Verbal Contracts

Verbal Contracts

Ahmed placed the following advertisement in his local newspaper, the Manport Argus: FOR SALE 5 metre recreational vehicle. Superb condition Sleeps five. Many extras included. £35,000 or near offer. Tel. 0664 99795 Stuart telephoned Ahmed and told him that he was very interested in the RV. Ahmed invited Stuart to visit his house on Monday 6 September to inspect the vehicle. After inspecting it, Stuart offered Ahmed £25,000. Ahmed replied that he felt unable to take less than £30,000. Stuart asked for time to think the matter over.

Ahmed agreed not to sell the RV before Thursday 9 September. Stuart went home and wrote a letter to Ahmed saying: "I am prepared to pay you £30,000 for the RV. I assume all the crockery and kitchen utensils are included." Stuart posted the letter on the morning of Wednesday 8 September.

He used the correct address but omitted the post code and the letter was inadvertently sent to Manport (another town with the same name) in Scotland. It did not finally arrive until Friday 17 September. Meanwhile, on Thursday 9 September in the afternoon Stuart happened to see the RV being driven by Michelle, a dealer in second-hand RVs. Afraid that he had missed the chance to purchase the vehicle Stuart rushed home and telephoned Ahmed.

He left a message on Ahmed's answering machine saying that he accepted Ahmed's offer to sell the RV for £35,000 and he did not mind if the kitchen utensils were included or not. Ahmed did not hear the message until the following day.

Stuart has since discovered that Ahmed did indeed sell the RV to Michelle on Thursday morning.

Advise Stuart

For a valid contract to exist between two or more parties it must be shown that there has been and offer and that that offer has been accepted. In addition there must be an intention from both parties to create legal relations and consideration.  We will assume the intention to create legal relations as it is obvious here.  The consideration for the parties will be the recreational vehicle on Ahmed’s behalf and the money on Stuart’s behalf.  Offer and Acceptance are a little harder to prove and there are some difficulties in this scenario.

Ahmed’s advertisement in the local newspaper to sell his five metre recreational vehicle for £35,000 cannot be construed as being an offer. An offer is a statement of willingness to be bound by the terms of the offer.  Therefore Ahmed must be willing to contract on the terms contained within his advertisement, therefore as he does stipulate that the sale is £35,000  or nearest offer, it is suggests that he is inviting persons to make an offer therefore it will be deemed an invitation to treat. The advertisement would appear to be simply an attempt to open negotiations. This can not be construed as an offer as an offer must be certain in its terms, and this is not as Ahmed says that “many extras are included”, and this is fairly uncertain coupled with the effect that by saying “or nearest offer”, Ahmed is inviting offers.

In any event if this was deemed an offer, Stuart has made an offer of £25,000 which operates in the same way as rejection of the first offer and will destroy the original offer made by Ahmed to Stuart to sell the recreational vehicle for £35,000, furthermore this is a new offer and will require acceptance in order to form a contract. 

Ahmed makes a statement suggesting that he will accept no less than £30,000 it is arguable that this is not in fact an offer as an offer must be certain.  The parties must know in advance what they are contracting over, so any vague words may invalidate the agreement.  The term no less than £30,000 is not a certain term and indicates an offer from anything from £30,000 – infinity.  We will, however assume that this is a valid offer in order to consider the other issues.

Stuart’s letter is sent accepting Ahmed’s offer (if indeed it is deemed to be a valid offer) of £30, 000 on Wednesday 9th and the general rule will be that he can proceed on the basis that the contract is concluded as soon as the letter is posted.  Therefore on this rationale Stuart has validly accepted Ahmed’s offer and a contract exists between the two of them.  This means that Ahmed is bound to a contract without being aware that this has happened.  However this rule will only apply where it is reasonable for the acceptance to be sent by post. 

