Legal Analysis Of The Essential Elements And Terms Of A Contract In Case Of Breach

Offer and acceptance as essential elements

1.Is the oral assurance, given by Kalpana to Rafia, a term of the contract or not?

2.If the oral assurance can be regarded as a term, is a court likely to regard it a condition or warranty?

3.What remedies are open to USC given the facts?

Is the oral assurance of Kalpana is treated as a term of the contract?

A contract is referred to a written or spoken agreement which is based on specific terms that can be enforceable by law. It is not necessary that the contract must be written and signed by the parties. It can be oral as well in which the parties spoke the terms of the contract. In order to create a legal contract, parties to the contract are required to fulfil some essential elements. After fulfilment of these elements, a contract is formed either in written format or orally. The first essential element is an offer. An offer has the capability to bind the offeror, the person making the offer, into a legal contract if the offer is accepted by the offeree, the person to whom the offer is made (Harvey v Facey). The Privy Council provided the importance of an offer in a case in which a person sent a telegram to know about the lowest price of the pen. The seller replied by providing information about the pen, based on which the party replied to form a contract. In its judgement, the Privy Council held that no contract has been constructed between parties because an offer was not present (Mahdi et al., 2013).

Only supply of information cannot be constituted as an offer because it did not have the ability to bind the party into a legal relationship (Harvey v Facey). The acceptance of the offeree is another element of a contract. The acceptance must be free from any external influence, and the offeree should accept the offer as it is because the change in its terms resulted in the termination of the offer which cannot be accepted by the offeree until it is revived by the offeror (Hyde v Wrench) (Salzedy, Brunner and Ottley, 2010). The parties to a contract must have mutual intention to accept the terms of the contract and create a legal relationship. Not every agreement has the ability to be enforceable by the law. For example, domestic or social agreements constructed between parties at social events cannot be enforceable by the law (Coward v Motor Insurance Bureau). Another element of a contract is the availability of valid consideration. Each party to a contract suffers a loss and gain a profit based on the completion of the contract which is considered as its consideration.

Other essential elements of a contract

A valid consideration is based on the fact whether it has a value in the eyes of the law. It is not necessary that a consideration must be adequate as long as it is sufficient. It is not necessary that the consideration must have a market value which means giving something for a value, for example, $1 in exchange of a house is considered as valid because the court did not concern with the fact that whether contracting parties made a good or bad bargain (Chappell v Nestle) (Hough and Kuhnel-Fitchen, 2017). The contracting parties must have a mutual obligation to perform or not perform specific acts as provided by the terms of the contract. A contract cannot be legally binding if the parties to the contract are not capable of creating a legal relationship. People who are insolvent, unsound mind or minor cannot form a legal relationship with others.

The main objective of Rafia was to hire Kalpana for performing an Indian classical dance at the event in order to impress the visitors coming from the Savitribai Phule Pune University. Therefore, she confirmed with Kalpana that whether or not she does Indian classical dance and Kalpana replied that she does the most beautiful Indian dance. As discussed above, a contract can be written or oral, and in each contract the parties can legally enforce its terms over one another. It is necessary that both Kalpana and Rafia fulfil the essential elements of the contract. An offer was made by Rafia which was accepted by Kalpana without any changes or counteroffer. Valid consideration was available in the contract as well, and both the parties are competent to create legal relationships. The parties have mutual obligations and intention to create a legal relationship. Rafia is fully authorised to act on behalf of USC, therefore, a valid contract has constructed between the parties. Therefore, the oral assurance given by Kalpana that she knows and do beautiful Indian classical dance is considered as a party to the contract.

Conclusion 1

In conclusion, a valid contract has constructed between the parties based on which the oral assurance given by Kalpana is considered as a term of this contract because Rafia enters into the contract based on such assurance.

The oral assurance given by Kalpana is likely to consider as a condition or warranty by the court?

