Contract Law

Contract is an agreement between two or more competent parties in which an offer is made and accepted, and each party benefits. No contract can come into being unless the following features exist: an actual offer, an acceptance, consideration (this means that each party will contribute something of a material value to the bargain) and an intention to create legal relations. The agreement can be formal, informal, written, or just plain understood. (a) For a contract to exist the offer must be made and then accepted.

An offer may be defined as a statement of the terms put forward as the basis of the bargain which carries with it a promise, express or implied, to adhere to the terms. A legally binding offer will include clearly stated terms, intention to do business and the communication of that intention. The offer must be clearly stated, because it may be held to be too vague to compromise a valid offer. This happened in Guthing v Lynn in 1831 where the buyer of the horse promised to pay the seller an extra ? “if the horse is lucky for me”, this was held to be too vague to be enforceable. Apart from that a legally binding offer should be distinguished from an invitation to treat. Invitation to treat means an “invitation to offer” and can be described as an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed. A display of goods in a shop window, with or without a price tag is a merely an invitation to treat.

Customers are making offers to sellers and sellers then decide if they want to accept. (Fisher v Bell, 1961)[1]. Anton is making an offer to Bernard and it was communicated successfully as Bernard replied back by post. The offeree, by acceptance, agrees to be bound by all the terms of the offer. Such acceptance must fulfill three main rules: first of all, it must be the ‘mirror image’ of an offer, and secondly it must be firm, because conditional acceptance is not binding. The last rule is that the acceptance should be communicated to the offeror.

The offeree must be agreeing to all the terms of the offer and not trying to introduce new terms, otherwise this response will be held to be a counter-offer, not an acceptance. Counter-offer is an attempt to vary the terms of the existing offer to more favourable terms. Such reply is not considered to be an acceptance. Instead, the reply is treated as a “counter offer”, which the original offeror is free to accept or reject. In Hyde v Wrench[2] defendant offered to sell his farm for ? 1000, and firstly claimant said that he would pay only ? 50, but afterwards accepted to pay the original price. He heard nothing from the defendant later. It was held that there was no contract between parties and Wrench was free to sell the farms to somebody else. It is very important to distinguish the counter-offer from a mere request of information. In Stevenson v Mclean an offer to sell iron at a certain price was not destroyed when the offeree enquired whether payments might be in instalments, It was held that it was not a counter-offer, merely an enquiry as to whether terms might be varied, and the original offer was not destroyed.

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In order to analyse whether the contract existed in this scenario it is necessary to understand whether Bernard’s question about hire-purchase terms was an enquiry or a new offer. In the case of Scamell v Ouston (1941)[3] the House of Lords found that vague statements by the both parties as to a hire purchase arrangements for the sale did not amount to a binding contract. In this case Viscount Maugham stated: “in order to constitute a valid contract, the parties must so express themselves that their meanings can be determined with a reasonable degree of certainty”.

Bernard’s question about hire-purchase arrangements was not expressed adequately and moreover he said that he will need finance, therefore, it can be argued that he is attempting to vary the terms of an existing offer to get more favourable terms for himself, therefore he is making a counter-offer. Counter-offer has an effect of canceling the original offer and so the original offeror can decide whether to sell it to somebody else at the price he has stated and the terms of the original offer. To conclude it can be stated that Bernard’s letter was not a mere enquiry of negotiation, but a counter-offer, which Anton didn’t accept.

Therefore there was no contract between Anton and Bernard and Anton was free to sell the boat to Celine. However from the other point of view, it can be argued that Bernard’s phrase that he is willing to accept Anton’s offer identifies that he is just asking some further information and tests out whether further negotiation with Anton is possible. This means that the original offer was not destroyed, but due to the fact that his reply was vague it can be considered not enforceable, as offerees should explain them clearly as well as the offerors.

