Contract law and communication

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Discuss, with reference to court judgements, the extent to which "communication" in the law of contract is a vital component of both an offer and an acceptance. It is well established in contract law, that an offer and acceptance are prerequisites in the formation of a valid contract. There must also be intention to create legal relations and consideration given. For the purposes of this essay however the focus is on the offer and acceptance components of a contract. Case law shows that disputes often arise about how this offer and acceptance has been communicated. An offer is communicating a willingness to enter into a legally binding agreement or contract. A valid acceptance will be an unqualified acceptance of all terms of the offer. It is therefore clear to see that where there is a dispute in communication of an offer or acceptance, this is actually a dispute as to whether a legally binding agreement exists at all. OFFER In various settings and circumstances ‘communication’ of an offer or acceptance takes different forms. Judgement in the case of Payne v Cave demonstrates that during an auction, the bidder makes an offer by raising his hand at the spoken price if it is agreeable to him. The auctioneer accepts the bidder’s offer when his hammer is brought down and the bidding ends. In PSGB v Boots, it was held that when a customer enters a store, they communicate their offer to purchase an item by bringing the goods to the till and the cashier communicates acceptance of this offer by accepting the goods and processing the sale. The well known case of Carlill v Carbolic Smoke Ball Co (1893) also gives us further guidance of how an offer may be communicated between parties. Here an advert was placed for 'smoke balls' to prevent influenza. The advert offered to pay £100 if anyone contracted influenza after using the ball. The company deposited £1,000 with the Alliance Bank to show their sincerity in the matter. The plaintiff bought one of the balls but contracted influenza. It was held that she was entitled to recover the £100. The Court of Appeal held that the deposit of money showed an intention to be bound, therefore the advert as communicated comprised of an offer and that buying and using of the smokeball amounted to acceptance of the offer. In the case of Harvey v Facey it was held that the statement ‘lowest Price £900’ was not communication of an offer but simply an indication of the lowest price the seller would be prepared to accept. ACCEPTANCE- THE COMMUNICATION RULE An acceptance must be communicated to the offeror before a contract comes into existence. Lord Denning in Gibson v MCC held that considering all correspondence and conduct of the parties is vital to deduce whether they have come to an agreement. This can be seen plainly in the case of Trentham v Luxfer.T built industrial units and subcontracted the windows to L. The work was done and paid for. T then claimed damages from L because of defects in the windows. L argued that even though there had been letters, phone calls and meetings between the parties, there was no matching offer and acceptance and so no contract. The Court of Appeal held that the fact that there was no written, formal contract was irrelevant as a contract could be concluded by conduct. Plainly the parties intended to enter into a contract which was evidenced by the correspondence and conduct between then. This course of dealing therefore amounted to a valid, working contract that both parties had benefited from. The offeree’s acceptance may be communicated by them or by someone authorized by them to make this communication. In the event that acceptance is communicated by an unauthorized person, this will not constitute a valid acceptance. Where the offeree is silent after the offer is made, the the offeror cannot impose a contract on the offeree against his wishes by deeming that his silence should amount to an acceptance. . In the case of instantaneous communication which in modern times will constitute predominantly email correspondence, an acceptance will take effect when and where it is received. UNILATERAL CONTRACTS There are circumstances however where there are exceptions to the rule of communicating acceptance for instance in unilateral contracts where carrying out the stipulated task is enough to constitute acceptance of the offer. This can be seen in Carlhill v Carbolic Smokeball explained above. The claimant did not have to communicate her use of the smokeball in order to constitute a valid acceptance. Her mere use of the product constituted acceptance and a contract was established. Also in the case of Dualia v Four Mill Bank it was held that revocation of the offer was not valid in a unilateral contract once performance had begun. Therefore one could conclude that performance and conduct in accordance with the contract terms is sufficient to indicate acceptance although revocation of the offer is allowed if there has not been full performance as stated in Patterson v Pattberg (1928) THE POST RULE There are also situations that fall within another rule called the postal rule where acceptance is deemed valid once in the possession of the Post Office. This was held in the case of Adams v Lindsell which means acceptance is complete as soon as the letter of acceptance is posted, even if delayed, destroyed or lost in the post and never reaches the offeror. This rule applies to communications of acceptance by cable, including telegram, but not to instantaneous modes such as telephone, telex and fax. The effect of this rule is that once the acceptance has been posted although not received, the offer cannot be revoked. This protects the offeree from unconscionable conduct on the part of the offeror however leads to great inflexibility for bargaining purposes. It was therefore held in Holwell Securities v Hughes that there are certain circumstances where it will be held that the postal Rule does not in