Contract Law - the Rules of Offer and Acceptance - Case Study Example

1) Area of law The area of law relevant to this paper is contract law, in general, and the rules of offer and acceptance, in particular. This case involves Alex – a Western Australian wine maker, Neil – a regular purchaser of Alex’s wines and Clive – who is also a regular client of Alex living in Canada. Alex makes an offer to his regular purchasers and Neil accepts it, thus entering into a contract with Alex. The same happens with Clive. 2) Elucidation According to Chen-Wishart (2008) a contract is a “promise (or agreement) which is enforced (recognized by the law)”1. Bhana, Bonthuys and Nortje (2009, 2) state that “Contracts are agreements between parties who have the intention to create legal rights and duties between them and which are legally binding upon the parties.”2 Therefore, in order for a contract to exist it is necessary for the involved parties to have the intention to enter into contractual relations with the other party and express that intention in a legal manner. A contract consists of the following elements: An Offer; an Acceptance in strict compliance with the terms of the offer; Legal Purpose/Objective; Mutuality of Obligation – also known as the “meeting of the minds”; Consideration and Competent Parties. Considering the case under analysis, the author shall focus on the first two elements: offer and acceptance. “The first requisite of any contract is an agreement.”3 Agreement is formed of offer and acceptance. Therefore, in order for the parties to reach an agreement, there must be an offer and an acceptance. A. The offer “An offer is an undertaking by the offeror made with the intention that it will bind the offeror as soon as it is accepted by the offeree (the person to whom it is addressed”4 The binding force of an offer in case of its acceptance is confirmed by the definitions given by other authors, such as Bhana, Bonthuys and Nortje (2009, 25), who specify that a valid offer is “an invitation by one party to create obligations with another party, which obligations will become legally binding upon the acceptance by the other party”5. An offer can be made whether orally, in writing or by conduct. An offer contains the following: “a proposal of the terms of the exchange; an intimation of willingness to be bound as soon as the offeree manifests acceptance. An offer puts the offeror on risk: it confers a power on the offeree to bind the offeror at the precise moment of acceptance; thereafter, the offeror loses his ability to withdraw from or further negotiate the arrangement.”6 The offer must meet several legal requirements in order to be valid: The offer must be made with animus contrahendi: Animus contrahendi is a Latin expression that is translated as “intention to contract.” The doctrine of animus contrahendi is properly explained by Fridman (2006): “A contract can only arise if there is the animus contrahendi between the parties. Without the expressed or implicit intention that a contract should emerge as a result of the language or conduct of the alleged parties, no contractual obligations can be said to exists and be capable of enforcement.”7 Thus, an offer can be considered valid only if the offeror actually intends to conclude a contract with the offeree; otherwise, it shall not be considered an offer, but most likely – an invitation to treat or simple information. This is important, since a party’s intention must be properly understood by the offeree. In the leading English case of Smith v. Hughes (1871) LR 6 QB 597 the Court emphasized that the important thing is not a party's real intentions but how a reasonable person would view the situation. In the case of Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR it was held by the Court that "what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation … in the absence of such an intention, actual or imputed, the alleged ‘offer’ cannot lead to a contract: there, indeed, in such a case no true ‘offer’." Therefore, the offeror must intend to be bound by the offer. The offer must be complete, certain or at least ascertainable: An offer should include all the material terms of the future contract, that is to be formed on acceptance. The offer should express the essentials of the contract so that the offeree receives all the necessary information on the contractual conditions. The terms “certain” and “ascertainable” refer to the possibility of the content of the offer to be certain or made certain at a specific moment of the future. Otherwise, the offer might be void for vagueness. A good leading case in this matter is the case of Gelbuild Contractors CC v Rare Woods South Africa (Pty) Ltd 2002(1) SA 886(C), where the offer contained the price of the goods, but it also specified that the price might change. The Court held that in spite of the offer being made with animus contrahendi, its content was not certain. Moreover, in the case of May & Butcher Ltd v R [1934] 2 K.B. 17 (H.L.) Lord Dunedin said that “To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties.” The object of the contract must be described in detail and the price should be certain or at least possible of being ascertained with certainty. The offer must be communicated to the offeree Thus, it is imperative that the offeror should be aware that an offer is addressed to him so that he can accept or reject it. An offer can be addressed to a particular