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2.2.3 Acceptance Lecture - Hands on Example

The following scenarios will test your knowledge and understanding of the various principles that have been outlined above.  Some are purposely complex, so that you can become more familiar with the process of breaking difficult scenarios into distinct events, which can then be assessed both individually and collectively.  The answers at the end will enable you to compare your approach and conclusions to determine where you may need to refer back to the principles outlined above.  The scenarios may appear confusing at first, but do not be discouraged, apply the guidance you were given on breaking down scenarios into manageable sections and you will be surprised at how simple the scenario actually is!

SCENARIO 1

Anna has recently encountered financial problems and realises that she cannot pay the next instalment on her mortgage.  In a bid to gather funds, she decides to sell her large collection of rare bone china plates.  She places an advertisement on the internet, offering to sell all 50 of them for £5000.  China Ltd is a company that deals in rare crockery, and emails Anna, asking whether the plates are in good condition.  Anna responds, stating “They are in good condition, I will remove the advertisement and you can pay by Paypal if you prefer”.  The next day, China Ltd informs Anna that it is ready to send the £5000 via Paypal, but adds that the plates must be in their original boxes, and accompanied by their display brackets, else it will only pay £4000.  Anna informs China Ltd that she does not have the original boxes or the brackets and states that she has found another buyer.  China Ltd states that it accepts her original offer of £5000 but Anna has already agreed to sell the plates to another buyer. 

Advise Anna.

SCENARIO 2

Peter writes a letter to Bob, offering to sell him 50 shares in Greko Ltd.  In his letter, which arrives at Bob’s address on Tuesday, Peter asks that Bob let him know by next Sunday whether he accepts his offer.  Bob posts a reply letter stating his acceptance of peter’s offer on Thursday.  However, Bob hears of a more lucrative deal from another friend and changes his mind about the shares in Greko Ltd.  On Friday evening he telephones Peter to reject his offer.  Peter was absent but Bob left a message on his answering machine stating that he withdraws his acceptance of the offer.  On Monday morning, Peter opens Bob’s letter of acceptance, then checks his answerphone messages and hears Bob’s withdrawal message.

Advise Peter.

Scenario 1 Answer

This scenario focuses on the issue of request for information and counter offers.  Begin by breaking the scenario down into specific events:

1. Anna offers 50 plates for £5000.

2. China Ltd asks if the plates are in good condition.

3. Anna confirms good condition.

4. China Ltd adds that plates must be in original boxes and with brackets, otherwise offers £4000.

5. Anna tells China Ltd that she does not have the boxes or the brackets, finds another buyer.

6. China Ltd accepts original offer of £5000.

7. Anna sells plates to another buyer.

Each event can then be labelled according to whether it is acceptance, a counter offer or a request for information:

1. Anna’s original offer.

2. China Ltd’s request for information.

3. Anna’s response to request for information.

4. China Ltd’s counter offer.

5. Anna’s rejection of counter offer.

6. China Ltd’s acceptance of original offer.

We can now observe the events more clearly and determine that a contractual agreement has not been formed between Anna and China Ltd.  It is important to address the point at which the agreement cannot be formed.  The request for information does not affect the agreement – it is merely a query regarding the condition of the plates and not the addition of any major terms into the agreement (Stevenson Jaques & Co. v McLean (1880) 5 QBD 346 ).  However, when China Ltd adds the term that the plates must be in their original boxes and with brackets, otherwise it will only pay £4000, this is clearly a counter offer.  China Ltd is changing the terms of the agreement.  Refer to Hyde v Wrench [1840] 3 Beav 334.  Anna is then free to accept or reject China Ltd’s counter offer, which she rejects.  China Ltd’s counter offer also represents a rejection of Anna’s original offer, so its acceptance of her original offer following her rejection of its counter offer is not valid.  There is therefore no contract and Anna is not in breach of any contract with China Ltd. 

Scenario 2 Answer

This scenario concerns communication, the postal rule and expiration of offer.

Bob will argue that he is not required to purchase the shares because there is no contract.  Break down the scenario:

1. P offers B shares via letter, states that offer is open until Sunday.

2. B posts acceptance letter Thursday.

3. B phones P on Friday to withdraw acceptance. Leaves answerphone message.

4. P opens B’s acceptance letter on Monday, then hears answerphone message.

The main question is whether B’s letter of acceptance or phone call withdrawing acceptance has been effectively communicated. 

Note firstly that P is not obliged to keep the offer open until Sunday – he can withdraw it, provided he communicates this to B – Offord v Davies.

B posted his letter of acceptance – does the postal rule apply?  Consider Adams v Lindsell – acceptance is binding once it is posted.  You should recognise also that P commenced negotiations via post, meaning that post is a reasonable method of communication – Henthorn v Fraser.  It does not matter that the letter arrived on Monday (remember that the offer expired on Sunday): when B posted the letter of acceptance on Thursday, a contract was formed.

However, P asked B to ‘let him know by Sunday’, which suggests that P excluded the postal rule in stating that acceptance must be actually received - Household Fire insurance v Grant, Bramwell LJ’s statement that offeror can exclude postal rule by requiring that communication be received.  Also consider Holwell Securities v Hughes. Address the fact also that since Holwell, the courts have proven reluctant to uphold the postal rule.

If the postal rule applies, B’s change of mind is irrelevant because a contract was formed when he posted the letter.  However, the fact that P reads/hears both of B’s messages almost simultaneously on Monday means that this would be an unreasonable outcome – remember the objective approach adopted by the courts in Scammell and Nephew v Ouston and Sudbrook Trading Estate v Eggleton.  Also refer to Dunmore v Alexander – faster means of communication may be used to withdraw postal acceptance.  It is important to note that this is not a binding decision in England.  It is therefore unlikely that the court would rely on the postal rule to bring about an unfair and unreasonable result.  Apply instantaneous communication rules in Entores v Miles Far East and Brinkibon to suggest that the telephone call prevails and that there is no contract.  Finally, P is no worse off because he received the acceptance and rejection messages at the same time.  It ultimately appears clear that there is no contract and B is not obliged to purchase the shares.


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