The Agreement 1: Offer & Acceptance - Contract Law Assessment Answer - The University Of Buckingham

AGREEMENT

In order for a contract to be formed, it must be possible to show three things:

1. an agreement shown by offer and acceptance;
2. an intention to create legal relations;
3. an exchange of consideration.

This Unit and the next will look at the elements of agreement and intention to create legal relations. Units 4 and 5 will look at the requirement of consideration. Finally, we will look at contracts involving more than two parties when we study privity in the final week of term.

The Need for Offer and Acceptance

In order for a contract to be formed there must be “consensus ad idem”, which translates roughly as the “meeting of the minds”. Clearly in order for a contract to be valid, and for a party to be bound to perform under it, there must be some element of agreement at the moment of creation.

The classical approach in contract law is to prove that there has been an agreement by showing that one party made an offer to the other and that that offer was accepted.

This idea of offer and acceptance has typically been a very formalistic approach and in many cases the analysis will involve a party making a statement that they call one thing but which is treated in law as something else. For instance, the law may classify a statement as an 'offer' even though the party who made the statement called it an 'acceptance'.

Subjectivity v Objectivity

When looking at offers and acceptance, we have to decide the perspective from which we should view statements made by the parties.

The two main possibilities are to take:

• a subjective view, i.e. What did the party think that he or she was doing?; or
• an objective view, i.e. What would an objective observer think that the statement meant?

The objective approach has been preferred by the courts as this leads to greater certainty as to whether the parties have a contract or not. Ensure that you feel comfortable in your understanding of objectvity and subjectivity, because these concepts are very important not just in contract law but in many other areas you will study as well.

Unilateral Contracts

It is probably appropriate at this time to introduce the difference between unilateral and bilateral contracts. A unilateral contract is a special form of contract. An offer to form a unilateral contract can normally be expressed in the form "If you do this, then I promise you that ...". For this reason, unilateral contract are often called "if" contracts.

The key to unilateral contracts is that the offer anticipates that the offer is to be accepted by the offeree performing the required act. Therefore, the completion of performance and the acceptance are simultaneous. It is also important to notice that the term unilateral contract is indicating that only the offeror is bound to the contract. The offeree may perform or not as he or she chooses.

The most typical type of unilateral contract is the reward. "If you find my dog and return him to me, I will give you £25." Once you have found the dog and returned it, there is a binding contract and so the promisor must pay the promised amount. Until full performance, there is no contract so the offeree is not contractually obliged to find the dog.

An offer to form a unilateral contract must satisfy the same requirements as a bilateral contract but the way in which they are then treated is somewhat different. It is therefore useful, when you are deciding whether or not something is an offer to also decide if it is an offer to form a unilateral contract.

ELEMENTS OF AN AGREEMENT

In order to determine whether agreement has been reached, it is necessary to find an offer which has been accepted. This problem breaks down into three main questions:

1. Has an offer been made?
2. What are the responses that can be made to an offer?
3. Has the offer come to an end before acceptance?

Has an Offer been made?

This question is normally treated by trying to make a distinction between offers and what are called invitations to treat.

Elements of an Offer

An offer requires three elements. It must be:

• intended to create a contract if accepted;
• communicated to the offeree;
• certain and complete enough to be a contract if accepted.

Please come to the seminar prepared to discuss the following questions:

1. Distinguish between an offer and an invitation to treat.
2. Distinguish between bilateral and unilateral contracts.
3. Read Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256:

• In what court was the case heard?
• Who were the judges deciding the case?
• Who represented the parties?
• What were the facts of the case?
• What was the reasoning of the judges to reach that result?

4. When will acceptance be communicated if sent by:

• Post?
• Email?
• Face to face?
• Text message?

5. Henry assembled components into personal computers and then sold them to customers. He needed to acquire ten hard disk drives and so wrote to Macro Memory Ltd ("MM") and inquired as to the availability and price of ten 4Tbyte hard disk drives and stated that he was looking to pay in the range of £1500 for all ten.

MM wrote back to him and stated "Thank you for your order of ten 4Tbyte hard disk drives for £1500. Enclosed are our standard terms of business." The standard terms of business stated contained various terms including term 12.04B which stated "The customer agrees to pay an additional sum of 5% of the purchase price if the goods continue to function properly for a period of one year after the date of purchase."

Henry wrote to MM and stated: "I cannot accept term 12.04B but otherwise the agreement is fine. Please ship immediately." MM shipped the hard disk drives with a letter stating that term 12.04B was an important term to them and had to be included. Henry built the computers using the disk drives and sent a cheque for £1500 to MM.

Advise Henry as to whether he will have to pay MM the 5% if the disk drives continue to function for more than a year.

Does it make any difference if Henry had used the disk drives but had at the same time written back and stated that he still disagreed with term 12.04B?

