Contract Case Between Tom and Max - Assignment Example

Contract Law Introduction: The question that needs to be determined in the sale transaction between Tom representing the Buyer and Max representing the Seller is whether Tom, in making the payment of 28,000 pounds has paid up in full according to the contractual terms, or whether Buyer will be liable to pay the additional amount of 2800 pounds that is being claimed by Seller, as a function of a small price rise that is sanctioned under the terms of its standard sale/purchase agreement that Tom has filled up when placing the order for the equipment. Contractual validity: In order for a contract to be valid, “there must be a definite offer mirrored by a definite acceptance.”1 In the case of Harvey v Facey2 a telegram sent by Facey confirming price was deemed not to be an offer3, however in the instant case, the Buyer (Tom) has made a definite offer to purchase the hydraulic jack system for the price listed (28,000 pounds) in the brochure while the Seller (Max) has orally agreed to supply the goods at the agreed list price of 28,000 pounds. Therefore, a contract has come into being and Max’s acceptance of the contract may be seen by his action in going ahead with the manufacture of the Hercules equipment. Acceptance of the terms of contract (in this case the purchase price) may be inferred from the conduct of the parties.4 However, in order for an acceptance to be valid, it has also been held that such acceptance should be unconditional, final and unqualified.5 In the event that an offeree reacts to an offer with some alteration in the terms of offer, then the original offer will be cancelled out and the modified offer will take its place as a counter offer.6 This aspect may be applied to the oral agreement between Max representing the Seller and Tom representing the Buyer. Although they have orally agreed to a price, Max sends Tom the Seller’s standard order form where there is a possibility that terms offered may be different. Hence this form in effect constitutes a counter offer, moreover, Tom completes the order form but sends it back with the Buyer’s terms and conditions, which constitutes yet another counter offer to replace the one previously made. Therefore, the final agreement between the parties will be held to be the Buyer’s terms and conditions. The oral transaction between the two parties was a simple agreement on the price and time for delivery, and both Buyer and Seller have orally agreed to a price of 28,000 pounds. Therefore, this could constitute an agreement in principle7 on the price, especially since amounts have been mentioned. The Sale of Goods Act 19798 states that where no price has been agreed upon, a reasonable price must be paid. However in this case, the price has been agreed to orally, therefore, when the question of price in the written contract arises, the price agreed to may apply. But in the case of Gibson v Manchester City Council 9 Lord Denning was of the view that the Court should look at the correspondence between the parties in order to determine whether they had reached an agreement on a particular issue. Moreover, in the case of G. Percy Trentham Ltd v Archital Luxfer10 Lord Steyn was of the view that in determining whether an agreement existed between two parties, the Courts should take into consideration the fact that English law approach to contract formation is such that it would be measured by the yardstick of the reasonable expectations of sensible businessmen. Therefore, from the point of view of a dispute between the two parties on price, it is likely that the written transactions between them will hold more weight, hence it will be their standard forms that will be accorded more importance in arriving at a decision on the outstanding amount that Seller is claiming from the Buyer. The terms in standard printed contracts can sometimes be a problem since they may contain slightly different terms from those agreed upon for a specific transaction. The issue of conflict between the terms mentioned in Buyer’s and Seller’s standard contracts arose in the case of Butler Machine Tool Co Ltd v Ex-Cell O Corporation11. In this case, the Seller’s standard form contained an exclusion clause on price variation, whereas the Buyer’s standard form did not mention any price variations. The difference amounted to a sum of 2892 pounds and the Sellers contended that they were carrying out the contract as per the terms listed in their standard form and demanded the sum of 2892 pounds from the Buyer. However the Court of Appeal held in this case that the contract had been concluded on the Buyer’s terms, since it was the Buyer who had provided the last counter offer which sellers had not rebutted.12 This is particularly relevant in the case of Tom and Max. It may be noted that Tom’s acceptance of Seller’s standard form may be contested on the grounds that it was not accepted unconditionally, since Tom sent the completed order form with a return note stating that the Buyer’s terms and conditions would apply, for which there was no rebuttal or counter offer from Max. Therefore, it would be the terms of Buyer’s contract which may likely be upheld in the courts and it is likely that Buyer has a good chance of not being held liable for the balance of 2800 pounds that is being claimed by the Seller. This is because the Buyer’s terms and conditions specifically states that no variation in the price will be acceptable after the submission of the order. The order has been submitted on the basis of the agreed price of 28,000 pounds, while the additional amount is being claimed later and will therefore be invalid under the terms of the Buyer’s form. Exclusion Clauses: Section 16(1) of the Sale of Goods Act of 1982 deals with exclusion clauses, wherein Seller may limit performance on any particular aspect of performance of his product or in other instances. In this case, the provision for increase of price that exists in the Seller’s contract functions as a means to change the terms of the original contract without being held liable for it. An exclusion clause limits the liability of the Seller for breach of contract under certain circumstances, therefore in this instance, Seller is permitted to raise prices under certain conditions, which is what it has done, through the provision in its contractual form to raise the price of the goods supplied by a maximum of 10%. Exclusion clauses must be clearly communicated, if they are printed on the back of a ticket or communicated indistinctly, they will not be valid.13 This is one aspect that could possibly apply in this