Acceptance
An acceptance is an unqualified assent to all the terms of the offer. Assuming the presence of consideration and an intention on the part of the parties with full capacity to contract to enter into legal relations a contract comes into being when an offer is accepted.
4.1 What is an Acceptance?
4.1.1 Acceptance may be express or implied
Acceptance may be express, or implied from conduct.
Complying with the terms of a unilateral reward offer is one illustration.
Carlill v Carbolic Smokeball Co Ltd [1893] 1 QB 256
This case was covered in detail in Chapter 3 Offer
Acknowledging an offer would not be sufficient. There must be a clear and unequivocal assent to all the terms of the offer. If an offer states alternatives the acceptance must clearly indicate which of the alternatives is being accepted.
Peter Lind & Co Ltd v Mersey Docks & Harbour Board [1972] 2 Lloyd’s Reports 234
An offeree purported to accept ‘your tender’ when given an alternative of a fixed price or a varying price dependant on labour and materials costs. No contract.
O.T.M. Ltd v Hydranautics [1981] 2 Lloyd’s Rep 211, 215
In the case of continuing negotiations it is important to look at the overall picture – oral terms, written documentation and decide whether agreement has been reached.
4.1.2 Acceptance by conduct
An offer may be accepted by conduct provided the offeree did the act regarded as ‘acceptance’ with the intention of accepting the offer.
Brogden v Metropolitan Railway (1877) 2 App Cas 666
In a draft agreement for the supply of coal D made a number of alterations and returned the draft marked ‘approved’. P not expressly agreeing to the alterations accepted deliveries of coal. Accepting the coal amounted to acceptance of the variation imposed by D.
The House of Lords held that a contract had arisen by conduct and Brogden had been in clear breach, so he must be liable In Brogden it was clear that P intended to deal with D.
“I have always believed the law to be this, that when an offer is made to another party, and in that offer there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound. If a man sent an offer abroad saying: I wish to know whether you will supply me with goods at such and such a price, and, if you agree to that, you must ship the first cargo as soon as you get this letter, there can be no doubt that as soon as the cargo was shipped the contract would be complete, and if the cargo went to the bottom of the sea, it would go to the bottom of the sea at the risk of the orderer. So again, where, as in the case of Ex parte Harris a person writes a letter and says, I offer to take an allotment of shares, and he expressly or impliedly says, If you agree with me send an answer by the post, there, as soon as he has sent that answer by the post, and put it out of his control, and done an extraneous act which clenches the matter, and shews beyond all doubt that each side is bound, I agree the contract is perfectly plain and clear.
But when you come to the general proposition which Mr. Justice Brett seems to have laid down, that a simple acceptance in your own mind, without any intimation to the other party, and expressed by a mere private act, such as putting a letter into a drawer, completes a contract, I must say I differ from that. It appears from the Year Books that as long ago as the time of Edward IV , Chief Justice Brian decided this very point. The plea of the Defendant in that case justified the seizing of some growing crops because he said the Plaintiff had offered him to go and look at them, and if he liked them, and would give 2s. 6d. for them, he might take them; that was the justification. That case is referred to in a book which I published a good many years ago, Blackburn on Contracts of Sale , and is there translated. Brian gives a very elaborate judgment, explaining the law of the unpaid vendor’s lien, as early as that time, exactly as the law now stands, and he consequently says: “This plea is clearly bad, as you have not shewn the payment or the tender of the money;” but he goes farther, and says (I am quoting from memory, but I think I am quoting correctly),
“moreover, your plea is utterly naught, for it does not shew that when you had made up your mind to take them you signified it to the Plaintiff, and your having it in your own mind is nothing, for it is trite law that the thought of man is not triable, for even the devil does not know what the thought of man is; but I grant you this, that if in his offer to you he had said, Go and look at them, and if you are pleased with them signify it to such and such a man, and if you had signified it to such and such a man, your plea would have been good, because that was a matter of fact.”
I take it, my Lords, that that, which was said 300 years ago and more, is the law to this day, and it is quite what Lord Justice Mellish in Ex parte Harris accurately says, that where it is expressly or impliedly stated in the offer that you may accept the offer by posting a letter, the moment you post the letter the offer is accepted. You are bound from the moment you post the letter, not, as it is put here, from the moment you make up your mind on the subject.”
Taylor v Allen [1966] 1 QB 304
Taking a car out on the road does not amount to an acceptance of an offer to insure unless there is clear evidence that the party intended to deal with that insurance company.
The difficulty with acceptance by conduct is that it is difficult to determine precisely what the terms of the contract are. This may result in the court refusing to acknowledge the existence of a contract at all. In situations where the price may not have been fixed the courts are prepared to impose a reasonable price provided that it clear that the parties have agreed to contract as opposed to merely ‘agreeing to agree’: Sale of Goods Act s. 8(2); and see below.
Lattimore v Mott [2005] All ER 415 is a recent illustration of acceptance by conduct.
4.1.3 Acceptance must be an unqualified, unequivocal assent to all the terms of the offer
There must be a correlation in an acceptance with all the terms of the offer.
Tinn v Hoffman & Co (1873) 29 LT 271.
Agreeing to take 200 tons of wheat is not an acceptance of an offer to sell 300. Agreeing to pay £35 is not an acceptance of an offer to sell at £40. It is a counter offer, the effect of which is to terminate the original offer.
Care has to be taken here to avoid being over zealous in demanding ‘exactness’.
Treitel makes the point:
“An acceptance could be effective even though it departed from the wording of the offer by making express some term which the law would in any case imply. And a reply which adds some new provision by way of indulgence to the offeror (e.g. one allowing him to postpone payment) may be an acceptance. Conversely, an acceptance in which the acceptor asks for extra time to pay may be effective, so longs as he makes it clear that he is prepared to perform in accordance with the terms of the offer even if his request is refused.”
Lark v Outhwaite [1991] Lloyd’s Rep. 132
4.1.4 Acceptor must have knowledge of the offer at the moment of acceptance
The parties must agree. The fact that their wishes happen to coincide is irrelevant. There must be a positive act of acceptance to the offer made.
R v Clarke (1927) 40 CLR 227, 233
A reward was offered for information leading to the arrest of the murderer of two policemen. Clarke, himself suspected of the crime, gave information because he wished to clear himself and with no intention of claiming the reward. The claim for the reward failed.
