PQ: Tim's Bike Shop [70]

Question:

Tim runs a bicycle repair business in south London. He needs to find temporary premises for his business while his current workshop is being renovated. On 1 February 2021, Tim sees an online advert, which happens to have been placed by his cousin Usman, stating: ‘prime Peckham shop for rent for 6 months, £1,000 per month’.

Tim immediately calls up Usman and says he’ll take the shop. Usman says he’d be delighted if Tim rented the shop from him but that, as rental rates are increasing rapidly, he may need to charge a higher rent.

On February 14th, Usman posts a letter to Tim, saying: ‘I’ve had a think about it and I’ll let you have the shop for £1,000 a month. You’re family after all!’ The letter also encloses a detailed floorplan and information about the shop’s utilities. However, Tim never receives this letter.

On February 21st, Usman phones Tim. Tim says that he had started looking for other premises when he heard nothing back from Usman. Usman replies, ‘I’d still love you to rent the shop and you can move in at the start of next month, but I’m afraid I’ll need you to pay £1,200 a month.’ Keen to avoid a dispute with his cousin and to ensure his bike business is not disrupted, Tim agrees. Over the next few days Usman clears out some old furniture he has been storing in the shop and takes it to the local tip.

On 1 March, Tim moves into the shop and tells Usman he has made his first month’s rental payment by electronic transfer. When Usman checks his bank account, he sees Tim has transferred only £1,000.

Discuss. (Ignore any issue of duress here.)

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Answer:

Offer and Acceptance

The first issue that arises relates to where the offer was given, and by whom.

It may at first seem that Usman’s advertisement for the tenancy of the shop was a publicly given unilateral offer. However, this cannot be the case as ‘the general rule is that a advertisement is an invitation to treat rather than an offer’.[1] This makes sense commercially; if multiple people were able to accept an offer given through an advertisement for tenancy, Usman would potentially be liable in several cases for breach of contract.

Arguably, it is Tim who makes the offer to Usman. He does this when he calls Usman after seeing the advertisement. However, in the subsequent communication between the parties, Usman’s use of “may” further exemplifies that negotiations were ongoing and an offer had not yet been given. The mirror image rule states that a ‘clear and unequivocal offer, [must be] matched by an equally clear and unequivocal acceptance', meaning that a counteroffer or the addition of other terms will invalidate the original offer.[2] By adding in the term that rent may increase, Usman kills off any potential prior offer given by Tim.[3]

Furthermore, an acceptance must correspond to an offer. Since any offer that Tim previously made had been invalidated by Usman’s changes, the letter sent by Usman is not a valid acceptance. If it was argued that there was never an offer made by Tim, again Usman’s acceptance is not in response to an offer, so it was not valid. It is therefore not necessary to examine the effects of the postal rule for this scenario, so Tim’s non receipt of the letter is irrelevant.

The time that the actual offer is given is on February 21st. Usman’s bilateral offer is clearly for the rent of the building in exchange for £1200 per month.

Tim then accepts the offer on the same phone call. He replies in response to an offer, communicates by an appropriate method and his acceptance corresponds with the offer. It can therefore be said that Tim accepted Usman’s offer. This is the point in which the contract becomes binding between the parties.

Potential Other Viewpoints

Using a more holistic approach to determine the location of the offer and acceptance may find a different agreement. In Gibson v Manchester City Council, Lord Denning (CA) looks over all of the communication between the parties to find the agreement.[4] Though this is a less conventional method, it should not be wholly ignored.

Using this approach, it could be determined that the offer was provided by Tim and was accepted by Usman via the letter. If this were the case, the contract for £1000 would have come into effect upon posting the letter according to the postal rule.[5]

It should be noted that since the prior communication had been conducted via phone calls, it is rather unusual that Usman then replies with his acceptance via post. Usman chooses to change from an instantaneous form of communication to a delayed form; perhaps he was intending the contract to be more formal. Tim may attempt to argue that it would be absurd for Usman to reply in such a manner.[6] However, a court is likely to distinguish from this case since no express terms were given preventing the postal rule from applying, it can be assumed that this was valid acceptance.

