Contract Law on Offer and Acceptance - Case Study Example

Contract Law on Offer and Acceptance The case presented here involves validity of offer and acceptance by the parties involved. Brenda only made an invitation to treat by posting an advertisement on her website. Hence hers was not a valid offer capable of being accepted. Andrew's reply to the advertisement of Brenda in effect was an offer to be accepted by Brenda. Brenda's blunder in offering at an unimaginable price of 50 instead of 500 could be successfully avoided because hers happended to be an invitation to treat. Andrew's belated acceptance of Brenda's discounted offer as a gesture of goodwill for her mistake also could not succeed because the offer was withdrawn even before Andrew posting his acceptance. Hence Brenda succeeds on the both the counts against Andrew. Introduction This case calls for an in-depth understanding of law on offer and acceptance relating to contract. A brief history of the case in chronological order is stated below. Events in chronological order Monday: Brenda's advertisement appeared on his website for sale of his car for 50 and Andrew offered through e mail to buy Tuesday Morning: Brenda replied by e mail that the price of 50 was a mistake instead of 500 and offered to Andrew the car at a discounted price of 450.and kept the offer open till 12.00 p.m on Friday. and Andrew replied that he would consider the new offer though expressing annoyance at Brenda's mistake. Brenda had corrected the price on the website before receipt of Andrew's offer. Wednesday: Claire and David offered to buy the car at 500 plus 10% which Brenda immediately accepted. Thursday: Claire took delivery of the car and paid. Brenda removed the advertisement. and also informed Andrew about it. Friday: Andrew accepted the offer as per the original schedule of Friday 12 pm deadline given by Brenda on Tuesday. Offer and Acceptance An offer is made when one person signifies to another his willingness to do or not to do a certain act with an intention that it shall be binding on the offeror if accepted by the person to whom the offer is made. The latter is called 'offeree"1 The offeror's signifiying act called expression of willingness may be by means of a letter, newspaper, websites, e mail and also by conduct by which an offeror may be genuinely offering or just displaying an act what is known as 'invitation to treat" As such goods advertised are only 'invitation to treat'. 2 They are of unilateral nature i.e. open to the whole world to accept such as offer for rewards etc. 3 In Partridge v Crittenden [1968], appellant Patridge had been convicted for sale of banned variety of bird punishable under Protection of Birds Act 1954 by inserting a classified advertisement in a journal without mentioning the words "offer for sale" In the appeal it was held to be an invitation to treat and not an offer for sale and conviction was set aside. On the other hand in the case of Carlill v Carbolic Smoke Ball Co [1893], an exception was made because the offeror meant business by depositing a certain sum of money as a reward for any one contracting influenza inspite of using medicine. So they could not escape liability stating their offer was an invitation to treat. Question arises website advertisements are offers or invitations to treat, relevant the instant case of Andrew v Brenda. .An offer is a set of conditions contemplating acceptance and capable of being accepted. "Thus in Thomson v James (1855) 18 D 1, Lord President MacNeill said, 'an offer is nothing until it is communicated' (at p.10). This is because an offer is not capable of acceptance until it has been communicated to the offeree" 4 "It is important to be able to differentiate between these invitations to treat and true offers, as acceptance of an offer creates a concluded contract whereas 'acceptance' of an invitation to treat is merely an offer. To assist in the identification of such invitations the law has developed presumptions as to whether certain common statements or actions amount to an offer or are merely invitations to treat. Thus in the real world, or actual reality, we can state with some degree of confidence that shop displays are invitations to treat as are exposing items for sale at auctions and advertisements. Applying these principles to virtual reality we find that advertisements on websites may be dealt with in a similar manner to their actual reality counterparts. Webvertisements may, in fact, be closer to shop displays than to advertisements in magazines or on television due to the interactivity of websites. On the web you may virtually examine the product, some Products such as software may even allow you to sample the product, and you may then offer to buy the product immediately without leaving the virtual store but in any event the result is clear, a webvertisement will be an invitation to treat unless it clearly indicates the webvertiser intends to be bound upon acceptance."5 Hence it is clear now Brenda's offer of his car on the internet was merely an invitation-to-treat and not an offer. Beside the point, even if Brenda's statement is to be taken as an offer, it will not bind her as the price of 50 for the car is too low to be true. Here the plea of 'consideration need not be adequate' also will fail because the consideration must move from the promisee i.e Andrew in this case. Secondly to understand whether Andrew's actions are offers