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Offer and Acceptance in the Sale of Goods and Promotions
Example Contract Law Problem Question
Liv advertised in her local newspaper. The advert states "For sale, rare pottery collection, £800. Contact 07557123456" On Monday, Jamie saw the advertisement and telephoned Liv expressing his interest in the collection. Liv said that as Jamie was obviously a very keen collector, she would let him have the items for £600, Jamie then offered £550. Liv said she would think about it and get back to him the following day. On Tuesday Dan saw the advertisement, and contacted Liv. Dan asked Liv what the minimum price she would accept for the collection. Liv replied stating that the minimum she would accept is £575. Dan said that he accepted the offer over the phone and would be in touch later that week to finalise the details.
On Wednesday, Liv met up with her friend, Charles, who expressed interest in the pottery collection. He offered £600 for the collection and Liv agreed to sell immediately.
That lunchtime a mutual friend, Dora, told Jamie and Dan about the pottery Charles had just bought from Liv. Jamie and Dan are both very cross as the pottery is worth at least £1000, and are demanding that Liv sell them the Pottery collection.
Fitness Fitness Fitness places an advertisement on their window stating:
The first 25 people to complete interval training on our brand new treadmill machines within five minutes, will be rewarded with one year's free membership.
Emily notices the advertisement and completes the task, within five minutes. Emily is one of the first 25 people. Whilst Emily is completing the interval training, the manager places a notice on the window withdrawing the promotion; the manager is refusing to give Emily her free membership for 12 months, stating that the promotion is no longer valid.
There are certain components that need to be present in order for a valid contract to be formed. The most basic of these is that there must be a valid offer and an unequivocal acceptance of that offer which form the very basis of a contract. This needs to be accompanied with an intention to create legal relations and valid consideration1. Without these there can be no contract.2 The scenario will be assessed in order to identify the relevant parties and possible offers and acceptances in order to determine whether any potential contracts could be formed. Where these two fundamental elements can be established, consideration and intention to create legal relations will be assessed in order to advise Liv whether she is legally bound to sell the pottery.
The newspaper advertisement details the pottery for £800. It must be established whether this was an offer by Liv, or a mere invitation to treat. The general presumption is that advertisements will be construed as the latter3. This is due the fact that contractual intent is assessed by the courts objectively4. Even though subjectively Liv may have intended this to be an offer, objectively it can be seen that this was not the case due to the issue of multi-acceptance. Liv only had one pottery collection so it is not possible that she intended to contract with every person that responded to her advert.
As it has been established that the advert is not in itself an offer, it is necessary to distinguish an offer from the conversation that takes place between Liv and Jamie. This comes when Liv tells Jamie he can purchase the collection for £600. Liv offers the pottery to Jamie at a reduced rate on the basis that Jamie is an ardent collector. It would appear from the nature of the transaction that there is an intention to be legally bound and thus, the offer is likely to be valid. In order for an offer to be accepted, the rule is that it must be accepted unequivocally and without alteration.5 However Jamie does not immediately accept this offer, instead providing Liv with a counter offer of £550. This has the effect of destroying the original offer6 and as such Jamie will no longer be entitled to go back and accept Liv's offer for the sale of the pottery for £600. Instead this will act as a fresh offer which Liv can then accept. Jamie is entitled to revoke the offer at any time before Liv gets back to him,7 provided that such revocation is communicated to Liv.8
As it is left between Jamie and Liv there is no contract for the sale of the pottery.
As it has been established that Liv's advert will not constitute a valid offer it is first necessary to distinguish whether an offer is made at any point within the communications between Liv and Dan. When Dan contacts Liv regarding the pottery and asks the minimum price she will accept for it, Liv's reply will not constitute an offer. This is because the general rule is that a statement of minimum price is neither an offer nor an acceptance9. The offer here comes in the form of Dan's attempted acceptance of what he believes to be an offer from Liv. When Dan replies that he is willing to pay the £575 this forms an offer which Liv is open to accept. However the conversation ends there without Liv ever offering such acceptance and accordingly, there is no contract formed between Dan and Liv.
