Breach of contract case example: Collins Computers (CC) v Geoffs Gym (GG)

Breach of contract case example: Collins Computers (CC) v Geoffs Gym (GG)

Using case law, discuss the rights and obligations of parties under contract and the conditions for contract breach.

 

 

 

Introduction to the case

Collins Computers (CC) advertise their computer maintenance service in a local newspaper and on their website:

“We service computers for a very competitive £1000 per month for 12 months. If new customers accept promptly, we will reduce this monthly amount by £50. We are a popular local company and so to take up this offer, new customers must contact us by post, email or text by 8th June and clarify their preferred commencement date. Please note receiving a definite from all our customers is essential as our schedule is set in advance

Geoff’s Gym (GG) are very interested and in desperate need of maintenance on their computers. They have used CC before on an occasional basis. They post a reply on the 3rd of June agreeing with CC’s “offer”. They also ring confirming a letter is in the post, a start date is also mentioned by GG during the telephone conversation. When CC’s fail to turn up and service the computers, which subsequently run very slowly, costing GG valuable business, GG maintains breach of contract. They wish to enforce the agreement and gain the monthly £50 reduction. 

Using case law to support your answer, discuss the rights of both CC and GG as to the status of the agreement and whether GG can enforce the contract and/or claim compensation.

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What makes a legally valid contract?

Charman (2005) defines a contract as a legally binding agreement between two or more parties that is also enforceable by law. The keyword here is agreement because without it, no contract can exist. This agreement can be oral, written or inferred from the parties conduct. In an agreement, the party that initiates the contract with an offer is known as the Offeror while the party that accepts the offer made by Offeror is known as the Offeree. 

The following are the four essential components that can turn an agreement in English law into a legally binding and thus enforceable contract:

  1. Offer andd acceptance
  2. Consideration
  3. Legal intent
  4. Capacity to contract

1.0 Offer and acceptance

The two most essential components of a contract are the offer and acceptance. An offer is defined as “an expression of willingness to contract on certain terms, made with the intention that is shall become binding as soon as it is accepted by the person to whom it is addressed” (Charman 2005 p2). An offer can be expressly stated e.g. written or verbal and it can also be implied from conduct or action. An offer can be made to a specific person or it can be to the general public like in advertisements as seen in Carlill v Carbolic Smoke Ball Company [1892] EWCA (See below) hence forming a unilateral contract if accepted by anyone: 

Carlill V Carbolic Smoke Ball Company [1892] EWCA CIV 1

In this case, defendants Carbolic Smoke Ball Co. manufactured and traded The Carbolic Smoke Ball which they advertised in newspapers with the claim that anyone who used their smoke ball and contracted influenza would be rewarded with £100. After seeing stated ad and using the smole ball, plaintiff Carlill got the influenza and made a claim for the reward. Defendants declined to pay and arguing stated ad was not legally enforceable arguing general contract with the whole world wasn’t legally binding. Courts refuted this claim asserting it was an offer that could be accepted by any person who performs necessary conditions

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An offer is sometimes confused with an invitation to treat, which is an invitation to other parties to make or negotiate an offer, not open to acceptance at this stage but once it is unconditionally accepted, it becomes a valid contract. The case of Fisher v Bell [1961] 1 QB 394 (below) illustrates what an invitation to treat is:  

Fisher V Bell [1961] 1 QB 394

"In this case, a seller was accused of selling a dangerous flick knife which was displayed in a shop window with a price tag on it hence breaking the Restrictions of Offensive Weapons Act 1959. The courts ruled since the knife was merely in the window display, it simply amounted to an invitation to treat, not an offer".

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Once an offer has been made, it has to be accepted. Acceptance is thus the second part of creating contract validity. However, acceptance must meet the following conditions to validate it; 

a) it must fit the exact terms of offer

b) it must show positive intention to accept offer (silence isn’t acceptance)

c) it must match prescribed mode of acceptance stipulated by offeror e.g if offeror asks for acceptance in writing, oral acceptance will not bind. This can be seen in the following case:

Yates Building V Pulleyn [1975] 237 EG 183

"In this case, offeror gave the offeree an option to buy land but asked for acceptance by letter using recorded delivery, instead offeree sent letter using normal delivery. Even though the letter arrived promptly, the offeror refused the notice stating acceptance wasnt binding. Refusal held and thus no enforceable contract because there was a precise requirement for the notice to be sent by recorded delivery, which was not complied with".

Postal acceptance also has its own rule known as the ‘postal rule’ which states that “an acceptance by post is effective as soon as it is posted” (Charman 2005 p28). It is thus reasonable for offeror to bear burden of delay in postal acceptance since it is them who start negotiations so should bear responsibility for any delays.

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Application of law to Collins Computers (CC) v Geoffs Gym (GG)

Is there a legally enforceable offer and valid acceptance of offer between the parties?

Is there an offer to GG? NO.

