Contract Law PDF - SQE1 Past Paper Sample Questions

PART 1 FORMATION 1 Agreement 1.1 Introduction 4 1.2 Offers and invitations to treat 4 1.3 Acceptance...

PART 1 FORMATION 1 Agreement 1.1 Introduction 4 1.2 Offers and invitations to treat 4 1.3 Acceptance 7 1.4 Termination of offers 9 1.5 Certainty and completeness 11 SQE1 syllabus This chapter will enable you to achieve the SQE1 assessment specification in relation to functioning legal knowledge of the core principles of agreement (comprising an offer that has been accepted). Agreement is one of the three essential elements of a binding contract. The other two elements needed for a contract are intention to create legal relations (Chapter 2) and consideration (Chapter 3). Note that, for SQE1, candidates are not usually required to recall specific case names or cite statutory or regulatory authorities. Cases are provided for illustrative purposes only. Learning outcomes By the end of this chapter you will be able to apply relevant core legal principles and rules appropriately and effectively, at the level of a competent newly qualified solicitor in practice, to realistic client-​based and ethical problems and situations in the following areas: recognising when an offer has been made; establishing when an offer has been accepted to reach an agreement; recognising when an offer has been terminated so that it is no longer capable of being accepted; and advising on when a contract might be void for uncertainty or otherwise because the parties have not reached agreement on all material terms. 3 Contract 1.1 Introduction Consumers and businesses enter into contracts on a regular basis. For example, manufacturers need to buy raw materials to make their products; then they sell those products to wholesalers and/​or retailers who then ultimately sell them to us as consumers. Whilst we ourselves may not always think about the legal consequences of what we are doing until something goes wrong (eg the holiday we booked turns out to be a disaster), many businesses employ a dedicated contracts manager. When something does go wrong (eg goods supplied are defective) the first thing to consider is whether there was a contract and, if so, on what terms. We will be looking at terms of a contract in Part 2, Chapters 6 and 7. In Part 1 we shall simply be focusing on what constitutes a binding contract in the first place. In order for parties to reach an agreement, one party must make an offer (ie a definite promise to be bound by specified terms) that is accepted by the other. The person who makes the offer is called the offeror and the person to whom the offer is made is called the offeree. We begin by looking at what is deemed to be an ‘offer’ in the eyes of the law. 1.2 Offers and invitations to treat An offer has been defined as ‘an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed’ (Treitel, The Law of Contract, 14th edn (2015), p 10). An ‘expression’ may take many different forms eg a letter, newspaper advertisement, email, text message and even conduct, as long as it communicates the basis on which the offeror is prepared to contract. The ‘intention’ referred to in the definition does not necessarily mean the offeror’s actual intention. The courts adopt what is primarily an ‘objective’ approach to deciding whether there was agreement between the parties. Clearly, they cannot discover as a matter of fact what was going on in the minds of the parties at the time of the alleged agreement. Nor are they prepared simply to accept what the parties themselves say was their intention at that time (which would be a ‘subjective’ approach). Instead, the courts look at what was said and done between the parties, from the point of view of a ‘reasonable person’, and try to decide what a reasonable person would have thought was going on. Example Faheem had been advised by a motorcycle dealer to ask at least £6,000 for his motorcycle. Faheem texted John offering to sell it to him for £5,000. On reading the text message John immediately telephoned Faheem and agreed to pay £5,000 for the motorcycle. Faheem told him that he would not accept less than £6,000 for the motorcycle. He said he was sorry if the price stated in the text message was not £6,000, but that it must have been an error, which he had not noticed. Although Faheem in fact intended to sell the motorcycle for £6,000, the price mentioned in his text message was £5,000. Assuming that this communication was the only one between the parties regarding the price, a reasonable person would assume that £5,000 was the intended asking price. Also, as far as we can determine, John believed that Faheem was making an offer to sell the motorcycle for £5,000. Faheem would be bound to sell the motorcycle to John for £5,000. Finally, Treitel’s definition of an offer refers to ‘the person to whom it is addressed’. This may be one person, a class of persons or even the whole world. (You will see an example of an 4  Agreement offer made to the public in 1.2.2 below.) The point is that you can only accept an offer that was addressed to you. An offer needs to be distinguished from an invitation to treat. Imagine I said to you: ‘I am thinking of selling my car. I have been told that £7,000 would be a realistic asking price. Would you be interested in buying it?’ This would not amount to an offer as I have only said that I am ‘thinking’ of selling my car, and the price is only a potential asking price. I have not committed myself to selling you the car at a specific price. The legal terminology for such preliminary statements is ‘invitation to treat’. The statements are simply inviting negotiation and so the buyer could not by agreeing to pay £7,000 for the car thereby create a binding contract. Compare this invitation to treat with an offer eg ‘I will sell you my car for £7,000’. 1.2.1 Goods on display So what about goods on display eg on the shelves in a supermarket? Are they an offer or an invitation to treat? To decide this, it might be easier for you to work backwards and think where a contract is actually concluded in a supermarket. It is at the checkout. You offer to buy the goods and it is up to the cashier to decide whether, or not, to accept that offer. So goods on display are simply an invitation to treat ie an invitation to select the goods and put them in your trolley. If you later change your mind and decide you do not want the goods then you can put them back without obligation. 1.2.2 Advertisements Where goods or services are advertised (eg in a newspaper, a television commercial or on a website) this is generally regarded as being an invitation to treat. Why? Because if such advertisements were offers, it would mean that anyone asking for the advertised goods would be accepting and that would be a problem if the advertiser had run out of stock. What about an advert of a reward? Traditionally adverts of reward have been treated as offers; namely definite promises to pay the reward if the specified condition (eg supply of information) is satisfied. There is a policy reason behind this approach. Treating advertisements of a reward as offers means that the money has to be paid once the offer is accepted eg by the supply of the information. No negotiation is involved. This should encourage people who have information to come forward. Advertisements of reward, then, are offers, but other types of advertisement will usually be invitations to treat. However, if there are special circumstances that show an intention to be bound, an advert may amount to an offer –​an offer of a unilateral contract. Most contracts are bilateral (ie a promise in return for a promise) but with unilateral contracts only one party is making a promise (eg a promise to pay a reward); hence why they are said to be unilateral. No one is bound to do the specified act. This is why unilateral contracts are sometimes referred to as ‘If’ contracts. ‘If you do X, I promise to do Y.’ The distinction between unilateral and bilateral contracts is particularly important in relation to ‘acceptance’ and ‘consideration’ (which we will cover in 1.3 below and Chapter 3 respectively). The formation of a unilateral contract can be demonstrated in the famous case of Carlill v Carbolic Smoke Ball Company 1 QB 256 (CA). In order to guarantee the effectiveness of the smoke ball remedy, the company offered a reward of £100 to anyone who used the remedy and contracted flu. They also confirmed that they had deposited £1,000 in a bank account ready to make any payments under their promise, showing great confidence in the smoke ball and further tempting customers to buy one (see Figure 1.1). 5 Contract Figure 1.1 Carbolic Smoke Ball offer Once aware of the offer, Mrs Carlill accepted it when she purchased the smoke ball; she completed the prescribed course and then contracted flu. She sued for the £100 and the court held that the company’s promise to pay £100 was an offer of a unilateral contract ie a promise in return for the specified act that Mrs Carlill had performed. 