Common law essay Summary

1.                  Khan & Co. and Jones & Co.

Whether or not Mr. Khan can withdraw the offer tendered to Jones & Co.

            Mr. Khan can no longer withdraw the offer.  The mailbox rule or the postal acceptance rule applies since the parties, Khan and Jones, were communicating through mail.  Khan wrote Jones about the offer, and subsequently, the new offer.  Jones likewise wrote Khan about its acceptance.

What Khan tendered was a unilateral contract, meaning the terms and conditions were specified by Khan, as the offeror, and which Jones, as the offeree, merely had to accept.  In this case, however, Jones had already sent out his acceptance of Khan’s offer before Jones received Khan’s revocation of the original offer.  By changing the terms of the offer, Khan effectively revoked the original offer and simultaneously presented a new offer to Jones.  However, Jones had originally sent out its acceptance of Khan’s original offer.  The mailbox rule dictates that Jones’ acceptance, sent before receiving Khan’s revocation, prevails and becomes effective to form a valid contract enforceable against Khan (Wikipedia, Mailbox rule 2005).

            In the leading case of Carlill v Carbolic Smoke Ball Company, the court ruled that notice of acceptance of an offer which was not received by the offeror was not necessary, as long as the offeree satisfies the conditions set out in the offer.  In that case, the court ruled that once the offeree satisfied the conditions contained in the offer, the offeree was entitled to performance of the contract, with notification of performance of the conditions forming part of the acceptance (Carlill v. Carbolic Smoke Ball Company, 1 QB 256 [1893]).

            Ordinarily, the offeror, Khan in this case, may revoke the offer before acceptance.  The Carlill case requires that revocation must take a form similar to that offer.

            However, in this case, Khan required as a condition that acceptance must be through notification within fourteen days.  For Jones to enforce the contract as against Khan, it is required that notice of such acceptance came to Khan’s knowledge, otherwise the condition is not deemed fulfilled.  Before receipt of such notice of acceptance, Khan may revoke his offer at anytime.  In this case, Khan wrote Jones about the offer.  Similarly, Khan also wrote Jones about the revocation of the original offer, and in doing so, presented a new offer.  If Khan had not tendered its offer via mail, then Jones would be acting at its own risk by tendering acceptance through letter.  Then if such were the case, Khan would not be bound until the same such acceptance by letter came to his knowledge.  Khan would have been able to withdraw his acceptance anytime before he has knowledge of Jones’ acceptance.

Unfortunately, in this case, Khan sent its offer by mail, and Jones was likewise entitled to convey acceptance by mail, following the mailbox rule.  Jones validly accepted the offer before Khan could effectively withdraw it.

The reason why offer and acceptance must be of mutual agreement between the parties is because mutual agreement, or a meeting of the minds, is an essential element of a valid contract.  There must be an express or implied agreement between the parties as to the terms of the contract being formed.  The offer and acceptance in a contract, to be enforceable, must be consented to by the parties with regards to the same terms.

Granted that Khan’s assistant made an error in the costing for the project.  Khan’s intention thus was not to offer a project at a cost of J5000.  Jones could not reasonably foresee that Khan intended a contract that would cost J15000.  In the case Smith v. Hughes, the court ruled that the important thing is not the party’s real intentions, but how a reasonable person would view the situation (LR 6 QB 597 [1871]).

In this case, Jones could only reasonable understand that Khan intended a contract based on what was written in the offer – a contract for J5000.  Jones could not foresee that Khan would afterwards intend a contract based on a higher cost.  Jones had a right to rely on what appeared in express terms on the face of the offer.  Otherwise, it would be contrary to the principle of certainty and clarity in commercial contracts (Wikipedia, Contract, 2004).

As stated earlier, normally Khan as offeror would have had the right to withdraw its offer.  However, even if granted Khan could validly withdraw his offer, such a right may not be exercised arbitrarily, otherwise Jones would have a right to a claim for damages.  In this case, Khan’s withdrawal was due to an error by one of Khan’s agents.  Jones in good faith relied upon the original costing in tendering its acceptance.  To withdraw its original offer would be tantamount to bad faith on Khan’s case.  He is in estoppel from withdrawing his original offer.

Whether or not a contract exists between Khan & Co. and Jones & Co for J5000.

