Legal Environment of Business and Employment - Coursework Example

? Law of Contract This question pertains to the basic formation of contract and focuses most importantly on the postal rule, law in respect of instant communication devices and whether the contract in this particular case was breached. The formation of contracts and its legal effectiveness is a subject which has been critically reviewed in case law and statutes. A contract can exist even if it is oral or informal but in strict legal terms for it to be legally effective, certain criterion must be met. Formation of Contract is based on firstly, an ‘offer’, which must be followed by an acceptance. Secondly, there must be consideration, intention to create legal relations and sufficient certainty. In order to determine whether there was a valid legal contract between A2Z Co. Ltd and Bling Stores and to best advice the parties it is necessary to discuss the above mentioned essential elements for formation of a contract and how the presence of each element is achieved. An offer has been defined as an expression of willingness by one party known as the offeror, to contract or be bound on stated terms, provided that such terms are accepted by the party to whom the offer is made that is the offeree. The courts have drawn a distinction between an offer and an invitation to treat, as the latter is merely an expression of willingness by one party to enter into negotiations and is not unconditional and there is a lack of intention to create legal relations. The most important and land mark cases which distinguished between an offer and invitation to treat are of Gibson v Manchester City Council1 and Storer v Manchester City Council2. In Gibson, where treasurer had sent a letter to Mr. Gibson, stating that council may be prepared to sell the house, was held to be an invitation to treat, which was further confirmed by the fact that Mr. Gibson was asked to make a formal application to purchase the house. The courts therefore took into account the correspondence between the parties. However, in Storer the courts found that a contract had come into existence as negotiations had moved beyond what had happened in Gibson but an exchange of contracts had not taken place. These cases clearly point out that fact that judges can interpret and differ in the results and so the decision would be said to be based on its own facts. The next step is that of acceptance. The general rule for the acceptance of an offer is that the offer should be accepted unconditionally and must be communicated to the offeror. (Holwell Securities v. Hughes3). However there are certain exception to this general rule and one of them is the infamous postal rule. The postal rule states that when an acceptance is sent by means of a post, it takes place as soon as the letter is validly posted. (Adams v. Lindsell)4, furthermore Instanta Instantaneous modes of communication has lately been scrutinized by the courts (Lord Wilberforce in Brinkibon Ltd. v Stahag Stahl GmbH)5, however the problem of when acceptance is effective has clearly not been addressed and still lies in an area of uncertainty. instantaneous modes of communication has lately been scrutinized by the, however it is a settled law that a communication made through instant mode of communication is deemed effective if it is despatched and received during working hours i.e if a fax is sent on Sunday evening it will only deemed to be effectively communicated on Monday morning, when office working hours start. Acceptance must be looked into carefully, as the fact that it must be unconditional is strict and so if new terms and conditions are introduced that would not be acceptance and would merely be a counter offer, which can then be accepted by the original offeror, who now becomes the offeree as in (Hyde v Wrench)6.If the offeree does not accept all the terms and conditions proposed by the offeror and introduces new terms to the original offer is not an acceptance but a counter offer which kills the original offer The general rule for acceptance is that communication must actually be made to the offeror and must be heard. (per Lord Denning in Entores v. Miles Far East Corporation)7. If a prescribe mode of communication is specified it must be followed. After establishing offer and acceptance, the element of certainty is looked into, which is vital as a binding contract can exist only if the parties express their agreement in a sufficiently certain form so that the courts can enforce it. This is because the court does not want to insert its own terms within a contract that has been agreed between the parties(Viscount Maugham in Scammell and Naphew Ltd. v. Ouston)8. The next element that has been analysed by courts is the fact that consideration for the contract has been made or not, the first one being, that consideration must be sufficient but it need not be adequate. Thus, something of value must be given in return, if a promise is to be