Scenario examining offer and acceptance for the sale of goods. A problem question case study
Example Contract Law Problem Question
Due to petrol prices increasing dramatically in recent months, Aaron decides to sell his limited edition Range Rover Sport, and is considering buying a smaller vehicle. Aaron places an advertisement in his car window on 1st June stating:
'Range Rover excellent condition, one owner £25,000 or nearest offer. Please contact Aaron on 07856953214 (evening) or 0205 4785 2365(during office hours 9-5pm).'
Scott (Aaron's neighbour) on seeing the advert earlier that day, decides to contact Aaron that evening, and arranges to inspect the vehicle. After inspecting the vehicle Scott states that he will contact him, if he's still interested.
On 3rd June, Chloe calls Aaron's mobile number after inspecting the vehicle (the previous day), and offers £24,500. Aaron is delighted and says 'how about £24, 750?'Chloe states that she will need to discuss this with her husband, Aaron tells her to call back at 6pm.
Chloe contacts Aaron on his mobile phone at 7.30pm; however the phone is switched off. As there is no facility to leave a message, Chloe tries his work number the following day, however Aaron is at a conference so she leaves a message on his answering machine, stating that she definitely wants the Range Rover for £24,750. Aaron doesn't return to his desk until late that afternoon and fails to listen to his answering machine that day. Chloe then tries his mobile in the evening but it's still switched off.
Vish, a dedicated car dealer, contacts Aaron the next day (4th June), on his mobile phone, stating that he's really interested in the vehicle, and arranges to meet Aaron during his lunch break to inspect the vehicle. Aaron meets Vish, and accepts an offer of £26,000 from Vish.
Aaron is delighted with the sale and decides to purchase a pair of Gucci shoes. When he enters the shop, he sees a price tag by a pair of Gucci shoes for £89. He's always wanted a pair but could never afford them, so thinking that the shoes are on sale, attempts to purchase them. When he gets to the till point, the cashier scans the barcode on the box and informs Aaron that shoes are £210. Aaron refuses to pay £210, and demands he should have the shoes for £89.
Scott and Chloe contact Aaron the next day (5th June) demanding the vehicle for the advertised price.
Aaron's concern is that he may have formed an agreement with either Scott or Chloe for the car's sale, prior to accepting Vish's offer. If this is the case then he may be liable for a breach of contract.
Advertisements offering goods for sale, like Aaron's sign in his car window, are not considered offers, but invitations to treat. In Partridge v Crittenden1 the defendant advertised in a classified advertisement the sale of bramblefinch hens and cocks for 25 shillings each. He was prosecuted under the Protection of Birds Act 1954, for selling restricted birds under the Act. One of his defences was that the advertisement was not an offer but an invitation to treat. The court agreed and held that the advertisement was there to encourage bargaining of the price and terms and to size up whether a prospective buyer could perform their side of the contract i.e. had the cash in hand. However, in contrast, the United States the case of Leftkowitz v Great Minneapolis Shoe Store2, involved a Furrier advertising goods that were sold on a first come, first serve basis on offer for $1 each and the advertisement stated the quantity of goods available. The claimant, a man was refused sale of the advertised goods as it went against the shop's custom to serve ladies only. The court found for the advertisement to be an offer, it must invite a particular action, in that it is clear, definitive, explicit and leaves nothing open for negotiations, and only takes place when all the conditions are performed.
Aaron's advertisement, more than likely will be considered by the courts as an invitation to treat following Partridge v Crittenden3. The commercial aspect of having goods advertised as an offer causes all sorts of problems for example, multi acceptance taking place by a buyer, could leave a shop keeper, following an acceptance of all his goods dependent on payment from one buyer and potentially out of stock unable to fulfil orders from other customers so that more orders for goods are made by customers, than he has in stock, leading to claims in damages against him. In this scenario, Aaron's intention is that in placing the advertisement, he is looking for commercial certainty that the contract will be performed on his acceptance by an offeror, he certainly doesn't want to be lumped with an out of pocket buyer, waiting on his cash, because a buyer accepted his offer. In an invitation to treat he would have the opportunity to discover the likelihood of whether a potential buyer would be able to pay and whether they had the cash on hand. In fact, by his own words 'or nearest offer' to be made by a prospective buyer, implies bargaining may take place.