1.2.3 Auctions and tenders 1.2.3.1 Auctions If you attend an auction at what point do you think a sale is concluded? When is an offer accepted? It is when the auctioneer’s gavel goes down; that is the acceptance of the last bid, which was the offer (Sale of Goods Act (SGA) 1979, s 57(2)). The auctioneer inviting bids is simply an invitation to treat. Owners of household items being sold at an auction are generally prepared to accept whatever price someone is prepared to bid for them. But what about expensive assets such as houses? The owner and auctioneer will generally agree in advance a minimum price below which the auctioneer will not sell the property. Such a price is called a ‘reserve price’. Potential bidders will be made aware there is a reserve price; they just will not know what it is. What they do know, though, is that if the bidding does not reach the reserve price the property will be withdrawn from the sale. Auctions of lots that do not have a reserve price may be advertised as being ‘without reserve’. The legal significance of this is highlighted by the decision in Barry v Davies 1 WLR 1962. In Barry v Davies two machines being sold at an auction were advertised by the auctioneer as being ‘sold without reserve’; in other words they would be sold to whoever made the highest bid (however much that might be). Mr Barry made the highest bid for the machines but the auctioneer did not accept it as he knew he could get a much higher price for them elsewhere. Mr Barry successfully sued the auctioneer for breach of contract; more specifically for breach of a unilateral contract. Why unilateral? Only one party had made a promise, namely the auctioneer. He had promised to sell the machines to whoever might make the highest bid. Why would it have been pointless Mr Barry suing the owner of the machines? The auctioneer had not accepted his bid and so there was no contract of sale with the owner. 6  Agreement The measure of Mr Barry’s damages was the difference between the amount of his bid (£400) and the total value of the machines (£28,000) ie £27,600. That sum represented his loss of expectation: he had expected to buy the machines for £400 but it would cost Mr Barry another £27,600 to buy similar machines elsewhere. The amount the auctioneer sold the machines for elsewhere was irrelevant. We will consider damages in detail in Chapter 8. 1.2.3.2 Tenders It is not uncommon for services to be contracted out by businesses. For example, a manufacturing company may decide to outsource its cleaning services and invite a number of companies to submit tenders for the work. Does it have to accept any particular one of them? Generally no, because the invitation was simply an invitation to treat and the tenders will each have been offers to do the work. But what if the company had specifically promised to accept the lowest tender, or at least impliedly promised to consider all conforming tenders? Then what we have is an offer of a unilateral contract and if the company does not comply with its promise (to, say, accept the lowest tender) it will be liable for breach of contract. In Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council 1 WLR 1195 (CA) the Aero Club had been granted a number of concessions to operate pleasure flights from Blackpool airport. When the last concession was nearing expiry, the council sent invitations to tender to the claimant and six other interested parties. The invitation said that the tenders had to be received not later than noon on 17 March 1983. The Aero Club posted its tender in the Town Hall letter box at 11am on 17 March. The letter box was supposed to be emptied at noon each day, but due to an oversight was not emptied at noon on 17 March. Consequently, the claimant’s tender was recorded as late and not considered. The Aero Club successfully sued for breach of an implied promise that a tender, returned on time, would at least be considered. The council was in breach of an implied unilateral contract to consider any conforming tenders and so was liable to the Aero Club for loss of opportunity (see Chapter 8). 1.3 Acceptance 1.3.1 Definition So far we have considered ‘offer’, which is the first constituent of agreement. An offer must be in a form whereby a simple assent to it is enough to lead to agreement. In many cases, therefore, it is enough if the person to whom the offer is made simply says ‘Yes, I agree’. In some situations, however, it may be more difficult to decide precisely if, and when, a matching offer and acceptance have been made. Acceptance has been defined as an unqualified expression of assent to the terms of an offer. So to be acceptance there must be: (a) an expression of assent, (b) which is ‘unqualified’. 1.3.2 Communication of acceptance The need for an ‘expression of assent’ means that, generally speaking, acceptance must be communicated and it must be communicated by the offeree or their authorised agent. This may be by words or conduct. A nod or a wink can say a lot. Acceptance of an offer of a unilateral contract will always be conduct of some sort. 7 Contract So what about silence? Can that ever amount to acceptance? If coupled with conduct that clearly signifies acceptance when viewed objectively, then the answer is ‘yes’. However, as a general rule an offeror cannot bind the other party to a contract by silence per se. The need for the expression to be ‘unqualified’ means that a conditional response cannot amount to acceptance and create