person, to a number of persons or even to the whole public. An offer may be distinguished from a mere supply of information or from an invitation to treat based on several cases, like for example Harvey V Facey [1893] AC 552, which is a law case where the British Judicial Committee of the Privy Councilor defined the difference between an offer and an invitation to treat. Another leading case that has established the nature of an offer and an invitation to treat is Pharmaceutical Society (GB) v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795, where the Court distinguished that the display of a product in a store with a price attached is not sufficient to be considered an offer, but rather is an invitation to treat. B. The acceptance According to Treitel (1999) “Acceptance is a final and unqualified expression of assent to the terms of an offer.”8 Therefore, acceptance occurs when the offeree expresses in a proper legal manner his agreement to bind to an offer. Just like the offer, acceptance must comply with several legal requirements, too: “the acceptance of the offer must be made with animus contrahendi”9 Just like in the case of the offer, the acceptance must be made with the intention of the offeree to conclude a contract with the offeror. This means that the offeree must be aware of the existence of an offer submitted in his address and he must consciously accept that offer in order to enter into a contract with the offeree. The acceptance “must be unqualified” 10 An unqualified acceptance must contain no questions or additional information; it should be a strict response to the offer. Latimer (2009, 295) highlights the types of acceptance that are not to be considered unqualified and do not lead to the conclusion of a contract: a) “an acceptance which introduces new terms b) An acceptance in a pre-printed order form of a printed offer which is different to the original offer c) An acceptance which contradicts the terms of the offer (counter offer) d) An acceptance which contradicts the terms of the offer (conditional)”11 The acceptance “Must be clear and certain”12 The terms should be certain and clear to both parties and the parties must agree to them. In case of negotiation of terms, no acceptance has taken place yet and, therefore, no contract has been concluded. Lord Wright in the case of G. Scammell & Nephew, Limited v. H.C. & J.G. Ouston [1941] A.C. 251 stated that „If no precise meaning could be given to this clause because there were many possible terms which could be in hire-purchase agreement – there was no enforceable contract.” „Conditional assent is not acceptance”13 A conditional acceptance does not amount to a valid acceptance. A leading case is the case of Winn v Bull (1877) 7 Ch D 29, where the defendant agreed to take over lease of a house subject to the preparation of approval contract. The Plaintiff sued for specific performance and the Court held that there was no binding agreement. „Acceptance may be retrospective”14 Over the time, the Court have proved their inclination to accept the fact that an acceptance of an offer may have a retrospective effect. In the case of Trollope & Colls Ltd v Atomic Power Constructions Ltd [1963] 1 WLR 333 the Court held that irrespective of the moment that the parties signed the contract, it should be applied back to what has been performed. „A counter-offer is a rejection of an offer”15 According to article 19 of the United Nations Convention on Contracts for the International Sale of Goods, “A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.” The case of Hyde v Wrench (1840) 49 ER 132 is a leading case in this domain where Lord Langdale ruled that any counter-offer cancels the original offer. Acceptance “May be express or implied”16 Express acceptance occurs when the offeree agrees to the offer in a clear and explicit manner. On the other hand, the implied acceptance is expressed by the offeree not as directly as the express acceptance, but by manner and conduct, indicating the person’s agreement to the offer. Acceptance “Must be communicated to the offeror”17 Unless the offeror has not required the offeree to expressly or impliedly communicate his acceptance to him, an un-communicated acceptance does not lead to the conclusion of a contract. Just like in the case of Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 case, the parties may agree that acceptance shall be expressed by conduct. As it was decided in the Felthouse v. Bindley (1862) 142 ER 1037 case, silence cannot constitute acceptance. Acceptance may be expressed in several ways: written, verbal or tacit. The general rule of acceptance of an offer resulted from the case of Holwell Securities V Hughes 1974, where it was stated that the acceptance of one’s offer must be communicated to the offeror by the person that is accepting the offer in any possible way. Of course, the manifestation of the acceptance must be exteriorized, so that it should be understood by the offeror. Moreover, the manifestation of accepting the offer must be linked to the offer itself and the offeror must receive the acceptance. “The offeror may prescribe the method of acceptance”18 The offeror is entitled to establish the manner in which acceptance should be made. In this case, the offeree must comply with this set of requirements and express his acceptance in the established manner. Otherwise, non-compliance with the prescribed method of acceptance will constitute