Offer and Acceptance: Nathan Noble, Ideal Homes and Homeward Abound - Essay Example

The main question for Contemporary Caravans Ltd with respect to Nathan Noble, Ideal Homes and Homeward Abound is whether or not offer and acceptance were complete to such an extent that valid and binding contracts were formed. As for Right On Residences, the legal issue for determination is whether or not Contemporary Caravan is at liberty to unilaterally vary the terms of the contract under the doctrine of promissory estoppel. Offer and Acceptance: Nathan Noble, Ideal Homes and Homeward Abound Ideal Homes The main question for determination is whether or not Contemporary Caravans made an offer that was validly accepted by Ideal Homes so that a valid contract was formed. If it can be determined by the terms of the offer that Caravan intended to create legal relations, then a valid offer will be assumed by law. The courts will apply an objective test which inquires as to whether or not, from the perspective of a reasonable person, it appears an offer was made and the recipient of the offer believed the offer to be sincere.1 The offer was made in response to an inquiry by Ideal Homes about the price of the luxury motor home and Contemporary Caravans further urged Ideal Homes to reply as soon as possible. Thus, it would appear that the offer for sale together with the request for a quick response indicates that Contemporary Caravans made a valid offer and intended to create legal relations with Ideal Homes. Ideal Homes accepted the offer, but it can be argued that the acceptance came too late and not in the form or manner contemplated by Contemporary Caravans. The acceptance came days after the telephone conversation in which the offer was made. The letter of acceptance is dated the 23rd March and was received on the 24th of March. Pursuant to the postal rules, the date the letter was dispatched is the relevant date.2 The postal rule will not apply unless posting was in the contemplation of the parties.3 Since the offer was made over the telephone and Ideal Homes urged to respond as soon as possible, it is obvious that the use of postal communications were not within the reasonable contemplation of the parties. Therefore the operative date is 24 March and the receipt of the acceptance did not occur as quickly as possible and cannot be regarded as an effective and legally binding acceptance. In this regard, an offer is terminated if it is not accepted within a reasonable time.4 An offer can be withdrawn at any time prior to its acceptance, although withdrawal must be communicated to the offeree.5 However, if the subject matter of the offer is sold prior to its acceptance, the acceptance is not valid because an offer cannot be accepted for the purchase of property that has already passed from the offerer to another.6However, Contemporary Caravan did not sell the motor home, although it claimed to have sold the property prior to receiving the acceptance from Ideal Homes. Nevertheless, an offer and acceptance will not form a legally binding contract unless there is consideration.7 Since there was no consideration, there is no binding contract and Ideal Homes cannot force Contemporary Caravan to sell the motor home to them. Nathan Nobel The communication between Nathan Nobel and Contemporary Caravans indicates a request for information and a response to that request. There was no definitive offer and acceptance communicated between the parties. Nobel simply asked for the lowest cash price applicable to the luxury motor home and Contemporary Caravans responded. Nothing more was said, and thus Contemporary Caravans had no reason to assume that the stated lowest cash price was accepted by Nathan Nobel. There must be some indication that there was an intention to form legal relations. A mere inquiry as to price will not be sufficient to substantiate that there was an intention to create legal relations on the part of Nobel.8 Moreover, assuming that Contemporary Caravans made an offer in its response to Nobel’s inquiry, Nobel failed to indicate one way or another that he accepted or rejected the offer. The general rule is that an acceptance must be communicated to the offeree. Silence will not automatically be deemed acceptance.9 Had it been otherwise, an offerer would be in a position to force a contract upon an “unwilling offeree” on the ground that the latter’s silence amounted to an acceptance.10 It therefore follows, that in the absence of a communication of an acceptance of the offer allegedly made by Contemporary Caravans, there was no contract between Nobel and Contemporary Caravans. As such, Nobel’s suit for specific performance will not likely succeed against Contemporary Caravans. Homeward Abound In cases where modern means of instantaneous communications are used for the purpose of communicating an acceptance, the postal rule is inapplicable.11 In other words, where an acceptance is transmitted by virtue of telephone, fax or email, communication of acceptance will not automatically be attributed to the time when the communication is dispatched. Thus an acceptance is only deemed to have been communicated when the offerer has received communication of the acceptance. Receipt of communication of the acceptance is not literal. All needs to be shown is that the communication of the acceptance was dispatched to the offerer and the offeree has no reason to suspect that the communication