Analysis Of Valid Contract, Breach Of Contract, And Consideration In Common Law Essay.

(i)  Advise Josie whether there is a binding contract with Sam. 

(ii) 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 

Legal requirements for a valid contract

Whether there is any valid contract between Sam and Josie?

For valid contract both offer and acceptance is equally important. Offer is considered as a promise to do something if another person to whom offer is directed does something.

Whereas, acceptance is considered as statement given by the offeree for the purpose of agreeing to the offer and it must be noted that only that person can accept the offer to which it is given. For the purpose constituting valid acceptance, it is necessary that statement of acceptance must be related to the response of the offer.

Usually, no particular form is stated to give the acceptance, and there is an ordinary rule which state that contract is not made until offer is not accepted, which means until the acceptance related to offer has been communicated. Law requires that offeree must communicates her acceptance of the offer to the offeror, but there are some exceptions to this general rule which impact the time and place of formation of contract[1]. 

For being effective it is necessary that acceptance must be communicated, and only a mental decision of accepting the offer is not sufficient. General rule, as stated above says that agreement is concluded when and where communication of acceptance is received, and because of different modes of communication, it is deemed that communication of acceptance is completed when it is given to the offeror even though he did not read it. If acceptance is given through post then special rule applies that is known as postal rule which state that acceptance is completed when offeree post letter to the offeror[2]. In case Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH House of Lords [1983] 2 AC 34[3], Court stated that postal rule does not apply to direct instant forms of communication. 

In 18181, postal acceptance rule was originated, and this was introduced in case Adams v Lindsell. The most important approach of this rule is stated by Lord Herschell in Henthorn v Fraser case: if situations are such that it must have been within the contemplation of the parties that post can be used as a means of communication for the purpose of accepting the offer, and in case of post acceptance is completed as soon as letter is posted.

In other words, communication of acceptance is completed when letter of acceptance is correctly posted by offeree, even though acceptance is delayed and never reaches to the hands of offeree.

Breach of contract and remedies under common law

The usual issue in this rule is the time and place of contract in some specific situations, and generally the main concern of courts in some contracts is the place on which contract is formed[4]. 

In the present case, offer given by Josie to Sam was valid till the midnight of 21^st February. At 10 AM of 21^st February Sam telephones Josie but not able to communicate acceptance because of Flat battery of Josie’s telephone. An hour later Sam posts letter through E-mail to Josie, in which he formally accepts the Josie’s offer but this letter arrives on mail at Josie’s house on Thursday, 23^rd February.

As stated above, communication of acceptance is completed when letter of acceptance is correctly posted by offeree, even though acceptance is delayed and never reaches to the hands of offeree. Therefore in this case also communication of acceptance is completed even though acceptance reached to Josie late.

Conclusion:

In the present case, there is valid contract between the parties, and Josie is liable to give painting to Sam.      

Whether there is any breach of contract occurred between the Sam and Josie?

Valid contract between parties create some legal obligations on parties, and it is necessary that parties fulfill that obligations. Contract is breached by party when party fail to fulfill its legal obligations stated under the contract they entered. Generally, breach of contract occurred when party fails to perform their obligations on time, does not fulfill their obligations as per the terms of the contract, and does not perform their obligations at all[5].

Generally, damages and liquidated claims are provided as remedy under common in case of breach of contract. Damages for breach of contract are considered as substitute for performance, and the main aim of providing damages is to put the plaintiff in the same position they would been if contract is performed properly. It must be noted that punitive damages are not available. Therefore, loss claimed by parties must not be too remote from the breach and non-breaching party must take reasonable steps for the purpose of reducing the damages.

Liquidated damages will be available if clause in the contract entered between the parties provided that a particular sum of money will be payable in case of breach, but it must be specified that sum must not include penalty, and non-breaching party can sue other party for liquidated sum other than for un liquidated damages[6][7].

Concept of consideration in contract law

In the present case, there is valid contract between the parties, but Josie breach the contract by sell out the painting to another person. She fail to fulfill the obligations stated under contract, and did not sell the painting to the Sam even after giving her offer.

Sam can claim damages from Josie for breach of contract by not perform under the contract. 

Conclusion:

There is breach of contract and Sam can claim for damages under the contract.  

