The Fundamentals of Business Contract Law in the United Kingdom - Assignment Example

A verbal contract isnt worth the paper its printed on” – Samuel Goldwyn Although the aforesaid comment is not exactly truthful, it is close enough tothe reality, especially when considered in the light of the complexities that such a contract can create. The given situation at hand seeks to delve into the very core of the definitional concept of a contract. The most popular manner of defining a contract is by treating it as a promise or set of promises enforceable by law.1 A strong argument that can be put forward in favour of this definition is the general reluctance of English law to enforce gratuitous promises. For a promise to be enforceable, it must involve an element of non-gratuity, the requirement being expressed in the form of another essentiality that some consideration must move form the promise, either to the promisor or somebody else. It may even be looked upon as if the English law enforces bargains rather than agreements. According to the Restatement of Contracts, a bargain is an agreement, whereby two or more persons exchange promises, or exchange a promise for a performance.2 The creation of a contract may be said to have three basic essentials – agreement, contractual intention and consideration. The normal test for determining whether the parties have reached an agreement is to find out whether one of the parties has made an offer which has been accepted by the other, especially true in case of bipartite contract. Now, an offer can be looked upon as an expression of willingness to contract made with the intention (either expresses or apparent) that such contract is to become binding on the person making it a soon as it is accepted by the person to whom it is addressed.3 The judiciary has from a long time, in its endeavor to decide whether the parties have actually reached agreement, applied to a not inconsiderable degree of success, the so-called ‘objective test’. As per this test, once the parties have to all outward appearances agreed in the same terms on the same subject-matter, then neither can, generally, rely on some unexpressed qualification or reservation to show that he had not in fact agreed to the terms to which he had appeared to agree.4 Under this test, the alleged offeror may be bound if his words or conduct are such as to induce a reasonable person to believe that he intends to be bound, even though in reality, he may not have such an intention.5 However, if the alleged offeree has reason to believe that the offeror does not have, in site of appearance to the contrary, the so-called ‘contractual intention’, then the latter is not bound by such contract.6 The problem arises when the offeree has simply not addressed his mind to the question of the offeror’s intention – there have been a plethora of differing judicial opinion regarding the binding nature of the contract in such a situation.7 In this context, one needs to distinguish between an offer and an invitation to offer. When parties negotiate with a view to making a contract, many preliminary communications may pass between them before a definite offer is made. It is sometimes difficult to distinguish statements of intention which cannot, and are not intended to, result in any binding obligation form offers which admit of acceptance, and so become binding promises. As for example, a person may advertise goods for sale in a newspaper, or announce that they will be sold by tender or by auction. In such cases, it may be asked whether the statement or act made is an offer capable of acceptance or merely an invitation to make offers, and do business; one that contemplates that further negotiations will take place. A statement or act of this nature, if it is not intended to be binding, is known as an ‘invitation to treat’ or an invitation to offer. The distinction between an offer and the aforesaid invitation primarily depends on the elusive criterion of the offeror’s intention, although under certain circumstances, rules of law may also seek to dictate the situation. In general, an offer is effective when, and not until, it is communicated to the offeree, from which a logical corollary can be drawn that there can, under normal circumstances, be no acceptance in ignorance of an offer.8 An acceptance is a final and unqualified expression of assent to the terms of an offer. As per the objective test, a mere acknowledgment of an offer, however, does not amount to an acceptance.9 Nevertheless, an acknowledgment may by its express terms or, in a particular context by implication, contain a statement that the sender agreed to the terms of the offer and that he was therefore accepting it.10 When parties carry on lengthy negotiations, it may be hard to decide the precise point of time when an offer has