OFFER AND ACCEPTANCE PROBLEM QUESTION

OFFER AND ACCEPTANCE PROBLEM QUESTION

QUESTION

On Monday, Golden Antiques places the following advertisement on their website: ‘For sale, three Victorian style beds, gorgeous, £5000 each, cash, will brighten up any bed room!’

David, the manager of White Halls Ltd. Email Golden Antiques, immediately replies: ‘White Halls Ltd. Will buy all three beds at £4500 each, please advise if credit facility is available’.

On Tuesday morning, Golden Antiques replies by email to say, ‘We are not prepared to sell for less than £5000 each. Credit facility only available if your grantor is acceptable to us. Please confirm by close of business today if interested’.

On Tuesday afternoon, David faxes Golden Antiques to say he is willing to accept their original terms and will buy all three beds at £5000 each. He also faxes a letter he receives from Black Halls Ltd. (the guarantor) which states: ‘It is our policy to ensure that our subsidiary, White Halls Ltd., remain solvent at all times”. However, the fax was not properly transmitted, as indicated by the status report. David then posts a letter at 5pm accepting Golden Antiques’ terms on Tuesday evening, although he knows there is a postal strike that day.

Roger, an accountant, telephones Golden Antiques on Wednesday morning stating that he wants to buy Victorian beds. He persuades the manager of Golden Antiques to sell the beds to him, on the basis that he had prepared the financial accounts for Golden Antiques the year before for half the fee he normally charges. Golden Antiques agrees to sell to Roger, so they send David a fax on Wednesday evening saying that the beds are no longer available for sale.

Golden Antiques receive David’s letter at 3.45pm on Thursday. David does not read the fax from Golden Antiques until 4.00pm on Thursday.

Advise the parties as to their legal positions.

Offer and Acceptance Problem Question Answer from Contract Q&A

ANSWER

Introduction

This paper is an advice for Golden Antiques, from the offer and acceptance problem question David, the manager of White Halls Ltd., and Roger, the accountant, (“the parties”) in relation to the recent negotiation regarding the sale of three Victorian style beds. This paper will advise the parties as to whether a legally enforceable contact has been formed. The paper will do this by first, advising on the issue of the advertisement, and whether this will be viewed by the courts as a unilateral offer or an invitation to treat. Second, this paper will advise whether a valid offer has been made by Golden Antiques. Third, this paper will critically discuss whether David’s acceptance through fax was valid. Fourth, this paper will critically discuss the issue of David’s acceptance by post, using the relevant case law. Fifth, this paper will discuss the issue of the sale of the beds to Roger and whether this agreement provided the necessary consideration. Sixth, this paper will discuss whether Golden Antiques revocation took place before David’s acceptance. Lastly, this paper will conclude its findings.

Unilateral offer or invitation to treat

For a contract to exist one party (“the offeror”) needs to make a clear and certain offer and the other party (the offeree) needs to communicate their equally clear and unequivocal acceptance. It is important to establish whether the advertisement placed on their website is an invitation to treat or an offer. If it is an offer, it will be capable of being accepted by David. However, if it is an invitation to treat, David must make the offer to Golden Antiques who may then choose to accept or reject it. On Monday, Golden Antiques places the following advertisement on their website ‘For sale, three Victorian style beds, gorgeous, £5000 each, cash, will brighten up any bed room!’.

Generally advertisements are regarded by the courts as statements inviting further negotiations or invitations to treat. An example of this was seen in Partridge v Crittenden[1], where a notice reading ‘Bramblefinch cocks and hens, 25s each’ was placed in the classified advertisement page of a periodical. The Court of Appeal held that newspaper advertisements are ordinarily to be treated as invitations to treat and not offers. The logic of this decision was set out by Lord Parker CJ who noted the “business sense in [advertisements] being construed as invitations to treat and not as offers”[2]. Moreover, Lord Parker CJ in agreement cited Lord Herschell in Grainger & Son v Gough[3], where he made the point that it would be wrong to regard these types of advertisements as offers because “the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out,”, because the merchant would have a limited supply. Ewan Mckendrick points out “this argument is not conclusive because it could be implied that the offer is only capable of acceptance while stocks last”.[4]