Contrast Williams v Cawardine (1833) 5 C & P 566.
A lady, believing that she had not long to live, signed a statement giving information on a murder, to ease her conscience. She knew of the reward. Patteson J stated ‘We cannot go into the plaintiff’s motives’. The lady was within the terms of the reward offer and was entitled to claim.
4.1.5 Acceptance in unilateral contracts
A promises to pay £100 to B if B walks from London to Dover. This is a unilateral contract because the promisee has made no counter promise to perform. A contract only comes into being when the promisee completes the required act.
The offer may be accepted by complete performance of the terms of the offer.
There is no need to communicate advance notice of acceptance of the offeror
The offer may be withdrawn before acceptance takes place.
(See: Daulia Ltd v Four Millbank Nominees Ltd [1978] 2 All ER 557 – this case was dealt with in detail in Chapeter 3 )
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Problem question If it is right that a unilateral offer may not be withdrawn (for a reasonable time to allow completion of the required act) once the offeree has started to perform the required act then would the converse be true. A promises to pay £1,000 to anyone who paints his house. B starts work but fails to complete. Can A sue B for failure to complete the work? Would the courts imply a term that B, once work had commenced, would complete the required act? |
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4.2 The Battle of Forms
Case study
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401
Sellers offered to supply a machine for a specified sum. The offer included a ‘price escalation’ clause. The Buyers placed an order on their own terms and conditions which differed from the Seller’s. No price escalation clause and other differences. The Buyers’ document contained a tear off slip to be signed by the Sellers and returned to the Buyers stating that the Sellers accepted the order on the terms contained therein. Sellers returned the tear off slip (duly signed) and stating in the accompanying letter that they were ‘entering’ the order ‘in accordance with’ their offer.
HELD : this was an acceptance of the Buyer’s counter-offer and that the contract was governed by the Buyer’s terms which did not include a price escalation clause. The seller’s reply did not prevail – even though it was ‘the last shot’ in the series of communications.
Lord Denning MR:
| “ | This case is a “battle of forms.” The plaintiffs, the Butler Machine Tool Co. Ltd., suppliers of a machine, on May 23, 1969, quoted a price for a machine tool of £75,535. Delivery was to be given in 10 months. On the back of the quotation there were terms and conditions. One of them was a price variation clause. It provided for an increase in the price if there was an increase in the costs and so forth. The machine tool was not delivered until November 1970. By that time costs had increased so much that the sellers claimed an additional sum of £2,892 as due to them under the price variation clause.The defendant buyers, Ex-Cell-O Corporation (England) Ltd., rejected the excess charge. They relied on their own terms and conditions. They said:
“We did not accept the sellers’ quotation as it was. We gave an order for the self-same machine at the self-same price, but on the back of our order we had our own terms and conditions. Our terms and conditions did not contain any price variation clause.” The judge held that the price variation clause in the sellers’ form continued through the whole dealing and so the sellers were entitled to rely upon it. He was clearly influenced by a passage in Anson’s Law of Contract , 24th ed. (1975), pp. 37 and 38, of which the editor is Professor Guest: and also by Treitel, The Law of Contract , 4th ed. (1975), p. 15. The judge said that the sellers did all that was necessary and reasonable to bring the price variation clause to the notice of the buyers. He thought that the buyers would not “browse over the conditions” of the sellers: and then, by printed words in their (the buyers’) document, trap the sellers into a fixed price contract. I am afraid that I cannot agree with the suggestion that the buyers “trapped” the sellers in any way. Neither party called any oral evidence before the judge. The case was decided on the documents alone. I propose therefore to go through them. On May 23, 1969, the sellers offered to deliver one “Butler” double column plane-miller for the total price of £75,535. Delivery 10 months (subject to confirmation at time of ordering) other terms and conditions are on the reverse of this quotation. On the back there were 16 conditions in small print starting with this general condition: “All orders are accepted only upon and subject to the terms set out in our quotation and the following conditions. These terms and conditions shall prevail over any terms and conditions in the buyer’s order.” Clause 3 was the price variation clause. It said: “Prices are based on present day costs of manufacture and design and having regard to the delivery quoted and uncertainty as to the cost of labour, materials etc. during the period of manufacture, we regret that we have no alternative but to make it a condition of acceptance of order that goods will be charged at prices ruling upon date of delivery.” The buyers replied on May 27, 1969, giving an order in these words: “Please supply on terms and conditions as below and overleaf.” Below there was a list of the goods ordered, but there were differences from the quotation of the sellers in these respects: (i) there was an additional item for the cost of installation, £3,100 and (ii) there was a different delivery date: instead of 10 months, it was 10–11 months. Overleaf there were different terms as to the cost of carriage: in that it was to be paid to the delivery address of the buyers: whereas the sellers’ terms were ex warehouse. There were different terms as to the right to cancel for late delivery. The buyers in their conditions reserved the right to cancel if delivery was not made by the agreed date: whereas the sellers in their conditions said that cancellation of order due to late delivery would not be accepted. On the foot of the buyers’ order there was a tear-off slip headed: “Acknowledgment: Please sign and return to Ex-Cell-O. We accept your order on the terms and conditions stated thereon — and undertake to deliver by — Date — signed.” In that slip the delivery date and signature were left blank ready to be filled in by the sellers. On June 5, 1969, the sellers wrote this letter to the buyers: “We have pleasure in acknowledging receipt of your official order dated May 27 covering the supply of one Butler Double Column Plane-Miller. This being delivered in accordance with our revised quotation of May 23 for delivery in 10/11 months, i.e., March/April 1970. We return herewith duly completed your acknowledgment of order form.” They enclosed the acknowledgment form duly filled in with the delivery date March/April 1970 and signed by the Butler Machine Tool Co. No doubt a contract was then concluded. But on what terms? The sellers rely on their general conditions and on their last letter which said “in accordance with our revised quotation of May 23” (which had on the back the price variation clause). The buyers rely on the acknowledgment signed by the sellers which accepted the buyer’s order “on the terms and conditions stated thereon” (which did not include a price variation clause). If those documents are analysed in our traditional method, the result would seem to me to be this: the quotation of May 23, 1969, was an offer by the sellers to the buyers containing the terms and conditions on the back. The order of May 27, 1969, purported to be an acceptance of that offer in that it was for the same machine at the same price, but it contained such additions as to cost of installation, date of delivery and so forth that it was in law a rejection of the offer and constituted a counter-offer. That is clear