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Contract Law & Agency Law

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The case study evolves on Shaun, being the offeror, and three interested parties, being the offerees, on whether they have a valid contractual agreement for the purchase of the electric guitar that was advertised on the papers by Shaun. Firstly, there is a need to review the fundamental of the advertisement by relating them to the following key elements of a contact:

(a) Offer

An offer is an expression made by one party (“offeror”) to another party (“offeree”) communicating the offeror’s willingness to perform a promise (Benny, 2009, page 63). The offeree can be a specific person, a group of people or to the whole world.

An invitation to treat refers an invitation to commence negotiations. It is an invitation to make an offer. Acceptance of an invitation to treat does not lead to a contract (Pharmaceutical Society of Great Britain v Boots Cash Chemist) (1952) (Benny, 2009, page 66).

In the advertisement that was placed by the offeror, the offer on the table is the sale of a electric guitar that was previously owned and played by Eric Clapton to the first interested party who write in to his stated address, with $5,000. The advertisement was not considered an Invitation to Treat because there is no negotiation required as the offeror had mentioned in the advertisement that his guitar will be sold to the first person who wrote in to his stated address with $5,000. Therefore, it should be classified as an offer. The aim of the advertisement is to allow the offeror to express his willingness to sell his guitar to whole world. There is a need to determine if this advertisement constitute a Bilateral Contract, Unilateral Contract should there be a valid agreement between the offeror and the offeree.

• Bilateral Contract- In a usual contract, the parties would know the identities of each other. This is because there is an exchange of promise (Benny,2006, Page 63)

• Unilateral Contract- An offer that can be addressed to a particular person, a group of people or to everyone. It is a contract that will be brought into existence by the act of one party in response to a conditional promise by another party. (Harvela Investments Ltd v Royal Trust Co of Canada (CI) Ltd & Ors) (1984) (Benny, 2009, Page 63).

As there was no exchange of identities between the offeror and offerees prior to the sale thus it should not be considered as a bilateral contract. Thus, it will view as a case of Unilateral Contract should a valid contractual agreement would be formed between the offeror and the first interested party who acted in response to the conditional promise that offeror had mentioned.(Carlill v Carbolic Smoke Ball Co ) (1982) (Benny, 2009, page 64).

(b) Acceptance

An acceptance may be made in writing, orally or by conduct (Benny, 2009, Page 67). Regardless of the form that is being used, a communication constitutes an acceptance only if it is an unconditional expression of assent to the terms of the offer (Compaq Computer Asia Pte Ltd v Computer Interface (S) Pte Ltd ) (2004) (Benny, 2009, Page 67). In the case study, there are three interested parties using various forms of communication channel to declare their acceptance to the offeror offer. In the following, we will discuss individually on whether there is a valid acceptance to the offer.

1. Was Joyce acceptance considered a valid acceptance?

Communication of acceptance is classified as a general rule with regards to the need for communication of acceptance is that acceptance must in fact be communicated. In the case study, Joyce communication of acceptance to the offeror’s offer was through telephone to express her desire to buy the guitar from him. However, it was considered as an invalid acceptance as the offeror had stated that the mode of communication of acceptance was to write in. This means that the acceptance must be made in writing to the offeror stated address by the stated time.

By leaving a voicemail, it would be unjust to hold the offeror bound if he did not know that his offer had been accepted as the offeror did not check his mailbox .This was due to the fact that it was not the specific mode of communication of acceptance stated. However, if there is no specific mode of communication of accepted stated or the use of specific mode of communication of acceptance used is correct, the case law seemed to suggest that the general rule should continue to apply in this scenario (Chee Kin Keong v Digilandmall.com Pte Ltd) (¶3-307) (Benny, 2009, Page 73).

Silence is a situation where acceptance may not require any communication is where the parties have agreed that the offeree’s silence is to be construed as his acceptance or vice versa (Benny, 2009, Page 70). If Joyce, without the consent of the offeror, imposed a condition that the offeror’s silence would be taken as acceptance, then such a condition would not be enforceable (Felthouse v Bindley) (1862) (Benny, 2009, Page 70). In this case, Joyce was wrong to assume that acceptance needs not to be communicated to the offeror by assuming that the offeror would be agreeable to the arrangement that was stated by her if she did not hear from the offeror within a period of time.