The offer of a reduction of £50 on £1000/month computer maintenance was only to any NEW customer. New customer is the main precondition here so CC were expressing a willingness to contract on certain terms (New customers) made with the intention that the offer shall become binding as soon as it is accepted by NEW customers to whom it is addressed. Due to previous dealings, CC may argue that GG does not quality as NEW customer and thus fails this precondition. As Charman (2005 p20) argues, “If a main term of an offer, which is vital to the contract is not fulfilled or is substantially altered, then the offer is no longer capable of acceptance” In Financings Ltd V Stimson [1962], the defendant’s offer to buy and plaintiff’s acceptance was revoked because the main precondition failed when the car was stolen and badly damaged. Even though the plaintiff signed the agreement, the courts ruled this wasn’t deemed as acceptance because the precondition that the car would be in a certain state had failed and thus there would be no valid contract.

Is there valid acceptance by GG? No.

Acceptance is the second part of creating contract validity. But acceptance must fit the exact terms of offer, which in this case the terms were

a) NEW customers need accept and

b) need accept through the post.

Even though GG showed positive intention to accept offer and also matched prescribed mode of acceptance stipulated by offeror by posting acceptance letter and phoning to confirm this, the acceptance is not valid because the terms of offer have not been met. It would thus be deemed reasonable that GG’s acceptance is not valid because GG is not a new customer based on previous dealings hence failing exact terms of offer and this precondition of acceptance.

2.0 Consideration

Is there valid consideration in this case? Yes. 

The second component to contract validity after offer and acceptance is consideration. This is defined as the price by which one party to contract buys the other party’s act or promise. According to McIntyre (2008), consideration is the bargaining element of the contract that takes into account what each party gains or loses, the price paid for the contract. Valid consideration can be executory or executed. If CC promised to come and maintain GG’s computers in the future, this would be executory consideration while executed consideration would be if CC accepts the agreement immediately as on the phone. 

3.0 Legal intent

Is there legal intent? Yes

Contract validity can also be created if both parties had the intention to create a legal agreement during course of negotiation and in a commercial context; the presumption would be that there is legal intent in contract agreement between CC and GG due to previous dealings and this being done in a commercial context (Charman 2005; Smith and Keenan 2004). 

4.0 Capacity to contract

Is there capacity to contract? Yes

The Minors’ Contracts Act 1987 has clauses that exempts minors from the capacity to contract unless its necessities. Other parties exempt from contracting are corporations, drunkards, mentally impaired people and diplomats (Smith and Keenan 2004; Charman 2005; McIntyre 2008).

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Is there a valid contract based on all 4 stated contract essentials?

The four most important requirements that must be present for contract formation are offer and acceptance, consideration, capacity to contract and legal intent although consideration is not strictly necessary. Since not all the terms of offer and acceptance have been met, it invalidates contract. There is no offer to GG because CC's offer was meant for new customers. Acceptance would also not create a legally enforceable contract agreement because preconsition for acceptance was "new customers only". Even though other conditions such as consideration, capacity and legal intent are fulfilled, the contract is still not legally binding as formation of contract validity has to first pass the offer and acceptance requirement first, which in this case, it hasn’t.

It would be thus be reasonable to conclude that there is no legally binding valid contract between CC and GG based on the main principles of offer and acceptance not being fulfilled even though a legal intention to create a binding agreement may be presumed because of the commercial nature of the transaction.

How about breach of oral contract?

Nevertheless, in law, nothing is black or white. While is hardly any evidence that points towards a legally binding contract based on the facts so far, courts may still consider other facts especially legal intent and the fact that; 

 

  • GG and CC have had previous dealings
  • GG’s postal acceptance of CC’s offer before deadline
  • GG phoned CC to orally confirm acceptance of offer and confirm sending postal letter that communicates acceptance of the terms hence creating an oral contract
  • A start date was mentioned (though not agreed) by GG

A breach of contract, where one party contravenes contract agreement, usually revolves around three main factors.

  1. Firstly, party prior to performance stated they will not fulfil their contractual obligations.
  2. Secondly, party fails to complete their contractual obligations and
  3. Lastly, party performs their contractual obligations in a defective manner (Charman 2005)

If a breach of contract is proved, the injured party, which would in this case be GG, may have grounds to enforce the agreement if they can prove that;

a) CC during course of negotiation and prior to performance stated they will not fulfil contractual obligations

b) CC failed to complete those obligations from agreement

c) On the grounds that courts look at the phone conversation between CC and GG as acceptance of offer terms by GG and CC and taking the reasonable view that an agreement might well have been reached on orally by both parties, an oral contract may be enforced.

The courts may consider terms such as New customer if

a) the effected party (GG) knew of this clause

b) reasonable steps were taken to bring the term to GG’s notice.

Charman (2005) argues that the courts look to see if it was obvious to the parties that a term (New customers in this case) was intended to form part of a contract. In this case, it is reasonable to assume that the term New customer was intended to be the main condition of offer and acceptance. Hence there would be no oral contract.

Conclusion

While it would be reasonable to conclude that the status of the agreement between CC and GG is not legally enforceable and neither can enforce contract or claim compensation, it is hard to second guess what courts may decide since other factors such as legal intention and previous dealings between the parties may well be deemed just as important in this situation.

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References

Smith K & Keenan D (2004) ‘English law’ 14th ed. FT prentice hall

McIntyre, E (2008) "Business Law", 4th ed. Pearson Education 

 

 

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