from Hyde v. Wrench (1840) 3 Beav. 334 . As Megaw J. said in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 W.L.R. 333 , 337: “… the counter-offer kills the original offer.” The letter of the sellers of June 5, 1969, was an acceptance of that counter-offer, as is shown by the acknowledgment which the sellers signed and returned to the buyers. The reference to the quotation of May 23 referred only to the price and identity of the machine. To go on with the facts of the case. The important thing is that the sellers did not keep the contractual date of delivery which was March/April 1970. The machine was ready about September 1970 but by that time the buyers’ production schedule had to be re-arranged as they could not accept delivery until November 1970. Meanwhile the sellers had invoked the price increase clause. They sought to charge the buyers an increase due to the rise in costs between May 27, 1969 (when the order was given), and April 1, 1970 (when the machine ought to have been delivered). It came to £2,892. The buyers rejected the claim. The judge held that the sellers were entitled to the sum of £2,892 under the price variation clause. He did not apply the traditional method of analysis by way of offer and counter-offer. He said that in the quotation of May 23, 1969, “one finds the price variation clause appearing under a most emphatic heading stating that it is a term or condition that is to prevail.” So he held that it did prevail. I have much sympathy with the judge’s approach to this case. In many of these cases our traditional analysis of offer, counter-offer, rejection, acceptance and so forth is out of date. This was observed by Lord Wilberforce in New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1975] A.C. 154 , 167. The better way is to look at all the documents passing between the parties — and glean from them, or from the conduct of the parties, whether they have reached agreement on all material points — even though there may be differences between the forms and conditions printed on the back of them. As Lord Cairns said in Brogden v. Metropolitan Railway Co. (1877) 2 App.Cas. 666 , 672: “… there may be a consensus between the parties far short of a complete mode of expressing it, and that consensus may be discovered from letters or from other documents of an imperfect and incomplete description; …” Applying this guide, it will be found that in most cases when there is a “battle of forms,” there is a contract as soon as the last of the forms is sent and received without objection being taken to it. That is well observed in Benjamin’s Sale of Goods , 9th ed. (1974), p. 84. The difficulty is to decide which form, or which part of which form, is a term or condition of the contract. In some cases the battle is won by the man who fires the last shot. He is the man who puts forward the latest terms and conditions: and, if they are not objected to by the other party, he may be taken to have agreed to them. Such was British Road Services Ltd. v. Arthur V. Crutchley & Co. Ltd. [1968] 1 Lloyd’s Rep. 271 , 281–282, per Lord Pearson; and the illustration given by Professor Guest in Anson’s Law of Contract , 24th ed., pp. 37, 38 when he says that “the terms of the contract consist of the terms of the offer subject to the modifications contained in the acceptance.” In some cases the battle is won by the man who gets the blow in first. If he offers to sell at a named price on the terms and conditions stated on the back: and the buyer orders the goods purporting to accept the offer — on an order form with his own different terms and conditions on the back — then if the difference is so material that it would affect the price, the buyer ought not to be allowed to take advantage of the difference unless he draws it specifically to the attention of the seller. There are yet other cases where the battle depends on the shots fired on both sides. There is a concluded contract but the forms vary. The terms and conditions of both parties are to be construed together. If they can be reconciled so as to give a harmonious result, all well and good. If differences are irreconcilable — so that they are mutually contradictory — then the conflicting terms may have to be scrapped and replaced by a reasonable implication. In the present case the judge thought that the sellers in their original quotation got their blow in first: especially by the provision that “these terms and conditions shall prevail over any terms and conditions in the buyer’s order.” It was so emphatic that the price variation clause continued through all the subsequent dealings and that the buyers must be taken to have agreed to it. I can understand that point of view. But I think that the documents have to be considered as a whole. And, as a matter of construction, I think the acknowledgment of June 5, 1969, is the decisive document. It makes it clear that the contract was on the buyers’ terms and not on the sellers’ terms: and the buyers’ terms did not include a price variation clause. I would therefore allow the appeal and enter judgment for the defendants. Lawton LJThe modern commercial practice of making quotations and placing orders with conditions attached, usually in small print, is indeed likely, as in this case to produce a battle of forms. The problem is how should that battle be conducted? The view taken by Thesiger J. was that the battle should extend over a wide area and the court should do its best to look into the minds of the parties and make certain assumptions. In my judgment, the battle has to be conducted in accordance with set rules. It is a battle more on classical 18th century lines when convention decided who had the right to open fire first rather than in accordance with the modern concept of attrition. The rules relating to a battle of this kind have been known for the past 130-odd years. They were set out by Lord Langdale M.R. in Hyde v. Wrench , 3 Beav. 334 , 337, to which Lord Denning M.R. has already referred; and, if anyone should have thought they were obsolescent, Megaw J. in Trollope & Colls Ltd. v. Atomic Power Constructions Ltd. [1963] 1 W.L.R. 333 , 337 called attention to the fact that those rules are still in force. When those rules are applied to this case, in my judgment, the answer is obvious. The sellers started by making an offer. That was in their quotation. The small print was headed by the following words: “General. All orders are accepted only upon and subject to the terms set out in our quotation and the following conditions. These terms and conditions shall prevail over any terms and conditions in the buyer’s order.” That offer was not accepted. The buyers were only prepared to have one of these very expensive machines on their own terms. Their terms had very material differences in them from the terms put forward by the sellers. They could not be reconciled in any way. In the language of article 7 of the Uniform Law on the Formation of Contracts for the International Sale of Goods (see Uniform Laws on International Sales Act 1967 , Schedule 2) they did “materially alter the terms” set out in the offer made by the plaintiffs. As I understand Hyde v. Wrench , 3 Beav. 334 , and the cases which have followed, the consequence of placing the order in that way, if I may adopt Megaw J.’s words [1963] 1 W.L.R. 333 , 337, was “to kill the original offer.” It follows that the court has to look at what happened after the buyers made their counter-offer. By letter dated June 4, 1969, the plaintiffs acknowledged receipt of the counter-offer, and they went on in this way: “Details of this order have been passed to our Halifax works for attention and a formal acknowledgment of order will follow in due course.” That is clearly a reference to the printed tear-off slip which was at the bottom of the buyers’ counter-offer. By letter dated June 5, 1969, the sales office manager at the plaintiffs’ Halifax factory completed that tear-off slip and sent it back to the buyers. It is true, as Mr. Scott has reminded us, that the return