On the 14th November 2009, Joyce arrived at the offeror house with $5,000 to purchase the guitar directly from him. As 14th November was a day after the deadline, the offer was already considered lapsed. Lapse of Time is where an offeror states that his offer is open for a specified period and a purported acceptance after that period would not be effective since the offer had lapsed (Benny ,2006, Page 79) (Ramsgate Victoria Hotel Co v Montefiore) (1866) (Benny ,2006, Page 79).

As the offeror was unwilling to part with the guitar due to a change of mind, the offeror had the right to withdraw the offer in this case as there was no valid acceptance from Joyce to the offeror within the period stated.

2. Was Keith acceptance considered a valid acceptance?

Keith wrote in to the offeror on 6th November 2009, to state his willingness to buy the guitar from the offeror for the price of $5,000 payable in 5 monthly installments. On 7th November 2009, Keith sent out the letter with a cheque of $1,000 which was received by the offeror on the 8th November 2009. However , as the offeror was too busy at work, this mail was forgotten . Although the message may not be retrieved until much later by the offeror, however based on the correct mode of communication of acceptance which was to write in to the offeror that was used by Keith and considering the general rule of communication of acceptance, Keith was considered to establish a valid communication of acceptance.

However, Keith mentioned that he wanted to use 5 monthly installments to pay for the offer of $5,000. It may be viewed that Keith had accepted the offer but subject to a change in one proposed term. By doing so, it was considered an invalid acceptance as Keith stated a new condition of a new term to the offer that was put up by the offeror .Terms are statements which form part of a contract (Benny ,2006, Page 114). The new term was to allow Keith to pay for guitar, at the price of $5,000 in 5 monthly installments. It was considered a new term as there was not such term in the original offer. When an offeree accepts an offer but on condition of a new term, the acceptance may amount to a counter offer (Benny, 2009, Page 78). A counter offer is viewed as anything that is less than an unconditional acceptance may be viewed as a counter-offer which rejects the initial offer (Hyde v Wrench) (1840) (Benny, 2009, Page 79). For this reason, a counter offer does not amount to an acceptance to the original offer. Therefore, in this case, Keith was wrong to assume that by proposing a new term, the original offer would still be valid. Thus, it may be viewed that Keith acceptance was considered as a invalid acceptance to the offer.

3. Was Minnie acceptance considered a valid acceptance?

On 9th November 2009, Minnie wrote in to the offeror, together with a cheque of $5,000 to confirm her interest in the purchase of the guitar. However, Minnie mailed to an incorrect house number which as a result, the offeror received Minnie’s letter only on the 14th November 2009. However, Minnie was still considered to establish a valid communication of acceptance based on the mode of communication that was used to convey her acceptance.

Although the letter of acceptance reached the offeror only on the 14th November 2009, which was one day after the deadline, the acceptance to the offer was still considered valid under the principle of the postal acceptance rule. The postal acceptance rules states that acceptance that is sent through the post may allow acceptance even if it is not communicated to the offeror. In such situation, the acceptance is deemed to have been effective as soon as the letter is posted, regardless as to when it reaches the offeror or whether it reaches him at all (Benny ,2006, Page 71). In order for the postal acceptance rule to be effective, both parties must agree that acceptance should be sent by post prior the valid contractual agreement. In this case, Minnie had responded to the conditional promise of the offeror by writing in to declare her intention of purchasing. Therefore, it may interpret that an acceptance to the offer had been established on the 9th November 2009, when the letter of acceptance was posted by Minnie. In this case, there is a valid acceptance, because the postal rule of acceptance applies. Adams v Lindsell (1818) (Benny, 2009, Page 71).

(c) Consideration

Consideration is the concept of reciprocity or bargain where it may defined as the something which is given in exchange for another thing. (Dunlop v Selfridge) (1915) (Benny, 2009, Page 85). Therefore, consideration can be viewed as the price or compensation for the promise given by one party to the other (Benny, 2009, Page 85). In this case study, the consideration is the selling of the guitar at $5,000 by the offeror to the first interested party that wrote in with the offer stated.