a contract. The legal terminology for a conditional response (such as ‘I agree to buy your car, but can only afford to pay you half the price now and the rest next week’) is a counter-​offer. The offeree has imposed a condition on their acceptance. A counter-​offer effectively destroys the original offer and represents a new offer that the other party is free to accept or reject. Businesses generally want to contract on their own standard terms and conditions (Ts & Cs) rather than those of the other party. In an attempt to achieve this they will attach their Ts & Cs to any document they submit to the other side (whether that be a quotation or, say, an order form). A so-​called battle of the forms may result, with both sides passing their own Ts & Cs to the other side for agreement. These can be seen as counter-​offer after counter-​offer. The parties battle it out and the prize is having your own terms prevail. In other words, the last shot wins. A case that illustrates this is Butler Machine Tool v Ex-​Cell-​O Corp 1 WLR 401. The sellers sent a quotation (offer) for the supply of machines to the buyer. This offer was subject to a price variation clause. The buyers purported to accept on the buyer’s Ts & Cs (which did not include a price variation clause). At the end of the order was a tear-​off acknowledgement of order form that said, ‘We accept your order on the Ts & Cs stated therein’. The sellers returned the tear-​off slip and in so doing effectively accepted the buyer’s ‘last shot’. The decision in Butler Machine Tool Co Ltd v Ex-​Cell-​O Corporation (England) Ltd, however, did little to resolve a true ‘battle of the forms’, such as might have arisen if there had been no acknowledgement slip, but simply an exchange of incompatible terms, followed by the delivery of the machine. In such a situation, delivery of the machine might be regarded as acceptance by conduct of the last set of standard terms to be proffered. 1.3.3 Acceptance by post As stated above, the general rule is that acceptance must be communicated but when post is chosen as the mode of acceptance there is bound to be a delay between the letter of acceptance being sent and it actually being received and read. So when does the law deem a letter of acceptance to be effective? By virtue of what has become known as the ‘postal rule’ a letter of acceptance will be effective when posted even if the letter is lost in the post. For the postal rule to apply, though, the following conditions must be satisfied: (a) it was reasonable in all the circumstances to use the post; (b) the letter was properly addressed, stamped and posted; and (c) the postal rule had not been excluded by the offeror. The rule would be excluded if, for example, the offeror had stipulated or otherwise implied that they needed to be notified in writing or ‘told’ of any acceptance. In that case, although sending a letter of acceptance might be reasonable it would only be effective if, and when, received. In the case of Holwell Securities Ltd v Hughes 1 WLR 155 (CA) the defendant granted the claimant an option to buy a house expressed as being ‘exercisable by notice in writing to [the defendant]’. The claimant wrote to the defendant purporting to exercise the option but the letter never arrived. If the postal rule applied there would have been a binding contract at the time of posting (irrespective of the fact the notice did not arrive); whereas if the postal rule did not apply, there would be no contract, as acceptance had not been communicated. 8  Agreement Thinking back to the limitations on the postal rule, the post was clearly a reasonable method of acceptance, as notice had to be in writing and there was no urgency. But even assuming that the notice had been properly addressed and posted etc, the offer said ‘notice in writing to [the defendant]’ and the court held that, by using the word ‘notice’, the offeror had impliedly excluded the postal rule. So whilst it might have been appropriate to accept by post, the acceptance actually had to arrive with the defendant to be effective. The postal rule did not apply. Figure 1.2 summarises the position. Figure 1.2 Acceptance by post Acceptance must be communicated Postal rule: Letter of acceptance effective when posted Reasonable to Properly stamped, Rule must not accept by post addressed and posted have been excluded 1.4 Termination of offers An offer cannot be accepted once it has been terminated. An offer may be terminated in the following ways (also in Figure 1.3): (a) Rejection by the offeree Figure 1.3 Termination of offers Counter- offer Termination Lapse of Withdrawal of offer time Express rejection 9 Contract (b) Revocation (ie withdrawal) of the offer by the offeror (c) Lapse of time 1.4.1 Rejection An offer may be rejected by the offeree either expressly or impliedly. It will be rejected by implication if the offeree makes a counter-​offer (see 1.3.2 above). 