Therefore it could be argued by Ahmed that it was not reasonable to accept the offer by post as his telephone number was placed in the advertisement, indicating that was how an acceptance should be made, although if Ahmed wanted acceptance only to be by telephone or in person he should have indicated this in his advertisement.  Although:

“where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted”

If it is concluded that the postal acceptance was a valid method of accepting the offer there may still be an issue as to whether or not the fact that no postcode was put on the envelope effects the validity of this acceptance.  It has been held that an acceptance that was entirely lost in the post, and never arrived at its destination, was still effective to create a contract.  The difference with this case and the present case is that the loss of the letter in the former case was not any fault of the offeror where as in the present case the reason for the letter not reaching its destination in time is the fault of Stuart that is assuming that the post code was contained within the advertisement.

The terms of the letter are slightly different from the terms made in the offer of £30,000 in so far as they say that he assumes that all cutlery is included, it can therefore be argued that this is in fact a new offer as it is an offer of £30,000 for recreational vehicle and cutlery.  Whilst the original offer of £35,000 included many extras, the second “offer” of £30,000 to not explicitly include anything other than the recreational van.  Therefore the first question that must be dealt with is whether this letter is an acceptance or an offer.   Where an acceptance of an offer does not exactly mirror the offer, the courts are prepared to consider that a valid contract exists where the terms are very close and in fact almost identical as it is argued here.

In relation to the message that Stuart left on the answer machine, the first issue here would be whether or not the statement that Ahmed was not prepared to accept any less than £30,000 was in fact a new offer which has negated the effect of the first offer of £25,000, if it is then there can be no acceptance as this is a different contract on different terms and therefore by calling and saying that he his prepared to pay £35,000 Stuart is making a new offer, which Ahmed can accept or reject.  In any event the effect of the counter offer of £25,000 was to destroy the original offer of £35,000, therefore making Stuart’s “acceptance of” £35,000 in fact not acceptance but a new offer.  Whether or not this will be the case will depend very much on what the reasonable man receiving the letter would have taken it to mean.  Therefore on this basis one would assume that this is valid acceptance and that Stuart has made a contract with Ahmed.  However next it should be considered whether or not the delay in the letter being received has an effect on the existence of a contract.

If however the statement not to accept less than £30,000 was not a new offer then it may be that Stuart has validly accepted the original offer.  To determine whether or not the answer machine message was valid acceptance will depend on whether it is deemed as being received on 9th September when the message was left or acceptance took place on the 10th when Ahmed listened to his messages.  The general rule is that acceptance by electronic communication will take place where it is received, rather than where it is sent. Therefore the acceptance has taken place at Ahmed’s house; however of importance here is when it can be deemed to be accepted. It has been held that acceptance will be effective when it is “received” even if it is not actually heard until the next day. Most of the case law in this area however deals with commercial entities and this rule applies in the main to office opening hours. All it should be noted that:

“No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie”

It is more likely here that Ahmed expected that acceptance should be by telephone as the advertisement for the sale of the recreational vehicle included a telephone number therefore, providing that the statement not to accept less than £30,000 was not a counter-offer, Stuart has accept the offer validly.  This of course means that there is a contract and that by selling the Recreational vehicle to Michelle that Ahmed is in breach of his contract to Stuart.  However Ahmed has agreed that he would not sell the vehicle before the 9th September 2004, therefore one would assume that this does not include the 9th and if Ahmed sold the vehicle to Michelle on the 9th he would not be in breach and would indeed be fully entitled to sell the vehicle to Michelle.  One of the ways in which an offer can end is because the time set for acceptance has passed as would be the case here if the letter was not deemed to be accepted, as the answer machine was made past the time for acceptance.

If there did exist a valid contract it has now been breached and Stuart will have a claim for breach of contract and may seek a remedy.  Damages will always be available for breach of contract.  The contract can be repudiated if it can be shown, as there has been here, that a breach of a condition has occurred if this is not done then the repudiation will be a breach. If Stuart proves that a contract was in place and that it has been breached he may be inclined to appeal to the court for the equitable remedy of specific performance. 