The consideration for offeror’s promise is offeree promise and vice versa. In the case study, it can be seen that all three interested offerees, had made an offer of $5,000 to the offeror for the offeror’s promise that he would sell the guitar. It may be viewed as an executed consideration on the offeree’s part. Executed consideration refers to consideration has been performed.

As there was no valid acceptance to the offeror’s offer (no valid agreement) by Joyce and Keith, it should be considered that their consideration had lapsed. Thus, only Minnie deemed to possess a consideration with the offeror.

(d) Conclusion

A valid offer with acceptance between the offeror and the offeree is equivalent to a valid agreement. From the case study, it can be seen that among the offerees, only Minnie had met the general rule of the agreement due to the postal rule of acceptance. Household Fire Insurance Company v Grant (1879) (Contracts & Contract Law, 2007). Therefore, it may be classified that there is a valid agreement made on the 9th November between the offeror and Minnie when Minnie sent out her communication of acceptance. The rest of the offerees were deemed to have no valid agreement due to factors such as lapse of offer, counter offer as well as wrong mode of communication of acceptance used.

Consideration factor was also fulfilled by both parties where the offeror had stated that he would sell the guitar for $5,000 to the first interested offeree within the period of time. Minnie had fulfilled by writing in to declare her interest, together with the $5,000 offer.

Therefore, in this case, due to above mentioned points, the offeror has to sell away his guitar to Minnie even though it was mentioned that he had a change of mind on the 14th November 2009. However, as acceptance was done on the 9th November 2009, no withdrawal of offer is allowed on the offeror part. If the offeror did not fulfill his obligation to sell, this can lead to a legal effect- breach of contract.

Question 1 (b)

The four key elements in order to fulfill all the requirements of a valid contract consist of an offer, the acceptance, consideration and the intention to create legal relations. Assuming that Mr Johnson in this case had met all the requirements, his contract is therefore enforceable.

Since Shawn is refusing to sell Mr Johnson the guitar despite both having a contractual agreement, Mr Johnson may take up civil proceedings against Shawn by engaging a lawyer who will issue a court document known as writ of summons which commences a civil action. Mr Johnson may initiate his civil claim in the Subordinate Courts which deals with 95% of all legal proceedings in Singapore (Tabajulan and Du Toit-Law, 2009).Within the Subordinate courts; Mr Johnson may commence his action either in District court, Magistrates’ court or Small claims tribunal.

The District court hears civil actions where the disputed amount does not exceed $250,000 however parties involve may also agree in writing to have the matter heard by District court if the sum exceeds $250,000 or the plaintiff limits the claim to $250,000.

The Magistrates’ court has the power to hear civil actions of the disputed amount up to $60,000. Such proceedings are heard before legally qualified Magistrates.

I would advise Mr Johnson to take up his civil action through Small claims tribunal. The tribunals only deal with claims up to $10,000 in relation to contracts for sale of goods or provision of services which is the most appropriate in Mr Johnson’s case as the disputed amount is just $5000. All the cases are heard before a registrar with the parties involve without their lawyers representing the case. The tribunals offer a faster and cheaper means of resolving the disputes among parties. Normally, the case could be heard within few weeks after filing and for tourist, their claims could be heard within 24 hours. Due to these reasons that small claims tribunal is a preferred destination for most parties filing for claims below $10,000.

Question 2

Issue

To advise Grace as to whether Jane will be able to successfully claim the balance of $1,750 from her for the remaining 5 lessons conducted.

Offer and Acceptance

In order to have a valid contract, two of the four key elements that have to be present are offer and acceptance. In this case, Grace (offeror) engaged the services of Jane (offeree), an accomplished pianist and part-time tutor, to tutor her for a total of ten piano lessons and the fees payable at $500 per lesson. There is a binding agreement between both them as Jane accepted the offer.

