Green Shippers Ltd and Intelligent Computers Ltd - Essay Example

GSL v ICL Introduction On the facts of the case for discussion there appears to be some confusion as to whether or not the agreement between Green Shippers Ltd. (GSL) and Intelligent Computers Ltd. (ICL) contains a legally binding variation clause. GSL maintains that the contract concluded between the parties did not contain a variation clause while ICL maintains that the one was agreed upon in the course of negotiations. The main question is therefore, whether or not a variation clause was agreed between the parties. In order to determine this question it is necessary to re-examine the nature of the offer and what was ultimately accepted. The discussion that follows will examine the actual offer and acceptance and their implications for the existence or non-existence of legally binding variation clause. Another important issue arises out of the doctrine of consideration. If there is no consideration, a valid contract will not exist at all. The Offer and Acceptance The brochure submitted by ICL to GSL contains the type of computer that GSL is looking for, but requires a software modification. The computer is advertised at 2,500 pounds as is. GSL responds to the advertised model by asking whether or not the software modification can be made. ICL replies that the software modification can be made, but will be subject to a price variation and that variation will override any clauses contained in the purchase order. Upon placing the order, GSL submits their standard order form which does not contain a variation clause, but does state that the parties are bound by the terms and conditions contained in the purchase order. Upon receiving the order form, ICL signs the form and returns it to GSL. These facts are crucial since the contract between the parties will be formed at the exact moment at which an offer is accepted. In the course of negotiations it is typical for an offer to be made. That offer is required to contain a definite promise providing sufficient and unambiguous details for the other party to accept or decline.1 All contracts begin with an offer, it therefore follows that the offer is required to be stated with clarity. Put another way, the party to whom the offer is directed or communicated must be able to determine from that offer exactly what it is that is being offered as well as the terms of the offer.2 The law is quite clear that in order for the acceptance of an offer to be legally binding it must follow the essential substance of the offer made.3 The offer in this case originated in a catalogue. The initial question is whether or not the offer to sell a computer for 2,500 pounds as advertised in the brochure is a valid offer or a mere invitation to treat. This distinction has been firmly established in the law of contract. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1951] 2 QB 795 the defendant’s shop was set up so that goods offered for sale were exhibited allowing the customer to choose the goods and take them to the cashier for purchase. With respect to prescribed goods a registered pharmacist was required to examine the prescribed drugs and could either deny or approve the sale. The plaintiff claimed that the sale was inconsistent with the law which required the sale of prescription drugs under a registered pharmacist’s supervision. For the purpose of this claim the court was required to determine at what point the offer and acceptance was actually made. It was held that when goods are placed display, such display would only imply that the vendor was willing to “treat” and an offer was made only when the customer took the goods to the cashier.4 For the purposes of the case for discussion, the computer appearing in the catalogue submitted by ICL is an advertisement. Advertisements are looked upon as invitations to treat.5 In this regard the case of Pharmaceutical Society of Great Britain is relevant. Drawing on the ruling in Pharmaceutical Society of Great Britain the invitation to treat did not become an offer until such time as GSL took specific steps to purchase the computer. Further assistance can be found in the case of Partridge v Crittenden [1968] 1 WLR 1204. In this case the court ruled that when an advertisement appears in print and specifies the purchase price of the goods advertised, such advertisement will be regarded as no more than an invitation to treat.6 Only when a customer makes an offer to purchase the advertised goods and that offer is accepted by the vendor a legally binding contract is formed.7 As previously stated the GSL reviewed the advertisement but made inquiries as to whether or not the computer could be sold subject to certain software specifications. ICL took the position that such specifications/modifications could be made but would be subject to a price alteration or a price variation. The facts do not indicate whether or not GSL agreed with this counter offer or not. It appears that instead of stating their position one way or another, they chose to remain silent on the price variation contained in the counter offer by ICL. Silence however, will not operate to constitute a valid acceptance