Three things must be noted in relation to this equitable remedy.  The first is that it will be at the discretion of the court and will not be granted as of right.  Secondly, it will be granted subject to (i) the general maxims of equity and (ii) individual requirements. Thirdly, it will be in relation to the individual problem suffered by the injured parties.

Specific performance is a straightforward order of the court for the party in breach of the contract to carry out his obligations.  It will only be granted if Stuart can show that the subject matter of the contract is unique and could not be replaced; if it is impossible to accurately assess damages and therefore damages will be an inadequate remedy and that he is left without an adequate remedy.  On this basis it is unlikely that Stuart would be awarded such a remedy and he will therefore only recover damages.  The intention of such damages will be to “put the victim of the breach, so far as possible and so far as the law allows, into the position he would have been if the contract had not been broken.”  Stuart will be entitled to nominal damages even if he is unable to prove any actual loss.  In order to recover damages for actual loss he will have to show that there is a casual link between Ahmed’s breach. 

In summary:  

  • The advertisement placed by Ahmed was an invitation to treat.

  • Stuart offering £25,000 was an offer to purchase the vehicle, available for Ahmed to accept

  • This offer was rejected by the counter offer made by Ahmed that he would not accept less than £30,000, arguably this is not an offer, however we will assume that it is.

  • This offer was accepted by post by Stuart, however he failed to put the postcode on the envelope.  Under normal rules this would be deemed to be acceptance – there are however two concerns (1) the reason that it did not arrive at its destination was the fault of the acceptor (2) The advertisement originally placed included a phone number, suggesting that this was the way to communicate.

  • The offer that was made by letter was not a “mirror image” of the offer made by Ahmed, which it can be argued was uncertain in its terms

  • However if the court may deem this to be valid acceptance – and therefore a breach of contract has occurred in so far as the vehicle has been sold to Michelle.

  • The message left on the answer machine was made after the time for acceptance and furthermore this was a fresh offer for £35,000 and it was for Ahmed to accept.

  • The only way in which a contract may have been created will be by the acceptance sent by post.  It is unlikely that the court will consider that this is the case.

  • Stuart will have a claim for damages. 

Bibliography

Cases

  • Adams v Lindsell (1818) 1 B & Ald 681
  • Behenke v Bede Shipping Co Ltd [1927] 1 KB649
  • Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34
  • Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
  • Entores v Miles Far East Corporation [1955] 2 QB 327
  • Falcke v Gray (1859) 4 Drew 65; 62 ER 250
  • Gibson v Manchester City Council [1979] 1 ALL ER 972
  • Harris v Nickerson (1873) LR 8 QB 286;
  • Henthorn v Fraser [1892] 2 Ch 27
  • Holwell Securities Ltd v Hughes [1974] 1 ALL ER 161
  • Household Fire and Carriage Accident Insurance Co v Grant (1870) 4 Ex D 216
  • Hyde v Wrench (1840) 3 Beav 34
  • Lefkowitz v Great Minneapolis Surplus Stores (1957) 86 NW 2d 689;
  • Pars Technology Limited v City Link Transport Holdings Ltd [1999] EWCA Civ 1822
  • Partridge v Crittenden [1968] 2 ALL ER 421
  • Robinson v Harman (1848)1 Exch 850
  • The Brimnes [1975] QB 929

Legislation

  • Directive on Electronic Commerce (Directive 2000/31/EC)

Books

  • Beatson J, (2002), “Anson’s Law of Contract”, Twenty Eighth Edition, Oxford University Press
  • McKendrick E, (2003), “Contract Law”, Fifth Edition, Palgrave McMilliam
  • McKendrick E, (2003), Contract – Text and Materials, Oxford University Press
  • Stone R, (2002), “The Law Of Contract”, Fifth Edition, Cavendish Publishing

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