was not received by the offerer. In a typical case, once a fax is successfully transmitted, the oferee can assume that communication of the acceptance has been received by the offerer.12 In the case of a business, it can be assumed that the business checks its fax machine frequently throughout the work day. It will therefore be assumed that the fax was received during business hours on the day that it was transmitted to the oferrer. Therefore, although the fax containing the acceptance was only discovered a day after it was sent, the acceptance will be deemed to have been successfully communicated to the offerer once the fax was transmitted and received by the fax machine on the receiving end. It would therefore appear that Contemporary Caravans has a legally binding contract for the sale of the luxury motor home to Homeward Abound. An offer was made by Contemporary Caravans and communicated to Homeward Abound. The offer was accepted by fax within a very short period of time after the offer was made, and thus the acceptance was communicated to Contemporary Caravans. The fact that the fax containing the acceptance was somehow found on the floor by the cleaner later in the evening and viewed by the appropriate department the following day does not change the fact of acceptance on the previous day. The fact is, the fax was successfully transmitted and Homeward Abound would have had no reason to suspect that the fax was not viewed by the parties to whom it was addressed. This is especially true, since the fax was dispatched during business hours. It therefore follows that a valid offer and acceptance was made, binding Homeward Abound and Contemporary Caravans to a contract for the sale of the luxury motor home. Varying the Terms of a Contract The first contract between Right on Residences and Contemporary Caravans was varied to reflect the reduction in monthly installments for the satisfaction of a loan to Right On by Contemporary Caravans. These arrangements were to continue for a period of one year. In such a case, a new contract is said to have been formed in that the original contract was amended by the variation of the terms of the contract relative to repayment of the loan and there was consideration.13 It is therefore assumed that the new arrangements between Contemporary Caravans and Right On represent a new contract. The new contract is substantiated by consideration. In this case, consideration is found in the new arrangements which are deemed to be for the benefit of both Contemporary Caravans and Right On. The benefit is one of “practical benefit”.14 The practical benefit to Contemporary Caravans arises out of the fact that Right On is suffering from financial difficulties. Thus, Contemporary Caravans derives a practical benefit since it can be assumed that unless the contract terms are varied, Right On will not be able to completely satisfy the loan agreement.15 Now that it has been established that the original contract has been replaced by a new contract when the terms for repayment were varied, the issue is whether or not the terms of the new contract can be varied unilaterally by Contemporary Caravans. As Mulchay and Tilloston explain: The effect of the doctrine of promissory estoppel is to hold promisors to their word and prevent them going back on their promise where it would be unjust or inequitable.16 The doctrine of promissory estoppel is applicable even in cases where there is no consideration. All that is required is that the promisee demonstrate that his/her position has been altered in reliance on the promise and this does not necessarily mean that the reliance must have been detrimental to the promisee. The promisee need only demonstrate that he or she was encouraged to act in a way that is different from how they would have acted but for the promise. The consequences of having altering the conduct are to render it unfair and unjust for the promisor to renege on the promise voluntarily given.17 On the facts of the case for discussion, Contemporary Caravans became aware of the fact that Right On was suffering from financial difficulties. As a result of this information, Contemporary Caravans decided to relax the burden on Right On and lowered the monthly installments on a loan from Contemporary Caravans to Right On. Contemporary Caravans also promised Right On that these new arrangements would continue for 12 months. In reliance on this promise and the new contract, Right On proceeded to make the necessary adjustments to the loan agreement with Contemporary Caravans. However, within in 8 months, Contemporary Caravans decided to renege upon its promise and demanded that Right On pay the full amount of the monthly installments. It has been established that simply relying on the promise is sufficient by itself to render it unjust for the promisor to withdraw the promise.18 It is conceivable that in addition to making the reduced payments to Contemporary Caravans, Right On relied on this payment pattern continuing for 12 months. In doing so, it is conceivable that Right On made other business decisions built around the fact that it would only have to pay half the monthly installments for 12 months. In other words it is highly probable that Right On made other commitments that would become compromised should they have to make the full amount of the monthly installments. Thus it would be unfair and unjust for Contemporary Caravans to