of that printed slip was accompanied by a letter which had this sentence in it: “This is being entered in accordance with our revised quotation of May 23 for delivery in 10/11 months.” I agree with Lord Denning M.R. that, in business sense, that refers to the quotation as to the price and the identity of the machine, and it does not bring into the contract the small print conditions on the back of the quotation. Those small print conditions had disappeared from the story. That was when the contract was made. At that date it was a fixed price contract without a price escalation clause. As I pointed out in the course of argument to Mr. Scott, if the letter of June 5 which accompanied the form acknowledging the terms which the buyers had specified had amounted to a counter-offer, then in my judgment the parties never were ad idem. It cannot be said that the buyers accepted the counter-offer by reason of the fact that ultimately they took physical delivery of the machine. By the time they took physical delivery of the machine, they had made it clear by correspondence that they were not accepting that there was any price escalation clause in any contract which they had made with the plaintiffs. I agree with Lord Denning M.R. that this appeal should be allowed. Bridge LJSchedule 2 to the Uniform Laws on International Sales Act 1967 is headed “The Uniform Law on the Formation of Contracts for the International Sale of Goods.” To the limited extent that that Schedule is already in force in the law of this country, it would not in any event be applicable to the contract which is the subject of this appeal because that was not a contract of international sale of goods as defined in that statute. We have heard, nevertheless, an interesting discussion on the question of the extent to which the terms of article 7 of that Schedule are mirrored in the common law of England today. No difficulty arises about paragraph 1 of the article, which provides: “An acceptance containing additions, limitations or other modifications shall be a rejection of the offer and shall constitute a counter-offer.” But paragraph 2 of the article is in these terms: “However, a reply to an offer which purports to be an acceptance but which contains additional or different terms which do not materially alter the terms of the offer shall constitute an acceptance unless the offeror promptly objects to the discrepancy; if he does not so object, the terms of the contract shall be the terms of the offer with the modifications contained in the acceptance.” For my part, I consider it both unnecessary and undesirable to express any opinion on the question whether there is any difference between the principle expressed in that paragraph 2 and the principle which would prevail in the common law of England today without reference to that paragraph, but it was presumably a principle analogous to that expressed in paragraph 2 of article 7 which the editor of Anson’s Law of Contract , 24th ed., Professor Guest, had in mind in the passage from that work which was quoted in the judgment of Lord Denning M.R. On any view, that passage goes a good deal further than the principle expressed in article 7 of the Act of 1967, and I entirely agree with Lord Denning M.R. that it goes too far. But when one turns from those interesting and abstruse areas of the law to the plain facts of this case, this case is nothing like the kind of case with which either the makers of the convention which embodied article 7 of Schedule 2 or the editor of Anson , 24th ed., had in mind in the passages referred to, because this is a case which on its facts is plainly governed by what I may call the classical doctrine that a counter-offer amounts to a rejection of an offer and puts an end to the effect of the offer. The first offer between the parties here was the plaintiff sellers’ quotation dated May 23, 1969. The conditions of sale in the small print on the back of that document, as well as embodying the price variation clause, to which reference has been made in the judgments already delivered, embodied a number of other important conditions. There was a condition providing that orders should in no circumstances be cancelled without the written consent of the sellers and should only be cancelled on terms which indemnified the sellers against loss. There was a condition that the sellers should not be liable for any loss or damage from delay however caused. There was a condition purporting to limit the sellers’ liability for damage due to defective workmanship or materials in the goods sold. And there was a condition providing that the buyers should be responsible for the cost of delivery. When one turns from that document to the buyers’ order of May 27, 1969, it is perfectly clear not only that that order was a counter-offer but that it did not purport in any way to be an acceptance of the terms of the sellers’ offer dated May 23. In addition, when one compares the terms and conditions of the buyers’ offer, it is clear that they are in fact contrary in a number of vitally important respects to the conditions of sale in the sellers’ offer. Amongst the buyers’ proposed conditions are conditions that the price of the goods shall include the cost of delivery to the buyers’ premises; that the buyers shall be entitled to cancel for any delay in delivery; and a condition giving the buyers a right to reject if on inspection the goods are found to be faulty in any respect. The position then was, when the sellers received the buyers’ offer of May 27, that that was an offer open to them to accept or reject. They replied in two letters dated June 4 and 5 respectively. The letter of June 4 was an informal acknowledgment of the order, and the letter of June 5 enclosed the formal acknowledgment, as Lord Denning M.R. and Lawton L.J. have said, embodied in the printed tear-off slip taken from the order itself and including the perfectly clear and unambiguous sentence “We accept your order on the terms and conditions stated thereon.” On the face of it, at that moment of time, there was a complete contract in existence, and the parties were ad idem as to the terms of the contract embodied in the buyers’ order. Mr. Scott has struggled manfully to say that the contract concluded on those terms and conditions was in some way overruled or varied by the references in the two letters dated June 4 and 5 to the quotation of May 23, 1969. The first refers to the machinery being as quoted on May 23. The second letter says that the order has been entered in accordance with the quotation of May 23. I agree with Lord Denning M.R. and Lawton L.J. that that language has no other effect than to identify the machinery and to refer to the prices quoted on May 23. But on any view, at its highest, the language is equivocal and wholly ineffective to override the plain and unequivocal terms of the printed acknowledgment of order which was enclosed with the letter of June 5. Even if that were not so and if Mr. Scott could show that the sellers’ acknowledgment of the order was itself a further counter-offer, I suspect that he would be in considerable difficulties in showing that any later circumstance amounted to an acceptance of that counter-offer in the terms of the original quotation of May 23 by the buyers. But I do not consider that question further because I am content to rest upon the view that there is nothing in the letter of June 5 which overrides the plain effect of the acceptance of the order on the terms and conditions stated thereon. I too would allow the appeal and enter judgment for the defendants. |
Note that it is not possible to avoid the consequences of a ‘battle of forms’ by the simple expedient of drafting in a provision precluding it. In the instant case the sellers had a provision in their terms which stated that their terms “were to prevail over any terms and conditions in Buyer’s order”. Such a provision may negative the fact of contract if carefully drafted but cannot have the effect of allowing the seller’s terms to prevail.
