Business Law

Noodles PLC a UK based company sent a letter on the 1st of November to Fahrenheit Ltd. Noodles had been negotiating with this company, in order to enter a service contract, whereby all their kitchen equipment would be serviced on a monthly basis. This contract was to be in force for a period of two years at an annual cost of £10,000. This letter specified that Fahrenheit’s reply was to be made by return of post.

This letter did not reach Fahrenheit till the 6th of November, due to the presence of a mistake in the postal address.  Immediately on receipt of this letter Fahrenheit posted their reply of acceptance. A record of a telephone conversation on the same day revealed that this reply was posted at 11am on the 6th of November. In the interlude, on the 4th of November, Noodles received an offer from Centigrade to perform this servicing work for £9,000 per annum.  Noodles offered this contract to Centigrade on the 5th of November at £8,000 per annum, as it had not received any reply from Fahrenheit.

This was accepted by Centigrade and subsequently, Noodles intimated Fahrenheit by facsimile on the 6th of November, informing them that its offer of 1st November was withdrawn..  Fahrenheit received this message at 10:45am on the 6th of November; however it was not seen till 5 pm. on the same day.

In contracts an offer is a promise capable of acceptance that becomes binding according to specific conditions. It can be withdrawn only prior to acceptance or due to the existence of certain other conditions. Acceptance has to be in conformity with the terms of the offer and it has to be made known to the person making the offer. An exception to this principle is the postal rule (Kelly & Hayward, 2005. P. 137).

According to the provisions of the English Law a contract can be formed verbally, over the phone, by a facsimile or a written deed. Furthermore, a contract can be formed based on the parties’ conduct (Chissick & Kelman, 2002. P. 68).

 A contract comes into existence only when the offer made by offeror is accepted by the offeree. Such acceptance has to be in accordance with the manner stipulated or implied by the offeror. Moreover, such acceptance can be indicated in words or acts that can be construed to express acceptance of the terms of the offer.

The acceptance must correspond to the offer made and the inclusion of new terms renders it into a counter offer. When the communication is instantaneous, the offer and its acceptance or revocation are deemed to be effective from the moment of receipt by the offeree, examples of such communication are messages sent in person, by facsimile, over the telephone or by e-mail.

Any assurance or promise to act or desist from committing an act upon receipt of adequate consideration is a contract. Its formation is valid if there is an offer that is accepted. It is capable of being enforced if consideration is present and the parties are willing to enter into a contract. Acceptance by post becomes effective upon its posting, provided posting is a reasonable method of indicating acceptance. However, the contract is deemed to be formed before the actual receipt of such acceptance. Accordingly, the offeror cannot rescind the contract if the offeree posts his acceptance and this is applicable even if the offeror is unaware of the posting of such acceptance (Rossini, 1998. P. 9).

The acceptance or rejection of an offer becomes effective only upon its receipt by the offeror. If the communication is by methods that are not instantaneous, for instance by post ,acceptance becomes effective only when  posted by the offeree.

The postal acceptance rule was established in Household Fire & Carriage Accident Insurance Co. v. Grant. It states that if acceptance is to be indicated by post then it is deemed complete as soon as the letter of acceptance is posted, even in the event of its delay, destruction or loss (Household Fire & Carriage Accident Insurance v. Grant , 1879). Moreover, in the case of Adams v. Lindsell, a similar decision was given by the court (Adams v. Lindsell , 1818).

The decision in a number of cases like Livingstone v. Evans (Livingstone v. Evans , 1925), Butler Machine Tool v. Ex-Cell-O Corp (Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation , 1979) and Tywood Industries v. St. Anne-Nackawic Pulp & Paper (Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd , 1979) held that a counter offer invalidates the original offer unless the original offer is renewed. In Byrne v. Van Tienhoven the court held that any revocation of an offer has to be perforce informed to the offeree (Byrne v Van Tienhoven , 1880). In Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH the court gave a very important ruling by deciding that the postal acceptance rule was inapplicable to telex messages, due to the fact that such messages represented an instantaneous form of communication (Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH).

In Holwell Securities v Hughes the court opined that the offer could specify that acceptance must reach the offeror. Such a stipulation in the offer requires actual communication from the offeree (Holwell Securities Ltd v Hughes , 1974). In Tinn v. Hoffman (Tinn v Hoffman , 1873) and Yates Building Co. v Pulleyn Ltd the court decided that any equally advantageous method could be employed if a method of communication had been specified, without insisting that it should be the sole means of communication (Yates Building Co. v Pulleyn Ltd , 1975).