            There was a valid contract existing between Khan and Jones for the J5000 offer.  The reason behind this is that there was a meeting of the minds between the parties.  The essential elements of a valid contract were present.  There was an offer and acceptance (mutual agreement), there was a consideration, a lawful subject matter, and an intention to create a legal obligation (Beatson, ed., Anson’s Law of  Contract, 1998).

2.                  Khan & Co. and Todds Ltd.

Whether a contract exists between Khan & Co. and Todds Ltd.

            There is a valid contract between Khan and Todds.  The contract merely provides that payment should be upon delivery.  This pertains only to the mode or manner of payment which does not affect the validity of the contract.  The contract was perfected by a meeting of the minds of the parties as to the subject matter, price and mode of payment. Khan tendered an offer which Todds accepted.  The acceptance by Todds was absolute.  Acceptance is defined as a “final and unqualified expression of assent to the terms of an offer” (Treitel, 1998, p. 16).  In this case, Todds’ did not contain any changes or additional terms to the contract.  In other words, there was no counter offer.  Todds’ acceptance was clear, unconditional and unequivocal.

            Since there was valid acceptance on Todds’ part, Khan cannot rescind the contract with the excuse that it has already taken on other work.  If Khan does so, then it would be liable to Todds for non-performance of its obligation to the latter.  Khan would be liable to Todds for breach of contract in that case.

3.                  Khan & Co. and Simms & Co.

Whether Khan can claim the balance of J1500Khan can claim the balance of J1500 depending on whether there was fraud or misrepresentation at the time Khan accepted the reduced payment price.

            If there was no fraud, Khan cannot claim the balance.  Simms provided for a written request to pay at J4500, a reduced price.  The original contract agreed upon was for J6000.   When Simms requested for the reduced price, Khan accepted.  Simms’ request constituted a modification to the contract which Khan consented to.  In effect, Simms presented a counter offer which Khan accepted.  This makes this new contract binding on Khan.  Since he consented to it, and accepted the J4500, Khan can no longer later on claim the balance of J1500.  This is particularly true if at the time Simms made its counter offer/modification to the contract, there was no fraud on the part of Simms.  If there was no fraud alleged, and if Simms was actually experiencing financial loss at the time it requested for a reduced price, then Simms would be acting in good faith.  Its request, done in good faith, and in Khan’s acceptance, constitutes a valid and binding contract.  Khan would be in estoppel from raising its claim for the balance.

            Estoppel is a principle of justice and of equity.  Any person who, by his words or conduct, has led another to believe in a particular state of affairs, will not be allowed to back on it when it would be unjust or inequitable for him to do so (Moorgate Mercantile v. Twitching, 1 QB 225 [1976]).  In this case, Khan is in estoppel by his acceptance of the reduced price, he conceded to Simms’ counter offer.  Khan should not be allowed to go back on it.

            However, the situation would be different if there was fraud on Simms part at the time it made its counter offer/modification.  For instance, if Simms was not really experiencing financial difficulties, but merely pretended to do so in order to force Khan to accept a reduced payment, then Simms would be acting fraudulently.  In such a case, Khan would have a right to claim damages in the amount of the balance based on the original contract price.  Khan would have to interpose this ground of fraud in his claim for the balance of J1500.  Khan would have to prove that the fraud was existing at the time of the counter offer, and that based on this misrepresentation by Simms, Khan accepted the reduced price.  Proof of this fraud would entitle Khan to claim the balance.

4.                  New Standard Form of Contract to Use

a)      “Time is not of the essence” as regards completion of work for customers

The phrase “time is of the essence” is a phrase often used in contracts.  In effect, the phrase means that specified time and dates in a particular contract or agreement are vital and thus mandatory.  Any delay, reasonable or otherwise, in the non-performance of the contract would be a ground for cancellation thereof (Hill and Hill, 2005).  Thus when time is of the essence in a contract, and such time is not followed strictly to the letter, then such delay or failure is considered a breach of the contract.

