Informal Reply on the Creation of Legal Relationship for the Managing Director of Telstar - Assignment Example

 As a legal advisor to the Managing Director of Telstar you are asked to prepare an informal report on the following matters: 1. Has a contract been formed between parties? There must be basic elements present in a contract in order to constitute one; agreement and consideration. An agreement is reached when there are offer and acceptance. Besides, there should be an “intention to create legal relationship” as held in Balfour v Balfour.1 Before examining whether a contract has been formed in the instant case, a brief explanation of what is meant by agreement and consideration is necessary. An agreement is said to transform the negotiations between parties into a settlement or deal. The process of negotiation is not in itself a contract but a forerunner to an agreement. Once this process ceases, the parties are supposed to reach an agreement or abandon the process without an agreement. The traditional way of ascertaining whether or not an agreement has been reached is to apply the rules of offer and acceptance. An offer, when properly made by one party and accepted by another party, an agreement is said to take place. That is, on acceptance or at the moment of communication of acceptance, to be more precise. Though the process is simple, it raises several questions as to whether an offer has been made at all and who the offeror is.An offer can be made at auctions, tenders, by price list or advertisements. But these are not strictly offers but invitation to treat. See Pharmaceutical Society of Great Britain v Boots 2 The offer comes in variety of forms that a formal communication of acceptance is not necessary in all cases. For example, advertisement of rewards and offers to the whole world. See Carlil v Carbolic Smoke ball & Co 3 Some times, question arises as to whether a silence can amount to acceptance. The agreement so formed by the process of offer and acceptance, should be supported by another element known as “consideration”. Consideration is something what the offeror and the acceptor are prepared to exchange for what he has been offered or has accepted.4 Gratuitous promises cannot be enforced as was established in Re Hudson,5 wherein Hudson’s executors were sued after his death for moneys owed by him on account of balance of donation he had promised give @ £ 4,000 per year for five years. The court held that money had been promised to be paid by him merely as a charity and not in exchange of some thing the donees had given him in return what is known as consideration in law. The position would have been different had Hudson executed a gift deed which could not be construed as a contract in any case. Thus, an offer is a proposal or promise by one person to another to enter into a contract, on certain terms and conditions, with an intention to bind himself when the person to whom promise is made announces his acceptance. The offer may be made to one person or to a set of people, or to the general public. The offer may be oral, written or implied by conduct. Though it may look simple, the ongoing communication between the parties makes it complex and difficult to pin point as to who made the offer. Thus when the original offeror’s conditions are not acceptable, the other person to whom the offer was made either rejects the offer or gives an alternative proposal to the original offeror. This becomes his counter offer and thereby the original offeror ceases to be the offeror and the offeree who made the counter offer becomes the offeror and the law treats the latest of such rounds of such negotiations between them as the final offer. In other words, one party finally proposes final terms such as price, date of delivery etc, in the bargaining process.6 It is essential that the offer should be accepted in the same tenor to form a contract only in which case can there be the meeting of minds said to exist. The meeting of minds requirement should be examined objectively going by their conduct rather than by what they had in mind. This principle was established in Storer v Manchester City Council7 However, the court will not apply the objective test if either of the parties knows that the other had no intention of contracting or had different terms in mind despite objective appearance of the agreement as held in Hartog v Collin & Shields8 The objective principle is applied in order to prevent a party resilling from the agreement just because it did not make a good bargain. To illustrate, in Moran v University College Salford No 2,9 the defendant rescinded its offer of the course to the plaintiff due to a clerical error. This was rejected by the court stating that even though the offer was made by mistake, it was capable of being accepted and creating a binding agreement. Thus an offer a promise to do or not to do a certain act that is capable being accepted by another to create a legally binding contract. An offer can lapse, be rejected or withdrawn before acceptance or a be responded with a counter offer. It therefore follows that it is the final express conduct to the offer or proposal that constitutes an acceptance. Only it should be conveyed in the same manner as stipulated or implied by the offeror Besides, it should be with the knowledge of the offer as held in R v Clarke10, wherein the information for a reward announced made incidentally in connection with a murder was twisted as if it was given for claiming the reward when the fact remained he had know no knowledge of the reward in the first place at the time of his giving the information. Further, as already said, the acceptance must correspond to the offer failing which it becomes a counter-offer because of the mirror image rule which means that offer must be accepted exactly alike without modifications killing the original offer. But there is a difference between a counter offer and a request for clarifications or more information from the offeror. See Hyde v Wrench11. The mode of acceptance can be oral or written. And the offeror cannot stipulate that in the absence of any response or hears a different reply from the offeree, the offer will be treated as accepted. Hence mere silence or not responding to the offer cannot constitute an acceptance. The acceptance must also be made within the time limit stipulated by the offeror or within a reasonable time in the absence of any such stipulation. When an acceptance is not unconditional but stating that it is subject to a formal contract and then only after the contract is executed, the acceptance is deemed to have been made. Incidentally, communication of acceptance through e mail, SMS message, text message or facsimile is considered effective only on receipt by the offeror while as per the postal acceptance rule, the acceptance is made at the time of posting itself. 