of the offer. The law requires that acceptance is clearly communicated.8 It therefore follows that in the absence of any clear communication from GSL, no valid acceptance was made on the offer to provide the modified computer subject to a price variation. Ultimately, the purchase order submitted by GSL to ICL contained terms not previously negotiated or understood by ICL. The purchase order specifically barred a price variation when ICL had negotiated or at least attempted to negotiate quite the opposite. In essence, GSL, by submitting a no variation clause in the purchase order that does not contain a variation clause (no variation clause), submitted a new offer which cancelled out all previous offers and can be constructed as a repudiation of the ICL’s offer to sell the modified computer subject to a variation clause. Upon receipt of the offer containing the no variation clause, ICL was at liberty to refuse the new offer and its terms and conditions. The case of Hyde v Wrench (1840) 3 Beav 334 provides further clarification of the legal position with respect to counter-offers and the residual right to refuse or accept a new or counter offer. In this case the defendant had offered to sell real estate to the plaintiff for the sum of 1,200 pounds. The plaintiff responded by counter-offering by suggesting the realty be purchased instead at of 1,000 pounds. The plaintiff made another counter offer for the purchase price of 950 pounds, but the defendant rejected that counter offer. The plaintiff then wrote to the defendant stating that he was prepared to accept the initial counter offer of 1,000 pounds. The question for the court was whether or not the defendant was bound to sell the property for 1,000 pound. The Court ruled that all previous offers had been rejected and once an offer has been rejected it cannot be revived.9 On the facts of the case for discussion, ICL accepted the counter offer by GSL since it signed and returned the tear-off order form containing a ‘no variation’ clause. As previously noted, the moment an offer is accepted, a binding contract is formed and the offer ends. Whether or not ICL understood the terms of the ‘no variation’ clause or thought that the pre-existing offer specifying a variation clause bound GSL is of no moment since there is no evidence that the variation clause had been accepted by GSL. If ICL simply failed to read the ‘no variation’ clause, they have no real defence since as the law currently stands, LCI is deemed to have notice of the offer since it has been effectively communicated to them.10 In any event, the court will look at the actual agreement signed by the party to determine their respective obligations under the agreement.11 The decision to raise the price a month later represents yet another counter-offer now that it has been established that the ‘no variation’ clause contained in the purchase order was effectively communicated to ICL and accepted. In fact if the contract for the purchase of the computer had been finally negotiated at that point the contract is validly formed. Having determined that the offer and counter-offers had been completed once ICL signed and returned the purchase order, the decision to raise the price is deemed to be a variation of the existing contract. ICL is at liberty to withdraw or revoke the acceptance of the counter offer at anytime. Both an offer and acceptance can be revoked at anytime prior to the completion of the agreement.12 In the case of Byrne v Van Tienhoven [1880] 5 CPD 344 the court ruled a revocation is required to be communicated to the other relevant party. 13 As a result, if ICL is not happy with the ‘no variation’ clause, they can at this stage reject the counter offer, provided the contract has not yet been formed. This may be problematic for ICL since it was held in Pickfords Ltd v Celestica Ltd. [2003] EWCA Civ 1741that once there was performance on a contract pursuant to a counter-offer, the counter-offer is deemed to have been accepted.14 The difficulty for ICL is that the passage of time may present a bar to revocation. In Byrne v Van Tienhoven the offeror posted an order to the offeree for 1000 boxes of plates. Approximately one week later, the offeror posted another letter to the offeree revoking the initial offer. A few days later the offeree received the initial offer in respect of the order for 1000 boxes of plates to which he dispatched a reply accepting the offer. The offeree received the second letter in which the revocation had been communicated approximately five days later. The court ruled that the revocation was too late since the contract was already made. The revocation had been received only after the offer was accepted.15 According to this ruling ICL had not acted promptly in revoking the counter offer, thereby accepting it. GSL, however, have been presented with an entirely different offer and may now seek to revoke it. The problem for GSL however, is that the negotiations have now proceeded beyond a point of a mere gratuitous exchange of promises. This is not a case where a mere promise to purchase goods was made since there is evidence in writing that the offer and acceptance goes beyond a mere