Therefore, Usman changing the price (during the latest phone call) to £1200 would be a contractual variation that would need to be supported by fresh consideration. Even though there seems to be nothing new provided by Usman, consideration could be the ‘practical benefit’ of Tim not having to look for other premises, thus allowing him to earn money through his bike business.[7] It is not unreasonable for a landlord to change the rent price in line with the current market.

For the purposes of the argument, the conventional offer-acceptance approach has been used as this is the general approach of the courts. The point above is merely used to show how the decision would be identical, regardless of the reasoning followed - either way the final contract is for £1200 rent in exchange for the tenancy of the building.

Consideration

Another issue that has to be addressed is whether the contract was supported by valid consideration. The general rule is that consideration must either benefit the offeror or be a detriment to the offeree.[8] In the case of Tim and Usman, Tim provides consideration to Usman by monthly payment of rent and Usman provides consideration to Tim by allowing him to use the commercial building for his business.

Additionally, consideration does not need to be adequate, but sufficient for the law to hold a contract to be valid. In the words of Lord Somervell: ‘A peppercorn does not cease to be good consideration [even] if it is established that the promisee does not like pepper and will throw away the corn.’[9] While the law is not interested in the value of the exchange between Tim and Usman, it is interested in knowing that there was some exchange of value. Obviously, Tim’s rent payment is of some value as the payment is made in legal tender that Usman could spend elsewhere as he likes. The value provided by Usman, though harder to quantify, is allowing Tim to use a building for the purpose of his business. There is clearly an exchange of value. A court would likely conclude that the agreement between Tim and Usman is supported by sufficient consideration.

Intention to Create Legal Relations

Another issue that arises is as to whether Tim and Usman intended to create legal relations. The general rule is that relations are

…divided into two categories; the first, concerning domestic and social agreements, where the presumption is that the parties did not intend to create legal relations, and the second, concerning commercial agreements, where the presumption is that the parties did intend to create legal relations. Both presumptions may be rebutted by evidence of contrary intention.[10]

While Tim and Usman are family members, they were both acting within a commercial capacity: Tim for his bike business and Usman as a commercial landlord to earn a regular income. It can therefore be inferred that they intended to create legal relations. Even if it was rebutted that their relationship was of a legal nature, an ‘officious bystander’ would state that it was implied that their agreement was binding due to the nature of their work.[11]

Conclusion

In conclusion, Usman should be entitled to £1200 rent per month in the future and £200 in arrears to correct the payment made on March 1st. Any claim about the detriment to Usman for removing the furniture has been ignored as this is remedied by the correct payment of rent and arrears.

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Feedback:

Grade: 70

Feedback:

Good answer, which appropriately applies the law to the facts. The answer is good at being succinct and prioritising the most important cases in the relevant areas. One thing I would mention is that you don’t waste time or space quoting long pieces of text. Rather, focus on analysing the issues both factually and legally, as you have already clearly done. Otherwise, well done.

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References: [1] Ewan McKendrick, Contract Law (14th edn, April 2021, Macmillan Education UK) 32 [2] Ewan McKendrick, Contract Law (14th edn, April 2021, Macmillan Education UK) 23 [3] Hyde v Wrench [1840] EWHC Ch J90 [4] Gibson v Manchester City Council [1979] UKHL 6 [5] Henthorn v Fraser [1892] 2 Ch 27 [6] Holwell Securities Ltd v Hughes [1974] 1 WLR 155 [7] Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5 [8] Currie v Misa (1875) LR 10 Ex 153; (1875-76) LR 1 App Cas 554 [9] Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 (Somervell LJ) [10] Ewan McKendrick, Contract Law (14th edn, April 2021, Macmillan Education UK) 122 [11] Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701