For a more recent application of the Battle of Forms principle see: Balmoral Group v Borealis [ 2006 ] EWHC 1900 ( Comm)
Exemption clause in a supply of goods contract: As it happenes there was no need to consider the application of the claiuse because the supplier had sold goods which met the standard for satisfactory quality and fitness for purpose. Clarke J (iobiter) did consider the question of whose terms should apply.
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4.3 Communication of Acceptance
4.3.1 General rule: acceptance must be communicated
In general terms an acceptance has no contractual effect until it is communicated, that is brought to the attention of the offeror.
Entores Ltd v Miles Far East Corp [1955] 2 Q.B. 327
There is no acceptance if a telephone line goes dead or an oral acceptance “is drowned by an aircraft flying overhead”.
Lord Denning MR:
“ there was a completed contract by which the defendants agreed to supply 100 tons of cathodes at a price of £239 10s. a ton. The offer was sent by Telex from England offering to pay £239 10s. a ton for 100 tons, and accepted by Telex from Holland. The question for our determination is where was the contract made?
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.
The problem can only be solved by going in stages. Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait till the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I bound. I do not agree with the observations of Hill J in Newcomb v De Roos.[1]
Now take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes “dead” so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off: because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next, that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offer.
Lastly, take the Telex. Suppose a clerk in a London office taps out on the teleprinter an offer which is immediately recorded on a teleprinter in a Manchester office, and a clerk at that end taps out an acceptance. If the line goes dead in the middle of the sentence of acceptance, the teleprinter motor will stop. There is then obviously no contract. The clerk at Manchester must get through again and send his complete sentence. But it may happen that the line does not go dead, yet the message does not get through to London. Thus the clerk at Manchester may tap out his message of acceptance and it will not be recorded in London because the ink at the London end fails, or something of that kind. In that case, the Manchester clerk will not know of the failure but the London clerk will know of it and will immediately send back a message “not receiving.” Then, when the fault is rectified, the Manchester clerk will repeat his message. Only then is there a contract. If he does not repeat it, there is no contract. It is not until his message is received that the contract is complete.
In all the instances I have taken so far, the man who sends the message of acceptance knows that it has not been received or he has reason to know it. So he must repeat it. But, suppose that he does not know that his message did not get home. He thinks it has. This may happen if the listener on the telephone does not catch the words of acceptance, but nevertheless does not trouble to ask for them to be repeated: or the ink on the teleprinter fails at the receiving end, but the clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance – yet the sender of it reasonably believes it has got home when it has not – then I think there is no contract.
My conclusion is, that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.
In a matter of this kind, however, it is very important that the countries of the world should have the same rule. I find that most of the European countries have substantially the same rule as that I have stated. Indeed, they apply it to contracts by post as well as instantaneous communications. But in the United States of America it appears as if instantaneous communications are treated in the same way as postal communications. In view of this divergence, I think that we must consider the matter on principle: and so considered, I have come to the view I have stated, and I am glad to see that Professor Winfield in this country (55 Law Quarterly Review 514), and Professor Williston in the United States of America (Contracts, § 82, p. 239), take the same view.
Applying the principles which I have stated, I think that the contract in this case was made in London where the acceptance was received. It was, therefore, a proper case for service out of the jurisdiction.
Apart from the contract by Telex, the plaintiffs put the case in another way. They say that the contract by Telex was varied by letter posted in Holland and accepted by conduct in England: and that this amounted to a new contract made in England. The Dutch company on September 11, 1954, wrote a letter to the English company saying: “We confirm having sold to you for account of our associates in Tokyo: 100 metric tons electrolitic copper in cathodes: £239 10s. for longton c.i.f. U.K./ Continental main ports: prompt shipment from a Japanese port after receipt of export licence: payment by irrevocable and transferable letter of credit to be opened in favour of Miles Far East Corporation with a first class Tokyo Bank. The respective import licences to be sent directly without delay to Miles Far East Corporation.” The variations consisted in the ports of delivery, the provisions of import licence and so forth. The English company say that they accepted the variations by dispatching from London the import licence, and giving instructions in London for the opening of the letter of credit, and that this was an acceptance by conduct which was complete as soon as the acts were done in London.
I am not sure that this argument about variations is correct. It may well be that the contract is made at the place where first completed; not at the place where the variations are agreed. But whether this be so or not, I think the variations were accepted by conduct in London and were therefore made in England. Both the original contract and ensuing variations were made in England and leave can properly be given for service out of the jurisdiction.
I am inclined to think also that the contract is by implication to be governed by English law, because England is the place with which it has the closest connexion.
I think that the decisions of the master and the judge were right, and I would dismiss the appeal
Powell v Lee (1908) 99 LT 284
There is no acceptance if the fact of acceptance is communicated to the offeror through a third party when the offeree has not given authority for the third party to communicate such acceptance.
Henthorn v Fraser [1892] 2 Ch 27
If the agent of the offeree had full authority to transmit such acceptance the acceptance would be binding.
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4.3.2 Exceptions to the general rule
The postal rule
Henthorn v Fraser [1892] 2 Ch 27
The claimant received a note from the defendant with an offer to purchase a certain property within 14 days. The claimant responded to the offer with an acceptance posted the next day via mail. The defendant withdrew the offer before receiving the acceptance, but after the acceptance was posted.
Lord Herschell:
“Where the circumstances are such that it must have been within the contemplation of the parties that, according to ordinary usage of mankind, the post must be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted.”
Adams v Lindsell (1818) 1 B & Ald 681
In the case of acceptance by post acceptance takes effect when the letter, correctly addressed, is posted or handed to a post office employee authorised to receive letters for posting.
So here the defendants who have proposed by letter to sell this wool, are not to be held liable, even though it be now admitted that the answer did not come back in due course of post. Till the plaintiffs’ answer was actually received, there could be no binding contract between the parties; and before then, the defendants had retracted their offer, by selling the wool to other persons.
But the Court said, that if that were so, no contract could ever be completed by the post. For if the defendants were not bound by their offer when accepted by the plaintiffs till the answer was received, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their answer and assented to it. And so it might go on ad infinitum. The defendants must be considered in law as making, during every instant of the time their letter was travelling, the same identical offer to the plaintiffs; and then the contract is completed by the acceptance of it by the latter. Then as to the delay in notifying the acceptance, that arises entirely from the mistake of the defendants, and it therefore must be taken as against them, that the plaintiffs’ answer was received in course of post.
