The Legal Environment of Business - Distinguishing Between an Offer and an Invitation to Treat - Assignment Example

Part In order to make a distinction between an offer and an invitation to treat it is necessary to examine how a contract is formed, discussing thethree key elements of a contract, and then examining the relevance of an invitation to treat. From this it should be possible to highlight the difference between the two, and explain why it is important to distinguish between an offer and an invitation to treat. For the formation of a contract the key elements are an offer1, acceptance of that offer2, and consideration. When all three elements are present the court will generally deem the contract to be valid. Evidence of counter offers, discussed below, can lead the courts to conclude that the contract has not been fully constituted. Once an offer has been accepted the court will expect the offeror to give the promised consideration. If the offeror fails to do this, the court will deem that a breach has occurred, which would entitle the offeree to be able to sue for that breach. Offers can be revoked before the deadline, although if the other party has already started to perform their part of the bargain, the court will generally refuse to allow the offeror to revoke the offer. This might occur in a situation where the offeror is offering a reward for the finding of a lost item. Where an acceptance of an offer is communicated by post, the court will generally hold the acceptance as being valid from the date that the acceptance was posted on. In Adams v Lindsell3, the court held that “Where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted4”. From this case it has become an accepted principle that acceptance will be regarded as valid from the date on which the acceptance was posted5. This will generally apply even if the offeror does not receive the communication until a considerable time after the deadline date. An invitation to treat6 occurs with items advertised in brochures7, on the internet, in newspapers and in shop windows. The legal perspective is based on the notion that the seller is inviting the customer to make them an offer to buy the goods. With goods displayed in a shop, the shopkeeper is inviting the customer to offer to buy the items. Once the item is presented at the till for purchase, the seller is entitled to either sell the advertised item, or reject the offer8. The same principle applies to items advertised in a newspaper9 or brochure, or on the internet. The offer to purchase is made by the customer, giving the seller the right to reject or accept the offer. Any such advert is only an invitation to treat until the buyer offers to buy the item10. This entitles the seller to reject the offer to buy. This might happen if the item has been wrongly priced. Acceptance is only complete once the seller accepts the offer to buy11. There have been many cases addressing this issue, as frequently the buyer is under the impression that the advertisement constitutes an offer to sell that item for the stated price. The buyer might often believe that responding to the advert amounts to acceptance of an offer on the part of the seller to sell the item at the stated price, but in fact, all the buyer is doing when they respond to the advert is accepting the invitation to treat12. Where goods are being sold by mail order, or over the internet, acceptance of the offer is deemed to have occurred when the seller dispatches the goods without querying the offered price13. The seller is entitled to make the buyer a counter offer, if the price offered by the buyer is not acceptable. Such counter offers can continue for a considerable amount of time until both parties agree on an acceptable price. The contract remains incomplete until both parties have agreed the terms of the sale and reached an agreement on the amount to be paid for the item14. In determining whether an agreement has been reached by the parties the court will examine all the communications between the parties, to ascertain whether an agreement has been reached on the same terms15. It is the generally accepted rule that the final document in the series will determine when the contract has been fully created16. Where one of the parties has failed to respond to a counter offer, the court will generally hold that a contract has not been duly created between the parties. The importance of the distinction between an offer and an invitation to treat was demonstrated in the case of Carlill v Carbolic Smoke Ball Company [1892]17. In this case, the defendant attempted to avoid having to pay the promised £100 to the claimant by averring that the offer of the £100 reward should be regarded as a mere marketing ‘puff’, and should not be bale to be relied upon by the claimant. The court disagreed, stating that the purchase of the smoke ball amounted to an acceptance of the offer to reward the claimant should the smoke ball fail to stop her from contracting influenza. From the above, it can be concluded that an invitation to treat cannot be regarded as binding contract to sell the advertised items at a specific price. An invitation to treat in a shop window is merely a way of luring the prospective buyer into the shop to view the items for sale. The advertised price can be altered up to the point of sale, although an alteration in the advertised price would entitle the prospective buyer to reject the item. Likewise, if the item has been wrongly priced, the seller is under no obligation to sell the item for the advertised price, as the offer to buy does not occur until the prospective buyer presents the item at the till for purchase. With an offer, the seller can revoke the offer before the deadline for acceptance has been reached, however, the court has, on occasion, held the offer to remain valid, if the prospective buyer can demonstrate that they have taken steps to accept the offer. Part 2 In order to determine whether the