Contract Law

In the context of at least one example (but no more than two examples) of services provided in the ‘sharing/access economy’ (such as Airbnb or UberX), when is a contract formed between the customer and the person providing such a service?

In simple terms, a contract is a legally binding agreement between two or more parties (Bagchi, 2013). Actually, this is the most important nature of the contract: it is enforceable in the courts of law. Since the basis of the contract is the initial agreement between the parties, the law provides an opportunity for justice to be done when one party to the contract tries to deviate from the contract. Some of the elements of a contract are; the offer, acceptance, capacity, intention, consideration, legality, and formality (Karsten & Sinai, 2003). The law of contract mainly originates from the doctrines of equity, substance of common law, certain statues of general application and the acts of parliament. This essay analyzes when the contract is formed between the customer and the person offering the service.

Usually, the contract begins when one party makes an offer, which is accepted by the other party that has the capacity to enter into such contract. Some necessary formalities must be followed to make the contract enforceable. In the contract formation, an offer is the unequivocal manifestation by one party to enter into a contract by the other party. For the offer to be valid under the contract terms, it must be oral, written, or implied (Patrson, Robertson, Duke, 2008). Another characteristic of the offer is that it must be definite and clear for it to be understood by both parties. Such concept of offer being clear was coined in the ruling in Scammell and Nephew Ltd v. Ouston as well as Sands v. Mutual Benefits. In these two legal cases, the judges agreed that the words that were used by the parties entering the contract was too vague and uncertain and did not meet the threshold of contract formation (Varadarajan, 2001). These two cases set a clear judicial precedence that the wording and the framing of contract needs to be clear to avoid any uncertainty in the law.

An offer can either be absolute or conditional. In contract formation, the offeror have the discretion to decide the duration of the offer (Staudenmayer, 2004). Any time before this duration elapses, it can be revoked as was established in Dickson v. Dodds. In this ruling, it was held that there was no agreement between the parties as the offer was withdrawn. Since the offeror has the freedom to prescribe the method of communication of acceptance by the offeree, the method he chooses eventually becomes a condition. The law recognizes that the offer may be general or specific (McDonald, 2011). In addition, the offer can be directed to an individual, group of persons, or even to the general public.

The law allows for the revocation of offers the eventual termination of contracts. However, the contract formation only comes to an end when the revocation has been communicated to the offeree (Schwarts & Scott, 2003). Despite the communication being made, revocation only becomes effective when the notice is received by the offeree. In the case of Byrne v. Van Tienhoven, it was established that an offer is irrevocable after the acceptance has been made.

All the contractual agreements must be followed by an acceptance for the contract to be valid and enforceable in the courts of law. Generally, an acceptance gives rise to the agreement between parties (Ricks, 2003). The law appreciates the fact that agreement usually comes into force when both parties into the contract are happy with the contractual terms. When one party to the contract feels betrayed, he or she may fail to enter into the contract due to lack of benefits. In this regard, the offer must be manifested by offeree in writing, orally, or in writing.

For an acceptance to take place, it must be in writing, oral, or implied from the conduct of the person entering the contract. This preposition was coined in the case of Brogden v. Metropolitan Railway Co and Carlill v. Carbolic Smoke Ball Co. For an acceptance to take place, the offeree must be fully aware and intended to accept the offer for his or her own personal benefits (Posner, 2003). In other words, the law purports that a person cannot accept an offer that he is not aware of. The ruling in Crown v. Clarke provides the illustration that a person should not take an offer whose existence he is unaware of. In the above case, the government offered to pay money to the tune of $1000 for any person who provides them with the whereabouts of two murders (Kerber & Sinai, 2003). In addition, the government made an offer that any accomplice who offers information that leads to the arrests of the murders would be pardoned. However, Clarke happened to have known the murderers and gave the information to the police without knowing of the existence of any offer related to the issue. The courts established that the actions of Clarke were not intended to accept the offer since he had given the information to the police on a different purpose (Eienberg, 2009). In this regard, he could not be rewarded since he was unaware of any offer and could not be in a position to accept the offer whose existence he is unaware of.

Another rule for the acceptance of an offer is that it must be unconditional and unqualified. The ruling in Hyde v. Wrench advanced the legal concept that the offeree must accept the offer in its terms, such that any modification or variation to the terms would amount to conditional acceptance (Dorsaneo & Rodgers, 2012). In case of modification, the contract remains null and void and would not be enforceable in the courts of law. Related to this, an offer must be accepted within the stipulated time, failure to which in becomes null and void. When the stipulated time has elapsed, accepting an offer is not enforceable in law under the contractual terms.

According to the law of contract, an acceptance needs to be communicated in a prescribed method or an equally expeditions method (Cohen, 2009). Failure to communicate the offer in a prescribed method would mean that acceptance has not taken place and there is no contract between the parties involved. However, other methods to for communication are also accepted depending on the type of offer in the table and the circumstances that surrounds the offer being made. However, the law of contract is very categorical that silence does not amount to acceptance under any circumstance whatsoever as was witnessed in the ruling in Felthouse v. Bindley. In this case, the plaintiff intended to buy a hose and even wrote a letter to the defendant stating that he will consider the horse his if he hears nothing from him. The defendant kept silent and letter sold the horse (Bridgeman, 2003). When the plaintiff sued, it was held that there was no acceptance to the offer since the plaintiff was silent. However, acceptance is treated differently when the parties involved in the contract negotiate by the word of mouth. In such a case, the law of contract stipulates that acceptance is complete the moment the offeror hears the words of acceptance from his contractual partner. Similarly, acceptance is deemed complete when a person hears the words of acceptance from the other party when they are negotiating in a telephone.

