Validity of Oral Assurance as Part of Contractual Terms

Discuss about the Principles of Commercial Law for Carbolic Smoke Ball Co.

The issue is regarding the oral assurance which was given by Kalpana and whether it is a part of the contractual terms?

Once two or more parties enter into a contract, they are bound by its terms and the parties can enforce each other legally to perform the actions as specified in terms of the contract. It does not matter whether a contract is written or oral; both written and oral contracts are valid in the eyes of the law. A contract which is made with spoken words can be enforced by the party similarly as a written contract. It also means that the spoken promises or statements can be a part of the terms of the contract. However, it does not mean that any promise can be legally enforceable by law as a contract. In order to construct a contract, it is necessary that the parties fulfil its essential elements. The first essential element is that a party, the offeror, must make an offer to perform or not perform a specific act to another party, the offeree. It is necessary that the offeror must have an intention to bind him by the terms of the offer (Sneddon, Bigwood and Ellinghaus, 2012). An offer is different from an invitation to treat which is considered as a supply of information, and its terms cannot bind the parties. The court differentiates between an offer and an invitation to treat in a leading case (Carlill v Carbolic Smoke Ball Co).

In this case, a company posted an advertisement in the newspaper which provided that the corporation will pay £100 to any person who suffered from influenza after using their ball three times daily for a period of two weeks. Furthermore, some other instructions for using the ball were given in the advertisement as well. The company also deposited an amount of £1000 in the bank to show their sincerity. Mrs Carlill used the ball as per the directions are given in the advertisement and caught flu. She claims for £100 from the company. The defendant provided that the advertisement cannot be considered because an offer cannot be open for the world and acceptance was not present. The Court of Appeal provided that it was a unilateral offer which can be opens for the world and it does not require an acceptance or consideration (Kadir, 2013). The claimant complied with the instructions properly hence she can claim for a reward of £100. This case shows that an offer is must have the ability to bound the offeror into a legal relationship. Another element of the contract is acceptance of the offeree. The acceptance must be free from any conditions or change in terms of the offer (Hyde v Wrench).

Elements of a Contract

The presence of consideration is must for constructing a contract. A consideration is anything which has a value in the eyes of the law. Each party to the contract receive a benefit and suffer a detriment which is referred as the consideration for the assignment. A consideration is required to be present; past consideration is not considered as valid (Re McArdle) (Turner, 2014). Furthermore, parties to a contract must have an intention to create a contractual relationship, and they must intend to bind themselves by the terms of the contract. Therefore, the social agreement cannot be considered as legally enforceable because parties did not have the intention (Jones v Padavatton) (Turner, 2014). The competence of parties is another key element of a contract. In order to create a contractual relationship, the parties must not be a minor, insolvent or unsound. The parties must also have a mutual obligation to perform the terms of the contract. 

Rafia saw the advertisement of Kalpana’s dance academy and decided to hire her for the event. While meeting with Kalpana, Rafia asked that whether she performs traditional classical Indian dance. Kalpana replied positively to this question by stating that she does the most beautiful Indian dance. Based on this statement, Rafia and Kalpana entered into a legal contract. The oral assurance given by Kalpana is considered as one of the terms of their contract because both the parties have fulfilled the elements of the contract. Rafia made an offer, and Kalpana accepted it without changing its terms, and a valid consideration exists between parties. The parties are competent to create a legal relationship, and both parties have the intention to bind themselves by the terms. Mutual obligation was present between parties as well, therefore, the oral assurance given by Kalpana is considered as a term of the contract. Based on such assurance, Rafia hires Kalpana to perform at the event, and the contract was based on the assurance.

Conclusion

Therefore, the oral assurance is considered as the term of the contract and Kalpana is bound by such assurance.

Whether the oral assurance is likely to consider as a condition or warranty by the court?

