Contractual Dynamics in Advertisements

SECTION A

Three issues arise in this scenario. The first is related to the status of the advert placed by Elizabeth. The second is whether there is a contract between Oliver and Elizabeth. The third is whether there is a contract between Harry and Elizabeth.

A valid contract is formed when an offer by one party is accepted by the party to whom it is made for consideration. There should be consensus between the parties. With respect to the position between Oliver and Elizabeth, the first question is the status of the advert placed by Elizabeth reading that she has a motorbike to sell for £2,000 or nearest offer. This advert is not an offer, it is an invitation to treat. There is a crucial difference between an offer and invitation to treat in that while the former can bind the offeror when accepted by the other party, the latter does not have the same legal effect.

An advertisement of goods for sale are not offers but are invitation to treat (Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd). This means that when a person places goods in a display case or puts up an advert for the goods, they are merely inviting offers from interested parties and not making the offer themselves. In other words, the other party cannot lead to the constitution of a contract by making an acceptance to an advertisement ( Fisher v Bell). Applying this principle to the situation between Oliver and Elizabeth, it can be said that the advertisement placed by Elizabeth was not an offer but an invitation to treat, to which Oliver responded by making an offer when he came to view the bike.

Next comes the question of Oliver’s offer to Elizabeth of £1600. This is rejected by Elizabeth and she says that she will not accept anything under £1900. Oliver responds that he is willing to pay £1800. Elizabeth rejects the offer, but later Oliver is willing to pay £1900. The question is whether a contract is constituted through this exchange of offer and counter offer by the two parties. An offer must be accepted unconditionally and unequivocally by the party to whom it is made for it to lead to the constitution of a binding contract. Where the offeree makes a counter offer, it is deemed to be a rejection of the original offer. Without an unconditional acceptance of the offer, there is no constitution of a binding contract. Therefore, a counter offer is the rejection of the original offer (Grant v Bragg; Hyde v Wrench). In this situation, Elizabeth says that she will not accept anything under £1900 but Oliver responds that he is willing to pay £1800. This is a counter offer by Oliver, which is rejected by Elizabeth. Therefore, there is no acceptance in this situation and therefore no binding contract between Elizabeth and Oliver. When Oliver rejected Elizabeth’s offer and later says that he is willing to accept the price of £1900, that does not signify a valid acceptance to the original offer, because a counter offer is a final rejection of the original offer (Grant v Bragg; Hyde v Wrench). Therefore, Oliver does not have any right to sue Elizabeth since no contract was formed between them.

Coming to the final issue, which is whether there is a contract between Harry and Elizabeth, all the elements of contract are fulfilled in this situation. Harry makes an initial offer of £1800 to Elizabeth’s advert, to which Elizabeth makes a counter offer of £1900. Harry accepts this offer and provides consideration of money to Elizabeth. This signifies a valid offer and acceptance and consideration. Therefore, there is a valid contract between Harry and Elizabeth. The intention to be legally bound by the terms of the contract is also seen in the exchange of money and motorbike documents (RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co.).

To conclude, the advert by Elizabeth is an invitation to treat. There is no valid contract between Oliver and Elizabeth because there is no acceptance of the offer. There is a valid contract between Harry and Elizabeth because the elements of contract: offer, acceptance, consideration and consensus are satisfied in the scenario.

SECTION B

Provide an analysis of delegated legislation. In your answer explain the forms of delegated legislation.

Legislation can be categorised into primary legislation and delegated legislation. The former is the law enacted by the Parliament, while the latter refers to the rules made by executive authorities as per the powers provided to them by primary legislation. Delegated legislation therefore are rules enacted by the executive. In the UK, delegated legislation is an important source of law because the government plays an important role in making secondary legislation or delegated legislation. Ministers too make delegated legislation. The power to make delegated legislation is derived from the Parliamentary legislation and the same source also provides limitations on the power. An example of delegated legislation can be found in the Immigration Rules that are made by the Government from time to time.

Delegated legislation has been developed because of its advantages in allowing smoother governance and law making. Parliament which is the principal law making authority, cannot be expected to make laws for each and every issue and cannot be expected to have the time and resources to is debate details of complex regulations. Delegated legislation is useful because it allows the Parliament to delegate the power to make rules on the details of complex regulations to the relevant executive authorities. Another reason for the development of delegated legislation is that it allows certain kind of rules to be made by technical experts. Technical expertise on many areas may not be available within the membership of the Parliament. For instance, Parliament does not have technical expertise in health and safety regulations or in financial planning. Thus, the Parliament can made the primary legislation on health and safety law but allow rules to be framed by ministers through consultation with experts or bodies with the technical knowledge. Consultation process is an important aspect of delegated legislation concerning technical matters. An important aspect of delegated legislation is that it allows the saving of time in making laws or responding to emergency situations. Parliamentary process is usually time consuming and is not appropriate when responding to emergency situations. Unlike parliamentary legislation, delegated legislation can be enacted faster so that it is able to respond to emergency situations through the ministers making rules. At the same time, delegated legislation is controlled by the primary law and rules made outside the scope of the powers given by the primary law, are ultra vires. This is important because even though powers to make laws are given to executive authorities, there is control and limitations on these powers.

