scenario at hand concerns with Contract Law’s area of “Offer and Acceptance”
and “Breach of Contract.” I shall deal with each of them in turn.
begin with, there are a number of cumulative requirements and each one of them
must be present for a contract to exist and capable of being legally binding on
both parties to the contract. The process of agreement begins with an offer. An
offer may be addressed to a single person or to many people. For a contract to
be formed, this offer must be unconditionally accepted. Further elements
include “consideration” and “an intention to create legal
relations.” The legal definition of a valid offer was given in Fisher
v Bell1: “An offer is an expression of willingness to contract on certain
terms. It must be made with the intention that it will become binding upon
acceptance. There must be no further negotiations or discussions
required.” s2(a) Contracts Act 1950 articulates the offer, albeit with
an alternative word of “proposal”, in words to the same effect.2
application of this rule can be seen from the two infamous cases of Storer
v Manchester City Council3 &
v Manchester City Council.4 In
both of these cases The Manchester City Council decided to sell houses to
sitting tenants. In two of these cases, the claimants entered into agreements
with the City Council. However, a change in the government lead to change in
the housing policy and the Council refused to go forward with their agreements.
In the Storer it was decided that a valid contract had been concluded; the
council made a valid offer and all that the calimant needed to do was to send
his acceptance by filling the form and sending it back to the council office.
But in the case of Gibson, The House of Lords concluded that there was no
agreement since the documents which were sent to Gibson stated that if he
filled the relevant forms, then the council “may be” prepared to sell
the house. Lord Diplock stated: “The
words ‘may be prepared to sell’ are fatal … so is the invitation, not, be it
noted, to accept the offer, but ‘to make formal application to buy’ on the
enclosed application form. It is …a letter setting out the financial terms on
which it may be the council would be prepared to consider a sale and purchase
in due course.”
Breach of Contract &
is clear from the facts of the scenario at hand that Trisna has breached the
contract with Elleanor which the former entered into by accepting the
consideration of RM 2,000.00. as “down payment.”5 So
the main question to decide here is whether the breach in question, i.e.
purporting to deliver all gemstones but the lapis lazuli, is the kind of breach
recognized by the law as a breach which entitles the innocent party, here Elleanor,
to terminate the contract, i.e. “a repudiatory breach.” And the simple and
straightforward answer is “Yes”. This is because s.40 of Contracts
clearly stipulates that where a party refuses to perform the contract in whole,
it gives the right to the other party to repudiate the contract.
would like to argue, as it appears, that the lack of complete consideration for
the items meant that she is not bound to perform the contract in full. But her
argument is going to fail on two main and fundamental grounds. First that the
terms of contract itself stipulated that the consideration is to be provided in
installments and therefore she cannot argue something completely contrary to
what she contracted about. It is well established, see L’Estrange v Graucob7,
that the party who signed or agreed to the terms of the contract will be bound
by the clause, even if it has not been read or understood, so long as the party
seeking to rely upon the clause has not made any misrepresentation as to its
effect. Moreover, S.8 of Contracts Act 1950 stipulates that the act of receiving
consideration, or a part of it (as appears from the terms of the contract,
signifies absolute acceptance of the proposal. Secondly, it is equally well
established that the contracts for the supply of goods impose a strict standard
of performance with regard to the quality and quantity of the goods to be
supplied. In Arcos v Ronaasen8
the supplier was held to be liable when he supplied the barrel staves with
varying thickness from 7/16ths of an inch thick to 9/16ths of an inch thick,
when the contract demanded the staves to be only half an inch (8/16th of an
Remedies and Defenses:
is clearly entitles to the damages for the loss she suffered from Trisna’s
breach of the contract. S. 74 clearly provides for this remedy in no uncertain
terms. But the real question seems to be whether Elleanor could recover damages
which she suffered, in terms of “falling short of the design blueprint she
promised the fashion organizers”, as a direct result of Trisna’s breach.
This is because S.74 (2)9
bars the recovery of remote damages. And thus we have to defines and evaluate
whether the latter injury is “remote” to the contract breach or not.
But before we move on, we must keep in mind that Trisna’s lack of knowledge as
to the fashion project is wholly immaterial since s.74 (1) does not make the
knowledge of the party which breached the contract as a necessary condition for
recovering damages, rather it states that the injured party could recover for
the loss or damage caused to him thereby; which naturally arose in the usual
course of things from the breach “OR” which the parties knew.
Therefore the lack of knowledge is not necessary and we have to see whether the
loss Elleanor suffered, in form of failing to perform the fashion project, is
direct or natural. The remoteness of
damages is judged with reference to the two tests laid down in Hadley
and defined by The House of Lords in South Australia Asset Management Co v
York Montague Ltd.11
Firstly, the damages must be foreseeable in the sense that the damages which
may reasonably be considered as arising naturally – those damages which arise
in the ‘usual course of things’ as a probable result of the breach of contract.
Secondly, if the contract is breached, and the consequences of the breach are
such that they will be particularly severe because, e.g. an especially
lucrative opportunity will be lost. In such a case, the damages will only be
recoverable if the special circumstances are reasonably within the
contemplation of the parties at the time they made the contract as likely to
occur if the contract is breached. Applying it to the current situation, it is
highly unlikely that a reasonable person in Trisna’s position could have reasonably
known about the fashion project and therefore she is liable only to the extent
that the lapis lazuli gemstones would make up for in the contract.
is no possible defense to the breach in question. The only thing which Trisna
can argue, as discussed above, is the amount of damages which would be awarded.
This is further evidenced by the fact that the law recognizes that once there
has been a fundamental breach of contract, even an exclusion clause in the
contract itself cannot operate as a defense to that breach, per Lord Denning in
Plasticine Ltd v Wayne Tank and Pump Co Ltd.12
is clear from our above discussion that Trisna is in breach of the contract she
entered into with Elleanor. There is no defense to her breach, whatsoever. If
anything at all, the statute i.e. Contracts Act 1950 and the common law
authorities go against her. It seems that all she can do is to argue with
respect of the damages she would be liable to under the breach and nothing
(1333 words, excluding
1 1961 1 QB 394.
2 S.2(a) Contracts Act 1950: “when one person signifies to another
his willingness to do or to abstain from doing anything, with a view to obtaining
the assent of that other to the act or abstinence, he is said to make a
3 1974 3 All ER 824.
4 1979 1 All ER 972.
5 S.8 Contracts Act 1950.
6 S.40 Contracts Act 1950: “When a party to a contract has
refused to perform, or disabled himself from performing, his promise in its
entirety, the promisee may put an end to the contract, unless he has signified,
by words or conduct, his acquiescence in its continuance.”
7 1934 2 KB 394
8 1933 AC 470.
9 S.74 (2) Contracts Act 1950: “Such compensation is not to be given
for any remote and indirect loss or damage sustained by reason of the breach.”
10 1854 EWHC J70.
11 1997 AC 191 at 211.
12 1970 1 QB 447.