Establishing a Binding Contract - Assignment Example

Introduction To establish a binding contract with Graphix Labels, Futuretronics must show several essential elements: an agreement (offer and acceptance) which is certain and complete; intention to create legal relations; and consideration. There is a clear commercial context for the supply and purchase of skins between the two businesses, therefore an intention to be legally bound is presumed.1 There is nothing in the facts to indicate a rebuttal of this presumption,2 and an objective assessment would show their intention to enter a binding contract.3 Consideration is defined as the ‘price’ for which a promise is purchased.4 In this case, there is a written bilateral contract where each party is the promisor and promisee. Consideration is executory: Futuretronics’ promise to pay an agreed price is consideration for Graphix Label’s promise to supply skins. In commercial terms, this is good consideration. These elements are thereby proved. The email from Futuretronics to Graphix Labels in late August 2005 would be treated as an offer because it is sufficiently detailed and includes the main terms of the bargain – price of $1.68 per unit for iPod skins etc (1000 unit each for iPod etc) and delivery date. Other elements present in the agreement were present of lawful objects, free consent, and intention to create a legal relationship and possibility of performance which was depicted by the fact that already the first order had been delivered to Futuretronics on September 2005. This means that all the essential elements of a contract were present.5 To this end there was a certain and complete agreement between the two parties. Futuretronics must then establish a valid offer and acceptance in 2006. Whether there is an enforceable agreement will turn upon the correspondence between the parties and where the offer was made. An offer exists where an offeror makes a clear statement of the terms upon which they are prepared to be bound. No formal language is required to define an offer, but the offer must be promissory in nature.6 Considering 4 January 2006 text message from Futuretronics to Graphix Labels, this would likely not be deemed an offer, but an invitation to treat: that is, an invitation to other parties to make an offer to supply skins. Comparisons may be drawn to advertisements for goods inviting an offer to buy; 7 and invitations to tender indicating a willingness to deal on general terms and calling for firm offers from other parties.8 Similarly, Futuretronics’ text message is couched in language that suggests it might be a generic invitation to several suppliers, not just to Graphix Labels in Futurtronics search for a supply of different types of skins. The order states a total price of $32,099 for all skins (it is unclear if the price per unit is the same); but the inclusion of price does not necessarily constitute an offer.9 The court is likely to find this is merely the price at which Futuretronics might be prepared to buy, but contains no implied contract to buy at that price: the text message expressly requests a price from suppliers. The wording ‘total price was said to be $32,099 including GST’ is not sufficiently certain and definite,10 and it is unlikely Futuretronics intended to be bound to purchase the skins under this price. On these grounds, the text message would be an invitation to treat. Futuretronics may argue the text message was an offer to the world at large; but as outlined, the text message does not contain specific terms, such as delivery dates, upon which Futurtronics could have reasonably intended to be bound upon potential acceptance.11 On these facts, this text message does not constitute a valid offer. If having established there was an offer, Graphix Labels must show it validly accepted the offer by 4 January 2006. The rule is that acceptance must contain final, unqualified assent to the terms of the offer. Acceptance can be express or implied, but must be unequivocal in that nothing remains to be negotiated by the parties. Acceptance must be in reliance on the offer.12 To establish Graphix Labels’ email sent on 4 January as acceptance, Graphix Labels must firstly show it clearly corresponds with the terms of the offer, introduces no new terms or conditions and is therefore an unequivocal acceptance. The email refers to “received order, usual terms confirmed, new price from May” but does not state the actual price. The court will consider whether the lack of this detail is a material distinction between the terms of the offer and the terms in this email.13 Graphix Labels’ email on 4 January would meet the general rule that acceptance using instantaneous communication occurs when and where it is received by the offeror.14 Had the email been send correctly to the designated address, which would have been received on 4 January and Graphix Labels would have an enforceable contract with Futuretronics. Whether there is agreement on the basis of the assumed total price of $32,099 rather than the price per unit for each different skin will depend on the interpretation of the court. Futuretronics may argue this is simply an error or misdescription;15 and that it is obvious from the communications between the parties as to what was being accepted.16 However, Futuretronics will be unlikely to convince a court to imply an agreement where there remains ambiguity on an essential term, which includes price.17 Even if there is valid acceptance, only once terms are certain and unambiguous will a contract be seen as complete. As held in Turner Dempsey,18 where new delivery conditions were introduced, price would more likely be considered a substantial deviation from the material terms in the offer and therefore not a valid acceptance. Such a new term introduced at the point of ‘acceptance’ will likely be deemed a counter-offer.19 A counter offer is an implied rejection of the original offer,20 therefore Futuretronics offer of January 4 is at this point destroyed and cannot later be accepted by Graphix Labels. As to the counter-offer at the “new prices from May”, it could then be rejected or accepted by Futuretronics.21 Empirnall Holdings established that an offeror ‘…cannot erect a contract…by the device of stating that unless he hears from the offeree he will consider the offeree bound’. 22 Graphix Labels will therefore be unable to regard Futuretronics’ silence as acceptance of the counter-offer to enforce a contract.23 In the Electronic Transactions Act 2011, subsection 5(1) gives the definition of a business place as comprising of a place where the government business is conducted, a place where business is carried out under government authority or the place where a non-profit making body conducts its business.24 Furthermore, subsection 5(1) also defines a business place as a place where an individual conducts his/her business.25 From these definitions, it is clear that the business between Futuretronics and Graphix Labels can be categorised as “business place”. Item 19 of the first schedule is also repeal of section 14. Hence, sections 14, 14A and 14B were substituted in place of section 14. This is in line with the set out default rules in relation to the time and place of receipt and dispatch of communication through electronic means that apply when parties do not enter into a written agreement.26 In section 14 holds that the dispatch time is the time when the communication through electronic means leaves a particular system under the senders’ control. With regard to section 14A holds that the receipt time of the electronic communication at another address in an electronic system is the time when both the retrieval of the address can be done by the address in that particular electronic system as well as when the addressee has become aware that the electronic communication has been sent to that address. 27 Subsection 14A (2) holds that unless “the parties agree otherwise” the assumption is that electronic communication is “capable of being retrieved” by the addressee when it reaches the addressee’s designated electronic address. 28 With the above knowledge related to electronic transactions, it is clear that a contract existed between the two parties because Futuretronics used a text message from his iPhone which amounted to an electronic transaction. Graphix Labels emailed back immediately accepting the order from Futuretronics which amounted also to electronic transaction. A final point should be made on any action Futuretronics may take on the basis of when the offer terminated. Revocation of an offer must occur prior to acceptance29 and must be communicated for it to be effective.30 The termination of the offer which was done by Futuretronics at 10pm on 4 January was effective because the acceptance of the order by Graphix Labels had not occurred. This is because the fact that the replied email by Graphix Label was mistakenly emailed to Futuretronics is immaterial to the extent that Graphix Label had accepted the offer and communicated back their acceptance to Futuretronics. Also, it is important to realize that subsection 14A (2) is clear that the assumption electronic communication is “capable of being retrieved” by the addressee when it reaches the addressee’s designated electronic address then an offer has occurred.31 At 10pm the capability of the message from Futuretronics about the cancellation of the order could have been retrieved because it had reached the designated area of the other party. Hence, on the same day when Mr Chonja of Futuretronics had placed an order for manufacture of skins, he also terminated the order and thus there was no contract agreement reached between the two parties.32 In summary, whilst there was a valid offer by Futuretronics, it is unlikely Graphix Labels can establish a valid acceptance; therefore there is no enforceable contract. Read More