Examining A Binding Contract Between Two Companies

The issue raised in this case is whether there is an offer and acceptance between Yan Ltd and Shue Co., so that a binding contract exists between the two parties.

On the question of offer, I assume that Mr Law has authority to give an offer on behalf of Shue Co. The offer of Shue Co is to sell 100 xphones at HK$7,000 each. It is made to Yan Ltd and Ms. But received it on behalf of Shue Co.. There is no evidence to show that the offer is not validly made.

The second issue is whether the offer is accepted by Yan Ltd.. I again assume that Ms. But has the authority to accept an offer on behalf of Yan Ltd. In the present case, the offer requires that the offeree, Yan Ltd. to text the offeror, Shue Co. an acceptance via mobile phone at the same day Mr. Law give out the offer as delivery would take place on 3 Nov. In order to constitute a valid acceptance, an acceptance has to be made in compliance with the offer and communicated to the offeror side according to Re Gunn's case [1] . Sir John Holt LJ said in his judgment :'' There must be the consent of two persons to a contract ;one man may make an offer to another...but the person to whom he was made the offer ...must do something equivalent to an acceptance, something which satisfies the Court, either by words or conduct, that the offer has been accepted to the knowledge of the person who made the offer''. There is no issue in the present case that the acceptance follows the requirements of the offer because Ms. But on behalf of Shue Co sent back a text message of acceptance via the mobile phone on the same day of the offer in accordance with the offer. The issue is whether this acceptance has been communicated to the offeror or not.

In the present case,due to the difference in configuration, Mr. Law’s mobile phone failed to show the acceptance message. This indicates that the acceptance cannot be successfully communicated to the offeror. The question here is whether communication by mobile phone text messages should be treated as akin to communication by conversation on the phone in the sense that it is instantaneous or it, should be treated as similar to writing of letters so that the postal rule applies. Whether postal rule applies in this situation has to be ascertained as it will determine whether a contract exists in this case or not. Postal rule is an exception to the general rule that acceptance must be communicated to the offeror [2] . It provides that acceptance is made when the letter of acceptance has been posted validly no matter the letter is actually received or not, it is held in Household Fire Insurance Co. v. Grant [3] that '' ...In order to the effecting of a valid and binding contract , that the minds of the parties should be brought together at one and the same moment…the minds of the two parties must be brought together by mutual communication...if the post office be such common agent, then it seems to me to follow that, as soon as the letter of acceptance is delivered to the post office, the contract is made as complete and final and absolutely binding as if the acceptor had put his letter into the hands of a messenger sent by the offerer himself as his agent to deliver the offer and receive the acceptance...To me it appears that in practice a contract complete upon the acceptance of an offer being posted''

The author of Treitel on The Law of Contract [4] takes the view that the effects of unsuccessful attempts to communicate should depend on whether the sender of the message knows(or has the means of knowing) at once of any failure in communication.... if the message is received in such a form that it is wholly or partly illegible, the sender is unlikely to know this at once , and it is suggested that an acceptance sent by email or any electronic data interchange might well be effective(postal rule can be applied) in such circumstances.'' [5] In Henkel v. Pape [6] , the court held that although the configuration of the acceptance message to the offeror is wrong, it is still a valid acceptance. As mentioned in Chitty On Contract [7] if the offeror has to take the risk of loss or delay in the post, there seems to be no good reason why he should not also take the risk of errors in the transmission of the message; for in each case the offeree will have no means of knowing that something has gone wrong until it is too late to make another proper communication.

It can be argued in the present case that communication by phone text message, like communication by post, is not instantaneous because there may be delay or obstacles in the receipt of message for various reasons, e.g. there is problem with the network or reception of the signal and the offeree may not be able to tell immediately whether the acceptance has reached the offeror.

Ms But is also unlikely to know immediately whether her message of acceptance appears legible on Mr Law’s phone. There is also no evidence to show that Ms. But knew that she has sent an illegible message to Mr. Law because Ms But, believing that a contract has been formed between Yan Ltd and Shue Co, has after the sending of the acceptance entered into another contract with Nest Co on behalf of Yan Ltd. Therefore, it could be argued that postal rule applies to communication by mobile phone text messages and this case should be treated in the way same as cases where acceptance is communicated by letters sent by post and viewed as subject to the postal rule so that acceptance is regarded as having been communicated to the offeror when and where it is sent. If that is the case, the acceptance made by Mr But on behalf of Yan Ltd should be taken as having been communicated to Shue Co even though Mr Law does not read it and as such a binding contract exists between Yan Ltd and Shue Co and Shue Co will be held liable for the losses that Yan Ltd may have suffered if Shue Co fails to deliver 100 xphones on 3 Nov.

