Problem Question with Multiple Offers and an Examination of Their Effects on the Acceptance of Offers

Example Contract Law Problem Question

Scenario

Hugo, a recently retired lawyer, joined the 'NO TECH movement in July 2013. The members of the movement are strongly opposed to the use of digital technology. The majority of members live in the village of Utopia.

Hugo will be moving to Utopia at the end of 2014. Therefore, he will no longer need his car, a five year old Volkswagen Polo. He places an advertisement on the notice board of his local newsagent.

'FOR SALE'- Volkswagen Polo in excellent condition. Will be sold to the first person who sends notice in writing that they wish to buy it for £3,000 to the following address: 53 Bridge Street, UT1 FG3'

On Sunday evening, Letty, a newly qualified driver, posts a letter stating that she wants to buy Hugo's house on Wednesday morning.

On Monday morning, Jackie, Hugo's acquaintance, passes the news agent's on her way to work. She sees the advertisement and recognises the address. On her arrival at work, she sends Hugo an email to the email address that he provided her with when they first met, two years ago, stating that she is willing to pay £3,000 for the car. Hugo never receives the email, since as a member of the 'NO TECH' movement he no longer uses computers or mobile phones.

On Tuesday evening Hugo meets his friend Mike for dinner and over the course of the meal, Hugo promises to sell the car to Mike for £2,500.

Advise Hugo as to whether he is contractually bound to Letty, Jackie and Mike.

Answer

In order for any contract to be valid, three elements must be present. Firstly, there must be an agreement by the parties. Secondly, this agreement must be such as to demonstrate an intention to create legal intentions and finally, the agreement must be supported by consideration.1 Clearly, the final two elements will only become relevant once an agreement is found and, on the facts here, will only require discussion in respect of Mike and then only in relation to legal intention.

The starting point is the agreement therefore and in order to consider this point, it is prudent to briefly set out the general approach taken by the courts when determining the existence of a potential agreement, then work through each of the parties' claims to a binding contract with Hugo and finally conclude whether Hugo is bound to sell his car to any one of them.

The Courts' General Approach

In contractual terms an agreement is split into two parts, an offer and acceptance.2 An offer is seen as a statement that has the effect of demonstrating that a party is willing to contract on the terms set out on the basis that they will be bound to do so if the offer is accepted by the party to whom it is addressed.3 Acceptance, rather unsurprisingly, is the response given by the party to whom the offer has been made, which demonstrates that they agree unconditionally to the terms set out.4 In respect of both elements,5 the court takes an objective view as to the existence of an agreement.6 In this respect an individual will be bound by their conduct if the conduct is such that a reasonable person would believe that they intended to contract, even if they actually held no such intention.7 The starting point in this scenario therefore is to consider whether Hugo's advertisement could be seen to constitute an offer.

Is there an Offer?

In ordinary circumstances an advertisement is not considered an offer.8 It appears that this is the case because of the binding nature of an offer. In other words, if Hugo's advertisement was considered an offer, he would be bound to sell the car to all who accepted it, something which is clearly impossible.9 Here however, the nature of Hugo's advertisement is slightly different to ordinary advertisements. In ordinary circumstances, an advertisement is often open to some degree of negotiation. Here, for example, a potential purchaser of Hugo's car may attempt to negotiate a lower price than that advertised. This does not appear to be possible in respect of Hugo's advertisement. Hugo's advertisement makes it clear that the car will only be sold to a person who sends written confirmation of their desire to buy. In this respect, there is little doubt that Hugo intends to be bound once this written confirmation has occurred. At this point he cannot renege on the offer. This kind of contract is known as a unilateral contract10 and has the effect of making an advertisement into an offer.11 The point being in this respect, that it is only when an advertiser makes it clear that they intend to be bound immediately by anybody accepting the offer, that it will constitute an offer. The distinction is a fine one and it seems that the crux of the matter in this context is Hugo's use of the word 'first' in his advertisement. In using this specific wording he is demonstrating his intention to be bound by one offeree only, thus avoiding the impossibility issues discussed above, but also demonstrating that the acceptance will be binding on him.

