1. Josie makes a living painting watercolour pictures and selling them from her studio located in her house.
On Sunday 19 February, Sam visits her studio and admires a painting of sunflowers. The price tag indicates it is for sale for $900. Sam offers Josie $700 for it, but Josie says that she cannot accept less than $800.
Sam indicates that would be a good price but asks Josie to hold the painting so his wife could also look at it and approve his decision. However, Sam points out that the earliest his wife could do so would be the following Tuesday, 21 February. Josie said that would be fine and gives Sam a form that reads:
I, Josie, offer to sell Sam one framed picture of sunflowers for $800. This offer shall expire at midnight on Tuesday 21 February.
The following day, Monday 20 February, Wendy, an art enthusiast, visits Josie’s studio and is very impressed by the same painting. Without haggling over the price, she buys the painting for $ 900 cash and takes it away with her.
The same day, Josie phones Sam and leaves a message on his answering machine saying that the painting has been sold for $900. Sam does not return the call, apparently unable to retrieve any messages due to the machine being faulty for the past few days.
On Tuesday 21 February, Sam told his wife about the painting and she is very enthusiastic about it. She tells Sam to go ahead and buy it for $800. At 10 am that day Sam telephones Josie and after only managing to greet her, he is cut off as Josie’s telephone goes dead due to a flat battery. Sam is unable to continue the conversation and Josie does not attempt to call him back. Instead, an hour later, Sam decides to post a letter to Josie formally accepting Josie’s offer. The letter arrives in the mail at Josie’s house on Thursday, 23 February.
a. Advise Josie whether there is a binding contract with Sam.
b. For the purpose of this part only, assume a contract had been formed between the parties. Explain briefly whether a breach of contract has occurred and identify the remedies that might be available.
2. The rule in Pinnel’s case expresses the requirement for consideration in simple contracts. Generally, the rule works sensibly and fairly, but there are some situations when it does not.
Discuss this statement, and explain the circumstances in which courts see it as unfair to apply this rule.
1. a) Issue
In the given case Josie had not waited for confirmation of Sam till the expiry of the offer and sold that painting to another person for the sake of higher price.
In accordance with the Australian contract law, the contract is legal enforcement of promises which were formed on the basis of the free bargain in order to create a legal relationship. The existence of a legal agreement among parties is determined on the basis of the validity of offer and acceptance (Chew, 2012). In agreement, offer shows indication of the offeror that they are supposed to be legally bound for the particular subject without further discussion and acceptance to it forms a binding contract between parties. Further description of offer and acceptance is enumerated as below:
As per Australian contract law, the offer is specific communication regarding the promise to do or not to do a particular task in against of promise of something in return. For this case of Harvey v Facey can be referred. However, the offer can be revoked prior to its acceptance even if the offeror had promised to keep it open till specific date (Australian Contract Law, 2017). However, the same provision will not be applicable in the case of a promise to wait supported by any consideration. For effective revocation, it must be communicated to the party whether in direct or an indirect manner. The Same provision has been applied in the case of Dickinson v Dodds. Further, any form of words showing conveyance of revocation of the offer will be viable.
In the given case situation, Josie had offered painting for $800 after negotiation with Sam. Further, Sam added that he needs to get the approval from his wife so he can make final purchase and by considering this fact Josie given him time until midnight of Tuesday 21 February on written note supported by signature. This clearly shows that offer given by Sam was accepted by Josie to wait till midnight of Tuesday 21 February before selling that painting to the other person. However, he does not wait till midnight of Tuesday 21 February and sell the painting to Wendy on Monday 20 February. It shows clear revocation of offer on the part of Sam which is justified by the act of leaving a message to answering machine of Sam. Revocation is valid as it conducted prior to the acceptance of Sam
By considering the relevant law and applicability of the same in the present case, it can be stated that there was no binding contract between the parties as Josie had revoked the offer by sending a message to Sam as a reasonable mode of communication. This aspect clearly shows that he was not legally obliged to wait until midnight of Tuesday 21 February and should not sell the painting to another person prior to the expiry of the offer.
By considering the given assumption, Sam will be entitled to avail remedies as he had suffered damages due to a breach of contract on the part of Josie.
Remedies for breach of contract is provided to compensate the damages of the aggrieved party. The primary objective of these remedies is to bring the aggrieved party in a position where contractual promises were fulfilled on the part of the guilty party (Contracts. Remedies for Breach Of Contract, 2012). Damages provided for the breach of contract is also considered as a substitute for performance that guilty party failed to provide. Description of remedies available for breach of contract is enumerated as below:
- Damages: This remedy is provided on the basis of injury of the innocent party in order to compensate their damages. In this, compensation is provided for three type of damages i.e. compensatory damages, nominal damages and liquidated damages (Remedies for Breach of Contract, 2017).
- Specific performance: In the various situation, damages are not sufficient to compensate the injury due to which provides the order for specific performance as previously stated in their terms of the agreement.
By considering case facts of the present situation, Sam will be entitled to take benefit of the remedy of specific performance in which Josie will be required to give him a similar painting to make compensation for his injury.
Applicability of legal provision shows that Sam is entitled to apply for remedy of specific performance as Josie sell that painting to another person.
Pinnel’s case provides the rule regarding the requirement of consideration in all contracts. In accordance with this case, general rule for consideration states that “if an individual lends an amount of money from another and promises to return part of it in full settlement then in such situation rule of Pinnel’s case states that partial payment of a liability cannot be termed as good consideration for an assurance to skip the balance.” Cited rule, in this case, is applicable to all situations in a sensible manner. However, there is a certain exception to it. The current doctrine of consideration mainly focused on dicta of Denning J in Central London Property Trust Ltd v High Trees House Ltd, Hughes v Metropolitan Railway and in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd. The present study is based on the rule given in Pinnel’s case and the impacts caused by this rule upon the doctrine of consideration. This study also studies about the problem occurred due to the rule of panel's case, and also examines about the consequent rule that helped in avoiding this rule. This has been provided by describing exceptions to this rule by using of viable cases.
