how a contract is formed

In stating £5,995 or nearest offer this is vague and leaves her open to bids almost like an auction.  “In this case there is no offer to be bound by any contract.  Such advertisements are offers to negotiate – offers to receive offers – offers to chaffer” (chaffer – to bargain or haggle).  

Ian sees the notice on Monday at 10am, telephones Angela, and confirms a few details about the car he then makes an offer of £5,600 payable by cheque.  This is consideration e.g. giving something of value in return for receiving something of value.  Angela then tells Ian that she will consider his offer but does not confirm any acceptance or definite promise to him, there is no reliability provided in her statement.  This is executed consideration.  “If one party makes a promise (Ian has made an offer of £5,600 payable by cheque) in exchange for an act by the other party (Angela selling Ian the car) when the act is completed, it is executed consideration”.  Ian leaves Angela his works telephone number and address as a point of contact.  

On Monday, Jennifer calls Angela but the call goes on to Angela’s voicemail.  Jennifer leaves a message on Angela’s phone at 1pm, she provides a statement of intention, if she likes the car; she is willing to pay the full price.  The following case highlights this, Harris v Nickerson 1873 “This is where an auctioneer advertised that certain goods would be sold at a certain location on a certain date.  The plaintiff went to the sale but all the lots he was interested in had been withdrawn.  He sued the auctioneer for his loss of time and expenses.  It was held that the claim must fail as the advertisement of the auction was merely a declaration of intent to hold a sale and did not amount to an offer capable of being accepted and thus forming the basis of a binding contract, that is, that the advertisement merely amounted to an invitation to treat”. 

However, there are various elements to Jennifer purchasing the car, she needs to know if the car has a full service history and can she go for a test drive.  This is a request for further information and not an intention to create a legal relationship as in Stephenson v McLean 1880 “On Saturday, the defendant offered to sell iron to the plaintiff at 40 shillings a ton, open until Monday.  On Monday at 10am, the plaintiff sent a telegram accepting the defendant’s offer, but at 1.25pm the defendant had sent a telegram: “Sold iron to third party” arriving at 1.46pm.  The plaintiff sued the defendant for breach of contract and the defendant argued that the plaintiff’s telegram was a counter-offer so the plaintiff’s second telegram could not be an acceptance.

It was held that the plaintiff’s first telegram was not a counter-offer but only an enquiry, so a binding contract was made by the plaintiff’s second telegram”. 

This is similar to “the term subject to contract in that it raises a presumption that the parties do not intend to enter into a legally binding contract.

It is an expression of future intention to enter into a contract provided the offeree is satisfied as to any factors that may be of concern”. 

Jennifer also leaves her works telephone number and address on the answer phone message as a point of contact.  Angela listens to the message half an hour later but does not telephone her instead she posts a letter of acceptance four and a half hours later.  

The Postal rule comes into play here the following two cases explain this rule.  The first case is Adams v Linsell 1818 “On Saturday, the defendant offered to sell iron to the plaintiff at 40 shillings a ton, open until Monday.  On Monday at 10am, the plaintiff sent a telegram accepting the defendant’s offer, but at 1.25pm the defendant had sent a telegram: “Sold iron to third party” arriving at 1.46pm.  The plaintiff sued the defendant for breach of contract and the defendant argued that the plaintiff’s telegram was a counter-offer so the plaintiff’s second telegram could not be an acceptance.

It was held that the plaintiff’s first telegram was not a counter-offer but only an enquiry, so a binding contract was made by the plaintiff’s second telegram”. 

The second case is Household Fire Ins v Grant, “Grant applied for shares in the plaintiff company.  A letter of allotment of shares was posted but Grant never received it.  When the company went into liquidation Grant was asked, as a shareholder, to contribute the amount still outstanding on the shares he held.  The trial judge found for the plaintiff”.

The Court of Appeal affirmed the judgement”. 

Thesiger LJ stated that “Upon balance of conveniences and inconveniences it seems to me … it was more consistent with the acts and declarations of the parties in this case to consider the contract complete and absolutely binding on the transmission of the notice of allotment through the post, as the medium of communication that the parties themselves contemplated, instead of postponing its completion until the notice had been received by the defendant”. 

Jennifer receives the letter on Tuesday morning, she telephones Angela, she uses the same channel of communication that she has done through the whole process, to withdraw her intentions.  On Angela’s original notice, there is no mention of offers having to be communicated by post.  This is confirmed in Henthorn v Fraser 1892, “in which it was made clear that the postal rule is applicable only where it was reasonable in all circumstances for the offeree to have used the post”.

Angela accepts Jennifer’s withdrawal by writing a letter of acceptance to Ian and posts it at 5pm on Tuesday.  Although, the offer is not complete she asks Ian if he can pay by cash rather than cheque, a different form of payment.  This can be seen as a counter offer “any attempt to introduce a new term amounts not to an acceptance of an offer, but in fact itself becomes a counter offer.

The effect of the counter offer is to destroy the original offer, that is, it operates as a rejection of the original offer”. As in Hyde v Wrench 1840, “6th June, Wrench offered to sell his estate to Hyde for £1000; Hyde offered £950, 27th June Wrench rejected Hyde’s offer, 29th June Hyde offered £1000. Wrench refused to sell and Hyde sued for breach of contract.  Lord Langdale MR held that the defendant’s offer to sell for £1000, had been unconditionally accepted, there would have been a binding contract; instead the plaintiff made an offer of his own of £950, and thereby rejected the offer previously made by the defendant.  It was not afterwards competent for the plaintiff to revive the proposal of the defendant, by tendering an acceptance of it; and that, therefore, there existed no obligation of any sort between the parties”. 

Ian posts a letter at 4pm on Tuesday one hour before Angela, stating that he is no longer interested in the car.  This is very good of him most people would not bother contacting her.  Two days has gone by and he has not heard anything.  Any reasonable person after this amount of time would go and buy another car.  

Application of the facts and law: -

Angela’s notice in her car equates to an invitation to treat. This is not an offer.  Ian’s offer shows consideration, but Angela does not return this consideration.  She has not accepted and has not made any promise to him.  “The mere fact of agreement alone does not make a contract”.  This has left the situation open to anyone else.  

Jennifer calls Angela but only makes a statement of intention and asks for information.  Angela assumes that Jennifer’s message is an offer, this is wrong.  Angela uses the post to send an acceptance letter to Jennifer but she has clearly misunderstood Jennifer’s intentions.  The postal rule could come in here but for the fact that Jennifer has not made an offer that could be accepted.  Jennifer rings Angela to tell her she is not interested.  There was never a contract.  The fact that Angela has sent a letter of acceptance to Jennifer means that Ian’s offer is “out the window”.  

Angela tries to go back to Ian but by introducing a new term, payment by cash, to the contract this destroys his original offer, counter offer.  There is no agreement between Angela and Ian, only a consideration.  There was no contract. Angela had rejected his original offer and therefore could not seek to accept that offer.  

This may also be relevant, I would like to mention the fact that Ian may be under the age of eighteen due to the fact that he is doing his “A” levels at Brantford College.  Under the terms of capacity anyone under the age of eighteen cannot enter into a contract.

 

In most cases, the view is what would a reasonable person have done.  The offers or supposed offers were communicated by telephone.  “This can imply that the acceptance should be sent equally by fast means of communication”.  Hence this is not by the post.  

By using the post the contract could have been formed but for the conflicting factors discussed above.  The common sense approach would have been to use the telephone to communicate.

 

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