Valid Contract Elements And Breach Of Contract: A Case Study

The Contract Elements in the Sale of a Painting

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.

Signed: Josie

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. 

Required

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.

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.

In case of a contract we need to see various elements to ascertain witter it is valid or not. In the given case, we will verify the terms of a contract on the basis of the various elements that forms the valid contract. In the given case, Josie agreed to sale his painting to Sam, on a condition that the same will be approved by his wife ,and if the same will not be approved, the contract will be valid till Tuesday midnight, The contract was entered in terms of a legal capacity, where it was properly written and presented that one party will pay certain sum of money that is to the tune of rupees eight hundred dollar to another party in return of a painting.  But the contract was not.  We will consider the various remedies that can be available to bot the parties in case the contract turns up to be invalid.

First and foremost there must be an offer to do something in return of something. It does not matter whether the offer was done in writing or orally, nowadays certain laws, requires that the agreements must be in writing for them to be valid, but it is not a prerequisite for any offer to be valid. Offer means anything that is based on certain terms and conditions and there must be prior time frame for that offer, within which if the offer is not exercised the offer will not be valid.

The second most important element is acceptance, which means anything that is offered must be accepted by the person to whom the offer is made, it is important that the person agrees to all the terms and the conditions and in any case if he wants any changes he can make a counter offer which the requite party can agree on mutual terms. If any offer is not accepted it will be invalid, offer and acceptance goes hand in hand.

There must be some amount of consideration involved for nay offer to be valid. Consideration which something that one party is ready to give the other party in reverse to some work that the other party does for that party

It is important that a contract must be legally enforceable if any case both the parties mutually agree that the contract can be carried forward without establishing its legal enforceability in that case the contract can be valid in that way. In case where the agreement terms out to be invalid it can be used to get remedies, in any court of law. Hence legal enforceability is important in terms of a valid contract.

The Importance of Offer and Acceptance

The contract must be entered in terms of legal capacity, where the judges can make use of the terms and conditions that are stated in the contract in the befit of both the parties, where it is seen that the terms and conditions are not defined properly the contract turns out be valid, it is thus important that proper terms and conditions must be defined of the contract an no changes must be done once the contract is agreed between the two parties.

In case any party does in breach of the stated terms and conditions and also  doesn’t perform their work as they had agreed to do, it will lead to a breach of the contract and both the parties where at a loss because of such action will be given remedies, the judges would be required to take decisions based on the specific terms an d conditions of the contract and not on the basis of nay general judgement.

i) There was an offer from the side of Josie to Sam to sell the painting to him , if his wife approve of the same by Tuesday midnight, he agreed to do the same in return of a monetary consideration that was of amount eight hundred dollar. It was written and was legally enforceable as both the parties had agreed to the terms of the agreement (Stone, 2017)

ii) There was an acceptance from the side of Sam ,  because he agreed to buy the painting if his wide agree to the same and will pay a consideration of dollar eight hundred, the only main condition was that his wife must approve the painting , for which he was given the time till Tuesday midnight, and he had to inform the seller before that about the same. Acceptance means where the other party agrees to the terms and conditions that are made in the offer and is ready to pay the required some of money to the other party.  But what is important that acceptance is not required to be in formal terms, even if there is an informal acceptance it would constitute toe valid. In this case the formal acceptance was on Thursday after the minimum time to accept the same elapsed that was Tuesday midnight. Hence we can say that there was an acceptance even if the formal acceptance was a bit late (Australain GOvernment)

iii) The postal rule of acceptance states that the offer will be considered to be accepted as and when the main is dropped in the mail box, it doesn’t matter that such mail ever reaches to the offer or. It is an exception to the general rule of contract that the contract must be valid, only when the offer is made to the offer or directly. For example,  A makes an offer to B to accept an offer before Tuesday, B drops the mail in the mail box on Monday , but the mail doesn’t reaches before Wednesday . Even though the time to accept the offer was till Tuesday, the offer will be considered to be accepted even if the mail doesn’t reaches before Wednesday, what matters that when the mail was dropped in the box. This constitutes a valid acceptance as per the postal rule of acceptance.

