Some of our members may have experienced potential customers making an offer to purchase a vehicle significantly below the advertised price.
But what are your legal obligations when a customer makes a significantly low offer which you ”jokingly” accept? Will it be legally binding?
For a contract to be enforceable, the following four elements must be satisfied:
- Offer – An offer is a promise by one party to enter into a contract on certain fixed, specified terms.
- Acceptance – For an agreement to be made, the offer made by one party must be accepted by another.
Acceptance must be unequivocal, unconditional, and match the offer exactly. This is known as the ”mirror image” rule. Therefore, a counteroffer will not amount to acceptance.
A request for information, such as asking whether payment will be made by cash or card, does not amount to acceptance and is not considered a counteroffer.
The acceptance must be communicated to the business offering the product/service before it is effective. Silence will not generally amount to acceptance. However, in certain circumstances, there is no need for a verbal or written indication of acceptance. Acceptance can sometimes be implied by conduct, for example when you make a parts order from a supplier, they deliver your parts and request payment. - Consideration – This means the price which a party pays for what they have gained in the contract.
Consideration requires both parties to the agreement to bring something to the bargain. It refers to what one party to an agreement is promising or giving, in exchange for what is being given or promised from the other party. For example, you will provide a customer with a vehicle in exchange for an agreed amount of money.
The consideration need NOT be adequate, but it must be sufficient.
The adequacy element refers to whether the consideration corresponds in value to what is being given.
Sufficient means that what is being offered in exchange is recognised by the courts as being capable of amounting to consideration.
Accordingly, the courts will not interfere with a bad bargain.
Therefore, an offer below the advertised value will not be adequate but will be a sufficient amount for consideration. - Intention to create legal relations – Not every agreement will result in an enforceable contract. For example, social or domestic agreements, such as an agreement to meet a friend at a pub, will not have the required intention to create legal relations.
The law, therefore, presumes that social and domestic agreements do not have the intention to create legal relations. However, commercial agreements are presumed to be intended to be legally binding. This is a rebuttable presumption, but a difficult presumption to overturn and the defence that acceptance was only made as a joke will be insufficient.
In light of the above elements, whilst you may accept a lowball offer as a joke, it will be presumed that the commercial arrangement was intended to be legally binding, and you will be legally obliged to proceed with the sale.
As mentioned above, the courts will not intervene simply because of a bad bargain.
If you do not proceed with the sale, you will be in breach of contract.
The breach will entitle the customer to claim remedies that place them in the position they would have been in had the contract been performed.
The customer can claim ”specific performance” which is an order requiring one party (the car dealer) to perform their contractual obligations. This is only awarded in limited circumstances and if the customer can be adequately compensated by an award for damages, the court is unlikely to order specific performance.
Therefore, the most appropriate remedy is an award for damages.
Various types of damages can be claimed, the most appropriate damages for this type of breach would be expectation loss or reliance loss.
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Expectation loss refers to the customer’s loss of bargain, such as the profits they would have expected to make had the contract been performed. This involves comparing the customer’s current position and the position they would have been in had the contract been performed.
If it is not possible to calculate what the dealer’s profits would have been, the customer can claim damages for reliance loss.
For example, the customer could say there was a contract to purchase a vehicle for £5,000. The seller accepts the lowball offer but fails to proceed with the sale. The seller’s defence that the offer was accepted as a joke fails due to the presumption that there was an intention to create legal relations. The innocent party can evidence that to purchase the same or similar vehicle elsewhere they would have to pay £11,000. In breach of contract, the seller will be ordered to pay the innocent party £6,000 in damages to reflect the difference in value between the actual and expected performance.
So, before you jokingly accept a lowball offer, be prepared to pay the price for that joke.