fact apply. These are where it is expressly or impliedly excluded in the offer or where it would lead to inconvenience or absurdity. . INSTANTANEOUS COMMUNICATION In the case of instantaneous communication, who should bear the responsibility for failure to communicate has been much discussed in the courts. Two categories have been identified, two way instantaneous communication eg a telephone conversation where offer and acceptance can be confirmed over the phone or offer revoked and one way instantaneous communication eg. Email where acceptance communicated but not necessarily received by offeror at the same time. In Entores v Miles Far Eastern (1955) it was held that in cases of instantaneous communication the general rule applies which is that a contract is made at the time and place that acceptance is received. This rule of course favours the ofereror as it places more of a duty on the offeree to ensure that communication of their acceptance has been received. In one way communication- by email, fax, text messaging and the like the courts have held that a flexible approach must be adopted and the test should be, when a reasonable offeror would access the message taking all circumstances into account. This was discussed in the case of The Brimnes: Tenax Steamship Co Ltd v The Brimnes (Owners) where it was also held that in the event of a failure to communicate the acceptance, the risk lies with the party best placed to avoid it but if neither party is at fault the default position is for actual communication and therefore the risk lies with the employee. CONCLUSION The matter is in the final analysis one for the courts having considered all the evidence however judgements to date as discussed above give some guidance on how communication forms a vital component in the formation of a contract and what pitfalls to avoid. PROBLEM QUESTION In order for any of the parties to have a cause in action against Z for breach of contract, it must first be established that a contract in fact exists at all. There must therefore be present in these scenarios, an offer, acceptance, intention to create legal relations and consideration between the parties in order for there to be a vaild contract and for either B,C or D to sue Z for breach of contract. In Partridge v Crittenden, it was held that an advert displaying the sale of wild birds was not an offer. Lord Parker CJ commented that it did not make "business sense" for advertisements to be offers, as the person who places advert could then be contractually obliged to sell more goods than he actually owned. In certain circumstances however, an advertisement can be an offer, for instance in the case of Carlill v Carbolic Smoke Ball Company, where it was held that the defendants, who advertised that they would pay anyone who contracted the flu after using their smokeball had made an offer as they had deposited money into a bank account for these purposes. The court therefore held that this constituted an intention to create legal relations. In this case however it would fair to say that by Z placing an advert in the newspaper stipulating a sale price for his bike, falls within the Partridge v Crittenden example and therefore constitutes an invitation to treat. . B is unlikely to succeed in a case for breach of contract against Z because he must make an offer and Z must accept that offer in order for there to be a binding contract between them. It is clear that Z refused the cheque that Z thrust in his hand so there is no acceptance of B’s offer, an absence in a meeting of minds and no intention to create legal relations between the parties. In the case of C , although he made an offer to buy the bike for the stipulated price, he cannot impose a contract on Z against his wishes by deeming that his silence should amount to an acceptance. .C will therefore not be able to successfully sue Z for breach of contract In the case of D however the situation is more complex as by Z saying to D that he will not sell the bike to anyone before Saturday evening could constitute a promise on the part of Z to D and a sign that he intended to create legal relations between them. D’s response clearly demonstrates this point as he thanks Z for his promise and also promises not to let him down. One could also say that consideration was given on the part of D in the form of his card and a picture of him and Britney Spears. Therefore by B selling the bike to E before Saturday morning contrary to what he had promised, Z could be held to have acted inequitably by reneging on his promise and therefore D could seek remedy under the doctrine of promissory estoppel . The doctrine of promissory estoppel is based on the judgment of Denning J in Central London Property Trust Ltd v High Trees House Ltd and on the decision of the House of Lords in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd .This doctrine provides a means of making a promise binding, in certain circumstances, in the absence of consideration. The principle is that if someone (the promisor) makes a promise, which another person acts on, the promisor is stopped (or estopped) from going back on the promise, even though the other person did not provide consideration (in so far as is it is inequitable to do so). However the court before deciding whether D can rely on this doctrine will look at the following mattes: (1) CONTRACTUAL/LEGAL RELATIONSHIP There must either be a contractual or legal relationship between D and Z. In Durham Fancy Goods v Michael Jackson (Fancy Goods) Donaldson J said that an existing contractual relationship was not necessary providing there was "a pre-existing legal relationship which could, in certain circumstances, give rise to liabilities and penalties". So if B cannot show that there was a contract but at the very least there was a legal relationship with an an intention to enter into a contract evidenced by an offer, acceptance and conversation at Z’s house then he will be able to rely on this doctrine on the basis that they