An offer is; "An expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed."4 Scott's inspection of the vehicle and subsequent arrangement to contact him, if he is still interested, is conditional on his interest to contract by making an offer, shows that he has no intention to create legal relations, at that moment and therefore no offer has been made by his statement.
On 3rd June Chloe makes an offer on the car, after inspecting it. Aaron does not accept her offer as he wants more for it and increases the amount by way of a counter offer to Chloe. The rule for counter offers is found in the case of Hyde v Wrench5, that is; the counter offer replaces the original offer with new terms and once a counter offer has been made, the party that rejected the original offer can not then again maintain that the original offer still stands and forms a contract. The inspection closes with Aaron telling Chloe to call him back at 6pm. Aaron's statement is very likely to be considered a term in the counter offer. Chloe's failure to call back before the expiration of the counter offer, means that it is more than likely that the counter offer has expired, and no contract for the car being made.
However, If this is not the case, Chloe's acceptance; "Acceptance is a final and unqualified expression of assent to the terms of the offer,"6 of the £27,750 counter offer by Aaron, must be communicated to Aaron, otherwise there is no contract7. The postal rule8 holds that acceptance takes place as soon as the letter is posted9, ruling out any uncertainty of acceptance on delivery, from rejections or counter offers in the post system. However, on the facts the postal rule doesn't apply, but the rule was cited by the court in Entores v Miles Far East Corp.10 to help develop the law on what would constitute a communication of acceptance for instantaneous communications, where parties are in direct communication, by distinguishing the postal rule. The Court held that in instantaneous communications, contract is formed when acceptance of the offer is received by the offeror. However, as technology developed, the issue arose of when instantaneous communications were received, as they could now be made indirectly, by parties leaving messages via telex or voice messages made out of office hours or even at night. The law needed to address if this would constitute a valid communication. In the Brinkibon case11 the Court answered this legal lacuna, by asking, when is the communication effective. Did it occur when a message was received or generated by a machine or, when it was read by an offeror. The latter being problematic, as the sender will not know if the message has been read by the offeror. The Court of Appeal held that the moment a receipt is received by the offeror is when sent in office hours; 9-6pm or, outside of those business hours 12the next day. Applying the judgment to the scenario we find, that Chloe's telephoning on the 3rd June generated no receipt of communication. Under Entores and Brinkibon, their needs to be a receipt of communication generated therefore, the 3rd June attempt would probably not constitute a valid communication of acceptance to Aaron. On the 4th June, the second attempt, when Chloe's leaves a voice message, which qualifies as a receipt for the communication of acceptance to Aaron, on Aaron's answer phone, may constitute a valid communication of acceptance by Chloe. We can assume that it is made within business hours, as Aaron is at a conference, if this is the case, then a contract would be made on 4th June, as Chloe's acceptance would have been communicated to Aaron. Of note, the judgment13 of Lord Wilberforce per incuriam (forms no precedent, as statement not supported by case law or statute), in regards to non instantaneous communications where he states that the correct approach as to the time and formation of a contract, is to enquire into:
- The intention of the parties.
- Did the communication take into account sound business practices?
- Where the risk lies
Applied to the scenario:
- Chloe and Aaron's intention to form an agreement by telephone is clearly demonstrated on the facts.
- As stated above, acceptance occurred the same day if received in office hours; 9am - 6pm, and the following day, outside those hours. No time is given as when Chloe left her voice message on Aaron's answer phone. We can assume that it is made within business hours, as Aaron is at a conference. If this is the case, then a contract would be made on 4th June, as Chloe's acceptance would have been communicated to Aaron. However, Chloe not calling Aaron back at 6pm will demonstrate that she has not followed sound business practices and in addition, has not engaged in or established any contingencies in the terms or in practice, for failing to contract with Aaron, i.e. alternative contact methods such as email, to minimise the risk of not contacting Aaron to communicate her acceptance to Aaron.