The conversation that takes place between Liv and Charles is more straight forward in terms of distinguishing a clear offer and acceptance. It appears that Charles' offer to Liv for £600 in return for acquiring the pottery collection is a valid offer to which Liv gives an unequivocal acceptance. Although Liv and Charles are friends, the nature of the discussion goes further than a social or domestic agreement10 and the presumption that there is no intention to create legal relations can be rebutted due to the nature of the facts11. Having successfully established these elements it is necessary to establish valid consideration in order to advise Liv whether she is bound to sell to Charles. Consideration is defined in Misa v Currie (1875) L.R. 10 Ex. 153 as "some right, interest, profit or benefit accruing to one party or some forebearance, detriment, loss or responsibility, given, suffered, or undertaken by the other".12 It can be seen here that this is satisfied in Charles paying the £600 in return for the pottery and vice versa. The general rule is that consideration must be sufficient but need not be adequate13. This reflects the self-regulatory foundations of contract law14 and the respect courts afford to privity of contract. This means that although Liv has essentially made a bad bargain, the courts will not step in to protect her by insisting that Charles contract for the full value of the goods.
It is evident from this analysis of the facts that there is indeed a valid contract between Liv and Charles and as such, Liv must honour this contract for the sale or Charles will be able to bring an action for breach of contract.
Emily appears to have entered into a contract with FFF, of which performance will entitle her to free membership for a year. Contract law requires certain features to be present within the agreement in order for it to be valid, although this is not determined by any prescribed formalities.15 The features that need to be present include an offer, acceptance of that offer, intention to be legally bound, and consideration.16 The advertisement placed by FFF will be assessed in terms of whether it is capable of representing an offer. Emily's performance of the terms of the offer will be assessed to determine whether this is sufficient to amount to acceptance.17 Finally, an assessment into the withdrawal of FFFs offer will be undertaken as a means of establishing the rights and obligations of Emily and FFF.
An offer is a statement made by a party that they are willing to enter into contractual relations with another party on specified terms.18 Where both parties agree to undertake certain obligations in return for the performance of the other parties' obligations there is a potential for a contract to be formed. FFF's advertisement in the shop window appears to meet the requirements of an offer in that it imposes an obligation upon them to provide free membership in return for the first 25 customers to complete Interval Training on their new treadmills.
It is worthy of noting that advertisements in shop windows or shop displays are usually described as an invitation to treat as opposed to an offer.19 The principle reason for this is that the shopkeeper must always be entitled to refuse to serve the member of the public.20 There is little consistency with the application of the invitation to treat doctrine and therefor it is not always possible to determine whether an advertisement falls within the category of an offer or merely represents an invitation to treat. In Carlill v Carbolic Smokeball the deposit of £1000 in the bank to demonstrating the offerors sincerity, was sufficient to amount to an offer and demonstrate an intention to be legally bound.21 Not all advertisements will be interpreted as invitations to treat as this is merely a rebuttable presumption22, and thus a newspaper advertisement for the sale of fur coats at dramatically discounted prices was held to be a valid offer due to it circumnavigating the issues of multi-acceptance with the qualifying statement 'first come first serve'.23 In this regard, Peel determines that the principle distinction between an offer and an intention to treat is the intention of the parties.24 In this case there is no statement of good faith that can be identified with Carlill v Carbolic Smoke Ball,25 but neither does the wording of the agreement suggest that it only represents an invitation to treat. There is no requirement for Emily to make an offer of payment that can be accepted by the retailer. Her only obligation is to complete the interval training in the specified time, which she has done. For these reasons it is likely that the advertisement will be treated as an offer.
Once a valid offer has been established, then it is necessary to ascertain whether the offer has been accepted before it can form the basis of a legally binding contract. The general rule is that the acceptance must be communicated to the offeror however, there are many instances where acceptance is communicated at the time the contract is performed. Lindley L.J. confirms that acceptance can occur "contemporaneously with .... notice of the performance of the condition".26 In The Satanita it was determined that entering the race was sufficient to accept the rules of the race.27 Thus it is the parties' actions that are used to determine whether acceptance of the contractual terms has occurred. Emily's performance of the terms and notification of this performance will communicate the acceptance of the contract in this scenario.
It therefore appears that there is a valid offer and acceptance in this scenario. Nonetheless a difficulty lies in the fact that the offer was withdrawn whilst Emily was in the process of completing the training. It is therefore necessary to understand whether this withdrawal of the offer is valid and supersedes the acceptance of the contract.
