Negotiations between White Halls Limited and Golden Antiques - Essay Example

The factual scenario raises complex issues in contract law and in advising the legal position of the parties, it will be necessary to assess the following points: 1) Whether Golden Antiques is bound by a legally enforceable contract with White Halls Limited; 2) Alternatively, whether Golden Antiques’ subsequent contractual agreement with Roger is valid; 3) If the negotiations between White Halls Limited and Golden Antiques results in a legally binding contract, whether Golden Antiques has complied with the legal requirements for valid revocation to negate a claim by White Halls Limited for breach of contract or specific performance; and 4) Alternatively, the potential ramifications for Golden Antiques if their revocation results in breach of contract. In order for there to be a legally binding contract, the parties must firstly have intention and legal capacity to enter into contractual obligations (McIntyre, 2008). This requirement is highlighted by McIntyre’s assertion that contractual liability cannot arise unless it can be demonstrated that both parties intended to enter into the contract (McIntyre, 2008, p.78). If we apply this by analogy to the current scenario, David was entering into contractual negotiations with Golden Antiques on behalf of White Hall Limited. Therefore, in order for there to be a valid contract, David will have to have capacity and authority to bind the company in such contracts (McIntyre, 2008). Sections 39-40 of the Companies Act 2006 (CA) regulate authority to negotiate on behalf of companies. Section 39(1) of the CA provides that “the validity of any act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution.” In addition, section 40(1) of the CA stipulates that “In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution”. Moreover, section 40(2) of the CA implements a provision that as regards third parties negotiating with a company, there will be a presumption of good faith. As such, the CA provisions do not require third parties to enquire as to whether there are any restrictions on the authority of the board to enter into a contract. Accordingly, if we apply this to the current scenario, unless Golden Antiques were put on notice that David did not have appropriate authority, there will be a presumption that David had capacity to negotiate and conclude the contract with Golden Antiques on behalf of White Halls Limited. Therefore, the fundamental issue will be whether the legal requirements for an enforceable contract have been complied with. The law of contract provides a tripartite test for determining a legally binding contract, which is offer, valid acceptance and consideration. For example, in New Zealand Shipping Co Limited v A M Satterthwaite, The Eurymedon ([1975]) AC 154 Lord Wilberforce provided that the rule for establishing an enforceable contract was as follows: “English law having committed itself to a rather technical….. doctrine of contract, in application takes a practical approach…… into the marked slots of offer, acceptance and consideration” (at 167). With regard to what constitutes an offer, Chitty describes this as an “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the “offeree” (Chitty, 2007). Moreover, the decision in Smith v Hughes ( (1871) LR 6 QB) determined that whether there was intention to make an offer was to be viewed objectively. However, the law distinguishes between a contractual offer and an invitation to treat, which operates as an intimation of intention to enter into contractual negotiations (McIntyre, 2008, p.83). The distinction is highlighted by the decision in Gibson v Manchester City Council ([1978] 1 WLR 520) where the phrase “may be prepared to sell” was held to be an invitation to treat and not a contractual offer. Moreover, the Gibson decision arguably reshaped the conventional principles regarding formation of contract. For example, Lord Denning suggested that when determining whether there was in fact a legally enforceable contract, there was no need to look for strict offer and acceptance. You should look at the correspondence as a whole and at the conduct of the parties and see therefore whether the parties have come to an agreement on everything that was material” ([1978] 1 WLR 520). If we apply these principles contextually to the current scenario, Golden Antiques’ online advertisement stipulated: “For sale, three Victorian beds, gorgeous, £5000 each, cash, will brighten up any bedroom”. With regard to the contractual status of advertisements, McIntyre posits that the legal effect of an advert is dependent on the wording (2008). As such, if the advertisement’s wording unequivocally points to an offer, then valid acceptance will result in a legally enforceable