CONTRACT (OFFER & ACCEPTANCE)

Q. Adele and Bella are sisters. On 1st February Adele meets her sister for a drink and tells her she is
looking for a new sports car. Bella replies that she wants to sell her red Ferrari as there is now a better
model available and that she is happy to sell it to her sister “on a business basis”. Bella says she wants
“about £100,000” for it. That evening Adele sends an email to Bella saying, “I accept your offer to sell
the car for £100,000 and will transfer the money in a few days.” On 3rd February Bella sends Adele an
email that says: “Don't be stupid I wouldn’t sell the car for that, I want £125,000 for it. To avoid any
further misunderstanding, do not email me again unless you do not want the car at this price.” Adele
was so annoyed on reading the first sentence of Bella’s email that she deleted it without reading
further and did not reply. Three weeks later Bella rang Adele and demanded £125,000, offering to
deliver the car.

Advise Adele.

How, if at all, would your answer differ if, upon reading Bella’s email on 3 rd February, Adele decided
to purchase the car for £125,000 and Bella now refuses to deliver it?

Ans. Bella is in a fix and the main issue revolving in this whole scenario is whether offer and acceptance
took place or not. In this answer one would distinguish between invitation to treat and offer while
analyzing which of the two parties, Bella or Adele, made an offer. Aspects of counter offer would be
assessed keeping in mind the principle of Hyde v Wrench. The essence of communication of offer and
acceptance and whether silence amounts to acceptance would be enshrined in this answer. Lastly, this
answer would highlight whether an offer can be revoked or not, and if yes, then how.

In order for an agreement to become binding, four key elements must be present; offer, acceptance,
consideration and intention to create legal relations. If either one is absent, contract would not form.
The issue in such domestic agreements is that do they tend to amount to have a legal effect? Initially
such relationships e.g. husband and wife, brother and sister, did not amounted to have a legal effect,
Balfour v Balfour and Jones v Padavatton. However, now things have changed and now the intention to
create legal relations is independent from whether the said relationship is arising from domestic
relations or not, Soulsbury v Soulsbury and Merritt v Merritt. Therefore, when Bella said “on business
basis”, she made it clear that she had the intention to create legal relations.

One would now analyze whether the following scenario results in the formation of contract or not.
Starting with the difference between offer and invitation to treat. Offer is the expression of willingness
to contract, Storer v MCC whereas, invitation to treat is the expression of willingness to enter into a
negotiation which might at a later stage form into a contract, Gibson v MCC. Therefore, the main
difference between offer and Acceptance is one of intention. The gray area in the current scenario is
who made the offer, was it Bella when she told that she wanted to sell her Ferrari or was it Adele when
she emailed Bella? Bella’s words that she would sell her Ferrari for “about £100,000” show how
uncertain she was. This is an indication that this was an invitation to treat instead of an offer, as the
offer is precise and is properly communicated, Fitch v Snedakar and Tailor v Laird. However, Bella’s
words were ambiguous and an offer is never ambiguous. Therefore, this tends to an invitation to treat as
this was an expression of willingness to negotiate rather than contract. In contrary to this, Adele’s email
would tend to an offer as it was precise “for £100,000” and it was thoroughly communicated.

Following this, Bella’s reply to the said offer would amount to a counter offer as she changed the terms
of the original offer by demanding £125,000 instead of £100,000. And as established by Hyde v Wrench,
a counter offer kills the original offer, therefore, Bella’s demand for more money changed Bella’s
position from an offeree to that of an offeror.

In order for the contract to conclude, acceptance must take place. Acceptance is the unqualified
expression of assent to the terms proposed by the offeror. Aspects of acceptance are such that it should
be unqualified, Butler Machine tools v Ex-cello, can occur via conduct, Carlill v Carbolic Smokeball,
Reville v Anotech INT and Brodgen v Metropolitan Railways, it is viewed objectively, Day Morris
Association v Vyce, and communication is must for an acceptance as it portrays ‘meeting of minds’,
Felthouse v Bindley.

Bella, in her email told Adele not to reply until she did not want to buy the car for the said price,
indicating that Adele’s silence would amount to acceptance. As stated in the paragraph above,
acceptance must be communicated, Entores v Mile and that silence does not amount to acceptance,
Felthouse v Bindley. The said aspect was explained in detail by Lord Denning in Entores v Mile where he
three examples for the communication of acceptance. In the first example, Denning stated that even if a
plane passes by and the offeror was unable to hear the acceptance by the offeree, acceptance is not
communicated and the offeree has a duty to repeat until the offeror hears his acceptance. In the second
example Denning said that if acceptance is being communicated via phone and the phone line goes
dead, it is the duty of the offeree to call again and communicate the acceptance again. In the third
example, Denning said that in scenarios where the offeree is loud, clear and audible and the offeror was
unable to hear the acceptance due to a fault of his own, acceptance would be communicated.

The above mentioned examples show how stringent the courts would be while analyzing the
communication of acceptance. In the same vein, it was held in Felthouse v Bindley that silence does not
amount to acceptance. However, there are some exceptions to this general rule which were seen in
Vitol v Norelf, Hannah v Bluementhal. And in Rust v Abbeylife, it was held that where there has been a
past course of dealing, silence can amount to acceptance. However, in the current scenario, there has
been no such dealing and so neither of the party can rely upon it. Since the communication of
acceptance is essential for acceptance which in turn is essential for a contract to exist, one may feel no
qualms in asserting that there is no contract between Bella and Adele.

Had Adele agreed to purchase the car for £125,000 instead of remaining silent, a contract would have
existed. Which means that Bella would have been bound to sell the car to Adele. If Adele later disagreed
to sell her car, she would not be entitled to do so as there was no revocation of offer from her behalf.
The offer in the question is a bilateral one, which means that two parties are involved and to revoke
such an offer, offeror has to revoke the offer before the acceptance took place, Routledge v Grant and
Offord v Davies. Just like offer and acceptance, revocation must also be communicated, Byrne v
Vantienhoven and it can be made via a third party, Powell v Lee and Dickinson v Dodds. In order to
revoke the offer, Bella had to use the same means she used to make the offer, Shuey v USA.
Furthermore, there was no time limit given by Bella to Adele during which Adele was supposed to
accept the offer therefore, the doctrine of lapse of time would not apply either.
To conclude, there is no contract between Adele and Bella and Adele is not bound to pay £125,000 since
silence does not amount to acceptance. Adele has been saved by the doctrine of communication of
acceptance. However, if she had agreed to purchase the car for the said price and Bella later refused to
sell the car, Bella would not be entitled to do so because then the contract would have been concluded
on Adele’s acceptance. If Bella did not wanted to sell the car after making the offer, she should have
revoked the offer timely or should have given a particular time limit to Bella within which she was
supposed to accept the offer.