been made and accepted. As negotiations progress, each party may make concessions or new demands and the parties may in the end disagree as to whether they had ever agreed at all. An offer may even be accepted by conduct (like an offer to buy goods can be accepted by supplying the same), but conduct will only amount to acceptance if it is clear that the offeree did the act with the intention of accepting the offer.11 A fortiori, there is no acceptance where the offeree’s conduct clearly indicates an intention on his part to reject the offer.12 In fact, where an offer or an acceptance or both are alleged to have been made by conduct, the terms of the agreement may be so difficult to adjudge as to force the judiciary to conclude that no agreement had at all been reached.13 Regarding communication of acceptance, the general rule is that an acceptance has no legal effect whatsoever until it is communicated to the offeror14, the main reason for this rule being an unwillingness to cause undue hardship to the offeror by binding him to his promise without his knowledge. Such logic prompts the requirement that the aforesaid communication is normally brought to the notice of the offeror.15 The requirement for communication of acceptance may, however, be waived under the following circumstances: (a) The offer may expressly or impliedly waive the requirement of such communication. For example, the offer may invite acceptance by conduct16 or the contract in question may be a unilateral one.17 (b) The offeror may be precluded from denying that the acceptance was communicated if he fails to get it through ‘his own fault’.18 (c) The acceptance may be communicated not to the offeror personally, but to his agent. (d) Last but not the least, an acceptance sent by post could take effect when it is actually communicated to the offeror, when it arrives at his address, when it would in the ordinary course of post have reached him, or when it is posted. This so-called ‘posting rule’19 is mainly a rule of convenience and is applicable only when it is reasonable to use the post. In case of ‘instantaneous modes of communication’ like by telephone, this rule will not apply, as in such cases, the acceptor will often know at once that his attempt to communicate was unsuccessful, so that he has the opportunity of making a proper communication.20 One should also keep in mind the equitable approach of the judiciary in its stance with respect to the concept of estoppel in general and promissory estoppel in particular. Put forth in a simplified manner, it means that equity may, by the principle of estoppel, provide a remedy in respect of an agreement that does not comply with statutory requirements of form. Promissory estoppel is one strand in a broader equitable principle whereby the parties to a transaction who have conducted their dealings in reliance on an underlying assumption as to a present, past, or future state of affairs, or a promise or representation by words or conduct by one that strict legal rights will not e insisted upon will not be allowed to go back on that assumption, promise or representation when it would be unfair or unjust to do so.21 The judiciary will usually do what is necessary, but not more, to revent a person who has relied upon such an assumption, promise, or representation from suffering detriment.22 Besides contractual and tortuous obligations, there also exists another category of obligations called restitutionary obligations, which may prove to be a useful concept in the present situation. It is primarily based upon the unjust enrichment of the defendant at the claimant’s expense and if the judiciary is faced with such a situation, it has a duty, moral, social as well as legal, to provide a remedy to the defendant.23 Now, the case at hand presents certain rather interesting points of observation. As far as Sir Rupert Rathbone is concerned, his earlier conversation to Cecil Wainwright about whether Cecil would be interested in painting Sir Rupert’s portrait and Cecil’s answer to it do not appear to have any legal relevance whatsoever. The next day, when Sir Rupert sent the text message to Cecil, he cannot be said to have made an offer. Rather, it is an invitation to offer or an invitation to treat, similar to when a buyer asks the price of a good from a shopkeeper.24 It is Cecil’s response quoting his price as 500 pounds that is the offer in this case. However, the problem that seems to arise is that neither did the offer contain any express or implied provision for the manner of communication of the acceptance thereof, nor did Sir Rupert make any effort whatsoever to make such communication. Thus one can conclude that the aforementioned offer had never been accepted and under the circumstances, a valid contract cannot seem to result out of the situation. Thus