A Case Study on Offer and Acceptance Revocation

Introduction

The given scenario comprises six main issues around principles of contract formation, valid offer and acceptance, invitation to offer, valid consideration revocation, misrepresentation, breach and liabilities, quality of goods as a term of contract, validity of exclusion clauses and their liabilities and duty of care and their liabilities. The following sections will deal with the scenarios and relevant issues and case principles:

First Case - between Alan and Chris

The issue is to determine whether there was a valid offer or acceptance, and whether Alan could revoke the offer. For an acceptance to occur, an offer must be specific and must be made with the intention to bind. It must also be current. An acceptance after an offer ceases to be valid is not effective to form a valid contract. In the current case, Alan found out from the supplier about the new price and he notified Chris about it. This shows that the offer no longer remains current. As such the original offer and any acceptance from Chris to the original offer are not valid as the offer is not current as to the most current price.

Revocation or withdrawal of an offer is possible at any time before it is accepted An offer must be expressly terminated or revoked by implication. For a revocation to be valid, it must be communicated to the other side before acceptance or even before the offer was received. Revocation must be communicated effectively to the offeree, directly or indirectly before acceptance. An offeror can revoke the original offer with a second offer. Where there is a first offer that of price quotation and there is a second offer that differs without expressly revoking the first offer, the second offer automatically revokes the first offers. There is a clear indication to withdraw the first offer. The offer can be withdrawn irrespective of whether the offer remains open for a fixed duration when the offeree does not support the promise with any consideration. In the current case, Alan expressly revoked the offer when he telephoned Chris and left a voicemail and he also emailed Chris to let him know that he could no longer sell the goods at the quoted price. Thus, the offer was revoked effectively before the acceptance. If Alan in his email mentioned about the revised new price, it implies that the second offer has revoked the original offer. Such revocation of the offer by a new offer is valid even if the offer remains open for the stated 7 days as Chris had not provided any consideration to his promise to buy the office chairs.

An alternative argument to this claim could be that Chris has already accepted the offer when Alan received the acceptance letter later that Wednesday morning with postmarked from the day before. The issue relevant here is to determine whether Alan has effectively revoked the offer or not has to be dealt with the issue of applicability of the postal rule around posted communication of acceptance by Brian. Acceptance must be made within validity term either by words or by conduct. Communication of acceptance is to be made in the manner specified by the offerer. Where parties considered post as a main means of communication, acceptance is considered communicated once it has been posted. Postal rule can be excluded if the offeror stipulates a specific method of acceptance. This postal rule is not applicable if it will create an absurd result. Applying these principles to the current case, it could be stated that Alan had revoked before he received the acceptance post from Brian. The argument again this would be that an acceptance is communicated once the acceptance letter is posted. It is applicable where parties considered post as a main means of communication and there was no exclusion of this mode. However, this postal rule is not applicable in the current case if it will create an absurd result that would be detrimental to Alan in that the original offer had already been revoked and if Alan had proposed the revised price, this revised offer also automatically revokes the first offer. Therefore, considering the facts of the case and the applicable rules, the offers stands withdrawn and Chris’ acceptance cannot be held valid.

Second case is between Alan and Chris regarding 10 space-saver maple deskset.

In this scenario, the issue is to determine whether the price list that Chris picked up is an offer or an invitation to offer.

For an offer to be an offer, the terms should be certain and definite, and must be made with the intention to bind. It must also be current. An acceptance after an offer ceases to be valid is not effective to form a valid contract. Thus, in this case, the offer is not current and valid as the price list that Chris has is incorrect. As such, Chris’s acceptance is not effective. Moreover, the price list is not an offer but an invitation to offer.

An offer must be distinguished from an invitation to treat. An invitation to treat would generally be goods displayed at a shop’s window or on the shop’s shelves. Offer would be from the prospective customer. The same is true for catalogue, advertisement and the like. Hence, the price list is an invitation to treat, which shows a willingness to negotiate and Alan does not have any intention to be bound as soon as it was accepted by Chris. In an invitation to treat, there is no offer being made and thus, even if Chris has selected the desk based on such invitation, it does not amount to acceptance.