contract. A prime example is the decision in Partridge v Crittenden ([1968] 1 WLR 1204). Where the printed advert described the “Quality British… Bramblefinch cocks” with details of the price but there were no specific indication that the advertised product was on offer for sale. On these grounds, it was held that the advert constituted an invitation to treat. Therefore, the wording of the advert will be the determining factor and in the current scenario, Golden Antiques’ advert clearly suggests that the beds were for sale. If we further consider the case law, in Carlil v Carbolic Smoke Ball Limited ([1892] EWCA Civ 1) it was determined that it was possible for advertisements to constitute contractual offers. In the Carbolic case, the defendant had placed an advert for a new medical product the “carbolic smoke ball”. The advert specified that anyone who used the smoke ball for a period of two weeks and contracted the flu virus within a specified time after would be paid £100. The crux of the legal dispute centred on the defendant’s argument that the advert was an invitation to treat and not an offer. The Court of Appeal emphatically refuted this argument and held that the advert was an offer and could constitute a unilateral contract if an individual complied with the terms of the offer. The Carlil decision was a controversial decision particularly with regard to the demarcation between a valid contractual offer and an invitation to treat in practice. Nevertheless, if we consider the current scenario, as highlighted above the advert on Golden Antique’s website clearly points to being a distinct offer for the sale of the beds. As such, the offer will result in a contractually binding agreement upon valid acceptance, which is the central issue of contention between Golden Antiques and White Halls Limited due to the timing of acceptance. The law of contract stipulates that valid acceptance is an unqualified acceptance of an offer. This was determined in Peter Lind Limited v Mersey Docks & Harbour Boar (1972] 2 Lloyds Rep 234), which propounded the “mirror image” principle, where valid acceptance at law must be absolute and unconditional and to this end, “mirror” the terms of the original offer. As such, Treitel opines that valid acceptance is a “final and unqualified expression of assent to the terms of an offer” (Treitel, 2007). Moreover, the method of acceptance will often be important and in Adams v Lindsall ((1818) IB & ALD 681; 106 ALL ER 250) the postal rule was established. The postal rule is a presumption which provides that if post was the expected or stipulated method of acceptance, then the contract will be binding when the acceptance is posted and not when it is received. This was reiterated in Henthorn v Fraser ([1892] 2 Ch 27)) it was commented that: “where the circumstances are such that it must have been within the contemplation of the parties, that according to the ordinary usages of mankind, post might be used as a means of communicating acceptance of an offer”. However, the problem in applying the postal rule to the current scenario is the fact that there have been numerous types of correspondence during contractual negotiations. Indeed, McKendrick highlights the fact that commercial contractual negotiations will often result in offers and counter offers being communicated (2008). In addressing this conundrum, the decision in Hyde v Wrench ((1840) 49 E.R. 132) determined that any counter offer during negotiations will result in a termination of the original offer. In considering the “battle of the forms” dilemma for contractual negotiations, the judicial approach has been to implement a “last shot principle” in light of the decision in Butler Machine Tool Co –v- Ex Cell-O-Corp ((1979) 1 ALL ER 965). Effectively, this principle implements a presumption that the final offer that is validly accepted will regulate the conditions of the enforceable contract. If we apply this by analogy to the position of White Halls Limited vis-à-vis Golden Antiques, David responded to the online advert with an email offering to purchase all three beds for a lower than advertised price of £4500 per bed on credit. In line with the Butler Machine Tool rationale, this constitutes a counter offer. Golden Antiques then rejected this counter offer by reiterating the original sale price of £5000 per bed. Golden Antiques’ response further indicated that the availability of a credit purchase would be subject to the condition precedent of Golden Antiques pre-approving the guarantor. Additionally, Golden Antiques’ response required a confirmation of interest by the close of business on the same day (my emphasis). Therefore the fundamental issue is whether White Halls Limited’s subsequent response to Golden Antiques’ reformulated offer terms