renege upon their promise. The facts of the case for discussion closely resemble the facts in the case of D & C Builders Ltd. v Rees [1965] EWCA Civ 3. In D & C Builders, the plaintiffs, a construction company completed some work for the defendant for the sum of 482 pounds. Aware that the defendant was suffering from financial problems, the plaintiffs agreed that the debt could be discharged for the lower sum of 300 pounds. The defendant had informed the plaintiffs that should they refuse the sum of 300 pounds, they would not get any satisfaction of the outstanding funds owed. The court ruled that although there was no consideration involved in the renegotiated sums owed, the new arrangements were such that they invoked the doctrine of promissory estoppel.19 The court also ruled that is was required to take into consideration the “dealings” between the parties. 20 Although the court determined that the defendant had put undue pressure on the plaintiffs, it was still unfair to all the plaintiffs to renege on their promise and to insist that the debt be discharged in full.21 Therefore, it would appear that Contemporary Caravans will not be permitted to unilaterally alter the terms of the new agreement. Their actions may even be deemed undue pressure. However, as demonstrated in D & C Builders Ltd. undue pressure has little or no consequences. The main issue is whether or not the parties should be compelled to adhere to their promise. The consequences of promissory estoppel are therefore that, contracts will be enforced in circumstances where there is no consideration.22 This is because the doctrine of promissory estoppel is an equitable principle which operates to hold parties to their obligations in cases where a promise is made and the promisee relies on that promise. Conventional wisdom dictates that permitting a party to renege on a promise in cases where the promise was relied on by the promisee would be unfair and unjust would be inconsistent with the obligations implicit in the laws and principles of equity. Realistically, the courts accept that business contracts are often required to be renegotiated and amended during the course of business dealings. This is necessary because market changes can render a pre-existing contract inoperable. It will therefore become necessary for the contract to be modified to reflect changes in market conditions. As a result, parties will be held to the renegotiated terms of a contract and unilateral variation will not generally be upheld. In light of the fact that the new arrangements were ongoing for 8 months, Right On had a legitimate expectation that these arrangements would continue for the full 12 months.23 Since Right On had a legitimate expectation that the new arrangements would continue for a year and acted accordingly, it would be unfair for Contemporary Caravans to withdraw their promise. As stated in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 by Steyn LJ, “ the governing criterion is the reasonable expectations of honest men”.24 Since the arrangements were ongoing for 8 months, Right On had a reasonable expectation that the new arrangements were genuine or honest and nature and would continue as promised by Contemporary Caravans. It is therefore concluded that Contemporary Caravans is bound by the terms of the new arrangements. Since there was consideration in the sense that the new arrangements provide for a new method of discharging the loans, Right On can bring an action against Contemporary Caravans for breach of contract or anticipatory breach. In the latter case, Right On may if it likes, apply to the courts for injunctive relief prohibiting Contemporary Caravans reneging on the new arrangements. Whether or not there was consideration, is immaterial because the doctrine of promissory estoppel can be invoked to prevent Contemporary Caravans altering the terms of the new arrangements unilaterally. It is therefore suggested that Contemporary Caravans continue to keep its promise and to allow Right On to continue to make the reduced payments until the 12 month period expires. Since no reasons are given for the desire to back out of the promise and the new arrangements it is likely that a court would find that Contemporary Caravans were not acting in good faith. Bibliography Textbooks Mulcahy, L. and Tillotson, J. Contract Law in Perspective. (London, UK: Cavendish Publishing Limited, 2004). Articles/Journals D. A. Farber and J. H. Matheson, ‘Beyond Promissory Estoppel: Contract Law and the “Invisible Handshake”’. (1985) 52 University of Chicago Law Review, 903-947. Kincaid, P. ‘Third Parties: Rationalizing a Right to Sue. ’ (1989) 48 The Cambridge Law Journal, 243-270, Miller, C. J. ‘Felthouse v Bindley Re-Visited.’ (September 1972) 35(5) The Modern Law Review, 489-493. Cases Adams v Lindsell [1818) 106 ER 205. Alan & Co. ltd. v El Nasr Co.[1972] 2 All ER 127. D & C Builders Ltd. v Rees [1965] EWCA Civ 3. Dickinson v Dodds [1876] 2 Ch. D. 463. Entores Ltd. v Miles Far East Corp. [1955] 2 QB 327. Felthouse v Bindly [1862] 142 ER 1037. G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25. Harvey v Facey [1893] AC 552. Hehthorn v Fraser [1892]2 Ch.D. 27. JSC Zestafone G. Nikoladze Ferralloy Plant v Ronly Holdings Ltd. [2004] 245. Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109. Stilk v Myrick [1809] 2 Camp 317. Walford v Miles [1992] 2 AC 128. Williams v Roffey Bros [1991] 1 QB 1. Read More