In the current economic climate, purchasers are continuing to explore innovative ways to try and free themselves from their contractual obligations. Imposing a time limit on the other side within which an offer or an acceptance must be accepted, failing which it will be deemed to be withdrawn, is a common device to encourage the parties to progress to a concluded contract swiftly. However in the recent case of Pinecraven Construction (Guernsey) Limited v Taddei in the Court of Session, the purchaser tried to argue that the sellers failure to conclude missives within its own original time limit meant that no binding contract had been created.
Exchanging missives
Pinecraven’s agent had issued an offer letter dated 13 April 2007 to the purchasers. The offer was for the construction of a house for a price of £445,000, with a non-refundable deposit of £5,000 being payable within 14 days of conclusion of missives.
The offer stated at Clause 21 that it would remain open for acceptance until noon on 27 April 2007. If the offer was not accepted by this date, it would be “null and void”. The purchasers, through their agent, issued a qualified acceptance by letter on 26 April 2007, and this was subsequently formally accepted by the seller in a letter dated 2 May 2007.
Before the seller had even begun constructing the property, the purchasers notified the seller that they were unlikely to complete the purchase as they could not obtain credit. Nevertheless, the seller proceeded to construct the property, and when it became clear that the purchasers would indeed not take possession, Pinecraven proceeded to remarket the property. Missives were concluded with a third party who completed the purchase on 15 April 2009. Pinecraven then sought to recover the losses on resale of the property, including the shortfall from the original purchase price, and interest to which the missives provided the seller would be entitled on default.
Was there a binding contract?
The purchasers argued that, since the seller’s original offer dated 13 April 2007 stated it would be null and void if it was not accepted by noon on 27 April 2007, no contract existed between the parties because no unqualified acceptance had been made by the purchasers prior to that date. The purchasers’ acceptance of 26 April, being in effect a counter offer, was not an acceptance as specified for in Clause 21 of the offer. Therefore, the seller’s letter of 2 May 2007 purporting to conclude the bargain was of no effect, because it had been issued after expiry of the time limit in the original offer.
Accordingly, on the basis that no formal contract existed between the parties, the seller had no right to claim against the purchasers for recovery of alleged losses.
Meeting the time limit for acceptance
Many practitioners will recognise the sequence of exchange of formal letters in this case as quite common, and will not be surprised to learn that the Court rejected the purchasers’ argument, concluding that the purchasers’ interpretation of the relevant Clause was too narrow. “Acceptance” in this context did not refer only to a “clean” acceptance, but also to a qualified acceptance. As a result, the purchasers’ qualified acceptance of 26 April 2007 satisfied the requirements of Clause 21 of the offer by being issued before the deadline for a response of 12 noon the following day.
The next question was whether the purchasers’ letter of 26 April 2007 perpetuated the Clause 21 time limit for acceptance by the sellers. The purchasers argued that it did, so that the 2 May 2007 letter concluding the bargain came too late. The Court disagreed. As a result, the purchasers’ counter-offer was therefore open for acceptance by the seller within a reasonable period of time. An acceptance dated 2 May 2007 constituted acceptance within a reasonable period of time, and so an effectively concluded contract existed between the parties.
This case is another example of a party adopting an innovative approach to try to avoid fulfilling their contractual obligations. It is also an example of the Courts rejecting an attempt to wriggle out of obligations freely entered into. The basic rules on offer and acceptance in contract law explain why the purchasers’ challenge failed in this case, but until economic conditions take a clearer turn for the better, it is unlikely to be the last such challenge.
To read the decision in Pinecraven Construction (Guernsey) Limited v Dominic Donato Taddei and Claire Susanne Taddei click here.