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Business Law – Law of Contracts

Contractual law offers a secure method of conducting transactions between individuals, business and/or corporate bodies.  A common misconception is that a legal contract may not apply in a small transaction, such as buying and selling of goods through an advertisement in the paper, but as with any other transaction the law of contracts does apply to the smallest of sales.  In the case study provided we have a situation where an individual has offered his collection of painted eggs for sale with the stipulation that the eggs must be sold by the end of May.  The price quoted in the advertisement was “50 pounds gets the lot”.

The advertiser has provided his business telephone number and address as contact details.  According to the case study our seller received two separate offers for his painted eggs.  The first response was by mail where an individual offered the price of 50 pounds “on delivery of the eggs”; this offer being made in a letter dated the 28th May.  The second response was a phone message left by another buyer on the 31st May, who said that he would pay the sum of 55 pounds for the eggs with no apparent delivery specifications.  The

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other point highlighted in this case study was that the phone message response was made on a Bank Holiday.

The first issue that arises from this case study is whether or not the seller was making the sale as a personal seller, or if the eggs were for sale at a place of business.  The case study states that the advertiser had used his business telephone number and address as contact details.  However what the case study does not indicate is if the seller for ease of contact left the business contact details, or if the eggs were sold as part of the seller’s day-to-day business.

This distinction is important as a person who displays his goods for example through a shop window or an advertisement is not, on that basis obliged to sell the goods to any respondents to the advertisement.  This is known as an “invitation to treat,” which is a provision in contractual law that allows a seller to offer his goods for sale, yet is not obligated to take any or all offers from buyers.  As this paper is concerned with contract law rather than the Sales of Goods Act (1979), the assumption for this paper will be that the seller used his business contact details for convenience only and that the transaction was to take place between two private citizens.

A second issue arose from the use of business contacts by the seller in that the second buyer response was left on the seller’s answerphone on a bank holiday, which of course was a time that the seller was unlikely to receive the message, at least until the next day.  This point is important for two reasons in that firstly the advertisement placed by the seller made it clear that the eggs had to be sold “by the end of May” and the seller would not have received the second buyer’s offer until the 1st of June.

The wording of the advertisement could indicate that the eggs would not be available for sale after the 31st May.  Secondly, the seller was not available to accept the offer made on the phone by the second prospective buyer, before the end of the month, which could nullify the buyer’s response if a previous buyers offer had been accepted.

We do know that the seller had received a previous offer on the eggs.  This first prospective buyer sent a written response to the advertisement; the letter dated the 28th May.  Under the “Postal Acceptance Rule” an offer made by mail is effective from the date that it was written and posted, rather than when the seller receives the mail offer.  Now this rule could have a lot of importance in this case in that if we take the 28th May as being a Friday, the realistically, given the Bank Holiday on the 31st May that the mailed response to the advertisement may not be received by the seller until he returns to his place of business on the 1st June.

This event could mean that the seller may receive both offers to buy the eggs at the same time.  If this was the case and the seller received both the written offer and the phone message on the 1st June, then the written offer would still take precedence because it was dated 28th May, three days before the answerphone offer was made.

Before jumping to a conclusion however, that the eggs would be sold to the buyer who had written offering to buy the eggs for 50 pounds, the central tenants of contract law need to be considered, the concepts of “offer and acceptance”.  An offer is describes as “an expression of willingness to contract on certain terms, made with the intention that it shall become binding, as soon as it is accepted by the person to whom it is addressed” (Tretel, 1984). The key term in this definition is the “intention” of the seller.

This issue was determined by British law to mean not the seller’s intention exactly, but rather how another “reasonable” person might consider the intent of the offer (Smith v. Hughes 1871 LR 6 QB 597).  It is plausible that the seller may have inserted the newspaper advertisement to determine if his eggs were worth 50 pounds and was not genuinely seeking to sell them.  However the wording of the advertisement especially the clause “must be sold by the end of May” could be determined by the courts as a strong indication of intent on the part of the seller to make the sale by the end of the month.