A contract is not made until the seller, i.e. Alan tells the buyer, i.e. Chris the total price and until the buyer accepts the offer. Thus, if Chris does not accept the correct price of £250, the contract is not made. It will, however, be made if there is specific solicitation, identification of parties, price and subject matter or induces some action on behalf of Chris. Thus, in an invitation to treat, an offer is made by a prospective buyer and the retailer or seller may accept or reject that offer. An invitation to treat will remain so unless Alan as the seller express willingness to be automatically bound to Chris who performs the acts as stated in the invitation.

For a contract to be formed and valid there must be an offer, acceptance, consideration as well as an intention to create a legal relation. The minds of the parties in a contract must meet and they must agree upon the terms, the thing to be sold, the price and also the time of payment. Price is also an important element of a contract and the parties have to be certain of the price. In the current case, there was no current and valid offer and so there was no acceptance. The price list was an invitation to treat and there was no willingness or an intention to create legal obligations. The vendor is entitled to refuse to sell the products, i.e. the desk at the listed price. So, if a shop mistakenly displays a product for sale at a very low price, the shop or the owner is not obliged to sell the product for that amount. Thus, Alan can refuse to sell the desk at the listed price and even if price in the list is incorrect or by mistake, Alan is not bound to sell the desk to Chris. The price list does not qualify to be a valid offer. The price list at the counter was neither addressed to Brian nor it has specific solicitation, identification of parties, price and subject matter, or induced some action on behalf of Brian. Therefore, the minds of the parties were not met on the terms, especially the price in this matter.

Third case is between Alan and David regarding filing cabinets.

In this current scenario, the issue is to whether Brian’s promise to pay the additional money would amount to a valid consideration and whether it gives rise to legal obligation and consequence.

There are two kinds of promises. One is that gives rise to legal obligations and the other is that do not. This differentiation could be made through the principle of consideration. Consideration must be “something of value in the eyes of the law”. As such, a promise will give rise legal obligation and consequence if there is consideration. Therefore, something would not be of any value if a party provides it anyway (by a pre-existing contractual or legal obligation), and it does not constitute consideration. In the current case, the promise of David to provide the additional amount is a valid consideration and it gives rise to legal obligation and consequence in that the consideration ensures that Alan performs his part of contractual obligations.

Where a party later agrees to pay the party an extra “bonus” to ensure that the other party performs his part of contractual obligations, this agreement is binding if the party, as a result of the agreement to pay the bonus, obtains some new practical advantages or avoids a disadvantage. The same principle applies to the current case where David obtains the advantage of ensuring that Alan completes office refurbishment by paying him the extra £4,000. In this principle, the paying party, i.e. David receives the advantage of ensuring that the receiving party, Alan continues his work; of avoiding payment of damages in case the receiving party is late; and of avoiding the expense and trouble of contracting somebody new. But, an alternative argument or defence that David could put up is if the concerned obligation of the refurbishment has not been substantially performed, Alan will not be entitled to the fee and David can apply the doctrine of abatement. As such, David can defend himself by stating that “all, or some specific part, of those services were either not performed at all or were performed so poorly that they were worthless.” But such defence could not work in case “some or all of the services were performed, but not fully or properly in every material respect, so as to seek a reduction of the fee payable.”

Fourth case is between Alan and Fred and George regarding reclaimed Canadian redwood desks.

In this current scenario, the issue is to determine, firstly, whether Fred’s assurance amounts to misrepresentation; and secondly, whether acceptance of George to Alan to buy the office furniture is valid.