constituted valid acceptance to conclude the contract. From the facts, it is evident that David faxed Golden Antiques accepting the original offer terms to purchase the beds at the price of £5000 each. David also faxed through a copy of the fax from the guarantor Black Halls Limited. All of this was done prior to the close of business however David was aware that the faxes had not been transmitted due to the status report. With regard to contractual communications via fax, the House of Lords implemented a guidance model of applicable principles in Brinkibon Limited v Stahl und Stahlwarenhandelsgesellschaft mbH (1983] 2 A.C. 34) with regard to the conventional postal rule in context of instantaneous communication. The negotiations in Brinkibon had involved various methods of communication and the House of Lords determined as a general principle that contracts are conclude when acceptance is communicated to an offeror. However, with regard to instantaneous communication, it was held that the contract would be concluded when the acceptance was received by the offeror. However, whilst the Brinkibon approach is clearly welcome as recognition of the limitations of the postal rule within the contemporary communication methods, the problem with certain methods of communication is addressing the point at which an offeror can be regarded as having received the communication (McKendrick, 2008). For example, with regard to communications via fax and telex, the House of Lords in Brinkibon acknowledged that there is: “no universal rule can cover all cases, they must be resolved by reference to the intentions of the parties, by sound business practice, and in some cases by a judgment where the risks should lie”. Alternatively, McIntyre suggests that if a fax is actually received during office hours in terms of a successful transmission, then this is the point that acceptance should conclude the contract and not when the fax is actually noticed (2008). Moreover, in considering the position where a fax machine is switched off, Lord Fraser presiding in the Brinkibon decision places the onus on the offeror whereas Eliot and Quinn suggests that if the fax is transmitted during normal office hours but not actually seen, acceptance occurs at this point regardless of whether the offeror has seen or read the fax (2009). Therefore the legal position in this area is not entirely clear. Nevertheless, with regard to White Halls Limited’s legal position, David was aware that the fax transmissions did not arrive at the Golden Antiques’ office by close of business. Alternatively, David posted acceptance and a copy of the guarantor fully aware that there was a postal strike at 5pm. However, on Wednesday morning Golden Antiques faxed David to notify him that the beds had been sold to Roger. In order for Golden Antiques’ revocation to be valid, the revocation must be communicated prior to acceptance (Chitty, 2007). David’s central argument is likely to be that the contract with Golden Antiques was validly accepted by post under the postal rule. The premier objective of the postal rule was to implement certainty into complex area of contractual negotiations however the current scenario is not completely clear cut. Additionally, Golden Antiques wanted communication of acceptance by the close of business, which is difficult to reconcile with the postal rule. For example, in Household Fire and Carriage Accident Insurance Co v Grant ((1879) 4 EX D 416), Lord Thesiger asserted that “there is no doubt that the implication of a complete, final and absolutely binding contract being formed, as soon as the acceptance of an offer is posted may in some cases lead to inconvenience and hardship. But such there must be at times in every view of the law. It is impossible in transactions which pass between parties at a distance, and have to be carried on through the medium of correspondence, to adjust conflicting rights between innocent parties, so as to make the consequences of mistake on the part of a mutual agent fall equally on the shoulders of both.” For example, the legal position suggests that the postal rule remains applicable to acceptance even if a letter is lost (McKendrick, 2008). McKendrick suggests that the rigid adherence to the postal rule has been rooted in the need to protect the offeree’s expectations and to preserve certainty in contractual negotiations (2008). However this rigidity is somewhat archaic in light of contemporary communication methods and the realities of commercial negotiations. The central response from the judiciary has been to implement an “instantaneous communication” distinction to address novel communication methods (Furmston, 2007). Additionally, as highlighted above, notwithstanding the postal rule, the law will accord priority to the express