Distinguish Between a Contract and When an Offer Can Be Revoked

A contract is a voluntary agreement where two or more parties intend to be obliged to perform under the law. The agreement is mutual, thus both sides have rights and obligations. The key elements necessary to the formation of contact are an offer and an acceptance of this offer. An offer is a definite and unambiguous proposal in which the offeror states the conditions of his deal. It also indicates that the offeror is willing to be legally bound if the offer is accepted.

In order to form a contract, the acceptance must match the offer. The offeree cannot alter or introduce new conditions essential to the formation of contract. In other words, the acceptance has to be unqualified and explicit. There must be a reciprocal consent with regard to the crucial elements of a contact, i.e. the parties must reach consensus ad idem (full agreement). If the terms of the offer and acceptance do not correspond, the contract is not constituted and neither party is legally bound.

An offer itself is not an obligation and it can be withdrawn at any time (unless the offeror had promised not to do so) before it is accepted. In addition, there are certain circumstances in which an offer can automatically lapse, without a requirement to inform the offeree. Implied revocation, as it is called, happens in the following situations: rejection of an offer; counteroffer; expiry of a reasonable time or a deadline; death of either party; insanity or bankruptcy of an offeror; subject-matter is modified or destroyed or; illegality. In any of these circumstances an offer no longer legally exists and cannot be accepted.

So the passage of time can cause an offer to lapse as it cannot be held open indefinitely. If an acceptance is not communicated within a reasonable time, then the offer ceases. A time limit depends on an individual case, however products prone to expire or ones with fluctuating prices should be accepted without delay [1] .

A good illustration of these principles is provided in Glasgow Steam Shipping Co. v Watson [2] . In this case a coalmaster offered to supply a shipping company with coal at 7 shillings per ton. The acceptance was sent after nearly ten weeks, however during this period the price of coal went up by 2 shillings. As a consequence the acceptance was refused so the shipping company accused Watson of breach of contact. It was held that the offer was no longer capable of being accepted. Lord Inglis stated that if no fixed time for response is given, an offeror should reply within reasonable time. Moreover, Lord Deas concluded that when the subject-matter fluctuates in price, the offeree cannot withhold his acceptance for unreasonably long time.

Similar decision was made in another famous case on revocation of an offer. In Wylie and Lochhead v McElroy and Sons [3] the offer to perform an iron work was accepted after five weeks. Within this period the price of iron increased significantly and as a result, the contractor did not acknowledge the acceptance. It was held that no contract was formed because in a situation where a price of an article (like an iron) constantly varies, the acceptance must be immediate.

Likewise, the central issue of Jim’s dealing with Triumph Trophies concerns termination of an offer due to lapse of time. During the six week period when Jim was withholding his decision, the value of silver increased, causing the price of producing a trophy to rise by £75.

In view of aforementioned cases it can be concluded, that Triumph Trophies are not legally bound to do the work at original price. The lateness of Jim’s response in combination with a sensitive price of the metal provide a valid reason to revoke the offer, as can be seen in Wylie and Lochhead v McElroy and Sons [4] . The parties did not reach a consensus because they did not agree to the price, an essential element of the deal. As a result they did not form a contract, therefore neither Jim nor the manufacturer have any right or obligations under the law. In other words, Jim cannot demand that the manufacturers perform their part of a deal since the contract was not concluded.

On the other side, Jim could argue that Triumph Trophies did not set a time limit [5] for acceptance and he was not aware that the reply should be prompt. The offer could have specified a deadline for making a decision which in consequence would eliminate the problem. However, Triumph Trophies might rightly reason that it is a common knowledge that prices of commodities such as precious metals change constantly. Jim should have known that silver has an unstable value and its price can increase rapidly within days. If he expected to pay the original price, he should not delay his acceptance for six weeks.

Revocation of an offer can also be triggered by a qualified acceptance. Any attempt by an offeree to change the terms of the offer or introduce new conditions to it will result in a counteroffer. As a consequence, the original offer is void. Moreover, the counteroffer becomes a new offer, which in turn may or may not be agreed to.

An example of such a situation can be seen in Wolf and Wolf v Forfar Potato Company [6] . An international company purported to accept the offer from a Scottish potato supplier but on new terms. The seller refused the change of conditions so the offeree confirmed acceptance of the original offer. The supplier ignored it and the buyer raised an action for breach of contract.

It was held that there was no contract between the parties for the original offer was void. Lord Wheatley concluded that “An offer falls if it is refused. If the refusal is not peremptory, but combined with a request for better terms, the general construction is that the offer is gone, and that the party to whom it was made, on failure to obtain the terms he requests, cannot fall back on an acceptance of the original offer.” [7]

The case of Hyde v Wrench [8] also illustrates a result of a counteroffer. Here, the pursuer purported to accept the offer of buying a farm, but for £50 less than the original price. When the seller refused, the buyer agreed to pay £1,000. The second acceptance was ignored and Hyde raised an action against Wrench. The court held that the first attempt of conditional acceptance destroyed the offer. Therefore, the offer no longer existed when the pursuer tried to accept it at a later time.

Applying above cases on counteroffer to Jim’s trading with Acme Sportswear, it is understood that Jim and the manufacturer did not achieve consensus as to the material elements of the offer. There parties did not form a contract, hence the manufacturer is not legally bound. By offering to purchase the strips at £750 instead of £900, Jim attempted to introduce new terms and thus destroyed the offer. At the same time, Jim’s conditional acceptance became a new offer. Acme Sportswear moved from being an offeror to a new position of an offeree. From there they could have or could have not accepted Jim’s terms. When Jim later decided to accept the offer at the original price of £900, he was not able to do it as the offer no longer existed.

Conversely, Jim could reason that he only meant to request a cheaper price as additional information. He did not intend to supersede the primary offer and his inquiry should be regarded as mere negotiation. [9] However, unlike non-essential terms which could be negotiable [10] , the price of the strips was an essential element of the deal. Therefore, not agreeing to it Jim was unaware he had rejected the offer.

By examining relevant cases it can be concluded that Jim’s situation is an example of revocation of an offer due to lapse of time and counteroffer. In both dealings the parties failed to form a contract as there was no true consensus with regard to the essential matters of the offers. Jim’s own ignorance cost him two attractive deals. Firstly, his delayed response to the trophy maker was unreasonable, especially taking into account fluctuating prices of silver. Secondly, by proposing his own price to the sportswear manufacturer, Jim cancelled the original offer.

In conclusion, Jim is mistaken in his belief that he has entered into contracts with the manufacturers. In both cases Jim’s actions caused the offers to cease. Neither Triumph Trophies nor Acme Sportswear are legally bound to perform, therefore Jim’s legal action against the companies would fail.

TABLE OF CASES

A.G. Paterson Ltd. v Highland Railway Co.1927 S.C.(H.L.)32

Findlater v Maan 1990 SLT 465

Glasgow Steam Shipping Co. v Watson (1873) 1 R. 189

Hyde v Wrench (1840) 3 Beav. 334

Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866) LR 1 Ex 109

Stevenson v MacLean (1880) 5 QBD 346

Wolf and Wolf v Forfar Potato Co. 1984 S.L.T. 100

Wylie and Lochhead v McElroy and Sons (1873) 1 R. 41