The Reliance Interest In Contract Damages For Legally Enforceable

Issue

Describe about The Reliance Interest in Contract Damages for Legally Enforceable.

(1): Issue:

The issue that needs to be decided this case is if Gina can sue Cary for not going ahead with a new lease. In other words, the issue is if Cary is bound by the promise according to which she had given Gina five days to think over the offer.

Rule: The relevant provisions of the law contract provided in this regard that the promise to keep the offer open for a particular period has to be supported by consideration (Fuller and Perdue, 1936). In this regard, when a promise has been made by a party to the contract according to which, the other party can accept the offer within the time mentioned by the first party, such promise is legally enforceable only if the other party has provided some consideration in return of the promise. An example in this regard can be given of the case titled Dickinson v Dodds (1876). The effects of this case are that an offer was made by the defendant to sell his house to the claimant. At the same time, a promise was also made according to which, the offer was going to be open till coming Friday. However on Thursday, another offer made by a third party was accepted by the defendant. Therefore the defendant asked his friend to inform the claimant that he has withdrawn the offer. But the claimant went to the defendant house the next morning and tried to accept the offer. Later on, an action was brought by the claimant, in which he sought the relief of specific performance.

However the court arrived at the conclusion that in this case, the defendant had effectively revoked the offer. As a result, there was no contract created between the defendant and the claimant. In this context, the court stated that there was no obligation on the part of the defendant to keep the offer till Friday because in return of this promise, no consideration has been provided by the claimant. As a result, the offeree could have withdrawn the offer at any time before it has been accepted by the other party.

Application: In the present case also, Cary had made an offer to Gina regarding the lease of the office premises. After listening to Cary’s offer, Gina asked if she can have extra space for two cars because her present lease allowed space for only one car. But Cary refused to provide three spaces. Therefore, Gina said that she needs some time to think over the offer regarding the lease. Under these circumstances, Gina said that she will get back to Cary in five days. But before the expiry of five days, Paul approached Cary and showed an interest in leasing the office premises occupied by Gina. Cary accepted the offer made by Paul.

Rule

Although in this case, Cary had allowed Gina to think over the offer for five days but in return of this promise made by Cary, Gina had not provided any consideration. As a result, the promise that Gina can think over the offer for five days was not supported by any consideration and therefore the promise cannot be enforced against Cary. Under these circumstances, the offer could be revoked by Cary at any time before it was accepted by Gina.

Conclusion: Therefore in this case, a valid contract was not created between Cary and Gina and as a result, Gina cannot sue Cary for the breach of promise according to which Cary had allowed Gina to think over the offer.

After going through the ads that are relevant for this part of the question, the issue arises if the promise made by Cary to pay extra $5000 to James, the electrician for replacing the electrical wiring and for installing the air-conditioning units, is enforceable in view of the fact that James had already entered into a contract with Cary to perform this work at a price of $20,000. Therefore it needs to be seen if the promise made by Cary to pay extra $5000 to James can be enforced against Cary.

Rule: The traditional rule that is applicable in such a case provides that the performance of pre-existing duty is not a valid consideration for any variation made in the contract. Therefore when the promisee is only performing its legal duty imposed by contract, such performance cannot be treated as consideration (MacDougall, 1992). When both the parties to the contract have already agreed to do something or restrained from doing something under the contract, the terms of such a contract cannot be changed by the parties without providing new consideration (Shatwell, 1954). Or in other words, the promisee cannot ask for additional benefit for something regarding which it was already bound by a contract (Ricks, 2001). An example in this regard can be given of the situation where the parties have decided the price of the goods under the contract, and such price cannot be changed and extra payment cannot be promised without providing a rich consideration. This traditional rule was provided by the court in Stilk v Myrick (1809).

In this case, two crew members of a ship had deserted the ship. Therefore the master of the ship made a promise to the remaining crewmembers that he will pay the wages of those two crew members to them if they perform the duties of those two crew members along with their own duties. However when the ship reached its home port, the defendant refused to fulfill his promise. While deciding the case, the court said that the crew members are already bound by their contract with the master of the ship according to which they had to do everything to bring the ship to its home port. Therefore, the promise made by the master of the ship cannot be enforced due to lack of consideration. In this case, the crewmembers have not provided any consideration in return of the promise made by the master of the ship.