intentions of contracting parties (Furmston, 2007). As highlighted above, Golden Antiques had clearly indicated that they wanted to receive communication of White Halls Limited’s interest by close of business that day. Moreover, in Holwell Securities Securities v Hughes (1974] 1 WLR 155), it was held that where an offer had made clear that the acceptance had to reach the offeror in terms of their actual knowledge of receipt, the postal rule would be inappropriate on grounds that it would negate the actual intentions of the contracting parties. Additionally, Lawton LJ suggests that the postal rule would not be applicable where it would result in “manifest inconvenience and absurdity”. Additionally, Lawton LJ asserted that: “in my judgment the factors of inconvenience and absurdity are but illustrations of a wider principle, namely that the rule does not apply, if having regard to all the circumstances, including the nature of the subject matter under consideration, the negotiating parties cannot have intended that there should be a binding agreement until the party accepting an offer or exercising an option had in fact communicated the acceptance or exercise to the other”. If we apply this rationale by analogy to the current scenario, on the one hand a strict application of the postal rule would suggest that White Halls Limited have strong grounds to argue that they have an enforceable contract with Golden Antiques. Conversely, Golden Antiques clearly indicated that they wanted to receive confirmation of White Halls Limited’s acceptance by close of business. However, even if White Halls Limited had communicated their intention to accept the offer, Golden Antiques’ requirements were unequivocal in indicating that any sale to White Halls Limited was subject to Golden Antiques pre-approving the guarantors. This therefore points to a conditional requirement of acceptance and therefore if it submitted that in line with the “manifest inconvenience” argument extrapolated in Holwell, Golden Antiques will have a strong case to refute White Halls Limited’s claim to a binding contract for the purchase of the beds. Accordingly, in line with the valid revocation rule, Golden Antiques’ notification to David of the alternative contract with Roger will not be in breach of contract. Alternatively, in the unlikely event that White Halls Limited can establish that Golden Antiques was in breach of contract, the company would have the options of specific performance or terminate the contract and make a claim for damages. The remedy of specific performance would require Golden Antiques to sell the beds to White Halls Limited. If White Halls Limited were to make a damages claim, they would only be able to claim damages for direct loss caused by breach of contract and that the loss was not too remote. The decision in Hadley v Baxendale ([1854] 9 Exch 341) sets out the test for determining remoteness of damage and enables the following losses to be recoverable: 1) All losses arising naturally and directly from the breach; and 2) Losses that are reasonably contemplated by the contractual parties at the time of entering into the contract. Therefore, White Halls Limited will arguably be limited to a reliance loss claim where the purpose is to compensate the innocent party to the position they were in before the breach of contract. As such, the reliance loss claim effectively compensates innocent parties for out of pocket expenses in contractual negotiations, which in the current scenario are clearly minimal, if any. Moreover, in Anglia TV v Reed, it was asserted that in any claim for damages, a claimant has a positive obligation to mitigate their loss. In summary, the main ground for White Halls Limited to establish a legally binding agreement is acceptance by post. However, Golden Antiques clearly specified that they wanted confirmation of interest communicated by close of business and that any sale to White Halls Limited was subject to the condition precedent of Golden Antiques pre-approving the guarantor. Therefore, it is highly unlikely that there was a legally enforceable contract between White Halls Limited and Golden Antiques and the agreement with Roger is valid. BIBLIOGRAPHY Chitty. Chitty On Contracts, 29th Edition, Sweet & Maxwell, 2007 Eliot, C. & Quinn, F. Contract Law 7th Edition Pearson Longman, 2009 Furmston, M. P. Cheshire, Fifoot & Furmston’s Law of Contract. 15th Edition Oxford University Press, 2007 McIntyre, E. Business Law 4th Edition Pearson Longman, 2008 McKendrick, E. Contract Law: Text, Cases and Materials. 3rd Edition Oxford University Press, 2008. Treitel, G. H. The Law of Contract. 12th Revised Edition Sweet & Maxwell, 2007. Legislation & Websites Companies Act 2006 available at www.opsi.gov.uk Word Count: 2985 words Read More