Business and Company Law
Under the English Law, there are several ways to form a contract. These include verbal dialogue, telephonic communication, by a facsimile or by a written deed. A contract can also be formed on the basis of the conduct of the parties (Chissick & Kelman, 2002. P. 68).
There should be an offer, which was made by the offeror and accepted by the offeree, in order to form a contract. The offeree should have accepted the offer as specified by the offeror or as implied by the offeror. The acceptance of the offer can be either in words or actions. Such words or actions should be in accordance with the terms of the offer. There should not be any ambiguity in the terms of the offer. The acceptance should correspond to the identical terms of the offer. If any new terms were introduced in the offer then it would constitute a counteroffer.
Communication of acceptance can be through instantaneous modes. Examples of such instantaneous communication modes include sending message in person, by a facsimile, over the telephone or by sending an electronic mail. Under such circumstances, the offer and acceptance come into force immediately after the offeror receives such communication.
If an advertisement made by one party consists of an offer and the other party had accepted the offer in good faith, then such an advertisement becomes a legally binding contract (Adediran, p122).
In case a person invites another for a dinner or a treat and they discuss business related issues at the place where they met, their negotiations would result in a trade agreement. However such an invitation to dinner or treat is not legally binding. On the other hand an offer is legally binding (Clark, 2001 p176).
After several years of operating a limousine hire business, Kelly planned to retire and accordingly placed an advertisement in the newspaper. This advertisement stated that there were two black limousines for sale at a cost of £ 15, 000. Britney saw this advertisement and told Kelly that she would indicate her decision in the succeeding week. The very next day Kelly informed Sarah by electronic mail, that she would sell the cars to her for £ 12, 000. Sarah replied by electronic mail that she was interested, only if the cars were repainted white. In the following week Britney agreed to purchase the cars for £ 15, 000 and she spoke to Kelly in this regard, directly. Meanwhile, John saw the advertisement and posted his acceptance in the correct fashion and offered to buy the cars for £ 15, 000 from Kelly.
Sarah had agreed to buy the two limousines for twelve thousand pounds. However, she agreed to do so only if these black coloured limousines were repainted in white. This constitutes a counter offer. Therefore, the original offer made by Kelly is no longer in operation. Hence, there is no contract between Kelly and Sarah.
In Butler Machine Tools Co v Ex-Cell-O Corp, the seller had offered to sell machine tools to the buyer. The seller incorporated some standard terms, which included a clause regarding price variation, under which the seller could either increase or decrease the price of the machine tools, whenever they wanted to before the delivery of the tools. The buyer placed an order without any price variation clauses in their terms. The buyer’s offer document had included a tear – off acknowledgement slip, which required the seller to accept the buyer’s standard terms. The seller mailed the acknowledgement slip to the buyer along with their letter of acceptance, which stated that they would consider the standard terms of the buyer. However, prior to delivery of the tools to the buyer, the seller attempted to use the price variation clause. The buyer warned the seller that the latter had to adhere to buyer’s terms as the seller had accepted them. The Court of Appeals held that the contract was on the buyer’s terms although the seller had originally made the offer. The buyer’s letter of acceptance contained an acknowledgement slip, which constituted a counter offer. However, the seller acknowledged the slip duly filling in its columns and therefore it was held that the seller had accepted the offer. As such the contract was completed according to the buyer’s terms. In this case the key document was the acknowledgement slip. This case clearly demonstrates the complexities involved in resolving the issues of battle of forms and offer and counter – offer situations (Butler Machine Tools Co. Ltd v. Ex-Cell-O Corp (England)).
In the case of Tywood Industries Ltd v St. Anne –Nackawic Pulp & Paper Co. Ltd, there was a conflict regarding the arbitration clause in the purchase order, which operates in the event of a dispute. However the plaintiff did not sign on the purchase order at the time of acceptance. The court held that such arbitration could never become a part of the contract between the plaintiff and the defendant. The court further held that the defendant had failed to make the plaintiff accept his arbitration clause. The defendant had also failed to complain when the plaintiff had not signed on the purchase order (Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd).
