The Contractual Relations between UCL and DC Builders - Essay Example

Contract Law In the English law, a contract is an agreement between two or more parties which the law will recognize. It has six essential elements:agreement; consideration; intention to create legal relations; reality of the consent; capacity to contract, and; legality. Agreement is the understanding between the parties to enter into a specific contract. It has, in turn, several elements specifically offer and acceptance. Consideration is the price or amount, in money or in kind, involve in the agreement. The intention to create legal relations simply means that the parties who have decided to enter into a particular came into it with the intention that such an agreement shall be legally binding for all them. The element reality of the consent, on the other hand, refers to the requirement that the consent by either or all parties must not have been vitiated by any misrepresentation, fraudulent or otherwise, whilst the capacity to contract is a personal requirement on the part of the parties of the contract that they do not possess any legal disqualifications to enter into it. A disqualification for example is minority. Finally, the legality of the contract refers to the ability of the contract and its terms to hold before the law. Put in other words, the contract must not be legally invalid (Mead, Sagar & Back p 56). The problem at bar, calls for the application of the laws of contract formation particularly on the validity of acceptances and offers. The Problem The problem at hand concerns the initial phase of contract-making which is the formation of the contract. The problem here lies in the fact that there was a mix-up of the different elements of the agreement like offer and acceptance and the problem seeks to determine whether there was a valid formation of a contract and with which parties. The problem involves UCL Property Developers, the inviting party, and two companies vying for the building contract: the DC Builders, and; the GB Construction. The order of events is: first, UCL gave out invitations to tender to building contractors for the construction of its administration offices; second, DC Builders and GB Construction were the lowest bidders and pre-qualifiers for £ 2, 250,000, and £ 2, 410,000, respectively and each attached its own conditions and terms distinct from UCL’s; third, UCL awarded DC with the contract, in a letter, but for a slightly less amount and in accordance with its own terms; fourth, DC threatened to withdraw its offer if UCL does not amend acceptance within five days; fifth, DC formally withdrew after five 5 days without word from UCL without knowing that on that same day UCL has posted a letter addressed to it amending its acceptance in conformity with DC ; sixth, upon seeing DC’s withdrawal a day later, UCL’s Contact Administrator phoned the former and request reinstatement of offer but DC upped its price to £2, 400,000 to which the CA replied that although a Board approval is necessary, it was in his opinion alright; seventh, the GB Corporation, on the same day, faxed a message to UCL to the effect that it was willing to conform to the latter’s qualifications and withdrew their own if they receive a Letter of Intent within 24 hours to begin work; eight, the CA called GB and asked them to lower their price to £2,250,000 as a condition to a LOI and a Director of GB accepted; ninth, an LOI was faxed to GB after which it started working on the site, and; tenth, three months after the LOI, UCL finally sent a formal contract for signing to GB but the latter refused unless the original offer of £2,410,000 was reinstituted contending that the proposed price by UCL never became official. The three parties are now claiming as follows: DC claims that their proposal should have been presented to the Board and they should have been awarded the contract; UCL claims that either they be compensated in the original amount contained in their written offer or be compensated for the work already done, and; UCL claims that it has a contract with DC for £2,250,000 and against the CA for the money payable to GB and additional costs. The Issues The issues at hand are: whether or not DC has a right to claim the award of the contract; and whether GB has a right to be compensated for its original offer. The Solution The contractual relations between UCL and DC Builders. The issue in the DC Builders-UCL case was whether there was a valid, existing contract between them therefore justifying DC Builders’ claim that it has a right to the contract. As per the facts presented in the problem, there is no valid existing contact between these two parties, simply because all the elements of a contract are not present with respect to the agreement, as there was no valid offer and acceptance. First, the contract between parties is valid if, among others, the agreement is legally binding and it follows that an agreement is valid if all its elements are likewise valid. In this respect, the offer and the acceptance of both UCL and DC must be examined for their validity. An offer is a statement of terms by a party with respect to the conditions to which his offer is subjected to and that offer is valid