Law of Contract: Jatinder and Riz - Case Study Example

Contract Law work LX 1003B This question is concerned with whether or not a valid contract has been concluded between Jatinder and Riz. I have broken it down into the following seven steps, which I will use to analyse whether or not a valid contract has been concluded. If a contract has been concluded, this breakdown will also tell us also exactly when it was concluded. This information will be vital for both parties, in particular Riz, who is being held to the contract by Jatinder. The seven steps are as follows: a. Jatinder placed an advertisement for the car in a classic car magazine. b. On Monday morning, Riz saw the advertisement and offered Jatinder 5,000 for it by telephone. c. Jatinder said she needed to talk to her husband and would let Riz know her answer. d. Riz informed Jatinder that his offer would be open until Thursday morning. e. Riz emailed Jatinder, still on Monday, and told her he could not by the car. f. On Monday evening, Jatinder, not having read the email, posted an acceptance to Riz. g. On Tuesday morning, Jatinder read the email and immediately called Riz to tell him she believed a contract had been concluded. Before looking at the question in detail, I will look at the formation of contract in general. The rule has always been that in order to form a valid contract there must be a meeting of minds or consensus in idem. This does not mean that there must be an exact subjective matching of the internal thoughts of the two parties. What the law looks for is outward evidence of what the parties agreed or what has been termed the 'external indicia of agreement'.1 This means that even if the parties did not have the same agreement in mind, if their actions, from an objective standpoint could be said to demonstrate an agreement, then a contract has been formed.2 This follows the sensible approach that 'commercial contracts cannot be arranged by what people think in their inmost minds. Commercial contracts are made according to what people say'3 What this means for our problem question is that, while searching for the consensus in idem between Riz and Jatinder, we look at how they acted in the above negotiations. I will now look at each step of the negotiations more closely. a. The advertisement in the classic car magazine To form a contract, all you need to identify is an offer and an unqualified acceptance of it. The question here is whether the advertisement in the magazine constituted an offer. Offers may be express such as 'I'll give you 50 for that skirt', or they can be implied such as hading over the fare as you get on the bus. In both cases it is open for the offeree to accept the offer. This will conclude the contract. However, despite the ease of making offers or implied offers, some actions will not form offers at all but merely invitations to treat. An invitation to treat may look like an offer but if you look closely, there has not been agreement on the essential factors of the contract, there has just been some words passed that would entice or make it easier for the other party to make a suitable offer. For example, in Harvey v Facey4 one party asked the other what would be the lowest cash price they would be willing to sell a property in Jamaica. The other party replied that it would be 900. The first party then telegraphed them 'We agree to buy BHP for 900 asked by you'. The owners argued that they had never offered to sell the property and the agreed with this. It is also generally accepted that advertisements and announcements to the public at large are not intended to be offers but merely invitations to treat. This is for the simple practical reason that if too many people responded to the advertisement, the advertiser could be placed in a position of breaching limitless contracts. Therefore, unless words specifically forming a contract are used, an advertisement will be deemed to be an invitation to treat and not an offer.5 b. Riz's offer of 5,000 When Riz saw the advertisement he called Jatinder on the phone and offered her 5,000 for the car. This means that it is open to Jatinder to accept it and at such time it will become binding on Riz..6 However, Riz does have a right to withdraw the offer at any time up until the moment it is accepted. This is know as locus pentitentiae or the opportunity of withdrawing. The offer does not have to remain open forever, but only for a reasonable time. In the American case of Loring v City of Boston7 an award was offered for information leading to the urgent apprehension of outlaws. When someone came forward with information over four years later, the court held the offer had expired. In this case, Riz's phone call is a valid offer. It covers the essentials of the contract, that is the car, and the price, and it is open to Jatinder to bind Riz to the contract by accepting the offer. c. Jatinder said she needed