or acceptances, rules relating to acceptance shall be seen. Andrew's first act was the response to Brenda's advertisement and therefore in effect an offer for Brenda to accept. Unfortunately Brenda had by mistake mentioned the price as 50 instead of 500. Now the Brenda's offer of 450 for the same car to Andrew has all the above characteristics of an offer and he is bound by the same if accepted by Andrew in the manner provided in conformity with 'mirror image rule' Besides the offer was kept open till 12 pm Friday. But only on Friday morning Andrew posted his acceptance by a letter to Brenda by when the latter had already withdrawn her offer by e mail to Andrew on Thursday evening. The rules of acceptance are the that offer should be accepted in the same manner as offer was made at the same price and other terms, here on the website ( mirror image rule) and that acceptance should reach the offeror before the offer is withdrawn. Andrew's action fails on both the counts. Even if acceptance by post is permissible, the letter should have been posted before the offer was withdrawn. Offer was withdrawn on Thursday morning and letter was posted on Friday. Hence it is not a valid acceptance. The postal rule was established in Adams v Linsel 6 and confirmed in Entores v Miles 7 In both the rulings the it was affirmed that an acceptance by post is a valid acceptance once the letter is dropped into the post box. In Adams v Linsel, the latter offered by letter dt 2 September, to the former to sell wool and stipulated acceptance by return of post. But since the letter was wrongly addressed, it reached the Adams only on 5th September. And Adams immediately sent their letter of acceptance by post on the same day but the Lindsell received it only on 8 September. But having not received until 7 September the acceptance, they had sold to some other party on 7 September. Held the contract was concluded on 5 September when Adams posted their acceptance. "The reason for the postal rule may be explained on the ground that the offeror who chooses to start negotiations by post takes the risk of delay and accidents in the post. The offeror could have protected himself by expressly stipulating that he is not bound until actual receipt of the acceptance".8 In the case of Entores v Miles, the London based plaintiffs sent an offfer by Telex to Holland based agents of the defendant company in New York and the offer was accepted by Telex on the Plaintiff's telex machine. On the dispute whether the contract was concluded in England or Holland, it was held that postal rule did not apply to instantaneous communications and hence contract was complete only when the acceptance was received by the offeror in such cases. "In an extensive obiter dictum, Denning LJ discussed situations where a contract may be concluded even if the offeror (through his own fault) does not actually receive the acceptance."9 The above two cases were distinguished in Korbetis v Transgrain 10 in which acceptance message was sent by the plaintiff to a wrong fax number thus message never reaching the offeror in an arbitration appointment. It was only after eight months the fault was found and the offer was held to have lapsed. ""Communication of Acceptance: The Postal Rule. Korbetis argued that the agreement to appoint the arbitrator was concluded as a matter of law when the fax of 05 April 2004 was sent to the mystery recipient. The judge indicated "the general rule is that an acceptance has no legal effect until it is communicated to the offeror" (Chitty on Contracts, 29th edn, para 2-034). Korbetis sought to rely upon the postal rule established in Adams v Lindsell (1818) 1 B & Ald 681, as confirmed in Entores v Miles [1955] 2 QB 327 (CA), "that an acceptance by post is complete as soon as the letter is put into the post-box." The judge however indicated "those cases assume that the letter has been properly addressed." He continued "if the letter is wrongly addressed, very different considerations apply. Common sense dictates that it is unfair to the intended recipient that he should be bound by something which he is unlikely to receive because of the fault of the sender." The judge approved the general approach of Chitty, para 2-056, as it corresponded with principle and justice. Communication of Acceptance: A Reasonable Time. Korbetis alternatively argued that the offer had been accepted on 24 December 2004, submitting that Transgrain's offer had not been withdrawn and remained open for acceptance. Transgrain argued that the acceptance of the offer on 24 December 2004 was beyond an implicit 'reasonable time' in which the offer could have been accepted. Korbetis submitted that eight months in the context of maritime arbitrations was not a lengthy period; Transgrain submitting that the claim was now time barred in accordance with clause 39. The judge stated "clause 39 is not well drafted, but I think that it would be possible for one party to make an offer to agree to the appointment of a sole arbitrator, which would be open for acceptance within a reasonable period, which might extend beyond the date on which the claim would otherwise become barred. But in deciding what was a reasonable period for acceptance of the offer, the contractual context in which the offer was made is certainly very relevant. The reference to 'forthwith' in the opening part of clause 39 connotes some urgency, and the offer should not be construed as