A possible line of argument that might be raised by Golden Antiques is that this advertisement constitutes a unilateral contract.[5] A unilateral offer is where one party makes an offer or proposal that is open to the world and capable of acceptance by anyone. The other party ‘accepts’ the offer by performing the act in accordance with the requirements of the offer. Using Carlill v Carbolic Smoke Ball Co.,[6] which is the authority on unilateral contracts, it can be argued the advertisement is in very firm terms, and because the price and description of the bed is stated, it requires no further negation and is capable of being accepted by performance of payment. [7]

However, the opposing argument to this can be drawn from what was argued by Finlay, Q.C., and T. Terrell for the defendant Smoke ball company in Carlill that “the offer, the terms of which are too vague to be treated as a definite offer”[8]. This argument is on a balance of probabilities likely to work because the advertisement is not clear, precise and unequivocal. For example, although the advertisement has a good description of the bed, it lacks information about the way in which acceptance should take place or the way in which payment should be made. It is, therefore, merely an invitation to treat and not an offer. This means that David must make the offer to Golden Antiques who can choose to accept or reject it.

A valid offer?

David is the manager of White Halls Ltd. and is acting in his capacity of agent for the White Halls Ltd. He has emailed Golden Antiques saying: ‘White Halls Ltd. Will buy all three beds at £4500 each, please advise if credit facility is available’. It is likely the advertisement is an invitation to treat; therefore, his email will be construed as an offer to Golden Antiques.

Another reason why the courts will not submit to the view that this is a unilateral offer and David’s email is a valid acceptance is because David has varied the price of each bed to £4,500. One of the general principles in contract law is that the acceptance must mirror the offer. The “mirror image rule” stipulates that, if David wants to accept Golden Antiques offer, he must accept an offer exactly, without any modifications;[9] because David has changed the offer, this hypothetically becomes a counter-offer that kills the original offer, as seen in the case of Hyde v. Wrench.[10] Therefore, we are left in the same position that David’s email is an offer that Golden Antiques can either accept or reject.

On Tuesday, Golden Antiques replies by email ‘We are not prepared to sell for less than £5000 each. This can be interpreted as a firm refusal by Golden Antiques of the offer presented by David. They have reaffirmed the price of the bed being £5,000. Using the authority of Hyde v. Wrench. Golden Antiques have made a counter-offer which can now be accepted or rejected by David. Golden Antiques email further reads: Credit facility only available if your grantor is acceptable to us.’ The statement about the credit facility is quite ambiguous because of the use of the phrase ‘if your grantor is acceptable to us’. Golden Antiques have not specified what the criteria are for the grantor to be acceptable. Lastly, the email reads: ‘Please confirm by close of business today if interested’. Golden Antiques are stipulating by when acceptance must take place. This would suggest the offer is only open for one day and will lapse at close of business. The leading case on this point is Ramsgate Victoria Hotel Co. v Montefiore[11], in which the courts said even if an offer has not been formally withdrawn, it would expire after “a reasonable time”. In this case, the offer was for the sale of shares and the court felt six months was beyond what was reasonable.

The statement ‘please advise if credit facility is available’ will be seen by the courts as a request for further information. Similarly in Stevenson, Jacques & Co. v McLean[12], when a customer asked for delivery over two months the courts held the plaintiff had not made a counter-offer but had made a mere enquiry which did not serve to reject the offer. A binding contract had been made when the plaintiffs sent the telegram accepting the offer.

David’s acceptance through fax

On Tuesday afternoon, David faxes Golden Antiques to say he is willing to accept their original terms and will buy all three beds at £5000 each. David is accepting Golden Antiques offer, but the fax was not properly transmitted, as indicated by the status report. The general principle in contract law is that the acceptance must be communicated to the offeror. This principle is found in the case of Entores v Miles Far East [13], where Lord Denning said:

“Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound.”[14]

Furthermore, in Brinkibon v Stahag Stahl[15], Lord Wilberforce suggested there was no general rule that could cover all the possible situations in these types of cases. He added each case should be resolved with reference to the intention of the parties, to sound business practice, and, in some cases, to a judgment as to where the risks should lie. The case of Entores suggests that acceptance should take place only upon receipt of the fax. Therefore, the onus is on David to retransmit the fax until he is sure that Golden Antiques have received his acceptance. Failing this, there is no valid or enforceable contract between David and Golden Antiques.