to speak to her husband. All that can be really said about Jatinder's reply to the offer is that it did not form an acceptance. It is not however a qualified acceptance or a counter offer. All it really is, is an acknowledgement of Riz's offer, and she is telling him how she will proceed. She will consider it with her husband and get back to him. An acknowledgement of an offer is not an acceptance, and neither is the expression of an intention to accept the offer.8 d. Riz says his offer will be open until Thursday. As we have already seen, until the offer is accepted, Riz has the right to revoke or amend the offer in any way he sees fit. It is perfectly valid to place a deadline for acceptance on an offer. Any acceptance of the offer that occurs after this deadline will be invalid and no contact will be formed. Therefore, this deadline amends Riz's earlier offer, which remains on the table, and is awaiting acceptance or rejection from Jatinder. e. Riz emailed Jatinder on Monday evening to revoke the offer. Payne v Cave9 has long been authority for the fact that an offer can be withdrawn at any time up until acceptance. This applies even if the offeror has stated that the offer is open for a set time.10 So even though Riz has previously stated that his offer will remain open until Thursday, that does not stop him from withdrawing the offer now. In Routledge v Grant11 the offeror said his offer would be open for acceptance for six weeks. Nevertheless, the court held he was still able to withdraw the offer prior to this six weeks running out, so long as there had still been no acceptance. However, to be effective, the withdrawal must be communicated to the offeree. This means that notice of the withdrawal must actually reach the offeree. This is stated as being the rule for withdrawals communicated by 'post and by telegram as well as to those sent by other methods.'12 It would therefore be fair to assume it the same rule applies to email. In Byrne & Co. v Van Tienhoven13 the offeror made an offer by post and sent it on October 1st. The offeree received the offer on October 11th and accepted by telegram on the same day. Meanwhile however, the offeror had withdrawn his offer by a letter mailed on October 8th which arrived on October 20th. The Court held that the withdrawal did not have effect until it was received by the offeree on October 20th. Therefore, their acceptance on the 15th was effective. In this example, the contract was formed even though no consensus was ever reached between the parties. The requirement was summed up in Henthorn v Fraser14 where the judge said the withdrawal must be 'brought to the mind of' the offeree. There are three exceptions to this requirement of the withdrawal being brought to the mind of the offeree. The first is when a letter reaches a commercial organisation. In such a case, the withdrawal is effective when the letter is opened in the ordinary course of business.15 The second exception occurs where the offeree's conduct can be held to have displaced the rule. This might occur for example if the offeree changes address or goes on holiday without notifying the offeror. Another might be where the withdrawal was received during business hours but not read. The case of Tenax Steamship v The Brimnes (Owners)16 shows how a party's own fault may displace the rule. In this case, an offeror's offer had been accepted and acceptance was sent by Telex during office hours. The message was duly printed by the machine but no one in the office read it until the next day. The court held this was a valid notification of acceptance and therefore a contract had been formed. This should be contrasted with the case where notification is sent by telex out of office hours. In such cases, it is most probably the law that they do not take effect until the beginning of the next business day.17 The third exception to the requirement that notice of a withdrawal be brought to the mind of the offeree is withdrawals of offers to the public, in which cases only reasonable steps must be taken to notify the public of the withdrawal. If you apply the rule governing telexs, as was laid out in Tenax Steamship and Schelde Delta Shipping, to the email Riz sent to Jatinder, it would appear to me that everything would hinge on when the email withdrawing the offer was sent. We know that Jatinder did not read the email, and thus the withdrawal was not brought to her mind until Tuesday morning, but perhaps the rule can be deemed to have been disapplied due to Jatimber's own actions. If she received the email during business hours, it could be possible to infer that she read it that same day, and therefore, the withdrawal would have been effective. If she received the email after business hours on Monday, then she would not be deemed to have read it until the start of business on Tuesday and the offer would remain open al night Monday. There is the