Offer and Acceptance: Formation of the Contract - Essay Example

This question involves a discussion of the principles of English Law governing the formation and enforceability of contracts as well some aspects of the breach of contract, economic duress and the concept of Promissory Estoppel. Offer and Acceptance: formation of the contract On the facts it would seem that Andrew and Billy would have an enforceable contract, mainly because of the promises that have been exchanged by both sides and the exchange of consideration. The facts are that Billy has contracted for the provision of computer equipment for his the cafe at the price of 10,000. According to (Mc Kendrick 2000) at such a stage a contract can be construed to have been concluded between them in consonance with "mirror image rule of contract formation". A contract is "an agreement giving rise to obligations which are enforced or recognised by the law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of contracting parties". (Trietel 2003) In this case there has been a clear offer and a clear acceptance with a price of 1000 having been agreed .An offer can be defined as, "An expression of willingness to contract made with an intention (actual or apparent)that it shall become binding on the offerer as soon as it is accepted by the person to whom it is addressed..and an acceptance "is a final and unqualified acceptance of the terms of an offer."(Cracknel 2001).Because of the interaction of the offer and its acceptance a validly enforceable contract between Andrew and Billy has been formed. The claim for 500 Next, as the facts of the question state, right before Billy delivered the equipment Andrew changed his mind to having wireless enabled computers, and not the wired ones specified in the contract. He asked Billy to let him have the more expensive, wireless enabled computers rather than the ones they had agreed upon. The question which arises at this point is whether Billy can subsequently claim the extra 500. The courts are likely to view this 500 discount within the realm of the traditional definition of consideration , bearing the detriment/benefit dichotomy (Cracknell 2001).Consideration has been defined as " either some right ,interest ,profit, or benefit accruing to the one party or some forbearance ,detriment ,loss or responsibility given suffered or undertaken by the other".1 Andrew has offered Billy a practical monetary benefit which amounts to sufficient consideration to "close the deal"2. The court will not concern itself with the value of the consideration i.e. "consideration must be sufficient but not necessarily adequate"3.Therefore Billy cannot challenge the price of this transaction as it is up to him to go London as often as he likes and use the internet there for free at his caf. The waiver of fee in the internet caf is a monetary advantage no matter how inadequate it may seem in business terms and the courts will uphold this arrangement. Therefore in my opinion Billy will not be able to claim this 500 discount. The Claim for 2000 Although Billy will not able to claim the 500 discount , but when Andrew asks Billy to accept 8,000 instead of 10,000 in full settlement, this becomes a case of breach of contract. The payment of 10000 was an express term of the contract and by his refusal to pay he is breaching the contract. This means there is a breach of contract because Billy has performed his part of the contract and Andrew is avoiding his performance i.e. the payment of 10000.Therefore Billy will be able to repudiate the contract and get back his equipment as well as damages for any depreciation in the value of the equipment as well as any wasted expenditure.4 However Andrew has not totally refused payment. He is offering a partial amount of the payment in settlement of the debt because he feels that he will have financial difficulties. Billy accepts this money fearing that Andrew is going bankrupt. The acceptance should technically mean that he should not be allowed to claim back his 2000 .In this regard I would like to discuss to what extent the law relating to the concept of economic duress will go to protect Billy from this unhappy deal. . The concept of economic duress is a fairly recent innovation in the judicial field and it is often said that it originates from previous case law c like D and C builders v Rees and Arrale v Costain 5.In this regard it would be useful to examine the history and the recent developments of this concept. In one of the most pivotal cases of this doctrine, The Sibeon and the Sibotre 1976 6Kerr J was of the opinion (stating obiter) that a court must "in every case at least be satisfied that the consent of the other party was overborne by compulsion so as to deprive him of any animus comprehendi". There are a number of recent cases in which the courts have recognised the doctrine of "economic duress". The doctrine has been upheld especially in cases where there is an existing contractual relationship and one of the parties tries to coerce the other party to renegotiate the contract on terms advantageous to themselves. 7 However the courts have been prepared to recognise economic duress in cases even where the parties were not in an existing contractual relationship.8 Furthermore it should be noted 9 that commercial pressures alone do not amount to duress merely because what is threatened is a legal wrong. Treitel(2003) gives the illustration of a party entering into a new contract after a threat to break an earlier contract with the case of D&C Builders v Rees10 where a part payment was accepted in full settlement in circumstances where there was economic duress by the debtors wife. However later the court required her to pay the full amount due to her inequitable behaviour/financial blackmail.(see below) . But coming back to the question it has to be seen what kind of a financial threat Billy was suffering from to give in to the demands of lesser payment. Case law makes it clear that 11not just any threat to break a contract will amount to duress. Academics have talked about the dividing line between economic duress and "hard and fair bargaining" and how each case deserves to be decided on its special facts.12Case law also points out that Andrew's complaint about his finances (duress) may not be the only reason Billy entered into this contract in order for the contract to be vitiated.13 In the recent case of Capital Structures plc 14 the learned judge referred to the standard tests for whether there had been actual duress and stated; "there must be pressure (a) whose practical effect is that there is compulsion on or a lack of practical choice for the victim; (b) which is illegitimate; and (c) which is a significant cause in inducing the claimant to enter into the contract" The judge further quoted with approval a passage from Pas On v. Lau Yin Lon15:"Commercial pressure without coercion is insufficient. If there is no sufficient coercion a threat to a pre-existing contractual obligation or an unfair use of a dominant bargaining position is insufficient to invalidate the consideration for the agreement." In the light of these cases I am of the opinion that it is unlikely that Billy will be able to plead economic duress for his bad bargain. The general attitude of the courts and judicial opinion is that they will not interfere and mend bad bargains. 