Professional Documents
Culture Documents
2009
ABSTRACT
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Contract:
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An Offer
Whether two parties have an agreement or a valid offer is an issue which is determined
by the court using the Objective test. Therefore the "intention" referred to in the
definition is objectively judged by the courts. In the English case of Smith v. Hughes
(1871), the court emphasised that the important thing is not a party's real intentions but
how a reasonable person would view the situation. This is due mainly to common sense
as each party would not wish to breach his side of the contract if it would make him or
her culpable to damages, it would especially be contrary to the principle of certainty and
clarity in commercial contract and the topic of mistake and how it affects the contract.
The classical principles are illustrated in the well-known case of Carlill v. Carbolic
Smoke Ball Company (1893).
Case facts:
The defendants, Carbolic Smoke Ball Co. Ltd., inserted ads in various papers offering to
pay £100 to any person who contracted influenza after using the smoke ball (their
invention/product which was supposed to be a cure for influenza) three times a day for
two weeks. In addition, the defendants had deposited £1000 at the Bank for that
purpose. Carlill, a lady, used the ball as advertised, and was attacked by influenza
during the course of treatment. She sued for £100.
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must have been the intention that the ball would protect its user during the period
of its use.
Carbolic Smoke Ball Co. claimed that there was no consideration. The court held
that: using this inhalant three times a day for three weeks or more was sufficient
consideration.
The Company argued that the matter was an just an advert “puff” with no
intention to create legal relations. The court ruled: that the deposit of £1000 at
the bank was a clear evidence of an intention to pay claims.
It was also argued that there was no communication of acceptance: To this the
court held: that looking at reward cases, contracts of this kind, acceptance may
be by conduct.
It was further suggested that this was an attempt to contract the whole world and
this was not possible in English law. To this the court held: that the advertisement
was an offer to the whole world and that, by no analogy with the reward cases, it
was possible to make an offer of this kind.
Acceptance
Under the Law of Contract Act, 2002 s.2(1)(b) – Acceptance is defined as an assent to
the proposal by the person to whom it was made. Literary, the section states that “when
the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted, and a proposal, when accepted, becomes a promise”.
For there to be a valid contract, the offer has to be proved and it must be satisfied that
the offeree has accepted the offer.
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• The acceptance must be communicated:
Depending on the construction of the contract, the acceptance may not have to come
until the notification of the performance of the conditions in the offer as in Carlill's case,
but nonetheless the acceptance must be communicated. Prior to acceptance, an offer
may be withdrawn.
• An offer can only be accepted by the offeree:
An offer can only be accepted by the person to whom the offer was made. An offeree is
not bound if another person accepts the offer on his behalf without his authorisation as
per agency law.
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a counter-offer. It may be possible to draft an enquiry such that it adds to the terms of
the contract while keeping the original offer alive.
An offeror may revoke an offer before it has been accepted, but the revocation must be
communicated to the offeree, although not necessarily by the offeror. If the offer was
made to the entire world, such as in Carlill's case, the revocation must take a form that
is similar to the offer. However, an offer may not be revoked if it has been encapsulated
in an option in option contracts.
If the offer is one that leads to a unilateral contract, then unless there was an ancillary
contract entered into that guaranteed that the main contract would not be withdrawn, the
contract may be revoked at any time:
It should be noted that acceptance has to be communicated AND received for there to
be a contract. More discussions on this aspect are to be discussed later in this paper.
Sec. 4 (1 – 2) of The Tanzanian Contract Law, the Law of Contract Act 2002, stipulates
that “The communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made. It further states that, the communication of an
acceptance is complete -
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as against the proposer, when it is put in a course of transmission to him, so as
to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
The above mentioned sections of the Act are vividly seen as being based on the
mailbox rule, taking post as the main method of written communication. (the mailbox
rule is discussed hereinafter). It can be seen that the Law of Contract Act, 2002, has left
a lacuna as far as the instantaneous modes of communication are concerned.
The courts have developed various strategies to allocate to the recipient the risk as to
whether an acceptance is actually received (in relation to paper contracts), in order to
give some protection to the sending party who will not be aware there is a problem with
his message until it is too late.
Perhaps the best known of these strategies is the “postal rule” whereby a posted
acceptance will be deemed to have been communicated when it has been posted rather
than when it is received. However, these strategies were developed in a world where
instantaneous communication was not possible. As faster communication becomes the
norm, the protection offered by the postal rules has been reduced for others forms of
communication. For example, faxes are communicated when received rather than when
sent, although they need not have been read, or even printed if the fax machine can
save faxes to its memory, as it was in the case of Anson -v- Trump.
