Discussion Of Consideration In Contracts And Revocation Of Offers

Josie makes a living painting watercolour pictures and selling them from her studio located in her house.

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:

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.

(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.  

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.

Example Case: Josie and Sam

In common law, a contract needs to have consideration to serve as its bargaining piece. To some extent, a contract will risk losing it legal power if it would be formed without consideration. And if it would demand the court to enforce it for the sake of justice, the law will have the burden of seeking other elements like an intention to be legally bound so as to enforce the contract. These factors brought by the rules of promissory estoppel and the doctrine of the Pinnel’s case. This paper will be a discussion these factors together with the process of revocation of an offer.

Issue

This question is a discussion of consideration in a contract, and communication of a revocation. As far as the law of contract is concerned, the law requires that a contract must have consideration among other elements. Plus, if revocation would be made, it should be communicated to the offeree.

Rules

Essentially, as a general provision in the law of contract, the offeror has the right to cancel the offer provided that the offeree has not changed the position by starting the process of accepting the offer.  Also, promises are binding if they have a consideration. In terms of revocation of an offer, the basic rule is that a revocation becomes effective after the offeror receives it. However, Burrow disputed this in the cases where it looks the offeree’s faults causes him not receive the revocation. This means that this rule can be modified to suit situations where there is a defective communication equipment. Where there is a party to a contract which is at fault in fixing the communication machine, the law will prevent that party from benefiting from its faults.

Application

Promises with offers without consideration were dismissed in the case of Grant. Grant agreed to preserve the offer for six weeks. Before the end of six weeks, he withdrew the offer but Routledge sort to enforce the contract. The court held that the parties were not bound due to lack of consideration. To clarify this, the general rule is that an enforceable contract to carry offer, acceptance, and consideration as the main elements.  

However, like mentioned above, the there is a rule requiring communication of the revocation of an offer.  The offeror sent an offer through a letter on 1st October. On 8th October, he sent a revocation. The offer reached the offeree on 11th October and he sent back the acceptance, which was earlier before the letter of revocation arrived. The court held that the contract had been formed. A similar case to Josie was the case of Brimnes. Brimnes sent a revocation by telex to withdraw the ship from service after an agreement with Tenax. Telex failed to read the revocation message until the next day. The court held that the communication was effective.

Rules and Application

Conclusion

Following these explanations, it’s well clear that promise to withhold the offer should also have a consideration. For example, if Sam had given Josie $1 to preserve the offer, the promise would have been binding. Additionally, following the same application, it’s true to say that the revocation message was sent and received by Sam.

Legal Issue

On the assumption that there was a contract, it would then be an issue to determine whether an anticipatory breach of repudiation occurred when Josie called Sam to communicate or a revocation, and also whether the actual breach occurred when she sold the painting to Wendy

Rules

An anticipatory breach created when before the commencement of the performance, one party either expressly or by conduct proves to the other that it won’t perform as agreed.  An anticipatory breach brings two actions on the side of the innocent party, it can either wait for the actual breach, or terminate the contract and seek to recover the damages. In anticipatory breaches, the innocent party can only recover the lost benefits resulting from the breach. 

For an anticipatory breach, an approach to the case of Hochster can be very helpful for this case. The defendant contracted with the claimant to work as a courier on 1 June. The defendant then sent a letter to the claimant on 11 May revoking the contract. The claimant commenced a suit for breach which the court that there was a breach even though the actual date of the work had not commenced.

Conclusion

Following the explanation above, if Sam would have got the message, he could have chosen to either wait for actual breach to occur or terminate the contract and claim for breach. But since the breach has occurred, Sam would recover all the lost benefits. These lost benefits can arise in circumstances where Sam buys the painting above $800. He can recover the amount above $800, plus any other cost that the court may seem valid such as transport.

The Pinnel’s case was a landmark case concerning the issue of consideration. In particular, the case concerns a situation where a creditor requests for a fraction of a debt to suspend the rest of the debt. For example, If A owes B $30.  B accepts to suspend the debt if A pays $15 on the due date. The question is whether B can still decide to claim the rest of the debt in future.

Legal Issue: Breach of Contract

The court rules that taking a portion of the owed sum could not be a valid consideration, therefore there is nothing that can stop the creditor from coming back. This rule was also applied in the case of Mrs Beer. The claimant owed the defendant £2,000. Both agreed Foakes promised to pay to pay £500 instantly and £1500 by instalments. Foakes kept the promise but Mrs Beer pursued the payment for the interest. The court ruled that Foakes should pay. Despite the strictness of this rule, the following circumstances suggests that this rule can be waived.

