Offer and acceptance misrepresentation remedy

Jason’s possible actions against Leonard will be based on misrepresentation. The general requirements for misrepresentation will be noted first, before considering the effect of the statements that Leonard made to Jason prior to their making the contract.

It should be noted that is common for one party to make statement during the course of negotiations for a contract with the object and perhaps the effect of inducing the other party to enter into a contract. A statement of fact that is false will be actionable as a misrepresentation where the misrepresentor intends it to be acted on and where it is reasonable relied on by the misrepresentee. It may be made innocently, negligently or fraudulently. A misrepresentation renders the contract voidable and it may also give rise to a right to damages depending on the type of misrepresentation that has occurred. For misrepresentation to be actionable, it has to fulfil three requirements: there must be an untrue statement; it must be a statement of fact, not mere opinion; and it must have induced the innocent party to enter the contract.

The first statement relates to the reliability of the tenant who had lived in a cottage on the farm which Jason wanted to buy. Leonard says that the tenant paid his rent on time and he was not any trouble; knowing that the tenant had, in fact, caused trouble on several occasions. The case of Smith v Land and House Property Corp (1884) is relevant here, however. In this case a landlord who was selling the property described a tenant as ‘desirable’ when he knew that the tenant was in arrears with the rent. It was held that statement by the landlord, although on its face a statement of opinion, was an actionable misrepresentation, because the landlord was aware of facts which made the opinion untenable. Another line of argument would be to use Edgington v Fitzmaurice (1885) where it was held that to state an opinion which you do not genuinely hold is a misrepresentation of your state of mind (a fact), and therefore potentially an actionable misrepresentation (if the statement induced contract).

Applying this to Jason and Leonard, Leonard’s statement about his tenant is likely to be regarded as a misrepresentation either because it is untenable to call the tenant who caused trouble on several occasions ‘reliable’, or because Leonard did not genuinely hold that opinion.

The second statement relates to the capacity of the farm. Jason indicated that he needed the land to support 1,000 sheep. Leonard had not kept sheep and he said nothing. In, Keates v The Earl of Cadogan (1851) where the defendant let a house to the plaintiff knowing that the plaintiff wanted it for immediate occupation, but did not tell the plaintiff that the house was in fact uninhabitable, it was held that mere silence will not amount to false statement so no misrepresentation had occurred. This case is based on the principal of caveat emptor (Latin for ‘let the buyer beware’), a purchaser is required to ask questions about important matters but the seller is not usually expected to volunteer information which will put the buyer off. However, the sale of land contract needs uberrimae fidei, which is Latin for ‘utmost good faith’. The basis for the rule is that the relevant facts are likely to be difficult or impossible for the other party to find out, so the law should ensure that one party does not have an unfair bargaining position over the other.

Applying this to the case on hand Jason can not treat Leonard’s silence as misrepresentation.

Not long after that Jason employed his own agent to check out the farm and the tenant. The agent confirmed, incorrectly, that the tenant was good and reliable. At first it looks like Jason did seek professional help, so he can not treat Leonard’s false statement as a misrepresentation. This is shown by decision in Attwood v Small (1838), where the plaintiff purchaser of a mine sought to confirm the seller’s statements as to its potential by commissioning his own report. This case is often cited as authority for the fact, that if the the purchaser carries out his own investigations, then he does not rely on the seller. However, it was stated obiter dicta in S. Pearson & Son Ltd v Dublin Corporation (1907). It was held that even if a representee carries out his own investigations, the representor will be liable for misrepresentation if the misrepresentation is made fraudulently. Misrepresentation is fraudulent if the misrepresentor knows that the statement is untrue, or makes the statement recklessly, not caring whether is true or false. This is also known as the tort of deceit and it was defined by Lord Herschell in Derry v Peek (1889).

Jason may sue Leonard in the tort of deceit and obtain rescission of the contract which seeks to return the parties to their pre-contractual position. However, successful deceit actions are quite rare because fraudulent misrepresentations are common. Hence, it would be probably hold that the contract still exists.

The English law on the formation of contracts generally requires there to be an offer and a matching acceptance. The negotiations between Leonard and Jason over the sale of Leonard’s land clearly reach an agreement, in the sense that at a certain point both are willing to go through with the transaction at an agreed price. Stone, R.(2005) defines an offer as;" indication by one person that he or she is prepared to contract with one or more others, on certain terms, which are fixed, or capable of being fixed, at the time the offer is made."

As soon as the offeree accepts the offer with all the terms contained in the offer, a contract takes effect.

The exchanges between Leonard and Jason started by Leonard’s first letter, offering his land for sale at £420,000. Jason asked Leonard if he would accept £380,000. Leonard rejected this figure but stated that he would accept £400,000. Jason telephoned Leonard and left a message on Leonard’s answer machine saying that he accepts the offer of £400,000 and then sent a first-class letter to confirm his acceptance.

Acceptance is effectively communicated only when the offeror has received notice of it. In a face-to-face situations it will usually be immediately evident if any communication problems have occurred. If the parties can not see each other this may be more problematic. There are no reported cases involving communication via answerphone. It can probably be successfully argued that messages left on answering machines are not communicated until, like any telephone message, the recipient actually hears them.

The general rule for acceptances by post is that they take effect when they are posted, rather than when they are communicated. The main reason for this rule is historical, sine it dates from a time when communication through the post was even slower and less reliable than it is today. Even this days, there is some practical purpose for the rule, in that it is easier to prove that a letter has been posted than to prove that is has been received or brought to the attention of the offeror.

The postal rule derives from the case of Adams v Lindsell (1818). In this case, a letter offering some wool for sale was sent to plaintiffs but it was misdirected and delayed. The plaintiffs posted a letter of acceptance as soon as they received the offer. After this letter was posted, but before it was delivered, the defendants has sold the wool elsewhere. The plaintiffs brought an action for non-deliver.

The court decided that the acceptance should be regarded as having taken effect when posted.

Today it has become firmly established in Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft GmbH (1983) that acceptance is effective when it is placed in the control of the Post Office.