Law for Accounting - Serena and Eric - Essay Example

?Serena and Eric The first contract that will be examined is that of Serena and Eric. Eric is Serena’s brother, and he made an offer to Serena to buythe Galileo for ?19,500. Serena did not accept this offer right away, instead she played his message on the answering machine, then erased it. This was in December, and Eric indicated, on the answering machine, that he planned on buying the Galileo for his girlfriend’s birthday. Serena did not accept Eric’s offer until January, at which point Eric told her that he was no longer interested in the Galileo, as his girlfriend’s birthday had already passed. Moreover, Serena’s offer had indicated that only bids over ?20,000 would be accepted. The first issue is whether there was an offer and acceptance. Serena made the offer, however, Eric, by stating that he would buy the Galileo at ?19,500 instead of the ?20,000 that Serena was asking for, effectively made a counteroffer.1 The reason for this is the “mirror image rule.” This rule states that an unequivocal acceptance must mirror the offer exactly – any deviation made by the offeree to the offeror would therefore be considered to be a counteroffer. At this point, therefore, it was up to Serena to accept Eric’s offer, as Eric did not offer an unequivocal, mirror image acceptance of Serena’s terms. However, one can state that Serena was not really making a valid offer with her advertisement, as she indicated that she would consider all offers higher than ?20,000. She did not state that the highest bid would be the winner, so to speak, but, rather, only indicated that she would consider any and all bids above the threshold number. The courts would state that this was not really an offer at all, but an invitation to treat. An invitation to treat is an invitation for bids. This is similar to the case of Spencer v. Harding (1870) LR 5 CP 561. This case involved the following offer: “28, King Street, Cheapside, May 17th, 1869. We are instructed to offer to the wholesale trade for sale by tender the stock in trade of Messrs. G. Eilbeck & Co., of No. 1, Milk Street, amounting as per stock-book to 2503l. 13s. 1d., and which will be sold at a discount in one lot. Payment to be made in cash. The stock may be viewed on the premises, No. 1, Milk Street, up to Thursday, the 20th instant, on which day, at 12 o'clock at noon precisely, the tenders will be received and opened at our offices. Should you tender and not attend the sale, please address to us sealed and inclosed, 'Tender for Eilbeck's stock.' Stock-books may be had at our offices on Tuesday morning. Honey, Humphreys, & Co.”2 The court held that this was not a valid offer, but, rather, an invitation for bids. The wording in the offer in Spencer is similar to the wording in the case at bar, therefore, there probably was not a valid offer made by Serena for the Galileo. That said, when Eric made his statement on the answering machine, this would be an offer. As indicated above, when Eric made his statement on the answering machine, the ball was effectively in Serena’s court, and she could either accept Eric’s offer or not. The question is whether Serena did accept the offer. She finally called Eric in January, after having made the original offer in December, and Eric had made the counteroffer in that same month. Both parties knew that Eric wanted the dress for his girlfriend’s birthday. Serena might have known when Eric’s girlfriend’s birthday was, as Eric is her brother. Regardless, when Eric’s girlfriend’s birthday came and went, the doctrine of frustration of purpose might apply here. Frustration of purpose is “Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or circumstances [of the contract] indicate the contrary.”3 The leading case in English law is that of Krell v Henry [1903] 2 KB 740. In Krell, the defendant rented a flat for the express purpose of watching the coronation of Edward VII. However, Edward VII fell ill, and the coronation did not take place. Because this was the only reason why the defendant rented the flat in the first place, the defendant refused to pay the bill for the room, and the plaintiff, Krell, sued to force Henry to pay for the room. The Krell court looked at whether there was an implied condition to the contract, and whether both parties knew about the condition. The court also considered that, if the implied condition ceases to exist for any reason, that this voids the contract. The court also considered that the implied condition need not be mentioned in the actual contract, but, rather, can be inferred from the evidence and the extrinsic circumstances surrounding the contract itself. Another consideration was whether or not the room had a special qualification – the court found that if a taxicab was hailed to take a person to a race, and this race did not go off as planned, that the taxicab would still have to paid for. However, in this case, the room had the special qualification of having a good view of the coronation ceremony. Therefore, the Krell court found that there was an implied condition that the coronation would go off as planned, and that this particular event did not occur, therefore the implied condition ceased to exist and the purpose of the contract was frustrated. Because of this, the contract was voided, and the defendant did not have to pay any further for the room, and, likewise, the plaintiff did not have to give back the money that the defendant had paid as a deposit.4 While the facts in Krell are not entirely analogous to the