BUSINESS LAW 1(LAW2155A1)

BBDUH B.A (HONS) IN BUSINESS ADMINISTRATION

LAW2155A1 INTRODUCTION TO BUSINESS LAW 1
INDIVIDUAL ASSIGNMENT
JULY 2010

NAME OF CANDIDATE; ANN-MARIE MARIAM MACHIMU

STUDENT MATRIC. NO; I08000757

SECTION; 5A1

LECTURER; NAZRUZILA RAZNIZA BINTI MOHD NADZRI

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TABLE OF CONTENT

1) TABLE OF CASES....................................................................PAGE 3

2) QUESTION 1.............................................................................PAGE 4-6

3) QUESTION 2.............................................................................PAGE 7-9

4) REFERENCE.............................................................................PAGE 10

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TABLE OF CASES

1) Adams v Lindsell (1818) 1 B & Aid 681

2) Brinkibon Ltd v Stahag Stahl (1983) 2 AC 34
3) Bryne v Van Tienhoven (1880) 5 CPD 344
4) Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256
5) Entores v Miles Far East Corporation (1955) 2 QB 327
6) Fisher v Bell (1961) 1 QB 394
7) Holwell Securities Ltd v Hughes (1974) 1 WLR 155
8) Household Fire Insurance v Grant (1879) 4 Ex D 217
9) Mondial Shipping and Chartering BV v Astarte Shipping Ltd (1995) CLC 1011
10) Partridge v Crittenden (1968) 2 AII ER 421
11) Pharmaceutical Society of Great Britain v Boots Cash Chemists (Sourtern) Ltd
(1953) 1 QB 401
12) Routledge v Grant (1828) 4 Bing 653

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QUESTION 1

This question strictly deals with the rules governing offer and acceptance of a contract. An
offer is defined as a clear statement of the terms on which one party (the offeror) is prepared
to do business with another party. (the offeree). It is seen as an expression of willingness to
contract on the specified terms without further negotiation so that it requires only acceptance
for a binding agreement to be formed. The main issue in this scenario is based on whether
Morgan made a valid offer to Beatrice and Kate and if he breached the contract by refusing to
sell to Beatrice and refusing to sell to Kate at the displayed price. The legal issues will be
discussed below according to the scenario laid down.

In relation to Beatrice, the most important factor to consider first is if Morgan made an offer
to Beatrice by advertising in the daily express to sell his second hand pickup at the price of
€5000. Morgan’s act of advertising his car in the newspaper cannot be seen as an offer but
only an invitation to treat. An invitation to treat is merely a statement indicating the maker’s
willingness to receive offers. In the case of Partridge v Crittenden (1968)2 ALL ER 421,
the appellant had placed an advertisement indicating he had certain wild birds for sale and it
was an offence to offer such birds for sale the advertisement did state a price, but gave no
details about delivery or quantities available. On appeal the appellant’s convictions was
quashed because the court held that the advertisement did not amount to an offer but was
merely an invitation to treat. This is because it will seem unfair to the seller if such an
advertisement is considered an offer because it will mean that he will have to supply to all
those who replied to the advertisement which is rather impossible in most cases.

Even though Morgan clearly stated the price in the advertisement, it cannot be considered an
offer because he has clearly not shown any further actions to prove that he intended to make
an offer to the public. If for example Morgan had requested the public to come at a specific
period of time to buy the car at a cheaper rate or promised the public that the first customer
will get a discount, then his advertisement would have been regarded as a unilateral offer
because such an advertisement is requesting the performance of an act by the customers
which will be regarded as an acceptance. According to the case of Carlill v carbolic smoke
ball co (1893) QB 256, the defendant placed an advert in which they promised to pay 100 to
any person catching influenza after using their smoke ball remedy three times a day for two
weeks. The advertisement stated that €1000 had been placed in a separate bank account in

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order to meet any claims made. The plaintiff had caught influenza after using their smoke
balling the required manner. The court of appeal treated the deposit of money as an indication
of a willingness to be bound by the terms of the advertisement, thus making it an offer.
Morgan has clearly not displayed any action that shows his willingness to be bound by the
terms of the advertisement so Beatrice is not entitled to sue Morgan for breach of contract.