enforced, thereby satisfying what is called ‘sufficient’. Further, adequate consideration is not a concern of the courts. The principle might at times be disadvantageous, as there might be other factors involved which led to such a bargain. (Chappell & Co. v. Nestle)9. Finally the doctrine of consideration must move from the promise, that is the promise can only be enforced by a promisee if there is a consideration for the promise; the benefit can move to a third party as well.. Finally the fact that an agreement has been reached between the parties does not necessarily mean that a legally enforceable contract has been concluded. There must be an intention to create legal relations, that is the intention of the parties which is construed objectively. The case Balfour v. Balfour10 determined the position of domestic arrangements, where there is a presumption that the parties did not intend to create legal relations and rebuttal is needed. This is because in most cases there is no apparent intention in such arrangements and secondly such a presumption is quite difficult to rebut and clear evidence is required for such an intention. In the case of A2Z Co. Ltd and Bling Stores, A2Z Co. Ltd offered to sell ?1,000 pair of shoes to Bling Stores at the price of ?2,000. This is a clear offer according to Storer v. Manchester City Council(above). Further they said that the offer would remain open until 16th of August( Dickinson v Dodds)11 .The phone conversation was merely a supply of information ( Stevenson v Mclean )12. Carol, who’s the manager of Bling Stores posted an acceptance on the 15th of August. According to Adam v lindsell (above), there is a binding contract as soon as the acceptance letter is validly posted. Further the courts added related to the communication of acceptance, if it was so then, no contract could ever be completed by the post. Bling Stores are in a legal position as there is a binding contract as soon as Carol posted the acceptance letter. Bling Stores can sue A2Z Co. Ltd and claim damages and A2Z Co. Ltd are in a breach of their contract. A) A contract can exist orally or informal but in strict legal terms for it to be enforced by the courts. Formation of contract is based on firstly, an offer, which must be followed by an acceptance. An offer has been defined as an expression of willingness by one party known as the offeror, to be bound on stated terms, proved that such terms are accepted by the party to whom the offer is made that is the offeree. An illustration of which can be seen in Storer v. Manchester City Council13 . The next step is of acceptance. The general rule for the acceptance of an offer is that the offer should be accepted unconditionally and must be communicated to the offeror ( Holwell Securities v. Hughes )14. However there are certain exception to this rule, one of them is the infamous postal rule. The postal rule states that when an acceptance is sent by means of post, it takes place as soon as the letter is validly posted ( Adams v Lindsell )15. Furthermore Instantaneous modes of communication has lately been scrutinized by the courts ( Lord Wilberforce in Brinkibon Ltd. v. Stahag Stahl GmbH16), however the problem of when acceptance is effective has clearly not been addressed and still lies in the area of uncertainty. It is a settled law that a communication made through instant mode of communication is deemed to be effective if it is dispatched and received during working hours i.e if a fax is sent on Sunday evening it will only deemed to be effectively communicated on Monday morning, when office working hours start. Acceptance must be looked into carefully, the fact that it must be unconditionally accepted is strict and so if new terms and conditions are introduced that would not be acceptance and would be regarded as a counter offer, which can be accepted by the original offeror, who now becomes the offeree. In Hyde v Wrench17, it was held that if new terms are added, it is a counter offer, which kills the original offer. As soon as the offerree accepts the offer unconditionally, the parties become contractually bound. And if any party is in breach of contract, the other party has the right to sue and claim damages. B) An offer is an expression of willingness to be bound on stated terms, proved that such terms are accepted by the offerree, while in an invitation to treat is an expression of willingness by one party to enter into negotiations and is not unconditional and there is a lack of intention to create legal relations. The courts of drawn a distinction between an offer and an invitation to treat. The landmark cases which distinguished between an offer and invitation to treat are Gibson v Manchester City Council18 and Storer v. Manchester City Council19. In Gibson, the treasurer had sent a letter to Mr. Gibson, stating that the council ‘may be prepared’ to sell the house. It was held to be an invitation to treat, which was further confirmed by the fact that Gibson was