It seems reasonable to suggest that in the absence of the word 'first' the advertisement would have been considered an invitation to treat rather than an offer and Hugo would not therefore have been bound by any of the parties. Given that the advertisement is likely to be considered an offer however, it becomes necessary to consider each of the remaining character's actions in turn.

Letty

There are two issues in respect of Letty's comments. The first of these is whether her letter constitutes acceptance of Hugo's offer at all and, if it does, whether it will be binding on Hugo because it seems clear from the facts that when he agreed to sell the car to Mike, Hugo had not yet received the letter from Letty.

In terms of the first matter, the issue in this context is whether Letty's letter is accepting the terms of the offer as set out by Hugo or is attempting to impose a new term. If it can be found that it is the latter circumstance, Letty's letter will not be considered an acceptance of the offer at all, but rather a counter offer to Hugo's offer or an invitation to treat. The point in this context is that Letty stipulates that she will buy Hugo's car on Wednesday morning. If this means that she will only buy the car on Wednesday morning and, if it is not available at that time, will have no interest in buying it, the letter may not be considered as acceptance of Hugo's offer. It is at this point that the court's objective approach becomes important and rather difficult where the provided facts are limited. The question in this context is whether a reasonable person would believe that Letty's letter constituted acceptance of Hugo's offer as it stood. In this respect, it seems reasonable to suggest that facts outside of those specifically contained within the letter would be taken into consideration.12 If, for example, Letty was going to be away from the area where the car was located until Wednesday, but wanted to ensure that Hugo would not sell it before then, it could be suggested, because Hugo had not stipulated within the offer the date upon which the car must be purchased, that the specific comments within Letty's letter were simply clarifying points rather than an attempt to impose additional terms into the contract. If however, Letty will only be in the area where the car is located on Wednesday and will not be willing to buy it on any other day, it seems that this will be an additional term and cannot be considered acceptance to Hugo's offer.

The fact that the status of Letty's letter is unclear means that it is necessary to consider the second element in this context, whether it will be binding on Hugo. The general position in respect of all offers is that acceptance must be communicated to the offeror.13 For these purposes, communication ordinarily occurs once the offeror is made aware of the acceptance.14 There are certain circumstances whereby the need for communication is waived however. The most common of these being where the contract is a unilateral one.15 Although it appears that Hugo's advertisement could be considered an offer for the reasons set out above on the basis that it creates a unilateral contract, the very nature of the offer is that it requires express acceptance in the form set out. In other words, where conduct is sufficient for a unilateral contract offer to be accepted in ordinary circumstances thus avoiding the need for communication to the offeror, here Hugo has set out the conduct required within the offer; that conduct being communication.

On the face of it at this stage in the consideration, it appears that Letty will not have communicated her acceptance of the offer to Hugo by the time he promised to sell the car to Mike because he was unaware that Letty's letter had been sent. This is not the end of the matter however because there is one significant exception to the notion that communication of acceptance occurs only when the offeror is aware of it.

Under, what is known as the postal or posting rule, acceptance is considered to have been communicated to the offeror as soon as the offeree posts a letter containing it.16 This is because the post office is considered to be the agent of both parties to the agreement and thus, it is considered that the offeror is aware of the acceptance as soon as it is posted.17 There is one further complication in this respect. This is that it is possible for an offer to be made in such a way that it is expressly apparent that the postal rule should not apply. In other words, the offeror is able to assert that the acceptance must be communicated to them. One method of doing this is by holding that the offer can only be accepted once the offeror has notice of the acceptance.18 This approach clearly fits with the facts here, in that Hugo expressly states that he will require written notice of acceptance and therefore it seems that, in doing so, he will have avoided the postal rule.

