Contractual relations between parties give rise to certain rights and duties that are governed by the law of contract. These contractual relations are created in the first place when certain prerequisite elements of the contract are met by the parties. Once these elements are present, a contract is formed and leads to creation of enforceable legal rights and obligations for the parties concerned. The law of contract is essential in the contemporary society and governs both day to day transactions, that create contractual rights and liabilities, as well as complex business situations. The development of information technology and diverse forms of communication, are also relevant in contemporary times, as offer and acceptance by the parties can be communicated through voice mail, email, etc. This sometimes leads to complex situations where the exact time and mode of communication becomes central to deciding whether contract is formed and what rights and liabilities of the parties can be enforced by law. This essay also covers some of these complex issues as they arise in the given scenario. In this given scenario, there are four parties, who claim the application of some contract law principle to their situation. The subject matter is a classic Ford Capri car, which belongs to Conrad. Out of the other three parties, that is, Kurt, Susan and car dealership, the first two have shown interest in or made offers to buy the car; and the latter has been made an offer to by Conrad, which he has accepted. Now, the question arises, as to with whom does Conrad have a legally binding contract to sell the car to. Applying the principles of contract, as are seen in the common law and court judgements, the essay considers the scenario with the purpose of understanding the rights and liabilities of the parties. To that end, the essay first discusses the principles of law of contract, that have a bearing in this situation. Here the elements of contract, concept of invitation to treat, modes of acceptance and related concepts, are analysed. The section following this, uses the analysis for understanding the rights and liabilities of the parties in the given scenario.
In order for there to be a contract, there are certain elements of the contract, which must be satisfied. These elements are: offer, acceptance, consideration, capacity of parties, consensus ad idem, and the parties must intend that they will be bound by the agreement. When these elements are present, a legally binding contract is created. The creation of the contract leads to legally enforceable rights.
An offer is made by one party to another, with the willingness of making a legally binding agreement on specified terms. It is imperative that the offer is effectively and properly communicated to the other party. An offer may be made to one specific individual or to the world in general. 1 As such, an offer can be said to be the first condition of a valid contract, as it is from here that the matter proceeds. There are two important features of an offer: (i) it indicates the offeror’s intent to be bound by the acceptance once the offeree also takes the requisite steps (usually, the first step is to communicate an acceptance); and (ii) an offeror makes a promise to do something for the offeree and also specifies what the offeree must do in return. Once made to the offeree, offer must be accepted unconditionally and unequivocally, that is, the offeree must accept the offer as it is and not make a counter offer. 2 If the offeree also makes an offer in return, it is deemed that he has rejected the offer and not made an acceptance. Thus, in a unilateral contract, an offer is open to the world and the offeror becomes liable to anyone who performs the given condition. 3 In a unilateral contract, one party promises something to anyone who will perform the required action under the offer. It is implied that the offeror in under an obligation to not do anything to prevent the condition from being satisfied. 4
Once the offer is made by the offeror, it is up to the offeree to signify his assent to the offer. Before the acceptance is given by the offeree, the offeror may revoke the offer, but not after. Once acceptance is communicated by the offeree, the contact becomes a binding agreement, creating legal rights and obligations for both parties. When the party to whom an offer is made, gives his assent unconditionally with respect to the terms in the offer, this is an acceptance. 5 Acceptance should be properly, effectively and clearly communicated to the offeror in order to be valid. The time period within which acceptance is communicated is also at times critical to the contract’s formation. When an offer is made by the offeror, the offeree must communicate his acceptance within the time prescribed for making such an acceptance. Where no such time is prescribed, a lapse of reasonable time will lead to termination of the offer. 6 Therefore, in such situations, the offeree must communicate acceptance within a reasonable period of time. Acceptance must be effectively communicated so that the offeror knows when such an acceptance is made. As a rule, acceptance must be communicated to the offeror, in order for the the latter to be bound by a contract. 7 In unilateral contracts and cases where the Postal rule
will apply, the above mentioned general rule will not apply. In the former, no such communication is required to signify acceptance. 8 The ‘Postal rule’ is applied to situations where the acceptance is sent by post. The Postal rule is applied where acceptance is signified by a letter. The letter must be properly stamped, addressed and placed in the post box. Such a communication is seen to be effective. 9 However, it is important to bear in mind that the Postal rule only applies to acceptance by post. Therefore acceptance through fax, e-mail or any other such means of communication, does not come within the realm of the Postal rule. In the case of email acceptance, in Thomas v BPE Solicitors, 10 the court held that email acceptance has to be seen by the offeror in order to be bound by it. The Postal rule only applies to acceptance and not to offers or revocation. The Postal rule provides that the offeror is bound to the contract as soon as the offeree posts it. 11 Generally speaking, if the offeror wants to ensure that the postal rule should not apply in the case, then he should explicitly say so in the offer itself. 12 This was held by the court in Holwell Securities Ltd v Hughes. 13 In this case, the court also decided that where the mode of communication of acceptance has been specified by the offeror, then that mode of communication must be followed. However, where no mode is specified then the offeree may signify his acceptance by any mode of communication within reasonable period of time.
