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Contractual Obligations in the Case of an Internet Pricing Error

Introduction

A contract is legally formed as between two parties when the offer by one party to do something receives the acceptance from the other for a consideration. To be a valid contract the parties must be competent to contract and there must consensus ad idem or meeting of minds. If there is any mistake in the contract, the contract is void.

Internet contracts present difficulties at times in terms of identifying how these elements are fitted. However, in principle online contracts are the same as ordinary written or oral contracts, therefore all the elements of a contract are present here as well.

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In this situation, Siddiga, who runs a mail order business puts Dell laptop for sale on his website, but he displays the wrong price. Instead of £1500.00, he mentions the price as £150.00. Barbara sees the advertisement and places an order by filling an online form and providing her credit card details. Then she receives an automated reply, “Thank you for your order. Please allow up to 5 days for goods to be delivered.” Siddiga realises his mistake, and refuses to supply the laptop, although he is ready to return the money. In the meanwhile, Barbara has offered to sell the contract to Theo for £700, who accepts the offer.

Now, Siddiga is refusing to sell the laptop to Barbara, but Theo is demanding that Barbara fulfil her contractual obligations to him by supplying the laptop.

This essay discusses the contractual obligations as between the parties.

Contract formation as between the parties

When a customer places the order on an online retail website, he makes an offer to the invitation to the offer given by the advertisement for the product. If the website displays a confirmation message (usually in the form of an automated message), after the payment is received, this signifies an

  1. J Poole, Textbook on Contract Law (Oxford: Oxford University Press 2016).
  2. A Burrows and E Peel, Contract Formation and Parties (Oxford: Oxford University Press 2010) 82.
  3. Pharmaceutical Society of Great Britain v Boots Cash Chemists, [1953] 1 QB 401 (CA).

acceptance to the offer. However, an automated reply will not amount to an acceptance if some other mode of acceptance is specified by the website.

In the present case, a contract was concluded when order was placed by Barbara, which was followed by the automated message of “Thank you for your order. Please allow up to 5 days for goods to be delivered.” The payment made by Barbara through her credit card is consideration. The parties are competent to contract. Therefore, these elements are being met by the present case. The satisfaction of the element of consensus ad idem is doubtful in the present case, as there is a unilateral mistake on the part of Siddiga.

With respect to Barbara and Theo, there is a clear case of contract formation as there is an offer by Barbara, accepted by Theo, for a consideration, when both are competent and there is no mistake in the contract.

Unilateral mistake and actual knowledge: Siddiga and Barbara

Siddiga can use unilateral mistake on his part to avoid contractual obligation with Barbara. However, he would be required to prove actual knowledge or constructive knowledge by Barbara, that there is a mistake in the price would be required to be proved. In Royal Bank of Scotland v Etridge (no 2), it was held that actual knowledge extends to situations where the person willfully shuts his eyes to the obvious and fails to make enquiries that a reasonable person would. In case where the buyer would know the market value of the product and the selling price would be so low so as to be obviously incorrect, then the reasonable buyer would institute inquiries into the matter.

Constructive knowledge of the mistake in the price would also render the contract void in common law. A party who is aware of the error made by the other party cannot claim that there was consensus ad idem.

“Snapping up” doctrine can also be applied here, where the conduct of the

  1. A Burrows and E Peel, Contract Formation and Parties (Oxford: Oxford University Press 2010) 82.
  2. [2001] UKHL 44.
  3. John Cartwright, Misrepresentation, Mistake and Non-disclosure (London: Sweet and Maxwell 2012) 80.
  4. Hartog v Collin and Shields, [1939] 3 All ER 566; Also, Jill Poole, Casebook on Contract Law (Oxford: Oxford University Press 2016).
  5. Andrew Burrows, A Casebook on Contract (Oxford: Bloomsbury Publishing 2016) 698.

purchaser is in the nature of snapping up or jumping at the opportunity where he knows that the price of the product is in reality much higher than the one shown by the vendor. In Smith v Hughes, it was held that "The promiser is not bound to fulfil a promise in a sense in which the promisee knew at the time the promiser did not intend it.”

Barbara’s knowledge of the actual price of the laptop can be gleaned from the fact that she is herself offering to sell it at a much higher price to Theo. This means she is aware that the price of the laptop as advertised by Siddiga is not the correct price of the laptop. It can be construed that she has seen the price and snapped up at the laptop. A prudent and reasonable course of action would have been to inquire about the price from Siddiga.

Valid contract: Barbara and Theo

The contract between Barbara and Theo satisfies all the requirements of a valid contract, therefore the contract is valid. However, Theo cannot demand specific performance of the contract as Barbara cannot procure the laptop from Siddiga. Theo can only demand compensation, or damages if he can show actual loss. Compensatory damages are only given in case a person can show actual loss that is suffered by him, as the nature of the damages is to compensate.

Conclusion

Where one party knows or ought to know of another party’s mistake in a fundamental term of the contract, but it remains silent, then the party cannot take advantage of the mistake. In case the party snaps at the offer, knowing that the price offered is too low, without confirming with the other party, then it can be construed that the party is seeking to take advantage of the other's mistake. In such cases, it would be unconscionable to enforce the bargain and equity will set aside the contract. Therefore, the contract between Barbara and Siddiga is not enforceable as against Siddiga. Barbara’s actual

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  1. Shogun Finance Ltd v Hudson [2004] 1 AC 919, at [123].
  2. (1871) LR 6 QB 597, 610; also see, McMaster University v Wilchar Construction Ltd, (1971) 22 DLR (3d) 9.
  3. Richard Stone, James Devenney, Text, Cases and Materials on Contract Law (Oxon: Routledge 2014) 642.

knowledge of the price being too low can also be gleaned from the fact that she herself offers to sell the laptop to Theo at a much higher price.

The contract between Barbara and Theo is a valid contract, however, Theo cannot claim compensatory damages from Barbara unless he shows that he has actually suffered some loss due to breach of contract.

Bibliography

  • Burrows A and Peel E, Contract Formation and Parties (Oxford: Oxford University Press 2010)
  • Burrows A, A Casebook on Contract (Oxford: Bloomsbury Publishing 2016)
  • Cartwright J, Misrepresentation, Mistake and Non-disclosure (London: Sweet and Maxwell 2012)
  • Poole J, Casebook on Contract Law (Oxford: Oxford University Press 2016)
  • Poole J, Textbook on Contract Law (Oxford: Oxford University Press 2016)
  • Stone R and Devenney J, Text, Cases and Materials on Contract Law (Oxon: Routledge 2014)

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