Commercial transactions (2): Accepting a business offer
Badagry Local Government Council has just announced plans to establish a health centre. Local Purchase Orders are being issued for the supply of goods and services for the new facility. An LPO is sent to Ojo & Sons, wholesale distributors in Ibadan, for the provision of anti-malaria drugs. The terms are that payment will be made on supply of goods with a crossed cheque in favour of the distributor. Unknown to the council, the letter is never delivered, due to an error in the postal office.
Another LPO for the same order is sent to Francis Pharmaceuticals, a Lagos-based distributor. Francis replies immediately, accepting the order, with a request that payment be made with an open cheque to enable them recover their expenses after the drugs have been supplied.
The Local Government chairman sends an LPO, for the same order, to a neighbourhood pharmacy the council has been dealing with. He attaches a personal note saying, “Femi, if you cannot deliver these drugs, please let me know.” Femi receives the message and decides to supply the drugs the following week.
By the end of that week, a letter is received from Ojo & Sons. Apparently, they have heard about the establishment of the health centre and sent a Sales Quotation for anti-malaria drugs at the approved price. They promise to be able to deliver by Monday.
On that fateful Monday, all three distributors arrive at the health centre with the required drugs. Each of them has been sent an LPO. All of them have made investments in the purchase of anti-malaria drugs and need to recover their expenses. Now, which of these distributors has a valid contract with Badagry Local Government?
A contract has been defined as an agreement between two parties which is enforceable. For a contract to be valid,there must have been an offer by one party and then an acceptance by the other. Acceptance must be a final and unqualified expression of agreement.
The situation above involves the following legal issues:
1. The effect of a counter-offer in a transaction.
2. The validity of a cross-offer in securing a contract.
3. The communication of acceptance for a valid contract.
The rules guiding the acceptance of offers were clearly defined by Justice Tobi in the case of Orient Bank (Nig.) Plc. v. Bilante International. In the words of the learned judge, “An acceptance of an offer is the reciprocal act or action of the offeree to the offer in which he indicates his agreement to the terms of the offer as conveyed to him by the offeror… It is the element of acceptance that underscores the bilateral nature of a contract.”
Clearly then, for an acceptance to be valid, there must be a notification of assent to the terms of offer by documentation, by words or by conduct. Any amendment of the terms will constitute a counter-offer which cancels the original offer.
With Badagry Local Government, Francis Pharmaceuticals purported to accept the offer with a request for a variation in payment system. Subsequently, that qualified acceptance resulted in a new offer being presented. In the case of Hyde v. Wrench, where a party sought to vary the terms of transaction, it was declared that the party had rejected the original offer and was in effect making a counter-offer. Consequently,there was no obligation whatsoever between the parties.
On the part of Ojo & Sons, a company made an offer to supply goods, totally unaware of the fact that an LPO had already been sent to them for the supply of the same goods. When two offers, identical in terms, are sent by two parties to each other, the resultant effect is a cross-offer. However, for there to be a contract, there must be an acceptance in response to a specific offer. In essence, there will be a consensus ad idem (a meeting of minds). In the classic case of cross-offers, Tinn v. Hofman, it was held that in such a situation, there were merely “two simultaneous offers”. There was no contract.
Finally, the neighbourhood pharmacy managed by Femi received the LPO and fully intended to fulfil the terms of the offer. It is noteworthy that a personal relationship existed between the pharmacist and the chairman of the local government. Furthermore, the note sent by the chairman requested for a notification in the event that the goods would not be deliverable. This seems to have rendered unnecessary the need to communicate acceptance, in view of the fact that the drugs would be supplied.Nevertheless, the rules of acceptance require a definite notification to the offering party. In Felthouse v. Bindly, a man had agreed to sell his horse to his uncle but failed to communicate his intention. The court held that there was no valid acceptance for the sale.
In conclusion, it is apparent that none of the distributors had a valid contract. Not Francis, on the basis of his counter-offer. Not Ojo, on account of a cross-offer. Not even Femi, for the reason of non-communication.
Acceptance of contracts must involve the external manifestation of an internal agreement with a specific proposal. As Justice Achike puts it, “if acceptance were to be based on silence or mental assent, then its ascertainment is bound to be illusory and at best, a guesswork, unless the judge was a superhuman who would be bound to unfold the innermost recesses of the heart of the party making the mental assent.”
Principles and cases are drawn from Sagay: Nigerian Law of Contract