Case Study on Issues Between Buyer and Seller

The issues between Steven and Tanny are related to the law of contract. According to Section 2(b) Contracts Act 1950, “contract” is defined as “an agreement enforceable by law”. Therefore, a contract will be legally binding and the parties to the agreement should act in accordance with the agreement. Breach of the agreement may be subject to legal consequences. Under the contract law, some of the important elements include offer, acceptance, postal rule, contracts act and invitation to treat. In the case of Steven and Tanny, we will discuss in more detailed those elements of contract law. Upon the discussion, we would like to determine whether there is an existence of contract between the two parties.

Steven’s advertisement made on 29th October 2010 “Yamaha Piano latest model with excellent condition, RM 15,000, interested please call 016 1234567″ is not an offer but an invitation to treat. It is not an offer in the sense that Steven could not sell the piano to everyone who wants to buy as he does not have so much stock. Meanwhile, invitation to treat is defined as “an act of inviting people to buy things”. [1] Obviously, an invitation to treat cannot be considered as an offer. So, all these could conclude that Steven was not offering to sell his piano but just inviting people to offer to purchase. The case of Pharmaceutical Society of Great Britain v Boots Cash Chemists 1952 [2] supports that an invitation to treat should not be regarded as an offer.

‘In this case, Boots was selling drugs in a self-service shop. In Britain, there was a law prescribing that drugs can only be sold under the supervision of pharmacist. Instead of putting the drugs behind a counter where there was a pharmacist, Boots put the drugs in the open shelves to invite people to buy those drugs. The plaintiff claimed that Boots had broken the law as Boots was not selling the drugs under the supervision of pharmacist. However, the plaintiff did not win the lawsuit because the court mentioned that displaying the drugs in the open shelves was merely an invitation to treat not an offer. When the customers were paying for the drugs in the counter which was an offer to purchase, there was a pharmacist. Therefore, Boots did not break the law.’

On November 1, 2010 Tanny offered to buy the piano at RM 10,000. This meets the criteria of offer which is defined in Section 2(a) Contracts Act (CA) as “when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to the act or abstinence he is said to make a proposal”. An offer can be made orally, in written form or by conduct. In the case Carlil v Carbolic Smoke Ball Company 1893 [3] , there was an offer.

‘In this case, the manufacturer of smoke ball advertised in the newspaper promising to pay 100 dollar to anyone who had used the smoke ball but still contracted flu. Obviously, that was a unilateral offer. After applying smoke ball, the plaintiff still contracted flu. He then sued Carbolic Smoke Ball Company for the 100 dollar and finally he won the suit as the advertisement made to all the customers applying smoke ball was considered as an offer.’

Nevertheless, Steven rejected Tanny’s offer but he made another offer to sell the piano at RM 14,000 by November 7. “I will not sell it below RM 14,000″ suggests that Steven was making a counter offer. Counter offer is made when the original offer is rejected and the original offeror becomes the offeree whilst the promisor is the promisee of original offer. So, there is an interchanged position between both parties to a contract. Counter offer is described in the case Hyde v Wrench 1840 [4] .

‘Wrench offered to sell his farm to Hyde but was rejected. Later, Wrench made another offer stating the final price 1,000 dollar. Hyde rejected but offer to buy at 950 dollars. In this situation, Hyde was rejecting the original offer made by Wrench and came out with a counter offer. Few weeks later, Hyde wanted to buy at 1,000 but rejected and he sued Wrench. Hyde lost the suit as the original offer has been rejected by his counter offer. Since the original offer has been rejected, Wrench was not bound to any contract.’

Meanwhile, when Steven said “I will not sell it to anyone else before November 7″, the offer is considered as a bilateral offer. A bilateral offer is made where the identity of the offeree is known. [5] The case of Powell v Lee 1908 [6] is an example of bilateral offer.

‘Powell applied for headmaster position of a school with the school managers. One of the managers, however, had privately told Powell that his offer had been accepted. But later the managers decided not to appoint him as the headmaster. They had rejected the offer.’ In this case, the offer was regarded as a bilateral offer because the identities of the offerees which are the school managers are known.

Tanny did not reply Steven regarding the counter offer by November 7. According to Section 2(b) of Contracts Act 1950, “when the offeree signifies his assent to the offer, the offer is said to be accepted”. Acceptance is only possible if offer is still in force. If the offer is already not in force, it is considered to be revoked. In this case, the offer made by Steven on November 1 is only valid till November 7. Since Tanny remained silent by November 7, the offer can actually be considered revoked. Furthermore, the law states that silence cannot constitute acceptance. Acceptance must be communicated in writing, by words or by conduct generally. An acceptance is only valid when the offeror is informed the acceptance.

The case Felthouse v Bindley 1862 [7] describes this. ‘In this case, the plaintiff, Paul Felthouse wanted to purchase a horse that belongs to his nephew, John Felthouse. Both of them have discussed the price for the horse but somehow there is some misunderstanding about the price. Paul wrote a letter to his nephew saying that “If I hear no more about you I shall consider the horse mine at $30.15″. However, John did not respond to the letter sent by Paul but he had decided to sell the horse to his uncle and he even told the auctioneer, Bindley to withdraw the sale of the horse. Unfortunately, the auctioneer did not follow John’s instruction and sold the horse to someone else.’

‘Later, Paul sued the defendant which is also the auctioneer, Bindley in the tort of conversion. In this case, the court ruled that the plaintiff’s claims could only succeed if he had the full ownership of the horse because there is no acceptance of the contract between the plaintiff and his nephew. So, an acceptance must be communicated clearly.’

Nevertheless, there is exception to acceptance must be communicated. Where the acceptance is done by post such as telegram, cable or letter, offeree does not need to communicate his acceptance. [8] The typical example for acceptance by post is the case of Adam v Lindsell 1818 [9] .

‘This case involved the sale of woods. The defendants was offering to sell wools to the plaintiffs on 2 September and requiring acceptance by post. Due to some problem, the letter of offering was not received by the plaintiffs till 5 September. Upon receiving the letter, the plaintiffs sent the letter of acceptance to the defendants. Finally on 9 September, the defendants received the letter. However, the defendants had sold the wools to people other than the plaintiffs on 8 September because they expected to receive reply from the plaintiffs by 7 September. In the court, the defendants argued that they were not bound to the contract. Nevertheless, the court judged that it was a valid acceptance and the plaintiffs won the case.’

The case above has led to the establishment of postal rule which can only be applied on acceptance but not of [10] fer. This postal rule seems to be effective in Tanny’s case. But, due to the posting date, it is not relevant for Tanny’s case.

Tanny did post a letter of acceptance on November 8 which is an acceptance by post. However, it is not a valid acceptance because the offer made by Steven was only valid until November 7. Steven’s offer has expired. Thus, the postal rule does not apply on Tanny’s letter. Had Tanny post the letter of acceptance on November 7, 2010, Steven would be bound to the contract. In short, since the expired date for the offer has already informed by the offeror to the offeree, the letter cannot constitute acceptance to the offer.

However, the letter posted can only be considered as a new offer to buy the piano at RM 14,000. This implies that Steven who received the letter on November 11, 2010 can either accept or reject the offer. Thus, the final conclusion is that Steven is not bound to the contract since the letter of acceptance is invalid. Rejection of the offer by Tanny will not lead to breach of contract. For simplicity, there is no agreement enforceable by law in Tanny and Steven’s case.