Consideration is the price which is demand by the offeror in exchange for their promise, and in other words it is known as price for promise. There are number of jurisdictions in which consideration is not considered as an essential element of contract, and contract is considered if parties reached to a binding contract. Therefore, common law stated that for binding agreement it is necessary that promise must provide consideration for the promise they have received.

It must be noted that general rule applied which state that part payment of any debt is not considered as good consideration for the promise made by creditor’s to forgo the balance. It must be noted that by paying part of the debt promise only perform contractual duty owned towards the promisor, and nothing else[8]. In this essay, we state the rule in Pinnel's case and also its exceptions. Lastly, essay is concluded with brief conclusion. 

In common law, it is stated that smaller sum related to any payment does not satisfy the obligation of person to pay larger sum. This Rule is applied in Pinnel’s case (1602), in this case defendant paid £5.11 to the claimant but amount owned by claimant was £8.5. Court stated that acceptance of part payment by claimant would be binding, and in case debtor is providing consideration on the request of creditor. This rule gets confirmation in case in Foakes v Beer (1884), in which £2090 was claimed by tenant and accepted £500 with installments on remainder. The House of Lords stated that Mrs. Beer was entitled to the accrued interest of £360[9].

In case person owns any sum of money towards another person and agrees to accept part of money in full settlement, and the rule related to this is stated by common law that part-payment of a debt is not considered as good consideration for the promise for the purpose of forgo the balance, and this rule is known as rule in Pinnel's Case (1602). For example- £50 is own by A to B, and B accepts £25 in full satisfaction on due date, but this does not prevent the B to claim for the balance at later date. There is no proceeding conducted by A for the purpose of accepting part payment, because A is bund towards B to pay full amount, and this agreement is based on similar principle stated under Stilk v Myrick (1809), and it also protects the creditor from the economic duress of his debtor.

Rule in Pinnel's case

In Pinnel’s case, it was held that part payment does not considered as consideration, and agreement in which part payment is binding is that agreement in which debtor at the request of the creditor’s provide some fresh consideration. Consideration can be given in case creditor’s agrees to accept:

• Part payment on date which is before the due date.
• Any other benefit instead of money, and it might be possible that it will be more beneficial than money.
• Part-payment at any place other than originally specified place[10].

This rule is affirmed by House of Lords even after knowing about the harshness of this rule, and this law still represents the law such as in case Ferguson v Davies (1996) The Independent December 12th 1996[11] and Re C (a Debtor) [1996] BPLR 535[12].

Following are the some exceptions to the Pinnel’s rule, and these exceptions are stated below:

• Part-payment of debt by Third party: promise made by creditor to accept smaller sum of money in full satisfaction will be binding only if third party made part payment on condition that debtor is released to from the obligation to pay full amount. This can be understood through case law Hirachand Punamchand v Temple [1911] 2 KB 330[13], in this case smaller amount is paid by father to money lender for his son’s debt, and money lender accepts that amount in full satisfaction. Later money lender sued for balance amount of debt, and it was held that part payment was valid consideration and money lender cannot claim for further money from father.
• Composition agreements: in case of composition agreements, this rule does not apply because it is an agreement between debtor and a group of creditors in which creditors accepted the smaller sum of money of their debt in full settlements. Therefore, in absence of consideration individual creditor is not allowed to sue the creditor for balance amount. In case Wood v Robarts (1818), Court stated that the main aim of this rule is that if individual creditor file claim for balance then this will be considered as fraud for other creditors who are ready to accept smaller amount in full consideration[14].
• Promissory estoppel: the other exception related to this rule is found in equitable doctrine of promissory estoppel. This doctrine provides different means for the purpose of making the promise binding in different circumstances, when consideration is not present. This principle states that if promisor makes a promise, and another person acts on that promise than it is not possible for promisor to go back from that promise even in case consideration is not provided by another person.
• Natural love and affection: in common law principle, any promise made by person in influence of natural love and affection is void, and in Malaysia natural love and affection is stated under section 26(a) Contracts Act 1950 which states that an without consideration any agreement is void unless such agreement is stated in writing, registered, and parties to the contract are closely related to each other. In case, Tan Soh Sim, deceased; Chan Lam Keong & Ors v Tan Saw Keow & Ors (1951)[15], Court stated that the validity of consideration in case of contract with natural love and affection is clearly depend on the groups tow which party belongs, and also on circumstances of particular family.
• Development: the modern doctrine related to this topic is mainly based on decision of Denning J in Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130, and also on the house of Lords in case law Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 which can be traced through Hughes v Metropolitan Railway (1877) 2 App Case 439.

