Breach of Contract Agreement

COURSEWORK:

Sean placed a notice in his flat window stating ‘Guitar for sale – £300′. On Tuesday whilst walking her dog, Anne’s attention was drawn to this notice. The next day Anne walked past Sean’s house again and saw that the notice had been removed. She knocked on Sean’s door and asked him if the guitar was still for sale. He said that it was and Anne proceeded to inspect it. Anne told Sean that she liked the guitar but could not afford more than £250. She also said, ‘I will buy the guitar if I can raise the money’.

Sean promised that he would not sell the guitar to anyone else before Saturday, while Anne tried to raise the money.

On Thursday, Anne phoned Sean but as he was unavailable she left a message on his answering machine saying she had got the money and would collect the guitar on Saturday as agreed.

Sean’s flat-mate, Dave, returned from work later that Thursday and assuming all messages had been heard deleted them from the answering machine not realising that Sean had not yet arrived home.

On Friday Sean met Chris who offered to pay £350 for the guitar which Sean accepted. Later that day he posted a letter to Anne informing her that he had found another buyer.

Paul, the postman delivered the letter to the wrong address and Anne appeared with a hired car to collect the guitar on Saturday morning.

Advise the parties of their legal position.

The first order of business here is to determine whether Sean’s notice constitutes an offer or an invitation to treat. It is well established that an offer is ‘an expression of willingness to contract on certain terms made with the intention that a binding agreement will exist once the offer is accepted.’ Thus, an offer is made with the intention that it will be legally binding, whereas an invitation to treat indicates a willingness to deal without the intention to be bound. On the facts, Sean only has one guitar for sale. If the notice constitutes an offer, Sean would potentially be contractually obligating himself to sell more goods than he actually owned if there were numerous acceptances of his ‘offer’. It follows that he would not want to expose himself to infinite actions for breach of contract. Furthermore, the notice lacks specific details about the guitar, for example is it acoustic or electric? Additionally, the guitar is not displayed in the window and there is no opportunity to inspect it, nor is there a prescribed method of communication with Sean. It is unlikely that a buyer would commit to the purchase without an inspection or description of the guitar. Even though the notice states a definite price, it is doubtful that a court would find the poster sufficiently clear to constitute an offer. There are however, situations where an advertisement does in fact contain all of the essential requirements to be considered an offer. In Carlill v Carbolic Smoke Ball Co (1893), it was held that the advertisement was an offer to the whole world and that a unilateral contract was made with those who met the advertised condition as the intention to be bound was demonstrated by the £1000 deposited with the Alliance Bank. On the facts, Sean’s notice does not demonstrate an intention to be bound and is too vague to be considered an offer. Where an invitation to treat occurs, it is the purchaser that makes the offer and the owner then accepts or rejects it. It follows that the notice is most likely merely an invitation to treat.

It is important to note that ultimately, the court must decide whether a proposal is to be construed as an invitation to treat or as an offer depending upon the language used and the circumstances in each particular case.

English law requires four main elements for the formation of a contract:

• Offer;

• A corresponding acceptance;

• Consideration; and

• An intention to create legal relations.

Each of these elements must be looked at in more detail with regard to the dealings between Anne and Sean. In order for the law to conclude that agreement has been reached it must first be established that an offer and an acceptance have taken place. Clearly, Anne and Sean have entered into negotiations and Anne has proposed terms which Sean appears to have accepted. But has an offer been made? In Gibson v Manchester City Council, it was held that an offer must be definite, not tentative or qualified. The fact that Anne stated that she would purchase the guitar if she could ‘raise the money’ introduces uncertainty and leaves the terms open to the process of bargaining. In Foley v Classique Coaches Ltd (1934), Maugham LJ said:

Unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled nor implied by law and the document contains no machinery for ascertaining it.

As such, it could be argued that Anne has not made an offer; she has simply initiated the negotiation process. Moreover, a case could be made that all that has been agreed to here, is a proposal to enter into a contract at a later date. It is well established that the courts will not enforce ‘agreements to negotiate’ In Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd (1975), Lord Denning MR said ‘no court could estimate the damages because no one can tell whether the negotiations would be successful or would fall through: or if successful, what the result would be.’ Under these circumstances, no legal obligation arises and either party may disregard the proposal with impunity.

