The Legal Environment of Business - Assignment Example

Answer both questions applying relevant theories and cases. Harvard system of referencing should be used to acknowledge ideas or words of another person. Question 1 Alvin runs a business selling expensive cars. Last Monday he mistakenly placed a notice on one car indicating that it was for sale for £5,000 when in fact its real price was £25,000. Bert later noticed the sign and, recognising what a bargain it was, immediately indicated to Alvin that he accepted the offer and would take the car for the indicated amount. Alvin, however, told Bert that there had been a mistake and that the true price of the car was £25,000. Bert insisted that he was entitled to get the car at the lower price, and when Alvin would not give it to him at that price Bert said that he would sue Alvin. After Bert had left, Alvin changed the price on the car to £25,000 and subsequently Cat came in and said she would like to buy the car, but that she would have to arrange finance. On Tuesday Del came by and offered Alvin the full £25,000 cash there and then and Alvin sold it to him. Required: Advise Alvin, Bert, Cat and Del as to their rights and liabilities in the law of contract Question 2 Al operates a small business manufacturing specialist engine filters. In January he placed an advertisement in a car trade magazine stating that he would supply filters at £60 per filter, but would consider a reduction in the price for substantial orders. He received a letter from Bash Cars plc requesting his terms of supply for 1,000 filters. Al replied, offering to supply the filters at a cost of £50 each. Bash Cars plc responded to Al’s letter stating that they accepted his offer but that they would only pay £45 per filter. Al wrote back to Bash Cars plc stating that he would supply the filters but only at the original price of £50. When Al’s letter arrived, the purchasing director of Bash Cars plc did not notice the alteration of the price and ordered the 1,000 filters from Al, which he supplied. Required: Analyse the situation from the perspective of contract law and in particular advise Al what price he is entitled to claim from Bash Cars plc Q1 In relation to the above, it will be necessary to discuss the law in relation to the creation of a contract. It will be necessary to discuss whether the advert in the paper amounted to an offer or an invitation to treat. This is important because if the advert can be regarded as an invitation to treat then Alvin would not have to sell the car for the amounted advertised in the paper. It will also be necessary to consider whether a contract was created between Cat and Alvin, as Cat was unable to provide the consideration at the time that she offered to buy the vehicle. From this it should be possible to determine whether Bert or Cat would be entitled to bring an action against Alvin for not selling the car to them. To achieve this it will be necessary to consider case law in this area, in order to determine how the courts have previously dealt with similar issues. In law a contract is deemed to have been created when the three key elements are present. These key elements include an offer1, followed by acceptance2, and finally consideration. All three elements must be present in order for the contract to be fully constituted. Once an offer has been accepted the offeror must give the consideration requested to the offeree before the contract will be declared valid. Failure to do this would entitle the offeree to withdraw from the contract or to sue the offeror for the breach. An offeree is entitled to revoke the offer to sell the item before the deadline has been reached, although might be subject to court action if the offeror can demonstrate that they have already started to perform their part of the bargain. Examples of this occur where the offeree is offering a reward for the finding of a lost item. When considering the situation above, where the seller of the car placed an advert in the newspaper, and the advertised price was incorrect, it is necessary to determine whether the advert constituted an offer to sell or an invitation to treat3. In general, the courts have accepted that such adverts in brochures4, on the internet, in newspapers and in shop windows will be regarded as merely invitations to treat, and that the offer occurs when the person offers to buy the advertised item. This is based on the legal perspective that the person placing the advert is inviting the reader to make an offer to buy that item. Where this involves items for sale in a shop, the courts tend to take the view that the offer to buy the item occurs when the customer presents the item at the till. At that point in time, the shop owner is entitled to either accept the money offered for the item, or to refuse to sell the item to the customer5. This same principle has been applied to adverts placed in a newspaper6 or brochure, or on the internet. The person responding to the advert makes an offer to buy the item at the advertised price, but the seller is entitled to reject that offer, even if the prospective buyer is offering the amount requested in the advert. This protects the seller from having to sell an item for less than its true value, in situations where the wrong price was placed on that item. Having established that an advert in a newspaper will only be regarded as in invitation to treat7, in the above scenario