The Validity of a Contract Once Consideration - Essay Example

Introduction The above scenario is concerned with the law in relation to contracts and in particular in determining whether an advertisement can be regarded as part of a binding contract. To determine whether the advertisement can be regarded as part of the contract it is necessary to examine the law in relation to the formation of a contract as well as the status of advertisements. When determining whether a contract has been entered into the courts will look for proof of offer, acceptance and consideration. If all three are present the courts will generally deem the contract to be valid. Complications can arise especially in relation to deciding whether an advertisement should be regarded can be regarded as a formal offer to sell. Having examined the status of the advert it will then be necessary to consider any remedies available to Mr Hastie if he was successful in proving that the advertisement should be regarded as a formal offer. This will involve examining case law in this area to determine the basis on which such a claim might be brought. In the final section it is necessary to consider whether the determination of the status of the advert would be affected by the means in which it was advertised. In the scenario above the courts would be asked to consider whether the acceptance of the payment from the credit card would make the contract legally enforceable. This will require discussion in relation to the validity of a contract once consideration has been made. Offer and acceptance In contract law an offer is regarded as a promise made by the offeror to sell the offered item to the offeree. If the offeree accepts the offer to sell the offeror would then be legally bound to sell the item to the offeree. Difficulties arise in determining whether an offer has been made, especially in relation to the use of advertisements as a means of inducement, and the use of catalogues or price lists that are issued to potential customers. The courts have also determined an offer has not been made in relation to goods on display in a shop. Similarly the courts have also deemed that an enquiry as to whether the offeror will sell the items for a lesser amount would not necessarily amount to a rejection of the original offer. The court will determine the offer to be rejected if the offeree rejects the item outright or makes a counter offer for the item. Under these circumstances the court will consider the parties to be in negotiation in relation to the purchase of the item, and a contract will not be deemed as valid until both parties agree on the terms of the sale. Invitation to treat In general terms items advertised in newspapers, brochures1 and shop windows are classified as an invitation to treat2. The traditionally held view is that the seller is inviting the customer to offer to buy the item. Until the seller accepts the price offered, the seller is not bound to sell the item. Despite the item being advertised at a particular price in the advert the seller does not have to accept the customers offer to buy the item3. The same rule applies to items for sale in a shop as well as for items listed in a brochure or newspaper4. Adverts are regarded as invitations to treat until the buyer offers to buy the advertised item5. Since the price on the advert is only an invitation to treat the seller is entitled to vary the price, or to refuse to sell the item altogether, as acceptance only occurs when the buyer offers to buy and the seller accepts the offer6. If a buyer contacts the seller to arrange to buy the item the buyer is accepting the invitation to treat7. The seller must accept the buyer’s offer to pay for the item in order for the contract to be complete8. A legal offer can be distinguished from an invitation to treat on the grounds that an invitation to treat cannot be regarded as a binding contract. Generally speaking an invitation to treat will precede a formal offer to buy the item. This is frequently the case in respect of goods displayed within a shop. Items offered for sale within a shop are regarded as invitations to treat until the customer selects the item and takes it to the till to pay for it. The action of taking the item to the till to pay for it is regarded in law as an offer to purchase that item. A shop owner is entitled to refuse to sell the selected item; however, given that the purpose of the business is to sell items, it is unlikely for the shop keeper to refuse to sell. A shopkeeper might refuse to sell the item if it has been wrongly priced. In such circumstances the shopkeeper can offer to sell the item at the correct price. If the customer agrees to buy the item for the offered price then the contract becomes valid. The customer is entitled to reject the item if the shopkeeper informs them that the item has been wrongly priced and offers to sell the item to them at the correct price. In determining whether an advertisement is an offer or an invitation to treat the court can infer that an offer has been made through examining the intention of the parties. This can be inferred through the words or actions of the parties. In some instances