The answer to the first issue could be dealt with by reading principles around misrepresentation. Section 2 of the Misrepresentation Act 1967 provides that claimant may claim rescission and/or damages if there was a misrepresentation, whether fraudulently or not. An alternative argument could be that the representation was a statement of intention. But, it is a statement of fact, it amounts to a misrepresentation, and therefore the plaintiff was entitled to rescind the contract. Even when it is a statement of opinion, but contains an implicit assertion of facts, which is false, it becomes misrepresentation. Whether representations would have induced a reasonable person to enter into a contract is relevant only to the onus of proof. There is material misrepresentation when inaccurate statements induced a party to enter into a contract. The party holding the most information is more likely to be sued. The representor is in a better position to know the correct position. In fraudulent or negligent misrepresentation, an innocent party can sue for damages. If misrepresentation is made knowingly, without belief in its truth, or made recklessly or carelessly, it is a proof of fraud. In the Consumer Rights Act 2015, Section 29(2), “goods remain at the trader’s risk until they come into the physical possession of” the consumer.

In the current case, Fred’s assurance induced Alan to enter into the contract. The assurance constitutes misrepresentation, whether negligent or fraudulent or statement of intention or opinion. Fred must have disclosed the information about the goods to Alan, which he did not. He made the misrepresentation knowingly as he was not even careful about the storage conditions of the goods. The risks of the goods remain with him, as per the Consumer Rights Act 2015. Further, his assurance turned out to be untrue and it contributed to Alan entering the contract. Alan can sue Fred for damages and can also rescind the contract under the Misrepresentation Act 1967.

The answer to the second issue could be dealt with by reading the Consumers Rights Act 2015. Section 9 (1) provides that a contract to supply goods is treated as including a term that the quality of goods is satisfactory. Section 9 (2) of the Act provides that it is only satisfactory if it meets the standard that a reasonable person would consider satisfactory, given the description, price and other relevant circumstances. According to Section 9 (3), the quality of goods shall include state and condition, appearance and finish, fitness for all the purposes, freedom from minor defects, durability and safety. If the goods do not comply with the contractual terms, Section 19(3) provides the buyer certain remedies and under Sections 20 and 22, he has the short-term right to reject the goods. In Financings Ltd v Stimson, it was held that an offer is terminated if a condition of the offer is absent or not fulfilled.

In the current contract between George and Alan, the reclaimed Canadian redwood desks do not satisfy the quality anymore and so, the condition of offer to sell 10 Canadian redwood desks does no longer exists. Their state and condition is no longer the quality as agreed. As such, the acceptance of George to Alan to buy the office furniture is not valid.

Fifth case is between Alan and City Furnitures CFDL regarding delivery of sideboards.

In this scenario, the issue to determine is whether the standard exclusion clause of CFDL is fair or not and whether Alan can claim more than the contract price as is limited by the standard contract of CFDL.

Unfair Contract Terms Act 1977 (UCTA), Section 3(a) does not allow an exclusion clause that “excludes liability for breach of contract” except when it satisfies the reasonableness test. This principle applies “where one of the contracting parties is a business contracting on the other's written standard terms." Courts generally do not intervene in contract of parties that possess comparable bargaining power and are able to insure against the risks in the clause. Therefore, the parties have discretion to apportion the risks as they see fit. In the current scenario, the contract is a standard terms of business. The bargaining power is not comparable as CFDL has higher bargaining power. As such, CFDL cannot claim that limiting its liability to the contract price is reasonable as it excludes liability to other damages. Both CFDL and Alan must apportion the risks as they see fit.

An alternative argument could be that a clause limiting the amount of money recoverable will be more likely reasonable than a clause that excludes it altogether. In such cases, UCTA 1977 imposes a test of reasonableness in certain circumstances related to exclusion clauses, which purports to exclude liability. An exclusion clause will be unenforceable if it specifies a sum that is more than a genuine pre-estimate that it would amount to be a penalty. The aim is to avoid depriving benefit to the party claiming damages by allowing him a lower substitute figure. The claimant can pursue a genuine liquidated damage by merely showing a breach of contract, irrespective of any actual loss or not or the extent of the loss. There are some other general principles of reasonableness that have to be read with the matter of fact in each case. There is reasonableness if the contract has been fully negotiated between parties with comparable equal bargaining power. Similarly, if a clause does not leave a customer with a realistic remedy for a serious breach of contract, there is a risk of being unreasonableness. An exclusion or limitation clause may go against the principles laid down in UCTA. It attempts to exclude a type of liability that cannot be excluded, or if it is unreasonable, such clause has not effect. The court looks at the clause as a whole. The concerned exclusion clause of CFDL in the current case limits the breach to the contract price. It does not satisfy the reasonableness test as the liability is lower substitute figure and deprives Alan of any benefit had the breach never occurred. As such, the liability arising from CFDL’s delivery delay cannot be just restricted to the contract price. It must be a genuine liquidated damage compensating the delay, whether he incurred any actual loss or not.

