Law of Contracts in the UK - Essay Example

CONTRACT LAW ESSAY Under law of contracts1 in UK applicable to relevant facts of the case, calling for tenders is an invitation to treat i.e., the purchaser invites offers from prospective sellers (of goods and services). Company A had called for he tenders from prospective suppliers of the equipment it needed to double its production. It received offer from Company B for supply of equipment at £ 1.5 million. Company A accepted this offer. The Company B became the offeror and Company A the offeree. It effectively agreed to the terms of business of Company B, turning the agreement into a contract. The Company A has accepted the contract with Company B with all the clauses. Company B, in effect offered to provide the equipment by a particular date. It agreed to do so for a particular amount, which is the consideration. Company B accepted the offer and communicated to Company A that they would complete the order. The letter issued by Company B stated that it was “accepting the order subject to our standard terms of business.” Clause 10 of the standard terms of business of Company B in effect stated that Company B would be liable to any defect in the equipment only if claim to that effect is lodged within seven days of supply of the equipment. The standard terms of Company B also provided that it would not be liable for any loss caused due to delay in supply of equipment. The Contract Manager of Company A communicated to Company B the details of the equipment it needed, and by implication agreed to the standard terms of business of Company B in their entirety. From the above, it is clear that the parties had entered into a contract which had the following terms relevant to the problem at hand. (i) Company B would provide specific equipment to Company A. (ii) Company A would in return pay £ 1.5 million to Company B. (iii) Company B would provide the equipment to Company A by 1st August 2009. (iv) Company B would be liable to any defects in the equipment only if the defect was reported to it within seven days of the supply of equipment and not otherwise. (v) Company B would not be liable to any loss caused due to delay in supply of equipment. The first three terms were acted upon. The equipment was supplied to Company A well within time. Company B was paid for the same. The other two terms are not applicable to the problem at hand. Company A did not communicate to Company B the defect within time, and the liability of Company B as regards the defects ended on 8th July 2009. So the complaint communicated to Company B by letter Dt. 15th July 2009 can not be legally enforceable. The contract entered in to by the parties was fully acted upon, and no clause of the contract would be open for interpretation other than what was given to it in express terms. The contract was of the executed consideration type and ended in fulfillment when the Company B was paid by the Company B. Though the Contract Manager of Company A was unaware about the particular Clause 10 which ended the liability of Company B on expiry of period of seven days of the supply, it does not in any way alter the lack of the contractual obligation on part of Company B on expiry of that period. That Company B agreed, as a gesture of goodwill to cure defects in the equipment, does not in any way mean that it has waived its indemnity against defect in the equipment arising out of Clause 10 of the standard terms of business which Company A had accepted by implication. The contract was completed when the Contract Manager of Company A communicated to the Company B the detailed specification for the equipment. The contract, which according to the relevant provisions of law is called an agreement of sale was discharged on the delivery of the equipment, and the acceptance of the goods by the Company A. The legal provision for this is “When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer:— (a)when he signifies his approval or acceptance to the seller or does any other act adopting the transaction; (b)if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.”2 In the present case, though the contract does not provide for return of goods, there is a stipulation as to the time when the defect in the goods is to be notified. The omission of Company A to do this has meant that it has waived its right to repudiate the contract. The contract stood discharged on 8th July 2009, and the parties had no liabilities towards each other. In this case, whatever warranty was implied in the contract was waived by the company A upon expiry of the period of seven days as contemplated in Clause 10 of the standard terms of business of Company B. It is further to be noted that though Company B has agreed to repair the equipment, it has done so as a gesture of goodwill. Company B was not legally bound to do anything. It had communicated so to Company A prior to taking the equipment away for repair. Though the repair took longer than expected, there was no contract between the parties after the first contract was discharged. There were no mutual rights and obligations between the parties, and hence there is no question of any kind of breach of contract. In context of the legal aspect in the present case, it is necessary to understand that a Contract to be valid must have the following six specifications, which are called essentials of a valid contract- agreement, consideration, intention, capacity, genuine consent, and legality. An agreement is formed when there is an offer and acceptance, consideration is the price in commercial contracts, and the parties should have consented to the act/acts agreed upon to be performed in the future. Company A is now claiming damages for the lost profits between the period 1st August 2009 to 1st November 2009. These losses are, according to Company A consequence of the delay in installation of the equipment resulting in its full utilisation for its intended purpose, i.e. doubling of production output. The losses are under three heads, 1. £ 100,000 that it says it would have earned using old equipment 2. £ 100,000 that it says it would have earned had the equipment met the specifications at the time of installation. 3. £ 500,000 that it says it would have earned as profit from a M. O. D. contract, opportunity to bid for which was lost. First of all, it is necessary to understand that the loss of profits foregone is for a period when the parties were not bound by any contract. As such, there is no question of any breach. When each party has done as expected, the contract ends. The parties are discharged from further liabilities or rights in respect of the said contract. Hadley v Baxendale3 is an important regarding the breach of contracts. The plaintiff in that case was a mill owner who sent a shaft by carrier to his supplier of shafts. The shaft was not delivered in time, as a consequence of which the plaintiff suffered losses. It was held by Court of Exchequer that the defendant, the carrier had no means of knowing any special damage would result from the delivery being late. It was also held that the plaintiff should have informed the defendant about the consequences of late delivery, and bound him into contract. In the present case, there was no need for Company A to stop production using the old equipment during the time the equipment supplied by Company B was being repaired. In Victoria Laundry4, Newman Industries were ordered to deliver boilers to Victoria Laundry. The boilers were delivered late, and in the meanwhile, Victoria Laundry lost a lucrative contract from the Ministry of Supply. They sued for damages both for actual profits foregone and the profits from the expected Ministry of Supply contract. It was held by the House of Lords that the defendants i.e. Newman Industries could not be expected to have knowledge of the fact that Victoria Laundry was intending to bid for the contract, hence they would not be liable for the damages for profits foregone on the Ministry of Supply contract. In Fothergill5 the House of Lords had occasion to consider the nature of stipulation in a contract about time for making complaint. A customer of Monarch Airlines, Fothergill had his suitcase delivered to him in a damaged condition. He did not complain about it in the appropriate form to the airline (Monarch), and Monarch did not pay him the damages claimed. Ultimately, it was held that the Airline should have been noticed within the stipulated period so that it would take effective steps to insure that the damage was rectified. In the present case, Company B had stipulated that defects, if any should be communicated to it within seven days of delivery of the equipment, but this was not done. Hence the Company A has waived its right to claim damages of any sort, and further, the Clause 10 of the standard terms of business of Company specifically states that Company b would not be liable to any losses arising out of delay in supply of equipment. Company A is claiming damages for the foregone profits between the period from 1st August 2009 to 1st November 2009. There was no contract for delivery of goods between that period, so there is no question of breach of contract, and Company A is not entitled to any damages, as it was within its discretion to mitigate the damages, as was its duty, by taking adequate steps to prevent losses. Hence the three heads under which the company A claims are not sustainable in law. Read More