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.)
Answer:
In advising Tim, there are three main issues with the contract at hand. Firstly, was there even a contract to begin and if so, was it for £1,000 or £1,200. Secondly, was there intention to create legal relations with his cousin, Usman? Finally, was there fresh consideration or a practical benefit to the contractual variation Usman later brings as this affects how much Tim is supposed to pay in rent?
Firstly, it must be identified whether there was an offer and acceptance in the first place to amount to a contract. Advertisements offering goods, like Usman's shop to rent, are considered to be invitations to treat rather than offers. Patridge v Crittenden1 (1968) 1 WLR 1204 saw the defendant advertised the sale of bramblefinch hens for 25 shillings each for which he was prosecuted under the Protection of Birds Act 1954 for selling restricted birds under the act. However, Mr. Patridge argued in his defense that the advertisement was not in fact an offer but an invitation to treat, opening a discussion to bargain the price of the birds to which the court agreed. Similarly, in Gibson v Manchester (1979 UK HL 6), it was decided that the stating of a price for the house by Manchester City Council was not an offer but rather an invitation to treat, to bargain and discuss further before an offer can be reached. These cases illustrate that the online advert by Usman was an invitation to treat, open to all who wanted to know more about the advertisement and so when Tim says he will take the rental property, he is not accepting any offer as there was not one to begin with but rather is making an offer to Usman. The lack of an expression of willingness to be bound immediately on the initial terms without further negotiation is demonstrated when Usman warns Tim that the initial price of £1,000 per month could increase. Usman later accepts this offer via the posting of a letter which according to the postal rule, the contract would have been formed now, legally binding Tim to pay £1,000 a month. This is the case despite Tim never receives the letter as established in Household fire insurance v Grant (1879) regardless of whether the other party receives the letter, the contract is valid.
The second issue is whether the contract was legally binding. For a contract to be legally binding, there must an intention to create legal relations which is questionable in this case. The doctrine of intention to create legal relations assumes there is no intention to create legal relations in social and domestic settings. For example, in the case of Balfour v Balfour (2 KB 571 1919) where a husband had promised his wife monthly money but later got a divorce. The Mrs. Balfour took Mr. Balfour to court for the money he had promised. The court of appeal however, ruled there was no contract between the husband and wife as the law should not generally enforce agreements in the domestic context. When the parties in domestic relationships make commitments to each other, they do not intend to bind themselves legally, there is no intention to create legal relations. Therefore, one could argue there was no intention here to create legal relations as Tim and Usman are cousins and the use colloquial words in Usman's letter accepting Tim's offer, 'your family after all' and 'I'd still love you to rent the shop', imply the offer was more a of a favour to his cousin rather than contract. The court would use the objective principle, interpreting it as to how it would appear to a reasonable person as seen in Smith v Hughes (1871). Lord Denning, as part of his obiter dicta in a case suggested for a holistic approach, looking at both the parties’ words and conducts when looking to see if there was an agreement, arguing that a technical approach of offer and acceptance is not the best way to find an agreement. However, this doctrine is difficult to prove as the court could find that because this was in fact a commercial transaction, an economic exchange of agreeing to rent a property, there was intention to enter a legally binding contract. In the case that the court does not find intention to enter legal relations, then there would be no legally binding contract, only an informal agreement and so when Usman adds contractual variation which increased the rental payments to £1,200 yet Tim only pays £1,000, Usman could not sue as there was no legally binding contract to begin with.
The final concern is whether the contractual variation entitles Usman to sue Tim for the extra £200 they agreed, if the court finds that the contractual variation was properly incorporated. Usman tells Tim via telephone that he can rent the shop, this time for an increased price of £1,200 a month to which Tim agrees. In this contractual variation, Usman is promising to take more money bringing new benefit to himself whereas Tim, it could be argued is bringing no fresh consideration as he is agreeing to what he was originally going to do which is pay monthly rental installments. In the case of Foakes v Beer (HL 1864), it was decided that where Mrs. Beer promised to take less, Mr. Foakes did not bring fresh consideration and so Mrs. Beer was entitled to claim what was in the original contract. Therefore, if the court finds there was no fresh consideration on Tim’s behalf, then he does not have to pay the extra £200 but rather only what the initial contract says which is £1,000 a month. However, there is a case to be made for whether there was practical benefit to Tim, in which case he does not need to bring new consideration. This was seen in the case of Williams v Roffey Brothers (CA 1989) where the court decided that practical benefit such as avoiding ligation costs, could suffice for consideration. Arguably in this case, to avoid deteriorating his relationship with his cousin Usman and having a dispute and to prevent further disruption to his business as well as Usman receiving some form of payment as no one had still rent the shop yet, there was practical benefit which amounts to consideration. Therefore, the court may decide that the contractual variation was properly incorporated meaning Tim is liable to pay the extra £200 agreed. Of note are two important things that the court will likely consider, firstly Tim perhaps thinks this is a new contract because he never received Usman’s acceptance letter but because of the postal rule, there was already a contract established and so the court must look at this new agreement as contractual variation. Secondly, the contractual variation was made via telephone which the court may not find to be substantive as it was a brief call and not in writing.
In conclusion, if the court finds that there was intention to enter legal relations then there was a legally binding contract between Usman and Tim for Tim to pay £1,000 a month. However, if the court finds that there was practical benefit or fresh consideration, meaning the contractual variation was properly incorporated into the contract, then Usman is entitled to claim the extra £200 that Tim did not send, if the contractual variation which was made via telephone is found to be valid.
Grade: 61
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