asked to make a formal application to purchase the house. Lord Diplock stated that “the word ‘may be prepared to sell’ are fatal, so is the invitation, not, be it noted, to accept the offer, but ‘to make formal application to buy’ on the enclosed application form. It is a letter setting out the financial terms on which it may be the council would be prepared to consider a sale and purchase in due cours”. However, in Storer the courts found that a contract had come into existence as the council intended to be contractually bound when Storer had signed the agreement and returned it. The negotiations had moved beyond what had happened but an exchange of contract had not taken place. These cases clearly point out that judges can interpret and differ in the results and so the decision would be, said to be based on its own facts C) In an auction, an auctioneers request for bid is an invitation to treat. An illustration of which can be seen in Harris v. Nickerson20 in which the defendant(auctioneer), advertised that lots including certain office furniture would be sold by him but later the lot was withdrawn. It was held that the advertisement was merely an invitation to treat. The bid is an offer which the auctioneer can accept or reject. The sales of Goods Act 1979, s57(2) provides that acceptance occurs on the fall of the hammer and any bidder may withdraw his bid before that time. In case of auctions without a reserve price, the highest bid is accepted. In Warlow v Harrison21 . It was further confirmed by the courts in the case of Barry v Davies22. D) Offer and Acceptance through tenders is made by request for tenders is an invitation to treat and each tender is an offer. The requestor is free to accept or reject any tender to purchase goods, even if it is the highest bid. In Harvela Investments Ltd v Royal Trust Co. Of Canada23, the first defendant invited parties to submit their tender and stated that they bound themselves to accept the highest offer they received with complied with the terms of their invitation. The plantiff tendered a bid of $2,175,000 and the second defendants bid was $2100,000. The first defendant accepted the second defendants bid and entered a sale contract. The invitation to bid constituted an offer to be bound by the highest bid. This offer was unilateral in that it requested the performance of an act, submitting the highest bid, and the performance of this act constituted the acceptance of that offer. The plantiff’s bid is the only valid bid. It was held by the house of lords that the only valid bid was the plantiff’s and the first defendants were bound to accept it. It can be concluded that if the request for tenders which is an invitation to treat and the bid which is an offer, once accepted, there exists a contract between the parties. E) The fact that an agreement has been concluded between the parties does not necessarily means that a legally enforceable contract has been concluded, even where the agreement is supported by consideration. The English courts would not conclude that we have entered into a legally valid contract because we lack an ‘intention to create legal relations’ ( Edmonds v. Lawson )24 which is an essential element in formation of contract. There are two kinds of agreements, the first which are social or domestic agreements and the second are the commercial agreements. Law has distinguished between social/domestic agreements and commercial agreements. In the case of social or domestic agreements, there is a presumption that the parties had no intention to create legal relationship. The leading case regarding social or domestic agreements is Balfour v Balfour25 which establishes a rebuttable presumption. In this case the husband, who was working overseas, promised to pay his wife a sum of money each month. When the parties separated, the wife sued the husband. The courts refused to allow her action on the grounds that the parties did not intended to be attended by legal consequences. Lord Atkins stated that if such agreements could be litigated in the courts, the courts would soon be overwhelmed by such However, in commercial contracts, the courts generally presume that an intention to create legal relations is present. The leading case regarding commercial agreements is, Esso Petroleum Ltd v. Commissioners of Customs and Excise26. BIBLIOGRAPHY McKendrick, Ewan. Contract Law: Text, Cases, and Materials. Oxford: Oxford University Press, 2010. Print. Furmston, Michael P, and Cheshire-Fifoot-Furmston. Cheshire, Fifoot and Furmston's Law of Contract. Oxford [u.a.: Oxford Univ. Press, 2007. Print. Duxbury, Robert. Contract Law. London: Sweet & Maxwell, 2009. Print. Fafinski, Stefan, and Emily Finch. Contract Law. Harlow, England: Pearson/Longman, 2009. Print Taylor, Richard D, and Damian Taylor. Contract Law. Directions. Oxford: Oxford University Press, 2009. Print. Elliott, Catherine, and Frances Quinn. Contract Law. Harlow (England: Pearson Longman, 2009. Print. Read More