12 Now, considering the instant case applying the above principles, there is no doubt that contract has been formed especially because the performance of the contract has been partly carried out and accepted by the buyer. If it had not been performed and the buyer or seller had objected to the terms and conditions of the other party, it would remain a counter offer. This is strictly the position in common law, though in the Vienna Convention dealing with international sale of goods, it has been provided that these need not necessarily result in a no-contract situation unless there is material discrepancy arising out of what is called the ‘battle of the forms” In fact, Professor Atiyah has commented upon the decision in Buttler13 by observing that it would be absurd to say that there was no contract when machine tool has been manufactured and supplied.14 2 If so, when was it formed and whose conditions govern the contract? The common law has no specific rules for the battle of the forms problem but it has been tackled through the rules of offer and acceptance. The rule in this regard was established in Hyde v Wrench15 In Butter Machine Tool Co ltd v Ex-Cell-O Corporation (England) Ltd16 , the seller’s quotation contained 16 terms in the printed form which included a price variation clause meant to prevail over the conditions of the buyer. The wordings were “all orders are accepted only upon and subject to the terms set out in our quotation and the following conditions. These terms and conditions shall prevail over any terms and conditions in the Buyer’s order.” 17 The second form from the buyer’s order carried conditions different from that of the seller. There was no price variation clause to make the terms of the order to prevail. The seller was asked to tear off and send back the acknowledgement slip contained in the buyer’s order. The acknowledgement slip read as “ACKNOWLEDGEMNT; Please sign and return to Ex-Cell-O Corp. (England) ltd. We accept your order on the Terms and conditions stated thereon- and undertake to deliver by … date… Signed.” 18 Since the seller had retuned the slip, the court of Appeal concluded that buyer’s terms would prevail. Had it not been for the slip, the buyer’s terms would have been rendered ineffective. The court actually applied the ordinary principle of counter-offer. to tackle the problem. The first form of the seller was an offer and the second form of the buyer was the counter offer rejecting the seller’s offer. Hyde v Wrench 19 was the authority cited to reach this conclusion.20 The mirror image rule was applied stating that the seller accepted the condition of the buyer’s counter offer. In this connection, Lord Denning did not approve of the mirror image rule as out of date and suggested to adopt a global approach by looking at all the documents that were exchanged between the parties or their conduct in having reached agreement on all material points without having regard to the differences between the forms and conditions found at the back of them by citing the judgement in Brogden v Metropolitan Railway Co21 In the instant case, the seller not only returned the buyer’s acknowledgment slip but also sent their own terms stating that “The sellers shall not be responsible for delay in delivery of the goods or part thereof where delay is caused by mechanical breakdown, suppliers delays beyond the sellers control, war, storm, fire, flood, Act of God or any other matters beyond the sellers control”. This is the final stage which forms the final terms and conditions of the contract between Telstar and Delta as per the principles of the counter offer and this what has been invoked by the seller who is justified in terminating the contract prematurely. 3. Describe the implications for both parties as a result of your answer to the above questions. In view of the above, the buyer has to honour the bills of the seller for supplies so far made and should desist from invoking buyer’s own standard terms and conditions that are inconsistent with that of the seller. The buyer’s condition is two fold, one to terminate the contract or to continue with the contract by charging 4 % liquidated damages for each day of delay. Even if the buyer’s condition were to prevail, in view of the seller’s inability to supply any further, invoking the first part of the condition is not detrimental to the seller. Hence adopting the global approach suggested by lord Denning, it would be in order for both the parties to honour each other’s condition without insisting on damages from either of them. But the buyer is liable to settle the bills for the supplies delivered by the seller without deducting any damages. Bibliography Books Heffey G Peter, Paterson Jeannie Marie, And Hocker P j, 1998, Contract Commentary and Materials 8th Ed (Lbc Information Services) Koffman Laurence, Macdonald Elizabeth, 2007, The Law of contract, Oxford University Press. Journals Jacobs Edward J, 1985, The Battle of the Forms: Standard Term Contracts in Comparative Perspective The International and Comparative Law Quarterly, Vol. 34, No. 2 (Apr., 1985), pp. 297-316 McKendrick Ewan, 1988, The Battle of the Forms and the Law of Restitution, Oxford Journal of Legal Studies, Vol. 8, No. 2 (Summer, 1988), pp. 197-221 Cases Balfour v Balfour (1919) 2 KB 571 Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 Butter Machine Tool Co ltd v Ex-Cell-O Corporation (England) Ltd (1979) 1 All ER 965, 968. Carlil v Carbolic Smoke ball & Co [1893] 1 QB 256 Hartog v Collin & Shields (1939) 3 All ER 566 Hyde v Wrench (1840) 3 Beav 334 Moran v University College Salford No 2 [1994] ELR 187. Pharmaceutical Society of Great Britain v Boots (1953) 1 QB 401 Re Hudson (1885) 54 LJ Ch. 811 Storer v Manchester City Council (1974) 3 All ER 824at 828 R v Clarke (1927) 40 CLR 227, Aust H.C. Read More