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  • Granger v. Gough [invitation to treat v. offer]

    Written by: Jason Murdoch

    "The transmission of such a price-list does not amount to an offer to supply an unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding contract to supply that quantity. If it were so, the merchant might find himself involved in any number of contractual obligations to supply wine of a particular description which he would be quite unable to carry out, his stock of wine of that description being necessarily limited. I entertain, I confess, a very clear opinion that the Solicitor-General was quite right in arguing the case on the assumption that no sales were made in this country." Lord Herschell

    Just over one hundred years ago the above ratio-decendi was given in what was at the time a case concerned with alleged back taxes owed by Grainger & Son.

    Grainger & Son (henceforth referred to as G&S) were British wine merchants who as a side venture passed on the price lists of a French wine producer to their customers. G&S received a commission on any orders placed with said producer and paid tax on this commission. Gough claimed that tax was payable on the whole value of these sales not just the commission element. Monsieur Roederer (henceforth Mr R) was a wine producer located in France. He decided whether to accept orders the orders gathered by G&S or not. The reason for this being that the wine was shipped out ahead of any payment being received and Mr R wanted to vett his customers credit worthiness. The wine was shipped directly to the customer in the UK from France. Most customers settled their accounts directly with Mr R. A few customers instead made payment to G&S who would pass on to Mr R any amounts in excess of the commission they happened to be owed.

    In summary the flows of events are: Mr R, located in France, sends price list to G&S in Britain G&S distribute price list Customer places, for want a better word, an order with G&S for wine produced by Mr R G&S forward order to Mr R Mr R dispatches wine to customer Mr R dispatches bill for said customers wine to G&S for onwards transmission G&S forward bill to customer Customer sends payment to Mr R – occasionally made to G&S who forward this to Mr R Mr R sends receipt to customer G&S pay tax on commission received

    G&S maintained that they entered no contracts regarding Mr R’s wine. Gough held the converse view that G&S entered contracts themselves and thus sold Mr R’s wine.

    Our starting point must be to define what a contract under English law is.

    The Jurists Bentham and Austin have laid down that the "two main essentials of a contract are these: first, a signification by the promising party of his intention to do the acts or to observe the forbearances which he promises to do or to observe. Secondly, a signification by the promise that he expects the promising party will fulfil the proffered promise."

    More precisely to form a contract under English law the following elements are required (i) a valid offer has been proffered by the first party to another party or parties (ii) the offer has been accepted unchanged by the second party or parties and this has been communicated to the offerer . (iii) there is an intention by all parties to create legal relations when they entered into the contract and the parties have the capacity to contract (iv) the promises made within the contract are for valuable executive consideration and (v) the terms of the contract are certain.

    Did Mr R make an offer through the medium of his price list. Looking in Mozley and Whiteley's Law dictionary an offer is "An expression of readiness to do something (e.g. to purchase or sell)". Mr R is saying that he is willing to sell wine. Based on this definition initial opinion would say that the price list does constitute an offer. Continuing with this line of thought G&S acted in an agency capacity for Mr R making an offer to the customers they approached and receiving the acceptance of any order. If the customers accepted G&S’s offer made via the medium of the price list then Mr R merely shipped directly from France. The bills for said wine were sent to G&S who would then forward them on to the British customer. These points all suggest that the sale was made in the UK by G&S. The listing of Mr R, in the Post Office London Directory, as trading from G&S’s establishment further hints at an agency type arrangement.

    Much of the argument supporting the invitation to treat viewpoint is by drawing analogies with cases involving auctions such as Payne v. Cave (1789) and Harris v. Nickerson (1873) in which both concluded that bidders make an offer which the auctioneer is free to accept or not. The bidder’s offer being retractable until accepted by the auctioneer . The pricelist could be seen as statement of the minimum price at which Mr R would bewilling to sell wine drawing analogies with Harvey v Facey (1893).