intended to give a lengthy period beyond the time at which the bar would otherwise apply. In the circumstances, I am satisfied that eight months was far in excess of a reasonable period for acceptance of the charterers' offer. It follows that there has been no agreement for the appointment of Mr. Rayment, and that he has no jurisdiction under the charter partyThe practical lesson to be learnt is to ensure that good and timely clerical practices have been implemented so that all legally significant written communications have been properly sent and received by the intended recipient before any critical deadline has expired""11 The above discussion would be suffice to invalidate Andrew's acceptance of the Brenda's offer as not mirroring the offer and also not even being posted before revocation of the offer. Conclusion Whilst on the subject, it will be interesting to have few more lines on the postal rule and E- mail acceptance. It is generally regarded that e mail is a digital equivalent of the postal system. But that postal rule would not apply to e mail acceptance is some what not clear. Courts have already held telex acceptances are valid only on receipt not when sending as they are instantaneous. "To determine whether the postal rule applies to e-mail acceptances we need to ascertain why some methods of communication benefit from the rule while others do not. Several alternative explanations for the development of the rule have been suggested. Some commentators suggest the postal rule applies when you entrust your communication to a trusted third party. This school of thought developed due to the statement of Lord Justice Thesiger in Household Fire Insurance v Grant: 'the acceptor, in posting the letter, hasput it out of his control and done an extraneous act which clenches the matter'. Other commentators, though, suggest the postal rule only applies when the offer contemplates acceptance by non-instantaneous means of communication. This difference of opinion is important when applying the postal rule to e-mail. E-mail communication is seen a direct communication between the parties, much like a standard telephone conversation, but is not instantaneous. If the 'trusted third party' school of thought is correct then acceptances sent by e-mail do not benefit from the legal presumption provided by the postal rule. If, though, the second school of thought is correct, then e-mail, as a non-instantaneous form of communication, should benefit from the postal rule presumption. The question of which is correct is clearly of some import, but is one which proves difficult to answer. In his work on the law of contract, Professor Walker prefers the suggestion that the Post Office is the common agent of the parties, and communication to the agent is communication to their principal. This theory falls down on two counts though. Firstly, a letter lost in the post would be sufficient to conclude a contract on this thesis, yet in Mason v Benhar Coal Co. the court declined to hold a contract was completed by the posting of an acceptance without delivery. Secondly, the post office does not know the content of the letter. It may not be an acceptance but a refusal or a revocation. These communications do not benefit from the postal rule. If the Post Office was the agent of the offeror then all communications should benefit from the postal rule rather than the current position where only acceptances benefit. Professor Gloag proffers an alternative explanation in his seminal work on the law of contract. He suggests the offeror has impliedly contracted to accept a letter posted as sufficient notification to them. It is clear, upon reading Gloag this is merely suggested as a possible explanation for the rule, prefacing, as he does, the statement with the suggestion that, 'perhaps [the rule] is best justified by its convenience and the necessity of some definite rule'. Having examined the basis of the development of the postal rule, and applying the reasoning of Professor Gloag, above, the logical conclusion would be that e-mail acceptances do benefit from the postal rule. The reasons for this are twofold. Firstly, e-mail is not instantaneous like the telephone, telex or fax. With all instantaneous methods of communication, the sender knows immediately whether their transmission has been successful. E-mail is different from these methods of communication. You can ask for a delivery receipt, but this merely signals delivery to a mailbox not a user. In addition, you do not necessarily expect a delivery receipt to be instantaneous and may therefore delay any follow-up action. Given this, it is submitted an e-mail with a request for a delivery receipt is more analogous with a recorded delivery letter than a fax or telex. As recorded delivery mail benefits from the postal rule so should e-mail."12 Bibliography Adams v Lindsell (1818) 1 B & Ald 681 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. Entores v Miles [1955] 2 QB 327 (CA), G.H. Treitel, The Law of Contract, 10th edn http://en.wikipedia.org/wiki/Adams_v._Lindsell http://www.spr-consilio.com/lawboxcontrcb.pdf accessed on 6 Jan 2007 http://www.onlinedmc.co.uk/korbetis_v__transgrain.htm#DMC/SandT/06/24 accessed on 6 Jan 2007 http://www.onlinedmc.co.uk/korbetis_v__transgrain.htm#DMC/SandT/06/24 accessed on 6 Jan 2007 Murray D Andrew "Entering into contracts Electronically: The Real w.w.w. Partridge v Crittenden [1968] 2 All ER 421 Read More