In contrast, when time is not of the essence, then this means that performance of a contract need not adhere to a specified time or date. When a company states that “time for delivery shall not be of essence in this contract” then this means that a customer would have no right to seek a cancellation or termination of the contract due to late delivery.  In this case, even if the contract stated that delivery date is at June 1, 2005, such date represents an estimate only.  When the customer accepts a contract wherein the company states that “time is not of the essence”, the customer takes it at his or her risk.   Khan would be able to deliver before the delivery date stated, and any delays in the delivery would allow Khan a reasonable extension of time, after the stated delivery date, to make the delivery. Khan would have this leeway unless it is stipulated in writing that time is of the essence for the delivery of the products.

Thus, by stating that time is not of the essence would be beneficial to Khan.  However, it may be disadvantageous to its customers.  Time of delivery will not be of the essence unless expressly stipulated in the contract.  The remedy of the customer then is to demand that a specified date, and time for delivery of completion should be inserted in the contract, along with the phrase “time is of the essence”.  This would entitle the customer to claim for damages for breach of contract in case Khan delays in delivery the goods.

If the contract provided by Khan stipulates “time is not of the essence” and the customer has no option to demand otherwise, then the only remedy the customer would have to be specific performance.  However, one limitation on Khan when time is not of the essence in delivery is that such delivery or performance must be done within a reasonable time.

b)     Whether a customer can claim damages if goods supplied by Mr. Khan do not match the description in the contract

Yes, the customer may claim damages if goods supplied do not adhere to the terms and conditions of the contract.  A valid sales contract represents a meeting of the minds of the parties (buyer and seller, or seller and customer) as to the subject matter, price, and mode of payment.  The customer is thus paying for the subject of the contract as stipulated in the document.  The terms and conditions of the contract would pertain to the specifications regarding the subject matter – size, colour, quality, quantity, etc.

If Khan delivers something that does not match the description in the contract, Khan is in effect delivering a subject matter which was not covered by the contract.  The buyer or customer, after all, did not consent to the subject matter which Khan delivered.  In delivering a different object, Khan would not be performing its obligation in the contract.  He would be guilty of breach thereof.

c)      Whether Mr. Khan may include relevant clauses in the back of receipts and delivery documents to effectively exclude liability for breach of contract

In seeking to exclude accidentally wrongly described goods, late delivery, goods damaged in transits, etc., Khan intends to limit liability for indirect or consequential losses.  To be effective, Khan should draft exclusion clauses clearly and without ambiguity.  Any ambiguity in the exclusion from liability clauses will be read against the offeror/seller (University of Keele v. Price Waterhouse, EWCA Civ. 583 [2004]) which in this case is Khan.  Furthermore, despite exclusion clauses inserted by Khan, his company would not be able to exempt itself entirely from liability to the buyer or customer.  In the case Hadley v. Baxendale, the court ruled that in case of breach of contract, an innocent party may recover:

1)      losses that can be fairly and reasonably considered as arising naturally from the breach, and

2)      losses that were reasonably contemplated due to special circumstances beyond the ordinary course of things and known by the parties at the date of the contract (9 Exch 341 [1854]).

Thus, to exclude liability, Khan may only insert relevant clauses that pertain to indirect or consequential losses.  And as such, these relevant clauses must be written in clear and unequivocal terms to leave no doubt or ambiguity as to their meaning and interpretation.

REFERENCES

Beatson, J, ed. (1998), Anson’s Law of Contract, 27th Ed., Oxford.

Carlill v Carbolic Smoke Ball Company, (1 QB 256 [1893])

Contract.  (2005), Wikipedia, The Free Encyclopaedia, [Online], Available from: <http://en.wikipedia.org/wiki/Contracts> [3 November 2005]

Hadley v. Baxendale, (9 Exch 341 [1854]).

Hill, Gerald and Kathleen Hill.  (2005), Time is of the essence, The People’s Law Dictionary, [Online], Available from <http://dictionary.law.com/default2.asp?selected=2126&bold=%7C%7C%7C%7C>

[4 November 2005]

Mailbox rule.  (2005), Wikipedia, The Free Encyclopaedia, [Online], Available from: <http://en.wikipedia.org/wiki/Mailbox_rule> [3 November 2005]

Moorgate Mercantile v. Twitching, (1 QB 225 [1976]).

Smith v. Hughes, (LR 6 QB 597 [1871]).

Treitel, G.H. (1999), The Law of Contract, 10th Ed, Sweet & Maxwell.

University of Keele v. Price Waterhouse, (EWCA Civ 583 [2004]).