Morgan on the other hand, cannot be held liable for refusing to sell to Beatrice because his
advertisement is not recognised as an offer. If it was recognised as an offer then Morgan will
be liable to Beatrice in the sense that the offeror is required to take reasonable steps to give
notice to the offeree such as publishing his wishes not to sell the item in the same newspaper
he put the advertisement. The case of Bryne v Van Tienhoven (1880) clearly establishes the
fact that a withdrawal must be brought to the attention of the offeree. Morgan’s promise to
sell the pickup at a price of €6000 instead of €5000 can be referred to as only a gratuitous
promise because Beatrice did not pay the money to Morgan neither did she pay any amount
to Morgan to keep the agreement open. In the case of Routledge v Grant (1828) the
defendant offered to buy the claimant’s house, promising that he would keep the offer open
for six weeks. It was held that he could withdraw the promise at any time before the offer was
accepted, as his promise was merely gratuitous which means giving something for nothing.
Even if Morgan had made an offer to Beatrice, he can still refuse to sell the car on the
grounds that his promise to sell the car at the price of €6000 was a mere gratuitous promise.

In relation to Kate, the issue here is whether Morgan’s act of displaying various items at his
house for garage sale can be referred to as an offer. The case of Fisher v Bell (1961)1 QB
394 clearly establishes the principle that displaying goods for sale with the price tag on them
cannot be seen as an intention to form an offer because such actions only invites potential
customers to make an offer. The defendant in the case was prosecuted under the restriction of
offensive weapons act 1959 for offering for sale an offensive weapon because he exhibited a
flick knife in his shop window. The court held that defendant was not guilty since he had not
made an offer. Goods in a shop window even those bearing a price tag, represents an
invitation to treat not an offer. Customers make offers by saying that they are prepared to do
business at the price shown on the goods. Sellers then decide if they want to accept and only
if they do accept does any contract result thus Morgan’s act of displaying his items for sale
can only be regarded as an invitation to treat. His refusal to sell the computer lap top at the
price of $10 to Kate only shows that he is not willing to accept Kate’s offer to buy the lap top
at the price of $10. The case of Pharmaceutical society (GB) v Boots Cash Chemist Ltd
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(1953, CA) clearly establishes the principle that sellers have the sole right to refuse to sell
their goods at a certain price and in order to exercise this right, the offer must come from the
customers therefore Morgan has the right to refuse to sell the computer lap top at $10 instead
of $100 to Kate.

In conclusion, both Kate and Beatrice cannot sue Morgan for breach of contract because he
has not made an offer to contract to either of them and they cannot hold him liable for his
refusal to sell because his actions clearly shows that he only intended to invite them to treat.

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QUESTION 2

Acceptance is an unqualified expression of assent to the terms proposed by the offeror.

Acceptance is very important because once an offeree accepts the offer then a contract is
formed. There are three rules that govern the act of acceptance which is the fact that
acceptance must be a mirror image of the offer, acceptance must be firm and acceptance must
be communicated to the offeror. We are going to concentrate on the communication of
acceptance to the offeror because the main issue here is on the difference between the postal
rule and the receipt rule which will be elaborated below.

The receipt rule is basically the law principle that states communication of acceptance is
only effective when the message has reached the offeror. There are three methods in which
the offeree can communicate acceptance that is through conduct, verbal communication and
electronic communication. The main rule governing these three methods of communication is
the fact that communication of acceptance is only effective once the message has reached the
offeror or his place of business. The operation of this rule was illustrated by Denning LJ in
Entores v Miles Far East Corp (1955)2 QB 327. He said that if an oral acceptance is
drown out by an overflying aircraft such that the offeror cannot hear the acceptance, then
there is no contract unless the acceptor repeats his acceptance once the aircraft has passed
over.

