The Essential Elements of the Contract Creation - Case Study Example

Generally speaking, an offer must contain a definitive promise providing the other party with an unambiguous option to accept or decline the offer.1Consideration is also an essential element of the contract creation and enforceability. Once offer and acceptance are found to exist, the courts will then look to determine whether or not there is consideration. Consideration was defined by Lush LJ in the following terms: ‘…some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.’2 This is the background against which Betty, Daniel and Charles’ legal issues will be resolved against Alen for breach of contract. . A contract begins with an offer. The importance of clarity cannot be overstated. The party to whom the offer is communicated must be able to determine on the face of it what is being offered and on what terms.3 Alan is offering 2000 pounds in consideration of the safe return to him of the USB memory stick. An advertisement is usually classified as an ‘invitation to treat’ because it typically lacks specificity, a necessary ingredient for a valid offer. This is particularly true for advertisements for the sale of goods.4 However in the early case Carlill v Carbolic Smoke Ball Co Ltd (1893) 1 QB 256 it was held that if an advertisement was specific and definite enough it could constitute a valid offer. In the Carbolic Smoke Ball Col Ltd. case Carbolic ran an ad that promised a reward of 100 pounds to any individual that was infected with influenza after having followed the manufacturer’s instructions on one of the company’s products.5 This kind of advertisement constitutes a unilateral offer in that it is an offer to the world at large and is capable of forming a legally binding contract.6 In Brogden v. Metropolitan Ry. Co. 2 App. Cas. 666 Lord Blackburn held that an advertisement duly constituting a valid offer, was accepted once it was acted on.7 Lindley LJ explained in Carbolic Smoke Ball Co. Ltd. that advertisements that offered a reward in exchange for the successful performance of an ace ‘are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay 100l. to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer.’8 Lindley LJ also noted that it is a general proposition of law that an acceptance of an offer is required to be communicated to the party making the offer. However in cases involving advertisements that constitute a valid offer, the requirement is waived. And if indeed notification ‘of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance’.9 In light of the foregoing discussion Alan’s post in the Cumbria Gazette which contained the following words: £2000 paid for the safe return of ByteStor USB 2 3GB flash memory stick lost on Great Gable in Beck Head area on Saturday 28th October 2006. Please post to Mr Grimsdale, Box 1314, Penrith or call 01234 5678, constitutes a valid offer. Whether or not his offer was accepted by any of the persons responding to the post will be determined by the actual performance of each of the parties concerned. . It is commonly felt that in order for the acceptance of an offer to be legally binding it must follow the essential substance of the offer made.10 As noted previously, an offer can be accepted by either word of conduct.11 When Charles responded to Alan’s offer he essentially accepted it by his conduct and also by his query which essentially wondered whether Alan would be prepared to increase the sum stipulated for the reward. for immediate payment. It is important to distinguish between a request for information and a counter offer. In Tim v Hoffman [1873] 29 LT 271, it was held that an acceptance suggesting a reduction of the price stated in the offer was tantamount to a counter offer.12 However in Gibson v Manchester County Council [1979] 1 WKR 294 it was held by the House of Lords that an inquiry by a prospective purchase was ‘merely exploratory’ and would not function as a refusal to accept the offer.13 Lord Diplock stated that ‘The words .may be prepared to sell…are fatal’.14 Allen’s query into the possibility of increasing the offer can be said to operate as merely exploratory. The essence of a counter-offer must be capable of implying that the offer is rejected and new terms and conditions will have to be injected into the offer for it to be accepted.15 In Hyde v Wrench the defendant offered to sell a farm to the plaintiff for the sum of 1,200 pounds and the plaintiff refused. Some time later the defendant again offered to sell the farm to the plaintiff for the reduced sum of 1,000 pounds. This time the plaintiff responded by offering to purchase the farm for 950 pounds instead. The defendant replied that he needed time to consider the counter offer. He later responded that he was not interested. The plaintiff then wrote to the defendant claiming that he accepted the previous offer of sale in the sum of 1,000 pounds. The defendant did not complete the sale and the plaintiff sued him for specific performance. The court ruled that there had not been a legally binding contract. The offer to purchase the farm for 950 pounds was a rejection of the original offer to sell for 1000 pounds and the plaintiff could not reinstate the original offer of 1000 pounds.16 The facts of Hyde’s case can be distinguished from the facts of Charles’ case. Charles did not make a counter-offer. He merely stated that he would accept the offer and explored the possibility of obtaining an increased reward. Whether or not there was a legally binding acceptance is an objective test. Much will depend on what a reasonable person in the same situation would conclude.17 It can be argued that while Charles did in fact perform in response to Alan’s ad he failed to live up to the specific conditions contained in the post for the safe return of the ByteStor USB 2 3GB flash memory stick. Charles found the ByteStor USB memory stick and kept it in his custody with the intention of delivering to Alan upon the confirmation of certain facts. However, he lost it while it was in his