- The risk of acceptance not being communicated to the offeror has been established on the facts as lying with Aaron who does not check his messages.
In Brinkibon, both the claimant and defendant were companies involved in a substantial commercial transaction; 20,000 metric tonnes of steel bars14 and contracting in different jurisdictions, However, out of the need for commercial certainty and for the sake of legal rationality, the judgement included general transactions, not just commercial transactions, in an instantaneous communication by an offeree for acceptance. Therefore, on the facts, Chloe's communication of her voicemail left on Aaron's phone on the 4 June would most likely form a communication of acceptance of Aaron's counter offer.
On the facts, Vish has fulfilled the prerequisite; offer, acceptance, legal intention and consideration, to enter into a contract with Aaron for the car. Aaron's liability for breach of contract may come from his acceptance to offers made by both Chloe and Vish. As it stands on the facts, this is likely, as Chloe will argue, that she has made an attempt on three occasions to contract with Aaron, leaving a message on one occasion and having followed the form of communication highlighted in the advertisement; use of numbers at specific times, that is placed in Aaron's advertisement. In her action to show that a contract was formed between her and Aaron for the car, she will rely on the case law of Brinkibon15 to demonstrate that her answer phone message left on Aaron's phone constituted a receipt of communication and therefore formed a valid acceptance. If Both Vish and Chloe's agreements with Aaron form contracts, there is insufficient detail on the facts to determine which agreement was formed as a contract first and therefore, which party would go on to own the car and which aggrieved party would have the basis to claim for damages.
On the facts, Aaron thinks he is right, to demand to pay the sale price, for shoes displayed at sale price and not the full retail price as asked by the cashier.
The general rule is that a price marked goods offered for sale in a shop window are not an offer16, but an invitation to treat to invite customers to make offers on the goods displayed. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd17, a chain of self service chemists were brought to court for selling medicines containing poison displayed on the shop shelves and being sold without the required professional supervision. The Court of Appeal held that the regulatory requirements were met by the defendant, that being, the goods on display in a shop or self service shop are invitations to treat and as such the customer only made an offer when he brought the goods to the cashier, it was the scrutiny of the cashier under the supervision of a chemist if the customer's offer was to be accepted. For Aaron, the law does not relieve his frustration, as the shoes are on display as an invitation to treat. He will be unable to demand the sale price, even though the shoes have a sale price tag. He can only make an offer of the sale price to the cashier. The final say, lies with the cashier whether or not to accept Aaron's offer and form an agreement based on the sale price.
1 Partridge v Crittenden 1968 1 W.L.R. 1204
2 Lefkowitz v Great Minneapolis Surplus Stores, 86 N.W. 2d 689 1957
3 Partridge v Crittenden 1968 1 W.L.R. 1204
4 Edwin Peel, (Treitel) The Law of Contract, (Sweet & Maxwell 2007)
5 Hyde v Wrench 1840 49 E.R. 132
6 Edwin Peel, (Treitel) The Law of Contract, (Sweet & Maxwell 2007)
7 Taylor v Laird 1856 156 E.R. 1203
8 Adams v Lindsell 1818 106 E.R. 250
9 Henthorn v Fraser 1892 2 Ch. 27
10 Entores Ltd. v. Miles Far East Corporation 1955 2 Q.B. 327
11 Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH 1982 2 W.L.R. 264
12 Tenax Steamship Co v Owners of the Motor Vessel Brimnes 1974 3 W.L.R. 613
13 Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH 1982 2 W.L.R. 264 42
14 Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH 1980 WL 148456 3
15 Brinkibon v Stahag Stahl und Stahlwarenhandels GmbH 1982 2 W.L.R. 264
16 Fisher v Bell 1960 3 W.L.R. 919
17 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd 1953 2 W.L.R. 427