The Business School - Case Study Example

The Business School Memo on the Contract Transaction between Giant Drug Company and Dr. Doe Th is memo discusses the contract negotiations between Dr. Doe a Nobel laureate who is being invited to work for Giant and Mr. Stein, the president of Giant. The contract went through the following issues in the following days: May 1: Doe signed and sent an acceptance letter in which he agreed to work for a period of four years for a salary of $500,000 per annum four years. May 3: Stein received the letter and offered a salary of $300,000 per annum on telephone. This was clearly rejected by Doe. Stein then drafted a letter and letter in which he stated he was not interested in hiring Doe. Stein later changed his mind on the same day and sent another mail by express mail where he accepted Does terms and expressed the wish of asking Doe to accept a lower salary May 4: Does secretary received the second mail with Steins acceptance sent by express mail. However, before reading the mail, Doe got a lucrative contract with a competitor, MARK Drugs and called Stein and told him he had accepted MARK Drugs offer instead of Giants offer. Rules In order to formulate a valid contract, there must be an offer and an acceptance. An offer is a proposition put by one person to another either orally, in writing or by conduct seeking to create a contractual relationship (Hunt, 2010). In the case of Pharmaceutical Society of Great Britain V Boots (1952) and Fisher V Bell (1961), it was held that an invitation to treat is not an offer. Rather, an invitation to treat is an invitation for a person to make an offer. When an offer is made, it must be accepted. However, in some cases, an offer might be terminated under a number of circumstances. First of all, an offer may be revoked or withdrawn by the offeror (the one making the offer) before the offeree accepts it. This was illustrated in the case of Routledge V Grant (1828) where it was held that a person could terminate an offer before the time stipulated for acceptance by the offeree. An offer can be rejected either expressly or by giving a counter offer (Hyde V Wrench). However, a request for more details does not constitute a counter offer nor a rejection (Hunt, 2010). Additionally, in the case of Financings Limited V Stimson (1962) it was held that the failure of a primary condition will lead to the termination of the contract. In Empirnall Holdings V Machon Paull ((1988), it was held that accetance takes place when the actions of the offeree is seen as a reasonable form of acceptance. When an offeree accepts an offer from the offeror, there is the need for the acceptance to be communicated to the offeree (Entores V Miles Far East Corp (1955). And any specified method of acceptance must be complied with (Tinn V Hoffmann 1873). Where there are general options, the preferred method must be used. However, in the case of acceptance, by post, the acceptance takes effect as soon as the letter of acceptance is posted. McKendrick identifies several challenges and difficulties with the postal rule (2011). He identifies that in the case where an offeree rejects an offer by an ordinary mail and changes his mind and mail an acceptance through a faster post, there will be two pointers here. One point is that based on the postal rule, the first letter, which was the rejection letter was binding. This is because by strict examination of the postal rule, the contract becomes valid when the acceptance is posted. On the other hand, there is an issue of which letter the offeror receives first. McKendrick states that “... a logical application of the general rule leads to the result that the contract was concluded when the letter of acceptance was posted, and so the subsequent communication is not a revocation of the offer but a breach of contract which may be accepted or rejected by the offeror. But it can be argued that it would be absurd to hold that a contract has been concluded when both parties have relied on the fact that there as no contract” (2011, p40). This means there is a conflicting view and this could be interpreted in different ways and forms when such a situation occurs. In the case of Butler Machine Tools V Ex-Cell-O Corporation, it was held that where there was no clear offer or acceptance, the processes that occurred before the contract was formed can be viewed as a battle of forms and in that case, the last shot wins. Case Analysis In order to advise Stein on whether there is a contract or not, there is the need to apply the general rules to some key pointers in the contract at hand. The first question is when was the offer and when was the acceptance. In the legal sense, it appears that the letter sent on May 1 by Doe was the offer which was meant to initiate the contract. In that mail, Doe offered his services for a salary of $500,000 per annum In that case, the call made by Stein to Doe asking him to reduce the salary to $300,000 per annum can be viewed in several angles. On one angle, it can be seen as a counter offer, which terminates the offer. On another angle, it could be viewed as a request for further information. On a third angle, it could be seen as a failure of condition which renders the offer invalid. Looking at the statement “will you reduce it to $300,000?”, it can be seen as a request for further information. And in that case, Stein can argue that he was asking for further information. However, Doe