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Contract Assignment: Scenario Analysis

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The scenario must be analysed in order to advise Claire on whether any contracts have been made or not, and if so, on what terms they have been agreed. The key requirements for a valid contract are offer and acceptance (known as agreement), consideration and intention to create legal relations.

The first issue to consider in this scenario is the legal status of the advertisement made by Virtue Plus. As a general rule adverts are considered an invitation to treat, which comes before an offer and is an invitation from one party to another with the aim of commencing negotiations. Kadir[footnoteRef:2] summarises effectively the main reasons adverts are considered invitations to treat not offers, it is usually to protect the seller: [2: Rokiah Kadir ‘Rules of advertisement in an electronic age’ (2013) INT JLM 42]

The main justification for the decision upholding the invitation to treat is the concern to avoid the risk of depletion of stock…. The second justification supporting the decision of the invitation to treat is the concern to avoid the risk of making contracts with everyone.

However, an offer includes much more clear and certain terms so that both parties know what they are entering into. A case example concerning an advert is Carlill v Carbolic Smoke Ball Company Limited[footnoteRef:3], the advert was offering a £100 reward to anyone who used the smoke ball properly and still contracted the flu, the court ruled that the advert was an offer and acceptance took place when a member of the public fulfilled the requirements of the offer. Carlill was an example of a unilateral contract which means only one party assumes an obligation under the contract[footnoteRef:4]. This means the other party does not necessarily have to fulfil their side of the offer. In contrast for a bilateral contract, both of the parties are assuming an obligation. [3: [1893] 1 QB 256] [4: Catherine Elliot and Frances Quinn, Contract Law (12th edn, Pearson 2019) 3]

Looking at the original advert made by Virtue Plus we see they make the promise of additional free goods with purchase of hand sanitiser to the first 10 customers. Since they are relatively clear about what will be provided to these select customers this statement would be considered an offer and therefore, they are under a legal obligation to provide. This is very similar to the aforementioned case of Carlill[footnoteRef:5], since that advert also promised to pay if the public met the terms, which in the scenario means being one of the first ten customers, and the court in that case did rule it was legally binding and they had to pay Mrs Carlill for meeting their terms. It can also be seen that the phrase “you won’t be disappointed” is closest to a trade puff. This means it is not seen as an offer as it is just a marketing technique with no legal consequences, as it would be very difficult to prove whether or not a customer was disappointed. The advert for the hand sanitizer could be considered as being for a bilateral contract as it is for certain goods, although a fixed price is not given, this means it is almost certainly considered an invitation to treat because it encourages further negotiation between the seller and any potential buyers. Such as in Partridge v Crittenden[footnoteRef:6] where the courts ruled that the advertiser could not be charged for unlawfully offering a wild bird for sale since the advert was actually considered an invitation to treat not an offer on the grounds that there was not enough detail provided, for example, the exact quantity of birds available, this is similar to the scenario as Virtue Plus do not actually provide an exact number of bottles of hand sanitiser available for purchase, instead, they encourage potential customers to enquire first. [5: Carlill (n 2)] [6: [1968] 2 All ER 421, [1968] 1 WLR 1204]

If the advert were to be considered an invitation to treat then any acceptance of the advert would not be legally binding, whereas acceptance of an offer forms a contract. In the case of Gibson v Manchester City Council (1979)[ the court ruled that the council providing a letter with the price to purchase amounted to a mere invitation to treat and was not considered an offer. This is very similar to Stevens situation as he telephoned to enquire about the price of the hand sanitiser. [7: [1979] 1 WLR 294]

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Between Steven and Claire it is unclear as to whether there was ever valid acceptance. To begin with his telephone call to her was a request for information. Requests for information can make it unclear where the offer and acceptance actually take place. For example, in Harvey v Facey[footnoteRef:8] they enquired about the lowest price which was the request for information, the sellers then responded with £900 which is the supply of information, then by saying in return they would pay £900 the offeror became the offeree. So to apply this to the scenario, it could be said that Steven enquiring about the price was a request for information and when Claire gave him her answer over the phone she was simply providing that information not providing an offer. If this is the case then Stevens letter was actually the offer and it was up to Claire to accept. Therefore, there would be no contract between them and no legal obligation for Virtue Plus to provide Steven with the hand sanitiser. If the phone call were to be seen as an offer and Stevens letter were to be seen as acceptance then we must consider whether The Postal Rule would apply. It is the rule that when a term of the offer is that acceptance can take place via the postal system, the acceptance takes place at the time of its posting. One of the requirements for the rule to be valid is that use of the post is reasonable, if it is clearly specified that acceptance can only take place once the offeror has received it then the Postal Rule is not applicable. In Adams v Lindsell[footnoteRef:9] the defendants had already sold the wool to a third party before they had received the acceptance letter, however the court ruled that acceptance had already taken place upon postage of the letter so a contract had been formed and they were legally bound to provide the claimants with the wool. There are some exceptions to the postal rule such as when acceptance is communicated via an instant method such as telephone. In Brinkibon v Stahag Stahl and Stahlwarenhandels GmbH[footnoteRef:10] the offer had been sent by telex from Vienna to London, then acceptance was sent back the other way also via telex, therefore it was decided that the contract had been made in Vienna as that is where the acceptance was received. Looking back at the scenario, Claire did say to Steven to telephone back to place an order, which is an instant mode of communication unlike a letter sent in the ordinary post, therefore his acceptance would not be valid as he did not meet the terms provided had it been an offer. In addition, his letter arrived too late as Claire only opened it in the evening, so he missed the 5pm deadline, and she verbally informed him that he must communicate to her. This means she would have had to have been made aware of his offer/ acceptance before the given deadline. In Entores Ltd v Miles Far East Corporation[footnoteRef:11] Lord Denning explained how acceptance must be communicated, to quote Elliot and Quinn [footnoteRef:12]‘if A shouts an offer to B across a river but, just as B yells back an acceptance, a noisy aircraft flies over, preventing A from hearing Bs reply, no contract has been made.’ This explains the concept very well and can be applied to situations where acceptance is communicated via other methods, not just verbal. [8: [1893] AC 552] [9: [1818] 1 B & Ald 681] [10: [1983] 2 AC 34, [1982] 2 WLR 264] [11: [1955] 2 All ER 493] [12: Elliot and Quinn (n 3)]

