The difference between common law and equity.

QUESTION ONE.

Q.I.A

The difference between common law and equity.

Common law system is based on judicial decisions referred to as precedents while under equity cases are decided upon based on conscience. These equity decisions are influenced by the equity maxims. Hence common law offers a strict application guideline to the established laws while equity offers a relaxed personalized sense to the application of the maxims.

Common law rights act in rem while equitable rights act in personam. Common law rights are general rules that allow for certainty while equitable rights are more case per case personal.

Common law system is an independent and self-sufficient system while equity cannot be classified as an independent system as it reliant upon other legal systems.

Common law system recognizes the use of writs while this is not recognized under equity. The writs are documents that detail the specifics of claims between parties which were used to create new law.

The common law system does not recognize the concept of trust while equity introduced and has developed the concept of trust over the decades. The courts of equity recognize the existence of trust, the role of beneficiaries and the remedies that should be awarded in the case of breach of trust where trustees fail or refuse to perform their trust duties.

Q.1.B

The postal rule and its exceptions.

The postal rule also referred to as the mail-box rule is a concept under the contract laws. This is a rule that governs the contracts that are made by way of mail. Under the postal rule, the offer is accepted once the acceptance letter has been placed in the mailbox. The contract is binding upon the parties even if the offeror has not received the letter of acceptance. This rule was established in Adam v Lindsell where the facts of the case were that the plaintiff and the defendant were in a deal for the purchase of wool.[1] The defendant sent an offer letter to the plaintiff dated September 2nd, the offer letter got to the plaintiff on September 5th. The plaintiff replied to the offer letter the same day by mailing an acceptance letter. The acceptance letter reached the defendant on September 9th. However, unknown to the defendant that the plaintiff had accepted his offer, he had contacted another interested buyer and sealed a deal with them on September 8th.

The plaintiff sued the defendant for breach of contract. The Court held for the plaintiff and stated that the offer had been accepted the moment the acceptance letter had been dispatched. The court argued that it is not a question of when the offeror receives the letter but on the time the letter is dispatched by the offeree. It is immaterial when the letter reaches the offeror since a greater obligation is placed on the offeror to exercise patience.

Exceptions to the postal rule.

  1. Acceptance letter must state all the necessary details such as the price/consideration for it to be binding on the parties.

Under the postal rule, a contract is binding on the parties once the letter has been dispatched. However, the parties shall not be bound to the obligations of the contract if the acceptance letter fails to state the price/consideration. This was established by the court in Gibson v MCC where it was stated that where the acceptance letter is mailed to the offeror without indicating the price/consideration, such a letter shall not be treated as an acceptance letter but rather as an invitation to treat.[2]

  • An offer can only be withdrawn before it reaches and is accepted by the offeree.

Where the offeror changes his mind about the contract but has already mailed the offer letter to the offeree, he must immediately and promptly communicate such withdrawal before the offer is accepted. If the offer is accepted before he communicates his withdrawal, the contract shall remain binding upon the parties. This was the court’s decision in Byrne & Co v Leon where it was emphasized that the burden is on the offeror to communicate the withdrawal before the offeree accepts the offer.[3]

  • The acceptance letter should be posted within reasonable time.
  • A counteroffer is not acceptance.

Where the offeree mails a letter to the offeror that states different terms than the ones stated in the offer letter, that letter shall not be considered as acceptance but as a counteroffer. However, the parties shall only become bound to the counteroffer if the offeror accepts the new terms.

Q.1.C

Acceptance by partial payment.

As a general rule, paying a creditor with an amount less than what is owed does not constitute good consideration. This was established the Pinnel’s case. The court’s decision in Pinnel v Cole established what is now known as the “Pinnel’s case” ruled that a part payment towards a debt does not make for good consideration. In this case, Cole owed Penny some money and on Penny’s request, he had paid him part of the debt. Penny sue Cole for defaulting and Cole claimed that he was no longer bound to pay Penny any amount as he had been making partial payment. The Court held for Penny and stated that the partial payment of a debt does not constitute good consideration.

However, there are exceptions to the rule in Pinnel’s case which means that there are circumstances when partial payment of an amount constitutes good consideration. These include;

  1. When the payment of the lesser sum is made at an earlier date.
  2. If the lesser payment is made at a different place than where the parties had earlier on agreed.
  3. If the sum is unliquidated.
  4. Where the lesser sum is made in a different mode.
  5. Where the lesser payment is made by a third party.

Q.2.A

Alia and Shujad.

An offer refers to an express statement of willingness to enter into a contract made by one party to another. The offer indicates the details of the contract such as the price/consideration, the parties’ obligations and any other important details that the parties shall be bound by once the offer is accepted. An offer must be clearly set out and each party must have a clear understanding of the terms being offered. Any ambiguous statements do not amount to an offer. This was illustrated in Smith v Hughes, where Smith took a sample of his oats to Hughes. Hughes was a horse trainer in need of the oats. After seeing the sample presented to him, he made an order. However, when the order arrived he was disappointed because it was not the quality he wanted. Smith sued for breach of contract. The court held that for there to be an offer, the terms must be set out clearly and not left to the other party’s understanding.[4]

Acceptance is when the person to whom the offer is made accepts the terms as have been presented to him by the offeror. Acceptance must be communicated clearly to the offeror and silence does not mean acceptance.[5] Acceptance must be for the set terms and any change to the terms brings about a counter offer that is not binding upon either of the parties.