Withdrawal of Offer
FFF withdrew their offer whilst Emily was in the process of completing the Interval Training and this it could be argued that they have revoked the offer before Emily has notified acceptance of its terms. It is possible to revoke an offer at any point in time prior to the offer being accepted.28 However, the general rule is that the revocation of the offer must reach the offeree in order for the withdrawal of the offer to be effective.29 In Byrne v Leon van Tienhoven, the offer was posted to the offerees who accepted it by post prior to receiving the letter revoking the offer; the revocation failed as the offer had been accepted before it was received.30
Emily does not appear to have received the revocation of the offer whilst she was actually performing the obligations contained in the offer. She may or may not have seen the manager putting a notice alongside the offer however, it is unlikely that she would have seen the detail contained within the notice. It is only following the completion of the Interval Training, at the point of notifying acceptance and performance of the contract, that Emily is notified that the offer has been withdrawn. It is very unlikely that FFF will be able to rely on their withdrawal of the offer as the contract has already been performed.
As this scenario demonstrates, there is really very little formality required in respect of parties forming a valid legally binding contract. Contracts can be accepted before notification is given to the offeror and mere performance is sufficient to accept the contractual terms. The only area where formality is required is in the revocation of an offer which must be received by the offeree prior to their acceptance of the contractual terms. Emily will be entitled to the free gym membership for one year from FFF. If FFF fail to perform their obligation under the contract Emily will be entitled to damages for breach of contract to the value of the fee membership.31
1 Murray, Contract Law (2nd edn. Sweet and Maxwell 2011) 5.
2 Poole, Casebook on Contract Law (11th edn, Oxford University Press 2012) 18.
3 Partridge v Crittenden 1968 1 W.L.R. 1204
4 Storer v Manchester City Council 1974 1 W.L.R. 1403
5 Hyde v Wrench (1840) 3 Beav 334.
6 Hyde v Wrench (1840) 3 Beav 33.4
7 Routledge v Grant (1828) 4 Bing. 653.
8 Pickfords Ltd v Celestica Ltd 2003 EWCA Civ 1741.
9 Harvey v Facey 1893 A.C. 552
10 See Balfour v Balfour 1919 2 K.B. 571 and Merritt v Merritt 1970 1 W.L.R. 1211
11 Simpkins v Pays 1955 1 W.L.R 975
12 Misa v Currie (1875) L.R. 10 Ex. 153 162
13 See for example Thomas v Thomas (1842) 2 Q.B. 851
14 Murray, Contract Law (2nd edn Sweet and Maxwell 2011) 73
15 R Stone, Modern Law of Contract (9th edn, Routledge 2011) 33.
16 Poole, Casebook on Contract Law (11th edn, Oxford University Press 2012) 19.
17 Brogden v Metropolitan Railway Company (1877) 2 App. Cas. 666, per Lord Blackburn at 691.
18 E McKendrick, Contract Law: Text, Cases, and Materials (5th edn, Oxford University Press 2012) 44.
19 Fisher v. Bell 1961 1 QB 394.
20 McKendrick, n3, 68.
21 Carlill v Carbolic Smoke Ball Company 1893 1 Q.B. 256, at 261.
22 Partridge v Crittenden 1968 2 All E.R. 421
23 Lefkowitz v. Great Minneapolis Surplus Stores Inc 86 NW2d 689 (1957) (Supreme Court of Minnesota).
24 Peel E, Treitel: The Law of Contract (13th edn, Sweet and Maxwell 2012) 2:012.
25 Carlill v Carbolic Smoke Ball Company 1893 1 Q.B. 256, at 261.
26 Ibid, per Lindley L.J at 262.
27 The Satanita 1895 P 248 (CA),
28 Routledge v Grant (1828) 4 Bing 653; Bircham & Co Nominees (No.2) v Worrell Holdings 2001 EWCA Civ 775.
29 Pickfords Ltd v Celestica Ltd 2003 EWCA Civ 1741.
30 Byrne v Leon van Tienhoven (1880) 5 C.P.D. 344.
31 Robinson v Harman (1848) 1 Exch 850.