Legal Article - Business Law

What is Communication of Acceptance in Contract Law?

The timing of a contract can be crucial because up to the point when the contract is made then neither side have obligations. In many cases the contracting period is very short. You pop in the local shop, select a newspaper, pay for it.

Other situations can be different, however. Normally the contract is concluded when the person accepting the offer communicates acceptance to the person making the offer.

So you offer a car for sale at a bargain price and the customer shows an interest. You say to them: 

'Do you want the car for £5,000'. After a sharp intake of breath and much muttering about when the Will is to be sorted out, or the insurance pays out, or what their respective partner is going to do or say, the customer toddles off saying they will think about it. In the meantime another customer comes in and buys the car.

The first customer has no comeback whatsoever since they did not communicate the 'Yes' back to you and therefore there was no binding contract.

Likewise, you offer a trolley jack for sale at a bargain price and the customer shows an interest. You say to them 'Do you want it for £20?' After a sharp intake of breath, the customer toddles off saying they will think about it. In the meantime another comes in and buys the jack.

The first customer has no comeback whatsoever since they did not communicate 'yes' back to you and therefore there was no binding contract.

On the other hand previous case law has established the general rule that communication of acceptance of an offer occurs, in the case of post, when the letter is put in the post-box.

So, in the case above, if the first customer had put a letter in the post-box confirming he/she wanted to buy the car before the second customer came in to buy then the first customer is entitled to the car or claim damages for breach of contract.

Finance deals are another special area. The majority of finance deals for cars are three party agreements - the customer, the dealer and the finance company.

It is quite common for the customer and dealer to sign the finance document at the dealer's premises but the document to then be sent to the finance company for signature.

Up until the point that the finance company have signed the document and put in the post the document signed by the three parties, then there is no contract.

This can present some difficulties since customers invariably wish to take the car away once they've signed up.

You are therefore faced with holding the car back until the finance company sign up or letting the car go with the prospect that they may be getting free car hire. The reality is that up until the point that the contract is concluded any one party can pull out of the prospective agreement.

The customer could get free car hire but it sometimes works in the dealer's favour if they have second thoughts about pursuing the deal.

What must be remembered however is that if the prospective deal is cancelled any deposit or part exchange car handed over must be returned to the customer. If the part exchange car has been sold then its value must be returned to the customer.

This can be a further difficulty if the dealer over-allows on the part exchange price for 'creative accounting' reasons and raising the value of the car for sale by an equivalent amount. Customers become very deaf when you try and argue that you over-allowed on the part exchange for their benefit!

Published: 10 Mar 2011

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