CONTRACT.edited..edited

February 5, 2023

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PART A

QUESTION 1

An invitation to treat represents a willingness to negotiate the terms of an offer for the two parties to contract successfully. The court held in (Pharmaceutical Society of Great Britain V Boots, 1953) that is an invitation to treat, the party intending to make a sale gives the seller an offer to buy the goods. The seller’s invitation to treat is made to the buyer, inviting them to make an offer.  Unlike an offer, acceptance is an invitation to treat does not lead to a valid contract.

An offer is a statement made by an offeror to an offeree that demonstrates the willingness to be bound by resulting legal obligations concerning the contract. The court held in (Harvey v Facey, 1983) that the offer must demonstrate the intention to create and be bound by arising legal obligations in the contract.

QUESTION 2

Incorporation of terms in a contract means introducing new words to the already existing terms in a contract. For an incorporation to be valid, it must satisfy the following requirements. Firstly, the court established in (Olley v Marlborough Court Hotel, 1949) that the incorporation must be made before or at forming the resulting arrangement. Secondly, the conditions made must be incorporated into a document intended to have the nature of a contract. Thirdly, as illustrated by the court in (Parker v South Eastern Railway Company, 1877), the court held in (L’Estrange v F Graucob Ltd, 1934) the party introducing the new terms must take steps that are deemed to be reasonable to ensure the other contracting party has noted the incorporation of the new terms.

QUESTION 3

The legal principle established by the court in Hadley v Baxendale is that a party in breach of contract is liable to pay the affected party all foreseeable losses suffered when the contractual breach took place. However, according to the court, the party is under no obligation to pay for unforeseeable losses using the information available to him when the breach occurred. Contractual breach arises where a party to an agreement by omission or commission fails to honor his contractual obligations. The rationale behind the general rule in Hadley v Baxendale is to compensate the victim party for the losses suffered or take him back to his position before the breach occurred. 

QUESTION 4

An exemption clause in a contract is a clause that stipulates that a part is either exempted, excluded, or limited to the liability in the contract. The two primary forms of exemption clauses are the limitation clause and the exemption clause. Exemption clauses may sometimes be used unfairly in arrangements where there exists inequality in bargaining powers between the parties. When determining the validity of exemption clauses, courts will mainly focus on the fairness within the contract between the two parties. The Unfair Contract Terms Act of 1997 is the statute that regulates exemption clauses in business and commercial activities.

QUESTION 5

Misrepresentation is defined as false factual statements formulated by one party to another to persuade the other into entering into a valid contract. The necessary preconditions to successfully bring a claim in misrepresentation are; first, the words made by the party must be untrue, the statement maker was aware of the false nature of the statements made, and thirdly, the receiver relied on the inaccurate statements into entering the contract.

PART B

Introduction

The arrangement between the school and Big Build limited is a contractual agreement. A contract is an oral or written arrangement by two or more people to perform agreed contractual obligations. A valid constitutes an offer made by an offeror to an offeree. Upon acceptance, the contract between the two parties becomes binding. Consideration must, in turn, be paid for the work done. Additionally, there must be an intention between the two parties to be bound by the resulting contractual obligations in a valid contract. Intention to create legal relations between the parties in a contract demonstrates the parties’ willingness to be bound by the resulting agreement.

The issue demonstrated in the fact pattern relates to breach of contract and the consequences of breach of contract. Breach of contract arises where a party by omission or commission fails to perform or honor their resulting contractual obligations and duties.

One of the contract terms in the fact pattern is that the work must be completed before 1 September 2020, failure of which Big Build must pay a penalty of £ 10 000 per day until completion.  Notice of incorporation of terms in a contract must be made at the time of formation of the contract or before the conclusion of the contract. The party introducing the terms must bring to the attention of the other contracting party the introduction of the new terms. Thirdly the new terms must be made in a contractual document. The building company raises a defense that it did not read the contract in total, and the part of the penalty and amount of the fine payable was unclear to them at the time of the formation of the contract. It asserts, therefore, that had it known about the penalty, it would not have agreed to sign the contract.

