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Published: Fri, 02 Feb 2018

Traditional offer and acceptance problem

Part 1

This is a traditional offer and acceptance problem question incorporating a number of well known principles such as counter offer, the termination of an offer and the communication of acceptance and/or its withdrawal and consideration should also be given to terms of the contract. This problem question calls for a thorough discussion of counter offer according to Hyde v Wrench 1840 and most importantly exclusion clauses.

An offer is an expression of willingness to contract made with the intention that it shall become binding on the offeror as soon as it is accepted by the offeree. An offer must be differentiated from an invitation to treat as seen in the case of Fisher v Bell and from a mere statement of price which does not indicate a willingness to sell as in the case of Harvey v Facey.

In general, Treitel defines an offer as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed”, the “offeree”. An offer is a statement of the terms on which the offeror is willing to be bound.

In this case, we can see that Beta enquired about a quotation for 500 barrels of oil and was quoted at £50,000 by Alpha. However Beta does not accept the offer right away. An acceptance is a final and unqualified acceptance of the terms of an offer. To make a binding contract the acceptance must exactly match the offer. The offeree must agree to all the terms of the offer. Here we see that Beta tries to negotiate down to £45,000 but it is not up to Alpha’s sales representative to make the decision about a discount. The question that needs to be answered here is whether this is a counter offer or a conditional acceptance.

If in his reply to an offer, the offeree introduces a new term or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as a counter offer which the original offeror is free to agree to or refuse.  A counter offer destroys the previous original offer as we have seen in the case of Hyde v Wrench 1840 , where Wrench offered to sell his farm to Hyde for £1200, an offer which Hyde declined. On 6 June 1840 Wrench wrote to Hyde’s agent offering to sell the farm for £1000, stating that it was the final offer and that he would not alter it. Hyde offered £950 in his letter by 8 June, and after examining the offer Wrench refused to accept, and informed Hyde of this on 27 June. On the 29th Hyde agreed to buy the farm for £1000 without any additional agreement from Wrench, and after Wrench refused to sell the farm to him he sued for breach of contract. However a counter offer should be distinguished from a conditional acceptance or a mere request for information as in the case Stevenson v Mclean (1880) which is regarding the very important rules on communication of acceptance by telegraph. Its approach contrasts to the postal rule. The “mirror image rule” states that if you are to accept an offer, you must accept an offer exactly, without modifications or changes; if you change the offer in any way, this is a counter-offer that destroys the original offer: Hyde v. Wrench (1840) 3 Beav 334. However, a mere request for information is not a counter-offer: Stevenson v. McLean (1880) 5 Q.B.D. 346.

Could Beta’s purchaser argue that he was simply requesting information in order to clarify the position? He may be able to find greater support from Society of Lloyd’s v Twinn (2000) The Times, 4 April where the Court of Appeal highlighted that there was no reason why an offeree should not unconditionally accept an offer whilst, at the same time, making a separate offer collateral to the original offer. If the collateral offer was refused then the unconditional acceptance of the original offer still created a binding agreement or contract.

Beta could argue that calling up to enquire about a quotation could initially amount to just a mere inquiry however once Beta puts forward a counter offer, the original offer is destroyed which then allows Alpha to go up in price another £5,000. Regardless of the fact that they agreed on the original offer the second time round, it still does not amount to a contract.

And also we know that there has been a counter offer so the fact that Beta is replying to Alpha about the original offer makes it clear again that there is no contract formed yet. The courts will not allow a party to benefit from both the counter offer and the original offer as in the case of Pars Technology v City Link Transport Holdings Ltd 1999. However it should be made clear that Alpha’s sales representative should have made Beta’ s purchaser aware that the offer is no longer available. Revocation refers to the withdrawal of an offer. An offeror may withdraw the offer any time before the offeree has accepted it according to the case Routledge v Grant (1828). It would be unfair to expect the offeror to wait indefinitely for an offeree’s response. To be valid, a revocation of an offer must be communicated to the offeree in the correct frame of time. It would also be unfair for a legitimate offeree to lose the chance to enter a contract because the offer was withdrawn without warning as seen in the case of Byrne v Van Tienhoven (1880) which is a leading English contract law case on the issue of revocation in relation to the postal rule.

However, it is unlikely that the courts find a contract in the first place in this scenario let alone a breach of contract. It would be unadvisable for Beta to sue on a breach of contract.

Having dealt with the issue between Alpha and Beta, we now move on to consider whose liability it would be for the damages incurred in the fire incident happened at the Elfstore warehouse. Before we delve into the heart of the matter it will be essential to define what exclusion clauses are. An exclusion clause is a term of the contract which attempts to exclude or restrict one party’s liability which he would otherwise owe to the other. In the nineteenth century, at the high water mark of freedom of contract, such clauses were considered as unexceptional, their use was regardedas a legitimate exercise of bargaining power. It was essentially in the 20th century that there was a growth in the inconsistency of bargaining strengths between the parties, with the result that the financially superior party could sometimes impose his will on the weaker party. This situation escalated as limited liability companies joined forces and started utilising standard form contracts with ample exclusion clauses offered on a take it or leave it basis. However there are a few common law restrictions upon exclusion clauses:

: Somebody who signs a document containing an exclusion clause is legally bound by its terms irrespective of the degree of notice given and whether he has read the document or not as per L’Estrange v Graucob Ltd (1934) 2 KB 394.