can also argue that his offer was fixed and could not be countered with a reduction. It was to be accepted as it was. Steins letter rejecting the offer was a rejection and it takes effect the moment it was posted. However, his follow up letter accepting the offer got to Doe before the rejection letter. In that case, it appears that Steins letter of acceptance was valid. This is because although the postal rule assumes that an offer is accepted upon posting, it is not logical to state that there was a valid contract when the other party was not aware of it. Hence, in that case, it is logical to state that the first letter to arrive was the one that formed the contract, and not the one that was posted first. In that sense, if the postal rule is invoked, it means that the offer was accepted the moment the acceptance letter was posted. This means that a valid contract was formed the very moment Stein posted it. In that case, the negotiations and the arguments that ensued as well as the wish Stein expressed for a reduction can be seen as a battle of forms. And in that case, the contract is still valid, pending the final confirmation of a final salary. Conclusion Stein must understand that a valid contract exists. The second mail he sent via express mail was his final acceptance and it took precedence over the first mail since he was ready to spend more on it in order to ensure that it arrives before the previous mail. And since that was sent a day before the offer of MARK Drugs was accepted by Doe, Stein and Giant Group has a valid contract with Doe. The fact that Stein is expressing the desire for a reduction in Does salary does not constitute a counter offer, but rather, a part of the battle of forms. And the final price they settle on will finally seal the contract officially. Section B: Remedies for Breach of A Valid Contract Assuming there was a valid contract in the scenario above, there would be some kind of issue with Does choice to work for MARK Drugs instead of Giant drugs. In this point, there would be a number of issues relating to the breach of the contract due to the failure to meet the terms. And this will come with some remedies for, Giant, the aggrieved party. Rules When an offer is accepted, a valid contract is formed. And this means that the parties to the contract will be discharged of their obligations under four circumstances: Performance, Agreement, Frustration or Breach (Stone, 2012). Performance means both parties will carry out their required obligations as stipulated in the contract. Agreement means the parties will come to a compromise on how to end the contract whilst frustration occurs where it is not possible to perform the contract due to a unexpected event that destroys a significant component of the research. Finally, a breach is where one party fails to carry out his obligations and this gives rise to remedies in contract law. Damages are financial compensation for a legal wrong (Smith, 2012). In the law of contract, the aim of damages is to put the injured party in their anticipated post-contractual position. There are liquidate damages which specifies an amount to be paid and there are unliquidated damages based on the actual loss suffered. There is also an order for specific performance which is discrectionary and is offered where damages and remedies are not able to meet the actual loss suffered. An injunction is awarded to prevent breach of express negative obligations but they do not compel performance of a positive obligation. Case Analysis In this case, it appears that there was a valid contract that was formed before Doe took up another offer with Giants competitors. Hence, there is a discharge of that contract that was formed by breach. This is because by design or by some form of ignorance, Doe opted to enter another contract with a competitor when there was an existing contract with Giant. In this case, damages are not an appropriate remedy since there was no major or significant loss. However, there could be the need to enforce the contract by asking for the courts to prevent Doe from taking up the new contract with MARK Drugs. In that case the two main remedies they can apply for are an injunction and a specific performance. The injunction will bar Doe from taking up the new position with MARK Drugs. It will render it illegal for Doe to carry on with the contract as there was a previously valid contract that existed with Giant in the past. Aside the injunction, Stein can also apply for an order of specific performance which will force Doe to take up the job that was agreed up on in the contract. This will ensure that he carries out the obligations under the new contract and do what is required of him. Conclusion Once a valid contract was formed with Giant, it is imperative on Doe to carry it out. And if he takes up the new contract with MARK, he will obviously be unable to carry out the contract with Giant. Hence, Stein can sue for an injunction to be placed on Doe from taking up the appointment. This can be followed by an order of specific performance which will make it obligatory for Doe to discharge his duties under the contract. References Hunt, M. (2010) Contract Law London: Sweet and Maxwell. McKendrick, E. (2011) Contract Law London: Palgrave Macmillan. Smith, J. (2012) Law of Contract Sydney: Pearson Education. Stone, R. (2012) Elements of the Law of Contract. London: University of London Press. Read More