case at bar – after all, in the case at bar, the girlfriend’s birthday and the passing of this birthday is an event that is contemplated by both the parties, even if one of the parties (Serena) might not know when the birthday would occur. In Krell, the coronation not occurring was an entirely unforeseen event, but the court looked to this particular factor in deciding which party bore the risk of the event occurring or not occurring as it were. And, in Krell, there was an actual contract that was voided. In this case, a contract was formed only incompletely, as there was not a firm acceptance of the offer. Nevertheless, it cannot be said that Eric reneged on his counteroffer by refusing to accept Serena’s belated acceptance, as the purpose of the contract was frustrated. Another factor is that perhaps Eric’s offer expired. This would be because, by stating that he wanted the dress for his girlfriend’s birthday, the implication would be that the girlfriend’s birthday would be the deadline to accept the offer, and, when the girlfriend’s birthday passed, the offer would expire on this date. Therefore, if this is the case, and the offer expired, then there was no longer an offer on the table for Serena to accept. There would not be a binding contract with Eric and Serena. Eric put an implied condition in the offer, and when this implied condition no longer existed, this voided the offer. Also, because of the frustration of purpose doctrine, the disappearance of the implied condition would mean that the contract between the parties would be void, even if there originally was a contract. However, it does not seem that a contract here was even formed in the first place due to the effective expiration of the offer when the girlfriend’s birthday came and went. This is the right result - Serena knew the condition to the offer, and she delayed accepting the offer until the condition came and went. Moreover, she did not even communicate with Eric either way. She should not be able to sit on an offer for this long, without communicating with the offeree in any way, then expect to go ahead and accept the offer over a month later. Also, because the condition to the contract was the girlfriend’s birthday, Eric should not be held to the contract if the purpose of the contract is frustrated by Serena’s delay. This is the right result, and there can be no improvement on this result. Serena and Chuck The next pairing that will be examined will be Serena and Chuck. Chuck made an offer of §22,000 for the Galileo subject to a costume expert making a satisfactory inspection. Serena communicated that she did not accept this offer, and offered the Columbus instead. Chuck stated that he would think about this offer. Chuck accepted the offer of the Columbus, apparently not inquiring about the price, then, upon receiving an invoice for ?20,000, he decided that the offer was too high and withdrew his acceptance. The first aspect of this that will be examined is whether there was a valid offer and acceptance. As indicated above, Serena did not really make an offer, but an invitation to treat. However, when Chuck made the offer of ?22,000, this was ostensibly a valid offer. This may not be true, however, if the offer that Chuck made for the Galileo was held to be illusory. In this case, Chuck put a satisfaction clause into his offer of the Galileo, which means that, if he is not satisfied, he may refuse the contract. This may be illusory, because there is no true consideration on Chuck’s part. However, as long as Chuck is reasonable, in that an objectively reasonable person would come to the same conclusion as Chuck about the condition of the dress, then this would be adequate consideration. At any rate, when Serena rejected the offer, then a contract was not formed for the Galileo. The next question is whether there was a valid contract for the Columbus. There was a valid offer on the part of the Serena, and she conveyed this offer to Chuck. Chuck stated that he would think about it, then went ahead and accepted the offer, then withdrew his acceptance when he found out how much the Columbus was going to cost. At first blush, it would seem that there was a valid contract formed - there was an offer by Serena, acceptance by Chuck. There was consideration, in that Serena agreed to give the dress to Chuck in exchange for ?20,000. However, the snag is that apparently all terms were not disclosed in the offer. Thus there could not be an agreement. According to the Principles of European Contract Law Article 2:103, a sufficient agreement is one that (a) have been sufficiently defined by the parties so that the contract can be enforced, or (b) can be determined under these Principles.5 Moreover, according to Article 2:104 of the Principles of European Contract Law, “(1) Contract terms which have not been individually negotiated may be invoked against a party who did not know of them only if the party invoking them took reasonable steps to bring them to the other party's attention before or when the contract was concluded and (2) Terms are not brought appropriately to a party's attention by a mere reference to them in a contract document, even if that party signs the document.”6 Moreover, Article 2:201 of the Principles of European Contract Law states that “(1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract.”7 According to these principles, there could not be a contract because the major component of a valid offer, price, is missing. Although the Principles do not define the term “sufficiently definite,” it