case and work in favor of the Buyer, since the oral price that has been agreed to is 28,000 pounds, Seller’s brochure also mentions the sum of 28,000 pounds as the price of the equipment, but the provision about raising the prices is mentioned in such small term wording that it may be held to have been communicated indistinctly and therefore not valid. In the event that an exclusion Clause results in unfair terms to a customer there are options available to deal with those unfair aspects that may be generated by such clauses.14 Where an exclusion clause may be deemed to create a fundamental breach in the free will aspects of contracting that exist under common law in contract, it will be actionable under the law, since it creates a situation where a transaction becomes unfair to a customer or Buyer15. An exclusion Clause that is unreasonable in its terms and conditions will be deemed to be invalid.16 Moreover, a contract that is deemed to be unfair due to the inclusion of an unreasonable exclusion clause will not be binding upon a customer.17 Another aspect that must be considered is whether the inclusion of the Clause in the seller’s contract can be deemed to be a misrepresentation, since the brochure prices are quoted otherwise while the exclusion clause allows for jacking up of prices. Section 52 of the Trade Practices Act of 1974 is meant to impute strict liability for any form of misrepresentation or fraudulent nature in a transaction and this requirement of strict liability has been framed with the intent of protecting consumers. Therefore in applying Section 52, the factor that would be most important would be whether there was an intent to mislead the consumer and liability will be imputed even if an exclusion clause is present, when it can be established that there was an intent to mislead. Section 52 will be precluded only if it can be proved that a representation that has been made by a seller is such that it can be supported by evidence of a reasonable basis for such a representation.18 Thus, an exclusion clause may be relevant in limiting liability if it can be firmly established that there were reasonable grounds for the inclusion of such a clause and that the intent behind inclusion of the clause was not to mislead or defraud a customer. But, as stated by Lee J in the case of Wheeler Grace & Pierucci Pty Ltd v Wright19 it may be possible to invoke the strict liability of Section 52 even when there was reasonable cause to believe the promise would be fulfilled, if the conduct of a seller is in any way misleading, deceptive or fraudulent and in such a case, it will not even be necessary to establish the intent to deceive. Therefore, on an overall basis, an exclusion clause will not exclude liability in the case of misrepresentation or misleading conduct. However, in this case the transaction is one that is taking place between two businesses, with Tom representing the Buyer and Max representing the Seller. The validity of exclusion clauses have been upheld by the Courts in the case of dealings between businesses20. In making a determination about whether or not a contract was unfair, the Courts are guided by the parity between the parties. As stated by Chadwick LJ in the case of Watford v Sanderson: “In circumstances in which parties of equal bargaining power negotiate a price for the supply of a product under an agreement which provides for the person on whom the risk of loss will fall, it seems to me the Court should be very cautious before reaching a conclusion that the agreement which they have reached is not a fair and reasonable one.”21 On this basis therefore, there is a possibility that the Court may not deem the exclusion Clause on seller’s contract that permits a rise in price to be unfair and such a rise may be held to be valid and reasonable under the circumstances. Conclusions and advice: On the basis of the above, it appears that the Buyer can certainly contest the extra charge of 2800 pounds that he is now being asked to pay. Factors working in Tom’s (Buyer’s) favor are the following: (a) the price agreed to orally between the two parties was 28,000 pounds, which is also the stated price in the brochure (b) the exclusion clause mentioning the possible rise in price by 10% was communicated indistinctly (c) The copy of Buyer’s terms and conditions could be deemed to be the final word on the contract between the two parties (d) Buyer’s terms expressly state that price variations after the order has been placed will not be entertained. Therefore, it is clear from the above terms in the Buyer’s standard forms that the price that was agreed to upon placing the order was 28,000 pounds and the price rise that is being claimed after this period will not be valid. Moreover, the Buyer can specifically rely upon the case of Butler Machine Tool Co22 in which a similar demand for a higher price by seller than that which was agreed was rejected by the Court. Therefore Buyer stands an excellent chance of winning a suit against payment of the extra amount of 2800 pounds being demanded by seller. Alternatively, the parties can also consider arbitration. In the case of disputes on agreement about price, it was held in the case of May and Butcher v R 23 that only when there was an agreement about price, any disputes arising out of it could be submitted for arbitration. Since the Buyer and Seller had a prior agreement on price and the dispute has arisen subsequently, this could also be an available option. Bibliography Books/Articles: * McKendrick, Ewan, 2000. Contract Law 4th edition, Palmgrave Law Masters * Thal, SA, 1998. The inequality of bargaining power doctrine: The problem of defining contractual fairness 8 Oxford Journal of Legal Studies 17 Legislation: * Supply of Goods and Services Act of 1979 * Supply of Goods and Services Act of 1982 * Trade Practices Act of 1974 * Unfair Contract terms Act of 1977 Cases: * Butler Machine Tool Co Ltd v Ex-Cell O Corporation(England) Ltd (1979) 1 WLR 401 CA * Brogden v Metropolitan railway (1877) 2 App Cas 666 HL * Clifton v Palumbo (1944) 2 All ER 497 * Cummings v Lewis (1993) 113 ALR 285 * Gibson v Manchester City Council (1979) 1 All ER 972; (1979) 1 WLR 294 (HL) * G. Percy Trentham Ltd v Archital Luxfer (1993) 1 Lloyd’s Rep 25 CA * Hyde v Wrench (1840) 3 Beav 334 * Harvey v Facey (1893) AC 552 PC * May and Butcher v R (1934) 2 KB 17 * Malcolm v Chancellor etc of Oxford University (1991) CLY 521 CA * Photo Production Securicor Ltd (1980) AC 827 * Thornton v Shoe Lane Parking (1971) 1 All ER 686 * Watford Electronics Ltd v Sanderson CFL Ltd (2001) 1 All ER (Comm) 696 Read More