In this case between Alia and Shujad, there is no offer or acceptance of an offer but rather an invitation to treat. An invitation to treat refers to when one person shows a willingness to negotiate the terms of a contract. They may not have an intention to entering a contract. This was illustrated in Harvey v Facey, the Plaintiff sent the Defendant a telegram stating “Will you sell me the property? At the lowest price”. The Defendant replied, “The lowest price for the property is 900”. Upon receiving the Defendant’s reply, the Plaintiff replied, “will buy the property from you at 900”. The Defendant refused to sell the property. The Court held for the Defendant stating that what had transpired between the parties was an invitation to treat where the Defendant just stated the lowest price they were willing to sell the property. It was not an offer to sell the property.[6]

Q.2.B

Elements of a contract.

Besides an offer and acceptance, other elements of a binding contract are;

  1. Consideration- this refers to the reward or value attached to the performance of the obligation stated in the terms of the contract. Consideration can be a thing of value, an object, some money or performance of service that one party agrees to do in exchange for the performance of their obligations under the contract.[7] In Chappell v Nestle one party wanted to pay the other using wrapping papers as part of the consideration. The Court held that wrapping papers could be consideration since they were for the exchange of records which made for financial gain.[8]
  2. Intentions to be legally bound- the parties to a contract must show the willingness to be legally bound in the contract. This was illustrated in Balfour v Balfour, a man promised his sick wife that during the time of her illness, he was willing to give her a monthly allowance. He stopped doing it when the wife got better and the wife sued him for breach of contract. The court held that there was a rebuttable presumption against any intentions by a party to create a binding agreement when it involves a domestic setting.[9]
  3. Capacity and competence- it is important persons intending to enter into a contract must have the capacity and the competence to contract. For a contract to legally binding, the parties must be of the legal age, of sound mind and not intoxicated at the time of entering into the contract. The court emphasized in Nash v Inman that an underage person is incapable of entering a legally binding contract.[10]

Q.2.C

The terms of the contract are the details that form part of the contract. Terms can either be express terms which are often specifically laid down by the parties or implied terms which often are interpreted by the court depending on the relationship of the parties towards each other and the character of parties. The court held in Bannerman v White that if a detail is so important that the contract cannot be whole without its inclusion, then such a detail shall be considered as an express term.[11]  Furthermore, the terms can either be written down on a document that the parties can sign or oral where the parties, in the company of a witness, can orally make binding promises to each other.

On the other hand, a representation under contract law is a statement of fact made by a party to another as proof that they are presenting themselves are true. The aim of making these statements of fact is often to induce the other party into entering into the contract. A party is often allowed to rescind the contract once they realize that they were lied to and the statement of fact was in fact false. A false statement of fact is referred to as a misrepresentation.[12]

Q.2.D

Remedies available for breach of contract.

  1. Damages.

When a breach of the contract occurs, the party responsible for the breach shall be responsible for the losses incurred. In Hadley v Baxendale, the court observed that a party that breaches a contract should be liable for losses incurred because of the breach of contract.[13]

  • Specific performance.

This is an equitable remedy under contract law that is often awarded by the court. This can be in the form of a court order demanding that a party to carry their contractual obligations. This is normally applied where the party has refused to perform those obligations and the obligations in questions are unique in nature meaning they cannot be performed by another person or if doing so could be expensive.

  • Restitution.

Restitution refers to when one party in the contract is ordered to compensate the other party. This arises when either, the contract was void or the offending party failed to perform their obligations under the terms of the contract.

  • Rescission.

This is a remedy for breach of contract where the victim is relieved from further being bound by the terms of the contract. Under this remedy, the court may issue an order that officially states that the victim shall not be expected to perform their duties as stipulated under the contract.

  • Injunction.

This is a court order that demands that party not to carry some obligation as stipulated under the contract.

References.

Case law.

Adam v Lindsell (1818) 1 B & Ald 681

Balfour v Balfour [1919] 2 KB 571

Bannerman v White (1861) 10 CB NS 844

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

Carlill v Carbolic Smoke Ball Company, [1892] EWCA Civ. 1

Chappell & Co v Nestle Co Ltd [1960] AC 97

Felthouse v Bindley (1862) EWHC CP J 35

Gibson v MCC [1979] 1 WLR

Hadley v Baxendale [1853] EWHC J70

Harvey v Facey [1893] UKPC

Lockhart v Osman [1981] VR 57

Nash v Inman [1908] 2 KB 1

Smith v Hughes (1871) LR 6 QB 597

[1] Adam v Lindsell (1818) 1 B & Ald 681

[2] Gibson v MCC [1979] 1 WLR

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

[4] Smith v Hughes (1871) LR 6 QB 597

[5] Felthouse v Bindley (1862) EWHC CP J 35

[6] Harvey v Facey [1893] UKPC

[7] Carlill v Carbolic Smoke Ball Company, [1892] EWCA Civ. 1

[8] Chappell & Co v Nestle Co Ltd [1960] AC 97

[9] Balfour v Balfour [1919] 2 KB 571

[10] Nash v Inman [1908] 2 KB 1

[11] Bannerman v White (1861) 10 CB NS 844

[12] Lockhart v Osman [1981] VR 57

[13] Hadley v Baxendale [1853] EWHC J70

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