would not be a stretch to ascertain that price would be one of the terms that, if not included in the offer, would void the offer on the grounds that the offer was not sufficiently definite. Therefore, there was not sufficient definition of the terms, so there would not be a valid offer. However, according to Article 2:104 of the European Principles of Contract Law, even though the term of price was not individually negotiated between the parties, Serena may still hold Chuck to the contract if she took reasonable steps to bring this term to light before the existence of the contract. In this case, Chuck was not aware of the price, but if Serena took reasonable steps to make him aware of the price, then the offer may still stand. In this case, the only reference to price was the advertisement that Serena put out about the Galileo. There is no information about the price of the Columbus that was provided for in the facts. Was this a reasonable step by Serena to make Chuck aware of the price of the dress? On the one hand, the two dresses were sold by the same person, so it might be reasonable to assume that the price that was listed would be the price for both. On the other hand, the facts indicate that the Galileo was a vintage dress, where the facts indicate that Columbus was not a vintage dress, but, merely, a dress. Therefore, a reasonable person would not concur that just because Serena indicated a price for one dress that the same price would be on the second dress. There was therefore no reasonable effort on Serena’s part to inform Chuck about the price of the Columbus prior to Chuck accepting the offer to buy the Columbus. This would mean that there was not a meeting of the minds, which is the essential component of any contractual agreement. If one party thinks that an item is one price, and the other party tries to sell the item for a price that the offeree did not bargain for, then this would mean that there was not a mutual assent, so a contract would not be formed. Moreover, there was not enough detail in the offer, therefore the offer itself was not a fully formed offer, and this, too, would void the potential contract and, in fact, state that no contract was even formed. These facts regarding Chuck and Serena present an interesting dilemma, and the result of this is not entirely correct. The reason for this is that Chuck is a collector of vintage dresses, and, as such, he should be business savvy enough to know to ask for a price of an item before agreeing to buy the item. Plus, Chuck knows that Serena was asking ?20,000 for the Galileo, so Chuck was on notice that this was the price range that Serena would be asking for her dresses. Chuck should have therefore been prepared for paying an amount that was similar to what Serena was asking for the Galileo. After all, it’s not like Serena was a dealer in low-end items and was asking a small amount for advertised items, then hit Chuck with a large bill for the Columbus. In that case, Chuck would not know that Serena was a dealer in big-ticket items, so it might have come as a shock to get hit with a large bill for the Columbus dress. However, in this case, Chuck knows that Serena deals with big-ticket items, and that it would be reasonable to assume that the Columbus dress would also be an expensive dress. Therefore, Chuck should have inquired about the price before he accepted the offer. He did not ask, so the question really becomes who assumed the risk? Serena did not offer the price, and Chuck did not ask for the price. One of the parties should be deemed to have accepted the risk that the price would be too high for Chuck. My argument is that Chuck should have been the one who was deemed to have accepted the risk, being that Chuck was a collector of vintage dresses, therefore has some level of business acumen and is presumed to have made dress negotiations many times before. And, there is a problem in that Chuck waited a month before telling Serena that he did not accept the offer. During that month, if Chuck would have inquired about the price before accepting the offer, then immediately reneged his acceptance, Serena could have found another buyer. But, since Chuck took such a long time in reneging on his acceptance, he should be held to the contract, in that Serena lost chances to sell the dress to somebody else. Therefore, the law does not achieve the right result in this case. The way that the law could be improved would be to build some sort of assumption of risk analysis when there is an insufficient disclosure of terms. The way that the law is now, the buyer does not have to inquire about the price of the item, and the seller is required to tell him what the price is, regardless of whether the buyer asks. In this case, both parties are being negligent, but, one can argue, equally negligent – a seller is under obligation to disclose pertinent terms, and not doing so is negligence, and the buyer is under obligation to ask for pertinent terms, and this is equally negligent. Therefore, the law should not automatically put the burden of term disclosure on the offeror, but allocate this between both the offeror and the offeree. Therefore, one of the parties can be deemed to assume the risk more than the other, and this analysis should be what governs contract cases where there are insufficient terms. Serena and Jenny The third and final pairing to examined will be that of Serena and Jenny. Jenny is the seamstress for Blair, which is where Serena was attempting to buy a new dress. Serena promised Jenny ?4,000 