    Mr R’s supply of wine in any year is finite and demand could outstrip supply leaving an impossible back log of orders all demanding specific performance. Mr R could possibly, though extremely doubtfully, claim the defence of frustration as the things contracted for no longer exist. Add to this Mr R’s option to reject any order makes it appear that his price list is an invitation to treat as otherwise it would be an offer that is subject to revocation without notice. Acceptance of an offer has to be communicated. At the time of this case, 1896, the only readily available methods of communication for distant parties were the postal system or telegram. The postal rule would apply to any customers acceptance sent via these mediums and hence any revocation of the offer would be impossible

    The final item to consider is the peculiar concept of consideration to be found in the English legal system and those derived from it

    The 1677 Statute of Frauds made consideration vital in any contracts not made under seal. G&S received no consideration for the wine therefore they could not be a party to the contract. [Transfer of title occurred only between Mr R and the customer]. That occasionally the payments for the wine were made to G&S instead of directly to Mr R was held to be equivalent to Mr R, for the sole convenience of his customers, operating a British bank account to receive payments.

    Graiger v. Gough was one of the major cases in the creation of the principle of invitation to treat. In order to explore this principle more fully the case will be re-examined as it occurred today.

    Once again the starting point is was the price list an offer or merely a willingness to deal. There are a number of variants on an invitation to treat these are: pre-contractional negotiations , shop displays and finally advertisements. G&S’s supply of the price list to potential customers is a form of direct marketing and falls under the last of these three categories.

    To be classed as a unilateral offer the price list would have to show some intention to be bound by pro-offering a tangible benefit, in excess of sales puff, that could be accepted by performance rather than communication .

    Is there any similarity to Bowerman v. ABTA (1995) or Carhill v. Carbolic Smokeball Company (1892). If the answer to this is a negative then the next step is to determine where the act of offer & acceptance occurs. In a face to face situation such as a shop the customer offers to buy goods by presenting them at the till and the shop either accepts or rejects this offer to buy. The goods on the shelves are merely invitations to treat in keeping with the findings of Fisher v. Bell and Pharmaceutical Society of GB v. Boots Cash Chemists. The views of this in America and the European Community are slightly different. Although it seems odd that a shop would not want to sell its stock the English legal system is designed to achieve consistency even if it has to distort the persons actual intent. This produces oddities such as Partridge v. Crittenden (1968) where a newspaper advert to sell wild birds was found to be an invitation to treat not an offer to sell so the defendant escaped prosecution under the Protection of Birds Act (1954) .

    A key point in the original Graniger v. Gough was where was the contract made. Today the location of the act of contracting can be different depending on the mode of acceptance. The postal rule puts acceptance at the place of posting. Where both parties use a telex or nowadays facsimile machine the Court of Appeal decided in the case of Entores Ltd v. Miles Far East Corporation (1955) that the contract was entered into when and where the acceptance was received. Lord Denning confirmed, obiter' that the same principles also apply to acceptances by telephone. Answering machines and voice mail are assumed to at maximum delay receipt of the acceptance till the next working day rather than grant them an agent status capable of entering contracts. Faulty hardware, lack of link & paper or sloppy business practice, such as not checking the fax for days, does not stop or delay the acceptance of an offer. Public holidays and weekends however do delay acceptance till the next working day.

    E-mail contrary to popular belief is not always an instant form of communication. An e-mail may pass through a number of third parties networks & servers and could quite possibly be considerably delayed. Also the recipient has to actively retrieve their e-mail from their service providers or works mail server. The Uniform Laws on International Sales Act 1967 sets out that the acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror . But is the offer accepted in the country of the readers computer or where the email server is hosted? If a person picked up the contents of their phones answer machine in a country different to that which said machine was in, where was the contract made.

    Within closed networks or Electronic Data Interchange systems mail delivery is more reliable and it may be possible to tag the e-mails so they generate a receipt message upon reaching their destination and upon being read. The EDI Trading Partner Agreements will also outline when acceptance takes place and which countries laws apply.