issue that this is a private sale, or at least may be a private sale, and as such, it may be deemed unfair by a court to apply a rule intended for business operations full of paid and professional staff to an individual acting out with a business, but it is not possible to say. Assuming, the email is deemed to fall within one of the three exceptions, and it is held to have been notified to Jatinder, then there is no longer an offer for her to accept and Riz would not be bound to the contract. On the other hand, if it held not to fall within the exception, then the general rule applies and Jatinder was not notified of the withdrawal until Tuesday morning when she actually read it. Therefore, the contract would remain open on Monday night and Riz would be bound by her acceptance of his offer. f. Jatinder posted an acceptance to Riz on Monday night. This brings into play a special rule known as the postal acceptance rule. It displaces the general requirement that communications only take effect once they reach their recipient by laying down an exception. The exception is that for an acceptance sent by post, it takes effect as soon as it is passed into the control of the Post Office18. This means that Jatinder's acceptance of Riz's offer took effect on Monday night, and did not have to wait until it was actually received by Riz. The use of post must be shown to be a suitable method of communicating the acceptance. In the present case, since Riz said his offer was open till Thursday, it is likely that the use of post is suitable, although prior to this, all communications have been instantaneous. In Holwell Securities v Hughes19 it was said that the rule would not be applied where it would lead to 'manifest inconvenience and absurdity'. However, there is authority that postal acceptances will take precedence over non-communicated withdrawals of offers. In the Harris' Case20 this was expressly stated and applied when a postal acceptance was sent after a postal withdrawal of the offer was sent. The logic of it is that otherwise postal offers would be completely unreliable as the offeree could never know if a withdrawal had already been posted. It is also the sole limitation on the otherwise absolute right of the offeror to withdraw and amend offers. This means that even more depends on whether Riz's withdrawal will be held to have been communicated on arrival when he sent it on Monday, or when it was read on Tuesday. Because if it has not been communicated, Jatimber's acceptance will apply, according to the postal rule, on posting which occurred on Monday night. g. Jatimber's reading of the email withdrawal on Tuesday morning. By now she has certainly received the withdrawal, but it is clearly too late as the posted acceptance has been effective since Monday night. As stated before, everything hinges on whether the email was sent during business hours on Monday, in which circumstances the requirement of actual communication could be altered by Jatimber's own action of failing to read the email. Otherwise, the only conclusion that can be made is that a valid contract was formed on Monday night when she posted the acceptance. In conclusion, I would suggest to Riz that no contract has been concluded. He sent an email to Jatinder on Monday, before she accepted his offer. The circumstances are analogous to the case of Tenax Steamship v The Brimnes (Owners). Following this decision, even though Jatinder did not read the withdrawal till Tuesday morning, she should have, and in the normal course of business would have read it on Monday, when it was received. The rule requiring her to have actually read it will therefore be displaced due to her own actions and the withdrawal is effective. This is not withstanding the decision in the Harris Case in which the postal acceptance rule was shown to take precedence over a non-communicated withdrawal. My advice to Riz would therefore be that the withdrawal was effective and there is therefore no contract. Bibliography Chitty, On Contracts, Vol. 1, 28th ed. Sweet and Maxwell 1999 Woolman and Lake, Contract, 3rd ed. Sweet and Maxwell, 2001 Muirhead and Turnbull v Dickson (1905) 7 F. 686 Harvey v Facey [1983] AC 552 Carlill v Carbolic Smokeball Co. Ltd. [1893] 1 QB 256 Storer v Manchester CC [1974] 1 WLR 1403 Loring v City of Boston (1844) 7 Metcalf 409 OTM Ltd. v. Hydanautics [1981] 2 Lloyd's Rep. 211 Payne v Cave (1789) 3 TR 148 Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex. 109 Routledge v Grant (1828) 4 Bing. 653 Byrne & Co. v Van Tienhoven (1880) 5 CPD 344 Henthorn v Fraser [1892] 2 Ch. 27 at 32 Eaglehill Ltd. v J Needham (Builders) [1973] AC 992 Tenax Steamship v The Brimnes (Owners) [1975] QB 929 Schelde Delta Shipping BV v Astarte Shipping Ltd. (The Pamela) [1995] 2 Lloyd's Rep. 249 Winfield (1939) 55 LQR 499 Holwell Securites v Hughes [1974] 1 WLR 157 Harris' Case (1872) LR 7 Ch.App. 587 Read More