Chapter 1 – Agreement

Essay question

Critically discuss the courts’ approach to the principles relating to unilateral contracts.

Essay question answer guidance

The question centres on unilateral contracts. An explanation should be provided as to what these contracts involve (a promise in exchange for an act): Carlill v Carbolic Smoke Ball Company (1893). You should also make reference to the principles concerning acceptance and revocation of unilateral offers and the complexities that might arise in connection with the fact acceptance is the performance of the requested act (compare bilateral contracts). You should also provide some discussion of the different explanations of the basis of unilateral contracts and the difficulties the courts have in reaching a clear explanation (for example, the obiter comments of Goff LJ in Daulia v Four Mill Bank Nominees Ltd (1978)).

Another area to consider is the two-contract analysis and the role of the unilateral contract in relation to tenders and bids (Harvela Investments Ltd v Royal Trust Co. of Canada (CI) Ltd (1986)) and auctions ‘without reserve’ (Warlow v Harrison (1859)). In these contexts, the courts have used unilateral contracts as a device through which to secure an award of damages.

Problem question

On Monday 1 October, Pine Trees Ltd, manufacturers of pine furniture, wrote to World of Bedrooms, its usual retailer, offering to supply pine bedroom suites. The letter stated Pine Trees could supply 500 such suites on 30-day credit terms at £250 per suite. The letter ended with the following words:

• “It would be helpful if you could reply in writing if you wish to take advantage of this offer. The offer is open for 14 days from the date of this letter.”

On Wednesday 3 October, World of Bedrooms contacted Pine Trees by telephone and informed Harry, Pine Trees’ managing director, that World of Bedrooms wanted 60-day credit terms. Harry insisted the offer was non-negotiable, so World of Bedrooms stated it would need to consult its bank.

On Friday 5 October, Anisa, World of Bedrooms’ managing director, agreed the necessary finance facility with the bank and at 4.30p.m. contacted Pine Trees by telephone to inform Harry the purchase was to go ahead. Anisa had to leave a message on Pine Trees’ telephone answering machine. Anisa assumed this was because all employees were busy. In fact, Pine Trees had recently adopted a policy of closing at 4p.m. on Fridays and the message was not played back until 9a.m. on Monday 8 October. Pine Trees had, however, posted a letter at 3p.m. on the Friday afternoon withdrawing the offer.

World of Bedrooms claims there is a binding contract to supply the bedroom suites, which Pine Trees denies.

Advise the parties.

Problem question answer guidance

Pine Trees made an offer on 1 October. On 3 October, World of Bedrooms purported to accept but stated it wanted 60-day credit terms. This appears to be a counter-offer, which destroys the original offer (Hyde v Wrench (1840)). Despite this, Harry reintroduced the offer so it remained open to accept.

World of Bedrooms purported to accept on 5 October at 4.30p.m. by telephone. Is this valid, given that it is not in writing (prescribed method in the offer letter)? It appears the method is not mandatory (‘it would be helpful’) and it may also be that the actual method (telephone) was no less advantageous in fulfilling any purpose behind the prescribed method (Manchester Diocesan Council of Education v Commercial & General Investments Ltd (1970)).

Assuming acceptance can be by telephone, when is it communicated? The message is left on 5 October at 4.30p.m. and this is likely to be within office hours (The Brimnes (1975) and Thomas v BPE Solicitors (2010)). Otherwise, it will be communicated at the start of the next working day.

Does Pine Trees’ letter, posted on 5 October, revoke the offer? There is no consideration to support the stipulation it will be open for 14 days, so Pine Trees can revoke at any time (Routledge v Grant (1828)). The revocation is not binding on posting (postal rule does not apply to revocations). It must be actually communicated, so takes effect on receipt (Byrne v Van Tienhoven (1880)) and we are not told it has been received. As such, even if the acceptance does not take effect until Monday, it appears to be before any effective revocation. Assuming telephone is a valid method of acceptance, there is a binding contract.