A contract is defined as an agreement between two or more persons who, with an intention to create legal relations, agree to do or abstain from doing an act/s which is mutually benefiting to both parties and is legally enforceable in the Court of law. An agreement is basically an offer made by one person and the acceptance of that offer by the other. Benefits include consideration for either a material substance or a service rendered and does not include mere promises.
The essential elements of a valid and enforceable contract include: 1. Offer and acceptance, 2. Intention to create legal relations, 3. Requirement of written formalities in certain cases, 4. Consideration, 5. Parties must have capacity to contract, 6. Genuineness of consent by the parties to the contract is a must, and 7. Contract must not be contrary to public policy. Absence of one or more of these essentials will render the contract void or voidable or enforceable. (Dennis Keenan 2004 pp 253) The Court of Appeal in Carlill V.
Carbolic Smoke Ball Co. (1893) has dealt with the essentials of a valid contract in detail. In this case, the plaintiff bought an action in debt against the defendants who had offered, by way of newspaper advertisement, a ? 100 reward to those who caught influenza after using the smoke ball inhalant, manufactured by them, as directed for two weeks. The plaintiff on the basis of the advertisement bought the smoke ball and used it and contracted influenza within the stipulated time and sought for the payment.
The defendants did not pay and as a result the plaintiff sued for the money and the Court allowing her appeal stated that the advertisement in the newspaper was in fact an offer and the buying of the inhalant by the plaintiff was her acceptance. The consideration was the ? 100 to be paid and also the consideration of the problems that the plaintiff faced as a result of usage of the smoke ball inhalant. [Geoffrey Samuel (2000) pp 428-430] In the present case study, there are different situations or transactions occurring between different people and each transaction is independent of the others.
In this essay we shall deal with each transaction separately in the order that it occurs and finally summarise by stating the legal remedies available to each concerned individual. For the purposes of this essay we shall consider the first transaction to be between George and Allan when the former sold the moped to the latter. This transaction clearly falls under the ambit of the Contract Law wherein an offer was made by George to Allan to sell the moped for ? 1200. Allan accepted the offer and bought the moped.
In this case the contract is complete and valid as all the essentials of a valid contract, namely, offer and acceptance with consideration and an intention to create legal relations is present. It is pertinent to note that for all practical purposes this transaction is complete. However, the Seller George while selling the moped to Buyer Allan had claimed that the mileage of the moped was 10000 while actually it was over 20000 and had asked the buyer to confirm the same with Gary at Messy Motors, which the buyer did not, until the moped started giving problems.
At this point, it can be argued that there has been a factual misrepresentation of the mileage of the vehicle by the seller. Misrepresentation in contract is basically defined as a statement of a fact or event that leads to a contract between two parties and by acting on the said misrepresentation one of the parties has suffered damage. In the present case the misrepresentation can be said to be negligent and not fraudulent, as a prudent buyer could have easily verified the same by just glancing at the meter reading.
Assuming for a moment that it is immaterial that the seller had given the opportunity to the buyer to verify his claims prior to entering into the contract, the fact still remains that it is not clear as to whether this misrepresentation had indeed directly induced the buyer to enter into the contract. In the present case assuming that this misrepresentation had indeed induced the buyer to enter into the contract, the buyer can either affirm the contract and sue for damages of deceit or can rescind the contract and sue for damages for loss incurred under the Law of Contracts.
The buyer must however, communicate the loss suffered and his intention to cancel the contract within reasonable time to the seller. In Redgrave V Hurd (1881), the plaintiff and the defendant entered into a contract for the purchase of the plaintiff’s house and practice as a solicitor. The plaintiff misrepresented the value of his practice and on knowing the same the defendant refused to complete the purchase of the house. The plaintiff sued the defendant for specific performance wherein the defendant claimed rescission of the contract and return of deposit amount paid.
The Court of Appeal held that specific performance cannot be ordered and the contract should be rescinded as the defendant had been induced into the contract on the basis of the misrepresentation that was fraudulent in nature and immediately rescinded the contract. [Beatson J. (2002) pp 251-253] However, in the present case, the buyer on coming to know of the misrepresentation though intending to cancel the contract had instead got the moped repaired and used it for some more time, thereby affirming the contract and losing his right to rescind the contract.
This position in law that affirmation of contract makes the person claiming rescission lose his right to do so is made very clear by the Court of Appeal in Long V. Lloyd (1958), wherein the claimant and the defendants were haulage contractors and the claimant bought a lorry from the defendant based on the defendant’s misrepresentation that the lorry was in excellent condition. However, later the claimant found that this was not the case and instead of rescinding the contract immediately accepted the defendants offer to pay half of the cost for the repairs.
