Breach of Contract Specific Performance

The assignment discusses the concept of breach of contract specific performance, using a hypothetical scenario where Adam purchases a vintage car from Edwin. It explores how the type of vehicle (vintage 1925 Rolls Royce vs late model Mercedes Benz) affects the likelihood of success in obtaining specific performance as remedy for breach of contract.

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Business Law
Case study based questions
26-Mar-18
(Student Details: )

Analysis
Question 1(a)
Legal Issues
The key issue of this case revolves around the presence of a binding contact between
Leila and Julie based on the advertisement given in the local newspaper.
Rule: Premise and Authority
A contract denotes a promise being made which has legal validity, where one party
agrees that they would do the promised task under the contract, and the other party agrees that
they would make payment of the consideration value, as was decided between both the parties
(Abbott, Pendlebury & Wardman, 2007). A contract can be formed orally, where the parties
exchange the terms of contract in a spoken manner. On the other hand, a contract can be created
in written manner, whereby the terms of the particular contract are provided on a document and
the parties to the contract signing such document (Marson & Ferris, 2015). For the purpose of
forming contract, there is a requirement for certain important or essential elements to be present
in a contract; these include offer, acceptance, consideration, intention, legality and capacity
(Gibson & Fraser, 2014).
The first step in creating a contract is for an offer is to be made by one party. This offer
needs to be clearly stated and needs to provide the details of the terms being offered by the
offering party. It is important that an offer is differentiated from an invitation to treat, as the
former shows the intent of getting in legal relations, but the same is not present in invitation to
treat, which denotes only the negotiation phase of contract, which may or may not be present in
every case (Paterson, Robertson & Duke, 2012). In invitation to treat cases, the individual is not
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Analysis
obligated to sell the advertised products, as had been seen in Pharmaceutical Society of Great
Britain v Boots [1953] 1 QB 401. In general, the advertisements which are placed in the
newspapers are invitation to treat, as was seen in Partridge v Critenden (1968) 2 All ER 425.
However, there are cases when the advertisements in newspapers are taken to be an offer.
For this, reference needs to be made to Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. In
this case, a newspaper advertisement was given by the defendant providing that where a person
got sick with influenza, even after using their product in the prescribed manner, they would get
an award. The plaintiff used the product and still fell sick. This led to a case being raised as the
defendant denied paying the rewards money stating that the advertisement was an invitation to
treat. However, the court stated that this was not the case and that a unilateral offer had been
made in this case. Upon such an offer being made, the other party only has to undertake the
performance of the promise to give their acceptance (Latimer, 2012).
The next requirement in formation of a contract is for the presence of an acceptance. The
offer which has been made by the offering party has to be accepted in the exact manner it was
made, by the accepting party (Andrews, 2015). Where there is any change in the communication
of acceptance, it would result in a counter offer being made based on Hyde v Wrench (1840) 49
ER 132. The acceptance has to be unequivocal, clear and unambiguous. In context of acceptance,
it is crucial that the acceptance is given in the mode which had been prescribed by the offering
party. The acceptance date is taken to be such date when the acceptance is communicated to the
offering party; in other words, the day on which the acceptance reaches the offering party, is the
date of acceptance (Blum, 2007).
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Analysis
The next requirement for creating a legally binding contract is for the value of
consideration being present, which needs to have economic value, as without valid consideration,
a contract is not deemed as valid. However, the parties are free to decide the value of
consideration, as it needs to be sufficient not adequate (Stone & Devenney, J. (2014). For
instance, in Chappell v Nestle [1960] AC 87, three wrappers had been accepted as valid
consideration in this case due to condition precedent. The next requirement in creating the
contract is for the parties to have the intention of creating legal relations, which can give rise to
possible liabilities for the parties in future, in addition to giving them certain rights (Elliot, 2011).
The terms of the contract need to be legal as an illegality in the contract, in terms of presence of
coercion, can render the contract void. Lastly, the contracting parties need to hold the capacity of
entering into the contract, in terms of holding the legal age under the eyes of law (McKendrick,
2014).
Application
In the present instance, an advertisement had been placed in the local newspaper. There is
a need to decide here whether this advertisement was an offer or an invitation to treat. This
requires careful analysis of the wordings of the advertisement. This advertisement was a
unilateral offer as it was an open offer for any person who was reading this advertisement that if
they found the lost gold locket and chain, they would get the reward based on Carlill v Carbolic
Smoke Ball Co, as against Partridge v Critenden due to presence of unilateral offer. An
individual only had to find the lost gold locket and chain and the offer would deem to be
accepted.
