"The law of payment services is the law of contract, and this is how it should be" How far do you agree with this statement
Introduction
Why do we need contract law when we have the law of payment services? The need arise because promises should be binding, but the law of contract only enforces specific types of promise, hence, where there is an exchange of goods or services is taking place. The need for legally binding contracts arises because of the market capitalist society we live in. Where many buy and sell transactions are being carried out daily, both on the small scale of ordinary customers in shops and service centres, and also on bigger scale of project such as the construction of the new Wembley Stadium. Therefore, it would be impossible to live in a society where promises were not binding. To an extent the law of payment services is the law of contract and this is how it should be. However, as we will see in our discussions this is a very simplistic view of contract law.
Elements of Law of Contract and its Coverage by Law of Payment Services
A contract is an agreement between two or more parties, entered into freely. To be a valid and enforceable contract it must have an element of offer, acceptance and consideration. Contract law governs the law of payment services, such as insurance service. The terms and conditions of insurance between the service provider and insured are in accordance to English Contract Law. The insurance service provider will make a written or oral offer in form of a quote. The customer will accept the offer by either making full payment or agreeing to pay via monthly instalment. This agreement will therefore, constitute both an acceptance (via signed agreement) and also consideration in form of a payment.
An offer must not be vague; it must have been made with a serious intention of creating a legally binding contract. An acceptance to an offer can be made expressly or by conduct (in form of a deposit). However, the acceptance must be unconditional. The acceptance is complete once it has been communicated to the offerer. An offer can terminate in the following circumstances, if the offerer states that it shall be accepted before a specific time has lapsed or a valid revocation of the offer or via a notice of rejection of the offer.
Treitel in the Law of Contract defines a contract as:
An agreement-giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties.
The notion of agreement is central to the above definition and therefore, the question we need to ask ourselves is that at what point does an agreement actually materialises. The law of contract requires an objective indication of agreement between the parties. The intention of the parties must be ascertained by objective means. In the case of the Leonidas D (1985) 1 WLR 925, Goff LJ, is analysing the discussions on the objective test that took place in the Hannah Blumenthal (1983) 1 AC 854, preferred the assertion of Load Brightman in defining the objective test, stating:
If one party (O) so acts that his conduct, objectively considered, constitutes an offer, and the other party (A), believing that the conduct of O represents his actual intention, accepts O’s offer, then a valid contract will come into existence, and on those facts it will make no difference if O did not I fact intend to make an offer, or if he misunderstood A’s acceptance, so that O’s state of mind is, in such circumstances, irrelevant.
The law of contract is a case law subject. There is a lot of discretion given to the judiciary in this area of the civil law and there is much to be learned by reading the judgements. The law of payment services are often tested in courts, as the terms and conditions can be widely varied and customised. When two parties to such service agreement are in dispute, where one party feels that the terms and conditions are unfair, they can ask the courts to resolve such contract disputes. Therefore, the law of payment services are not so much the law of contracts but it’s the law by which payment services are governed. To make sure that individuals entering into service agreements with large corporations are protected and not taken advantage of, as many insurance services will incorporate exclusion clauses into their terms are conditions of service, which are unfavourable to the service consumers.
The law of contract itself can be seen as unfair and individualistic; however, not always addressing those issues seen as significant to the public good. As a result, governments have developed statute law to address matters such as consumer purchases, residential rental agreements, and ownership of copyright, patents, or trademarks. This new era of freedom of contract is not a complete one; some level of protection will always be required to protect those less able to look after themselves. The statute law has been developed in the public interest, in order to afford protection for individuals against potentially more powerful business interests.
Law of contract requires that there be not only an agreement between the two parties but also the presence of a bargain, otherwise any promise would give rise to a potential binding contract. Therefore, in contract law a promise is not binding unless it is either made under seal or supported by ‘consideration’. There must be a degree of quid pro quo to establish a contract, or in simple terms the parties are required to ‘buy’ the promise of the other party. Therefore, a bare promise such as ‘I will give you £100 is not enforceable, unless it is in writing under seal as in a deed. Under the law of payment services, a quote for service is only bidding once the customer has accepted the quote by making a payment or a promise of future payment, through direct debit instructions from their bank.
Finally, the intention to create a legal relationship is required to give rise to a binding contract and also in any payment service agreements. Therefore, even if evidence of an agreement is proven together with consideration, it may still not be a legally binding contract. Any social agreement will not give rise to a binding contract as it will not be an arrangement that a reasonable person would consider as giving rise to a legal contract. Therefore, the English contract law draws a line between agreements of commercial natures such as payment services and those of a social nature.