A contractual term is referred to a provision which forms a part to the contract. Each term of a contract give rise to a contractual obligation which binds the parties and non-fulfilment of such terms can cause legal consequences. Terms can either be expressed or implied based on the condition of the contract. Not every term which is stated or expressed by the parties to a contract carry legal obligation as they could be peripheral to the objectives of the contract. Therefore, it is necessary that the court identify which term is breached by the parties because the remedies for innocent parties differentiate based on the terms. Terms are divided into three categories based on their attributes which include condition, warranty and innominate term. Conditions are the contractual terms which go to the very root of a contract; these are main terms based on which the contract relationship is formed between parties (Blackshaw, 2011). The innocent party is entitled to terminate or end the contractual relationship in case of breach of a condition (Poussard v Spiers).

Classification of contractual terms

On the other hand, a warranty is less imperative than compared to a condition. They are referred to minor terms of the contract which are not the central part of the legal relationship. In case a party breached the warranty of the contract, the innocent party is entitled to demand damages however the contract cannot be terminated based on the breach of a warranty. Whether a term is a condition or warranty is based on the circumstances of the case; in a leading case, the House of Lords considered a term as warranty even though it was clearly expressed in the contract that it was a condition (Schuler v Wickman Tools) (Yihan, 2013). The provision of the innominate term was given by the court in the judgement of a case (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha). The innominate terms are referred to such terms which cannot categorise as either condition or warranty. Breach of innominate terms resulted in causing a significant loss to the party of the contract which demolishes the purpose of creating the contract in the first place.

As seen above, the oral assurance given by Kalpana is considered as a term of the contract. While meeting with Kalpana, Rafia told her the reason for organising the event. She wanted to organise an Indian classical dance show in order to impress the visitors who are coming from the Savitribai Phule Pune University. Rafia wanted to impress them because it increases their chances to create a contract between Savitribai Phule Pune University and USC. She told this to Kalpana as well. Furthermore, she also told her that if they both agreed to common terms, then she will make her Indian classical dance performance as the central act of the show and sell tickets by advertising her show. After listening to all these facts, Kalpana gave her oral assurance to Rafia that she knows and do Indian classical dance. As the contract was based on the fact to impress visitors from Savitribai Phule Pune University and sell tickets by promoting Indian classical dance show, the oral assurance given by Kalpana is more likely to consider as a condition of the contract by the court. These two factors are the root of the contract between Kalpana and Rafia, therefore, the oral assurance is considered as the condition of the contract. In case more information would have given in the case study, then implementation of the principle of the innominate term would have been more suitable in this situation.

Oral assurance of Kalpana as a condition of the contract

Conclusion 2

In conclusion, Rafia contracted with Kalpana to impress Indian visitors and sell tickets by advertising her Indian classical performance, therefore, both of these factors are the root of the case based on which the oral assurance of Kalpana is a condition of the contract non-fulfilment of which defeats the purpose of this contract.

What remedies can be claimed by USC against breach of the contract by Kalpana?

The terms of a contract are binding upon each party, and breach of any term gives rise to a legal remedy. The innocent parties of a contract are entitled to claim for a remedy in case another party breached the term of the contract. There are six basic remedies available in case of a breach of contract which includes damages, specific performance, injunction order, quantum meruit, rescission of parties and repudiation. Damages are referred to compensation which the innocent party received in case of a breach of contract. The main objective of damages is to arrange for compensation which is suitable for the party to compensation for the losses faced by them due to a breach of the contract. It focuses on placing the innocent party into a situation where he/she would have been in a case the contract was not breached. The damages are awarded by the court based on the rules of remoteness, causation and duty of care. The remoteness of damages means the loss suffered by the innocent party must be caused as a direct consequence of a breach of the contract because the damages cannot be rewarded for the losses which are too remote (Pilkington v Wood) (Learmonth, 2011). At times the innocent party has the right to file a suit for claiming specific performance for the breaching party.

The contracts are created so that the contracting parties must perform their contractual obligations, therefore, the court can issue an order to a party for the performance of a specific act to the contract, although the court rarely issues this remedy. Before issuing this remedy, the court determines whether the reward of damages is an equitable remedy in the case, if not then the order for specific performance is issued by the court (Eggers and Picken, 2017). In a leading case, the court refused the order for specific performance because the claimant was taking advantage of the ignorance of the defendant based on which a reward for specific performance cannot be issued (Walters v Morgan). Another remedy is repudiation of the contract which is only available in the case of breach of a condition of the contract. Repudiation of a contract resulted in ending or terminating the contractual relationship between parties, and they are free from performing their contractual obligations. In case of breach of a warranty, the party cannot demand the repudiation of the contract because it is only available in the case of breach of a condition (Bettini v Gye). The innocent party can also file a suit for quantum meruit which is derived from a Latin term which means “what one has earned”. In this remedy, the innocent party can file a legal suit against the breaching party for claiming the payment in proportion to goods supplied or work done.