    If Mr R had a website that could receive customer orders would it be an invitation to treat or an electronic contracting agent ? A non-interactive site just listing his wines would most certainly be classed as an advert. This question is under consideration by may of the worlds legal minds. Unfortunately the Argos £2.99 television and recent Kodak £100 digital camera incident never made it to court so there is no precedent. The Kodak site took the customers order and issued an order confirmation which the customer was asked to retain for warranty service. Consumers would believe that having placed their order and given their credit card details and been told that the £100 will be charged to their card along with receiving an acknowledgement ,that their purchase has been made. This "clickwrap contract" is what the law calls a "contract of adhesion" -- a contract you didn't really bargain over in any way, but which was presented as more of a take-it-or-leave-it offer . Kodak made such a bad bargain that everyone wanted to take it

    The only case on web based retail sales so far is American where the court stated "such an automated, ministerial act cannot constitute an acceptance" which does little to resolve the issue.

    As international web based commerce increases, instances similar to Gough v. Granger will become more common. Will the concept of invitation to treat expand outside of legal systems based around Anglo-American common law bringing some consistency to the dynamics of offer & acceptance or will the EU idea of its an offer until the stock runs out be adopted

    FOOTNOTES

    (sorry the footnote numbering has been lost)
    1. Offerer can not sate that silence or no reply is acceptance. Felthouse v. Bindley (1862) see also Unsolited goods and services Act 1971.and the EU Consumer Protection (Distance Selling) Regulations 2000
    2. Exceptions to the requirement of communication of acceptance can be found in Rust v. Abbey Life (1979) which was used as a precedent by Lord Steyn in Vitol SA v Norelf 1996 where he stated “our law does in exceptional cases recognise acceptance of an offer by silence”
    3. Auctions being advertised as being without reserve are not being considered here as the only precedent, concurring the effect of this term, is from a Scottish court in the case of Fenwick v. Macdonald, Fraser & Co. (1904).
    4. In order to maintain predictability the English courts developed the Postal Rule - for the case of Adams v. Lindsell (1818) – “ acceptance was made when a correctly addressed letter was posted even if the letter never arrived.” The provisos are that no particular form of communication was explicitly expressed in the offer or if post was the specified mode that the words “notice in writing”or “upon receipt” was not a condition. See Howell Securities v. Hughes (1974)
    5. The postal rule applies to telegrams and telemessages as well as mail. the status of dispatch riders and services such as Hayes DX is yet to be tested
    6. The Statue of Frauds although in force at the time of Grainger v. Gough has been superseded.
    7. English law allows parties to walk away from a contract without incurring any liability for the others costs sunk into the prospective deal – contrast this with the concept of “good faith” found in European civil codes. See also Article 2.301 clause 3 of The Principles Of European Contract Law 1998
    8. The performance as consideration was defined in Laythoarp v Bryant "Any act of the plaintiff..."
    9. The paradox of R V Morris (1984) where the changing of price tags on goods taken from the shelves as deemed to be an 'appropriation' within the Theft Act 1968 is overlooked for the sake of consistency
    10. Some American courts have decided that taking the goods off of the shelves is an acceptance of the shops offer to sell though the customer could cancel his acceptance before payment if he wished. Lasky V Fconomy Grocery Stores (1946) and Sheeskin V Giant Food Inc (1974).
    11. Article 2.201 clause 3 of The Principles Of European Contract Law 1998 states “A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.”
    12. The evidence tended to support the view that Partidge was selling wild birds and not ones raised in captivity.
    13. Electronic Contract Formation Donald M. Cameron, Aird & Berlis
    14. Machines can contract the most famous instance of this being Shoe Lane Parking
    15. Kodak discount camera fiasco By Michael Archer, Beale and Company Posted: 09/01/2002
    16. Cyber space law for non-lawyers http://www.ssrn.com/update/lsn/cyberspace/csl_lessons.html
    17. Corinthian Pharmaceutical Systems Inc. v. Lederle Laboratories (1989) 724 F. Supp 605 (S.D. Ind.). Concerned an automated order taking system and found that the order tracking was merely a functional acknowledgement of the order. Cited in Electronic Contract Formation Donald M. Cameron, Aird & Berlis

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