the courts have determined that an advertisement can be regarded as an offer to sell the item at a specific price. The courts will only conclude that the advert such be regarded as an offer if they are satisfied that the offer to sell was made with the intention of binding the parties as soon as the offeree accepts the offer. When determining the validity of an offer the court will look for evidence to show that the offeror has made a definite promise to the offeree. The contact becomes complete once the offeree communicates their intention to accept the offer that has been made. The distinction between an offer and an invitation to treat was made in the case of Carlill v Carbolic Smoke Ball Company [1893]9. The court in this case decided in favour of the plaintiff, stating that it was clear from the wording of the advert that the respondent had made an offer and that acceptance had occurred when the plaintiff purchased the item. The court also held that the action of the seller in depositing £1000 into a bank account in order to pay anyone that contracted flu after using the product demonstrated an intention on the part of the company to be legally bound by the offer made in the advertisement. In the American case of Lefkowitz v Great Minneapolis Surplus Stores [1957]10 the court held that the store was legally bound to sell the fur stole to the male plaintiff, as the advert offered to sell the item to the first person to arrive at the store. A further case in which an advert was deemed to be an offer was the case of Bowerman v ABTA [1996]11 in which the court held that the notice on the wall in the travel agency amounted to an offer that anyone who booked a holiday through the agency would be covered by ABTA. The court stated that the action of booking the holiday amounted to acceptance by the customer of the offer to be covered by ABTA. In general terms the courts have determined adverts to be regarded as invitations to treat as can be observed in cases such as Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1952]12, Partridge v Crittenden [1968]13 and Fisher v Bell [1961]14. Applying the above to the scenario it could be argued that the television advert was an invitation to treat and that an offer would only have been made when Mr Hastie attended at the store intending to buy the item. If the court was to regard the advert as an invitation only, then the store is entitled to refuse to sell the item to Mr Hastie when he offers to buy it. This would mean that Mr Hastie would not be able to argue that there had been a breach of contract. It may be that the court would decide that the action of Mr Hastie going to the store to specifically buy the item is an acceptance of the offer to sell as portrayed on the advert. If the courts decided this to be the case then he would be able to argue that by removing the item from the sale there has been a breach of contract. As the store specifically mention a particular suite the court might infer, as they did in Carlill above, that the reservation of this item indicates an intention to enter into legal relation and therefore order specific performance or allow Mr Hastie to claim damages for a breach of the contract. Damages The main purpose for the awarding of damages is to put the plaintiff in the position they would have been in had the contract not been entered into. The courts are keen to point out that the aim of damages is not to punish the defendant but to compensate the plaintiff for the loss. In the scenario above Mr Hastie might be able to claim damages for expectation damages15, reliance interest16 as well as any consequential losses or non-pecuniary losses17. If Mr Hastie can prove that there has been a breach he might be entitled to claim for any money he lost as a result of traveling to the shop as well as any other losses. The plaintiff in Harris v Nickerson (1873)18 attempted to claim for such a loss after he had traveled to attend an auction advertised in the newspaper, which was subsequently cancelled. In this case the court held that the issuing of the advert in the paper amounted to an invitation to treat and that to allow such a claim would ‘make a mere declaration of intention a binding contract’. The court stated in this case that the advert was a declaration of an intention to hold an auction, and that cancellation of the auction did not amount to a breach of contract, since the offer to sell the items would not occur until the auction commenced. It could be argued, using the case of Hadley v Baxendale [1854]19 that anyone seeing the advertisement on the television would be likely to respond to the offer and would attend at the store in order to buy it. This might assist Mr Hastie in claiming for any losses incurred as a result of traveling to the store. The court would be likely to hold that it is reasonably foreseeable that someone would be likely to travel to the store, and because the advert is on the television, the potential buyer might have had to travel a considerable distance in order to get there. It is possible, therefore, that even if the court does not order specific performance of the contract, Mr Hastie might be able to recover the cost