There are three principal kinds of delegated legislation in the UK. Orders in Council are made by the Queen and the Privy Council. The Council includes the prime minister and other members of government. European directives are given effect to through such Orders in Council. Orders in Council are also used to make rules in emergency situations. The advantage of this is that in emergency situations, laws can be made without having to go through the Parliament which can take more time. The second kind of delegated legislation is Statutory Instruments, which are rules made by ministers for areas under their responsibility. This is the most common form of delegated legislation in the UK as the majority of delegated legislation is made through this method. The power to make rules and regulations is given under primary legislation to ministers of state. The third kind of delegated legislation is Bylaws that are made by local authorities. Such local bylaws can be made by local authorities to regulate areas under their control such as traffic control. Bylaws are useful for responding to localised issues or problems. Parliament cannot be expected to know or understand the local issues as its functions are more suited to a national scope. On the other hand, local authorities have specific functions that are localised to their jurisdiction. They are in a better position to know and respond to local issues. Therefore, they are given the power to make rules through primary legislation enacted by the Parliament. Other kinds of delegated legislation include ministerial orders and directions issues by the ministers, rules issued by the government entities like courts, and schemes made by the commissions like Charity Commissions for prescribing rules of functioning for entities under them.

SECTION C

Explain the significance of the case of Salomon v Salomon and Co Ltd [1897] AC 22.

The case of Salomon v Salomon is one of the landmark judgments in English company law. The significance of the case is that it laid down the principle of separate corporate personality of a company as distinct from its members and also clarified the principle of limited liability. It is important to note that the case also led to the development of the doctrine of piercing of the corporate veil as a response to the need to see the personality of the company and its members as same under certain circumstances.

Even before the Salomon judgment, the principle of separate legal personality of the company was provided in the Joint Stock Companies Act 1844, and the principle of limited liability was laid down in the Limited Liability Act 1855. Salomon is significant because it applied these principles to the situation presented in the case leading to the cementing of the precedent that a company is separate from its members. The facts of the case were that Salomon converted his sole proprietorship business into a company with limited liability, by the incorporated company purchasing the sole proprietorship for £39,000 paid by Salomon and his family members through £10,000 debentures conferring a charge over the company’s assets. Another unsecured creditor advanced £5,000 to the company. However, when the company was wound up, the money recovered from the liquidation was paid first to Salomon and his family leaving nothing for the unsecured creditor. The court refused to accept the argument that the company was a sham as the nature of the business and the owners remained the same. Salomon laid down an important principle of company law that a company is a different person from its shareholders and even if the business is precisely the same as it was before, the company is now a separate person and not an agent of the shareholders and the shareholders’ liability for the company is limited as per the law. This principle is now a well established principle of law that was also followed in Gramophone & Typewriter Co. Ltd v Stanley, where the court held that even if all the shares in the company were held by one controlling shareholder, the company is not an agent of the shareholder. Even recently in

Prest v Petrodel Resources Limited, the court has held that the principle laid down in the Salomon case is the rule and there are limited circumstances in which this rule can be taken exception from. These limited circumstances fall within the scope of doctrine of lifting or piercing of corporate veil.

Thus, the first point of significance with respect to Salomon case is that it lays down a principle of law that has been followed in subsequent cases as well. At the same time, the limited circumstances under which corporate veil can be lifted are also a response to the principle laid down in Salomon. This is because if applied rigidly in all cases, the principle in Salomon can lead to perverse outcomes when it is necessary to see the company as an agent of its shareholders. This is to avoid situations where taking advantage of the corporate personality of the company (as laid down by Salomon), the members may escape liability for wrongful acts done in the name of the company or escape some legal obligation by incorporating a company. Therefore, an inadvertent consequence of Salomon was that it led to the development of a new principle of company law to create exceptions to the rule laid down in Salomon. For instance, in Gilford Motor Company v Horne Ltd, the controlling shareholder incorporated a new company to avoid his contractual obligation to not solicit the customers of the plaintiff-employer for any business that he may start himself. The court did not apply the Salomon principle to hold that the new company was a separate legal person; rather it held the company to be a sham. What this means is that important though it is, Salomon cannot be applied in all cases and in some cases, exception may be appropriate.