Bert would be unable to sue Alvin for not selling the car at the advertised price, as acceptance would only be complete if Alvin accepted the amount offered by Bert8 Many such cases have been brought before the courts, as the prospective buyers are often under the impression that advertisements of this kind should be regarded as an offer to sell at the advertised price. Prospective buyers are often convinced that responding to the advert amounts to acceptance of the offer, when in fact the court will only regard such buyers as responding to the invitation to treat9. Where items are being sold by mail order, or on the internet, the court will conclude that acceptance of an offer has occurred if the goods are dispatched without the seller attempting to amend the price advertised10. In cases were an item has been wrongly priced, as in the above, the seller is entitled to negotiate with the buyer to reach a price that is acceptable by both parties. No valid contract will be created until the buyer and seller have reached an agreement in relation to the price and the terms and conditions of the sale11. In the above, Alvin explained to Bert that there had been an error in the price advertised in the paper. Bert would not be entitled to insist that Alvin sells the car at the advertised price, as the advert would not constitute an offer. This would also mean that Bert could not bring an action against Alvin for failing to sell the car at the advertised price. In relation to Cat, the courts would be likely to deem that the contract was not fully constituted as Cat was unable to pay the consideration requested. If Cat had already started the process of obtaining the finances for the car, then the court might refuse to allow Alvin to sell the car to Del. However, this would only apply if the person or company lending the money to Cat had fully agreed to give her the amount requested. If Cat had only made an application for a loan, and this had not been accepted at the time that Alvin sold the car to Del, then the court would be likely to rule that the contract between Cat and Alvin was not fully constituted, as she was not in a position to provide the necessary consideration at that time. In Williams v Carwardine (1833)12 the court ruled that the offer of a reward was deemed to be accepted b y the claimant when she provided the information requested in order to receive that award. Applying this case to the above, if Cat had already had approval for her loan, the court might determine that there was a binding contract between Alvin and Cat. This would entitle her to be able to claim compensation from Alvin. If the car had not already been sold to Del the court could have ordered specific performance of the contract. As it would seem that Cat had not already been approved for the finance it is likely that the court would conclude that no contract had been created. This would mean that Alvin would have been entitled to sell the car to Del, and the contract between them would be binding. Q2 In this situation it is necessary yo consider the law in relation to the relevance of counter offers. This will involve studying case law in this area in order to determine the stance that the courts have consistently taken when determining when a contract is deemed to have been formed. In the traditional formation of a contract the courts will require proof that there has been an offer13, followed by an acceptance of that offer14, and payment of the consideration as discussed. Where there is clear evidence that the parties are still in negotiation over the terms of the contract and the agreed selling price, the court will examine the communications between the parties in order to conclude when an agreement has been reached by the parties15. When considering the situation above, it is obvious that both parties were still in negotiation in relation to the price to be paid. However, the failure by Bash Cars Plc to note that the last communication from Al included the price alteration, such that the agreed price was £50 per filter, is likely to mean that this is the price they would have to pay. It is likely that the court would determine from examining the communication that both parties had agreed the price of £50 per filter, as Bash Cars Plc had failed to challenge the price alteration16. The courts will generally rule that the final document in the series of communications between the parties will determine when the contract has been fully constituted17. Failure to respond to the counter offer made by Al in the price variation will lead the court to conclude that Bash Cars accepted the filters at the price quoted by Al in the final communication In Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd [1979]18 Lord Denning MR concluded that the key to determining the terms of the contract was to identify the decisive document. Lawton and Bridge LJJ were of the opinion that the last counter offer before performance of the contract was to be the deciding factor. It was therefore decided that as the counter offer had not been challenged, that the parties had agreed to contract with each other on the terms made explicit in the final counter offer. Applying this to the above, Al would be entitled to receive £50 for each filter. If Bash Cars Plc refused to pay this amount, Al could bring an action against them for breach of contract. 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