Therefore no contract took place in this situation. (b) In this scenario Bernard replied by return of post, and accepted Anton’s original offer. Usually, communication is effective only when it reaches the offeror or the offeror’s place of business. However, Postal rule is a well-known legal principle in contract law. The postal rule of acceptance of an offer became entrenched in the common law of contact in the English courts and therefore in the Australia courts during the nineteenth century.

And the postal rule is an exception to the general rules of contract law in common law countries that acceptance takes place when communicated. The posting rule states, by contrast, that acceptance takes effect when a letter is posted. The rule was established by Anthony in the 19th century cases, starting with Adams v Lindsell (1818)[4], which was later confirmed in Dunlop v Higgins (1848)[5]. In Adams v Lindsell it was held that once a letter of acceptance is posted, a contract comes into existence immediately. Moreover, it makes no difference whether the offeror actually receives the letter.

This was demonstrated in Byrne v Van Tienhoven (1880)[6], where the letter of revocation reached the claimant too late to be effective. If a letter of acceptance were to be lost, acceptance has still taken place. Therefore, applying this law in the scenario it can be argued, that when Bernard sent his return by post accepting Anton’s offer, the contract came into being. Moreover, it has been always possible for offerors to avoid the postal rules either by specifying a different method of communication, or by stating that they would not be bound until receipt of an acceptance letter.

In this scenario Anton in his offer requested a reply by return of post, therefore as a reasonable person he should have understood that there might be any delays and that it takes time to deliver a postal letter. He didn’t take any precautions, therefore he is now bound by the contract with Bernard. The relevance of this early 19th century rule to modern conditions, when many quicker means of communication are available has been highly criticised and questioned, however the rule remains for the time being. (c) The general rule is that an acceptance must be communicated to the offeror.

Until and unless the acceptance is so communicated, no contract comes into existence. However offeror has a right to expressly require a particular method of communication. (Holwell Securities Ltd v Hughes (1974[7]). It is uncertain whether precise observance of these conditions is necessary in order to make the acceptance binding. However, it is clear from the scenario that Anton required specifically a reply by return of post. Generally if acceptance does not occur in the way, specified by an offeror generally there is no agreement.

Therefore by making a telephone call and saying that he is accepting the offer, Bernard is not complying with Anton’s requirements. This means that in this scenario no contract was formed. However, Bernard can argue that making a telephone call is the other method bu which equally achieves the offeror’s purpose, and this will be a valid acceptance, as it happens in Tinn v Hoffman (1873)[8]. In this case, acceptance was required by return of post. It was held that this could mean by telegram or verbally, or by any other means that were not later than a letter written by return of post.

If the court accepts his argument that telephone call is as equal as a reply in post, then the court may held that he accepted the original offer, therefore contract was formed between Bernard and Anton Word Count – 1491 words Bibliography Textbooks 1. Catherine Elliott, Frances Quinn, Contract Law, 4th edition, Longman 2. Jill Poole, Textbook on contract law, 9th edition, Oxford University Press. 3. Sarah Riches, Vida Allen, 2009, Keenan and Riches Business Law, 9th edition, Pearson. 4. Stefan Fafinski, Emily Finch, 2009. Law Express: Contract Law, 2nd edition, Pearson. Websites: 1. Networked Knowledge, Contract Law Homepage.

Available at: http://netk. net. au/contractlaw. asp [Accessed on 13th March 2010] 2. Formation of contract. Law of Contract resources. Available at: http://www. lawofcontract. co. uk/formation/index. php [Accessed on the 10th of March 2010] ———————– [1] Fisher v Bell [1961] 1 QB 394 [2] Hyde v Wrench [1840] 3 Beta 334 [3] Scamell v Ouston [1941] AC 251 [4] Adams v Lindsell [1818] EWHC KB J59 [5] Dunlop v Higgins [1848] 1 HLC 381; 9 ER 805 [6] Byrne v Van Tienhoven [1880] 5 CPD 344 [7] Holwell Securities v. Hughes [1974] 1 W. L. R. 155, [1974] 1 All E. R. 161 (C. A. ) [8] Tinn v Hoffman & Co [1873] 29 LT 271

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