The terms of a contract are referred to pre-conditions which are decided by the parties to a contract before constructing the contract. The parties to a contract have to comply with the terms of the contract. In case a party failed to fulfil a term of the contract, then another party can legally enforce the breaching party to perform the term of the contact. There are three types of terms in a contract which include a condition, warranty and innominate term. It is important to differentiate between the two because it assists parties at the time of breach of a contract to decide the remedy for the breach. While deciding the remedy for a breach of the contract, the court identifies whether the term was a condition or warranty (McKendrick and Liu, 2015). A condition is more important term of a contract than compared to warranty because the contract is based on the condition. In case a party breached the condition of a contract, then the aggrieved party has the right to repudiate or terminate the contract. A condition is linked to the root of the contract; therefore, nonfulfillment can lead to termination of the contract. A good example was given in a leading case in which the court provided the difference between a condition and warranty (Poussard v Spiers). A contractual relationship created between an opera singer and an event organiser for performing a period of three months.

Condition vs. Warranty

The singer fell ill before the first day of the performance, and she did not perform for first four days. On the fifth day, the organiser terminated the contract with the opera singer and hired another singer. The case went to the court, and it was held that the first night was very important for the organiser because all critics were present in the show and it would have been positive for the popularity of the event (Dyson, Goudkamp and Wilmot, 2017). Therefore, it was considered as a condition by the court based on which the termination of the contract is valid. In another case, the court provided a judgement that a party to a contract can repudiate it if the conditions are fulfilled by the parties (Schuler AG v Wickman Machine Tool Sales Ltd). A warranty is referred to a term which is less significant than compared to a condition. Warranties are generally written in a contract as an assurance or a promise. In case of breach of a warranty, the agreement party cannot terminate the contract; instead, the party can demand damages from the breaching party (Bettini v Gye).

An opera singer enters into a contract with a promoter for performing in different events for a period of 15 months. The contract also provides that the singer has to arrive six days before the performance for rehearsals. She became ill and was not able to join first four days of the rehearsal. The promoter terminated the contract; however, the court held that it was a warranty based on which the contract cannot be terminated (Bettini v Gye) (Fisher, 2015). The court gave a similar judgement in another case in which it awarded damages for breaching the warranty of the contract (Wills v Amber). The innominate term was established by the court in leading care which referred to terms which cannot be categorised as a condition or warranty (Hong Kong Fir Shipping v Kawasaki Kisen Kaisha). In case of breach of innominate terms, the parties suffered a significant loss due to nonfulfillment of the contractual terms.

On her first meeting with Kalpana, Rafia mentioned to her the reason for hiring her. She told her how important it is for her to impress the visitors from the Indian University. A good performance was necessary because its success increases the chances of the contract between the Indian University and USC. Rafia also told Kalpana that if they entered into an agreement, then her performance will be the central part of the event. Rafia also told Kalpana that she would sell tickets for a traditional Indian classical dance. The contract was based on the fact that Rafia wanted to impress visitors from the Indian University to create a contract between the university and USC. She only entered into the contract because of the oral assurance was given by Kalpana, therefore, it is considered as the root of the contract based on which it was formed. Rafia also wanted to sell ticket by advertising that traditional Indian dance is the central event of the show, however, Kalpana did Bollywood dance due to which USC has to refund the ticket prices, and they suffered the loss of advertisement.

Oral Assurance as a Condition

Conclusion

Therefore, the oral assurance was given by Kalpana is considered as a condition because Rafia entered into the contract due to such assurance. Furthermore, Rafia advertises and sell tickets because of the oral assurance of Kalpana; therefore, the court is most likely to consider it as a condition.

What are the remedies which can be claimed by USC for breach of condition by Kalpana?

The parties to a contract are bound by its terms, and in case of breach, the parties can claim for remedies. There are five remedies available in case of a breach of contract: repudiation, rescission, specific performance, damages, and injunction. Repudiation is referred to bringing an end to the contractual relationship. In this remedy, parties to a contract have the right to terminate the contract and free themselves from the contractual liabilities. The court provided in a case that repudiation is justified in case total or material breach has occurred (Sackett v Spindler). Another remedy is rescission which focuses on placing the aggrieved party back to pre-contractual position. The remedy of rescission is available for the parties if the contract is voidable or the parties have constructed the contract based on misrepresentation, duress or undue influence (Long v Lloyd) (Russell, 2012). The parties to a contract can also demand the remedy of specific performance.