1.4.2 Revocation Generally an offer may be revoked (withdrawn) any time before acceptance even if the offeror promised to keep the offer open for a certain period of time. The only exception to that is if the offeree gave something in return for the promise to keep the offer open (eg if the offeree paid the offeror £1 for the privilege of having a specific period of time within which to accept) then the offer would have to be kept open for the agreed time. In Mountford v Scott 1 All ER 198, the claimant paid £1 for the option to buy V’s house for £10,000. The option was exercisable within six months. V purported to revoke the offer. The claimant subsequently sought to exercise the option. The court held that the offer was irrevocable as the claimant had paid for the option (albeit a nominal amount). In paying £1, the claimant had given consideration for the offeror’s promise to leave the offer open for six months. We shall look at consideration in Chapter 3. So the general rule is that an offer can be revoked any time before acceptance but in relation to offers of unilateral contracts when does acceptance take place? Is it when the promisee starts to perform the required act, or only when they complete it? Example Someone offers to pay you £100 if you walk from London to York. Do you accept this offer when you first embark on the walk, or when you actually arrive at York? The general view is that with unilateral contracts no obligations arise until the specified act is completed; in other words, acceptance only occurs when performance is complete. That being so, it would mean that the offer of £100 could be withdrawn at any time before you complete your walk to York. You could be just five miles away from York when you are told that the offer no longer stands and you would have no redress. It would be grossly unfair, and accordingly there are a number of judicial authorities that suggest partial performance of a unilateral contract is sufficient to prevent revocation by the offeror. It has been suggested that there are two offers in this situation. In addition to the express offer, there is an implied promise not to revoke if the specified act is started within a reasonable time. The acceptance and consideration for the implied promise is the commencement of the act. Revocation, however, must be communicated to the offeree in order to be effective. Consider notice of revocation sent by email. When do you think that would be effectively communicated? When it was sent, when it was actually read or when it should have been read? In relation to electronic communications sent to a business the rule appears to be that revocation will be effective when it should have been read. Authority for this is The Brimnes QB 929. On the facts a shipowner had the right to withdraw a ship by a given day if the hire fee was not paid on time; notice of withdrawal of the ship was sent by telex, and received during office hours at 5.45pm; but the notice was not read until the next morning (which would have been too late to give the notice). The Court of Appeal held that it was communicated when it was received, if it was communicated by such means that it would in the normal course of business come to the 10  Agreement attention of the person on its arrival, but for their failure to act in a normal business-​like manner. What about an offer made to the public at large as in Carlill v Carbolic Smoke Ball Co? How can the offeror possibly know who has seen the offer and therefore tell them that it has been withdrawn? The best the offeror can do in the circumstances is publish a notice of revocation in the same place as the offer and with the same prominence and in an American case, which is persuasive, this was held to be effective. Notice of revocation can be given either by the offeror or a reliable third party (ie someone objectively considered to be reliable). Note this is different to communication of acceptance in the following respects: acceptance must be communicated by the offeree or an authorised agent; and the postal rule does not apply to notices of revocation. 1.4.3 Lapse of time An offer will lapse after a specified time, or otherwise after a reasonable time. What would be a reasonable time will depend on all the circumstances, eg a reasonable time within which to accept an offer to buy perishable goods will be significantly less than in the case of an offer to sell non-​perishables. 