if by its terms it is clear and easily understood by the parties to it. According to the principles of European Contract Law, an offer must: have the intention of resulting into a contract if accepted by the other party, and; if it contains enough definite terms to form into a contract (Beale & Tallon pp 178-179). In the case at bar, DC Constructions’ offer was valid. The tender of offer was quite definite as to the price, the schedule of graduated payments of the price and the completion of the work. It is also evident that it was intended by DC to enter into a contract with ULC once accepted by the latter. These conditions are sufficient in their terms for the contract that may result from it and therefore enforceable. In addition, the offer had a fixed duration and was communicated to ULC. DC Builders had originally given 50 days for its offer to stand but this expired the moment UCL accepted its offer, an offer to which the former demurred because it did not conform to the terms of its tender of offer. The acceptance of UCL of DC’s offer stated a contract price different from that stated by DC Builders in their offer. Whilst DC Builders offered to construct the administration offices of UCL for £2,250,000, UCL’s letter of acceptance quoted £2,150,000. This communication therefore was not strictly an acceptance because it rejected, in a way, DC’s offer because of the price change. This communication can be characterised more as a counter-offer. A counter-offer is an answer to an offer which purports to be an acceptance but has made an additional term or terms or has altered the conditions in the offer. Under English law, “an acceptance which is not the mirror image of an offer does not give rise to a contract – it is regarded as a counter-offer, not an acceptance” (Dobson, Dobson & Reddy pp 223). This is a doctrine that was laid down in the case of Hyde v. Wench1. In the Hyde case, the defendant offered to sell a piece of land he owns for £1,200 to the plaintiff but this was rejected by the latter. On June 6, he made another offer, lowering the price to £1,000 to which the other party responded by offering to pay the same for £950 instead. The defendant asked to consider this for a few days and June 11 wrote a letter to the plaintiff stating that he would answer this matter on June 26 but instead wrote a letter of refusal on June 27. The plaintiff upon receiving the letter wrote back stating that he is accepting the earlier offer made on June 6 which is the selling price of £1000. It was held by the Court in this case that the effect of a counter-proposal is an implied rejection of the offer to which it is responding to: “Under the circumstances stated in this bill, I think there exists no valid binding contract between the parties for the purchase of the property. The defendant offered to sell it for £1,000 and, if that had at once been unconditionally accepted, there would have been a perfect binding contract; instead of that, the plaintiff made an offer of his own, to purchase the property for £950 and he thereby rejected the offer previously made by the defendant. I think that it was not afterwards competent of him to revive the proposal of the defendant, by tendering an acceptance of it; and that therefore there exists no obligation of any sort between the parties; the demurrer must be allowed” (qtd. Oughton, Oughton & Davis p 42). The implication of this case law to the present case is that the original offer of DC Builders was killed by UCL’s counter-offer. DC Builder, by rejecting the counter-offer in response and reiterating its earlier offer naming a new period with which the UCL may respond, has, in effect, made a new offer to which UCL should reply if it wishes to consolidate the contract. The problem stated that “as with five working days they received no reply” DC sent a fax withdrawing its original offer. Taking the enclosed phrase to mean that the five day period granted has already passed and DC Builders has not heard a word from UCL and therefore the fax was sent on the day following the passage of the five working days, the issue at this juncture is whether DC Builders can validly withdraw its reinstated offer considering that it originally set a 50-day period in favor of UCL. The answer to this should be in the affirmative. In the first place, the implied rejection of UCL of the original offer of DC Builders has effectively killed it and by extension, its attached period of acceptance. With respect to the new offer, DC Builders has only given UCL a five day period within which to reply. Regardless of these periods however, the offeror in the English law of contracts is always given the prerogative to withdraw his offer at any time before he has received an acceptance even if the offeror himself has kept it open for a period of time and that period has not yet lapsed. This is the doctrine laid down in the case of Dickinson v Dodds2. In the Dodds case, the defendant Dodds wrote to the plaintiff Dickinson on June 10 that he was willing to sell to him his property for a certain amount and that the offer to him was open until 9 in the morning of June 12. On June 11, the plaintiff decided to himself that he would take the offer of the defendant but as