If the advert were to be considered an offer then Stevens request for information would not be considered a counter offer, therefore the original offer is still open to be accepted. Stevenson Jacques Co v McLean[footnoteRef:13] is a case where they asked for credit and then the offeror sold the iron to someone else, this was a breach of contract because the offer had been made to one party and they had not actually provided a counter offer, it was simply a request for information. [13: [1879-80] LR 5 QBD 346]

The next issue presented by the scenario is whether a contract was formed when Sabrina made her online order. When goods are displayed for sale, such as on the website, it is considered an invitation to treat. For example, in Fisher v Bell[footnoteRef:14] they were offering illegal knives for sale in the shop window, the court ruled that it was only an ITT and thus the seller could not be convicted. In addition, in Pharmaceutical Society of GB v Boots Cash Chemist (Southern) Ltd[footnoteRef:15] the issue was concerning medicines only being sold with the supervision of a qualified pharmacist, the courts ruled that the sale took place when goods were presented at the counter where the pharmacist was, and not when the customer picks them up off the shelf. So, it could be said that when Sabrina placed her order she was actually making the offer, thus becoming the offeror. Even though this did not take place in a shop like the aforementioned case, it was actually online, but the case is still relevant as the core concept is the same. Also since Virtue Plus included in their terms and conditions that acceptance only takes place upon dispatch and Sabrina failed to read them of her own accord yet still agreed to them, they are under no obligation to ship the goods to Sabrina and should be advised to issue a full refund instead as the contract was never completed and legally binding. [14: [1961] 1 QB 394, [1960] 3 WLR 919] [15: [1953] 1 QB 401, [1953] 2 WLR 427]

In addition, Sabrina’s order was logged on the system half an hour after Claire and Raj had entered into a contract, so she was technically too late as all of the stock had been signed over. However, it could be said that Raj’s contract was not actually valid as the terms must be clear and certain which “the entire stock” is not as there is no specific numerical value. A case where there was uncertainty but the parties carried on with fulfilling the contract was Foley v Classique Coaches Ltd[footnoteRef:16]. In this case the parties agreed to purchase petrol but with no fixed price, the defendant then tried to claim after quite some time that the offer was never clear and therefore there was no contract. However, the courts ruled that there was enough certainty in the terms for agreement to take place, and so the contract did in fact exist. In the scenario, though the quantity number is not fixed, there has been agreement from both parties so going by the rule of this case it would be said the contract was still workable and therefore legally binding for both parties. It could be that if another contract is already effective then the ownership of that part of the stock is already gone, meaning the whole stock is not actually what Raj had expected. The seller would then have the option to choose to honour both contracts, had there been a contract formed with either Steven or Sabrina as well, even if that means Raj would receive far fewer items than he had expected. Acceptance is only valid in relation to a certain offer, so either party could argue the contract is flawed even though it says they entered into it, and therefore it would be void. Meaning it would not have any legal status and it would be as if there had never been a contract, so the stock could still be sold to Sabrina and Steven. [16: [1934] 2 KB 1]

It would also be worth mentioning The Unfair Terms in Consumer Contracts Regulations 1999 with reference to Sabrina. As the term included in their online contract regarding when acceptance takes place may be deemed unfair for the customer. This is due to the fact the company could technically take the money and never send the goods but would be covered by their own terms and conditions.

With regards to Raj’s situation, it is most likely a legally binding contract has been formed because both parties did agree to it on the terms of buying all the outstanding stock and this was agreed at 11am. This is 30 minutes before Sabrina’s order was logged on the system even though she paid before his contract was formed, however as previously explained acceptance for Sabrina had not yet taken place. In addition, Stevens letter had still not been opened. Therefore, Raj is legally entitled to the stock and Claire could not be sued for breach of contract by either Steven or Sabrina since there was never a valid contract formed with either of them.

Bibliography

Journals

  1. Kadir R, ‘Rules of advertisement in an electronic age’ [2013] Int. J.L.M

Legislation

  1. Unfair Terms in Consumer Contracts Regulations 1999

Books

  1. Elliot CF Quinn, Contract Law (12th edn, Pearson 2019)

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Contract Assignment: Scenario Analysis. (2022, March 17). Edubirdie. Retrieved September 29, 2022, from https://edubirdie.com/examples/contract-assignment-scenario-analysis/
“Contract Assignment: Scenario Analysis.” Edubirdie, 17 Mar. 2022, edubirdie.com/examples/contract-assignment-scenario-analysis/
Contract Assignment: Scenario Analysis. [online]. Available at: <https://edubirdie.com/examples/contract-assignment-scenario-analysis/> [Accessed 29 Sept. 2022].
Contract Assignment: Scenario Analysis [Internet]. Edubirdie. 2022 Mar 17 [cited 2022 Sept 29]. Available from: https://edubirdie.com/examples/contract-assignment-scenario-analysis/
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