In Hughes case, In this case, landlord gives six month notice to his tenant in October related to repair, and in case tenant failed to repair then landlord forfeited the lease. In November, for the purpose of sale of premises negotiations were opened by landlord but these negotiations ended in December without executing any agreement. During this time, tenant had not completed the repairs, and after the ending of period of six months landlord claim for possession.

House of Lords stated that landlord cannot enforce the notice, because through his conduct landlord let the tenant suppose that landlord will not enforce the notice as long as negotiations going on, and later he cannot take advantage of the tenant who is relying on this fact. Therefore, it is not possible for landlord to run the notice during the period of negotiations, and period of six months would be begin to run again from the date of the breakdown of negotiations[16].

During the period of 1937, 99 year lease was granted by p on a block of flats in London to the D, and this lease was granted on annual rent on £2500. In 1940, p agreed to reduce the rent to £1250, and provide this in writing. P agreed to reduce the rent because D was not able to get enough tenants because of the outbreak of war in 1939. In 1945, after the war when all the flats were occupied then the Ps file claim to recover the arrears of rent which were fixed as per the 1937 agreement for the last two quarters of 1945.

In case High trees, Denning J stated that they were entitled to recover this money as their promise to accept half money was because of war conditions. This is the ratio decendi of the case.

There is one more case law Tool Metal Case (1955), in this case Court stated that in case person promises that he will not insist on his strict legal rights, and on this behalf promise is acted upon then it is necessary that person fulfill his promise even though such promise is not supported by consideration. 

Conclusion:

After stated above facts, it is clear that in common law, it is stated that smaller sum related to any payment does not satisfy the obligation of person to pay larger sum. In Pinnel’s case, it was held that part payment does not considered as consideration, and agreement in which part payment is binding is that agreement in which debtor at the request of the creditor’s provide some fresh consideration. In this essay, we also discuss the exceptions of this rule Part-payment of debt by Third party, Composition agreements, development, and natural love and affection.  

Websites

ACL, ‘ Agreement’, < https://www.australiancontractlaw.com/law/formation-agreement.html>, Accessed on 24^th May 2017. 

Law Teacher, ‘Postal Rule Of Acceptance’, < https://www.lawteacher.net/free-law-essays/contract-law/postal-rule-of-acceptance-contract-law-essay.php>, Accessed on 24^th May 2017. 

Austlii, ‘Email contracts –When is the contract formed’, < https://www.austlii.edu.au/au/journals/JlLawInfoSci/2001/4.html#Heading20>, Accessed on 24^th May 2017. 

Legal services Commission, ‘Remedies for Breach of Contract’, < https://www.lawhandbook.sa.gov.au/ch10s02s11.php>, Accessed on 24^th May 2017. 

ACL, ‘Remedies’, < https://www.australiancontractlaw.com/law/remedies.html>, Accessed on 24^th May 2017. 

Law Teacher, ‘Part Payments Of Debts’, < https://www.lawteacher.net/lecture-notes/contract-law/consideration-lecture-2.php>, Accessed on 24^th May 2017. 

ACL, ‘Discharge by Breach’, < https://www.australiancontractlaw.com/law/termination-breach.html>, Accessed on 24^th May 2017. 

ACL, ‘Consideration’, < https://www.australiancontractlaw.com/law/formation-consideration.html>, Accessed on 24^th May 2017. 

Law teacher, ‘Consideration In Contract Formation’, < https://www.lawteacher.net/free-law-essays/consideration-law/consideration-in-contract-formation.php>, Accessed on 24^th May 2017. 

Weitzenbock, M. W. , ‘English Law of Contract: Consideration’, < https://www.uio.no/studier/emner/jus/jus/JUS5260/v12/undervisningsmateriale/Consideration.pdf>, Accessed on 24^th May 2017. 

Eresources, ‘Contract consideration’, < https://e-lawresources.co.uk/Consideration.php>, Accessed on 24^th May 2017.   

Case law  

Ferguson v Davies (1996) The Independent December 12th 1996. 

Re C (a Debtor) [1996] BPLR 535. 

Hirachand Punamchand v Temple [1911] 2 KB 330. 

Chan Lam Keong & Ors v Tan Saw Keow & Ors (1951). 

Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH House of Lords [1983] 2 AC 34.