After the repairs the lorry broke down once again, wherein the claimant asked for his money and sought cancellation of the contract. The Court of Appeal held that the defendant’s statement was at the most innocent misrepresentation and not fraudulent as he could not have known the exact state of the lorry. However, the crux of the order given by the Court was that by accepting the offer of the defendant to pay half the cost the claimant had actually affirmed the contract between them and hence rescission cannot be granted to the claimant.
The fact that remedy under Contract Law is not available here does not mean that the buyer cannot seek liability of tort of deceit. Misrepresentation under the Tort law must include a statement of fact which is primarily false and which is made to another with the intention that the other believes in it and acts on it and the other believing it to be true acts upon it and sustains damage. [Peek V. Gurney (1873)] In Derry V Peek (1889), the plaintiffs bought shares in a particular tramcar company believing that the tramcar engines would be run by horsepower engines. However, the Board of trade refused to allow the company to do so.
The plaintiff sued for tort of deceit by stating that the claim of the company in its prospectus amounted to misrepresentation. It was held by the Court that in an action for deceit, it is not enough to establish misrepresentation alone. The Court held that the situations where the person honestly believes in the truth of a statement although he is careless, and where he is careless with no such honest belief are totally different. Fraud is established when it is proved that a person knowingly and without belief or care as to whether the fact is true or not made false statement.
In this case the Court held that the defendants were not fraudulent and they had made a careless statement believing it to be true. This case is important from the fact that it lays down the exact essential elements that are required to prove fraudulent misrepresentation. In Downs V Chappell (1997), the court has held that a plaintiff to succeed in a tort of deceit has to prove that the representation was primarily fraudulent, secondly material in nature, thirdly it induced him to act to his detriment.
Another remedy that the buyer can avail is under Sec. 14(3) of the Sale of Goods Act, 1979 that deals with fitness of goods sold. According to the provision, the goods sold under a contract must be reasonably fit and in the case of second hand goods where one can expect defects, it is to be noted that these defects do not occur immediately after sale as this would mean that the goods were not reasonably fit at the time of sale. (Keenan, 2004, pp 325) This is clearly stated in the case of Crowther V.
Shannon Motor Company (1975), wherein the claimants bought a second hand car based on the judgement of the defendants. However, after travelling 2000 miles, the engine seized and had to be replaced. The previous owner of the car stated that the engine was not fit for use when he sold the car to the defendants and thus the Court held that there was a breach of S. 14(3) at the time of resale and that there is an obligation on the seller to ensure that goods that are sold are reasonably durable and do not develop defects immediately after sale.
However, from the facts of the present case it can be seen that the buyer instead of contacting the seller immediately, went on a holiday after getting the moped repaired where again it broke down. This takes us to the second situation or transaction in the case study between Allan and Charlotte. When the moped broke down on a deserted road, Allan sought help from Charlotte and offered ? 50 to Charlotte for her help and also took her name and address so that he could send the money. Charlotte accepted the offer and repaired the moped thereby completing her part of the contract.
This again is a perfect contract between two parties, where there is offer and acceptance and promise to pay the consideration. The intention of the Allan the offeror is clear from the fact that he took down the name and address of the motorist in order to send the money to her. The facts later reveal that Allan did not send the money and Charlotte has written to him for payment of the money. In this circumstance, we can safely say that Charlotte has performed her part of the contract and can now seek a claim for recovery of debt from Allan to pay her the amount due as per the provisions of Contract Law.
This is a unilateral contract wherein one party makes a promise and the consideration moving from the promisee has to be his performance. (Geoffrey Samuel, (2001) pp 449) It can also be said that unless and until the parties to a contract change the terms of the contract they are bound by the contract and must perform their contractual obligations and if they fail to do so then the party so failing in its duty may be sued for performance of his part of the contract. [Anon]
In other words if A were to advertise in the newspaper regarding a reward for finding and returning his lost dog and if B after seeing the advertisement finds the dog and returns it to A, then A has to pay the reward amount to B and if A does not pay then B can sue for action in debt. (Geoffrey Samuel, (2001) pp 449) In Williams V Roffey Brothers and Nicholls (Contractors) (1991), the plaintiffs sought an action in debt for some building work that was done on the basis of a promise made by the defendants that the defendants would pay more than what had been mentioned in the contract for this work.
The defendants claimed that this was unsupported consideration but the Court of Appeal allowing the appeal disagreed with the Plaintiff and stated that the extra work had been done based on the promise of the extra money and hence this was the consideration. The third situation or transaction is between Allan and George when Allan returned from his holiday and met George in a pub and complained about the moped. In this transaction, George offered to buy the moped back from Allan for ? 1000 and Allan accepted the offer and a contract exists between them.