The nature of an offer is a critical element of a contract. An offer is an expression of a willingness to contract on certain terms made with the intention that a binding agreement will exist once the offer is accepted. In the case of Carlill v Carbolic Smoke Ball Co. (1892) it was highlighted that it is not possible to make an offer to the world at large. Although the offer was made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement.
Another feature of an offer is that the offer is made with the intention that it should be binding. In the case of Carlill it was stated that the advertisement was a ‘mere puff’ and not intended to form the basis of a binding contract. However, this was rejected because the advertisement also stated that the defendants had deposited £1,000 with the Alliance Bank ‘to show their sincerity’. It was clear in this case that this fact indicated that they intended to enter into a legal relationship.
As discussed above by definition, an offer is an expression of a willingness to be bound by the terms of the offer should it be accepted. However, if a person is not willing to be bound by the terms of their promise but is merely seeking to initiate negotiations then this cannot be termed as an offer, and is regarded as an ‘invitations to treat’. The distinction between an offer and an invitation to treat is determined via the concept of intention. In the case of Carlill the advertisement amounted to an offer, however, most advertisements are invitation to treat. This was outlined in the case of Partridge v Crittenden (1968) and the earlier case of Harris v Nickerson (1873
In the case of e-commerce businesses offering goods and services on their website, does that represent an offer or an invitation to treat? In the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd, the goods on the website constituted an invitation to treat, as in Fisher v Bell.
Mobile Phone Service providers like T-Mobile will have in place terms and condition of service and its acceptance through use of the phone.
BY ACTIVATING OR USING OUR SERVICE, YOU AGREE TO BE BOUND BY THESE TERMS AND CONDITIONS (T&C’s). PLEASE READ THESE T&C’s CAREFULLY. They affect your legal rights by, among other things, requiring MANDATORY ARBITRATION OF DISPUTES and charging an EARLY CANCELLATION FEE. IF YOU DO NOT AGREE TO THESE T&C’s, DO NOT ACTIVATE OR USE THE SERVICE OR YOUR WIRELESS PHONE, DEVICE, SMART CARD, OR OTHER EQUIPMENT (PHONE)
There are various issues surrounding acceptance in terms of law of contract. Treitel defines acceptance as ‘a final unqualified expression of assent to all he terms of an offer’. The case law surrounding acceptance has the same theme of an intention by the offeree to accept the offer made to them. The concept of cross offers does occur in reality, when two identical offers cross in the post, for example, where A offers to buy B’s house from him for £120K, while at the same time B offers to sell his house to A for £120K. In this situation no contract can exist as neither party has objectively accepted an offer. In the case of Tinn v Hoffman and Co. (1873) it was held that: when a contract is made between two parties, there is a promise by one in consideration of the promise made by the other; there are two assenting minds, the parties agreeing in opinion and one having promised in consideration of the promise made by the other, there is an exchange of promises. But exchanging offers is not the same thing as acceptance of an offer. The promise or offer made on each side in unawareness of the promise or offer made on the other side neither can be construed as an acceptance of the other.
Consideration is the final element of any valid contract.
Consideration is the price for which the promise of the other is bought. In Currie v Misa (1875) consideration was defined as:
A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. The sub-principles of consideration may be expressed as,
Consideration may be executed or executory but not past;
Consideration must move from the promise but not necessarily to the promisor;
Consideration must be sufficient through not necessarily adequate.
In most commercial agreements in today’s business environment there is a strong presumption that there is an intention to create a legally binding contract. Therefore, to a large extent we can agree with the statement that the law of payment services is in essence the law of contract. As any payment services constitute a valid contract, as there is an offer, acceptance and some form of consideration. Consumers are protected through statute law from corporations via the sale of goods act. However, the regulations also recognise the possibility of consumers attempting to copy or otherwise make use of goods ad then cancel the contract. The contracts for the supply of newspapers or magazines cannot be cancelled, as well as computer software and CD’s once the sealed packaging is removed.