Application

But this traditional role was significantly altered by the court in the decision given in Williams v Roffey Bros & Nicholls (1989). In this case, the court also came up with the practical benefit principle.

In this case, the defendant had made contact with Williams for performing some carpentry work. However after doing some work, Williams started facing financial problems and found it difficult to complete the work. On the other hand, it was really important for the defendant that the work was completed on time because it had entered into a contract with a third-party according to which the work of the renovation of the flats will be completed on time otherwise the defendant will have to pay a penalty. Under these circumstances, the defendant agreed to pay additional amount to Williams for completing the work on time. But later on, the defendant refused to make this payment. While deciding the issue, the court arrived at the conclusion that the defendant was going to achieve a practical benefit if the work was completed on time by Williams. Therefore it can be said that consideration has been provided in the form of the practical benefit achieved by the defendant. As a result, the court stated that the promise made by the defendant to pay additional amount, was enforceable under the law.

In this case also, Cary will achieve a practical benefit if James completed the work on time. While it will be difficult for Cary to get another electrician at such a short notice and moreover, it was the conditions mentioned in the renewed leases according to which all the premises will be air-conditioned. Under these circumstances, it can be said that Cary will achieve a practical benefit if the work was completed on time by James. As a result, the promise made by Cary to pay additional $5000 to James is legally enforceable.

B: Discuss some of the practical, ethical and business issues which arise in this scenario.

There are several practical, ethical and business issues that are present in this scenario. For example, the practical issue is related with the fact that Cary wants the building to be refurbished. For this purpose, the office spaces need to be repainted and air-conditions and new electric wiring also needs to be installed. At the same time, it also needs to be noted that the lease for all the tenants had expired. Therefore it was being continued on a monthly basis. As a result, the tenants like Gina cannot claim a right to continue in their office space. It has also been clearly mentioned in the renewed leases that the lease will start from 1st September, 2016 which will be the date by which the refurbishment of the office space has to be completed. As a result, when the electrician, James found it difficult to complete the work on time, there was a practical issue for Cary that she will have to suffer the loss under the new leases as it has been clearly mentioned that the lease will start from 1st September. Under these circumstances, it became important for Cary that the work of installing air conditioners and new electrical wiring should be completed before this date.

Conclusion

Another critical issue in this scenario was that if James refused to complete the work, it would have been very difficult for Cary to find a new electrician. Moreover, as very little time was left, it will be very difficult for the new electrician to complete the work on time and it can also be expected that the new electrician will demand a much higher price because very little time was left to complete the job. In this way, it would have been resulted in a business issues for Cary if she failed to deliver the office spaces on time as mentioned in the new lease agreements.

The ethical issue that is present in this case is that Gina had asked for five days to think over the offer made by Cary. In this context, Cary had told Gina and three car spaces cannot be provided to Gina under the new lease and therefore, she will have to settle with the existing one space for her car. Instead of accepting the offer immediately, Gina asked if she can think over the offer and they replied within five days. Cary had accepted and allowed five days to Gina to call her back. But before Gina could decide regarding the offer and before the expiry of this period of five days, Cary accepted an offer made by Paul regarding the office space that was occupied by Gina. In this regard it also needs to be mentioned that Paul had offered to pay $100 extra per month than the money paid by Gina. Under these circumstances, an issue arises if it was difficult for Cary to accept the offer made by Paul before hearing anything in this regard from Gina.

The business issue that arises in this scenario is that in context of business transactions, it is very important that the parties make a quick decision. For example, in the present case, Gina failed to decide if she wanted to continue with the lease for her office with one space for car. She should have been aware of the fact that at least has expired and therefore, some other party may make an offer in this regard. Therefore business sense requires that Gina should have immediately made a decision regarding the car space and accepted or rejected the offer made by Cary.

References

Fuller, Lon and Perdue, William (1936) “The Reliance Interest in Contract Damages” 46 Yale L J 52

MacDougall, Bruce (1992), “Consideration and Estoppel: Problem and Panacea”  15 Dalhousie LJ 265

Ricks, Val D (2001) “The Sophisticated Doctrine of Consideration” 9 GMLR 99

Shatwell, K O (1954) “The Doctrine of Consideration in the Modern Law” 1 Syd LR 289

Case Law

Dickinson v Dodds (1876) 2 Ch D 463

Stilk v Myrick [1809] EWHC KB J58

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5