1.5 Certainty and completeness So far we have considered ‘agreement’ in its simplest form, ie an offer that has been accepted. But often in real life it is not that straightforward, eg, if commercial parties have been negotiating terms over a considerable period of time it may be difficult to assess if, and when, they reached agreement on all the material terms of the deal. Whether, or not, parties have reached complete agreement in relation to the material terms of the deal is generally judged objectively, but the facts have to be judged in context, eg: (a) whether the parties are in the same trade; (b) trade usage; (c) whether the arrangement has been acted on for any length of time; and (d) whether there is an objective mechanism for resolving any uncertainty such as an arbitration clause. Examples (a) You go to a car dealership and say you are interested in buying a particular car priced at £10,500. You agree to buy it on ‘hire purchase terms’. In the absence of any other details of the hire purchase agreement (eg duration, number and amount of repayments) it would be too vague to be a contract ( Scammell v Ouston AC 251 (HL)). (b) An agreement to buy ‘timber of fair specification’. This may seem vague but the court held there was a binding contract on the particular facts of a case. The parties had dealt with each other in the past; they were well acquainted with the timber trade; and the contract had been partly performed. In other words, as far as the parties themselves were concerned there was no uncertainty. (c) An agreement between a petrol company and filling station to supply petrol at the market price prevailing at the date of delivery. Although the exact price has not been 11 Contract agreed, if the agreement provides a mechanism by which the uncertainty can be resolved there would be a binding contract. (d) A ‘provisional agreement’ is drawn up and is to operate until a fully legalised agreement drawn up by a solicitor and embodying the conditions of the provisional agreement is signed. The fact that a formalised agreement has yet to be drawn up is irrelevant. Generally contracts do not have to be in any particular form, and clearly the parties are in agreement and so there would be a contract. Summary For a contract there must be agreement (comprising an offer that has been accepted), intention to create legal relations and consideration (see Figure 1.4). Most contracts are bilateral, ie a promise in return for a promise. A unilateral contract is a promise in return for an act. As far as agreement is concerned an offer must have been accepted and all material terms must have been agreed. An offer must be distinguished from an invitation to treat, which cannot be accepted. An offer cannot be accepted once it has been terminated, eg by rejection, revocation or lapse of time. Revocation must be communicated. Acceptance must be unconditional and communicated by words or conduct; but, if the postal rule applies, a letter of acceptance will be binding when it is posted. Figure 1.4 Requirements for formation of a contract Offer Agreement Intention to create legal CONTRACT Acceptance relations Consideration 12  Agreement Sample questions Question 1 A client wanted a skip to take away rubbish and so contacted a skip hire company. The company posted a quotation for £90 and said that if the client wanted to accept the company needed to know by Friday 19 April. On Tuesday 16 April the client posted a letter accepting the quotation and asking when would be the earliest the company could supply a skip. By 22 April the client had not heard back from the company. The client rang the company. It said it had not received the letter and had no skips available for hire now or in the near future. If the client sued the company for breach of contract, which of the following best describes the most likely outcome? A The company would be liable for breach because a contract was formed when the client posted the letter on 16 April. B The company would not be liable for breach of contract because the client’s letter on 16 April amounted to a counter-​offer. C The company would not be liable for breach of contract as it had no more skips available. D The company would be liable for breach of contract as the client accepted its offer when the client rang on 22 April. E The company would not be liable for breach of contract as the postal rule would not apply. Answer The correct answer is E. An offer was made by the company to hire out the skip for £90. The client purported to accept on Tuesday 16 April. The letter was not a counter-​offer as the client was only asking a question and not imposing a condition, so B is wrong. Acceptance must be communicated. On that basis the client has no contract with the company, because by the time the client actually contacted the company (ie on 22 April) its offer had lapsed (19 April), so D is wrong. There will only be a contract if the postal rule applied. Under the postal rule a letter of acceptance is binding as soon as it is posted. For the rule to apply the post must have been a reasonable means of communication. On the facts it may have been reasonable