after Jenny sewed the new dress for Serena, if Jenny “followed Blair’s designs to a T.” Jenny replied “thank you, that is very kind.” When Jenny finished the dress, the dress was to Blair’s usual high standards, and fit Serena perfectly. The question is whether there was a valid offer, or, rather, if the “offer” was really no more than an illusory promise, therefore not an offer at all. As indicated above, an illusory promise is one in which the offeror does not really have to do anything. In other words, if the offeror puts a condition on the offer that means that the offeror can get out of the offer simply by stating that he is not satisfied, then this promise may be illusory. Such is the case with satisfaction clauses, where the offeror states that he will buy such and such, pending the offeror’s statement about whether or not he is satisfied by the goods. If there is no definable way of ascertaining what would constitute satisfaction, so that the offeror can get out of the contract simply by stating that he is dissatisfied, then this might be an illusory promise. However, in this case, Serena defined her terms in such a way that they became definite. In other words, Serena did not state that she would pay the money pending her own subjective satisfaction – this is what would have potentially created an illusory promise situation. Rather, Serena stated that she would pay the money if the dress fit the standards of Blair. Since a reasonable person can look at Blair’s standards, and judge what these standards are, then Serena’s offer is not illusory. Serena cannot reject the dress just because she doesn’t like the dress, as long as the dress adheres to Blair’s standards. Therefore, there was a valid offer. The terms that Serena put onto the contract, that the dress must conform to Blair’s standards, should therefore be treated as a condition precedent of the contract, in that, if the condition is not met, then Serena does not have to accept the dress. Was there a valid acceptance? Jenny simply stated, after Serena made her offer, “thank you, that is very kind.” Would these words be regarded as assent to the contract? After all, these words are not an affirmative acceptance. The words are simply saying thanks for the offer, but not really stating that she accepted the offer. Smith v. Hughes8 is the seminal case in deciding if there was an assent to the contract. This case states that “If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."9 In other words, would a reasonable person assume that, by stating, “thank you, that is very kind,” Jenny was accepting the offer? This is the test that is used, as opposed to subjective, as one can never read another person’s mind. In this case, there probably is sufficient evidence that Jenny assented to the offer. Yes, her words are merely thanking Serena for the offer, but she did not say anything that would imply a negative reaction to the offer. That is, she did not explicitly decline the offer. A reasonable person could conclude that, if Jenny was dissatisfied with the offer of ?4,000 to create the dress, that Jenny would have stated something to the effect that this offer was not good enough. She did not do this. In fact, she indicated that the offer was sufficient in that she said “thank you, that is very kind.” More importantly, a reasonable person could surmise, from Jenny’s acts, that she accepted the contract because she went ahead and made the dress for Serena. In this case, even if the verbal words “thank you, that is very kind” are not sufficient to imply assent to the contract, therefore a bi-lateral contract was not formed, in that there was not a promise for a promise, a uni-lateral contract could be said to have been formed. That is, instead of a promise for promise, there would be a promise for performance. In this case, the performance would be Jenny’s consideration, and this should be sufficient consideration to make the contract valid. Going back to Serena’s original condition she put on the contract, that the dress must conform to Blair’s standards, this condition was fulfilled, as the dress did, in fact, conform to Blair’s standards. Therefore, the condition precedent that was put onto the contract was fulfilled, so Serena did not have a reason to renege on accepting the dress. If the condition precedent was not fulfilled, then Serena would be able to not accept the dress. There was a binding contract between Serena and Jenny, and this is how it should be. Serena put a reasonable condition precedent on the contract, in that, if the dress did not conform to Blair’s quality, she, Serena, would not have to accept the dress. Jenny assented to the contract, either by words or by actions. And, the condition precedent was fulfilled. Therefore, Serena did not have reason not to accept the dress. If there was, for some reason, a void contract or not a contract at all, then this would be unjust, because Jenny hand-sewed a dress just for Serena, and, if Serena would be allowed to renege on the contract, this would be unjust in that it is possible that the dress could not be re-sold. That there is a valid contract formed is the most just result, and there would not be a reason to change it. Bibliography Principles of European Contract Law Article 2:103 Principles of European Contract Law Article 2:104 Principles of European Contract Law Article 2:201 Restatement 2d Contracts §59 Restatement of Contracts 2d § 265 Krell v Henry [1903] 2 KB 740 Smith v. Hughes (1871) LR 6 QB 597 Spencer v. Harding (1870) LR 5 CP 561 Read More