When it comes to acceptance by verbal communication, acceptance is effectively

communicated only when the offeror has received notice of it. If the parties cannot see each
other this may be more problematic; acceptance by telephone is held to be effective only on
being heard by the offeror. Denning LJ in the case of Entores v Miles Far East clearly stated
that ‘’if two people make a contract by telephone and the line goes dead so that the
acceptance is incomplete, then the acceptor must telephone the offeror to make sure that he
has heard the acceptance. Where, however, the acceptance is made clearly and audibly, but
the offeror does not hear what is said, a contract is nevertheless concluded unless the offeror
makes clear to the acceptor that he has not heard what was said.’’ In the case of
instantaneous communication, such as telephone and telex, the acceptance takes place at the
moment the acceptance is received by the offeror and at the place at which the offeror
happens to be. In the case of Brinkibon Ltd v Stahag Stahl und Stahlwarenhandels
GmbH (1983) HL the House of Lords suggested that telex messages transmitted when the

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receiver’s office was closed would be effective only once the office had reopened. The
Brinkibon ruling was applied in Mondial Shipping and Chartering BV v Astarte Shipping
Ltd (1995) where it was held that a telex message sent just before midnight on a Friday was
communicated at 9 a.m. the following Monday when the receiver’s office opened for
business.

The postal provides an exception to the usual communication rule. The main difference
between the usual communication and the postal rule is that communication rule states that
acceptance takes place once the offeror hears of the message or when the message reaches the
offeror’s premises while the postal rule clearly states that acceptance takes place once the
offeree posts the acceptance message regardless of whether the offeror has seen it yet. This
rule was established in the case Adams v Lindsell (1818)1 B & Aid 681, where the
defendants offered to sell wool to the plaintiffs, asking for a reply ‘in course of post’. The
defendants’ letter was misdirected, so that the plaintiffs’ reply was delayed beyond the
normal course of post, and the defendants sold the wool to someone else. Nevertheless, the
plaintiffs had sent a letter of acceptance on the same day that they had received the offer, and
they claimed that there was an enforceable contract. The court upheld that claim, and since
this case the rule has been that where acceptance is communicated by post the contract is
formed as soon as the letter is sent, without need for it ever to reach the offeror. The postal
rule was later extended to cover telegrams. The rules were clarified further by Household
Insurance v Grant (1897) CA which held that communication of acceptance by post is
effective even if a letter is displayed in the post or fails to reach the offeror, as long as this is
not due to some fault of the offeree’s for example an incorrect address. However is important
to note that it is only postal acceptance that produces instantaneous legal effect but a postal
offer or revocation is effective only on receipt. In the case of Bryne v Van Tienhoven
(1880), the courts held that a contract was formed on 11th October which was the day the
claimant mailed his telegram of acceptance. The revocation was not communicated to the
claimant until 20th October and was therefore too late to be effective.

The postal rule may seem unfair to the offerors therefore it has always been possible for
offerors to avoid the postal rules either by specifying a different means of communication, or
by stating that they would not be bound until receipt of an acceptance letter. Even where an
offeror specifies nothing to this effect, the courts may be prepared to imply such an intention.
In the case of Holwell Securities v Hughes (1974) CA, the offeror had granted an option to
the offeree concerning the purchase of some land, which had to be exercised by ‘notice in
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writing’. The claimant’s letter of acceptance was posted before the deadline but failed to
reach the offeror before the deadline expired, though this was not the claimant’s fault. The
court held that no contract resulted from the postal acceptance. The postal rule was implicitly
excluded by the offeror, who, by requiring notice in writing, had indicated that for
communication to be effective it must actually receive the letter of acceptance.

In conclusion, nowadays the postal rules do not play an important part in the law of contract
though they continue to feature in exam papers. Parties contracting at a distance now
generally have much faster and more reliable means of communication available to them thus
the receipt rule is more implemented by the courts. Even where the parties choose to use the
post, it is very common for offerees to state that no contract will result until they receive an
acceptance in their terms of contract.

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REFERENCE

1) ADAM, A. (2008) law for Business Students (5th edition), Essex, Pearson
Education Ltd

2) McKENDRICK, E. (2000) Contract Law (4th edition), New York, Palgrave

Publisher Ltd

3) POOLE, J. (2001) Textbook on Contract Law (6th edition), London,

Blackstone Press Ltd

4) STONE, R. (2006) The Modern Law of Contract (7th edition), London and
New York, Richard Stone Publisher Ltd

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