BFA506 | Business Law | The Basic Prerequisite Of A Valid Contract
You are required to provide a answer to the following question:
Nigel placed the following advertisement in the “Antiques Monthly” magazine:
“Rare 19th Century Long case clock by Ticker for sale £15,000 or nearest offer”
On Monday Oliver bought a copy of the magazine and after seeing the advertisement immediately phoned Nigel and said “The long case clock you have for sale, I will offer you £12,000 for it” Nigel replied, “I cannot accept less than £13,500 for it, but I will not sell it to anyone else before Friday”. Please let me have written acceptance by 12.00 noon Friday if you want it”.
At 2.00pm on Wednesday Paul saw the advertisement, and immediately phoned Nigel and made an appointment to see the clock at 10.00am on Thursday morning. On seeing the clock he offers Nigel £14,000 for it, which Nigel accepts.
At 2.00pm on Thursday afternoon Oliver sees Paul’s old father, who he knows slightly, and who tells him that he has just seen his 9 year old grand daughter, who said her father has just bought a rare 19th Century long case clock from a dealer who had advertised it in the Antiques Weekly magazine. Oliver rushes home and posts a letter to Nigel agreeing to buy the clock for £13,500. On the same day Nigel writes to Oliver withdrawing his offer.
At 11.00am on Friday morning Oliver receives Nigel’s letter, and at 1.00pm Nigel receives Oliver’s letter.
Advise Nigel.
Answer:
Issues
In the provided case, Nigel requested Oliver to give his consent by 12:00 noon on Friday and also promised Oliver to keep the offer open till the mentioned time for him but in the meanwhile she has sold the subject matter of offer to a third party. When Oliver came to know about the said sale, he accepted the offer and sent the letter accepting the Nigel’s offer via post. In the meanwhile, Nigel also revoked the offer made to Oliver and informed the same to Oliver via post. Oliver received news of revocation at 11:00 and Nigel received Oliver’s acceptance at 01:00 Pm. Now the issue is to investigate that whether there is a valid contract or not and what are the liabilities of Nigel?
Rules
To make a lawful and binding contract there are some conditions, which need to be, fulfilled. Offer and acceptance are the two basic and significant pre-requisite of a valid contract. It has held in the case of Harvey v Fac
ey [1893] UKPC 1 and Carlill v Carbolic Smoke Ball co [1893] 1 QB 256 that in a contract there must be an offer and such offer must have intention to bind the parties of the contract in a legal perspective. In addition to offer, acceptance of the same is also an important element of a contract. An offer cannot make a lawful contract until unless it get acceptance of the person to whom it has made. There are some general rules related to acceptance, which make this element valid. To give a valid consent, the same must be communicated to the offeror, the terms of such acceptance must be as same as stipulated in the subjective offer and in addition to this, the agreement must be of certain nature (e-law resources, 2018). Offer and acceptance, both are the key essentials of a valid contract. Many of the times, an agreement cannot be convert into a valid contract in the absence of proper offer and acceptance. So, in order to develop a contract, at the first instance, one need to be sure about existence and communication of offer and acceptance in addition to other elements such as consideration, validity and nature of contract.
An offer can be terminate. According to the decision given in the case of Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109, it has held that an offer gets terminate after a reasonable time limit where nothing is mentioned about validity of an offer. In conjunction with, this is to mention that except termination, offer and acceptance can also be revoke by the parties. It was held in the case of Dickinson v Dodds (1876) 2 Ch. D. 463 that an offer can be revoked at any time before receiving acceptance.
As earlier mentioned in order to build a valid contract, acceptance must be properly communicated. It has held in the case of Felthouse v Bindley [1862] EWHC CP J35 that merely silence cannot consider as acceptance. Further, way of communication has it is huge significance while considering the validity of acceptance. Cases, where parties decide to treat post as a valid mean of communication, postal rules are applicable. Where postal rules are applicable, dropping a properly stamped and addressed letter into letter box creates a valid acceptance (Duhaime, 2018). It has declared in the decision of the case of Holwell Securities v Hughes [1974] 1 WLR 155 that parties can also exclude the applicability of postal rules by defining the same at the first instance.
In addition to offer and acceptance, Counter offer and Invitation to treat are also important aspects to understand in the area of Contract Law. When offeree instead accepting the offer, put some additional condition in original offer and communicate the same to offeror then such act calls counter offer (Mitchell, 2014). Counter offer, is an introduction of some new terms, which changes the structure of original offer. In such circumstance, all the previous offers become cancel and counter offer requires an acceptance in order to form a valid contract. It has also held in the case of Hyde v Wrench (1840) 49 ER 132 Chancery Division that when a counter offer is made, this cancel and destroy all the previous offers in a transaction.