The test of reasonableness has to be read with the principles laid down in Hadley v Baxendale, which allow recovery of damages if they arise from special circumstances. Such circumstances must have been communicated to the carrier at the time of entering the contract. The carrier could have reasonably expected to have foreseen as probable consequences in case of his breach of contract. Therefore, for recovery of damages, the carrier must have been specifically warned of the adverse consequences that may occur to shipper of his failure to deliver on time at or before the contract is made. Accordingly, if the loss does not flow naturally from the breach and if contemplation of the parties at the time of entering the contract was not made as a probable result of the breach, the loss will not be recoverable as it will be too remote. In the current case, CFDL should have informed or warned of the delay when Alan called CFDL with his order. Alan’s loss profit would not have occurred had he had been warned and that he could have reasonably foreseen the probable consequences in case of the delay. Since his loss is caused by the breach of CFDL, he can recover the loss of profit from CFDL.

According to the principle laid down in Robinson v Harman, the court aims to place innocent parties in the position that they would have been in had there was proper performance of the contract. Value and cost of cure are the two tools to assess whether the innocent parties are in that position. Further, the principle of reliance loss has the same aim and aims to indemnity for their out of pocket expenses incurred in reliance on the contract. If Alan cannot recover the loss of profit, he can invoke the principle of value and cost of cure and of reliance and can claim for any out of pocket expenses. He can also claim against CFDL to put him in position that he would have been in had CFDL properly performed its part of the contractual obligations.

Sixth case is between Alan and City Furnitures CFDL regarding five glass display cabinets

The issue in the current scenario is to determine whether the CFDL is liable for breach of duty of care towards Alan while transporting the cabinets to Alan and whether the liability clause in the standard form of contract of CFDL is reasonable to limits its liability lesser than the price of the goods being transferred.

As per the Consumer Rights Act 2015, Section 29(2), “goods remain at the trader’s risk until they come into the physical possession of” the consumer. As such, a party is at fault if he did not abide to reasonable standard of care and caused harm to the other party. There is a duty of care in situations where it could be reasonably foreseen that a person’s act or an omission would likely cause an injury to another person. Therefore, the person breaching such duty is liable for damage where a reasonable person would expect to happen in the given circumstances.

According to the Law Reform (Contributory Negligence) Act 1945, Section 4, fault is a breach of statutory duty, negligence, or an act or omission, which gives rise to tort liability or defence of contributory negligence. A claim will only succeed if the other party negligently acted and breached a duty of care to the party, which caused him loss or damage. For a claim for the breach of duty of care to succeed, the other party must have acted without a standard of care expected from a reasonable person. The “but for test” requires finding a casual link between the breach and the harm caused. Further, the other party has a duty to keep a proper lookout and take reasonable care in the manner and speed of his driving so as to avoid injury to road users. If only the other party did not have any way you where he could not have foreseen the cause of action, the possibility of damage will be held to be too remote.