to his understanding he has until the morning of June 12 to accept he dilly-dallied. He was however informed on that day by a friend that the defendant was in negotiation for the sale of the same property to another, the plaintiff immediately went to Dodds’ house in the evening of that day to communicate his acceptance. He found Mrs. Burgess there instead, the mother-in-law of the defendant. He then left with her a document which formally contained his acceptance of the offer. This never found its way to the intended person as Mrs. Burgess purportedly forgot to hand it to Dodds. The following day, two copies of the acceptance was handed over to the defendant, at seven in the morning by an agent of the plaintiff and a few minutes later by the plaintiff himself. On both times, the defendant declined to accept them for the reason that he already sold the property the day before to another person. When the case reached the Court, it was held that Dickinson’s memorandum to the plaintiff was just a mere offer and because it was in the nature of an offer, there was no contract unless and until an acceptance was communicated to him. Anent the defendant’s commitment to keep the offer until the morning of July 12, neither was this binding because it was not a contract in itself, the defendant having received no consideration for it. In other words, it was still in the nature of an offer or a nudum pactum and therefore not binding leaving the defendant free to consider other options regarding the property. “It appears to me that there is neither principle nor authority for the proposition that there must be an express and actual withdrawal of the offer, or what is called a retraction. If there was not a continuing offer, then the acceptance comes to nothing” (Dickinson v Dodds). The implication of the Dodds case to the case at bar is that DC Builders has the right to withdraw its offer whether or not the period given has lapsed or not. In this case, the presumption favors the lapse and therefore leaving no doubt that indeed the withdrawal was valid. The only other contention to be considered was that if the withdrawal has not been invalidated by an acceptance that was effectively received by DC Builders. The facts of the case at bar states that on the same day that DC Builders sent a fax signifying its official withdrawal from the tender of offer, UCL sent a letter revising its earlier acceptance stamped with the last post of the day. If, the problem by stating “as with five working days” refers to the fifth day of the extension period, then UCL has validly made an acceptance in accordance with the 5-day period set by DC. But if the same refers to day or days following the lapse of five days, then the acceptance cannot be recognized considering that there was an earlier signification of DC Builders for a prerogative to withdraw at the lapse of five days which means that there an implied withdrawal by the latter takes effect at the said lapse. If the former is true then the doctrine laid down in the cases of Adams v. Lindsell3 and Henthorn v Fraser4 hold true. In the first case, a party wrote to another offering to sell certain fleeces of wool to them. The letter was sent September 2 with a request that any acceptance be made in writing by post. In the normal course of letters sent by post, the letter would have been received in a day or two and the other party’s answer would have already reached the seller, which the latter also expected, at the most on September 7. It happened however, that the seller made an error on the address and the letter therefore arrived on the intended party only in September 5. The addressee immediately posted an answer of acceptance on the same day but the seller only received it on September 9. Having not heard from the addressee on the expected date which is on September 7, the seller disposed of the fleeces of wool to another buyer. The court declared that there was a valid contract between the parties because there was a valid offer and acceptance. The intended buyer was able to fulfill the terms of the offer because it was able to accept the offer in accordance with the conditions which was to answer “in the course of post” and within a reasonable time. In the second case of Henthorn, the court finally elucidated and established the postal acceptance rule. The postal rule also known as mailbox rule is simply a principle in contracts law which constitute an exception to the generally accepted doctrine that a contract is only valid when there is, inter alia, valid acceptance that is created when the acceptor has communicated this acceptance to the offer directly to the latter. This exception allows acceptance through mail, and that it is complete as soon as it is posted (Johnson p 138). In the aforesaid case, which provided the precedence to the mailbox rule, a party made an offer to another, through a note, to purchase the latter’s property within 14 days. The other party immediately accepted this offer the day after he received the note through the mail. Before the offering party actually received the mail accepting his offer but after the letter of acceptance was mailed, he withdrew the offer. The Court held in this case that the formation of