As a general rule, a party must take steps deemed reasonable to ensure the other party has noted the existence of the newly incorporated terms in the arrangement.  The court in (Parker v South Eastern Railway Company, 1877) noted, it does not matter whether a party read the new incorporated terms in a contract what matters is whether the contracting side party who incorporated the terms took steps deemed to be reasonable to bring to the attention of the other party the existence of the words. From the case in the fact pattern, the school as the incorporating party did not take proper steps as required by the law to ensure the building company understood the clause stipulating the penalty. One example of reasonable steps to inform the other contracting party is through a notice on the document noting the critical penalty clause. The statement may read, for instance. “See back.” Therefore, the clause was invalid as the notice was not made to the building company before or when agreeing. The building company had not seen and understood the penalty clause, and further, it was never brought to their attention until the breach occurred. 

The frustration of a contract is a doctrine that refers to the inability to perform contractual duties and obligations due to unexpected and unforeseen events. Frustration may at times render the agreement impossible to complete and may ultimately end the contract. (Taylor v Caldwell, 1863) established the doctrine of frustration.  The principle of frustration offers a remedy in the following circumstances; where an event has not occurred, and performance has been frustrated, where the cost of the contract has increased as a result of the frustrating events, where it is impossible to perform the contractual obligations in the agreement by either party, where war has broken out, and cases of delay and interruption during the performance of the contractual obligations. The delays occasioned in the arrival of essential materials from Europe delayed the completion of the building within the intended time. As demonstrated by the court in Taylor v Caldwell, this delay was an unprecedented event that neither party had expected. Therefore, no party should bear liability arising from the delay.  It would be unfair for either party in the contract to assume liability for factors beyond their control.

From the fact pattern, the building company is in breach of the contract ad it failed to complete the work on 1 September 2020. A breach occurs where on the one end, a party in breach fails to perform their contractual obligations. The necessary preconditions which must be proven to ascertain breach of contract are; first, there must be the existence of a valid agreement between the two or more contracting parties—the plaintiff’s performance of contractual obligations or non-performance caused by the defendant’s breach.  A loss suffered by the plaintiff as a result of the defendant’s breach. The court in (Western Distributing Company v Diodosio,1992) held that a plaintiff suing for breach of a contract must prove the existence of the four elements of a breach to recover resulting liquidated damages.

A contract is enforceable where the parties to the agreement have mutually agreed to be bound by the warranty. In contractual arrangements, a party who occasions losses or harm due to the other party’s breach is entitled to damages. Mostly, the losses occasioned are unforeseen by both parties. A valid contract exists between the two parties in the given case between the school and the building company. The building company is in breach of the contract as it failed to complete the work within the agreed period. The breach occurred when the building manager left the building company with some employees in a competitor company.

Additionally, delays in the delivery of building materials also caused the breach of contract.  The violation of agreement caused by the building company caused the school to occasion a loss for hiring cabins. The cabins were to be used temporarily until the building construction was completed. Additionally, the hired places would help reduce the noise and distractions caused by the building works in the school compound.

Conclusion

 A liquidated damages clause in a contract such as the one provided in the fact pattern is unenforceable. It is proven to be extravagant, excessive, unreasonable, and oppressive to the other party. Where a breach of contract is occasioned, the liquidated damages must be a genuinely calculated estimate of the actual loss suffered by the plaintiff. Therefore, the penalty clause in the agreement between the school and the building company is unenforceable because it is excessive and oppressive.

 

REFERENCE LIST

List of cases

Harvey v Facey (1983) AC 552.

 L’Estrange v F Graucob Ltd (1934) 2 KB 394.

Parker v South Eastern Railway Company (1877) 2 CPD 416.

Pharmaceutical Society of Great Britain V Boots Cash Chemists (1953) EWCA Civ 6.

Taylor v Caldwell (1863) 3 B & S 826.

Western Distributing Company v Diodosio (1992) 841 P. 2d 1053).

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