protection offered to a person paying a lesser sum than the contractual obligation is sufficient or too excessive, it is necessary to examine cases were a lesser payment has been accepted. It will be necessary to consider how the person making the less payment has been protected from having to subsequently pay the original contractual obligation. From this study it should then be possible to determine whether the protection is heavily circumscribed or whether an equal balance has been achieved. The starting point is to consider Pinnel’s Case (1602)18, in which it was held that part-payment of a debt should not be regarded as good consideration as a promise on the part of the creditor to forgo the remainder of the debt. The court, in this case, felt that it was equitable for the creditor to be able to claim the outstanding balance at a later date, as they were under no obligation to accept part-payment of the debt. Part of the reasoning behind this, was to prevent the creditor from economic duress on the part of the debtor19. In Pinnel, the court stated that part-payment could become binding if the creditor agreed to accept part-payment, or provided a chattel instead of money at the request of the creditor, or made a part-payment in a different place to the originally specified location. In the later case of Foakes v Beer [1884]20 the defendant had obtained a judgement against the claimant for the outstanding debt. The claimant asked for time to pay the debt, which was accepted by the defendant, however, the court subsequently ruled that the defendant was entitled to interest on the outstanding debt, despite the acceptance of the instalment arrangement. It would appear from the above that part-payment of a debt does not prevent the creditor from claiming the full amount owed at a later date. There are, as can be expected, exceptions to the rule. This was demonstrated in Hirachand Punamchand v Temple [1911]21, in which the part-payment was made by a third party. In this case the father of the debtor made an arrangement with the money lender to pay his son’s debts. The money lender accepted the offer of a part-payment as a full settlement of the debt. When the money lender subsequently tried to claim the remainder of the outstanding debt from the son, the court refused the application stating that the part-payment was valid consideration, and should be regarded as settlement of the debt as a whole. Part-payment of a debt can sometimes be achieved through composition agreements between the debtor and the creditor. In such cases, the creditor agrees to accept a percentage of the outstanding debt as full settlement of the whole debt22. A further way in which a part-payment might be accepted as full consideration of the outstanding debt is the doctrine of promissory estoppel. Under this doctrine the person making the promise is estopped from reneging on this promise at a later date. This doctrine was applied in Central London Property Trust Ltd v High Trees House Ltd [1947]23. In this case the plaintiffs were prevented from claiming the full rent owed to them between 1940 and 1945, because they had made a promise to the occupiers of those properties to allow them to pay half the rent owing during the duration of the war. Lord Denning stated that this promise amounted to an estoppel, and therefore the money owing during this period could not be reclaimed. Similarly in Hughes v Metropolitan Railway (1877)24 the landlord was estopped from taking possession of the property, as he had led the claimant to believe that he would not enforce such a notice whilst negotiations in relation to the repairs to the property were ongoing. A further case which demonstrates this point is Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955]25 where the court determined that the promise not to insist on his legal rights should be honoured if the promise has been acted upon by the other party. In order for a person to be able to rely on this doctrine there has to be a clear and unambiguous statement made by the promisor not to enforce their legal right26. The person to who the promise has been made, must then have taken some form of action in reliance on that promise27. In some cases the court have concluded that it would be inequitable for the promisor to revert back to his legal rights. However, in D & C Builders v Rees [1965]28 the court allowed the promisor to revert his legal right, as there was evidence to show that the promise had been obtained from the promisor by improper pressure. In this case the debtor knew that the builder was having financial difficulties, and exploited his desperate need for money to extract a promise to accept a part-payment as a full settlement of the amount outstanding. As the promise has been gained in this manner the court ruled that the promisor was entitled to revert his promise and awarded him the full amount outstanding. From the above it can be seen that in some cases part-payment of a debt can extinguish the right of the creditor to claim the full amount outstanding at a later date. There are, however, exceptions to the rule, and it should be noted that on occasion the courts have allowed the promisor to revert their legal rights, in situations were it would be inequitable not to do so. Bibliography Beale, HD, Bishop, WD, Furmston, MP, (1995), Contract Cases and Materials, 3rd Ed, Butterworths Bixby M.B., Beck-Dudley C., Cihon P.J. (2002), The Legal Environment of Business, Prentice Hall, New Jersey. Civil Litigation Study Manual, (2008), BPP Learning Media Dignam, A J., (2006), Company Law, 4th ed. Oxford University Press, London Elliott, C and Quinn, F, (2005) Contract Law, 5th Ed, Pearson Longman Goode, R M, (2004), Commercial Law , 3rd Edition, London, Penguin. Keenan, D and Riches, S, (2005), Business Law, 7th Ed, Longman Treitel, G H.(1999), Law of Contract, 10th Ed, Sweet & Maxwell Rose, FD, (2000), Statutes on Contract, Tort & Restitution, 10th Ed, Blackstone’s Read More