Invitation to treat is an invitation for offer and this cannot be treats as an offer (Translegal, 2018). In reply to an invitation to treat, one needs to give offer. Invitation to treat is wider concept and includes advertisement and auctions.
Application
In the given case, Nigel published an advertisement in a magazine named “Antiques Monthly” stating “Rare 19th Century Long case clock by Ticker for sale £15,000 or nearest offer”. It was an invitation to treat. According to Contract Law, an invitation to treat needs to get an offer in reply. Therefore, in the given case, Oliver, an individual, called to Nigel to purchase the offered clock. Instead accepting the offer with the original terms and conditions, he offered Nigel to purchase the mentioned clock for £12,000. As Nigel had higher expectations from the sale therefore, she replied to Oliver that she could not accept the offer for less than £13,500. If Oliver wants to purchase the same, he can give his written consent before 12:00 noon on Friday. She also mentioned that she will not sale the clock to anyone else before Friday. This was again a counter offer from the side of Niger. As according to the case of Hyde v Wrench, a counter offer cancel all the previous offers, thus in this situation, the offer made by Niger needed to be accepted by Oliver before 12:00 noon on Friday in writing.
Now, in the meanwhile, Paul, another individual seen the same advertisement and called to Nigel in respect of this. He offered Nigel to purchases the said clock for £14,000. As it was an attractive offer, Nigel accepted the same. Later on, when Oliver comes to know that probably Paul purchased that clock, which Nigel supposed to kept for Oliver. After this, Oliver made his acceptance and this acceptance has received by Nigel at 01:00 PM am on Friday. Simultaneously, Nigel also wrote a letter to Oliver withdrawing her offer and Oliver has received the same at 11:00 am on Friday.
In the given scenario, there was an offer and acceptance. As it was held in the case Harvey v Facey and Carlill v Carbolic Smoke Ball co that an offer must have intention to create a valid contract; in this case, offer, which Nigel made to Oliver, had this characteristic. In the studied case, although post was treating a valid mode of communication, yet postal rules shall not be applicable. As earlier mentioned that where postal rules are applicable, merely depositing acceptance letter into post box, creates a valid acceptance, the same shall not be applicable in this case. Similar to the case of Holwell Securities v Hughes, Nigel excluded the postal rules by stating that she needs written consent before 12:00 noon on Friday. However, Nigel received Oliver’s consent by 01:00 PM, so no contract has developed between Oliver and Nigel. Here, as Oliver was aware that he need to inform his acceptance to Nigel in writing before 12:00 noon on Friday, he must have post the acceptance letter early so Nigel could get the same on time.
In this situation, regardless the sale made by Nigel to a third party, no contract could be developed, as acceptance has not received within the required time limit. This is also to state that the contract in which Nigel entered into Paul was a valid contract, as the same had all the elements of a legal contract. This is also to mention that although, Nigel said to Oliver that she will not sell the clock to any other person before Friday, yet this will not bring any legal liability. As stated in the rules section, that no contract will be develop until unless there is an offer and acceptance.
Conclusion
In order to conclude the asked query, it is to state there was not any contract between Nigel and Oliver in the absence of proper acceptance. After the study of given case, it is to say that Oliver has given his consent after the mentioned time limit and therefore, Nigel is not liable to perform anything on her part. No legal liability can levy on Nigel by Oliver. Further, although Nigel promised Oliver to keep subjective clock for him, yet she was not bound to do so, as there was no contract existed in between both of them. Thus, Oliver cannot initiated any proceedings against Nigel and he also cannot demand the clock from Nigel.
As mentioned above that Nigel sold the subject matter to Paul, and this transaction had all the necessary elements of a contract, therefore, this will be a valid contract and Nigel shall be liable towards Paul for the same.
References
Carlill v Carbolic Smoke Ball co [1893] 1 QB 256
Dickinson v Dodds (1876) 2 Ch. D. 463
Duhaime. (2018) Duhaime's Law Dictionary. [online] Available from: https://www.e-lawresources.co.uk/Offer-and-acceptance.php [accessed on 02/06/18]
e-law resources. (2018) Contractual agreement - offer and acceptance. [online] Available from: https://www.e-lawresources.co.uk/Offer-and-acceptance.php [accessed on 02/06/18]
Felthouse v Bindley [1862] EWHC CP J35
Harvey v Facey [1893] UKPC 1
Holwell Securities v Hughes [1974] 1 WLR 155
Hyde v Wrench (1840) 49 ER 132
Mitchell, C.E. (2014) Contract Law and Contract Practice: Bridging the Gap Between Legal Reasoning and Commercial Expectation. London : Hart Publishing
Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109
Translegal. (2018) Contract law: invitations to treat (1). [online] Available from: https://www.translegal.com/lesson/7073 [accessed on 02/06/18]
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