However, when they go out to the car park, they see that the moped has been vandalised wherein Allan takes it to Gary who estimates the repair cost at about ? 300. Allan based on the estimate given by Gary revises his initial offer and sends a new offer to George offering to sell the moped for ? 700. It is further seen that George later confirms from Gary as to the exact cost of the repairs who informs him that it would cost ? 200. George based on the estimate given by Gary accepts the offer given by Allan to buy the moped at ? 700 thereby completing the contract between them.
However, he communicates his acceptance by way of letter dated 22nd October 5 PM. Meanwhile it is seen that Allan again seeks an estimation for the repairs from Gary who now informs him that the repairs can be done for ? 200 and based on this new estimation Allan changes his mind and revokes the offer and communicates this revocation of offer by way of letter dated 21 October 11am. The facts mentioned above indicate three situations wherein there are two separate transactions between Allan and George itself. The first is the initial contract between Allan and George for ?
1000 and the second is the offer was made by Allan for ? 700. The second offer overrules the first and the first contract between the parties can be treated as cancelled. In the second transaction, it is seen that an offer was made and then revoked and the other party without the knowledge of the revocation of the offer accepted the said offer. Under these circumstances, the offeree, George, can state breach of contract and sue for specific performance as the facts provided do not show that he had any knowledge of the revocation of offer.
In case of acceptance of an offer by post the acceptance is complete when the offeree posts the letter but in case of revocation of an offer the same is complete and effective only when it has been communicated to the offeree. Merely by posting a letter of revocation, communication of revocation cannot be assumed, as the same has to be received by the offeree to ensure total communication. (Byrne V. Van Tienhoven (1880)) The third situation or transaction exists between Allan and Gary.
From the facts of the case it can be seen that relying on the information supplied by Gary as to the cost of repairs, Allan made his initial offer. Gary later changed his initial estimation and this led to Allan revoking the offer. It can be argued that Gary was in a position to correctly assess the repairs and quote reasonably which he did not do and as a result caused Allan to change his mind and revoke the offer. This is fraudulent misrepresentation as Gary quoted two different estimates to the offeror and offeree, which resulted in the contract.
The most important case law in English law in this context is Hedley Byrne and Co. V. Heller and Partners Ltd. (1964). In this case an action for damages was brought by the plaintiff firm against the Bank on the basis that they had extended credit to a particular firm on the basis of a credit reference given by the Bank. The Bank stated that they owned no duty of care towards the advertising agency. The Court ultimately held in favour of the Bank but in its judgement laid down the facts that could give rise to a duty of care.
It held that when a reasonable man is aware that his skill and judgement is being relied upon by another would either keep silent, or give an answer and clearly state that he accepts no responsibility for it or he could answer without such qualifying statement. If the person chooses to give an answer without any qualification and if he has reason to believe that the person enquiring will act on the information given, then the responsibility or duty of care lies with the person who is answering and he must answer subject to that duty.
(Geoffrey Samuel, 2001 pp 470-472) In Esso Petroleum Co. Ltd. V. Mardon (1976), the plaintiffs had let a petrol filling station to the defendants for a period of three years. During the negotiations of the lease one dealer sales representative employed by the plaintiff with over 40 years experience told the defendants that he thought the potential throughput of the station would be about 200000 gallons.
However, in reality the throughput in the third year was only 86502 gallons and was thus uneconomical and thus the defendants gave up their tenancy. The Plaintiffs sued for arrears in rent and the defendants counter claimed for damages for negligence. The Court of Appeal held that the Plaintiffs owed a duty of care to the defendants while making statements regarding prospects during the pre contractual negotiations.
The Court stated that since the plaintiffs were aware that the defendant’s were relying on the statements made by the plaintiffs due care should have been taken while making statements regarding the prospects. However, this case does not show that all parties in pre contractual relations owe a duty of care towards each other but neither does it exclude such duty of care from being imposed on the parties. Of course parties in such position cannot take recourse under the contract law but can seek damages under tort.
For example, if X a contractor files a tender for a new office block and asks Y a central heating sub contractor for an estimate and if Y carelessly quotes a figure which is too low and based on which X puts in the tender and receives a letter of acceptance of tender and also receives a letter from Y revoking his initial quotation, then though X and Y are not bound by any contractual relationship, X can bring an action against Y under Torts for the loss suffered by him as a result of Y’s negligent misrepresentation as Y owed X a duty of care. [Furmston, M. P. (2001)]
It can be further argued that the reliance must be reasonable. Reasonableness of reliance has been clearly stated by the Court in Caparo Industries plc v. Dickman (1990), wherein the claimants were shareholders and after the accounts were published they purchased further shares and ultimately made a take over bid that was successful. The claimants alleged that they had relied on the accounts of 1984 where instead of a loss a profit was shown. The Court held that when an advice was given to all and sundry in a general manner, the person advising cannot be responsible for the action of all.