There was consideration value of $50 making it valid consideration based on Chappell v
Nestle. There was no mode of acceptance provided in the advertisement. Only the phone number
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Analysis
and address was provided. So, a person could inform by any one of the two modes, due to lack of
clearly providing which mode had to be provided. The intent was present based as Leila wanted
her belongings back and Julie wanted the payment. There was no illegality in this case. It is
assumed that the parties had the legal capacity of getting in a contract.
Conclusion
Thus, based on the aforementioned details, it can be concluded that a valid contract was
formed between the two parties in this case.
Question 1(b)
Legal Issues
The key issue of this case revolves around the answer being different had Julie not read
the advertisement and heard about the same from April.
Rule: Premise and Authority
When it comes to the offer and acceptance parts of formation of contract, it is crucial that
the acceptance is given by the party to which the offer had been made. The unilateral contract
only binds the promisor till the time the work is undertaken. So, any person can fulfil the made
offer and perform on it, to give their acceptance, as the unilateral offer is made to the world,
instead of being made to a particular set of people (Latimer, 2012).
Application
In the present instance, where Julie does not read the advertisement and comes to know
of it through April, she could still accept the offer by performing on it. Her finding of locket and
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Analysis
chain and returning it to Leila would be performance of the promise under the unilateral offer.
The other elements continue to be present as shown earlier.
Conclusion
Thus, based on the aforementioned details, it can be concluded that a valid contract was
still formed between the two parties in this case.
Question 2
Legal Issues
The key issue of this case revolves around the possible remedies which Adam has in
context of the breach of contract by Edwin in context of a special item. The other issue relates to
the possible change in advice where the car, instead of being a vintage car, turns out to be a late
model Mercedes Benz.
Rule: Premise and Authority
Once a contract is formed, it is central that promise made in the particular or specified
contract is properly upheld. Where the promise undertaken in the contract is not fulfilled, it
results in the contract being breached. When the contract is contravened, the aggrieved party can
apply for the different remedies available in cases of breach of contract (Mulcahy, 2008). In
Addis v Gramophone [1909] AC 488, the court held that the purpose of awarding damages under
the contract law was to put the injured party in a position which they would have reached upon
performing the promised terms of the contract. There are different remedies which can be
claimed upon by the aggrieved party and these include damages, which is given in terms of
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Analysis
monetary compensation, or equitable damages, in terms of injunction, specific performance, and
rescission, amongst the others (Poole, 2016).
In order to apply for the damages for the loss which a person bears, as a result of the non
performance of the contract, there is a need to prove three things, i.e. causation, remoteness and
duty of mitigating losses (Waddams, 2011). For instance, due to the lack of causation in
Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196, the claim of
defendant regarding breaking of chain of causation was quashed. In Hadley v Baxendale [1854]
EWHC Exch J70, it was provided that the damages for the contract breach would be provided
only when it was a reasonable and fair result from contravention of the contract or in such cases
where the damages could be reasonably be supposed to be contemplated of both parties during
the time of formation of contract. Lastly, the defendants had the duty of mitigating the loss. In
Payzu v Saunders [1919] 2 KB 581, the damages were not awarded to the claimant as he had
been provided with the opportunity of purchasing the item at discounted price. As there was a
failure in taking the reasonable steps for mitigating the loss, the damages were not awarded.
In such cases where the damages are not adequate compensation to the loss of the
aggrieved party, they can apply for equitable remedies. One of these is specific performance of
the promise made under the contract. However, the courts are often reluctant in providing the
specific performance as a remedy, and this is available in limited situations only. The court thus
considers the facts of the case to analyse if the damages being awarded is an adequate or
inadequate remedy. Where the damages are inadequate compensation, specific performance
would be awarded by the court (Treitel & Peel, 2015).
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Analysis
In Nutbrown v Thornton (1805) 10 Ves 159, a contact was entered in by the claimant and
the defendant for purchasing some machinery. There was a refusal of delivering the machines by
the defendant resulting in him being in breach of contract. This type of machinery was only
manufactured by the defendant. This led to the plaintiff brining in a case of breach of contract
against the defendant and claimed for specific performance from the court. It was held in this
case that the specific performance had to be granted as a remedy. This was because the awarding
of damages would be given for non-delivery of ordinary goods. Here, being the machinery not
available anywhere else, it was special in nature, requiring special compensation in terms of
specific performance being awarded to the claimant.
As against this, Cohen v Roche [1927] 1 KB 169 saw a furniture shop being owned by the
claimant and him entering in an agreement of purchasing a certain number of Hepplewhite chairs
for selling this in his shop. The defendant refused to deliver these chairs, resulting in the contract
being breached. This led to the plaintiff brining in a case of breach of contract against the
defendant and claimed for specific performance from the court. However, this request was
denied and the monetary compensation was seen as an adequate compensation in this case. The
reason for this was that the chairs were deemed as goods of ordinary nature having no special
interest or value.