Brinkibon v Stahag Stahl [1983] 2 AC 34
Brinkibon was a London company that purchased steel from Stahag, a seller based in Austria. Brinkibon sent their acceptance to a Stahag offer by Telex to Vienna. Brinkibon later wanted to issue a writ against Stahag and applied serve an out of jurisdiction party. They would only be able to do so if the contract had been formed in England. The Lords decided that the contract was formed in Vienna. They accepted the principle in Entores v Miles Far East Co where in the case of instantaneous communication, which included telex, the formation occurs in the place where the acceptance is received.
But see: Lord Wilberforce
Since 1955 the use of Telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or on the assumption that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variants may occur. 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.
The rule applies provided it is reasonable to use the post as a means of communicating acceptance which would not be the case when responding to an offer made by telex or telephone (implying a speedy response is required).
Case study: Household Insurance v Grant (1879) 4 Ex. D 216
Household Insurance v Grant (1879) 4 Ex. D 216
Grant applied for shares in the Household Fire and Carriage Accident Insurance Company. The company allotted the shares to the defendant, and addressed to him and posted a letter containing the notice of allotment.Tut the letter never was received by him. When the company went bankrupt, the liquidator sued Mr Grant for the outstanding payments on the shares. The question was whether Mr Grant’s offer for shares had been validly accepted, and whether there was a binding contract for him to pay up.
Thesiger LJ for the majority held that there was a valid contract, because the rule for the post is that acceptance is effective even if the letter never arrives. He noted that anyone can opt out of the rule
The acceptor, in posting the letter, has, to use the language of Lord Blackburn , in Brogden v Directors of Metropolitan Ry Co , [ 1 ] “put it out of his control and done an extraneous act which clenches the matter, and shews beyond all doubt that each side in bound.” How then can a casualty in the post, whether resulting in delay, which in commercial transactions is often as bad as no delivery, or in non-delivery, unbind the parties or unmake the contract? To me it appears that in practice a contract complete upon the acceptance of an offer being posted, but liable to be put an end to by an accident in the post, would bb more mischievous than a contract only binding upon the parties to it upon the acceptance actually reaching the offerer, and I can see no principle of law from which such an anomalous contract can be deduced.
There is no doubt that the implication of a complete, final, and absolutely binding contract being formed, as soon as the acceptance of an offer is posted, may in some cases lead to inconvenience and hardship. But such there must be at times in every view of the law. It is impossible in transactions which pass between parties at a distance, and have to be carried on through the medium of correspondence, to adjust conflicting rights between innocent parties, so as to make the consequences of mistake on the part of a mutual agent fall equally upon the shoulders of both. At the same time I am not prepared to admit that the implication in question will lead to any great or general inconvenience or hardship. An offerer, if he chooses, may always make the formation of the contract which he proposes dependent upon the actual communication to himself of the acceptance. If he trusts to the post he trusts to a means of communication which, as a rule, does not fail, and if no answer to his offer is received by him, and the matter is of importance to him, he can make inquiries of the person to whom his offer was addressed. On the other hand, if the contract is not finally concluded, except in the event of the acceptance actually reaching the offerer, the door would be opened to the perpetration of much fraud, and, putting aside this consideration, considerable delay in commercial transactions, in which despatch is, as a rule, of the greatest consequence, would be occasioned; for the acceptor would never be entirely safe in acting upon his acceptance until he had received notice that his letter of acceptance had reached its destination.
Upon balance of conveniences and inconveniences it seems to me, applying with slight alterations the language of the Supreme Court of the United States in Tayloe v Merchants Fire Insurance Co. , more consistent with the acts and declarations of the parties in this case to consider the contract complete and absolutely binding on the transmission of the notice of allotment through the post, as the medium of communication that the parties themselves contemplated, instead of postponing its completion until the notice had been received by the defendant. Upon principle, therefore, as well as authority, I think that the judgment of Lopes, J., was right and should be affirmed, and that this appeal should therefore be dismissed.
Bramwell LJ dissented: concluding that acceptance should only be effective once it arrives (but see also, today The Brimnes ).
This rule applies even if the letter is never received.
This assumes that the letter was correctly addressed or complied, as to address, with information given by the offeror (which may have been incorrect).
The Brimnes
Tenax Steamship hired The Brimnes from the Owners. The charterparty said payment was to be monthly in advance “in New York in cash” and the owners had a right to withdraw if payment was not punctual. They sent a notice by telex on 2 April 1970 saying they were withdrawing because of late payment. One of the questions on appeal was when exactly the withdrawal took place.
The Court of Appeal held that it took place when it was received in the charterers office, not when it was read.
Edmund-Davies LJ:
“ The question remains, however, as to whether that was sufficient to constitute communication of the withdrawal notice to the charterers, a point which Mr. Anthony Evans accepts it is for him to establish. He submits that, by leaving the Telex machine working, the charterers in effect represented that any message so transmitted to them during ordinary business hours would (as Mrs. Sayce herself conceded) be dealt with promptly. That Scarf v Jardine , 7 App Cas 345 does not have universal application is shown by Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525, where one party to a contract had done all he could to evince to the other party his intention to rescind it. Then what more could the owners’ agents in the present case reasonably have been expected to do than they did? In Entores Ltd v Miles Far East Corporation [1955] 2 QB 327, where this court was dealing with a contract said to have been concluded by Telex communication between the parties, Denning LJ held that it was not until the Telex message of acceptance was received by the offeror that the contract was complete. He said, at p. 333:”… the ink on the teleprinter fails at the receiving end, but the [offeree’s] clerk does not ask for the message to be repeated: so that the man who sends an acceptance reasonably believes that his message has been received. The offeror in such circumstances is clearly bound, because he will be estopped from saying that he did not receive the message of acceptance. It is his own fault that he did not get it. But if there should be a case where the offeror without any fault on his part does not receive the message of acceptance – yet the sender of it reasonably believes it has got home when it has not – then I think there is no contract.” Brandon J held here that the notice of withdrawal was sent during ordinary business hours, and that he was driven to the conclusion either that the charterers’ staff had left the office on April 2 “well before the end of ordinary business hours” or that, if they were indeed there, they “neglected to pay attention to the Telex machine in the way which they claimed it was their ordinary practice to do” [1973] 1 WLR 386, 406. He therefore concluded that the withdrawal Telex must be regarded as having been “received,” as required by Empresa Cubana de Fletes v Lagonisi Shipping Co Ltd [1971] 1 QB 488 , at 17.45 hours BST on April 2 and that the withdrawal was effected at that time. I propose to say no more than that I respectfully agree with that conclusion, particularly as the case for the charterers throughout was that Mrs. Sayce, the member of their staff specially charged with attending to Telex messages, did not leave the office until after 18.30 hours and they advanced no reason why a Telex message received on their machine at 17.45 hours should not have been noted by her before she left the office, as she insisted, not less than 45 minutes later.