In this case study we have two examples of “acceptance” of the offer made by the seller.  The first offer came from Sparrow, through a letter that is dated 28th May for the purposes of this case study.  As mentioned above, if all things were equal then Sparrow’s offer would be considered the winning offer based on the fact that the offer was dated three days before the answerphone message from buyer number two, Duck.  However, the offer from Sparrow was conditional rather than absolute acceptance – Sparrow said she would pay 50 pounds “on the deliver of the eggs”.  There is a rule in contract law known as the “mirror image rule”.

This rule means that if an offer is accepted by the buyer it must be acceptance of exactly what is offered, that is the acceptance must include all provisions set out by the seller, and exclude anything that is not offered by the seller.  In Sparrow’s case her offer was conditional on delivery, which was not an element of the original offer, and under the mirror image rule, her offer would not be deemed an “acceptance” and the seller would be free to take buyer offer number two.

However, buyer offer number two, in this case the answerphone message left by Duck, also contravenes the original offer made by the seller, because the amount of money offered is more than was requested by the seller.  Despite the fact that logically it would be unwise for Quail to refuse the offer from Duck because she was offering to pay too much money for the eggs, under the acceptance clause of contract law Duck’s offer is not a mirror image of the original offer either and could be declined.  In Duck’s case her offer to pay more than the goods were being offered for sale at constitutes a counter offer as opposed to an acceptance of Quails offer.

The “lapse of time” component of this case is also something that cannot be ignored.  As noted earlier in this paper it is highly probable that Quail did not receive either offer from Sparrow or Duck until after the end of May.  If the intent of the offer by Quail was that the eggs would not be available after the end of May, an assumption based on the wording of the advertisement that stated that the eggs “must be sold by the end of May”, then the determinant on who might be more entitled to accept the eggs would go to Sparrow because she made her offer before Duck’s phone call.

Under contract law, Duck’s verbal acceptance of the offer would still be valid, especially if the answerphone had the ability to date and time stamp all messages left on the machine, however Duck’s offer came after the written acceptance provided by Sparrow.

As illustrated by this paper this deceivingly simple sales transaction can be interpreted in a variety of ways.  From the seller’s perspective Quail in theory does not have to accept either offer to buy his eggs as neither Sparrow nor Duck accepted the mirror image of his offer and instead made “counter-offers” to his offer, which Quail is under no obligation to accept.

Also, from the assumptions made in this paper it would appear that Quail was not advised of either offer until after the deadline of the end of May, although the case study does say that both buyers did make their intention to buy known prior to the end of the month.  It is possible that the date of the offer, in conjunction with the impact Bank Holidays might have on contract law, could affect the outcome as to whose offer Quail accepted.

The issue surrounding the offer of more money for the eggs made by Duck is a relatively unimportant part of this case.  Under law if Sparrow’s acceptance had been a mirror image of Quails offer for sale, then her acceptance would have priority over Ducks, despite Quail having the opportunity to make more money if he had accepted Duck’s offer.  However, as neither buyer actually mirrored Quails under contract law Quail is under no obligation to sell to either Sparrow or Duck.

Bibliography

Elliot, Catherine and Quinn, Frances, Contract Law, 4th Edition, Longman, 2003

Keenan, Denis, Smith & Keenan’s English Law, 13th Edition, Longman, 2001

Macintyre, Ewan, Business Law, Longman, 2001

Paul Richards, Law of Contract, 5th Edition, Longman, 2002

Partington, Martin, Introduction to the English Legal System, 2nd Edition, Oxford University Press, 2003

Stone, R, Principles of Contract Law, 5th Edition, Cavendish Publishers, 2003

Tretel, G.H., The Law of Contract, 10th Edition, Longman, 1984

Case Cited

Sale of Goods Act, 1979, amended 2002.

Smith v. Hughes 1871 LR 6 QB 597

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