These cases establish that the court nullifies the original offer if there is a counter offer, until and unless there is a renewal of the original offer.
John saw the advertisement and agreed to the terms of the offer in the prescribed manner. Moreover, he had duly posted this acceptance. Therefore, there exists a valid and binding contract between John and Kelly.
Britney informed Kelly that she would convey her acceptance or otherwise of Kelly’s offer after a week. The following week she agreed to purchase the limousines for fifteen thousand pounds. However, in the meanwhile John had accepted Kelly’s offer, by posting the letter of acceptance. Therefore, in accordance with the postal rule acceptance is deemed to have been indicated the moment the letter of acceptance had been posted in the correct manner. Thus, John had correctly communicated his acceptance of Kelly’s offer. Consequently, a binding contract was formed the moment that John had posted the letter of acceptance.
In Household Fire & Carriage Accident Insurance Co. v Grant, the court had established the postal rule with regard to contracts formed through postal correspondence. The court considers the post office to be the common agent for both the parties to a contract. Under the postal acceptance rule, acceptance can be indicated by posting the letter of acceptance and once the letter of acceptance has been posted the act of acceptance is completed. Postal delays, loss of the letter or destruction of the letter in transit do not affect the contract (Household Fire & Carriage Accident Insurance v. Grant).
In Livingstone v Evans, the agent of the defendant sent a telex message of the offer to the plaintiff, with regard to the sale of land. The plaintiff replied by a telex message stating that he would purchase the land, if the price was reduced. The agent of the defendant had responded through another telex message that the price of the land could not be reduced. In the meanwhile, the defendant sold the land to another party. The plaintiff had sent his acceptance to purchase the land at the price previously offered. Subsequently, the plaintiff had filed a case suing the defendant for specific performance. The court held that the plaintiff had believed that the offer was open when he had accepted the offer of the original price. The court decided that a binding contract had been formed between the defendant and the plaintiff. It did not accept the plea that the counteroffer had supplanted the original offer (Livingstone v. Evans ).
In Byrne v. Van Tienhoven, the court held that postal rule does not apply to the revocation of an offer. If there is a revocation, this has to be communicated to the offeree (Byrne v Van Tienhoven ).
Britney does not have a binding contract with Kelly, because in the absence of valuable consideration, an offer can be withdrawn at any time. This is according to the decision in Routledge v. Grant, (1828). Further, Sarah does not have a binding contract with Kelly, because she agreed to purchase the limousines if their colour was changed to white. This constitutes a counter offer. As such an offer has to be accepted without any modification by the offeree for a binding contract to occur. Since, Sarah agreed to purchase after some changes had been made, there is no binding contract between them. Therefore, Kelly is under no legal obligation to sell the limousines to either Britney or Sarah. However, she has a legally binding contract with John.
Adams v Lindsell, (1818) 1 B&Ald 681 .
Adediran, P. (p122). Law & the Internet. A Practical Guide to Buisiness , ISBN 0749437340.
Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH , (1983) AC 34.
Butler Machine Tools Co. Ltd v. Ex-Cell-O Corp (England), (1979) 1 All ER 965.
Byrne v Van Tienhoven , (1880) (5 CPD 344).
Chissick, M., & Kelman, A. (2002. P. 68). Electronic Commerce: Law and Practice. Sweet & Maxwell.
Clark, J. O. (2001 p176). Dictionary of International Business Terms. Lessons Professional Publishing. .
Denton v. Great Northern Railway Company , (1856) 5 E. & B. 860.
Household Fire & Carriage Accident Insurance v. Grant, (1879), 4 Ex. D. 216 (C.A.)..
Livingstone v. Evans , (1925) 4 D.L.R. 769..
Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd, (1979) 100 D.L.R. (3d) 374 (Ontario High Court).