This essay analyses if there is a contract made between Zantek Airways and Francesco and advice whether Zantek Airways is entitled to withdraw the Airbus from the sale or not.
A contract is a legally binding agreement that is made between two or more parties and enforced by the law. A contract is formed of four components including offer, acceptance, consideration and intention to create legal relations. A contract is not formed if any of the components are missing. In a unilateral contract, individual promises to carry out something in return for an action 1Carlill v Carbolic Smoke Ball Co anyone who gets flu will be awarded £100 by the Carbolic Smoke Ball Co if they use the product three times every day for two weeks according to the directions given with every ball. After using the ball according to the directions Mrs Carlill still got the flu and she claimed for the £100 reward but the defendants raised arguments. Hence, the Court of Appeal held Mrs Carlill was eligible for the £100 reward as the advertisement formed an offer of a unilateral contract that Mrs Carlill accepted via performing the conditions mentioned in the offer. In a bilateral contract, every party accepts an obligation, typically promising to do something in return for a promise from the other party to carry out something (Lucy 2017).
The Airbus was advertised in the trade journal for £12.6 million which means it was an invitation to treat and anyone can make an offer and it is up to the offeror to accept it or not instead of offering something in return, hence, a unilateral contract would have been formed. Francesco phones Jacinho and tells him his firm would really like to view the Airbus but he is in Germany on a business trip for five days and cannot view the Airbus until he returns. Jacinho said he will have to sell the Airbus if another buyer comes forward. Then Francesco said I will pay £120,000 if you promise not to sell the Airbus to another buyer for the next five days. At this stage, a unilateral contract is converted into a bilateral contract after Jacinho accepted the offer and a separate contract is formed to keep the Airbus for five days. A separate contract would not have been formed if there is a consideration from one party only. ‘An offer can be accepted by a promise to perform or by actual performance’ (LawTeacher 2013). Therefore, both Francesco and Jacinho are bound by their part of promise as soon as the promises are exchanged.
Francesco offered £120,000 to Jacinho for not selling the Airbus to anyone else. Jacinho accepted it, there is an intention to create legal relations that is why Francesco is paying Jacinho so that he can view it. Sufficient consideration is there from both parties because both parties exchanged promises. 2Tweddle v Atkinson (1861) John Tweddle and William Guy made an agreement to pay money to Tweddle’s son William who married William Guy’s daughter. William Guy died before contributing his share and William sued his late father as law’s executor. The claim failed because William was not the party to the agreement, also the consideration did not move from him and he had not given any consideration for the promise to pay. Between Francesco and Jacinho the promise is supported by a consideration from both parties. There is a bilateral contract and both parties promised, therefore, Jacinho cannot withdraw the Airbus from sale until the five day period expires.
There is an executory consideration because Francesco and Jacinho exchanged promises to perform an act in the future. Francesco promised to pay £120,000 if Jacinho does not sell the Airbus to anyone else for the next five days.
According to Keenan and Riches (2013, p.220), ‘a promise to keep an offer open will be binding if it can be enforced as a separate contract. A legally binding option will be created if the offeree provides some consideration in return for the offeror’s promise to keep the offer open’.
3Mountford v Scott (1975) where the Court of Appeal held that because the purchaser paid £1 intended for an option to buy within the six months period the seller cannot withdraw the offer in those six months until the option expires whereas in Tweddle v Atkinson (1861) the consideration from one party was not there. Relating the case Mountford v Scott (1975) to Zantek Airways and Francesco, Francesco promised to pay £120,000 to Jacinho if he does not sell the Airbus to anyone else and Jacinho agreed to this, hence, there is a separate contract created and both of them are legally bound by the contract terms.
4Dickenson v Dodds a house was offered for sale to the claimant by the defendant, the defendant promised to keep the offer open until Friday but someone else got interested to buy the property on Thursday and the defendant accepted their offer. Defendant asked his friend to let the claimants know about the withdraw. Friday morning, claimant went to the defendant’s house accepting the offer and took an action looking for the specific performance of the contract. It was held by the court that an offer can be withdrawn by the defendant anytime before the acceptance unless a deposit is paid, therefore, claimant did not provide any consideration in return so offeror is not obliged to keep the offer open unlike Mountford v Scott (1975) where the claimant paid £1 to buy within the six months period and the seller was supposed to keep the offer open until then. Among Francesco and Jacinho there is a consideration from both parties so Jacinho is obliged to keep the offer open until five days. However, if there is no consideration from Francesco then Jacinho is capable of withdrawing the offer and Francesco cannot sue him and claim the damages. But Jacinho can argue that consideration is not there from Francesco because he still did not pay the £120,000 so he can withdraw the Airbus.
Terms consists of conditions and warranties. The condition goes into the heart of the contract whereas warranties are not very important as they do not go into the heart of the contract. ‘In English law, a condition means an actual term of the agreement’ Samuel (2007, p.330). The condition of the contract was not to sell the Airbus to anyone for the next five days as Francesco is in Berlin and his firm would really like to view it. Jacinho agreed to the terms. Therefore, a contract existed between both parties. If he did not agree with the terms at that time, there would not be a contract.