In the current case, applying the duty of care principle, the driver and employee of CFDL had a duty of care towards the cabinets and they should not have been negligent and should have a proper look out while driving, which they did not. Applying the “but for test”, the cabinets would not have been damaged had not for their negligent act thus establishing a casual link between the breach of duty of care by the driver and employee and the harm caused by them. Further, as per the Consumer Act, since Alan has not taken the physical possession of the cabinets, CFDL still has the risk of the cabinets. Drawing relevance to the principal-agent relationship and based on vicarious liability principle, if the party breaching the duty of care is the agent, the principal will be held liable for the wrongful act of the agent acting on his behalf. In principal-agent relationship, the agent must perform a task which the principal has agreed to perform or must be a duty that the principal has to perform and the principal delegates such task or duty to the agent, who is not an independent contractor or representative. In this case, the driver and the employee are agents of the principal, CFDL, and so CFDL is liable for the wrongful act of its agents.

Principles laid down in Robinson v Harman state that the court aims to place innocent parties in the position that they would have been in had there was proper performance of the contract. There are some other general principles of reasonableness that have to be read with the matter of fact in each case. There is reasonableness if the contract has been fully negotiated between parties with comparable equal bargaining power. Similarly, if a clause does not leave a customer with a realistic remedy for a serious breach of contract, there is a risk of being unreasonableness. UCTA 1977 imposes a test of reasonableness in certain circumstances related to exclusion clauses, which purports to exclude liability. An exclusion clause will be unenforceable if it specifies a sum that is more than a genuine pre-estimate that it would amount to be a penalty. The aim is to avoid depriving benefit to the party claiming damages by allowing him a lower substitute figure. The claimant can pursue a genuine liquidated damage by merely showing a breach of contract, irrespective of any actual loss or not or the extent of the loss.

The CFDL’s clause limiting the damages is unreasonable in this respect. Firstly, as per the UCTA as the liability limit of £2,000 is way less that the price of the goods (£15,000 at 3,000 each). It deprives Alan of benefit by allowing him a lower substitute figure. Secondly, the contract is a standard form of CFDL and Alan has lesser bargaining power. As such, the clause does not give Alan a realistic remedy. Alan can, therefore, pursue a genuine liquidated damage, that is the price of the goods, by merely showing a breach of contract. This will hopefully place him in the position that he would have been in had CFDL properly performed its part of the contract.

Legislation

Cases

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964

Anglia TV v Reed [1972] 1 QB 60

Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.

Currie v Misa (1874) LR 10 Ex 153Pickard Finlason Partnership Ltd v Lock & Anr. [2014] EWHC 25 (TCC).

British & American Telegraph Co. v. Colson, L. R. 6 Exch. io8 (i871).

Derry v Peek [1889] UKHL 1.

Donoghue v Stevenson [1932] UKHL 100

Dunlop Pneumatic Tyre Co Limited v New Garage & MotorCo Limited [1915] A.C 79;

Edgington v Fitzmaurice (1885) 29 Ch D 459.

Financings Ltd v Stimson [1962] 3 All ER 386

Fisher v Bell 1961 1 QB 394.

Habig v McCrae & Ors [2013] QSC 335.

Hadley v Baxendale [1854] EWHC J70.

Holwell Securities Ltd v Hughes[1974] 1 All ER 161.

Henthorn v Fraser [1892] 2 Ch 27.

Hughes v Lord Advocate [1963] UKHL 31.

Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon): HL 24 Apr 1985.

Manchester Diocesan Council of Education v Commercial and General Investments Ltd [1969] 3 All ER 1593.

Museprime Properties v Adhill Properties [1990] 36 EG 114.

Nettleship v Weston [1971] 2 QB 691.

Pickfords Ltd v Celestica Ltd [2003] EWCA Civ 174.

Partridge v Crittenden [1968] 2 All ER 421.

Payne v Cave (1789) 3 TR 148.

Raiffeisen Zentralbank Osterreich AG (RZB) v The Royal Bank of Scotland PLC (RBS) [2010] EWHC 1392,

Regus (UK) Ltd v Epcot Solutions Ltd, [2008] EWCA Civ 36.

Robinson v Harman [1848] 18LJ Ex 202.

Routledge v Grant [1828] 4 Bing 653.

Smith v Land and House Property Corporation (1884) LR 28 Ch D 7.

Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] 1 QB 600.

Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317.

Wyong Shire Council v Shirt [1980] HCA 12.

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