(Richard Kidner, (2002) pp 176) It is only when the person giving advice must definitely know that the statement he is making will be received and be acted upon by the person seeking the advice without any other independent advice being sought and this assumption by the person giving advice was reasonable that the duty of care rests with the person advising. (Vivienne Harpwood (2003) pp 73). In S. Australia Asset Corp. v York Montague , it was stated by Lord Hoffman that: “the law implies into the contract a term that the valuer will exercise reasonable care and skill.
The relationship between the parties also gives rise to a concurrent duty in tort … But the scope of the duty in tort is the same as in contract”. (Sue Farran and Jennifer Corrin Care 2000) In the present case situation, there is no contractual relationship between Allan and Gary. However, Allan relying on the information given by Gary entered into a contract with George. Gary was aware of the fact that Allan would rely solely on the information provided by him and would not seek independent counsel.
Thus there is a reasonable duty of care imposed on Gary, which Gary should have considered before giving an estimate on the cost of repairs to Allan. Hhence Allan can seek remedy under Torts for fraudulent misrepresentation made by Gary, which resulted in him having to enter into a contract with George and then having to revoke the same. The position as to whether revocation of offer was before acceptance is challengeable and thus the cost of defending a suit, if any, filed by George for specific performance has to be borne by Allan and the whole situation is due to his reliance on the estimation given by Gary.
Finally in summary we can state that as far as Allan is concerned he can sue George for damages in tort of deceit in the first instance given the misrepresentation of the mileage and can also sue under the Sale of Goods Act for fitness of goods. Charlotte can definitely file for recovery of debt for the ? 50 owed to her by Allan. George can sue Allan for specific performance of contract stating that he had accepted the offer given by Allan without any prior knowledge of the revocation of the offer by Allan.
Finally Allan can also sue Gary for tort of misrepresentation for the damages that may be caused to him due to Gary’s misrepresentation, which induced Allan to enter into a contract with George, which he later had to revoke.
Beatson J. 2002, Anson’s Law of Contract 28th Ed. United States: Oxford University Press pp 251-253 Furmston, M. P. 2001, Cheshire, Fifoot and Furmston’s Law of Contract 14th Ed. Lexis Nexis UK: Indian reprint New Delhi pp306-307 Harpwood V. 2003 Modern Tort Law 5th Ed. Great Britain: Cavendish Publishing pp 73 Keenan, D.
2004, Smith & Keenan’s English Law 14th Ed. England: Pearson Longman pp 253 Keenan, D. 2004, Smith & Keenan’s English Law 14th Ed. England: Pearson Longman pp 325 Kidner, R. 2002. Casebook on Torts 7th Ed. Oxford: Oxford University Press pp 176 Samuel G. 2000, Sourcebook on Obligations & Legal Remedies 2nd Ed. Great Britain: Cavendish Publishing Ltd. pp 428-430 Samuel G. 2000, Sourcebook on Obligations & Legal Remedies 2nd Ed. Great Britain: Cavendish Publishing Ltd. pp 470-472 Byrne V. Van Tienhiven (1880) 5 CPD 344 Caparo Industries plc v. Dickman (1990) 2 AC 605
Carlill V. Carbolic Smoke Ball Co. (1893) 1 QB 256 Court of Appeal Crowther V. Shannon Motor Company (1975) 1 All ER 139 Derry V. Peek (1889) 14 App Cas 337; (1887) 37 Ch D 541 Downs V Chappell (1997) 1 WLR 426 Court of Appeal Esso Petroleum Co. Ltd. v Mardon (1976) QB 801 Hedley Byrne & Co. v Heller and Partners Ltd. (1964) AC 465 Long V. Lloyd (1958) 2 All ER 402 Peek V. Gurney (1873) LR 6 HL Redgrave V Hurd (1881) 20 Ch. D. 1 S. Australia Asset Corp. v York Montague  3 All ER 365 at 370 Williams v Roffey & Nicholls (Contractors) ltd.  1 QB 1.
Farren S & Corrin Care J, 2000 Towards a Pragmatic Approach to the Contract or Tort Debate in South Pacific Journal of South Pacific Law 4 Article 8 Available from www. paclii. org [Accessed 14th October 2006] Varadarajan D. 2001Tortious Interference and the Law of Contract: The case for specific performance revisited Yale Law Journal III (3) 735+ Available www. questia. com [Accessed on 13th October 2006] Anon. Non Performance and Breach of Contract Lectric Law Library Stacks, excerpted from the desktop lawyer software programme Available http://www. lectlaw. com/files/bul08. htm [Accessed 13th October 2006]