of traveling to the store. In order to succeed using the authority of Hadley Mr Hastie would have to prove that the claim for damages is as a direct result of the breach of contract20, or that the store should have contemplated the potential loss to Mr Hastie arising from the response to the advert. When considering whether damages can be awarded the court will consider the remoteness of the claim. This was considered in McRae v Commonwealth Disposals Committee (1951)21 in which the plaintiff had bought salvage rights to an oil tanker that did not exist. The Commission attempted to avoid liability on the grounds of common mistake as to the existence of the oil tanker. The courts awarded damages for reliance based on wasted expenses. A claim for loss of profits was dismissed on the grounds that such a claim was merely speculative. Similarly in Chaplin v Hicks (1911)22 the court found the defendant to be in breach of contract as they had prevented the claimant from taking part in the contest. Damages were awarded for loss of chance. By contrast in Allied Maples Group Ltd v. Simmons & Simmons [1995]23 the court stated that a loss of chance could only be compensated for if the plaintiff could show that they might have obtained a better deal if the solicitor had renegotiated the matter. Acceptance of offer following receipt of consideration In the final part of the scenario above it is likely that the court would deem that the contract was valid because the action of the plaintiff of paying for the item would mean that the offer had been accepted. In such a case the court could award specific performance and force the company to supply the goods as promised, or alternatively award damages to cover the amount paid as well as compensation for loss of chance. Consideration occurs where the party selling the item transfers this to the buyer in return for the buyer giving the seller the agreed consideration. In the case above this would mean that once the payment for the suite had been received by the seller the sale would be deemed to be complete and the seller would be obliged to give the buyer the item he has paid for. When considering the issue of consideration the amount paid does not need to be adequate in order for the consideration to be valid24. The consideration given has to be legal25 and must not be ‘past26’. Consideration is deemed to be valid once it has moved from the promisee to the promissor27. In the above, this would mean that the company would be bound by the promise they made to sell the suite to Mr Hastie once the money had been received by them through his credit card. This would be different from the situation above where Mr Hastie has attended the store but was then told that the item was no longer for sale, as the court are likely to hold that the advert was not an offer to sell, and that the offer would only occur once Mr Hastie selects the item and then offers to pay. At this point the seller can still refuse the offer and so therefore there would be no acceptance and subsequently no consideration would be paid. Had Mr Hastie attended the shop and paid for the item and was then told that the item was no longer for sale then there would be a breach of contract. Bibliography Beale, HD, Bishop, WD, Furmston, MP, Contract Cases and Materials, 3rd Ed, 1995, Butterworths Bixby M.B., Beck-Dudley C., Cihon P.J. The Legal Environment of Business, (2002). Civil Procedure Volume 1 2002, Sweet & Maxwell Civil Procedure Volume 2, The White Book Service, 2002, Sweet and Maxwell Dignam, Alan J., “Company Law”, 4th ed. / Alan Dignam, John Lowry, Oxford Oxford University Press, 2006 Goode, R M, “Commercial law ”, 3rd Edition, London, Penguin 2004. Harvey, b & Marston , J . Cases & Commentary on Tort, 1998, 3rd Ed, Pitman Publishing Keenan, D and Riches, S, Business Law, 7th Ed, 2005, Longman Mozeley & Whiteley’s, Law Dictionary, 1993, 11th Ed, Butterworths Rose, FD, Statutes on Contract, Tort & Restitution, 10th Ed, 2000, Blackstone’s Treitel, G H. Law of Contract, 1999, 10th Ed, Sweet & Maxwell Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 Anglia Television v Reed [1971] 3 All E.R. 690 Bowerman v ABTA [1996] CLC 451 Carlill v. Carbolic Smoke Ball Company [1893] 1 QB 256; [1892] EWCA Civ 1 Chaplin v Hicks [1911] 2 KB 786 Chappell v Nestle [1960] AC 87 Fisher v Bell [1961] 1 QB 394 Grainger & Sons v Gough [1896] AC 235 Hadley v Baxendale [1854] Exch 341 Harris v Nickerson (1873) L.R. 8 Q.B. 286 Harvey v Johnston (1848) 6 CB 295 Jackson v Horizon Holidays [1975] 3 AER 92. 5 Jarvis v Swan Tours [1973] 2 QB 233 Lacis v Cashmarts Ltd [1969] 2 QB 400 Lasky v Economic Grocery Stores 65 NE 2d 305 (1946) Lefkowitz v Great Minneapolis Surplus Stores 86 NW 2d 689 (1957) McRae v Commonwealth Disposals Committee (1951) 84 CLR 377 Partridge v Crittenden [1968] 1 WLR 1204 Pearce v Brooks [1866] LR 1 Ex 213 Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1952] 2 QB 401 Re Charge Card Services [1989] Ch 497 Roscorla v Thomas [1842] 3 QB 234; 114 ER 496 Timothy v Stephen (1834) 6 C & P 499 Tweddle v Atkinson [1861] 1 B S 393 Victoria Laundry v Newman Industries [1949] 2 KB 528 White v Bluett [1853] EX. 23 LJ EX. 493 Read More