A new consideration would waiver the rule. For example, if A owes B $30. Both parties can agree that A would pay B $15 plus a ‘cabbage.’ The cabbage would be a new consideration to offset the Pinnel’s case. For example, this rule was applied in the case where the claimant had a contrat to work as a Seaman. In one day at a Voyage, other two men whom they were working with left. To encourage them to finish the work, the captain gave the claimant a promised that he would give an additional payment provided that that they will finish the job. When they finished, the captain refused to give the additional payment and the claimant commenced suit. The court refused to enforce the claimant's additional payment, the court held that the duty to finish the job was part of the duties negotiated in the previous agreement. In a nutshell, it meant that even though the contract was varied, the variations didn’t provide new consideration.

A change of place of payment, or a change in the date of payment which leads to the benefit of the creditor can offset the Pinnels rule. For example, If A was to pay B a debt of $30 on June 1^st. B asks A to pay $15 on May so that B would suspend the debt, B would be estopped from seeking the remaining debt. . For example, a judgement was entered where Vanbergen St. was to pay St. Edmunds $208. St Edmunds accepted to stop pursuing Vanbergen with a notice for bankruptcy on condition that Vanbergen would have was cleared the debt as agreed by 7th July 1932. At one point, Vanbergen made a request to St Edmunds to pay the remaining debt Eastbourne on 8th instead of 7^th, and the defendant solicitor agreed. Later on, St Edmunds waived the promise and sent the bankruptcy notice to Vanbergen. Vanbergen claimed that there was a promise but the court held that the promise lacked substantial consideration because St. Endmund was not benefing from the new promise.

Pinnel's Case Rule and Its Exceptions

If a third party provides the part payment, the agreement would be valid and the creditor would be estopped from coming back.  The father paid a reduced amount to free the son from the credit. Later, the creditor decided to follow the remainder.This case involved money lenders and a military officer. The military officer had acquired the loan from money lenders and went to military service. When the claimants tried to recover the money from him, they could not reach him. So they resulted to contacting his father.  Both the claimant and the father negotiated thee debt and the claimant offer the father a choice to pay a lesser sum on behalf of his son. The father accepted, and the claimant accepted that he won’t follow the son for the rest of the debt. Later on, the claimant decided to follow the son to clear the remainder of the debt. The court ruled that that the claimant was not entitled to claim for the remainder.

If the debtor succeeds in having all the creditors to agree to take the smaller sum, the court would not allow them to come back later. However, for this rule to work, there should be more than one creditor. A helpful example is the case where all the directors of a company directors agreed with Coleridge that they would suspend the debts if he paid them a lesser sum. Coleridge did as they had agreed but afterward, the company sued Coleridge for the remaining debt. The court dismissed the case.

The doctrine of promissory estoppel declares that if a party to a contract makes a promise to the other, and then that party act in reliance to that promise, the court will stop the other party from denying the promises despite the fact that the promises lacks. For example, High Trees acquired CPP’s section of flats at a lease of £2,500/year.. The wars affected the business rental rates the parties reduced the rent price by half. However, the never agreed on the when to raise the price back. The war ended, and the tenants filled the houses.  CLP sort to raise the rent back to normal. The court ruled that the original price should be paid after the war, but CLP could not go back to claim the original price for the half price before the war ended.

Conclusion

Consideration is important for to give the contract a bargaining power. In English law, a gratuitous agreement will not have a legal force unless if it was made in deed. Simply, the law is limited to those agreements where parties are exchanging something of value.  However, there would be few situations when the court will allow the promise if dismissing such an agreement will cause one party to suffer injustice. These circumstances are where the parties showed that their promises intended to create a legal bond, or by the application of the doctrine of promissory estoppel. The aim of this paper was to discuss the issue of the case of Josie and Sam, and discuss the few cases where the Pinnel’s case rules would not be applicable.

References

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Russell, Carron-Ann, Opinion Writing And Drafting In Contract Law (Routledge, 2nd ed, 2012)

Chandler, Adrian and Ian Brown, Law Of Contract (Oxford University Press, 9th ed, 2013)

Poole, Jill, Textbook On Contract Law (Oxford University Press, 13th ed, 2016)

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Beatson, Jack et al, Anson's Law Of Contract (OUP Oxford, 30th ed, 2016)

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Klass, Gregory, Contract Law In The USA (Kluwer Law International, 1st ed, 2010)

Restatement (Second) of Contracts § 30 [1981] Section 40

Routledge v Grant [1828] 4 Bing 653

Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344

Tenax Steamship Co v Owners of the Motor Vessel Brimnes, [1974] EWCA Civ 15

Foakes v Beer [1884] UKHL 1

Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130

Hochster v De la Tour [1853] 2 E & B 678

Hirachand Punamchand v Temple [1911] 2 KB 330 Court of Appeal

Stilk v Myrick [1809] EWHC KB J58

West Yorkshire Darracq Agency Ltd v Coleridge [1911] 2 KB 326

Vanbergen v. St. Edmunds Properties Ltd. [1933] 2 K.B. 223