Let’s assume that the acceptance is made in writing and not through orally. This is because the problem with oral agreements is that if there are any disputes, it might be difficult to ascertain the precise terms of the contracts and another reason for the use of written contracts is that certain transactions are required by law to be in writing (Tabajulan and Du Toit-Law, 2009) in order to be enforceable in court.

Consideration and Intention to Create Legal Relation

In order to have a valid contract, the remaining two elements that have to be present are Consideration and Intention to create Legal Relation. Consideration refers to the price or compensation payable for a contractual promise. In the case, Grace promises to pay Jane $500 per lesson in return Jane promises Grace to conduct piano lessons for her.

The case also reveals that the two other important rules on consideration are present.

1st rule: Consideration must move from the promisee but need not move to the promisor. It means that when Jane promised to conduct piano lessons for Grace, Jane is the promisor and Grace is the promisee. When Grace promised $500 (per lesson) as consideration, Grace is the promisor and Jane is the promisee. In order for the promise to be enforceable, the consideration must move from Grace although need not move to Jane (Malayan Bank Bhd v Lauw Wisanggebu (4-219).

2nd rule: Consideration must be sufficient but need not be adequate. The law will still enforce the contract between Grace and Jane as the consideration has some value in terms of money of $500.

Lastly, the fourth element is Intention to create legal relations. It means that Grace and Jane have a common intent that their mutual promises are to be legally enforceable unless rebutted.

The analysis shows that all the four elements that is required in order to have a valid contract is present and therefore both Grace and Jane has the right to take up civil proceedings against each other . As for Jane in this case, she could successfully claim the $1,750 from Grace.

Consideration and Promissory Estoppel

However, one way for Grace to defend herself against the claim from Jane is through the application of “Promissory Estoppel”. Promissory Estoppel is a legal doctrine used in legal systems. It allows a party to recover on a promise even though that promise was made without consideration. Essentially it prevents a person from arguing that his or her promise should not be upheld. It also requires that reliance on the promise was reasonable, and that the person trying to enforce the promise actually relied on the promise to his or her detriment. (Central London property Trust v High trees) (1947)

As in the case, after five lessons, Grace informed Jane that she could not continue the piano lessons as her mother was suffering from cancer and needs the money for her treatment. However, out of pity, Jane agreed and promised to collect a nominal fee of just $150 from Grace for the remaining five lessons. This caused Grace to rely on the promise made by Jane and she changed her decision to continue with the piano lessons.

Grace can show that all four conditions that are necessary to establish promissory estoppel existence:

1) There is an existing legal contract between Grace and Jane (Piano lessons). 2) There was a clear and unequivocal promise made by Jane which affected the legal relationship by reducing the Piano lessons fees to $150. 3) Grace, as the promisee, relied upon the promise and altered his position by paying only $150 for the remaining five lessons. 4) Lastly to be fair, it appears not equitable for Jane as the promisor to go back on its promise as Grace mother still seeks medical treatment for her cancer illness. In these circumstances, given that Promissory Estoppel can be established in Jane’s case, Grace should be successfully defending herself against the claim of $1750 from Jane.

Conclusion

Valid contract consists of all the key elements Offer, Acceptance, Consideration and Intention to create Legal Relations. From the case study, it clearly shows that all the four elements were present when Jane and Grace came into contractual agreement for the piano lessons. Jane in this case has all the rights to sue Grace for claiming the remaining balance of $1,750.

However, Grace could defend herself against the claim through “Promissory Estoppel”. This doctrine upholds the promise made by Jane whom agreed to teach Grace the remaining five lessons for a fee of $150 even though there is no consideration made by Grace (Promisee) in return. It shows that Law wants to promote fairness even though there is no enforceable contract in Grace’s case. Law would like to enforce the promise made the promisor in this case if all the key elements are found to establish “promissory Estoppel”.

Question 3

Issue

Legal rights of Urchin & Starfish should they decided to sue the management of Fun & Games Pte Ltd (FGPL) for the damages and injuries suffered by them during their ten minutes ride on the merry-go-round ride.

An offer of $10 entrance ticket by Funs and Games Pte Ltd was made to Urchin and Starfish and acceptance has taken place when Urchin and Starfish decided to purchase the ticket.