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Dominance of the Mailbox rule (Postal acceptance rule)
As a rule of convenience, if the offer is accepted by post, the contract comes into
existence at the moment that the acceptance was posted. Posting binds the Offeror,
and when the acceptance comes to the knowledge of the Offeror, the Offeree becomes
bound by the terms of the contract. This rule only applies when, impliedly or explicitly,
the parties have in contemplation post as a means of acceptance.
The Common Law position is that both the Offeror and Offeree become irrevocably
bound when the acceptance letter is posted in due course. The phrase “in due course”
means that the letter must be properly addressed, adequately stamped, and posted. In
case the letter gets lost while in transit, the parties continue to be bound by the terms of
the contract.
For quite a while, post has been regarded as the main form of written communication.
This has been so for the time when other written communication methods, such as fax
and email, have not been in existence.
The Mailbox rule excludes contracts involving land, letters incorrectly addressed and
instantaneous modes of communication, which is the main concern of this paper.
Instantaneous Communication
With the development of Information and Communication Technology (ICT), here came
new and faster modes of communication, such as telephones (land lines and mobile
phones), fax, telex and email. Such methods have made the globe look like one village,
enabling instant delivery of voice and data (text) communication. Generally,
Instantaneous forms of communication do not fall under the mailbox rule. Acceptance
by these methods is, therefore, only valid when the message is received.
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Place of Contract
The place of contract is governed by the place of acceptance of the offer; and
acceptance takes place at the place where it is received. Where acceptance is
communicated by letter it is regarded as received at the place of posting rather than at
the place of actual receipt. This is because, once a letter has been posted, the Post
Office holds it on behalf of the addressee. Where telephone communication is used the
place of acceptance is the place where the recipient of the acceptance is. That is the
general rule for instantaneous communication. It would apply also to an acceptance
sent by telex or fax directly from the acceptor's office to the offeror's office. The general
rule may need qualifying when a cable company's services are used. A telegram like a
letter is regarded as received when put into the hands of the Post Office.
Various complications can arise with regard to whether offer/acceptance sent during
office hours. In the case of the Brimnes (1975), notice of withdrawal sent by fax during
office hours but not seen by staff until the following Monday. The Court held that the
contract became effective when the message was received. Possible factor was staff’s
negligence. Conversely if sent outside office hours, acceptance will be effective from the
first new day. Some problems might also arise if the fax machine that has run out of
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paper and cannot store messages electronically? In this case, is there a contract?
Acceptance will not have been effectively communicated, and therefore no contract!
In any contract, there has to be effective communication. Acceptance is, therefore, not
communicated until such time as the acceptance actually comes to the attention of the
party to whom it is directed.
Therefore, if a case occurs that acceptance is attempted by telephone but the line is
very poor and the acceptance is not heard, it will be concluded that acceptance was not
effectively communicated. Therefore, no enforceable agreement came into being.
In the case of Entores v Miles Far East Corporation (1995), the defendants were in
London, while the plaintiffs were in USA with agents in Amsterdam. Both parties had
telex. Plaintiffs placed order by telex, agent accepted by telex. The dispute arose and
plaintiffs sued for breach of contract. The Court held same as if in each other’s
presence. Thus contract formed when acceptance received in London
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repeated and in the BRIMNES case (1975) where acceptance is sent by Telex during
business hours, but is simply not read by anyone in the Offeror’s office.
The main question arising when considering acceptance through email is that “Does E-
Mail Fall Under the Mailbox Rule?” The Tanzanian Law of Contact is silent on this
matter, and the courts in other countries have not clearly decided whether an
acceptance by e-mail becomes valid when successfully sent (i.e. when received).
I concur with this suggestion: Chitty on Contracts suggest that emails should be dealt
with in the same way as faxes as, like faxes, emails are a form of instantaneous
communication. However, an email message is communicated when it is available to be
read. In my experience this would be from the time it was transferred to the recipient’s
Internet Service Provider (ISP), wherever that may be, wherever the server location
may be.
All in all, to form a binding contract, acceptance must be given unequivocally (i.e. clearly
and without ambiguity) and it must be communicated to the person making the offer. In
establishing whether electronic acceptance has been communicated unequivocally it is
important to understand when acceptance will take place, the method of
communication of acceptance, and what happens when electronic messages are
sent. Emphasis is hereby put on acceptance by email, but other electronic messages
(such as filling in an online form) will raise the same issues.