There are various circumstances where an offer will cease to exist and it is those finer details that makes it essential for us to have law of contract in place rather then just law of payment services. The first circumstance in which an offer many cease to exist is that of specified time, where an offeror states that an offer will remain open to acceptance (although it can be revoked before that time). This is typical of insurance service providers offer motoring quotes. In the case of Payne v Cave (1789) and Routledge v Grant (1828) it was held that the offeror has the right to withdraw the offer at any moment before acceptance, even though the time limited had not expired. However, it was later decided in the case of Byrne v Van Tienhoven (1880) that he offeror must notify the offeree of such withdrawals.
An offer can also cease to exist as a result of failure of a precondition; in everyday life certain offers are made subject to certain conditions. An offer also lapses when the offeree rejects it. As discussed earlier a counter-offer terminates an earlier offer.
Sometimes the parties may be in dispute as to whether a contract existed between them. In most payment services there never is a signed written agreement but both parties orally or through their conduct, hence payment of a deposit, booked appointment etc agree to a binding contract. However, the law of contract does on occasion’s states that no such oral contracts can exist. In the case of Baird Textile Holdings Ltd v Marks & Spencer’s plc (2001), it was held that M&S were not in breach of contract as no contract governing the relationship between the two parties existed. The courts held that a contract should only be implied if it was necessary to do so ’to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would except that business reality and those enforceable obligations to exist’.
Contract law allows certain exceptions for consumers. In most case, after an offer has been accepted the contract becomes legally binding, and the offeree cannot usually withdraw their acceptance. An exception to this rule is where certain consumers have entered into a contract made at distance. Under the Consumer Protection Regulations 2000 a consumer entering into a contract at a distance has a period of X days to change their mind. This allows the consumer to cancel the contract within a certain period of receiving the products or concluding a contract for services.
The law of contact is undoubtedly more comprehensive and complex then simply that of payment services. Although offer and acceptance can provide the basic foundation for assessing a valid legal contract, it is the circumstances surrounding any disputed agreement that the courts are really looking to judge, to conclude whether the parties have come to an agreement. In the case of Clarke v Dunraven (1897) the rules on offer and acceptance gave very little assistance to the courts.
The law of contract also governs any unfair contract terms. On occasions contract terms can be considered to be so unfair to one party that the courts will intervene to protect the unfortunate party. There are exemption clauses, which are monitored and controlled both under common law and by the Unfair Contract Terms Act 1977. The European Union has also in place directive to prevent any unfair contract terms.
Where an exemption clause has been incorporated into a contract, the courts will check to see if the clause actually covers the breach that has occurred. If the wording of the clause is not clear it will be interpreted by the courts in such away that is least favourable to the party who is relying on the clause. This was applied in the case of Houghton v Trafalgar Insurance Co (1954). An exemption clause in an insurance policy was also given unfavourable interpretation in Middleton v Wiggins (1995).
It is a typical for service providers to have a section within their terms and conditions titled WHAT IS NOT COVERED i.e. damages caused by dropped products or damages from exposure to weather conditions. It is this section that will outline what an insurance policy or a service agreement will exclude. This is usually the major cause of contract disputes.
In any service agreement whether it is for Insurance services or Telecommunication services the terms and conditions of use amount to a contract between the service provider and service consumer. Each service provider will have its own terms and conditions in place; most of those will be in line with contract law, as significant diversions from contract law will amount to unfair terms and conditions, which will result in invalid contract.
Conclusion
"The law of payment services is the law of contract, and this is how it should be" This statement is correct to the extent that any legally binding contract will have three basic elements, namely, offer, acceptance and consideration. In any commercial transaction where a service is being provided, the service provider will offer his or her service with their terms and conditions, the service acquirer will communicate his acceptance via oral or signed agreement. The consideration will be in form of an upfront payment of the service or a deposit with full payment upon undertaking the service. As most commercial everyday contracts are as simple as those for provision of basic services, the law of payment services is simple the law of contract.
However, as we have seen through our discussion of various elements of a legal contract, there can be a number of unusual circumstances that’s can arise in course of everyday life which require a extensive legal framework. The development of contract law is through case law, which means that it is forever evolving through new cases and precedents. Therefore, the law of contract can never be as simple as law of payment services. The law of contract is the law that enforces or renders void (unfair) the terms and conditions outlined by any payment services.
Bibliography & References
Elliott, C., Quinn, F., (2005) Contract Law Fifth Edition, Pearson Education.
Richards, P., (2004) Law of Contract Sixth Edition, Pearson Longman.
Turner, C., (2004) Unlocking Contract Law, Hodder & Stoughton.
http://www.t-mobile.com/info/legal/terms_cond.asp
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