Zantek Airways is not entitled to withdraw the Airbus because a separate contract is made where the condition of the contract under implied terms is agreed by Francesco and Jacinho in order to form a contract. It is an implied term because Jacinho said he will not sell it to anyone else for the next five days which means Francesco can buy it, but after five days anyone can buy it. The heart of the contract is to keep the Airbus for five days and in return, Francesco will pay £120,000. The parties are levied by an obligation in the terms. There is a breach of an implied term by Jacinho which means a breach of contract because the condition of the contract is breached as he withdrew the Airbus from sale after three days. However, the contract is not ended straightaway after the breach and the injured party has got the option to continue with the contract and recover damages. It can be argued that it is a misrepresentation by Jacinho because he induced Francesco to enter into the contract by saying he won’t sell it to anyone instead he withdrew it but because there is an option / separate contract between both parties, the offeror is not supposed to withdraw the offer. If there is a misrepresentation there is no breach of contract but the contract is voidable and the party can be put into the position where they would have been before the contract according to s.1 Misrepresentation Act 1967.
5 Bannerman v White a contract was agreed by the claimant to buy few hops in order to make beer. The seller was questioned by the claimant that whether the hops had been treated with sulphur or not, because if they were then he would not buy them since he cannot use the hops to make the beer. Seller gave a definite answer to the claimant that they are not treated with the sulphur. However, it was found out they were treated with sulphur. The claimant brought an action towards the defendant for the breach of the contract and the claim was successful because the importance of the term was communicated that the hops had not been treated with sulphur, it was a term of the contract and not a representation because the claimant relied on the statement by the seller. Therefore, Francesco asked Jacinho if he can keep the Airbus for five days and Jacinho agreed on this, so the importance is communicated, hence, it was a condition (term) of the contract and Francesco can bring an action towards Jacinho for the breach of contract. If the importance or condition of the contract was not communicated to Jacinho then there would not have been a breach of contract.
‘A breach of contract occurs when a party to a contract fails to perform some or all of its obligations under the contract. If an essential contractual term has been breached the other party can discharge itself from any further obligations imposed by the contract and claim damages’ (Christian 2013).
Therefore, if Francesco has not paid, he can discharge himself from an obligation of paying £120,000 and claim damages. Liquidated damages are agreed in advance to be payable if there is a breach of contract. Unliquidated damages are not agreed in advance and there is no agreement for the amount to be paid if the breach of contract occurs. Between Francesco and Jacinho there is no agreement of damages if there is a breach of contract so it will be an unliquidated damage. The unliquidated damages are awarded according to the rules which include remoteness (the damage foreseeability when the contract was being made), mitigate/reduce the loss and the party cannot be placed into a better position (Tarrant, 2017).
‘The aim of unliquidated damages is to put the injured party in the position he would have been in if the contract had been carried out properly’ Keenan and Riches (2013, p.300). The damages available for the breach of contract can be nominal or substantial. If the innocent party suffers no loss due to the breach of contract then nominal damages are awarded and if they suffer a loss then monetary compensation is awarded. So, if Francesco did not pay anything he will receive nominal damages by the court which is only a little amount due to the fact there was a breach of contract. If he already paid £120,000 he could recover them back. 6Jarvis v Swans Tours (1973) Mr Jarvis was a solicitor who booked a two-week winter sports holidays in Switzerland for £63.45. It was promised by the Swans Tours that there will be an English-speaking host, a house party atmosphere in the hotel and a bar which will be opened on several evenings in a week. The holiday resulted in a disappointment because in the second week only he was the remaining guest in the hotel and there was no one who could speak English and nothing was as promised. Hence, £125 was awarded to him by the Court of Appeal as the compensation for the loss of enjoyment and entertainment that was promised to him. This case relates to Francesco and Jacinho because Francesco’s firm is really interested to view the Airbus which is why he provided sufficient consideration but Jacinho withdrew it from offer which might be a disappointment to him. If Francesco faced any financial losses due to the breach of contract then he can receive monetary compensation.
In conclusion, a separate contract is formed between both parties, hence, Zartek Airways is not entitled to withdraw the Airbus until the five day period expires because Jacinho promised Francesco. In return, Francesco is paying him £120,000 so there is a consideration from both parties. However, because he withdrew it from the sale he breached the implied term which is a breach of contract as the condition is breached because he knew the importance of the term as seen in Bannerman v White (1861). It can be argued that it is a misrepresentation and the contract is voidable because Jacinho induced Francesco to form a contract. Lastly, if Francesco did not pay him the £120,000 he can discharge himself from the further obligation and get nominal damages by the court as he did not suffer any losses. However, if he did pay Jacinho £120,000 he can recover them back.
1 1893 1 Q.B. 256
2 1 B. & S. 393
3 1 All ER 198
4 1876 2 Ch. D. 463
5 1861 10 C.B. N.S. 844
6 1 All ER 71