Application
In the present instance, a contract had been drawn between Adam and Edwin where
Adam was set to purchase the vintage car, 1925 Rolls Royce from Edwin for a price of $500,000.
They even entered in a contract for this very purpose. However, Edwin later on denied selling the
vintage car to Adam as he knew from grapevine that the same car could be sold for $700,000 to
an Arabian Sheik. Here, Adam can apply for damages for the breach of contract on part of
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Analysis
Edwin. This is based on Monarch Steamship Co Ltd v Karlshamns Oljefabriker as there was
direct causation where the breach of contract by Edwin resulted in Adam losing an opportunity
to get his hands on a vintage car. Further, it was reasonably foreseeable that by not getting hands
on the vintage car, Adam would be at a loss position. This was naturally a result of breach of
contract by Edwin based on Hadley v Baxendale. Lastly, Edwin failed in taking the requisite
steps to mitigate the loss of Adam, based on Payzu v Saunders, in terms of making arrangements
which could have allowed for Adam to get his car on another 1925 Rolls Royce for the same
price.
Even more important claim which can be made by Adam here is claiming specific
performance of the contract from Edwin. This is because the 1925 Rolls Royce is a vintage car
which holds special interest and special value, and is different from ordinary items. Based on
Nutbrown v Thornton, Adam is most likely to succeed in this claim as against that of damages, as
damages are not an adequate compensation in this case.
Where the motor vehicle had been late model Mercedes Benz, the chances of Adam
succeeding in claims of specific performance were not very likely. This is because the late model
Mercedes Benz is not an item holding special interest or special value. The late model Mercedes
Benz, particularly in comparison of the vintage car 1925 Rolls Royce is not an item of special
interest or special value and is instead an ordinary item. This is in the same way as was held in
Cohen v Roche, as here Adam could have procured the late model Mercedes Benz from any
place as it was not a limited or special edition item. Here, Adam would have to suffice himself
by getting damages as remedy to the breach of contract by Edwin.
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Analysis
Conclusion
Thus, based on the aforementioned details, it can be concluded that where the case of
breach of contract includes the vintage car 1925 Rolls Royce as the item which had to be sold
under the contract to Adam by Edwin, Adam would be successful in getting specific
performance. However, when it comes to the breach of contract revolving around the late model
Mercedes Benz, Adam would not be successful in getting specific performance and would have
to suffice with damages as remedy.
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Analysis
References
Abbott, K., Pendlebury, N., & Wardman, K. (2007). Business law (8th ed.). London: Thompson
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Addis v Gramophone [1909] AC 488
Andrews, N. (2015). Contract Law (2nd ed.). UK: Cambridge University Press
Blum, B.A. (2007). Contracts: Examples & Explanations (4th ed.). New York: Aspen Publishers.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Chappell v Nestle [1960] AC 87
Cohen v Roche [1927] 1 KB 169
Elliot, C. (2011) Contract Law (8th ed.). London: Pearson.
Gibson, A., & Fraser, D. (2014). Business Law 2014 (8th ed.). Melbourne, Pearson Education
Australia.
Hadley v Baxendale [1854] EWHC Exch J70
Hyde v Wrench (1840) 49 ER 132
Latimer, P. (2012). Australian Business Law 2012 (31st ed.). Sydney, NSW: CCH Australia
Limited.
Marson, J., & Ferris, K. (2015). Business Law (4th ed.). Oxford: Oxford University Press.
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Analysis
McKendrick, E. (2014). Contract Law: Text, Cases, and Materials (6th ed.). Oxford: Oxford
University Press.
Monarch Steamship Co Ltd v Karlshamns Oljefabriker (A/B) [1949] AC 196
Mulcahy, L. (2008). Contract Law in Perspective (5th ed.). Oxon: Routledge.
Nutbrown v Thornton (1805) 10 Ves 159
Partridge v Critenden (1968) 2 All ER 425
Paterson, J.M., Robertson, A., & Duke, A. (2012). Principles of Contract Law (4th ed.). Rozelle,
NSW: Thomson Reuters (Professional) Australia.
Payzu v Saunders [1919] 2 KB 581
Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401
Poole, J. (2016). Textbook on Contract Law (13th ed.). Oxford: Oxford University Press.
Stone, R., & Devenney, J. (2014). Text, Cases and Materials on Contract Law (3rd ed.). Oxon:
Routledge.
Treitel, G H., & Peel, E. (2015). The Law of Contract (14th ed.). London: Sweet & Maxwell.
Waddams, S. (2011). Principle and Policy in Contract Law: Competing or Complementary
Concepts?. Cambridge: Cambridge University Press.
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