Introduction

An agreement is the first requirement of a valid agreement, which normally consists of an offer and acceptance. To determine whether an agreement exists, it is determined objectively based on the actions demonstrated by the by the parties themselves. As was stated in Storer v Manchester City Council Lord Denning stated “In contracts you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearance, a contract. A man cannot get out of a contract by saying; ‘I did not intend to contract’ if by his words he has done so.” In determining whether an agreement exists several tests have been used but courts have on most occasions settled for the objective test. In Danny’s case we will advise him on the two scenarios basing it on whether an agreement was reached or not.

Issue 1

Whether the Auction Sale by Erik amounted to an offer and Acceptance

RULE OF LAW

Offer Vs Invitation to Treat

The Australian Sale of Goods Act, 1954 states the in an auction, the sale is complete at the fall of the hammer and until the announcement is made any bidder has the liberty to retract his or her bid. This means that the bid is an offer which the auctioneer has the liberty to accept or reject, before the fall of the hammer. This automatically classifies an auction as an invitation to treat which has been defined as a request that is made to others to give their own offers with a sale in mind. In the case of Payne v Cave The defendant had made the highest bid in the Plaintiffs' goods which were being sold on an auction sale. He, however, withdrew his bid before the fall of the hammer. It was held that the bid was only an offer that the defendant had a right to withdraw before the fall of the hammer which could have amounted to accepting. Further, in the case of AGC (Advances) Ltd v McWhirter Judge Holland stated that bids at any auction were mere offers that were bound to be accepted or not. He stated that an auction has been just a mere invitation to treat.

Following the fact that an auction does not amount to an agreement, courts have held that no one can seek for damages as was held in the case of; Harris v Nickerson in this case the defendant who were the auctioneers had advertised that at Bury St Edmunds on specified days they were to sell lots that included certain office furniture. The Plaintiff travelled from London only to find some lots had been withdrawn. He sued the auctioneers to recover the expenses and times lost, but the court stated that he had no right for such an action since auction sales were mere invitations to treat.

In a case where there is no reserve price the courts have held that there were collateral contract which was on the basis of the auction selling to the highest bidder. This was held in the case of; Warlow v HarrisonIn these cases the auctioneer had withdrawn some machines from the auction and the court held that the auctioneer was liable for this amounted to a breach of contract. Further, in the case of Barry v Davies (t/a Heathcote Ball & Co.) the court held that an auctioneer was liable in an auction, where the reserve price had not been stated.

APPLICATION OF THE RULE OF LAW

The auction of the 1965 MGB Roadster had a reserve price and the auctioneer had just made a bid and as stipulated under Section 60 of the Sale of Goads act, the sale ends at the fall of the hammer. This means that before the fall of the hammer the auctioneer had a right to withdraw the 1965 MGB Roadster from the lot of the auction. This was demonstrated by the case of Payne v Calvin these cases the court held that the bid only amounts to an acceptance at the fall of the hammer and in these cases, it had not reached the fall of the hammer therefore there was no acceptance by the auctioneer meaning an offer had not been made. Further, in AGC (Advances) Ltd v McWhirter The court held that bids only amount to an agreement in the fall of the hammer and if not it only amounts to an invitation to treat. In this case the auction of the 1965 MGB Roadster was an invitation to treat.

Based on the fact that the auction had not amounted to an agreement despite the loss that Danny had gotten he could not be able to claim for damages. This was brought out in the case of; Harris v NickersonThis case had the same issues as Danny’s scenario where the auctioneer withdrew some lot of office furniture from the auction and the plaintiff had travelled from London for the auction. He therefore sued for recovery of losses he had incurred but the court held that he could not be able to claim those loses. In the same way Danny could not be in a position to be compensated his loss since the transaction did not amount to an agreement but was just an invitation to treat.

The fact that an auction had a reserve price also changed everything since as has been previously been held by different courts as was in Warlow v Harrison in these cases the court held that the withdrawal of some machines amounted to breach of contract since the reserve price had not been stated and the bid that was made amounted to acceptance. In the case of Danny if there was no Reserve price, then there could be an agreement. Further, Danny could have claimed and recovered his losses in the instance that there was no reserve price as was shown in the case of; Barry v Davies (t/a Heathcote Ball & Co.

CONCLUSION

Following the discussion above the auction sale did not amount to an offer and acceptance, since, despite the fact that Danny gave an offer the offer was not accepted by the auctioneer. As has been stated by the Sale of Goods Act, acceptance is done in the fall of the hammer and before the auctioneer is at liberty to withdraw as was the case. This means that Danny cannot also be able to claim for the losses he incurred from the auction sale did not amount to an agreement but was merely an invitation to treat.

ISSUES 2

Whether the letter Danny wrote to Farida, Georgina and Harry about the sale of the 1978 Jaguar XJ6 amounted to an offer?

Whether the Responses of Farida, Georgina and Harry amounted to an acceptance.

RULE OF LAW

An offer has been demonstrated to mean a communication which amounts to a promise to do or not to do something.In accordance to the Australian Law of, for a valid offer to be created there must be communicated as was in the case of Banks v Williams where it was stated that once an offer is communicated to the offerer the offerer has the power to turn the offer into an agreement by accepting it.

