The IRAC Methodology

Contract Law Question.

This question involves two different contracts, and each will be dealt with separately below. In addressing the fact patterns the answers will adopt the IRAC methodology. First the relevant factual issues will be identified, then the rule of law relating to the issues will be stated, the rule will be applied to the issue and a conclusion reached.

Part A.)

This first question concerns the rules on formation of a contract and the remedies for breach of contract. The issues are: the legal status of Ellie’s notes to Bert and Charlie; the legal status of Bert’s letter to Ellie; the legal status of Bert’s e-mail to Ellie; and what remedies (if any) are available to Bert.

Ellie’s note is either an offer or an invitation to treat. Generally advertisements are merely invitations to treat, however if the advert is a promise which could reasonably be relied upon then it will amount to a unilateral offer. Applying these legal rules to Ellie’s note the promise to sell to the maker of the ‘best proposal’ amounts to a unilateral offer because of the promise of sale to the highest bidder, this is analogous to the case of Harvela Investments Ltd v Royal Trust Co. of Canada Ltd. where there was a promise to sell to the highest bidder which the court found amounted to a unilateral offer.

In order for there to be a contract there must be acceptance of Ellie’s offer. This paper will now consider the law relating to acceptance. Where the offeror has not expressed a preference as to how the offeree is to communicate acceptance then acceptance may take any form. Bert chose to communicate his acceptance by post which, in the absence of any express indication by Ellie that she had a preferred method of receiving acceptance is acceptable. The ‘postal rule’ states that acceptance occurs at the moment of posting, regardless of whether the communication is ever received by the offeror. According to McKendrick, despite the manifest unfairness of the postal rule, it “is now unlikely to be uprooted judicially. Rather, the courts are likely to widen the exceptions to the general rule and not to attempt to abolish the general rule itself.” Bert has in his letter made two acceptances, one for £101 and one for £5 more than any other bid. The first offer is an unconditional offer, and providing it is the ‘best proposal’ will amount to acceptance. The second acceptance is a referential bid and this will not amount to acceptance because of the impossibility of determining acceptance if two referential bids were submitted. Applying the postal rule to the current fact pattern Bert has accepted Ellie’s offer when he posts the letter on April 2 agreeing to pay £101.

Emails are an instantaneous method of communication, in such cases the law is unclear as to when acceptance will be held to have occurred: “No universal rule can cover all such cases; they must be resolved by reference to the intention of the parties, by sound business practice and in some cases by a judgment where the risk should lie.” The law however is clear that the acceptance must be clearly communicated: “A valid acceptance is a statement of intention to be bound absolutely and unconditionally by the terms of the offer”. Applying the law to Bert’s email, whilst it is communicated instantaneously to Ellie and she receives it, the contents of the email do not clearly state that Bert intends to accept Ellie’s offer so would not amount to valid acceptance.

Once acceptance has been communicated by the offeree to the offeror a contract will be deemed to be formed. There is a contract between Ellie and Bert because Bert’s offer of £101 was higher than Charlie’s offer of £90. By not selling the book to Bert Ellie has breached her contract with him and he will be able to seek a remedy for breach. Remedies for breach of contract may either be under the common law or equitable. Bert wants Ellie to fulfil the contract, transferring ownership of the book to him for the price of £101, the equitable remedy of specific performance would normally provide for this however in the fact pattern the rights to the book have been transferred to a third party, namely Charlie, so this remedy would be unavailable. It is therefore likely that Bert would seek the common law remedy of unliquidated damages. The purpose of damages in contract law is to put the claimant in the position they would have been in had the contract been properly performed:

the purpose is to put the victim of the breach, so far as is possible and so far as the law allows, into the same position he would have been in if the contract had not been broken but had been performed in the manner and at the time intended by the parties.

In this scenario Bertie stood to obtain a book valued at £301 for £101, by deducting the value of the book from the price Bertie would have paid we can quantify his loss and thus the damages he is owed by Ellie are £200.

Part B.)

This second question concerns obligations under a contract and remedies for breach of contract. The issues are: what exactly Tammy has agreed to with Ursuline; and what remedies (if any) are available to Ursuline.

Tammy’s agreement to negotiate with Tinny is sufficiently significant to the purpose of the contract to be incorporated into the contract as a term. As the whole purpose of the contract was to enter negotiations this term is so significant as to be recognised as a condition, as opposed to a warranty. By failing to enter negotiations with Tinny on behalf of Ursuline Tammy has breached a condition of the contract and Ursuline will be entitled to seek remedies for breach of contract. This paper will now go on to consider the remedies available to Ursuline.

Ursuline lost the opportunity to negotiate with Tinny for the copyright to her latest song. However it is impossible to know if these negotiations had gone ahead whether Ursuline would have been successful in their negotiations and, if they had, what the content of any subsequent agreement would have been. What Ursuline has lost is the loss of a chance of a profit. This paper will deal first with loss of chance and then with loss of profit before coming to a conclusion.

The courts will allow recovery by a claimant for loss of chance even when the chance is entirely speculative provided there is the loss of a realistic opportunity: “Courts will consider loss of a chance cases but a realistic opportunity must have been lost. Such claims are not a charter for the fortune hunter to turn a losing position into a winning one.” The current scenario is analogous to that in Chaplin v Hicks where the claimant was able to recover damages for a loss of a 50 in 12 chance. The fact that damages were difficult to quantify in this case did not mean they were not recoverable: “once it was accepted that there was a breach of contract, the jury was entitled, indeed obliged, to do the best it could.” In Hotson v East Berkshire Area Health Authority the House of Lords clarified the law in relation to loss of chance ruling that recovery was to be judged on the balance of probability, if it was more probable that the chance would have realised itself than not then damages will be awarded. Although Hotson v East Berkshire Area Health Authority was a negligence case the ratio decidendi of how loss of chance is to be quantified applies by analogy to contract law cases such as this one. We do not know in the current fact pattern what the likelihood of success in the negotiations would have been but if this is higher than 50% then Ursuline would be able to recover damages.

If Ursuline is able to demonstrate that on the balance of probabilities they would have secured the intellectual property rights to Tinny’s song then they would be able to recover the profits on the contract they would have realised but for the breach.

The remedy that Ursuline would seek would be unliquified damages in the common law. If they can demonstrate causation by proving on the balance of probabilities that they lost the chance to secure the contract they would be able to recover the potential profits from any contract from Tammy. It is necessary to assume that Ursuline would seek to contract with Tinny on similar terms to Victorious Recordings Ltd in assessing damages. The potential profits would be calculated by deducting the cost of the purchase of the intellectual property rights, in this case £400,000, from the potential profits, in this case £600,000, resulting in unliquified damages of £200,000.

In conclusion if Ursuline can demonstrate that they stood a better than 50% chance of securing the intellectual property rights they stand to recover the full losses of £200,000 however if Tammy can demonstrate they stood a less than 50% chance of securing the rights then no damages will be awarded, this is because since Hotson v East Berkshire Area Health Authority the courts no longer try to quantify the amount of chance lost but will award full damages where a realistic chance is forfeit.