15 January 2013 | Allan Wardhaugh

When will an offer to contract become incapable of being accepted?

Stimson spotted a car at a dealers, which he agreed to purchase for £414 under hire-purchase terms. As in many hire-purchase arrangements, the dealer was acting on behalf of a financier (Financings Ltd), which owned the car. Stimson signed the hire-purchase agreement and the dealers, after phoning the finance company, allowed Stimson to take the car away. He returned the car two days later, explaining he did not wish to proceed with the purchase.

At this point, Stimson and the car dealers were both under the false impression the finance company had signed the hire-purchase agreement, when in fact it had not. A key term of the agreement was that it would only become binding “upon acceptance by signature on behalf of the owner”.  Financings did not sign until five days after the car was returned. The night before it signed, the car was stolen from the dealers and recovered in a damaged state. It was re-sold at a lower price and Financings sought to recover the £125 and 5 shillings difference from Stimson.

In arguing a binding contract was in place, Financings said the dealers had no authority to accept Stimson’s revocation of his offer to buy the car and that the offer could not have been validly withdrawn before Financings acceptance. The court did not accept this argument and found that no valid contract had been formed. If the dealer had the authority to negotiate hire-purchase agreements on behalf of the financier and to deliver the car, then it would be natural for Stimson to assume that the dealer had authority to take the car back. The dealer had an implied authority to act on behalf of Financings and could therefore accept Stimson’s rejection of the offer to contract.

There are two obvious points here. The first is to ensure a binding agreement is in place before transferring goods, as in today’s era of complex completions and distant parties signing agreements in counterpart this may be overlooked. The second is to be clear as to the scope of your agent’s ability to act on your behalf. Where disputes arise, a court will look to the facts to determine the level of authority. Be as specific as possible as to the role of any third parties, including which actions they have no authority to take.

☛ Allan Wardhaugh is a partner at Dundas & Wilson