as long as Sir Rupert did not convey his acceptance to Cecil’s offer, neither party was bound in any manner. As a general rule, silence on the part of an offeree cannot be treated as acceptance even if the offer specifically provides that it can be accepted by silence. This rule was further clarified in the illustrated case of Felthouse v Bindley.25 This brings one to the next text message sent by Cecil revising his price. The moment Cecil sent this message, he is for all practical considerations making a completely new offer (since it differs from the previous one on the important factum of price/consideration), which should have the effect of revoking his former offer, especially since it had not yet been accepted as far as Cecil was concerned. As it stands, this second offer was never communicated to Sir Rupert owing to an accident that is to say although Cecil had sent it, it never reached Sir Rupert. The status of text-messaging should be somewhere between postal communication and the aforementioned ‘instant modes’ like telephonic conversation, but bearing more resemblances to the former, owing to the sender of such a message being uncertain about whether and when his message has reached the person to whom it was sent. However, the postal rule was meant to be applied to the communication of an offer and not an acceptance. Therefore one can conclude that even the second offer cannot give rise to a valid contract, shorn as it is of proper communication and acceptance thereof. Neither was there any subsequent communication between them which could have given Sir Rupert to communicate his acceptance to Cecil. Hence when Cecil was actually starting to paint the portrait, there existed no contractual obligation between him and Sir Rupert, for a marked lack of consensus between the two if not anything else. Therefore, Sir Rupert was not bound in any manner whatsoever to pay to Cecil the 500 pounds, let alone the demand for 800 pounds which he had no knowledge of. When at the end, Sir Rupert declared that he would pay Cecil 800 pounds, his statement indicated that he agreed to do so not as consideration for painting the portrait but as a matter of friendly love and affection. So throughout the transaction, there existed no contractual obligation between the two parties. It is difficult to conclude that there existed any consideration passing from Cecil to Sir Rupert in return for the 2000 pounds that was supposed to be paid by Sir Rupert on the acceptance of the portrait by the gallery. At the most, it can be called a gift and as such, no binding nature seems to accrue to it. Even the aforesaid concept of promissory estoppel cannot be applied to this so-called ‘promise’, since Cecil did not rely on the same to his detriment in any manner. Sir Rupert is thus under no obligation as such to pay Cecil even the 500 pounds which he appears ready to do. However, he would be best advised to make the payment lest he be charged with unjust enrichment at Cecil’s detriment. An examination of the current problem from the perspective of Cecil, however, offers certain differing insights. While it is true that the general rule is that mere silence on the offeree’s part cannot be construed as acceptance, there exist exceptions to this rule, particularly under circumstances when the offer has actually been solicited by the offeree, as was held in Rust v Abbey Life Ins. Co.26 In this case, Sir Rupert has, in his first text message, clearly solicited the offer. Therefore silence on his part can be construed as acceptance of the same by Cecil. Moreover, when Cecil has mentioned that the work of painting was to begin from next Friday, it is reasonable on his part to assume that on rejection of his price and thus his offer, Sir Rupert would inform him of the same and any omission on his part or any objection by him to Cecil actually starting the work can, for all practical purposes, be considered an acceptance of the price as well as the offer. Hence as far as Cecil is concerned, there exists a contractual obligation between Sir Rupert and himself to pay at least 500 pounds. Even if it is accepted that the second offer has not give rise to any valid contract, this contract should stand valid. Even if the silence of the offeree (in this case, Sir Rupert) does not amount to an acceptance, it is arguable that he might be liable on a different basis. In Spiro v Lintern,27 it was said that “ If A sees B acting in the mistaken belief that A is under some binding obligation to him and in a manner consistent only with such an obligation, A is under the duty to B to disclose the non-existence of the supposed obligation.”28 Moreover, when Sir Rupert actually agrees to pay 800 pounds to Cecil, it can be argued that a variation to the original contract takes place since both parties agree on the