recognition by the courts. It was left to Lord Denning to assess its significance and reintroduce it in Central London Property Trust Ltd v High Trees House Ltd. In this case the plaintiffs had leased out a number of apartments to the defendants. Thereupon, the World War had commenced. Consequently, the occupancy of these apartments reduced drastically. The defendants requested the plaintiffs and obtained a reduction in the lease amount. Afterwards, the World War came to an end and all the apartments were occupied. At this juncture, the plaintiffs demanded the originally agreed upon lease amount, for the period when the World War had been in progress. Lord Denning ruled that this was inequitable, because this would require the defendants to pay the full amount even though the apartments had been vacant2. Therefore, the plaintiffs were made subject to a promissory estoppel. It was held by the Court of Appeal in Williams v Roffey that where a party to an existing contract later agrees to pay an extra bonus in order to ensure that the other party performs his obligations under the contract, then that agreement is binding if the party agreeing to pay the bonus has thereby obtained some new practical advantage or has avoided a disadvantage. It was also held that executing an existing contractual obligation constitutes valid consideration, because it prevents the breaching of a contract with a third party3. In our problem also, evasion of such losses is the practical benefit obtained for executing the existing contractual obligation, as per the decision in Williams v Roffey. Moreover, in CTN Cash and Carry Ltd v. Gallaher Ltd, it was decided that the practical benefit accruing to the promisor must be treated as consideration for extra payment4. In Central London Property Trust Ltd V. High Trees House Ltd, rent was reduced during World War II, as per the new agreement. After, the war was over, the landlord attempted to invoke the original contract, in order to obtain higher rent. The tenants invoked the principle of estoppel against the landlord and prevented him from enhancing the rent. In Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd, the patent owners promised to defer periodic payments of compensation, from the manufacturers, from the outbreak of war. It was held by the House of Lords that the promise was binding during the period of suspension; however, the owners were permitted to receive the compensation payments, after furnishing reasonable notice to the other party5. All the same, in Pau On v. Lau Yiu Long past consideration was held to be good consideration. The court ruled that for a new contract, an advantage that was bestowed or a disadvantage that had been undergone in the past was valuable consideration, as long as the payment was forthcoming6. Sid had avoided infringing contractual obligations with third parties due to completion of work in the stipulated time. These benefits constitute consideration for the promise made by Sid. According to the principle of promissory estoppel, Sid cannot avoid payment of the extra amount to Joe. Question 2 In this problem, Dawson wanted to sell Creek Videos, in which he had conducted business for twenty years. During discussions, Dawson stated that it was the largest and best video shop in that area, and that it had the widest range of films pertaining to the 1930s. His estimation of the future sales proved to be incorrect. Moreover, he did not disclose that a rival business establishment had been recently commenced in that area. Pacey the purchaser of this business, was a chef and a novice in this business. Therefore, even if he had perused the accounts of the business, he would have discovered nothing unusual, as it would have required thorough knowledge of the business to unravel the false statements made by Dawson. The absence of a restraint of trade clause, in the agreement, indicates the malafide intent of Dawson. Fraudulent representation transpires if a false statement is made for pecuniary gain. In Derry V. Peek7, the House of Lords laid down that it was unnecessary to establish mens rea in an action for deceit. All that a plaintiff had to show was that the defendant was aware of the falsity of the statement, he did not believe it to be true or it was made recklessly, regardless of whether it was true or false. The remedy available is a damages claim, in accordance with the common law tort of deceit. In Hedley Byrne v. Heller, their Lordships ruled that under certain circumstances, damages could be recovered in tort for negligent misstatement causing financial loss8. An aggrieved party can recover damages even in the absence of a fraudulent representation, unless the other party can prove that at the time of making the statement he believed it to be true and had reasonable grounds for that belief9. A person making a misrepresentation without fraudulent intention also shall be held liable for damages. In Watts V. Spence, one of the joint owners of a piece of land agreed to sell it without the knowledge of the other owners. He was held guilty of fraudulent misrepresentation10. Even in innocent