Moreover, Mr. Law was at fault in failing to read the message sent from Ms. But, the offeree, as he did not change the configuration of his own mobile phone in order to read the message. Therefore, Mr. Law was estopped from saying that the acceptance was not received. In Entores v. Miles Far East Co. [8] , Lord Dening held that if an offeree reasonably believed that the acceptance had been received, and the offeror was at fault, then the latter would be estopped from saying that the acceptance was not received. This estoppel might be more easily established on the present facts as Ms. But relied to its detriment of Yan Ltd. upon the assumed communication by entering into a binding contract with Nest Co.

Following the above analysis, it is likely that a contract was made at the time Ms. But sent an acceptance to Mr. Law via mobile phone, no matter whether Mr. Law can read it or not. If Shue Co. fails to deliver 100 xphones on 3 Nov to Yan Ltd, it will be held liable for the breach of the contract between Shue Co and Yan Ltd. and may have to bear the loss of Yan Ltd. arising from Yan Ltd.’s inability to perform its contract with Nest Co..

(a) The issue raised in this scenario is whether the withdrawal of the acceptance by Ms. But is valid or not. Due to the difference in configuration, Mr. Law’s mobile phone failed to show the acceptance message. Ms. But's withdrawal email however reached Mr. Law within the time limit set by Mr. Law for accepting the offer and Mr Law is able to read it. As discussed above, I submit that a contract was made between Shue Co. and Yan Ltd.due to the postal rule . The fact that Ms But’s second message is a withdrawal message should alert Ms Law that an acceptance has been made in the first place and, if the withdrawal message indicated that prior acceptance message was also made by phone, the acceptance would be effective and should be regarded as having been communicated to Mr Law. This will further support that a contract was formed. If a contract exists before the withdrawal, the question will be whether an acceptance can be withdrawn after a contract has been formed.

It is argued that after the contract was made, no retraction of acceptance is possible. The general rule that a contract is complete on acceptance should be applied. Both cases Wenckheim v. Arndt [9] and A to Z Bazaars(Pty) v. Minister of Agriculture [10] supported the view that once the contract came into existence, the offeree could not retract the acceptance.

On the other hand, Lord Craigie in Courtess of Dunmore v. Alexander [11] held that there was no contract if both acceptance and withdrawal reached the offeror at the same time,so,needless to say, the acceptance would be invalid if the withdrawal had arrived first. However, this decision is far from conclusive because of the implication of agency. Unlike the post office which act as a common agent for both parties, the agency in this case is only considered as an agent only to transmit.

It can be argued that the purpose of the postal rule is to provide a benefit to the acceptor, as can be seen from the decision of the case Adams v. Lindsell [12] that postal rule allowed the acceptor to proceed on the basis that business efficiency can be promoted once the contract had been made. It would appear inconsistent with this rationale if the postal rule applies in a way which is to the acceptor's disadvantage. Therefore, it is said that as long as the acceptance has not yet been read, the offeree can retract his/her acceptance.

In this case, we should keep in mind that Mr. Law is at his own fault to be responsible for unable to read the acceptance message. The court in The Brimnes [13] held that neither party should be allowed to take advantage of his own fault in order to create or prevent the formation of a contract. Therefore, Mr. Law could not claim that acceptance had been communicated. There is no estoppel as the withdrawal is well communicates and that the position of Ms. But did not change.

Following the above analysis, it is very likely that there is no binding contract between Shue Co. and Yan Ltd.. The withdrawal of acceptance by Ms. But is successful as soon as Ms. But sent the withdrawal message.

(b) The issue raised in this case is whether an acceptance which is not made in accordance with the mode of communication prescribed by offeror is valid or not. The general rule is that the offeree must use the prescribed mode provided, otherwise, the acceptance is invalid.

It is held in Manchester Diocesan Council for Education v. Commercial & General Investment [14] held that an offeror who by the terms of his offer insists on acceptance in a particular manner, is entitled to insist that he is not bound unless acceptance is effected or communicated in that practice. Acceptance must therefore be communicated in the way prescribed by the offeror.