FGPL is protected by the exemptions clause which will discharge them from the liabilities for any loss or damage and injury resulting from visitors participating in any of the activities or games conducted within the funfair grounds.

An exemption clause is a term; in contract exclude the liabilities of the party relying on the clause. It excludes all liabilities, a limitation of a party relying on the sum specified in the contract. (Benny, 2009, page 124)

For the exemption clause to be effective, there are four considerations to fulfil.

1) The clause must be incorporated into the contract

2) The clause must be properly construed, covering the loss or injury which occurred.

3) No involvement of unusual factors or in another term, extraordinary facts which prevents the operation of the clause

4) Compliance with the Unfair Contract Terms Act (UCTA)

Incorporation

Exemption clause will only be considered as incorporated into the contract by two methods, either by signature or notice. In normal circumstances, the exemption clause is incorporated by the signature of the parties involved, L’Estrange v Graucob (1934).

In the event that no written contract or the contract was not signed, the exemption clause may still be incorporated into the contract but the person relying on the exemption clause must be able to proof that he has given sufficient notice of the exemption clause to the injured party.

To justify if the notice is valid when there is no written contract or no signature was in place, the person will have to justify that the notice was placed at a prominent location, make known before the time of contract or event take place and reasonable steps taken to bring the notice to attention of the injured party.

Referring to Chapelton v Barry Urban District Council (1940), the exemption clause was printed on the ticket which any reasonable people would expect to find contractual terms on the back of the ticket and would only regard it as just a receipt for payment. In the case of FGPL, they have placed a large and prominent signboard at the entrance where visitors get to read it before they decide if to accept the contract and purchase the ticket into the funfair. Unlike the case in Olley v Marlborough (1949), FGPL have fulfilled these three criteria.

Construction

Upon justifying that the exemption clause is incorporated into a contract, the next step is to construe the clause. In the case of FGPL, the notice placed at the entrance has clearly stated the clause.

Unusual Factors

There is no other unusual factor which may limit the effectiveness of the clause.

Unfair Contract Terms Act (‘UCTA’)

Under the Unfair Contract Terms Act (UCTA), Section2 (1), it states that Personal injury and liability for other loss or damage cannot be excluded at all. In the case of Xu Jin Long v Nian Chuan Construction Pte Ltd (2001), it concludes that any contractual term that prevents a party from being sued in negligence for death or personal injury, is a restriction of liability under Section 2 of the Act, and such term is not enforceable. (Benny, 2009, Pg 133)

Although Urchin and Starfish did not suffer from severe injuries, they were hospitalized and were unable to continue their planned schedule in the funfair with the remaining rides even though they have paid $10 each for the admission ticket. This was due to the negligence of FGPL to ensure that the necessary equipment was serviced on time, resulting in the surge of electricity and the accident.

We would suggest them to sue FGPL on the negligence to maintain the safety of the necessary equipment and compensation for their medical fees.

References

• Benny S Tabalujan, Valerie Du Toit-Low- Singapore Business Law, (2009), 5th Edition, BusinessLaw Asia, Singapore.

• Business Dictionary – Definition of Exemption Clause

http://www.businessdictionary.com/definition/exemption-clause.html (accessed on 27th February 2010.)

• Contract Law Singapore – Contract Terms

http://www.entersingaporebusiness.info/Bus12.htm accessed on 27th February 2010.)

• Law Teacher Net – Exclusion & Limitation Clause

http://www.lawteacher.net/contract-law/lecture-notes/exclusion-clauses-lecture.php (accessed on 27th February 2010.)

• Tutor2u Net – Exemption Clauses & Unfair Terms

http://tutor2u.net/law/notes/contract-unfair-terms.html (accessed on 27th February 2010.)

• What is Promissiory Estoppl?

http://www.wisegeek.com/what-is-promissory-estoppel.htm (accessed on 26th February 2010.)

• Contracts and Contract Law > Part 4: Offer & Acceptance

http://duhaime.org/LegalResources/Contracts/LawArticle-89/Part-4-Offer-Acceptance.aspx (accessed 27th February 2010.)

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