misrepresentation, wherein a statement believed to be true at the time of contracting, was relied upon; the onus of proof rests on the person making the allegation. The remedies available are revocation of the contract and claim for damages11. In Barclays Bank PLC v O’Brien, the wife was merely required to establish that she was living with her husband and that the disputed transaction was not to her advantage; in order to circumvent the burden of proof. This transferred the onus of proof upon the bank, which was required to show that it had adopted reasonable measures to satisfy itself that her consent had been properly procured12. Leaf v International Galleries Ltd, entailed misrepresentation. In this case, a painting was sold, but subsequently, after five years, the buyer came to know that there was a misrepresentation in the contract. As such, he wanted to rescind the contract. It was held by the Court of Appeal that the buyer could not rescind the contract13. Lord Denning stated that the statement was a condition in the sale contract, and that the misrepresentation had been in breach of that condition. Consequently, the buyer had the right to rescind the contract on that basis. However, the right to reject had been barred due to lapse of time. This is not the case with innocent misrepresentations; which cannot be treated as the breach of a condition. Therefore, claims to rescind contract on the basis of innocent misrepresentations would not be successful if the right to reject, on the basis of breach of contract is disallowed by the courts14. In Esso Petroleum v Mardon, Mardon had been informed by an experienced Esso employee regarding the expected annual sales of the petrol pump. This estimate was based on the false representation that the main entrance was located on a main road. Lord Denning ruled that the higher sales estimate should be the result of a reasonably careful estimate of the sales. Hence, the company was liable for misrepresentation15. As per the decision in Esso Petroleum, Dawson’s statement with regard to profits, indicates fraudulent representation. Since, the reduction in the value of the property was on account of unexpected changes; Pacey can claim damages, only to the extent of £80,000. Question 3 In case of an offer, the offeror intends to be bound by the terms of the offer, which are accepted by the offeree. A contract is formed on the acceptance of the offer by the offeree. On the other hand, an invitation to treat is merely an attempt to enter into negotiations and is distinguished by the absence of an intention to be bound legally16. In general, advertisements are deemed to be invitations to treat. However, under certain circumstances they are held to be offers. For instance, the newspaper advertisement in Carlill v Smokeball was held to be an offer. In this case, the defendant had contended that his advertisement was aimed at the general public and not at any specific individual; hence it did not constitute an offer. However, the court held that a contract had been formed as the plaintiff had complied with the terms of that offer17. A had advertised to sell his Bentley car to anyone paying more than £50,000. This constitutes an invitation to treat and not an offer; because an offer has to be clear and unambiguous, in respect of its terms and conditions. In this case, the amount is not exact. For assessing the liability of A towards B ,C and D the following case law has been examined. In Entores Ltd v Miles Far East Corpn, Lord Denning held that the offeror is bound by the acceptance, even though he was not in receipt of the acceptance, on account of his own fault18. In this case, it was held that the contract is formed at the place where acceptance of the offer is received. Since, fax and telex messages, as also telegrams constitute instantaneous modes of communication, an agreement is formed on the receipt of such message19. In our problem, A sent a fax message to B that the latter’s offer was unacceptable. This was not received by B due to his illness. As there was no acceptance, there is no binding contract. In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council, the plaintiff’s application was treated as a late submission, due to oversight. The court held the defendant is liable for damages20. A had offered to sell the car to the person quoting the best price and C had made the best offer; since A disliked C , his offer had been ignored by A. As per the decision in the Blackpool case, A is liable to C for damages for not considering his offer. Accordingly, C will receive damages from A for having failed to consider his offer application. Communication of acceptance transpires only when it is really brought to the notice of the offeror. If such communication of the acceptance had been received by the agent of the offeror, who is specifically authorised in this regard, then also it constitutes valid acceptance. In instances of instant communications, like telephone and telex messages, and face to face negotiations, the offeror should actually have received the acceptance of his offer. Similarly, A sent a fax to D