Usually the document containing the terms and conditions is given to one party and, in this case, he must receive adequate notice of the terms although he need not have read the document in order to be bound by its terms as in the case Parker v South Eastern Ry (1877) 2 CPD 416. This would not be applicable if the party receiving the document is illiterate or blind as in Thompson V L M & S Ry (1930) 1 KB 41. Whether adequate notice has been given is a matter of fact but cases of inadequate notice generally consist of terms obscured by a printed date stamp as in the case of Richardson, Spence v Rowntree (1894) Ac 217 and conditions printed on the reverse of a document without any notice of them on its face as in Henderson v Steven 1875 LR 2 HL Sc 470. If the particular clause relied upon is unusually wide or onerous, it may require unusually explicit notice as in Thornton v Shoe Lane Parking Ltd 1971 2 QB 163 and Interfoto Picture Library Ltd V Stiletto Visual Programmes Limited 1989 QB 433.

The exclusion clause must be drawn to the attention of the other party before or at the time of the contract is entered into, the courts keeping utmost discretion as to the moment of the contract’s completion according to Olley v Marlborough Court Ltd (1949) 1 KB 532. The document containing the exclusion clauses must be one which a reasonable man would expect to contain contract terms an, again, the courts preserve a wide discretion in deciding this question in case as in involving tickets and receipts as in the case of Chapelton V Barry UDC (1940) 1 KB 532. The court may infer notice of the exclusion clause from a consistent course of dealing between the parties, e.g., the relevant document containing the exclusion clause sent constantly to the other party; post contractually over a period of ten years as in Hollier V Rambler Motors (AMC) Ltd 1972. Such an incorporation of terms may be easier where both parties are businesses of equal bargaining power as in British Crane Hire Corp Ltd V Ipswich Plant Hire Ltd (1975) QB 303. Exclusion clauses must be clear or they will be inoperative and void, the common law’s interpretation being contra preferentum as in Baldry v Marshall 1925 1 KB 260.

The Unfair Contract Terms Act 1977 has three broad areas of control but does not interfere with the common law concerning the integration of an exclusion clause in the contract. First, exclusion of liability for negligence, secondly, general control of exclusion clauses which seek to exclude or restrict one party’s liability for breach of contract, and thirdly, control over certain terms implied by stature in the sale of goods, hire purchase and supply of goods. If the Act applies to the clause in question, control may take one of two forms: the clause may be rendered absolutely void and ineffective or it may be effective only to the extent that it satisfies the test of reasonableness.

Now that we have established what exclusion clauses are, we now move on to the three areas for evaluation in this problem. First, the question of the common law and exclusion clauses: have these clauses been incorporated as terms of the contract? Secondly, the relevant sections of the Unfair Contract Terms Act 1977 must be considered and, finally, a brief mention must be made of third party liability and exclusion clauses in relation to Nigel, the employee at Elfstore Ltd.

Max did not sign a contract so adequate notice must be provided. It was emphasised in Parker 1877 that it is notice of the terms that is important not their actual reading or understanding and it follows that if the notice is illegible or obscured by a date stamp, it will be ineffective. The clauses in the problem seem legible and Max even notices it however they are inside the Elfstore Ltd’s warehouse. Most recently in Interfoto, the court emphasised that if the clause is particularly stringent or onerous particular care must be taken to draw its attention to the other party. Furthermore, the notice that is given must be contemporaneous with the contract’s formation. Additionally, the document containing clauses must be a contractual document and here Max is not provided with any. The common law’s powers to circumvent clauses by deft interpretation are now of less significance in the light of the Unfair Contract Terms Act 1977. Section 2.2 provides that in the case of “loss and damage” a person cannot exclude or restrict his liability for negligence except in so far as the term or notice satisfies the test of reasonableness.

As for Max and Nigel, it seems likely that as third parties, they remain liable for their negligent acts as in Adler v Dickson (1955) 1 QB 158. Beta and Elfstore Ltd may be vicariously liable for Max’s and Nigel’s negligent acts which have clearly been committed in the course of their employment. One of the principal aims of the Contracts Act 1999 (third parties rights) is that, where a company agrees with its customer that its employees should be protected by an exclusion clause, the employees will be able to benefit from the agreement and seek shelter under the clause. Section 1 of the 1999 Act provides that:

“a person who is not a party to a contract ( a ‘third party’) may in his own right enforce a term of the contract if

  1. The contract expressly provides that he may, or
  2. Subject to subsection (2), the term purports to confer a benefit on him.

However on the facts of the problem there is no agreement between the employee and indeed, no mention of Nigel in the contract either personally or as an employee.

While the inherent risks of litigation are ever present, no matter what the nature of the case is, it appears that Beta will be able to recover the damages sustained. Regarding the claim against Diego Oil, it seems that Beta could potentially sue them for breach of contract for late delivery. As for the  £5m that Elfstore Ltd is suing for, it seems highly unlikely that they will be able to recover that amount as they are primarily a storage company and notices as important as these should be displayed, read out or even as Lord Denning would say have a “red hand pointing to it”  in the contract. However there was not enough notice and they seem unfair according to the Unfair Contract Terms Act 1979 and it is also crucial to consider the Unfair Terms in Consumer Contracts Regulations 1999.

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