The result of this is that even if Letty's letter is considered to constitute acceptance, it will not have been communicated to Hugo and will not therefore be binding on him, at least until it arrives at his address. In order to avoid being bound at this point, something that may be important given the discussions below, Hugo must place another advertisement stating that the offer of sale on the terms set out has been revoked.19

Jackie

Jackie presents an interesting problem here, in that whilst Hugo's offer stipulates that written confirmation must be sent to his address, it does not stipulate that this must take the form of a letter. The effect of this, it could be suggested, is that, because emails are practically instantaneous, it would be deemed to have been received by Hugo almost as soon as Jackie sent it.20

There are two issues in this respect however. The first, in the same manner as described above, relates to the use of the word notice within Hugo's offer. This, as mentioned, connotes the notion that in order to be bound Hugo would need to be aware of the contents of Jackie's email, which of course, he was not. The alternative issue is that email communications are only considered to have been received at the point when it would be reasonable to expect the recipient to have read them.21 In this context, it seems that even if Jackie was unaware that Hugo belongs to the 'NO TECH' movement, it would be reasonable for Hugo to argue that she could not reasonably have been certain that he would have read an email that was sent to an address that was two years old.

It seems clear in this context, if either of the approaches mentioned above are taken, that whilst Jackie's email could, on the facts, constitute acceptance of Hugo's offer, the acceptance will not be binding on him because it will not have been effectively communicated to him.

Mike

The position in respect of Mike is not in any way linked to the offer that Hugo made in the advertisement. The offer to sell Mike the car for £2,500 is clearly separate from that earlier offer. In this respect, it seems clear that offer and acceptance would be satisfied, although the facts are silent as to the details of this. The only issue in this respect therefore would lie in whether, if he wished to avoid the contract, Hugo would be able to demonstrate that there was no intention to create legal relations between the parties.

The general position in this respect is that in social agreements, and agreements between friends clearly fall within this category,22 are not intended to be legally binding.23 This does not mean that such an agreement cannot be binding however, because here, as in assessing offer and acceptance, the courts will look objectively at the facts.24

No facts are set in the scenario as to the nature of how Hugo's promise was made, but if it was in passing in a general chat at the meal, Hugo may be able to assert that he did not intend it to be legally binding. If the discussion was more considered however, it seems far more likely that Hugo would have difficulty in demonstrating this point.

Conclusion

Hugo will not be bound by Letty's letter until it arrives, will not be bound by Jackie's email and may be able demonstrate on the facts that he ought not to be bound by his promise to Mike.

Footnotes

1 Chitty on Contracts (31st edn Westlaw) at 2-001

2 Ibid at 2-002

3 Air Transworld Ltd v Bombardier Inc 2012 EWHC 243

4 Op cit at n 1 at 2-027

5 Inland Revenue Commissioners v Fry 2001 STC 1715

6 Ignazio Messina & Co v Polskie Linie Oceaniczne 1995 2 Lloyd's Rep 566

7 See OT Africa Line Ltd v Vickers plc 1996 1 Lloyd's Rep 700

8 Partridge v Crittenden 1968 1 WLR 1204

9 Grainger & Son v Gough 1896 AC 325

10 See Rogers v Snow (1573) Dalison 94, for example

11 Carlill v Carbolic Smoke Ball Co Ltd 1893 1 QB 256

12 See Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd 1979 1 All ER 965

13 McIver v Richardson (1813) 1 M & S 557

14 See Entores Ltd v Miles Far East Corp 1955 2 QB 327

15 Op cit at n 11

16 Adams v Lindsell (1818) 1 B & A 681

17 Household Fire Insurance Co v Grant (1879) 4 Ex D 216

18 Holwell Securities Ltd v Hughes 1974 1 WLR 155

19 Shuey v United States (1875) 92 US 73

20 See Entores Ltd v Miles Far East Corporation 1955 2 QB 327

21 Brinkibon Ltd v Stahag Stahl 1983 2 AC 34

22 Coward v Motor Insurers' Bureau 1963 1 QB 259

23 Balfour v Balfour 1919 2 KB 571

24 Op cit at n 11