Acceptance on the other hand is an unequivocal statement which can be through conduct, writing or made orally. For an acceptance to be valid it must be communicated to the offeror and it must be in direct response to the offer as was stipulated by Lord Denning in Entores Ltd v Miles Far East Corporation,

Under the Postal rule of acceptance, acceptance is deemed to have been communicated even if it has not reached the offeror.In Adams v Lindsell it was held that the general rule is that an acceptance by post takes effect when it is communicated rather than when it is communicated. However, despite this general rule, it has further been stated that the postal acceptance rule will prevail only in certain circumstances. This was brought out in the case of; Household Bressan v Squireswhere the court held that the postal acceptance rule will prevail in instances that the parties to the agreement reasonably contemplated it. Further, it was held that if it has been clearly stipulated that the post was the proper method of communication then acceptance will be deemed to have been received as soon as the letter of acceptance has been posted.

Win instances that the post is not received a tall or is not received on the same day, courts have held that it will still amount to acceptance. This was depicted in the case of; Adams v Lindsell Where the Defendants wrote to the defendants on 2nd September offering to sell them certain fleeces of wool. The letter was misdirected by the defendants and the plaintiffs did not receive it until 5th September. The plaintiff on receiving the offer posted their acceptance on that day, but the defendants received the post on 9th September. On 8th September the defendants had sold the wool to someone else since they had not received the acceptance by the plaintiffs. The court held that there was a contract on the 5th of September when the Plaintiffs had posted their acceptance even if the defendants had not received it.

Counteroffers

In instances that offer accepts the subject of the transaction, but with certain conditions, it automatically becomes a Counter offer. The Mirror-Image rule applies to this kind of acceptance to be considered whereby the subject and terms of the offer must not be changed. This was seen in the case of; Hyde v Wrench The court held that there was no binding agreement in instances that a counter offer was made.

A request for further information has been held to not amount to a counteroffer, but as just a mere inquiry as was held in the case of Stevenson, Jacques & Co. V McLean.

Acceptance by Email

Subject to the Electronic Transactions Act, 1999 (Cth) The electronic communication is deemed to have been dispatched at the place where the originator has its place of business and is deemed to have been received where the addressee has its place of business unless otherwise agreed by the parties. Further, subject to Section 14 of the Act, Time of receipt in instances the addressee has designated the information system is when the electro communication enters the information system. In instances the addressee has not designated the information system the time of receipt is when the communication comes to the attention of the addressee.

Subject to the electronic Transaction Act, unlike letters, emails have been given special rules whereby for it to be considered accepted there must be actual receipt of the email. In the case of Thomas v BPE Solicitors (a firm), Judge Blair held that where contracts are made through an exchange of emails the receipt rule will apply and thus acceptance will be made on receipt of the email. In the case of Tenax Steamship Co. Ltd v The Brimnes (Owners), The Brimnes The court held that on the issue of whether the email was held or not, it will depend on the time the email was sent and if it was between office hours, then it will be deemed to have been read. In this case 17:30 and 18:00 was considered office hours.

APPLICATION OF THE RULE OF LAW

When Danny had written a letter to Farida, Georgina and Harry about the sale of the Jaguar in £10,000 he had made an offer as was stated in the case of; Banks v Williams whereby it was stated that an offer must be communicated.

The Postal Rule of Acceptance

Farida posting her acceptance of the offer from Danny contributed to acceptance and an agreement had been made as was stated in the case of; Adams v Lindsell where it was held that an offer is deemed to be accepted when it is posted. Further, in the same case it was held that even if the person did not receive the letter on the same day it will deem to have been accepted. In these cases Farida’s letter which was posted on 18th September arrived on 24th September based on the Adams case acceptance was made on 17th September when Farida posted the letter.

Counteroffers

Georgina in response to Danny’s Letter stated that she was willing to purchase the Jaguar at the lower price £8,000 instead of the stipulated £10,000.In these cases she made a counter offer which was against the offer that was given by Danny which did not amount to acceptance but a counteroffer. This was brought out in the case of Hyde v Wrench where it was held that counter offers were not binding and did not amount to acceptance. In this case there was no agreement between Georgina and Danny.

Acceptance by E-Mail

A request for further information on the subject matter of the contract has been held in Stevenson, Jacques & Co. V McLean not to amount as a counter offer. This means that feather inquiry by harry of the Jaguar did not amount to a counter offer. Subject to the Electronic Transactions Act, 1999 the place of dispatch of the email is deemed to be the place of business of the originator and the place of receipt is deemed to be the place of business of the addressee. Further, the Email is deemed to have been received when the addressee receives the email. On the issue on whether it has been read the court, relying on the case of Tenax Steamship Co. Ltd v The Brimnes (Owners), The Brimnes stated that it has sent during office hours, which include 17:30 and 18:00 for it to be deemed to have been read. In this case Harry sends the email in the evening, meaning Danny received it, hence an agreement was created.

CONCLUSION

Based on the above discussion Danny had made an agreement between Farida and Harry through their acceptance via post and email respectively. He however had not formed any agreement with Georgina and could only revoke the agreement with Georgina but not Farida and Harry.