Consideration and Legal Enforceability

ii) Yes there is an existence of a valid contract and there was a breach of the contract.  There was an acceptance on part of Sam to buy the painting through mail, but Josie should have waited before the time period elapsed else the that is till Tuesday , but Josie ended up selling the painting , before Tuesday , when he found a prospective buyer and dint wait for the contract to be lapsed of for the acceptance of Sam. He had given a written approval that was legally binding by law, hence in the given case, Mr Josie had done the breach of contract and would be required to pay the required some amount of penalty to Sam for the same. There are two type of breach of agreement that can be done.  A specific performance is specific act that is given in contract nether person needs to do the same, in this case Mr Josie was required to specific act to sale the painting to Mr Sam, but he did breach the contract and sold the painting to someone sled, hence there was a breach of the agreement on the whole new level.  It is an alternative to paying any remedy or other manages to the aggrieved party and the party is required to perform the requisite task as per the terms of the contract. Hence Mr Josie would be required to pay penalty to Mr Sam, for selling the painting before the time has lapsed as stated in the terms of the contract. If the painting would have been sold post Tuesday midnight, Mr Josie will not be responsible and will not have to bear with any penalty (Hong, 2017)

There is various type of acceptance in case of any contract; however, the most common are acceptance by post or oral acceptance. both of them have their own share of advantages and disadvantages however if we go through the both, oral acceptance is better than postal acceptance because there is an instant acepatnceandthe contract is sealed, the offer or needs not wait for the accepting of the contract. Also  in case of acceptance by post , there is allot of problem involved, many times if the post doesn’t reach , the offer or is not informed about the acceptance of the offer and  it may eventually lead to breach of duty on part of the offer or (AustralainContract LAw, 2017)

2. As per the general rule of Panel’s Case law, if one party agrees to pay certain sum to another party in exchange to certain work done by that party. It is stated that if the party pays partly it doesn’t let him go off the liability to pay the entire sum of money; the other p-party can claim the unpaid money, at a later date. This was rule as per the Panel case laws in case of part payment for performance. It was held that the entire agreement to accept part payment would be binding on the debtors if at the request of the creditor, the debtor agrees to provide some fresh consideration. Consideration might be accepted if the creditors agree to accept part payment at an earlier date, or at different place then that was decided, or instead of money agrees to take a chattel.

The exceptions to the rule are-

• When the part payment of money is made by any third party in full settlement of claim, the creditor has to accept the same, he cannot claim for the left sum of money at a later date.
• In case of composition agreements, this rule does not apply because in these cases there is agreement between a debtor and a group of creditors and the creditor aggress to accept a percentage of their dues in full settlement.  The court doesn’t allow the creditors to make further claims in any court of law.
• One more exception to the rule is in the case of equitable doctrine of promissory estoppels. In this case , if a promisor makes a promise to do certain act, without determining any consideration. The person cannot make claim later that consideration was not paid(Valente, 2017)

The court often sees it unjust to apply this rule in circumstances where it is not possible for the creditor to do the requisite work in return of part or low payment. The creditor also finds it difficult sometimes, when after the work is done; the debtor doesn’t agree to pay the left over dues. As per the court, the circumstances should be such that no loss to the creditor is caused for the work done by the debtor in this regard. He should be entitled to receive the entire consideration as and what was decided.

References:

Hong, C(2017). ELEMENTS OF CONTRACT[online] Available at: https://www.hillhouse.com.au/legal-question/what-are-the-elements-of-a-contract/ [Accessed  28^th may. 2017]

Stone , R(2017) Contract [online] Available at: https://www.londoninternational.ac.uk/sites/default/files/programme_resources/laws/ug_subject_guides/elements_law_contract-subjectguide4chapters.pdf [Accessed  28^th may 2017]

Principles puff (2017).Principles of contract[online] Available at: https://www.simpsons.com.au/documents/visarts/visarts89/1Princip.pdf [Accessed  28^th may. 2017]

Valente , D(2017).Enforcing promises [online] Available at: https://www.otago.ac.nz/law/research/journals/otago036314.pdf [Accessed  28^th may 2017]

Study. com(2017).Contract [online] Available at: https://study.com/academy/lesson/rules-of-consideration-in-contract-law-elements-case-examples.html [Accessed  28^th may. 2017]

Australian government(2017).Australian principles[online] Available at: https://www.oaic.gov.au/individuals/privacy-fact-sheets/general/privacy-fact-sheet-17-australian-privacy-principles [Accessed  28^th may 2017]

Australian contract law(2017).Contract [online] Available at: Study. com(2017).Contract [online] Available at: https://study.com/academy/lesson/rules-of-consideration-in-contract-law-elements-case-examples.html [Accessed  28^th may. 2017]