to reply by post on 16 April as the offer did not lapse until 19 April and also the quote had been sent by post. Query though whether the letter was sent first or second class and at what time (eg was it posted after the last postal collection on 16 April?). In any event the postal rule will only apply where a letter was properly addressed and posted etc. Query here why the client’s letter was lost in the post, eg had it been properly addressed? Also the postal rule may have been impliedly excluded as the company said it needed to ‘know’ by 19 April. Only in the unlikely event of the postal rule applying would there be a contract. This is why A is wrong. C is wrong because even if the company had no more skips it could be in breach and liable to pay damages. 13 Contract Question 2 A client attended an auction. When it came to the lot comprising Victorian garden ornaments, the auctioneer said they had been valued at £300 and would be sold that day whatever price they fetched. He invited bids of £100, then £80. When nobody responded, the auctioneer asked how much anyone would be prepared to pay for the ornaments and the client bid £20. No further bids were made but the auctioneer withdrew the ornaments from the sale. He later sold them privately for £150. Which of the following statements best sums up the legal position of the client? A The client could sue the owner of the ornaments for breach of a contract. B The client could sue the auctioneer for breach of contract and the measure of damages would be £130. C The client could sue the auctioneer for breach of a unilateral contract. D The client would not have an action for breach of contract as the bid was far too low. E The client could sue the auctioneer for breach of a bilateral contract and the measure of damages would be £280. Answer The correct statement is C. Normally at an auction the bids are the offers and the fall of the auctioneer’s hammer is the acceptance (SGA 1979, s 57). Therefore, the client had no contract to buy the ornaments from the seller as the auctioneer did not accept the bid. Hence A is wrong. Here the auctioneer made an offer of a unilateral contract when he said that the ornaments would ‘be sold that day whatever price they fetched’. This is why E is wrong. He was promising to sell to whoever made the highest bid (Barry v Davies) but he did not then sell to the highest bidder so he was in breach of contract. The amount of the bid is irrelevant and that is why D is wrong. The auctioneer will be liable in damages to the client for £280, ie the difference between the value of the ornaments (£300) and the amount of the client’s bid (£20), so B is wrong. Question 3 At 9am a car dealer emailed a client offering to sell her a vintage car for £60,000. The client received the email shortly afterwards and emailed an acceptance of the offer at 12.55pm. The client knew that the car dealership closes for lunch each day between 1pm and 2pm. After lunch the car dealer did not check his email account. At 2.30pm the car dealer received an offer for £62,000 for the vintage car, which he accepted. At 4pm the client phoned the car dealer to enquire about the car and was told the car was no longer for sale. The client has been reliably informed it will cost £65,000 to buy a similar car elsewhere. Which of the following statements best sums up the legal position of the client? A The client has a contract with the dealer to buy the car and can sue the dealer for £2,000 representing the profit the dealer made on selling the car elsewhere. B The dealer revoked his offer before acceptance was communicated and so there would be no contract of sale with the client. C The client’s acceptance would be deemed communicated before 2.30pm and so the dealer would be liable to pay the client damages of £5,000. 14  Agreement D By virtue of the postal rule, acceptance was communicated at 12.55pm and so the dealer would be liable to the client for breach. E When the dealer sold the car elsewhere he effectively revoked the offer to the client and so would not be liable for breach. Answer The correct answer is C. Acceptance would be deemed communicated when it would be reasonable for the client to expect it to be read. With businesses it is reasonable to expect communications to be read during normal office hours (so here not between 1pm and 2pm but certainly before 2.30pm). Also the aim of contractual damages is to compensate the innocent party for loss of bargain. Here it will cost the client an extra £5,000 to buy a similar car elsewhere. This is why A is wrong. B is wrong as it is likely acceptance would be deemed communicated before the offer was revoked at 4pm. D is wrong as the postal rule only applies to letters of acceptance. E is wrong as revocation must be communicated (by the offeror or a reliable third party). 15