However, the court may take an alternative view and accept that Anne did in fact make an offer. The question to ask is would a reasonable observer think an agreement has been made on particular terms? Anne could argue that the terms of her offer were sufficiently clear since a specific price of £250 was established and a definite deadline for payment was set. In addition, her conduct demonstrates that she intended the statement to be binding. If the court agreed, it would then consider whether Sean had accepted the offer. Acceptance must be unequivocal and unconditional as demonstrated by Society of Lloyds v Twinn (2000). Acceptance of an offer can be communicated in writing, orally or inferred from conduct. Brinkibon Ltd v Stahag Stahl (1983) held that in cases of face-to-face conversation, as is the case here, acceptance takes effect when and where it is actually brought to the attention of the offeror. Thus the court could find that agreement was reached at this point as we are told that Sean promised not to sell the guitar to anyone else until the agreed deadline so that Anne could attempt to raise the money. Furthermore, In Walford v Miles (1992) and Pitt v PHH Asset Management Ltd (1994), the court held that purely negative lock-out agreements could be enforceable if they were made with good consideration and covered a fixed period of time but not otherwise. Could this be construed as a lock-out agreement? Has Anne provided ‘good’ consideration?

It is a well established legal principle that the courts will only enforce a promise where the promisor receives some benefit in return for having made the promise. The premise behind consideration is reciprocity – meaning each party must promise to give or do something for the other. The traditional view of consideration as set out in Currie v Misa (1875) is that ‘valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered or undertaken by the other.’ However, the courts now favour Sir Frederick Pollock’s definition in Principles of Contract (1950) that consideration is ‘an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable‘ as approved in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915). There was a definite need for this evolution and the modern definition is particularly relevant in this scenario because where simple contracts are concerned, the law can now enforce bargains. Consequently, consideration is the “price” that one contributes towards a bargain. Both definitions use the word forebearance, which indicates that the actual transaction does not have to have occurred. In Chappell & Co Ltd v Nestlé Co Ltd [1960] it was held that even the most worthless items can be good consideration. Therefore, Anne’s promise of a money payment in the future should be sufficient consideration to convert the agreement into a binding contract as executory consideration does create a valid and enforceable contract.

The final element to be established before the dealings between Anne and Sean can be considered a contract is that of the intention to create legal relations. In Balfour v Balfour (1919) a distinction was drawn between commercial arrangements on the one hand, and social or domestic arrangements on the other. When parties enter negotiations in a business or commercial context, the law presumes that there is an intention for any agreement reached to be legally binding. Without a doubt, on the facts of the case, Sean and Anne were acting in a commercial context. Obviously, this presumption can be rebutted, however the evidence introduced would need to be very compelling. It follows that the court would probably find the necessary intent to create legal relations. Therefore, provided that the court also accepted that agreement had been reached and consideration imparted, Anne and Sean would have a legally binding contract.

With regard to Anne’s phone message, as the contractual status of the agreement is debatable, both propositions must be explored. Clearly, if a contract had already been entered into, the deleted message has no negative effect on the agreement. However, assuming that no contract exists, Anne is clearly making Sean an offer to purchase the guitar. According to the decision in Taylor v Laird (1856), an offer can not take effect until it has been received by the offeror, as it would be unfair to bind a party to an offer of which they had no knowledge. Regrettably, as the message was never received by Sean, he could not communicate his acceptance of the offer and therefore no contract came into existence. Sadly, Anne would have no recourse to damages in this situation even though she incurred the expense of hiring the car.

With regard to the sale of the guitar to Chris on Friday, if no contract exists between Anne and Sean, this sale is of no consequence as Sean was under no legal obligation to hold the guitar until Saturday. However, if a contract did exist, Sean has breached it by selling the guitar to Chris before the deadline since a bilateral contract is binding from the moment when the promises are exchanged. Sean may argue that the letter he posted to Anne was a notice of revocation. Unfortunately for Sean once an offer is accepted, it can not be revoked by the offeree, and as such he remains bound by the terms. Therefore, damages, albeit nominal, would be available as a right to Anne.