The postal rule does not apply to instantaneous forms of communication
In the case of telephone, telex and fax, and email communication acceptance is not complete until received.
An offeror may be stopped from denying receipt of an acceptance if he was the cause on non-receipt.
The Entores [1955] 2 QB 327.
Denning LJ found that the regular postal rule did not apply for instantaneous means of communications such as a telex. Instead, acceptance occurs where the message of acceptance is read.
The same principle will probably apply to email, but the way the time of receipt will be calculated taking into account the delays caused by multiple servers, spam filters and so on is undecided
Exclusion of the postal rule
It is possible to exclude the operation of the postal rule by express provision in the contract.
Holwell Securities Ltd v Hughes [1974] 1 WLR 155
Revocation of posted acceptance
An offeree, after posting an acceptance, may wish to change his mind and attempt to withdraw the ‘acceptance’ before the letter reaches the offeror. May he do so?
Strictly speaking the letter of acceptance is binding the moment it is posted and a concluded contract is in being from that point.
There is no English authority on this type of revocation.
See : Hudson 82 L.Q.R. 169
Countess of Dunmore v Alexander (1830) 9 Shaw
If the offeror has not received the posted acceptance what prejudice will he suffer to be told before receipt that the offeree does not wish to proceed and revokes the posted acceptance?
Carlill v Carbolic Smokeball Co Ltd [1893] 1 QB 256
Communication of acceptance is not usually required in the case of unilateral contracts – e.g. reward cases.
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4.3.3 Can silence amount to acceptance?
Mere silence or inactivity on the part of an offeree will not amount to acceptance.
Felthouse v Bindley (1862) 11 CB 869
P offered to buy D’s horse the letter for which offer stated “ If I hear no more about him, I shall consider the horse mine” No contract. D had not communicated acceptance.
Willes J:
| “ | I am of opinion that the rule to enter a nonsuit should be made absolute. The horse in question had belonged to the plaintiff’s nephew, John Felthouse. In December, 1860, a conversation took place between the plaintiff and his nephew relative to the purchase of the horse by the former. The uncle seems to have thought that he had on that occasion bought the horse for 30l., the nephew that he had sold it for 30 guineas: but there was clearly no complete bargain at that time. On the 1st of January, 1861, the nephew writes,”I saw my father on Saturday. He told me that you considered you had bought the horse for 30l. If so, you are labouring under a mistake, for 30 guineas was the price I put upon him, and you never heard me say less. When you said you would have him, I considered you were aware of the price.”
To this the uncle replies on the following day, “Your price, I admit, was 30 guineas. I offered 30l.; never offered more: and you said the horse was mine. However, as there may be a mistake about him, I will split the difference. If I hear no more about him, I consider the horse mine at 30l. 15s.” It is clear that there was no complete bargain on the 2nd of January: and it is also clear that the uncle had no right to impose upon the nephew a sale of his horse for 30l. 15s. unless he chose to comply with the condition of writing to repudiate the offer. The nephew might, no doubt, have bound his uncle to the bargain by writing to him: the uncle might also have retracted his offer at any time before acceptance. It stood an open offer: and so things remained until the 25th of February, when the nephew was about to sell his farming stock by auction. The horse in question being catalogued with the rest of the stock, the auctioneer (the defendant) was told that it was already sold. It is clear, therefore, that the nephew in his own mind intended his uncle to have the horse at the price which he (the uncle) had named, 30l. 15s.: but he had not communicated such his intention to his uncle, or done anything to bind himself. Nothing, therefore, had been done to vest the property in the horse in the plaintiff down to the 25th of February, when the horse was sold by the defendant. It appears to me that, independently of the subsequent letters, there had been no bargain to pass the property in the horse to the plaintiff, and therefore that he had no right to complain of the sale. Then, what is the effect of the subsequent correspondence? The letter of the auctioneer amounts to nothing. The more important letter is that of the nephew, of the 27th of February, which is relied on as shewing that he intended to accept and did accept the terms offered by his uncle’s letter of the 2nd of January. That letter, however, may be treated either as an acceptance then for the first time made by him, or as a memorandum of a bargain complete before the 25th of February, sufficient within the statute of frauds. It seems to me that the former is the more likely construction: and, if so, it is clear that the plaintiff cannot recover. But, assuming that there had been a complete parol bargain before the 25th of February, and that the letter of the 27th was a mere expression of the terms of that prior bargain, and not a bargain then for the first time concluded, it would be directly contrary to the decision of the court of Exchequer in Stockdale v. Dunlop [ 1 ] to hold that that acceptance had relation back to the previous offer so as to bind third persons in respect of a dealing with the property by them in the interim. In that case, Messrs. H. & Co., being the owners of two ships, called the ” Antelope” and the “Maria,” trading to the coast of Africa, and which were then expected to arrive in Liverpool with cargoes of palm-oil, agreed verbally to sell the plaintiffs two hundred tons of oil,- one hundred tons to arrive by the “Antelope,” and one hundred tons by the “Maria.” The “Antelope” did afterwards arrive with one hundred -tons of oil on board, which were delivered by H. & Co. to the plaintiffs. The “Maria,” having fifty tons of oil on board, was lost by perils of the sea. The plaintiffs having insured the oil on board the “Maria,” together with their expected profits thereon, it was held that they had no insurable interest, as the contract they had entered into with H. & Co., being verbal only, was incapable of being enforced. |
Consider the proposition made by Treitel – that on the facts of the case the decision cannot easily be supported.
What if the terms of the contract actually specify silence as the prescribed mode of acceptance and the offeree complies.
May he enforce the contract?
Re Selectmove Ltd (1995) – The Court of Appeal pointed out that an acceptance by silence could be sufficient if it was the offeree who suggested that their silence would be sufficient.