failure of acceptance and it shall not be considered valid. However, the case law has come to the conclusion that if no method of acceptance is mentioned, acceptance must be expressed in the same manner as the offer. For example if the offer is made in writing, it is to expect that the acceptance will be expressed in the same form – written. The postal acceptance rule is an important exception to the rule that acceptance must be communicated. Following the “general mailbox rule,” the acceptance takes place as soon as it is posted by mail, and the letter gets out of the control of the offeree and is placed into the control of the Post Office. However, Paul Richards (2007, 40) states that “a letter of acceptance posted but not received by the offeror was insufficient to form a contract.”19 In the case of Henthorn v Fraser [1892] 2 Ch. 27 (C.A. 1892) it was concluded that the postal rule shall be applied only when its usage is reasonable for the offeree.20 The place of acceptance is the place of the contract. If acceptance is made when the parties are face to face and immediately after the offer, there is no issue regarding the place of acceptance. However, if the acceptance is made after a certain period of time that the offer has been submitted and in another place, the principle that was established in the case of Emerson Co. v. Proctor, 97 Me. should be applied. The place of the contract should be considered the place where the last necessary acts where completed in order for the contract to be concluded. If no place of its conclusion has been indicated in the contract, it shall be recognized as concluded at the place of residence of the citizen or at the place of location of the legal entity, who (which) has forwarded the offer. Beale, Bishop and Furmston (2008, 241) point out that in the case of Eccles v Bryant [1948] 1 Ch 93 Lord Green MR stated that “It is said that a contract took place when, in response to an alleged invitation on behalf of the vendors, the purchaser signed his part of the contract and communicated the fact to the vendors.”21 3) Apply the law to the facts I believe that in the case of Neil v. Alex Agrapa the information provided establishes the existence of a bilateral contract between Neil and Alex. This means that an offer has been made by Alex to Neil and this offer can be considered valid, as it complies with the legal requirements of a valid offer. Neil’s acceptance also complied with the legal requirements for an acceptance to be considered valid. In my opinion there is one more bilateral contract concluded between Alex and Clive. Alex’s offer is to be considered valid, in compliance with the legal set of requirements and so should be considered Clive’s acceptance. I think that the offer and acceptance are in concordance with the legal requirements, therefore agreement has been reached between Alex and Neil. Considering the particularities of the contractual relations between Alex and Clive, in order for Alex to be aware that Clive has accepted his offer and, therefore, he must ship the wine to Clive, the communication of Clive’s acceptance to Alex is imperative. In addition, I think that according to the common law rules regarding the place of acceptance, the place of acceptance of the contract between Alex and Clive is to be considered the country where the last acts were performed in order for the contract to be concluded. In this case, Clive had to inform Alex about his acceptance and this acceptance reached Alex in Australia. 4) Conclusions Considering the fact that a valid offer has been made by Alex which was properly accepted by Neil, agreement has been reached between Alex and Neil. Taking into consideration the rules of the conflict law, the place of acceptance between Alex and Clive is Australia. References: 1. Fridman, G. 2006. The Law of Contract in Canada, 5th Ed. Toronto: Thomson-Carswell 2. Beale, H. G., Bishop, W. D., Furmston, M. P. 2007. Contract: cases and materials. 5th edition. New York: Oxford University Press. 3. Bhana, D., Bonthuys, E., Nortje, M. 2009. Student's guide to the law of contract, 2nd edition. Cape town: JUTA Law 4. Chen-Wishart, M. 2008. Contract law, 2nd edition. USA: Oxford University Press. 5. Contract Law Page. N.d. Formation of a contract. http://www.a-level-law.com/contract/agreement/lecture.htm (accessed May, 7, 2010) 6. Latimer, P. 2009. Australian business law. Australia: McPherson’s Printing Group. 7. Richards, Paul. 2007. Law of Contract. 8th Edition. England: Edinburgh Gate. 8. Treitel, G.H. 1999. The Law of Contract, 10th edition. London: Sweet and Maxwell 9. William S. Boyd School of Law. N.d. Henthorn v Fraser [1892] 2 Ch. 27 (C.A. 1892). http://www.law.unlv.edu/faculty/rowley/Henthorn.pdf. (accessed at 15 Jan 2009) 10. Radan, P., Gooley, J., Gooley, J., Vickovich, I. 2009. Principles Of Australian Contract Law: Cases And Materials. Australia: LexisNexis Butterworths 11. Gillies, P. 1988. Concise contract law. Sydney: The federation press. 12. Harris, D., Campbell, D., Halson, R. 2005. Remedies in Contract and Tort. Cambridge: Cambridge University Press 13. Elliot, C., Quinn, F. 2007. Contract law, 6th edition. England: Pearson Education Limited 14. Gordley, J. 2001. The enforceability of promises in European contract law. England: Cambridge University Press. 15. Furmston, M.P., Cheshire, G.C., Fifoot, C.H.S. 2007. Law of Contract. 15th edition. New york: Oxford University Press. Read More