the contract was complete from the time the accepting party posted notified through mail his acceptance of the other party’s offer to sell. This is because, in this case, the offer was made in writing and therefore it is reasonable to expect that an acceptance could likewise be made through writing and within a reasonable time. Applying the above cases to the case at bar implies that ULC’s revised acceptance was within the time limit set by DC itself and as long as the acceptance is deemed received ahead than the withdrawal then there is a consolidation of the contract. That the acceptance, under the postal rule, was deemed received ahead of the withdrawal if both were still made before the lapse of the five-day period is possible under both the Postal Rule in conjunction with the Receipt Rule. The Receipt Rule is the general principle under the English contracts law which states to the effect that the acceptance (or withdrawal) is not effective unless it was received by the offeror (or offeree) and its effect is that once received there can be no more withdrawal from the party because it would be tantamount to breach (Chissick & Kelman p 93). Since the fax message was seen only the day after the letter of acceptance was posted, the reason probably was that it was sent near or after office hours, then the time to reckon its acceptance must be the on the day following which is a working day and during office hours, then the acceptance was deemed made ahead of the withdrawal. In this respect, there is then a completed contract between ULC and DC and ULC with respect to DC’s original tender of offer and ULC’s revised acceptance and DC. The new amount quoted by DC would have no bearing because first, there was already a contract and second there was no formal attempt to amend the terms with respect to the price. DC should have at least submitted a formal amendment of its tender of offer since there existed one but it did not and therefore there is nothing for the ULC Board to consider. Moreover, the original offer of DC Builders was definite in its terms with respect to the price and nowhere was it indicated that the price was subject to further review and assessment. On the other hand, if the phrase “as with five working days they received no reply” means there was really a lapse of five days and hence, the withdrawal was made, then such an acceptance had no effect and the withdrawal is controlling. Since this is the more likely and probable scenario, the effect is that the subsequent statement of DC which is that it was willing to withdraw the earlier withdrawal if ULC would be willing to up the contract price to £2,400,000 as it is reflective of the correct assessment by the company in the nature of a new offer. This is so because the lapse of the five day period without the ULC having made an effective communication of its acceptance is considered a rejection of the offer, resulting in once again ‘killing’ the newest offer. The statement of the Contractor Administrator is evidently not an authorized person to accept or reject the new offer because this can only be made by the UCL Board of Directors despite his words that the term offered by DC Builders was ‘alright.’ As there is a new offer, it follows that a new acceptance or rejection must be made. However, UCL is not under any compulsion to either accept or reject. The implication therefore is that there is no contract between UCL and DC Builders. DC Builders therefore cannot compel UCL to award it the contract in accordance to the revised offer because that is a prerogative that belongs solely to UCL. The Contractual Relations between UCL and GB Construction. According to the facts of the case, the GB Builders faxed a message to UCL on the day that DC and the CA had a talk over the phone stating to the effect that they were willing to withdraw their conditions and take that of the UCL. In addition they were willing to comply with the period of completion of the building as set by UCL. This was therefore a new offer because it was entirely different offer from the previous one. Instead of agreeing to this entirely, the CA replied that he is only authorize to accept such offer if the other party was willing to lower its contract price to £2, 250,000 presumably because this was the lower price in the original tenders. This reply by the CA was in the nature of a counter-offer again because as was stated earlier “an acceptance which is not the mirror image of an offer does not give rise to a contract – it is regarded as a counter-offer, not an acceptance” (Dobson, Dobson & Reddy p 223). This counter-offer was evidently needed an acceptance for it to blossom into a contract. The Director with whom the CA spoke to responded with a statement that he was willing to consider the said price with the condition that a Letter of Intent would be issued in their favor within 24 hours, a condition to which was readily met. The question at this point was: Was there a valid acceptance and therefore a contract? The exchange between UCL, through the CA, and the GB Contractor which partake of an offer and subsequent many counter-offers seemed to take the shape of Battle of Forms, a form first illustrated and seen in the case of Butler