In this remedy, the court ordered a party to the contract to perform specific act provided in the contractual terms in order to avoid the breach of the contract. This remedy is only available in specific circumstances, and the court evaluates the situation before issuing this remedy. In order to evaluate whether this remedy should be applied or not, the court evaluates whether the damages would be an adequate remedy for the breach (Cohen v Roche). In case, the damages cannot satisfy the loss of the aggrieved party, the court issued the remedy of specific performance (Murdoch, 2014). Another remedy is injunction which is categorised into three parts: interlocutory, prohibitory and mandatory. In case of an interlocutory injunction, the court issues an injunction to stop an act until the hearing of the court. The court orders a party not to do a specific act which might result in breaching the contractual terms in the prohibitory injunction. In Mandatory injunction, the court issues an injunction to a party to the contract to perform a specific act.

It has seen that the provision of specific performance and mandatory injunction overlap with each other. Therefore, the court did not grant an injunction in situations where the mandatory injunction could affect as an order for specific performance. However, it did not prevent the court to issue a prohibitory injunction which can directly ensure the compliance of the contractual terms (Lumley v Wagner) (Riley, 2012). Another remedy is damaged for the losses suffered by the party of a contract due to noncompliance of the contractual terms. This remedy focuses on placing the aggrieved party into the position which it would have been if the breaching party did not breach the contractual terms. Before issuing an award for damages, the court evaluates remoteness, causation and a duty to mitigate the loss of a party (Hadley v Baxendale).

Remedies for Breach of Condition

The court is more likely to consider the oral assurance of Kalpana as a condition based on which there are some remedies available for USC. The contract between Rafia and Kalpana was based on the condition that Rafia wanted to impress the visitors from the Indian University and sell tickets for the performance of Indian classical dance. However, Kalpana did a Bollywood dance due to which the visitors were offended, and the contract was cancelled. USC also has to refund the ticket money, and it suffered the loss of advertisement money. USC can rely on the remedy of repudiation since Kalpana breached the condition of the contract based on which USC can terminate the contract and claim damages. USC has suffered significant losses due to the cancellation of the contract with the Indian University, refunding of tickets and payment of advertisement expenses all because of the breach of condition by Kalpana. Therefore, USC can claim damages from Kalpana for the losses suffered by the University and repudiate the contract as well.

Conclusion

Conclusively, USC can claim for the defence of repudiation for terminating the contract and demand damages for the losses suffered by the University.

References

Bettini v Gye (1876) QBD 183

Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256

Cohen v Roche (1927) 1 KB 169

Dyson, A.D., Goudkamp, J. and Wilmot, F. (2017) Thinking in terms of contract defences. Oxford Legal Studies Research Paper, 48.

Fisher, J.C. (2015) Uncertainty, Opportunism and the Intermediate Term: The Hong Kong Fir Principle in English and Irish Contract Law. Hibernian LJ, 14, p.96.

Hadley v Baxendale (1854) 9 Ex Ch 341

Hong Kong Fir Shipping v Kawasaki Kisen Kaisha (1962) 2 QB 26

Hyde v Wrench (1840) 49 ER 132

Jones v Padavatton (1969) 1 WLR 328

Kadir, R. (2013) Rules of advertisement in an electronic age. International Journal of Law and Management, 55(1), pp.42-54.

Long v Lloyd (1958) 1 WLR 753

Lumley v Wagner (1852) 42 ER 687

McKendrick, E. and Liu, Q. (2015) Contract Law: Australian Edition. Basingstoke: Palgrave Macmillan.

Murdoch, J. (2014) Law of Estate Agency. Abingdon: Taylor & Francis.

Poussard v Spiers (1876) 1 QBD 410

Re McArdle (1951) Ch 669

Riley, J. (2012) Sterilising talent: A critical assessment of injunctions enforcing negative covenants. Sydney L. Rev., 34, p.617.

Russell, C.A. (2012) Opinion Writing In Contract Law. Abingdon: Routledge-Cavendish.

Sackett v Spindler (1967) 56 Cal. Rptr. 435

Schuler AG v Wickman Machine Tool Sales Ltd (1974) AC 235

Sneddon, N.C., Bigwood, R. and Ellinghaus, M.P. (2012) Cheshire & Fifoot: Law of Contract. England: Oxford University Press.

Turner, C. (2014) Key Cases: Contract Law. Abingdon: Routledge.

Wills v Amber (1954) 1 Lloyd’s Rep 253