both entered into pre contractual negotiations. Also D could hold that the card and picture constituted consideration on his part and there was an intention to create legal relations. With these factors in place the courts could hold that a legal relationship did exist between the parties albeit that full payment for the bike had not been made by D. It is the promises exchanged by both parties that give rise to this relationship. (2) PROMISE One party must make a promise which is intended to be binding: The Scaptrade This can be implied or made by conduct. On the face of it there appears to be a clear promise on the part of Z not to sell the bike to anyone else before Saturday. Selling the bike to E therefore on Friday constitutes a breaking of that promise. (2) RELIANCE D will have to prove that he relied on the promise made by Z. Case law does not seem to clarify whether there should have been a change of position on the part of D which would put him in a worse position if the promise was revoked- Ajayi v Briscoe or whether D should merely have altered his position in some way but not necessarily have suffered any real detriment. In Alan Co Ltd v El Nasr Export & Import Co, Lord Denning went further and said that it was sufficient that the promisee acts differently to what he otherwise would have done as a result of the promise given. Therefore in this example, D in order to rely on promissory estoppel would have to show for instance, that he passed off the opportunity to buy a cheaper bike as he had already promised not tot let Z down in relation to buying his bike. (D) INEQUITABLE TO REVERT It must be inequitable for the promisor to go back on his promise and revert to his strict legal rights. If the promisor's promise has been extracted by improper pressure it will not be inequitable for the promisor to go back on his promise- D & C Builders v Rees In this scenario it does not appear from the facts that Z was pressured into promising D to hold the bike until Saturday so it is likely that the courts will decide that there has been inequitable action on the part of Z by not keeping his promise that was made voluntarily. (E) A SHIELD OR A SWORD In Coombe v Coombe it was held that this doctrine cannot be raised as a cause of action (sword) but only as a defence to a claim (shield). The position has however changed by later decisions. In Re Wyven Developments Templeman J held that Coombe was outdated and the doctrine could create rights. This was also supported by Lord Denning’s judgement in Evenden v Guildford City AFC . So D on the basis of these two post Coombe judgements could assert that he has a right to sue on the basis of the promise made by Z that was not kept. (F) EXTINCTIVE OR SUSPENSIVE OF RIGHTS If D relies on this doctrine the courts will also look at the nature of Z’s promise and whether it was his intention for there to be a suspension or extinction of his legal rights. In the case of High Trees it was held that the promise was intended to be temporary in nature and the promisor had the right to reassert his full legal rights. Tool Metal Case (1955) also supported this position. However in the case of D &C Builders, Lord Denning held that the full effect of the promise was to extinguish the legal rights of the promisor. In looking at the words used by Z in making his promise, it appears that his intention was to resume his legal rights to sell the bike to whomever he chose after Saturday. Therefore by selling the bike to E on Friday, he had broken his promise to D. CONCLUSION It is unlikely that B and C have a cause of action against Z because there is no contract in existence between or an intention to create legal relations. In fact there is not even the formation of a valid offer and acceptance. In the case of D however many components of a contract had been made, with an offer, acceptance and intention to create legal relations although because the bike had not been exchanged for £ 200 the contract was not concluded. However the doctrine of promissory estoppel arises in such circumstances where there have been negotiations and promises made and the court is of the view that it would be inequitable for the promisor to renege. D is therefore likely to succeed if he brought an action under this doctrine and his remedy will be awarded according to what is just and equitable for instance if due to Z’s promise he had the opportunity to purchase a les expensive bike, the difference could be awarded to him. BIBLIOGRAPHY Cases Payne v Cave 3 Term Rep 148 PSGB v Boots [1953] 1 All ER 482. 2 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Harvey v Facey 1893] AC 552 Entores v Miles Far East Corp. [1955] 2 All ER 493. Gibson v MCC [1979] 1 All ER 972. Trentham v Luxfer (1993) 1 Lloyd’s Rep 25. Powell v Lee (1908) 99 LT 284. Felthouse v Bindley (1862) 11 CBNS 869 Brinkibon v Stahag Stahl [1983] 2 AC 34 Adams v Lindsell (1818) 1 B & Ald 681 Entores v Miles Far Eastern (1955 [1955] 2 QB 327 The Brimnes: Tenax Steamship Co Ltd v The Brimnes (Owners) [1975] QB 929 Partridge v Crittenden [1968] 1 WLR 1204 Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 Felthouse v Bindley (1862) 11 CBNS 869 London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130 Lords in Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 Durham Fancy Goods v Michael Jackson (Fancy Goods) [1968] 2 QB 839, Chappell and Co Ltd v Nestlé [1960] AC 87 House of Lords The Scaptrade [1983] QB 529 Ajayi v Briscoe [1964] 1 WLR 1326, D & C Builders v Rees [1965] 2 QB 617. Coombe v Coombe 1951] 2 KB 215 Re Wyven Developments [1974] 1 WLR 1097 Evenden v Guildford City AFC [1975] QB 917 D &C Builders [1965] 2 QB 617 Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 2 All ER 657 at 660 BOOKS Textbook on Contract Law- Jill Poole, 8th Edition, Oxford University Press Contract Law- Chen-Wishart, Mindy, 2nd Edition, Oxford University Press The Law of Contract- Edwin Peel, 12th Edition, Sweet and Maxwell
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