custody and failed to deliver it. The post specifically offered to pay 2000 pounds upon the safe delivery of the memory stick. The same considerations will apply to Betty, however, her claim will be against the postal company for breach of contract and any damages arising out of the failure to deliver the package to its final destination. However, a difficulty arises for Danny in that Alan withdrew his offer altogether by the time that Danny retrieved the memory stick and returned it to Alan. There is nothing preventing Alan withdrawing his offer at anytime before the completion of the contract. Either party is at liberty to change their minds before the agreement is complete.18 An early case established that in order for the revocation of an offer to be effective it must be communicated to the offeree. In this case the offeror posted an order to the offeree for 1000 boxes of plates. Approximately one week later, the offeror posted another letter revoking the offer. A few days later the offeree receives the initial offer and subsequently replies accepting the offer. It was five days later than he received the revocation. It was held that the revocation was too late. The contract was already made. The revocation was received after the offer was accepted.19 In this case, Danny was not even responding to the offer, he only became aware of it after he delivered the memory stick to Alan. Moreover, in R v Clarke it was held that an acceptance which is motivated by events or facts independent of the offer will have no legal effect. There is no evidence that Danny was motivated by the offer of a reward.20 Moreover, for an offer is made to the world at large as in this case, it can be revoked by the offerer taking reasonable steps to revoke the offer.21 Alan took reasonable steps by telephoning the Gazette to withdraw the advertisement. Alan’s request to the Gazette in which he withdrew his original offer of a 2000 pound reward is an effective revocation of the initial offer. However, according to Byrne v Van Tienhoven, this revocation is too late since both Betty and Charles effectively accepted the first offer. It does not matter that Alan had already revoked the first offer, since neither Betty nor Charles had received it as a result of the inadvertent continuation of the offer by virtue of the advertisement for an additional day.22   Betty’s situation is one of past consideration. A fundamental principle of contract law is that consideration must not be past. Past consideration arises when a party voluntarily performs an act and another party follows up by promising something in exchange for the past act. This is said to be past consideration and as such is not consideration. There area however exceptions to this rule and the fist one that comes to mind is the previous request exception initially introduced in Lampleigh v Braithwait.  According to the exception formulated in Lampleigh v Braithwait when one party promises to deliver goods and/or services, a promise made after delivery will be binding.23 This principle has been indorsed by the Privy Council in Pau On v Lau Yiu Long when Lord Scarman set forth the following guidelines: a. The act performed must have been a response to a request on the part of the promisor, b. There must have been a common understanding that there would be payment for the act performed, c. If a promise had been made in advance that payment would be made the payment must be capable of capable of legal recovery.24 In a business contract an act performed with the understanding between both parties that the performance will be compensated for will operate to overcome the rule that past consideration is not good consideration. This rule was developed early on in Re Caseys Patents [1892] 1 Ch 104.25 Clearly there was no understanding on Danny’s part as he returned the memory stick and left it at that.  There is an important rationale for the doctrine of past consideration. P. Atiyah, maintains that the rationale behind the doctrine of consideration is necessary for the affirmation of a meeting of the minds.26 Joseph Savirimuthu attempts to validate all contractual doctrines by the application of one single rationale. He explained that the substantive doctrines in contract law define the circumstances when commitments become binding on the parties.27 Referring to the rules of contract applicable to the valid formation of a legally binding contract, Savirimuthu explains that, the underlying rationale is designed to promote parameters for outlining responsibilities and obligations assumed voluntarily by the parties.28 As noted above, Danny’s performance was entirely voluntary and without expectation of compensation. Charles and Betty’s performance was predicated solely on a belief that they would be compensated for their efforts. However, for the reasons discussed above neither party have a valid claim against Alan since each failed to deliver the memory stick to Alan in compliance with the advertisement. Bibliography Atiyah, P. Rise and Fall of Freedom of Contract (1979) Oxford: Clarendon. Brogden v Metropolitan Rail Co (1877) 2 APP CAS 666 Byrne v Van Tienhoven [1880] 5 CPD 344 Carlill v Carbolic Smoke Ball Co Ltd (1893) 1 QB 256 Currie v Misa (1875) LR 10 Exch 153 Furmston, M.P., Cheshire, G.G. and Fifoot, C.H.S. Cheshire, Fifoot and Furmstons Law of Contract. (2001) Butterworths Gibson v Manchester County Council [1979] 1 WKR 294 Hyde v Wrench (1840) 3 Beav 334 Ignazio Messina & Co v Polskie Linie Oceaniczne (1995) 2 Lloyd’s Rep 566 Lampleigh v Braithwait (1615) Hob 105 Offord v Davies [1862] 12 CBNS 748 Partridge v Crittenden [1968] 2 All ER 421 Pao On v Lau Yiu Long [1980] AC 614 Re Caseys Patents [1892] 1 Ch 104. R v Clarke (1927) 40 CLR 227 Savirimuthu, Joseph. Code, Hybrid Models of Consent and the Electronic Commerce (EC Directive) Regulations. JILT 2004 (2) http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_2/savirimuthu/#_ftnref5 Viewed January 2, 2007 Shuey v United States [1875] 92 US 73 Tim v Hoffman [1873] 29 LT 271 Read More