Consideration refers to the promise by each party to do something of benefit to the other party. This consideration is quid pro quo and it is essential to the contract. It is an act or promise given in exchange for a reciprocating act or promise. Consideration must be sufficient although it may not be adequate. 14 Consideration can establish the intention of the parties to create legally binding relations. 15 Both the parties must have consensus on the contract, that is, they should have the same idea with respect to the terms of the contract. 16 There has to be an intention to as between the parties that they will be legally bound by the terms of the contract, because that is the basis of legal liability in the contract. In Storer v Manchester City Council, 17 it was held that in order to establish the intent, it is not necessary to look into a person’s mind and that the words and actions of the parties can be used for implying or expressing the intention to contract. Capacity of the parties is seen from the perspective of the age and mental condition of the parties. The contract needs to be made by persons who have the capacity to contract. Thus, a person should be of an age of majority and of sane mind in order to give his consent to a contract. In the case of minors, contracts are binding with respect to the other party, although the minor will not be bound by it. 18 The rationale is that parties entering into the contract must have sufficient maturity and understanding to enter into legally binding relations. Of particular importance is the requirement of intention, as that is relevant to the issue of offer also. Where a person makes an offer with an intention that acceptance to the offer will bind him to a legal contract, then that offer is proper and effective from the perspective of requirements of a valid contract. The intention of the offeror can be ascertained from his words or actions, if not clearly expressed.
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd, 19 is the landmark case in which it was held that advertisement of goods for sale are not offers. These are invitations to offer. A similar reasoning was taken in Fisher v Bell, 20 in which case, Lord Parker had stated that the display of an article with a price on it in a shop window is merely an invitation to treat and that “It is in no sense and offer of sale, that acceptance of which constitutes a contract”. 21 Now, it is considered a well-established standard of law that when a person advertises his products or services, he is not making an offer. 22 This rule applies to all kinds of advertisements.
In this section, the essay will use the analysis of principles of law discussed above and apply it to the relations between the parties concerned in the scenario, in order to understand, which, if any, of their rights and liabilities under the law of contract are applicable.
Kurt had sent an email to Conrad inquiring about his Classic Ford Capri car. Here the email is an enquiry. It cannot be said that Kurt made an offer to buy the Ford Capri. Conrad replied to Kurt’s email, stating that if he decided to sell, he would ask for £4000 for it. This is an invitation to offer made by Conrad to Kurt. 23 Kurt reciprocated with an email saying that he would like to buy the car and that he would collect it on Monday. However, Conrad’s daughter accidentally deleted the email before Conrad had the chance to read it. When Kurt showed up on Monday evening to take possession of the car by paying for it, Conrad refused to hand the car over because there is no contract between them. The question therefore arises if there was a contract of sale between Kurt and Conrad. As discussed in the analysis section above, for there to be a contract, there must be an offer, acceptance, consideration and consensus ad idem between the parties. In this case, Conrad’s email reply to Kurt is an invitation to treat, the reply to which was the email sent by Kurt, which accidentally was deleted by Conrad’s daughter. The reply by Conrad was therefore, an offer made to Conrad, even if Kurt had worded it to seem like an acceptance. Conrad did not make an offer to Kurt, as is also clear from the use of the word ‘if’ in the email, as in, “if” Conrad decided to sell the car, he may ask for £4000 for it. Clearly, there is no intention here on the part of Conrad to create a legally binding relationship with Kurt. Macmillan and Stone have defined the term offer as “an expression of willingness to contract on certain terms.” 24 This implies that an offer, in order to become a ‘valid offer,’ should be clearly made with the intention that it will come to be binding upon acceptance. Since, no such intention is seen in Conrad’s communication with Kurt, there was no offer, and there could be no acceptance from Kurt. The deleted email from Kurt was an offer and not an acceptance. Therefore, there is no contract between Kurt and Conrad. Conrad rightfully refused to hand over the car to Kurt.