1. It can be argued that Billy could have rejected Andrews offer and simply sued him for the entire amount or sought a repudiation of contract. Instead he took a conscious decision not to repudiate the contract and accept the 8000.If he can provide evidence that Andrew acted fraudulently to gain this huge discount this can be categorised as unfair extortion of money and the courts might be prepared to protect Billy. However Billy might have to just realise that he has just made a bad business bargain unless he has evidence of any wrong doing on behalf of Andrew as discussed below. Promissory Estoppel Even if Billy succeeds in his claim for economic duress Andrew has option of utilising the concept of Promissory Estoppel in his defence .The general rule in Pinnel's Case is that part payment of a debt at any time is not good consideration for the promise to forgo the balance 16.Technically then Billy should not be prevented from claiming the balance at a later date, since there is no consideration proceeding from Andrew to enforce the promise of Billy to accept part-payment. (All he has done is to "argue" about his terrible financial condition). The same principle is contained in many other cases 17 which would also seem to protect a creditor from the economic duress of his debtor like the case at hand. However the Pinnel's case is qualified by three exceptions. Andrew can claim that he can avoid the payment of the extra 2000 pounds if he gave : -part payment of 8000 at an earlier date -he gave valuable consideration in return for the discount(the horse, hawk or a robe exception in Pinnels case)18 -part payment at another location than that specified By now it is clear that the Pinnel's rule will not help Andrew and will possibly favour Billy .Moreover in the recent case of Re Selectmove 19 it was held by the Court of Appeal , that a promise to pay a sum which the debtor was already bound to pay is not good consideration.20 However another argument that can be advanced by Andrew is the application and operation of the doctrine of Promissory Estoppel to his advantage. The source of this doctrine is the obiter dicta view of Denning J in High Trees House Ltd21 and it has become a well known exception to the rule in Pinnel's Case. The doctrine provides a means of making a promise binding.The principle is that if the promisor makes a promise, which the promisee acts on or relies on the promisor is thereby estopped from going back on his promise even if the other person did not provide consideration. 22For this doctrine to apply to the situation if Andrew and Billy the requirements as laid down by case law are: The presence of a contractual relationship, since all the cases involved in the development of this doctrine are contract based.23 That requirement is satisfied on the facts here as Andrew and Billy were involved in a business contractual relationship. The court will see if Billy made a clear and ambiguous statement that he would not ask for the 2000.24 For these purposes Andrew will be in a better position if he can show a written receipt or any other evidence of Billy accepting the 8000. Thirdly it has to be shown that Andrew acted in reliance on the promise of Billy not to claim the 2000, at the payment of 8000. Even though Lord Denning has disclaimed the requirement of detriment on behalf of the promisee there has been a view in other case law that detriment (changing the position for the worse) is necessary for the action to succeed.25However if the other view succeeds and Andrew is indeed required to act on his detriment by the court the balance very likely tilt in Billy's favour. Lastly Andrew will have to show that since Billy has made a promise to him , it is inequitable for him to go back on his promise and claim the 2000.However at this point if Billy can prove that Andrew extracted this promise from him through improper financial pressure then it will not be possible for Andrew to plead promissory estoppel.Such a situation can be seen from the case of :D & C Builders v Rees26 where the defendant knowing that the plaintiff company was in financial difficulties offered them a small amount of money after delaying the payment considerably. The company reluctantly accepted the money to avoid bankruptcy and eventually sued for the balance. The Court of Appeal held that they were entitled to the remaining amount because of Mrs Ree's inequitable conduct .Lord Denning held that in such a situation the creditors could go back on their word and claim the balance as the debtor had acted inequitably by exerting improper pressure and possibly financial duress. This case therefore clearly helps the dilemma Billy is facing due to his bad business decision to sell his goods to Andrew. Conclusion It is worth pointing out that Billy can utilise his reluctance to Andrews continuous attempts to get discounts from him to put the scales in his favour following the facts of D and C Builders v Rees. But for this there needs to be more evidence of financial extortion than Billy's mere unhappiness with this transaction.Promissory Estoppel is an equitable remedy and Andrew will be unable to claim it if his "hands were not clean". If Billy can prove that Andrew's financial difficulties were not as severe or a mere tactic to blackmail him he has a good case of recovering his 2000 pounds back. It is unlikely that Billy will be able to claim his 500 discount back because Andrew has arguably furnished consideration for it by allowing him free access at his internet caf. Bibliography 1. Atiyah (1986) "The Modern Role Of Contract Law"in Atiyah, Essays on Contract Law OUP. 2. D.G.Cracknell(2001)Obligations; Contract Law ,Old Bailey Press. 3. Ewan Mckendrick,(2000)Contract Law, Fourth Edition, Palgrave law Masters 4. Mulcahy, Linda,(edition 0005)Contract Law in Perspective 5/E 5. Poole, J. (2006) Text book on Contract law, 8th ed. Blackstone press 6. Trietel G.H,(2003)The Law of Contract,Sweet & Maxwell Read More