In Hyde v. Wrench the defendant offered to sell an estate on the 6th of June to the plaintiff for a specific amount. On the 8th of June, the plaintiff agreed to buy it. However, he specified a different amount. On the 27th of June the defendant communicated his refusal to the plaintiff. On the 29th of June, the defendant indicated his acceptance of the original offer by posting a letter that showed his acceptance.

The court opined that no contract was in existence, because the counter offer for purchasing the estate at a different price repealed the original offer. Accordingly, the original offer could not be revived by fresh acceptance. The conclusion to be arrived at is that a counter offer invalidates the original offer (Hyde v Wrench , 1840).

In Yates Building Co v. R.J. Pulleyn and Sons (York) Ltd it was held that if an offer specifies a particular method of acceptance that is to be observed mandatorily, then the non –observance of such a method renders the contract inconclusive (Yates Building Co. v Pulleyn Ltd , 1975).

The offer made by Noodles PLC was received by Fahrenheit Ltd on the 6th of November. Fahrenheit replied by post indicating its acceptance of Noodles’ offer at 11 am, on the same day. In the meantime, Centigrade Ltd made an offer to Noodles PLC to provide the same services at an annual rate of £ 9, 000. Since, no reply had been received from Fahrenheit for quite some time, Noodles PLC made a counter offer to Centigrade Ltd, whereby these services were required to be provided at an annual rate of £ 8, 000. This offer was immediately accepted by Centigrade Ltd and in this manner a binding contract arose between Noodles PLC and the Centigrade Ltd.

In Entores Ltd v. Miles Far East Corporation, the court decided that once the  facsimile message had been received, it was to be construed to have been delivered, because it was the offeror’s responsibility to ensure the proper receipt of messages at his workplace (Entores Ltd. v. Miles Far East Corp. , 1955).

Similarly, in respect of Fahrenheit Ltd, no binding contract had arisen, because the acceptance letter was posted by Fahrenheit Ltd on the 6th of November at 11 am. As per the postal rule acceptance of an offer transpires on the posting of the letter of acceptance. However, the Noodles PLC withdrew its offer and sent a facsimile message to this effect to Fahrenheit Ltd on the 6th of November at 10:45 am. Since the offer had been withdrawn prior to its acceptance by the offeree, no binding contract was formed between the Noodles PLC and the Fahrenheit Ltd. Although, the facsimile message was noticed by the Fahrenheit Ltd at 5 pm, the withdrawal of the offer became effective at the time of its receipt by the Fahrenheit Ltd’s facsimile machine.

Thus, the Noodles PLC is in no way responsible for the delay made by the Fahrenheit Ltd in noticing this message, because it is the latter’s responsibility to ensure the proper receipt of messages in its workplace. Accordingly, the Noodles PLC is not liable for any legal action that the Fahrenheit Ltd may initiate against it, due to the fact that no binding contract had been formed between them.

References

Adams v. Lindsell , 1 B & Ald 681; 106 ER 250 (Kings Bench 1818).

Brinkibon v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH, 2 Lloyd’s Rep 556 (CA) (1980).

Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation , 1 All E.R. 965, 1 W.L.R. 401 (1979).

Byrne v Van Tienhoven , 5 CPD 344 (1880).

Chissick, M., & Kelman, A. (2002. P. 68). Electronic Commerce: Law and Practice. Sweet & Maxwell.

Entores Ltd. v. Miles Far East Corp. , 2 QB 327 (1955).

Holwell Securities Ltd v Hughes , 1 WLR 155 (1974).

Household Fire & Carriage Accident Insurance v. Grant , 4 Ex. D. 216 (CA 1879).

Hyde v Wrench , 3 Beau 334 (1840).

Kelly, D., & Hayward, R. (2005. P. 137). Business Law. Routledge Cavendish.

Livingstone v. Evans , 3 W.W.R. 453 (1925).

Rossini, C. (1998. P. 9). English as a Legal Language. Martinus Nijhoff.

Tinn v Hoffman , 29 LT 271 (1873).

Tywood Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. Ltd , 100 DLR (3d) 374 (Ont. HC) (1979).

Yates Building Co. v Pulleyn Ltd , 119 SJ 370. 7 (1975).