In contract law, the contract is only enforceable by law when the parties entering the contract have the capacity to enter into such contracts. Generally, every person has the legal capacity to enter into contracts, save for infants, drunkards, persons of unsound mind, undischarged bankrupts, and corporations (Basedow, 2011). In contract law, the contractual capacity of the infants is mainly limited to the supply of necessities, educational contract, and contracts for beneficial service.

It is evident that the advancements in technology has also been extended and recognized by legal concepts. Particularly, the efficiency and the boom in electronic commerce have made online transactions make lucrative (Bagchi, 2013). Currently, many people prefer to conduct their transactions over the internet and this comes with some legal consequences. In this regard, it is significant for the business persons and their client to understand the legality of their online transactions.

In most cases, there are two methods of offering and accepting online terms and conditions: browse wrap and text wrap (McDonald, 2011). Click wrap usually appears down on the internet page with the word “I Agree” before executing a transaction. Therefore, the consumers are required to read the terms and conditions in the “I Agree” button and make decision accordingly. The button provides the evidence of an offer, which is accepted by the client the moment he read and clicks it. This form of agreement is enforceable by law of contract since the offer was made with term of offer and the client accepted the offer accordingly. The moment the button has been clocked, other terms and conditions cannot be added later. In addition, the terms and the conditions must be clear enough for easy understanding by the client. Therefore, the application of the paper contracts is not that different to the application of online contracts.

In the ruling in L’Estrange v. Garucob, the judge established that online signatures are fully binding, provided that lack factors of fraud and misleading aspects to the client. In this regard, the business persons should construct their online platform in such a manner that it is not considered a fraud or misrepresentation. Within their website, the terms and conditions should be clearly seen and unreasonable terms should be bolded to enhance visibility by the client (McDonald, 2011).

A good case illustration of contract formation between the company and the client can be illustrated by Airbnb.  This company runs an online business where millions of customer around the world list, find and rent lodging (Cohen, 2009). The company took advantage of the gaps in the hospitality industry to offer their customers a convenient means of booking and renting lodging online. The company runs a unique business model whereby they connect the client with the host to enable their clients transact without the need to own the room. Within three years from its formation, the company recorded a record 1 million bookings. By operating this unique business model, Airbnb has faced several challenges in cultural, security, privacy, finance, taxation, and legal domains. Therefore, the nature of Airbnb business is marred by controversy related to the legality of subletting somebody’s apartments and the liability issues that may arise when the client ransacks the host apartments.

In response to the controversial nature of their business, Airbnb has set terms and conditions to their clients and host accordingly to guide their contractual agreement (See appendix for part of the detailed Airbnb terms and conditions). Some of the terms and conditions stipulate that the owner will have the right to inspect his premises anytime without notice to assess whether it is in good condition (Karsten & Sinai, 2003). In addition, the rental agreement becomes terminated the moment the guest violates the any of the clauses in the terms and agreement. In such arrangement, the guests are required to maintain the premises in good condition and use it in accordance with the law. By the time they are leaving the premises, the premises should be readily habitable by the next client or owner. In case of any damage, the gusts must agree that part of his security be deducted to cater for any damage caused by his use of the premise. In addition, the gusts are required not to sublet the property and to avoid bringing any animal or pets of any kind. These are some of the term and conditions that must be followed in the contract agreement. In this arrangement, the contract is formed when the clients reads and accepts all the terms and condition offered by the company (Oman, 2007). Therefore, violation of any part of the contract would lead to legal action to provide remedy for the breach of the contract.

The traditional contract law related to offer and acceptance can be explained by the ruling in MacRobertson Miller Airline Services v Commissioner of State Taxation. In this case, the judges insinuated that the simple purchase of an air ticket does not account to contract formation between the client and the airline operators. In this regard, the airlines are not obliged to honor flights from clients who have purchased the tickets. However, the argument of the judges was that the airline operators are only obliged to honor flights once the passenger has presented himself or herself and the boarding pass issued (Rciks, 2003). Therefore, a passenger who has simply bought the tickets and the flights are cancelled lacked the legal mechanism to be compensated for the cancelled flights.

On the same note, the ruling in Pharmaceutical Society of Great Britain v. Boots Cash Chemists also helps to explain when the contract is formed between two parties. The defendant had instituted a new way of selling products whereby the client would pick goods and put them in the basked in a self-service system. In this ruling, it was decided that the more display of products in the shelf is just an invitation to a treat and not acceptance of the offer. Therefore, at what stage does the purchase of goods from the self-service amounts to acceptance of an offer? In the ruling, it was determined that it is the customer who makes an offer to purchase such goods by presenting them to the shop assistant at the cash till (MacDonalt, 2011). In this regard, the shop attendant has the option to accept or refuse the offer based on his analysis.

In conclusion, offer and acceptance are important components of contract law between two or more parties as it helps to determine whether and when an enforceable contract has been made. Usually, the contract begins when one party makes an offer, which is accepted by the other party that has the capacity to enter into such contract. Some necessary formalities must be followed to make the contract enforceable.  

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