gratuitous exchange of promises. Aside from the written acceptance of a clearly communicated offer containing a ‘no variation’ clause there appears to be consideration. GSL may be in a position to force ICL to sell the computer pursuant to the terms and condition contained in their counter offer, provided they can show valid consideration..16 Consideration A contract will not be formed unless there is valid consideration. Once the court is satisfied that a valid offer had been made and duly accepted it will then look for consideration. Lush LJ describes consideration as: “…some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.”17 Patterson J provides perhaps a simpler approach to consideration in Thomas v Thomas (1842) 2 QB 851. In this case Paterson J describes consideration as: “…something which is of some value in the eye of the law, moving from the plaintiff; it may be some detriment to the plaintiff or some benefit to the defendant”. 18 Relying on Patterson J’s approach to consideration in Thomas v Thomas, LCI conceivable suffered a detriment by taking on the time and expense involved in altering or modifying the software for the computer in question. This is assumed based on the fact that a month passed since receiving the purchase order from GSL. As P. Atiyah, the doctrine of consideration exists as a means of affirming the parties legal intentions and the meeting of the minds.19 Joseph Savirimuthu effectively notes that all doctrines encapsulated under the law of contract have a definitive meaning and application. These doctrines exist as a means of defining and constructing the circumstances in which commitments become binding on the parties.20 With respect to the rules regulating the valid formation of a legally binding contract, Savirimuthu explains that, the underlying rationale is calculated to provide markers for determining each party’s voluntary assumption of their respective obligations.21 On the facts of the case for discussion GSL acted on the assumption that the computer would be modified under the price advertised in the brochure. They are entitled to foster this assumption since they rejected the counter offer of a varied price and submitted a counter offer in writing which was ultimately accepted and returned to them in writing. Although ICL rejected the offer by GSL to purchase the modified computer for the advertised price, they accepted the counter offer on those terms and took steps to sell the computer according to specification. Therefore the doctrine of consideration arises to form a valid contract between the parties. It can be argued however that the absence of a variation clause and a tear off notice indorsing the terms and conditions contained in the purchase order can not be interpreted as a counter offer. On the facts of the case, it is obvious that ICL assumed that the variation of the price would form a part of the contract. This argument however, is unlikely to succeed since they did not seek clarification and assumed that the terms and conditions of the purchase order. As Lord Denning said in the case of Storer v Manchester City Council. [1974] 3 All ER 824: “In contracts you do not look into the actual intent in a man `s mind .You look at what he said and did .A contract is formed when there is ,to all outward appearances, a contract .A man cannot get out of a contract by saying `I did not intend to contract `,if by his words he has done so.”22 Conclusion In all the circumstances of the case a valid contract based on valuable consideration exist between GSL and ICL. The terms and conditions of the contract have been determined by the terms of the offers and acceptance negotiated between the parties. The final agreed upon terms and conditions are contained in the tear off note signed by ICL and returned to GSL. ICL acted on those terms by modifying the computer and as such the offer and acceptance has moved beyond a mere gratuitous exchange of promises. ICL is therefore bound to sell the computer to GSL for the price of 2,500 pounds. Bibliography Atiyah, P.(1979) Rise and Fall of Freedom of Contract Oxford: Clarendon Butler Machine Tool Co Ltd v Ex-Cell-O Corpn (England) Ltd. [1979] 1 All ER 965 Byrne v Van Tienhoven [1880] 5 CPD 344 Brogden v Metropolitan Rail Co (1877) 2 APP CAS 666 Carter, J. Peden, E. and Tolhurst, G. Contract Law of Australia. Butterworths/Lexis Nexus, 2007 Currie v Misa (1875) LR 10 Exch 153 Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 Furmston, M.P., Cheshire, G.G. and Fifoot, C.H.S. (2001) Cheshire, Fifoot and Furmstons Law of Contract. London: Butterworths Grainger & Son v Gough [1896] AC 325 Hyde v Wrench (1840) 3 Beav 334 Oxford v Davies [1862] 12 CBNS 748 Partridge v Crittenden [1968] 1 WLR 1204 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1951] 2 QB 795 Pickfords Ltd v Celestica Ltd. [2003] EWCA Civ 1741 Savirimuthu, Joseph. Code, Hybrid Models of Consent and the Electronic Commerce (EC Directive) Regulations. JILT 2004 (2) http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_2/savirimuthu/#_ftnref5 Viewed November 11, 2008 Storer v Manchester City Council. [1974] 3 All ER 824 Thomas v Thomas (1842) 2 QB 851 Read More