Machine Tool Co Ltd v. Ex-Cell-O-Corp.5 In the battle of forms, “a counter-offer destroys the original offer and so the original offer therefore cannot be accepted – but the facts can be complex because standard form offers and acceptances can contain conflicting clauses when compared in detail” (Samuel pp 301-302). In the said case, a party which was selling machines tools, made an offer to another party. The offer was made in accordance with its standard terms of sale, a provision of which states that the price of the tool may vary in accordance with its price of the day, if delivery does not take place immediately. The party being offered responded by signifying acceptance affixing however its own set of terms of condition. This acceptance was also made on a sheet of paper where there was a tear-off slip for signature. The tear-off slip was signed by the offeror and was returned to the offeree. Since the other party could take delivery only after a month, the offeror used its price variation clause, a move objected to by the buyer. When the case reached the Court, with each party insisting on its own price, it held that it was the buyer whose term of the contract should prevail because when it accepted the offer affixing its own terms, it was not really an acceptance but a counter-offer to which the seller accepted by signing the tear-off slip. In applying the aforesaid case at bar, it would seem that the last party which made the last counter-offer and accepted by the other party should win the battle of forms. UCL, through its CA, made the last counter-offer by agreeing to issue the LOI provided GB Contractor lower its price to an acceptable level to UCL. This would seemingly make UCL’s terms and provisions of the control the prevailing ones. However, a further look into the facts of the case would show two weaknesses which would erode this conclusion. First, the Director said he would “consider” the price counter-offered by UCL if the latter issues an LOI within the given time frame. The word “consider” lacks definiteness and does not exactly say that if the LOI was issued, he will accept the lower price. This indefiniteness of the acceptance runs counter to the general rule laid in the beginning of this paper that an offer or acceptance must be definite and unconditional. In this respect, there was no valid acceptance, and therefore a contract was not reached by the parties. In addition, and assuming that there was definiteness in the terms of acceptance, there was still the question as to whether the Director spoken to by the CA was clothe with sufficient authority to transact on behalf of the entire company, since such an acceptance is a diminution of the benefits owing to the company. In the event the Director has no sufficient authority to deal on behalf of the company, this goes into a defect in the essential elements of a contract namely capacity to contract. This further implies that no valid contract can be reached by the parties. Lacking all these essential factors, the conclusion is that there is no valid contract between UCL and GB Contractor which means that the latter has no right over the contract, However, there is such a thing as natural obligation and even if there is no valid contract, UCL is still expected to compensate and pay for the actual expenses of the construction owing to GB Construction., especially that it has previously issued an LOI for the construction to take place. Therefore, GB cannot compel UCL to pay it the amount of £2,410,000 as stated in their original offer nor can it compel UCL to pay it for expenses not incurred in the construction. The UCL and its CA. The CA, by not presenting the revised offer of DC Builders to the Board, was remiss of his duties because DC Builders has one of the two lowest pre-qualified tenders. In addition, the Board has previously considered the company and actually accepted its offer. Another offence committed by the CA was issuing or causing the issuance of the LOI without determining properly whether a contract was validly entered into. As the CA, it is within the area of his responsibilities to determine whether there was sufficiency in the offer and acceptance to constitute a genuine contract. Works Cited Adams v. Lindsell. (1818) 1B & Ald 681; 106 ER 250 KB] Beale, Hugh & Tallon, Denis. Contract Law: IUS Commune Casebooks for the Common Law of Europe. Hart Publishing, 2002 pp178-179. Butler Machine Tool Co Ltd v. Ex-Cell-O-Corp [1979] 1 WLR 401 Chissick, Michael & Kelman, Alistair. Electronic Commerce: Law and Practice. Sweet & Maxwell, 2002, p 90. Dickinson v Dodds [1876] 2 Ch Div 463 Dobson, Alan Paul, & Reddy, Dobson, K. J.. Commercial Law Q&A 2003-2004 3/e: 2003-2004. Routledge Cavendish, 2003, p 223 Johnson, Mike. The Illustrated Dictionary of Law. Lotus Press, 2007 p 138. Henthorn v Fraser. [1892] 2 Ch 27 Hyde v. Wench [1840] 49 ER 132 RC Mead, Larry & Sagar, David & Back, Philippa Foster. Fundamentals of Ethics, Corporate Governance and Business Law Paper C05: New Syllabus. Elsevier, 2006 Oughton, D W & Oughton, Davis. Sourcebook on Contract Law. Cavendish Publishing, 2000 p 42 Samuel, Geoffrey Samuel. Law of Obligations and Legal Remedies. Routledge Cavendish, 2001 pp 301-302 Read More