Conrad had taken the Ford Capri to a classic car dealer and offered to sell the car to the dealership for £4000. The car dealer did not immediately accept the offer and said he would consider the offer and contact Conrad if he decided to accept. Conrad received a letter from the car dealer on Tuesday morning, posted on Monday morning saying that he wished to purchase the car. The question arises: Is there a contract of sale between Conrad and the car dealership? Conrad has made a clear offer to the car dealer. The car dealer has signified his assent to the offer through a letter posted by mail, the very next day. First of all, the communication of acceptance by the car dealer has been made within a reasonable period of time from the date of the offer. Secondly, as no mode of communication of acceptance was prescribed by Conrad, the car dealer is well within his rights to communicate the acceptance through postal mail. 25 According to the postal rule, acceptance when posted by the offeree, will bind the offeror, whether he knew of the acceptance or not at that point in time. The acceptance is unconditional and to the terms offered by Conrad. Therefore, both the offer and acceptance are properly and effectively communicated, thereby creating a binding legal relation between Conrad and the car dealer.
Susan has responded to an advertisement posted by Conrad to sell the car for £4,500. This advertisement by Conrad is not an offer. As per the established principles of law, it is an invitation to treat. There is no indication in the advertisement that the first person to respond to it will get the car, nor is there any other indication of the advertisement being a unilateral offer, such as for example, the person who deposits £4,500 in Conrad’s account will get the car. 26 Therefore, this is an invitation to offer. When Susan calls Conrad with a message that she would like to buy the car, she is making an offer to Conrad. Conrad has not accepted the offer. He has merely received it. In the meantime, the car dealer’s communication of acceptance is received by Conrad. As Conrad has not communicated an acceptance to Susan’s offer, there is no contract between them. Therefore, Conrad is right in calling Susan and informing her that the car has already been sold to someone else.
Contractual relations are the result of the parties’ agreement. The formation of contract and the resultant legally enforceable rights and duties under the contract, are based on well established concepts of common law. These legal principles help ascertain answers to important questions relating to offer, acceptance, communication of offer and acceptance, invitation to treat, etc. These answers are important because they help establish rights and liabilities of parties under the law of contract. In the given scenario that is considered in this essay, Conrad has established legal relations only with the car dealer. Therefore, there is only one legally enforceable contract in this case and that is between Conrad and the car dealer. All the elements of contract formation are seen in the relations established between Conrad and the car dealer. Conrad made an offer to the car dealer, which the car dealer accepted by post within a reasonable period of time. In this period, Conrad did not revoke the contract, nor did he make a contract with either Kurt or Susan. In Kurt’s case, the last communication from Kurt was an email, which contained an offer, although Kurt has worded it to seem like an acceptance. Since Conrad never made an offer to Kurt, there could not have been an acceptance from Kurt’s side. The fact that Kurt emailed an offer to Conrad, which was deleted by mistake, is irrelevant, since Conrad did not make an offer in the first place. Therefore, there is no contract between Kurt and Conrad. Similarly, Susan responded to an advertisement made by Conrad. The advertisement was an invitation to offer. Was Susan left a message on Conrad’s phone, this was an offer. Conrad did not convey any acceptance for the offer. Therefore, there was no contract between Conrad and Susan.
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