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COMPARATIVE CONTRACT LAW

THE LAW OF CONTRACT(CONTINUED)

COMPARATIVE LAW

LLM

KILAW

FALL 2013

DR MYRA WILLIAMSON

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WHAT HAPPENS AFTER THE OFFER HAS BEEN MADE?

Until an offer is accepted, it creates no legal rights and it may be terminated

Termination of an offer may happen in a number of ways:

A) The death of the offeror or the offeree before acceptance has occurred

B) By non-acceptance with the time specified, or within a reasonable time

C) When it is revoked before acceptance

D) When its rejected by the offeree

(NOTE: A) and B) are sometimes called “lapse”)

• “Offeror” means the party that makes the offer

• “Offeree” means the party that receives the offer

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A) LAPSE OF THE OFFER BY DEATH

General rules:

If the offeree dies, it is clear: the offer can no longer be accepted (and the estate of the offeree cannot accept it on his behalf)

If the offeror dies, it is a bit unclear:

• An offeree can’t accept after being informed of the death of the offeror

• If the offeree doesn’t know…there are cases going both ways• On one view, the offer is terminated automatically, whilst on the

other view, the offeree should still be able to accept the offer. This is an area of law that is still not settled.

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B) LAPSE OF THE OFFER BY NON-ACCEPTANCEThe Rule: An offer may lapse if it is not accepted within the time stipulated OR within a “reasonable” time.

Courts will decide what is a “reasonable” time

The time may depend on the type of contract

When an offer is made by one particular means, the means of acceptance should, prima facie, be by the same means

Authority: Ramsgate Victoria Hotel v Montefiore (1866)

Facts:

• M offered, by letter on 8 June, to purchase shares in a company• No answer was received until 23 November• M then refused the shares

Held: M’s offer to buy the shares lapsed through unreasonable delay by Ramsgate in accepting

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C) REVOCATION OF AN OFFERThe offeror may decide to revoke the offer – they can do that at any time before acceptance

But note that the revocation of an offer is of no effect until it is brought to the notice of the offeree

Authority: Byrne v Van Tienhoven (1880)

The facts:

1 October - V offered goods for sale to B: offer made by letter

11 October – B received the letter and accepted by telegraph immediately

8 October – V wrote to B revoking the offer

20 October – B received the letter of revocation

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BYRNE V VAN TIENHOVEN (1880)

Held:

B had accepted the offer on 11 October

To be effective, revocation must be communicated to the offeree before the offeree has accepted

The fact that the letter of 8 October had been posted and was on its way to B was immaterial (i.e. it didn’t matter).

This case is authority for the proposition that in order for a revocation of an offer to be effective, it must be communicated to the offeree before the offeree has accepted

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C) REVOCATION CONTINUED…

•Notice of revocation could come from a reliable source instead of directly from the offeror (this is sometimes called indirect revocation)

•Authority:

Dickinson v Dodds (1876)

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D) REJECTION OF AN OFFER

Rejection of an offer can take two forms:

i. Where the offeree communicates his rejection to the offeror; and

ii. Where the offeree makes a counter offer

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REJECTION CONTINUED…

Hyde v Wrench (1840)

The facts:

W offered to sell a farm to H for £1,000

H replied that he would pay £950.

W refused to accept the lower amount.

H then said he would pay the original amount of £1,000.

Then W changed his mind – refused to sell the farm to H

H went to court to force W to sell him the farm (he sought an order for specific performance which means he wanted an a court order to force W to sell the farm to him)

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REJECTION CONT’D…Held:

• There was no contract between Hyde and Wrench

• Why not? Because when H offered the sum of 950, that was a counter-offer

• The counter-offer was a rejection of the original offer

• This case is authority for the proposition that a counter-offer rejects the original offer

SUMMARY

Now we have completed summarising the law around the first element of a contract: the offer

We have looked at what an offer is, what it is not and how it can be terminated (4 ways).

Now we will look at the second important element to prove that a contract exists: acceptance

If either element (offer or acceptance) are missing, then there is no contract

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ACCEPTANCE:GENERAL RULES

What is “acceptance”?

Definition: “Acceptance” is the expression, orally, in writing or by conduct, of assent to the terms of the offer in the manner prescribed by the offeror

The offer and the acceptance must correspond: there must be no room for doubt as to the fact of acceptance

The “mirror image” rule: the acceptance must be absolute and must correspond exactly with the terms of the offer

In other words, to be effective, the acceptance must be without qualification

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COMMUNICATING ACCEPTANCE

1. Mental acceptance

2. Particular method of acceptance

• “Mental acceptance” means accepting an offer in one’s mind but not communicating it to the offeror

Generally, this is not sufficient

Authority: Felthouse v Bindley (1862)

• “Particular method of acceptance” means that if a particular method is required, then acceptance must be by that method

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FELTHOUSE V BINDLEY (1862)

The facts:

Felthouse (the offeror) made an offer to his nephew: Felthouse offered by letter to buy his nephew’s horse

F wrote: “If I hear no more about him, I shall consider the horse mine at £30. 15s.”