Rules and Explanation
According to the rule of consideration in the considered case, if a person agrees to repay part of the obligation it in full settlement then part payment of debt is not considerable fair as a promise to forgo the liability.
In the case of Pinnel's (1602), Cole lends a sum total amount of £8-10s-0d (£8.50) from Pinnel. This amount was owed on 11 November. At Pinnel's demand, Cole agrees to pay £5-2s-2d (£5.11) on October 1st, which was received by Pinnel in full settlement of the money owed. Further, legal action was taken by Pinnel against Cole for the remaining amount owed. It was found that the partial payment itself was not in good consideration (Calnan, 2013). Though, it was also held that guarantee to receive partial payment would be compulsory if the debtor provides new and good consideration at the creditor's demand. Consideration could be provided by the debtor is valid only if the creditor is ready to receive part payment on the previous date instead of on the due date or can chattel in replacement of money.
An agreement enforced by law is known as a contract, set of promises enforced by the court is legally an enforceable contract. In the case; problems were faced about the necessity of examination of whether the contract exists or not, to resolve the problem a practical formula was applied offer +acceptance=agreement. Sir Fredrick Pollock defined consideration as an act of one party, and therefore the price of which promise is made by other party provides enforceability to the contract.
When an offer is made by party A to party B, and if the offer is accepted by party B then it is known as an agreement. Thus all these components are important for the existence of a contract. The contract between creditor and debtor is examined in this essay and the determination of the rule of the Pinnel case.
Provisions of Pinnel’s case was also considered in case decision of Foakes v Beer. In the case of Foakes v Beer, Mrs Beer had received conclusion for a debt next to Dr Foakes, who later asked for due payment. Mrs Beer approved that she would not take any further action regarding this issue. Afterwards, Foakes paid £500 immediately and the part payment by half-yearly instalments of £150. Foakes properly maintained his side of the agreement as interest is carried by the judgment debts. Further, The House of Lords held that Mrs Beer was permitted £360 interest which accrued in the cited case (Turner, 2014). Foakes didn’t "bought" her promise to take no further action relating to the agreement as no consideration was provided by his side for this agreement. This case history had provided viable meaning to the case rule of Pinnel regarding consideration to make it more justifiable to the contracting parties.
A) Part-Payment of the debt by a third party
This exception is applicable in a situation where creditor agrees to accept a lower amount in full settlement. Since part payment is made by the third party on a condition if the debtor frees from the duty to pay off the sum total of the amount. This provision was applicable in the case of Trident General Insurance Co Ltd v McNiece Bros Ltd . In accordance with the case, to pay off the debt of son, father paid a lower amount to the lender, which was accepted by the lender in full settlement. Afterwards, the lender sued for the balance. It was held that there was a valid consideration among them with consent to the moneylender. Description of this case was supported by case reference of Port Jackson Stevedoring v Salmond.
B) Composition agreements
This rule is not appropriate to composition agreements as it is a bond involving debtor and his creditors, in which the creditor is ready to accept a proportion of their liability in full settlement. This has been described in the case study of GU Workers Compensation (NSW) Ltd v Garcia. Composition agreement is an agreement between the creditors of an insolvent debtor to receive an amount less than they owe, so as to receive instant payment (Gallagher, 2016). In case if the debtor is not able to please all or any of the creditor, then equal proportions are often admitted by the latter, for example- 25 cents on a dollar. If the debtor is not in a position to fulfil the agreement, then the creditors can only claim partial payment instead of the full amount. Although the lack of consideration, the court doesn’t imply the creditor are not in a position to take legal action on the debtor for the balance. This has been demonstrated in the case study of Hirachand Punamchand v Temple.
One more exception in the case of Pinnel’s is to be set up in the fair doctrine of promissory estoppels. It is also another name for the equitable doctrine which contains its own principle source obiter dicta of Denning J in High Trees House Ltd . Due to the lack of consideration, doctrine makes promise binding, in certain conditions (Poole, 2016). As per the principle if the promisor assures in which another individual act on, then promisor is stopped from taking back the promise, despite the fact that other individual doesn’t provide consideration.
Promissory estoppel exists when there is a contractual bond between parties as the legal relationship among the promisor and promisee (Legione v Hatele). For example individual, A promises individual B that he will not impose legal actions and B takes trust on it without receiving consideration. In this case, equity doesn’t allow A to break off the promise to B. A’s promissory estoppels must require a pre-existing agreement or legal contract and can be modified it must contain a clear-cut promise, require a change of position, a promisor cannot back off their promise as it is unfair to allow. For this case of Waltons Stores (Interstate) Ltd v Maher High Court of Australia can be referred.
In accordance with the above analysis it can be said that if an individual borrows an amount of money from another and agrees to pay off the debt in lump sum then he is not entirely discharge from his liability. In the case of Pinnel’s, applicability of consideration rule shows that the payment of less than standard payment for coal to discharge their obligations is not satisfactory despite the creditor’s promise for not to sue for the less amount. It is because; this promise made by debtor without any consideration for that reason the promise is not enforceable by law. In modern context of law, this case law is supported by the fact that anything will be accepted by the creditor for their debt satisfaction excluding less amount of money. This viewpoint is given by the English common law. However, in this court had provided clarification that if the debtor accept the lesser payment earlier than with the original specified agreement with the debtor’s consideration for the lower repayment then in such case he does not have right to sue the other party for remaining amount.
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