accepting his offer. Since, fax is an instantaneous mode of communication, it is to be construed that A has accepted the offer made by D. Hence, A has a binding contract with D. Question 4 Pablo was desirous of purchasing a painting, which he believed to have been drawn by a famous artist. John, the seller, informed Pablo that the painting was authentic. A much impressed Pablo consented to purchase the painting for the price quoted by John; because, he was convinced by John’s statement. In assessing the liability of John for having misrepresented facts relating to the genuineness of the painting, the following aspects have to be taken into consideration. A misrepresentation is a false statement, which had been made by one party to another, while forming a contract. If a party suffers loss due to such misrepresentation, then he can either seek damages or rescission of the contract. The Misrepresentation Act defines negligent misrepresentation, and assumes every misrepresentation to be negligent. It is upto the person alleging the representation to establish that a misrepresentation had taken place. The remedies for the loss incurred due to negligent misrepresentations are annulment of the contract at the choice of the deceived party and claim for damages. In Derry v. Peek, the House of Lords held that mens rea need not be proved in an action that was trying to establish deceit and the only thing needed was for the plaintiff to show that the defendant either knew or believed that the statement was false. While establishing deception, the court held that it was sufficient if it could shown that the defendant did not believe in the veracity of the statement or that the defendant had made that statement negligently, with the least regard for its truth or falsity. In Beale v Taylor21 the buyer purchased a vehicle after inspection, which had been described by the seller. In Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd22 a transaction between two art dealers was not considered to be a sale by description as the buyer was competent to rely on his own expertise to assess the value of the painting. In With v O’Flanagan the defendant’s practice was described as providing an annual income of £2000. Just prior to the formation of the contract, the practice ran into difficulties, which reduced its value considerably. The plaintiff realised this fact, only after the formation of the contract and initiated action in misrepresentation. Lord Wright held that a representation that serves as inducement to form a contract should hold true till the contract is made. Hence, suitable damages were awarded to the plaintiff23. If John had been aware of the fact that the painting was forged, but had not informed Pablo; then his act constitutes fraudulent misrepresentation. Thus, Pablo can either seek rescission of the contract or damages to the extent of £ 500,000. In the event of John being ignorant about the genuineness or otherwise of the painting, his act constitutes negligent misrepresentation. In this case, Pablo can either seek rescission of the contract or damages to the tune of £ 500,000. Finally, if John had truly believed the painting to be a genuine work of art, then his act would constitute an act of innocent misrepresentation. Even in cases of innocent misrepresentation, the remedies available are rescission and a claim for damages. However, the burden of proof rests on the person making this claim; if this person fails to prove this claim the contract will be rescinded and a claim for damages against him will be entertained. Therefore, John has to establish that he did not know about this misrepresentation. In case he fails to do so, the contract with Pablo will be rescinded and he will be liable to Pablo for damages to the extent of £ 500,000. Bibliography Barclay Bank PLC v O’Brien [1994] 1 AC 180 Beale v Taylor. (1967) 1 WLR 1193. Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 Carlill v Smokeball Co [1892] 1 QB 256 Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 CTN Cash and Carry Ltd v. Gallaher Ltd [1994] 4 All ER 714 Derry V. Peek [1889] 14 App Cas 337 Diane Rowland, Elizabeth Macdonald, Information technology law, 2nd Edition, Routledge, 2000, P. 296 – 297, ISBN 1859415644, 9781859415641 Entores Ltd v Miles Far East Corp [1955] 2 QB 327 Esso Petroleum v Mardon [1976] QB 801 Harlingdon and Leinster Enterprises Ltd -v- Christopher Hull Fine Art Ltd [1991] 1 QB 564 Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465 Hughes v Metropolitan Railway Co [1877] 2 AC 439 John Keith Macleod, 2006, Consumer Sales Law, Routledge – Cavendish, P 936. Laurence Koffman, Elizabeth Macdonald, The Law of Contract, 2007, Pp. 29 – 30, 6th Edition, Oxford University Press, ISBN 0199207151, 9780199207152 Leaf v International Galleries Ltd [1950] 2 KB 86 Misrepresentation Act, 1967 Pao On v Lau Yiu Long. [1979] 3 WLR 435 Tool Metal Manufacturing Co Ltd v. Tungsten Electric Co Ltd [1955] 1WLR 761 Trade Practices Act 1974 Watts V. Spence [1975] 2 All ER 528 Williams v Roffey Bros. and Nicholls (Contractors) Ltd [1991] 1 QB 1 With v O’Flanagan [1936] Ch. 575 Read More