There is no clear rule.
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Offer & Acceptance
Letters of Intent
It is not surprising, given the credit-crunch and severe recession over the past few years, that letters of intent have ben litigated. Contracting parties are more reluctant to bind themselves commercially and seem to be relying on letters of intent. Banks, however, are not that enthusiastic about letters on intent as security.
RTS Flexible Systems Ltd v Molkerei Alois Muller GmBH & Co KG (UK Productions) [2008] EWHC 1087 TCC
Christopher Clake J held that parties had entered into a letter of intent contract stating that the parties would enter into a contract within four weeks. The contract was held to have come to an end on the expiry of four weeks with no formal contract having been concluded. The claimant proceeded with work (and was paid for part of it) and it was held that parties had entered into a further contract.
Christopher Clarke J:
# As is apparent from the above, after the Letter of Intent contract expired RTS continued to build the Equipment, delivered it to Müller and were partially paid for it. In those circumstances the court strongly inclines to concluding that the parties have entered into some contract even though such a contract cannot be spelt out by a classic analysis of the sequence of offer and acceptance.
# As Steyn LJ, put it in Trentham v Archital Luxfer [1993] 1 Lloyds LR 25:
“Secondly, it is true that the coincidence of offer and acceptance will in the vast majority of cases represent the mechanism of contract formation. It is so in the case of a contract alleged to have been made by an exchange of correspondence. But it is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance…..The third matter is the impact of the fact that the transaction is executed rather than executory. It is a consideration of the first importance on a number of levels… The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometime be relevant in partly executed transactions. Fourthly, if a contract only comes into existence during and as a result of performance of the transaction it will frequently be possible to hold that the contract impliedly and retrospectively covers pre-contractual performance… ”
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See also
Diamond Build Ltd v Clapham Park Homes Ltd [2008] EWHC 1439 TCC
Mr Justice Akenhead:
This is yet another case which relates to a Letter of Intent on a construction project. The issues in this case revolve around whether the Letter of Intent had been superseded by a contract incorporating the JCT Intermediate Form of Building Contract, 2005 edition. There is an estoppel said to have arisen. The case illustrates the dangers posed by letters of intent which are not followed up promptly by the parties’ processing of the formal contract anticipated by them at the letter of intent stage. The Claimant seeks a declaration that by the time its relationship with the Defendant was terminated the Letter of Intent had been replaced by the standard form contract…..
…# Primarily, the issue which arises in this case is a question of construction of the Letter of Intent. There has been a substantial amount of authority about letters of intent, particularly in the context of construction contracts. Mr Justice Robert Goff (as he then was) had to consider such a case in British Steel Corporation v Cleveland Bridge & Engineering Co Ltd (1981) 24 BLR 94. He said this:
‘Now the question whether in a case such as the present any contract has come into existence must depend on the true construction of the relevant communications which have passed between the parties and the effect (if any) of their action pursuant to those communications. There can be no hard and fast answer to the question whether a letter of intent will give rise to a binding agreement; everything must depend on the circumstances of the particular case. In most cases where work is done pursuant to a request contained in a letter of intent, it will not matter whether a contract did or did not come into existence; because if the party who has acted on the request is simply claiming payment, his claim will usually be based upon a quantum meruit, and it will make no difference whether the claim is contractual or quasi-contractual. Of course, a quantum meruit claim (like the old actions for money not received and for money paid) straddles the boundaries of what we now call contract and restitution; so the mere framing of a claim as a quantum meruit claim, or a claim for a reasonable sum, does not assist in classifying the claim as contractual or quasi–contractual. But where, as here, one party is seeking to claim damages for breach of contract, the question whether any contract came into existence is of crucial importance.
As a matter of analysis the contract (if any) which may come into existence following a letter of intent may take one of two forms – either there may be an ordinary executory contract, under which each party assumes reciprocal obligations to the other; or there may be what is sometimes called an “if” contract, ie a contract under which A requests B to carry out a certain performance and promises B that, if he does so, he will receive a certain performance in return [and pay] usual remuneration for his performance. The latter transaction is really no more than a standing offer which, if acted upon before it lapses or is lawfully withdrawn, will result in a binding contract.’ (Page 119-120).
# In Jarvis Interiors Ltd v Galliard Homes Ltd [2000] BLR 33, the preliminaries in the tender bills of quantities indicated that the “contract will be executed as a deed under seal”. In the letter of intent, Galliard wrote that it was its intention to enter into a contract with Jarvis and that:
“In the event that we do not enter into a formal contract with you through no fault of Jarvis … you will be reimbursed all fair and reasonable costs incurred and these will be assessed on a quantum meruit basis.”
# Over the following months, Jarvis carried out a substantial amount of work, but the parties were unable to agree upon terms. In the Court of Appeal, Lindsay J said this at page 37:
‘On the appeal no one has argued that there was as yet any contract between the parties [at the date of the issue of the letter of intent]. Moreover, I see the reference to “a formal contract” as only adding force to a view, to which I shall return, that, absent express agreement or necessary implication otherwise, there was to be no contract on the basis of the Preliminaries unless and until there was a “formal contract”, namely one, in the context of those Preliminaries, under seal. This last paragraph of the Letter of Intent, further, may also go some way to have put in the parties’ minds that a relatively leisurely approach could, if necessary, be endured, at any rate by Jarvis, in the completion of a formal contract, notwithstanding that the work by Jarvis had actually begun on the show flats. So long as no fault could fairly be attributed to Jarvis they could always fall back on the not uncomfortable basis of a quantum meruit. The presence of the paragraph also in my view denies the usual force to be attributed to the dictum of Steyn L.J. in Trentham (G Percy) Ltd -v- Archital Luxfer [1993] 1 Lloyd’s RP 25 at 27 that the fact that a transaction is performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations, at all events if the dictum is used to support the existence of some contract other than on a quantum meruit.’
Evans LJ at paragraph 8 said this:
“The correct analysis of the legal situation, in my judgment, is that a contract came into existence on the terms of the Letter of Intent, either when it was acknowledged by Jarvis (24 March), or when Jarvis began work, or, at latest, when Jarvis entered onto the site at Galliard’s request (cf. Steyn L.J.’s reference to the reasonable expectations of sensible businessmen, Trentham (G Percy) Ltd v. Archital Luxfer …