Contract Law Problem Question - Suggestions?Watch
Having purchased a site for Greenacres, Tony entered into negotiations with Neil, a local builder, for the construction of a two storey residential home, designed to accommodate 50 people.
In due course, Neil sent Tony a letter, offering to carry out work for a price of £800,000 “subject to my usual terms and conditions enclosed herewith”. In fact, Neil had forgotten to enclose a copy of his usual terms and conditions, one of which provided that it was the client’s responsibility to ensure that all necessary planning permission had been obtained for the work.
At once, Tony replied by letter, accepting “subject to satisfactory planning permission being obtained”. This letter was lost in the post and never reached Neil.
Two weeks later, not having heard from Tony, Neil rang to ask whether Tony intended to accept. Tony was out at the time of the call, so Neil left a message on Tony’s answerphone simply saying: “Hello Tony. This is Neil “Just calling to double check that you are accepting my offer.”
Tony was unsure what had prompted this call but he thought that it must be a query about his acceptance being stated to be “subject to satisfactory planning permission being obtained.” When Tony rang Neil’s office, Neil was out on site; so Tony left a message with Neil’s secretary asking her to tell Neil that, of course, he was accepting.
The following day, Tony heard from the local planning authority that planning permission had been granted, but that a condition of the permission was that Tony should take steps to improve road traffic visibility and access at the main entrance to Greenacres. Tony had made no allowance for improvements of this kind (costing of the order of £50,000) in negotiating with Neil.
Outlining which further facts (if any) you would need to know, advise Tony whether he is contractually bound to Neil and, if so, on which terms the contract has been made
So here are my initial thoughts so far (I'm just not sure whether I'm heading in the right direction); I won't include my analysis on Intention and Consideration here as I feel as though Acceptance is the main focus here.
- I think one of the essential facts that need to be known was who sought the planning permission in the first place, as there are conflicting terms; if Neil sought the planning permission then this could be used against him as intention not to abide by his own terms? Since he purported that this should be Tony's issue to deal with.
There is obviously an offer - Carrying out the construction work for the payment of £800k, but the terms are not sufficiently known to Tony as Neil forgot to enclose them. (i have a feeling this may cause issues of incorporation as it was not brought to his attention upon the conclusion of the contract?)
- In terms of Acceptance - Tony purported to reply by post, as per the postal rule, so this acceptance is valid as soon as it is posted without the need for it to reach the offeror (As per Adams v Lindsell) (There was no specified mode of contact and so it seems viable to rely on this rule) so the contract was concluded without the need for the later phone call. (Though Neil had no knowledge, it is still possible for him to be contractually bound)
But then there's also the issue of the terms... It's arguable that Tony's reply could constitute as a counter offer, since his terms differ from Neil's. (Which would then have to be accepted by Neil, and so the contract may not have been concluded on Tony's terms after all)
- Neil had never really expressed his acceptance of the counter-offer so is there even a contract?
and then there's the Battle of Forms consideration...
If the traditional approach was taken then essentially the contract would be concluded on Neil's terms, as the contract was accepted by Tony with knowledge of the offer?
As you can tell I'm a little torn on the issue! If anyone has any insight on how they would tackle this then I'd appreciate you sharing. Thanks x
1. Neil’s letter is obviously an offer. It is an offer to contract on the standard terms. It does not matter at this stage that he forgot to include them - it is possible to accept this offer without knowing what the terms are!
2. Tony’s letter is not an acceptance. Acceptances must mirror the offer, and Tony’s letter does not mirror since it includes different terms on planning permission. It is therefore prima facie a counter offer.
3. A valid counter offer terminates the original offer (meaning it cannot be accepted later). However, offers must be actually communicated to the recipient - the postal rule applicable to acceptances does not apply. Since the letter has not arrived, Tony has failed to make a counter offer. This means Neil’s offer is still valid and capable of acceptance.
4. Tony then told Neil he accepted his offer. A reasonable person would not know about Tony’s subjective misimpressions, so the fact that Tony thought his letter was received is not relevant. Since the original offer is still valid and a reasonable person would understand Tony to be accepting it, there is a contract (assuming intention to be bound and consideration, which you rightly point out aren’t a big issue here). The timing of acceptance was when it was communicated to the secretary (Neil’s agent).
5. Since there is a contract on Tony’s standard terms, you then need to consider if the planning permission clause was incorporated. Consider whether it is an unusual or onerous term, and then whether it meets the test for incorporation.
6. If the term is incorporated, it may still be void for unfairness under the ‘standard terms’ section of the Unfair Contract Terms Act 1977. Apply those tests to see if the term is void or not (noting in particular whether the term is a type of clause which is regulated by UCTA in the first place).
6. If the term is incorporated and valid, Tony is out of luck. If it is not, he is likely still out of luck. This is because the absence of this term does not mean his term about satisfactory permission would be included. Instead, the court would interpret the contract using the usual rules (officious bystander, business efficacy tests) to see what the contract objectively means. In the absence of any term talking about planning permission, it is unlikely that a reasonable person would interpret the contract as allowing Tony to demand a discount to take into account the extra cost. The price is the price.
That’s the structure I’d take and the issues I’d address.