This advice analyses the communications between Aero Delivery Ltd (ADL) and Volt Motors (VM) to determine, firstly, whether a contract for the supply of electric vans was formed, and secondly, assuming a contract was formed, whether it could be rescinded due to a statement made in a promotional brochure.
Part A: Contract Formation
Issue
The central issue is whether the series of communications between ADL and VM from 1 May to 8 May resulted in the formation of a legally binding contract. To advise ADL, each communication must be analysed to see if it constitutes an offer, an acceptance, a counter-offer, or a request for information.
Rule and Application
A contract is formed when there is a clear offer that is met with a corresponding acceptance, creating an agreement. The first step is to identify the legal status of each communication.
ADL’s email on 1 May, asking about supply and price, is not an offer. It is an invitation to treat or a request for information. It shows a willingness to negotiate but lacks the certainty and intention to be bound required for an offer. It is similar to the query in Harvey v Facey, where a statement of a 'lowest price' was not held to be an offer.¹
In response, VM’s email on 3 May is a valid offer. It contains the key elements required: specific goods (20 ‘VoltX’ vans), a clear price (K500,000), and a delivery date. The statement that the offer is open until 10 May demonstrates an intention to be bound if accepted within that timeframe.
The crucial communication is ADL’s email on 5 May. For an acceptance to be valid, it must be a ‘mirror image’ of the offer. ADL’s response, stating "The price is acceptable, but we require a 5% discount", introduces a new term. This is not an acceptance. The law must distinguish between a counter-offer and a mere request for further information. A request for information keeps the original offer open, as seen in Stevenson, Jacques & Co v McLean.² However, ADL’s use of the word "require" suggests they are not merely inquiring but are making their acceptance conditional on a new term. This makes it a counter-offer, which has the effect of destroying VM’s original offer.³ Therefore, VM’s original offer of 3 May ceased to exist after ADL sent its email on 5 May. VM’s silence in response to the counter-offer does not constitute acceptance.
Consequently, ADL’s email on 8 May, stating "We accept your May 3rd offer", is legally ineffective as an acceptance. Since their counter-offer on 5 May terminated the original offer, there was nothing left to accept. Legally, ADL’s 8 May email is a new offer to VM to buy the vans on the terms VM originally proposed. VM was therefore free to accept or reject this new offer. Their reply, stating the inventory was sold, was a clear rejection.
Conclusion
No binding contract was formed between ADL and VM. VM's offer was terminated by ADL's counter-offer, and ADL's subsequent attempt to accept was a new offer which VM rejected. ADL has no contractual claim against VM.
—
Part B: Misrepresentation
Issue
Assuming, contrary to the conclusion in Part A, that a contract was formed, the issue is whether ADL can take action based on the false statement in VM’s brochure regarding the vans' battery range. This involves determining if the statement constitutes an actionable misrepresentation and what remedies would be available.
Rule and Application
An actionable misrepresentation is an untrue statement of material fact made by one party to another, which induces them to enter into the contract.⁴ For the statement to be actionable, it must be a false statement of fact, not an opinion or 'puff'. The claim that the VoltX vans had a "battery range of 400 miles" is presented as a factual specification in a brochure. Given that VM is the manufacturer, this statement would be considered a statement of fact, not mere opinion.⁵ The facts confirm the statement was untrue, as the actual city range was only 150 miles. Furthermore, the problem states that ADL "relied heavily on this brochure statement", satisfying the requirement of inducement.
The next step is to categorise the misrepresentation, as this affects the available remedies.
- Fraudulent Misrepresentation: This is defined as a statement made knowing it to be false, without belief in its truth, or recklessly, careless as to whether it be true or false.⁶ The facts state that VM "knew" the 400-mile range was only achievable in unrealistic conditions. This demonstrates a clear intent to deceive, making it a strong case for fraudulent misrepresentation.
- Negligent Misrepresentation: Under section 2(1) of the Misrepresentation Act 1967, a misrepresentation is negligent if the maker cannot prove they had reasonable grounds to believe, and did believe up to the time the contract was made, that the statement was true. Given VM’s knowledge, they would be unable to discharge this burden.
- Innocent Misrepresentation: This would not apply, as VM knew the statement was false.
The primary remedy for misrepresentation is rescission, which aims to set the contract aside and restore the parties to their pre-contractual positions. ADL could therefore return the vans and claim a full refund. This right can be lost, but on the facts, no bars to rescission (such as affirmation of the contract or lapse of time) appear to be present.
In addition to rescission, damages are available. For fraudulent misrepresentation, damages are awarded under the tort of deceit and aim to cover all losses directly flowing from the fraudulent act, even if they were not foreseeable.⁷ Damages under section 2(1) of the Misrepresentation Act 1967 are calculated on the same basis as for fraud.⁸ Therefore, ADL could rescind the contract and also claim damages for any losses incurred as a result of entering the contract based on the misrepresentation.
Conclusion
Assuming a contract was formed, ADL has a very strong claim for fraudulent misrepresentation. The statement in the brochure was a false statement of fact which induced ADL to enter the contract. ADL would be advised that they are entitled to rescind the contract, meaning they can return the vans and be refunded. They can also claim damages for all losses suffered as a result of relying on VM’s false statement.
— ¹ Harvey v Facey [1893] AC 552 (PC). ² (1880) 5 QBD 346. ³ Hyde v Wrench (1840) 49 ER 132. ⁴ Ewan McKendrick, Contract Law (14th edn, Palgrave 2021) 263. ⁵ Esso Petroleum Co Ltd v Mardon [1976] QB 801 (CA). ⁶ Derry v Peek (1889) 14 App Cas 337 (HL). ⁷ Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 (CA). ⁸ Misrepresentation Act 1967, s 2(1).
Bibliography
Cases
Derry v Peek (1889) 14 App Cas 337 (HL)
Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 (CA)
Esso Petroleum Co Ltd v Mardon [1976] QB 801 (CA)
Harvey v Facey [1893] AC 552 (PC)
Hyde v Wrench (1840) 49 ER 132
Stevenson, Jacques & Co v McLean (1880) 5 QBD 346
Legislation
Misrepresentation Act 1967
Books
McKendrick E, Contract Law (14th edn, Palgrave 2021)