David’s acceptance by post

David then posts a letter at 5pm accepting Golden Antiques’ terms on Tuesday evening; although he knows there is a postal strike that day. Acceptance is normally effectual and the contract binding once acceptance is received by the offeror. However, the courts have introduced the postal rule to overcome the problem of the time a letter spends in the postal system. The reason for this rule is to facilitate business and “promote certainly within contractual formation at a time when the principle method of communication was slow”.[16]

The postal rule was laid down in Adams v Lindsell. [17] Where post is deemed to be the proper means of communication, the acceptance takes effect from the moment the letter of acceptance is properly posted. We are not told whether the post was Golden Antiques preferred method of communication. But, because David has failed to successfully send the fax, he has opted for the post as a method of acceptance. An illustration of this was seen in Henthorn v Fraser.[18] The court, in this case, held a contract was made at 3:50pm when Henthorn posted his letter of acceptance.

Therefore, applying both cases above, it would appear David has benefited under the postal rule and accepted the offer and has a binding contract. However, the lawyers for Golden Antiques may alternatively argue that David should not be allowed to benefit under the postal rule and there is no binding agreement for two reasons:

First, the offer has lapsed under the Ramsgate Victoria Hotel Co. v Montefiore.[19] Golden Antiques stated in their email ‘Please confirm by close of business today if interested’. David had posted the letter at the close of business i.e. 5 o’clock. Thus the acceptance has come a moment too late. Another case which could be used in support of this argument (although this concerns telex and is not directly relevant) is Tenax Steamship v The Brimnes (The Brimnes)[20], where Cairns LJ felt that the sender should not rely on the recipients' reading every communication at once, and that, in some circumstances, a notice arriving late in the working day might quite legitimately not be “received” until the following morning.

Second, it could be argued that, because David knows there is a postal strike that day, it would be wrong to allow the postal rule to operate in this way. Lawton LJ in Holwell Securities v Hughes [21]seemed to support this proposition, when he said that the rule will not be applied where it would lead to: ‘a manifest inconvenience and absurdity.’[22]However, in the absence of authority on this point, the courts may feel it right to allow the postal rule to apply.

Sale of the beds to Roger

Roger, an accountant, telephones Golden Antiques on Wednesday morning stating that he wants to buy Victorian beds. He persuades the manager of Golden Antiques to sell the beds to him, on the basis that he had prepared the financial accounts for Golden Antiques the year before for half the fee he normally charges. Golden Antiques agrees to sell to Roger. This is a breach of contract because the contract with David is binding if the postal rule applies.

If Golden Antiques want to change their mind and ultimately sell to David, they are able to do so, because the contract with Rodger may be unenforceable due to lack of consideration. The classic definition of consideration, found in the case of Currie v Misa,[23] is that consideration, ‘may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other’. This means Roger must provide something in return of the beds, i.e. money. We are told ‘the manager of Golden Antiques to sell the beds to him’. If Roger has paid money, this will be valid consideration.[24] If, however, Roger has not paid any money for the beds and he is relying on the fact he had prepared the financial accounts for Golden Antiques the year before for half the fee he normally charges, this will not be valid consideration for two reasons:

First, consideration must not be past. It is not possible to use consideration as some act that has taken place prior to the contract. Consideration must be given in return for the beds. This is a matter of fact and it is unlikely that the earlier work done at a discount by Roger will be valid consideration as payment for the beds. The discount was provided probably in order to secure the work rather than as consideration for the future.

The general rule that consideration cannot be past was illustrated in Eastwood v Kenyon[25]. In this case, it was held a promise was insufficient where the consideration was wholly past. Moreover, in Roscorla v Thomas[26], Roscorla bought Thomas' horse for £30. After the sale, Thomas promised Roscorla that the horse was sound and free from vice. The horse proved to be vicious. The court held there was no consideration to support Thomas' promise and he was not bound. The sale itself could not be valuable consideration, for it was completed prior to the promise being given.

However, in Roger’s case, it can be argued that, because this is a transaction of a commercial nature, an implied promise to pay arises. This was acknowledged in the case of Re Casey's Patents[27], where the owners of patent rights promised their manager a share in those rights as consideration for his previous services for them. Bowen LJ said,

‘The fact of a past service raises an implication that at the time it was rendered it was to be paid for, and, if it was a service which was to be paid for, when you get in a subsequent document a promise to pay, that promise may be treated as an admission which evidences or as a positive bargain which fixes the amount of that reasonable remuneration on the faith of which the service was originally rendered.’