Remedies for breach of contract

The innocent party can claim for compensation for the work which he/she had performed or goods which he/she had supplied to the breaching party. Another remedy is suited for injunction order in which the court issues an order to restrict a person from doing or not doing a particular act. The injunction order is divided into three categories which include prohibitory, mandatory and interlocutory injunction. In prohibitory injunction, the court issued an order to enforce a party not to do a particular act. In mandatory injunction, the order to perform a specific act is issued by the court. In interlocutory injunction, the court issues an order for temporary injunction in order to stop a particular act until the court hearing. The court can only order for an injunction in respect of the performance of partial obligations of a contract (Warner Bros v Nelson) (Burrows, 2013). The innocent party can also claim for remedy of rescission which focuses on placing the party back in pre-contractual position. This remedy is based on the unravelling of the contract which is available when the contract is voidable due to factors such as misrepresentation or undue influence (Leaf v International Galleries).

As discussed above, the oral assurance of Kalpana is considered as a condition of the contract by the court. The purpose of the contract was to impress visitors from Savitribai Phule Pune University to increase the chances of a potential contract and sell tickets for the show by adverting Indian classical dance performance of Kalpana. Due to a breach of the contract by Kalpana, the contract between Savitribai Phule Pune University and USC cancelled, and USC had to refund all the tickets to people who come to see Indian classical dance performance and it suffered the expenses of advertisement. USC can claim for repudiation of the contract because Kalpana breached the condition of the contract based on which the contract was formed. Furthermore, USC can demand damages from Kalpana because it suffered significant loss due to the cancellation of the contract with Savitribai Phule Pune University, refunding of tickets and payment of advertisement costs.

Conclusion 3

In conclusion, the remedy of repudiation and claim for damages is suitable for USC in this situation

References

Bettini v Gye (1876) QBD 183

Blackshaw, I.S. (2011) Negotiating Drafting and Interpreting Sports Marketing Agreements: Some General Legal and Practical Points and Considerations. Sports Marketing Agreements: Legal, Fiscal and Practical Aspects, pp. 3-16.

Burrows, A. (2013) What is the Effect of a Repudiatory Breach of a Contract of Employment?. Industrial Law Journal, 42(3), pp.281-288.

Chappell v Nestle (1960) AC 87

Coward v Motor Insurance Bureau (1963) 1QB 359

Eggers, P.M. and Picken, S. (2017) Other contracts of the utmost good faith. Good Faith and Insurance Contracts, pp. 113-130.

Harvey v Facey (1893) AC 552

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962) 2 QB 26

Hough, T. and Kuhnel-Fitchen, K. (2017) Optimize Contract Law. Abingdon-on-Thames: Routledge.

Hyde v Wrench (1840) 49 ER 132

Leaf v International Galleries (1950) 2 KB 86

Learmonth, A. (2011) ‘A regrettable blunder’: Marley v Rawlings [2011] EWHC 161 (Ch). Trusts & Trustees, 17(5), pp.432-437.

Mahdi, N.M.N., Anuar, N.I.M., Razmin, N.H. and Yusoff, N.D.M. (2013) Enforceable contracts: intention to create legal relations. International Business Information Management Association, pp. 1194-1199.

Pilkington v Wood (1953) Ch 770

Poussard v Spiers (1876) 1 QBD 410

Salzedy, S., Brunner, P. and Ottley, M. (2010) Briefcase on contract law. Abingdon-on-Thames: Routledge-Cavendish.

Schuler v Wickman Tools (1974) AC 235

Walters v Morgan (1861) 3 DF & J 718

Warner Bros v Nelson (1937) 1 KB 209

Yihan, G.O.H. (2013) The case for departing from the exclusionary rule against prior negotiations in the interpretation of contracts in Singapore. SAcLJ, 25, p.182.