**INTERNAL MEMORANDUM**
**To:** Supervising Lawyer
**From:** Intern
**Date:** 24 May 2024
**Re:** Formation of Contract – Office Furniture Purchase
1. Introduction
This memorandum provides an analysis of whether a legally binding contract was formed between our client and a supplier for the purchase of office furniture. The client made an offer at a specific price, the supplier responded with a different, higher price, which the client then agreed to. The supplier has now refused to deliver the furniture, asserting that no contract exists.
The purpose of this advice is to apply the foundational principles of offer and acceptance in English contract law to the facts provided. This analysis concludes that it is likely a binding contract was formed when our client accepted the supplier’s counter-offer. Consequently, the supplier’s refusal to perform their obligations likely constitutes a breach of contract.
2. The Legal Requirements for Contract Formation
For a binding contract to be formed, certain key elements must be present. These are: an offer, a corresponding acceptance, consideration (something of value exchanged), and an intention to create legal relations (McKendrick, 2022). The central issue in this matter revolves around offer and acceptance, specifically the legal effect of the supplier’s response to our client’s initial offer.
2.1 The Client’s Initial Offer
The facts state that the client “made an offer to purchase the furniture at a specified price”. An offer is an expression of willingness to contract on specified 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, 2020). The client’s communication appears to meet this definition. It was not a mere inquiry or an invitation to treat, which is simply an invitation for others to make offers, as seen in cases involving advertisements like *Partridge v Crittenden* [1968] 1 WLR 1204. The client’s communication was a firm proposal containing a key term (price), demonstrating an intention to be bound if the supplier agreed. Therefore, the client’s initial communication was a valid offer.
2.2 The Supplier’s Response: A Counter-Offer
The supplier “responded with a different price”. In contract law, for an acceptance to be valid, it must be an unqualified and final assent to the terms of the offer. It must be a “mirror image” of the offer. If the offeree’s response seeks to vary the terms of the original offer, it cannot be an acceptance. Instead, it is treated as a counter-offer.
The leading authority on this point is the case of *Hyde v Wrench* (1840) 49 ER 132. In that case, the defendant offered to sell a farm for £1,000. The claimant responded by offering to buy it for £950. The defendant refused this. The claimant then tried to accept the original offer of £1,000. The court held that there was no contract. The claimant’s offer of £950 was a counter-offer which had the legal effect of destroying the defendant’s original offer of £1,000. Therefore, the claimant could no longer accept the original offer as it had been terminated.
Applying this principle to our client’s situation, the supplier’s response with a different price was not an acceptance of the client’s offer. It was a counter-offer. This had two important legal consequences:
1. It terminated, or ‘killed’, our client’s original offer. The client could no longer accept their own original price, and the supplier was no longer able to accept it either.
2. The supplier became the offeror, offering to sell the furniture at the new, revised price. Our client became the offeree, who now had the power to form a contract by accepting this new offer.
The situation is distinct from a mere request for information. A request for information does not destroy the original offer, as established in *Stevenson, Jaques & Co v McLean* (1880) 5 QBD 346, where an inquiry about delivery times was held not to be a counter-offer. Here, however, the supplier’s response was not an inquiry; it was a direct proposal of a different price, a core term of the contract, which clearly falls into the category of a counter-offer as per *Hyde v Wrench*.
2.3 The Client’s Acceptance
The facts state that the client “subsequently agreed to the revised price”. This constitutes an acceptance of the supplier’s counter-offer. Acceptance is the final and unqualified expression of assent to the terms of an offer (Poole, 2021). By agreeing to the exact terms of the supplier’s counter-offer (the revised price), our client provided a “mirror image” acceptance.
For an acceptance to be effective, it must be communicated to the offeror. The general rule, established in *Entores Ltd v Miles Far East Corporation* [1955] 2 QB 327, is that acceptance takes effect when and where it is received by the offeror. Assuming our client communicated their agreement to the supplier (e.g., via email, telephone, or in writing), a binding contract would have been formed at that moment. The supplier cannot then revoke their offer after it has been accepted. The principle that an offer cannot be revoked after acceptance is fundamental to contract law.
2.4 Supporting Elements: Intention and Consideration
While the core issue is offer and acceptance, a binding contract also requires an intention to create legal relations and consideration.
* **Intention to Create Legal Relations:** In commercial agreements, such as this one between our client and a supplier, there is a strong presumption that the parties intend their agreement to be legally binding (*Edwards v Skyways Ltd* [1964] 1 WLR 349). It would be very difficult for the supplier to argue that they did not intend to be bound by their proposal of a revised price in a business context.
* **Consideration:** Consideration is the “price of the promise” – each party must give something of value. Here, the client’s consideration is the promise to pay the revised price, and the supplier’s consideration is the promise to provide the office furniture. There is clearly valid consideration on both sides.
3. The Supplier’s Claim that No Contract was Formed
The supplier’s claim that no binding contract was formed is, on this analysis, incorrect. Their argument likely stems from a misunderstanding of the legal effect of their own counter-offer. They may believe that because the original terms were not agreed upon, no agreement was ever reached. However, the law treats a counter-offer, once accepted, as the basis of a new agreement.
The timeline of events is critical. The supplier made a counter-offer, which our client accepted. At the point of the client’s communicated acceptance, the “magic moment of formation” occurred (Poole, 2021, p. 78). The supplier’s subsequent refusal to proceed is not a rejection of an offer, but a breach of an existing contract. They lost the ability to withdraw from the deal as soon as the client accepted their terms.
4. Conclusion and Advice
Based on the principles of offer, counter-offer, and acceptance, a legally binding contract was formed between our client and the supplier. The key events are the supplier’s counter-offer (the revised price) and the client’s subsequent acceptance of that counter-offer. The supporting elements of intention to create legal relations and consideration are also clearly satisfied.
The supplier’s refusal to deliver the furniture is therefore a breach of contract. This entitles our client to remedies, which may include damages to compensate for any loss incurred in having to source the furniture elsewhere, potentially at a higher price.
It is recommended that we advise the client of this position and, with their instruction, draft a letter before action to the supplier. This letter would set out the legal basis for the existence of a contract and state our client’s intention to seek legal remedies if the supplier does not honour the agreement.
References
McKendrick, E. (2022) *Contract Law: Text, Cases, and Materials*. 10th edn. Oxford University Press.
Poole, J. (2021) *Textbook on Contract Law*. 15th edn. Oxford University Press.
Treitel, G. H. (2020) *The Law of Contract*. 15th edn, edited by E. Peel. Sweet & Maxwell.
*Edwards v Skyways Ltd* [1964] 1 WLR 349.
*Entores Ltd v Miles Far East Corporation* [1955] 2 QB 327.
*Hyde v Wrench* (1840) 49 ER 132.
*Partridge v Crittenden* [1968] 1 WLR 1204.
*Stevenson, Jaques & Co v McLean* (1880) 5 QBD 346.
