Contract Law Analysis: Taking Legal Action

Issue

This scenario deals with the area of Contract Law, particularly concerning offers.

The issue is whether the advertisement constitutes as a legitimate offer or as an invitation to treat. If the advertisement is ruled as a legitimate offer then Pat is legally bound to supply the bike at the offered price. If the advertisement is ruled as an invitation to treat then it does not initiate a contract and Pat is not legally bound to sell the bike. The issue also arises as to whether this is a unilateral contract or a bilateral one, a unilateral contract would imply that Pat is legally bound while Mick is not. A bilateral contract bounds both parties. There is a question over Pat’s intention to create legal relations. Should Pat not have intended to create legal relations the advertisement cannot be seen as an offer as it cannot be a valid contract.

Law

For a contract to be valid it requires four elements:

1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations.

Of these, offer, consideration and intention to create legal relations can be disputed in this particular scenario. While Pat may dispute the consideration is not adequate, it is in the eyes of the court. Consideration must be something of value in the eyes of the law. The €200 offered to Pat is clearly acceptable and will be deemed as adequate consideration in the eyes of the court, so while Pat may dispute this, his argument has no legal standing and so will not be discussed. An offer is a clear and unambiguous statement of the terms upon which the first party is willing to contract, should the person or persons to whom the offer is addressed to decide to accept. It is clear that Pat’s phrasing meets the requirements to be a legally binding contract. It is clear and definitive he will sell the bike for the €300 or nearest offer. The use of the word “will” in particular is unambiguous and leaves no room for negotiation on his part. The fact that there is a date Pat declares he will sell the bike on further highlights the clarity of the advertisement. However, as Pat’s statement is an advertisement there is room for argument on his behalf. Wood J explained this argument in the District Court of New York during Leonard v PepsiCo. “An advertisement does not constitute an offer. Nor is an advertisement transformed into an offer merely by a potential offeree’s expression of willingness to accept the offer through completion of an order form.”

Pat’s post in the local supermarket is an advertisement and therefore if the court rules it as an invitation to treat he will not be bound to sell the bike to Mick. The major difference in this case compared to the case of the Minister for Industry and Commerce v Pim is that the one BMZ bike is clearly the only bike Pat wants to sell. Therefore the rule which sets out to protect shopkeepers so as that they are not obliged to sell goods to anyone who sees them in the shop window does not apply here.

There is reason to believe that Pat may have entered a unilateral contract due to the wording of his advertisement. If the court is satisfied that an offer is seriously intended to be binding then should persons come forward and act on it, it will be held to be enforceable. This can be seen in Carlill v Carbolic Smoke Ball. Bowen LJ used a simple test to determine his ruling: “. . . in order to arrive at the right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was meant to be issued to the public and to be read by the public. How would an ordinary person reading this document construe it?”

On the contrary, in Partridge v Crittenden Lord Parker CJ stated: “I think that when one is dealing with advertisements and circulars, unless they indeed come from manufacturers, there is a business sense in their being construed as invitations to treat and not offers for sale” The above shows how the legal stance on Pat’s advertisement may differ ever so slightly from one judge to another, but due to the definitive manner of the advertisement, the likelihood of it being declared a unilateral contract is extremely probable. This is reinforced by Murphy’s J statement in Lefkowitz v Great Minneapolis Surplus Store: “The test of whether a binding obligation may originate in advertisements addressed to the general public is ‘whether the facts show that some performance was promised in positive terms in return for something requested.’ The authorities … emphasise that, where the offer is clear, definitive, and explicit, and leaves nothing open for negotiation, it constitutes an offer, acceptance of which will complete the contract.”

Common law holds and maintains the view that parties have the right to enter a bad bargain. In Travers v Lismore Gannon J cautioned: “It is no part of this Court to make for a disappointed party a better bargain or to grant him the optimum resolution of the problems as they existed at the [relevant time].” This shows us that the once what the court deems to be appropriate sufficient consideration is given, the fact that Pat doesn’t receive as much money as hoped is irrelevant and does not invalidate the contract, provided the court rules the advertisement as an offer rather than an invitation to treat. “There is an overlap between the topics of intention to create legal relations and of certainty of terms. The notion of ‘intention to create legal relations’ is linked to the requirement of certainty of contractual terms since the less certain that the terms of a contract are the less likely it is that the court will find that there was an intention to create legal relations. If a proposal is vague and incomplete or ambiguous that may assist a court to conclude that there was no intention to create legal relations. ” – paragraph is taken from ‘Contract Law’ by Paul A. McDermott and James McDermott. In a similar way to the previously discussed certainty of the wording of Pat’s advertisement, if the court declares Pat’s words to be clear and that they leave no room for negotiation it will rule he meant to enter a legal agreement. Likewise, if the court declares the wording of Pat’s advertisement to be too vague, the contract cannot be enforced. This can be seen in Cadbury Ireland Ltd v Kerry Co-op Creameries where Barrington J said a particular clause was not binding because it involved at best ‘a commitment to enter into honest negotiations.’

Application/Analysis

Quoting Wood J in Leonard v PepsiCo: “The exception (to an invitation to treat) is where the advertisement is clear, definite, and explicit and leaves nothing open for negotiation.” Applying the wording of the advertisement to this statement it is obvious how Pat’s advertisement is clear. He uses words that leave little room for different interpretations of the advertisement. The time frame he gives further consolidates this. It differs from an advertisement in a clothes shop in this regard. Therefore again, Wood’s J analysis that “an advertisement does not constitute an offer” does not apply. It does however differ from a regular good on sale as there is no definitive price for the bike. “will sell for 300 euro or nearest offer by 1st December” implies that Pat is fully committed to sell the bike to the highest offer. The fact that Mick’s offer is lower than Pat expects is irrelevant. If Pat was offered €300 for the bike he would have sold it. Pat entered a bad deal and the fault lies with him. The court cannot protect him from a bad bargain on his behalf as previously discussed as he has the right to enter one. While there is very little precedent or legislation that directly deals with this type of advertisement we can make several assumptions based on other similar cases and rulings. It is my opinion that the court would rule in favour of Mick for several reasons:

1. If there was no time frame the advertisement would be accepted as an invitation to treat. The fact that there is solidifies how Pat intended to sell the bike by the 1st of December regardless of the price. This means his offer is legally binding
2. If the words ‘or nearest offer’ were not included Mick’s €200 would not be seen to be adequate consideration. The fact it is included means Pat left himself open to being left short of the price he expected to receive. It also means that Mick’s €200 cannot be taken as a counter-offer which would create a new contract, allowing Pat not to sell the bike.
3. The wording of Pat’s advertisement is clear and definitive. He “will” sell the bike to the highest offer. If Pat had used more discrete language such as ‘reasonable offers will be considered’ he would not be bound to sell the bike to Mick.

Conclusion

It is my opinion that through the precise wording of Pat’s advertisement he has created a unilateral contract meaning he is legally bound by the contract but Mick is not. I advise Pat to sell the bike to Mick for the €200 or he exposes himself to legal action from Mick in which will result in him being forced to sell the bike to Mick at the same price regardless.