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As noted earlier, instantaneous forms of communication such as email communications
do not fall under the mailbox rule. Acceptance by email is, therefore, only valid when
the message is received; or when the offeror, in whatever method, comes to the
knowledge that the offer has been accepted.
Article 24 of the United Nations Convention on Contracts for the International Sale of
Goods (CISG), which was drafted back in 1980, defines a message to have "reached"
the addressee if it has been made orally to him or delivered by any other means to him
personally to his place of business or to his mailing address. As today's means of
electronic communications did not exist at the time of the drafting of the CISG, the CISG
does not contain a definition for the "reaching" requirement of e-mails and other
electronic communications. The CISG-AC Opinion No. 1 clearly states that the "place"
of an email has to be understood in a functional rather than a physical way. Therefore,
the message could be on any server in the world and still have reached the addressee's
place of business as long as he would have been able to retrieve it. Consequently, for
an e-mail to "reach" the addressee, it is enough for the e-mail to enter the addressee's
server. It is not important if the addressee has actually read it, or maybe even could not
read it due to technical problems, as it is within the addressee's "sphere of influence" to
provide for adequate means to ensure that his internal communication functions
satisfactorily.
A further complication concerns whether the acceptance message can be read by the
recipient in the same way as it was sent (a problem which applies equally to
communicating acceptance and which I shall consider below).
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Take, for example, a party to a dispute who sends an email to the claimant intending to
make a counter-offer for TShs. 10,000 but the message is corrupted and states instead
that he will settle for TShs. 1,000. Is the email in fact a counter-offer, as it was intended
to be, or an acceptance giving rise to an enforceable agreement? In the case of Henkel
-v- Pape in 1870 dealt with a garbled telegram message where a seller had offered 50
rifles and the buyer sent a telegram saying “send three rifles”. This arrived at the
seller as “send the rifles”. The court held that the buyer was only liable to buy three
rifles and that the risk of garbled messages lay with the seller as he had the risk of a lost
acceptance. The principle should be the same for electronic communications but may
be different if the party making the offer does not take the risk of communication by, for
example, specifying when acceptance is communicated. In which case the respondent
may be forced to take the risk in communication reversing the outcome in Henkel -v-
Pape.
Generally, the CISG, in Article 11, grants complete freedom of forms. For the conclusion
of a contract, i.e. offer and acceptance, it contains no formal requirements. However,
several countries have declared reservations to this provision and the CISG mentions
the concept several times. Therefore, it is necessary to understand the concept,
especially in regard to electronic communications.
The Convention provides in Article 13 that "[f]or the purpose of this convention "writing"
includes telegram and telex." At the time of its drafting, the Convention's notion of
written communication was extended to cover the fastest means of document
transmission then available: telegram and telex. No telefax was mentioned, and, of
course, no e-mail. As has been briefly mentioned, e-mail and telefax, being means of
instantaneous communication, could be compared to telex in this regard.
Opinion No. 1 now extends the notion of "writing" as follows: "The term "writing" also
includes any electronic communication retrievable in perceivable form." In its comment
to Article 13, the Advisory Council says that the prerequisite of "writing" is fulfilled as
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long as the electronic communication is able to fulfill the same function as a paper
message, i.e., that it can be saved (retrieved) and understood (perceived).
There may occur problems that are related to automated reply to orders placed on their
website which acted as acceptance. If the information on the website was incorrect and
the automated response accepted an offer to sell goods at far below the intended price,
would there be a valid contract? This is one of two problems raised by electronic
acceptance which could come under the generic heading “computers being too clever
for their own good”.
The second problem is another form of automatic reply. Some email systems are set up
such that they automatically return emails if they detect what they believe to be a
virus/Trojan horse/spyware. The question is (in cases when the returned email was an
acceptance) whether that acceptance had been communicated or not?
Concluding Remarks:
Times have changed. The Law of Contract Act, 2002 does not cope with the
requirements of the development in Information and Communication technology. It is
advisable that the Law be revised to incorporate the needs of the modern-day life,
especially in business relations and e-commerce. There are challenges to the
successful incorporation of ICT elements in our legal system, but if we don’t many
people might use the loophole to defraud others and possibly get away with it. It is now
or never. We cannot rely on cases decided in foreign countries while we have our own
Contract Law. We need to equip ourselves with the requisite knowledge on ICT, and
amend our laws accordingly, not just the Law of Contract Act.
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References
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Web resources
15. http://en.wikipedia.org/wiki/ Instantaneous Communication
16. http://www.oecd.org/contracts
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