However, the success of this argument swaying the courts is unlikely, because the courts will view this as past consideration.

The second reason this will not be valid consideration is because this is an existing obligation under a contract. The authority for this is Stilk v Myrick[28], in which the captain of a ship promised his crew that, if they shared between them the work of two seamen who had deserted, the wages of the deserters would be distributed out between them. The court held that the promise was not binding because the seamen gave no new consideration: they were already contractually bound to do any extra work to complete the voyage.

We have to ask whether Roger has done any more than what he was bound to do under a previous contract with the Golden Antiques. If the answer is no, then there is no consideration. It is unlikely that the earlier work done at a discount by Roger will be valid consideration as payment for the beds. The discount was provided probably in order to secure the work.

Golden Antiques revocation

Golden Antiques sent David a fax on Wednesday evening saying that the beds were no longer available for sale. Golden Antiques received David’s letter at 3.45pm on Thursday. David did not read the fax from Golden Antiques until 4.00pm on Thursday. The revocation of the offer can only take place if the offer has not been accepted. This will all hinge on whether the courts will apply the postal rule. If the Court applies the postal rule, then acceptance has taken place before revocation and there is a binding contract with David. The authority for this is Byrne v Van Tienhoven[29], where an offeror posted a letter on 1 October offering to sell the offeree a quantity of tinplate, then posted another letter on 8 October withdrawing the offer. The first letter reached PP on 11 October and they accepted the offer at once by telegram, following with a confirmatory letter four days later. The second letter purporting to withdraw the offer arrived on 20 October, by which time the offer had been accepted and it was too late for DD to withdraw.

Conclusion

First, the advertisement of the beds is not clear, precise and unequivocal and therefore likely to be an invitation to treat. Second, David’s email is an offer that Golden Antiques can either accept or reject. Golden Antiques have reaffirmed the price of the bed as £5,000; this is a counter offer. Third, the statement ‘please advise if credit facility is available’ will be seen by the courts as a request for further information. David’s acceptance by fax is incomplete; he must communicate his acceptance. Fourth, it would appear David has benefited under the postal rule and accepted the offer, and thus has a binding contract. Fifth, if the Court applies the postal rule, then acceptance has taken place before revocation and there is a binding contract with David. If Golden Antiques decides to sell to Roger, this is a breach of contract with David. Lastly, if Golden Antiques want to change their mind and does ultimately sell to David, they can because the contract with Roger may be unenforceable due to lack of consideration.

FOOTNOTES

[1] [1968] 1 WLR 1204 [2] Partridge v Critenden [1986] 1 WLR 1204 per Lord Parker para 1209 [3] [1896] AC 325 [4] Mckendrick E, Contract Law, Palgrove Macmillan Law Masters 7th Ed [5] G.H. Treitel, The Law of Contract, 11th ed [6] (1893) 1 QB 256 [7] G.H. Treitel, The Law of Contract, 11th ed [8] (1893) 1 QB 256 at p 257 [9] Mckendrick E, Contract Law, Palgrove Macmillan Law Masters 7th Ed [10] (1840) 3 Beav 334 [11] (1866) LR 1 Ex 109 [12] (1880) 5 QBD 346 [13] [1955] 2 Q.B. 327 [14] [1955] 2 Q.B. 327 at 332 [15] [1982] 1 All ER 293 [16] Capps D, ‘You’ve got Mail’ 153 New Law Journal 906 [17] (1818) 1 B & Ald 681 [18] [1892] 2 Ch 27 [19] (1866) LR 1 Ex 109 [20] [1974] 3 All ER 88 [21] [1974] 1 WLR 155 [22] [1974] 1 WLR 155 at 161 [23] (1875) LR 10 Ex 153 per Lush J [24] Chappell v Nestlé [1959] 2 All ER 701 [25] (1840) 11 A & E 438 [26] (1842) 3 QB 234 [27] [1892] 1 Ch 104 [28] (1809) 2 Camp 317 [29] (1880) LR 5 CPD 344

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