essential factum of quantum of payment by mutual agreement.29 This would make Cecil entitled to the 800 pounds on completion of the work. If nothing else, this promise of Sir Rupert should definitely fall under the concept of estoppel, as Cecil had relied on the same and gone ahead to finish the work which he might not have done had Sir Rupert refused to pay him 800 pounds (at least the work might not have been of the same quality, being a work of art and hence subjected to the whims of the artist; consequently it might not even have been selected by the National Portrait Gallery, which obviously had been a consideration passing from Cecil to Sir Rupert, albeit indirectly). As for Sir Rupert’s final promise to pay 2000 pounds to Cecil if the portrait gets selected by the National Portrait Gallery, one fails to realize why that promise should not be enforced under the purview of the principle of promissory estoppel either. In this context, one may refer to Lord Cairns’ judgment regarding the principle of estoppel in Hughes v Metropolitan Railway Co.30 : If parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken lace between the parties. In this case, Cecil had obviously relied on the promise long enough to delay his claim for 500 or 800 pounds, as the case may be, till the Gallery selected the portrait. This delay of making rightful claim for a week can be looked upon as him had to suffer detriment on the ground of his having relied upon the promise, which essentially fulfills the requirements for application of estoppel. Failing everything else, Cecil can always take recourse to the equitable shield of unjust enrichment. The fact of the matter is that, shorn of all offers and subsequent happenings, at the end of the day, Cecil has put considerable effort to paint a portrait of Sir Rupert on the latter’s bidding and this work of art is currently in possession of Sir Rupert. Therefore, if the latter does not have to pay any consideration to Cecil for this, he can definitely be accused of being unjustly enriched at the cost of Cecil’s efforts. An appeal to the conscience of the judiciary on this point of morality as well as equitable legality should never fail to win Cecil his claim, which may ultimately be even greater than the proposed amount, if the tortuous liability for undue harassment and likewise can be alleged against Sir Rupert. BIBLIOGRAPHY Atiyah, P.S. and Stephen A. Smith, Atiyah’s Introduction to the Law of Contract, 6th Edition, 2006, Oxford University Press, New York. Beale, H.G. (General Editor), Chitty on Contracts, Vol. I, 29th Edition, 2004, Sweet & Maxwell, London. Beatson, J., Anson’s Law of Contract, 28th Edition, 2005, Oxford University Press, New York. Furmston, Michael, Cheshire, Fifoot & Furmston’s Law of Contract, 15th Edition, Indian Edition, 2007, Oxford University Press, New York. Lewison, Kim, The Interpretation of Contracts, 2004, Sweet & Maxwell, London. Oughton, David and Martin Davis, Sourcebook on Contract Law, 2nd Edition, 2002, Cavendish Publishing Limited, UK. Poole, Jill, Casebook on Contract, 2nd Edition, 1996 Reprint, Blackstone Press Limited, London. Stone, Richard and Ralph Cunnington, Text, Cases and Materials on Contract Law, 2002, Routledge-Cavendish, New York. Trietel, G.H., An Outline of the Law of Contract, 6th Edition, 2004, Oxford University Press, New York. LIST OF CASES: Allied Marine Transport v Vale de Rio Doce Navegaceo SA (The Leonidas D.) [1985] 1 W.L.R. 925; Beta Computers (Europe) v Adobe Systems (Europe) 1996 S.L.T. 604 Berry v Berry[1929] 2 K.B. 316 Brinkibon Ltd v Stahag Stahl [1983] 2 A.C. 34 Capital Finance Co. Ltd. v Bray [1964] 1 W.L.R. 323 Carlill v Carbolic Smoke Ball Co. [1893] 1 Q.B. 256 Clifton v Palumbo [1944] 2 All E.R. 497 Commonwealth v Verwayen (1990) 170 C.L.R. 394, at p. 413 Crabb v Arun D.C. [1976] Ch., 179 at p. 198; Entores Ltd. v Miles Far East Corp. [1955] 2 Q.B. 327 Eyre v Measday [1986] 1 All E.R. 488 Felthouse v Bindley (1862) 11 C.B.(N.S.) 869 First Energy (U.K.) Ltd. V Hungarian International Bank Ltd [1993] 2 Lloyd’s Rep. 195 at p. 201 Furness Withy (Australia) Pty Ltd. v Metal Distribution (UK) Ltd (The Amazonia) [1990] 1 Lloyd’s Rep. 236 at p. 242 Harvey v Facey [1893] A.C. 552; Hughes v Metropolitan Railway Co. (1877) 2 App. Cas. 439 at p. 448 Jayar Impex Ltd v Toaken Group Ltd [1996] 2 Lloyd’s Rep. 437 Lipkin Gorman v Karpnale Ltd.[1991] 2 A.C. 5480 Michael Grerson (Leasing) Ltd. v Wilkinson [2000] Q.B. 514 Minories Finance Ltd v Afribank Nigeria Ltd [1995] 1 Lloyd’s Rep. 134 at p. 140 O.T. Africa Line Ltd. v Vickers plc [1996] 1 Lloyd’s Rep. 700 at p. 703 O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep. 211 at p. 214 Rust v Abbey Life Ins. Co. [1979] 2 Lloyd’s Re. 335 Spiro v Lintern [1973]1 WLR 1002 The Aramis [1989] 1 Lloyd’s Rep. 566 at p. 571; Read More