Commercial transactions 1: When is there a contract?
While reading the daily newspaper, Mrs Uche comes across an advert for Multivitamin Blood Tonic. She is informed that the product is available at Allen Pharmacy and immediately decides to purchase one when she goes shopping later in the day. On getting to the pharmacy, she sees the sales girl, Stella, who is busy attending to other customers. Mrs Uche picks up a shopping basket and proceeds to select the only bottle of Multivitamin Blood Tonic on the shelf, along with some baby food and household products.
Meanwhile, Stella receives a phone call. It is Madam Tinubu, her regular customer. Tinubu calls to enquire about the blood tonic. Stella confirms that there is one bottle left and promises to keep it for her. Fortunately, the price of the blood tonic can be deducted from a refund that Madam Tinubu was meant to have collected from the pharmacy earlier. Tinubu is happy about this and promises to pass by in the morning to pick up the blood tonic and the balance of her refund.
By the end of the call, Mrs Uche gets to the counter and offloads the contents of the shopping basket with the intention to pay. A serious argument erupts between the two ladies. Stella tries to explain that she has already sold the blood tonic to her regular customer. Mrs Uche, on the other hand, refuses to give up the product, having responded to an advert, driven all the way to the pharmacy and picked up the blood tonic from the shelf.
The question is, who has the legal right to this product?
In law, every business transaction is premised on a contract. A contract is defined as an agreement between two parties which is enforceable. For a contract to be valid there must have been an offer by one party and then an acceptance by the other. Commercial transactions would be problematic if there were no principles governing the conduct of business. The law of contract covers every field of human endeavour.
The scenario above raises some legal questions:
- Are the elements of a contract present to make the transaction valid?
- What constitutes an offer?
- What distinguishes an offer from an invitation to treat?
- At what point is the agreement for sale reached?
The foremost authority on Nigerian Law of Contract, Professor Sagay, defines an offer as “a promise made by one party with the intention that it shall become binding on the party making it, as it is accepted by the party to whom it is addressed.” An offer must be precise, leaving no room for speculation.
The offer may be expressly communicated or implied by action. Everyday in life, we engage in activities that constitute the making of offers: When we call for a newspaper from a vendor; when we get into a bus or taxi; when we drive into a petrol station to refuel or when we place an order for food at a restaurant. Each of these actions constitutes an offer to do business with another party.
However, for an offer to be capable of binding the person making it, the offer must be clear and final. If the act is a preliminary step taken towards making the actual offer, it is termed in law, an invitation to treat. In the classic case, Carlill v. Carbolic Smoke Ball Co., the judgement held that when someone offers to negotiate, or issues advertisements that they have got a stock of books to sell (for instance), “there is no offer to be bound by any contract. Such advertisements are offers to negotiate – offers to receive offers.”
In the case at Allen Pharmacy, it is necessary to pinpoint exactly when a valid offer was made in the transaction. We have seen that a newspaper advertisement was published. It may be the view of some that such an advert constitutes an offer for sale of the specific product. Nevertheless, the law is very clear on this issue. The publication of the advert is merely an invitation to potential buyers to come and make offers for purchase. The advertiser reserves the right to reject offers from members of the public who respond to the advertisement.
In this case also, goods were displayed in the shop for the purpose of sale to buyers. It could be argued that the display of goods, in this manner, is an offer for sale which could be accepted, culminating in a valid transaction. On the contrary, in the case of Pharmaceutical Society of Great Britain v. Boots Cash Chemists, it was held that “goods are merely displayed to enable customers to choose what they want and that the contract is not completed until the shopkeeper or someone on his behalf accepts the offer after the customer has indicated the articles he needs.”
It therefore means that the act of selecting a product from the shelf and presenting at the counter is itself the offer that is made. In a shop situation, it is the buyer that makes the offer and the seller that decides whether or not to accept.
In view of this, it was the act of the phone call from Madam Tinubu that constituted a valid offer for purchase. This offer was accepted, resulting in a contract. In conclusion, even though Mrs Uche had received an advertisement; gone to great lengths to make the purchase and actually picked up the product from the shelf, she had not made an offer at the time the phone call came through, leading to the sale. In essence, the blood tonic now belongs to Madam Tinubu who had made a valid purchase over the phone.
Principles and cases are drawn from Sagay: Nigerian Law of Contract