The nephew did not reply

But the nephew asked Bindley (the auctioneer) to keep the horse out of the sale of his farm stock

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FELTHOUSE V BINDLEY (1862)…The facts continued…

Bindley accidentally sold the horse

Felthouse sued Bindley for conversion of his property

F believed that a contract had been made between him and his nephew for the horse because he had heard nothing after making the offer

Held: there was no contract because the nephew had merely mentally accepted the offer

The nephew should have communicated his acceptance to the offeror (Felthouse)

Since the acceptance had not been communicated, there was no contract (F lost the case)

This case is authority for the proposition that if an offer is made directly to a person, that person cannot simply mentally accept the offer and assume there is a contract

The “mental acceptance” must be communicated to the offeror to count

Mental acceptance by itself is insufficient

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2. PARTICULAR METHODS OF ACCEPTANCE

General Rule: if the offeror prescribes a particular method of acceptance, then the method of acceptance should normally be followed

• e.g.. If the offeror requests acceptance by telegram, then acceptance by letter would be insufficient

But where acceptance consists of performance of an act, this will be sufficient in itself (since the offeror does not contemplate acceptance orally or by letter)

• Authority: Carlill v Carbolic Smoke Ball Co

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OTHER RULES OF ACCEPTANCE

Acceptance must be unqualified: acceptance must be absolute and conform exactly with the terms of the offer

Authority: Neale v Merret (1930):

• M offered to sell land to N for £280.• N replied: enclosed £80, promised to pay the balance by

monthly installments of £50 each• Held: N could not enforce acceptance; there was no contract

because the acceptance was qualified (by the payment terms)

Remember the rule: acceptance must mirror the offer (“mirror image” rule)

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RULES REGARDING MODES OF ACCEPTANCE

A distinction is drawn between instantaneous and non-instantaneous methods of communication

Instantaneous: telephone, email, fax,

Non-instantaneous: telegram, post

Terminology: what does instantaneous mean? It means ‘happening immediately’ or ‘on the spot’

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RULES REGARDING ACCEPTANCE

A different rule applies to each:

A. For non-instantaneous methods, such as acceptance by post, the rule is that acceptance takes effect as soon as the letter is posted

B. For instantaneous methods the rule is that an offer has no effect until it reaches the offeror

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A. NON-INSTANTANEOUS METHODS (E.G.. BY POST)

Acceptance by post, telegram

The postal acceptance rule: was laid down by the court in the famous case of Adams v Lindsell (1818)

The postal acceptance rule is one of the most famous principles of contract law in the common law – but it’s a kind of odd rule. Let’s look at the case that established this rule.

The facts:

On 2 September, L wrote to A offering to sell A wool at a certain price & requesting an answer by post

The letter to A went astray and didn’t reach A until 5 September

On the same day, A accepted and posted the letter

Letter of acceptance didn’t reach L until 9th Sept

On the 8th Sept, L sold the wool to someone else

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ADAMS V LINDSELL (1818) CONT’D…

A sued L for breach of contract

L argued in court that there was no contract until the acceptance had reached him

Held: the offer was accepted on the day it was posted

The offeror was bound from the time the letter was posted

This decision has been criticized – it’s a famous decision and much discussed over the years

The rule was probably made for commercial convenience but it has been subject to criticism

B. INSTANTANEOUS METHODS(E.G.. BY TELEPHONE)

The case law shows that the acceptance rule is different when the method of communicating the acceptance is via an ‘instantaneous’ communication (i.e. telephone)

The “postal rule” does NOT apply to instantaneous methods of communication

Here, the contract is complete only when the acceptance is received by the offeror

For example, if acceptance is occurring orally over the telephone and the line goes dead during the communication, there is no contract

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ENTORES LTD V MILES FAR EAST CORPORATION (1955)This is a landmark English case about the moment of acceptance via telex

The Facts:

Entores was a London-based trading company

It sent an offer by telex for the purchase of copper cathodes

Offer was made to a company based in Amsterdam called “Miles Far East Corp”

The Dutch company sent an acceptance by telex.

Later, defendants breached the contract

Entores wanted to sue the Dutch company for damages

Entores (plaintiff) wanted to show that the contract was made in London where the acceptance took place

Why? So legal action could take place in an English court

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PAUSE…WHAT IS A TELEX?

Definition: a character printer connected to a telegraph that operates like a typewriter

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ENTORES LTD V MILES FAR EAST CORPORATION (1955)Held:

Denning LJ held that the contract had been made in London since the acceptance was not complete until actually received by the offeror (plaintiff)

This decision was upheld by the House of Lords in Brinkbon Ltd v Stahag v Stahl (1982)

Entores was an important judgment

Denning LJ held that the postal rule cannot apply to instantaneous communications

Extract: When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex. Communications by these means are virtually instantaneous and stand on a different footing

SUMMARY OF ACCEPTANCE RULES

1. Mental acceptance, by itself is not enough

2. Particular method of acceptance – if specified it must be followed

3. Acceptance must be unqualified

4. Acceptance by post:

• The postal rule: Acceptance has effect from the moment it is posted (even if it never reaches its destination)

5. Acceptance by instantaneous means:

• The postal rule doesn’t apply: Acceptance has effect from when it is received by the offeror

QUESTION: WHAT ABOUT EMAILS?

What rule should apply to emails?

Are they more like telephone calls (instantaneous) or normal post (non-instantaneous)?

See article “The Postal Rule in a Digital Age”

This article will be the reading for this week. Once you have read the article, please read my post and comment on the article. Please consider whether there is a rule in Kuwait covering acceptance - does it matter how acceptance occurs?