The use of the word ''please'' in the offer sent by Mr. Law in the present case suggests a degree of informality on the required mode of communication of the acceptance and indicates that communication by way of phone message is not imperative. The offeror only recommends a method, so any method no less favourable to the offeror will suffice. It can be argued that the reason why Mr Law requested communication by way of phone message is because that he knew that he will receive the acceptance as soon as it was sent to him, as he might carry the mobile phone with him within the time limit he set. If that is the case, the aim is to ensure that he may quickly notice the acceptance once it was sent. In Yates Building Co. Ltd. v. Pulleyn & Sons (York) Ltd. [15] , the court held that a valid contract was formed if the communication method used was just as good for the offeror as the method specified in the offer. In the present case, communication by telephone call will enable the offeror to know the acceptance instantly, so it can be seen as a good way of communication as good as the prescribed mode of communication.

It is obvious that the acceptance has been communicated to the offeror successfully in the present case. The Court of Exchequer Chamber had held in Tinn v. Hoffman [16] that a reply sent by some other method not prescribed by the offeror but equally expeditious would constitute a valid acceptance. The result would, of course, be otherwise, if the offeror insisted that a reply should be texted by mobile phone and by that method only. It is said that an offeror will need to use very clear words before a means of communication will be treated as mandatory.

Honyman LJ in Tinn v. Hoffman [17] also held that even though acceptance was requested '' by return of post'', that did not mean exclusively a reply by return of post, but the offeree may reply by telegram or by verbal message, or by any means not later than a letter written and sent by return of post. The requirement of return by post merely indicated the importance of a quick response.

Following the above analysis, it is likely that the acceptance by phone call which was not prescribed by the offeror was valid and a binding contract was formed at the time the acceptance was communicated to the offeror.

Nowadays, people may use courier instead of post office to send emergency

letters because courier is much faster than the latter. As the offeror, Mr. Law, required that acceptance has to be made by letters, Ms. But then asked a private courier to send the acceptance to Mr. Law. The acceptance was sent according to the prescribed method. The issue raised in this case is whether a courier can be regarded as a common agent for both parties like post office, so that postal rule can apply in this case.

It may be argued that communication using courier as medium can be speedy and thus postal rule is not applicable. Nowadays, an acceptor whose acceptance has been given to a courier, do not have to wait for a long time to know whether the offeror has received the acceptance or not. He/She can quickly find out whether the acceptance has arrived simply by making a telephone call, fax or email to the offeror, with the request for a confirmation. In this sense, postal rule cannot apply as the communication between both parties was almost instantaneous. However, it should be noted that communication by telephone,fax and email etc, are not always reliable, they may suddenly failed to operate which lead to unsuccessful attempt for the acceptor to communicate with the offeror, so using the ways mentioned above to confirm whether the acceptance has arrived or not may not be reliable.

Alternatively, it may be argued that the postal rule apply to communications via courier, in which case the acceptance should take effect as soon as it is given to the courier. When dealing with this question, we however must first make sure whether, a valid acceptance may be sent by courier. It is suggested that this will depend on the requirement of the offer. As registered post is not a pre-condition for acceptance in this case, both registered and unregistered post should be accepted because they have the same time scale of delivery. This is further confirmed in the book Hong Kong Contracts [18] , that the commercial couriers would be treated like post office in respect of letter [19] . In this way, where courier would be treated like post office, courier can also act as the common agent for both parties like post office, so that postal rule can apply in the present case. It is also argued that the reasons for applying the postal rule in Adams v. Lindsell [20] apply equally to communications via a private courier. Richard Stone [21] ,wrote in his book ''The Modern Law of Contract'' [22] that the acceptor gives the acceptance letter to a courier, and thereby puts the acceptance out of his or her control. It would not be conducive to business efficiency to require the acceptor to wait for notification that the acceptance had been received before being able to take any action on the contract.

Moreover, if an offeree fully relies on the courier to deliver his message of acceptance and does not try to confirm this with the offeror to see if his message has been delivered but the courier failed to deliver the message, the offeree might not notice the failure until it was too late to make another communication. Therefore, it is unfair for the offeree to bear all the risks of delay or loss in post.

The second issue is whether the acceptance is valid even the letter was lost by the courier. As discussed in the previous paragraph, postal rule may apply in this case, it provides that acceptance is made when the letter of acceptance has been posted validly no matter the letter is actually received or not. Thus, the acceptance is valid in this case.

Following the above analysis, it is likely that a courier can be regarded as common agent for both parties like post office, and the acceptance is valid. In that case, it is more likely that a contract was made at the time Ms. But gave the acceptance letter to the courier.