Binding Contract with Giant Car - Essay Example

? Advise Simon as to whether he had entered into a binding contract with Giant Car and if Giant Car are now in breach for selling the car to Nicholas. Name Course Institution Date Word count: 1502 For a valid contract to exist, the basic elements of a contract must be met. An offer must be made and the offer accepted by a competent party with the intention of creating a legally binding relationship. The contract must also have a consideration for acceptance to take effect. In the current case the other elements, intention to create legal relations and consideration, are not in question, but the element of offer and acceptance is. In this respect, it is significant to show first that there was a valid offer and secondly that the offer was accepted. In order to form a contract, the parties involved must reach a mutual consent or meeting of minds. This mutual consent is attained through offer and acceptance that does not alter the terms of the offer.1 The rule applicable in determining if there is mutual consent is the application of the mirror image rule. The rule dictates that an offer must be accepted without altering the terms of the offer. An alteration of the terms of the offer amounts to a counter offer and cancels the initial offer. Lord Langdale in Hyde v Wrench2 ruled that a counter offer acts to cancel the initial offer. In this case, Wrench offered to sell Hyde a farm for ?1,000. Hyde in reply to this offer offered ?950 for the farm which Wrench refused. Hyde thereafter wanted to accept the initial offer of ?1,000. Wrench refused to sell him the land and Hyde brought an action for specific performance. The question before the court was whether a valid contract between Hyde and Wrench existed. In deciding that there was no legally binding contract, the court noted that when a counter offer is made this offer destroys the initial offer such that the initial offer is no longer open to be accepted by the offeree. A counter offer must also be differentiated from an inquiry into the terms of the offer. An inquiry regarding the likelihood of different terms of a contract is not a counter offer. A mere request for a better deal or making a comment on the terms of the offer is not necessarily considered a counter offer. These responses to the offer are often uncertain and unclear to constitute offers of any kind. Additionally, these responses may deal with other issues rather than substitute the original terms of the offer.3 Their language can also manifest an intention to retain the initial offer under consideration, and they should not be considered counter offers. A mere inquiry on the offer does not constitute a counter offer Stevenson v McLean4. In this case, McLean wrote to Stevenson on Saturday with an offer to sell iron ore. The letter indicated that McLean would sell the ore for 40s in cash, and the offer was to remain open till Monday. On Monday Stevenson telegraphed McLean asking if he would accept 40 for delivery over two months and if that was not possible the longest period that was acceptable. McLean later sold the iron ore to a third party after receiving the telegram from Stevenson. McLean later sent a telegram to Stevenson that he had sold the Iron ore, but Stevenson had telegraphed Mclean accepting his offer prior to receiving the telegram indicating the ore was already sold. The question was whether the telegram sent by Stevenson was counter offer or a mere inquiry to the original offer. In arriving at its decision, the court observed that the wording in the communication did not include anything specific to infer a rejection but was a mere inquiry which ought to have been answered and not considered a rejection of the offer.5 It is, therefore, essential to note that in order to distinguish between an inquiry and a counter offer it is prudent to look at the details of the communication. A counter offer varies the terms of the original offer while an inquiry does not vary these terms. In Simon's case, his communication that he would buy the car at ?5,500 was a counter offer to the initial offer of ?6,000 and thus a valid rejection of the offer by Giant Car. However, it is noteworthy that, after the counter offer by Simon, Giant Car wrote back to Simon restating the terms of the initial offer and clarifying acceptance of credit card payment. This communication restating the initial offer renews the original offer which can be accepted by Simon. A counter offer usually acts as cancelling the original offer, however, rejecting the counter offer results in the renewal of the original offer as held in Livingstone v Evans6. Evans offered to sell Livingstone a piece of land. Livingstone communicated that he was willing to acquire the land at a lesser price than the offered price. Evans through an agent wrote back to Livingstone that the price could not be lowered. Consequently Evans sold the land and Livingstone later wired accepting the initial offer, but the land had already been sold. Livingstone sued for specific performance. The question before the court was if the dismissal of the counter offer constituted a renewal of the initial offer. The court held that a rejecting the counteroffer was renewing the initial offer and not merely a rejection of the counteroffer and that the plaintiff’s acceptance of the initial offer completed a contract and as such the plaintiff was granted specific performance.7 In this regard, therefore, it is noteworthy that Giant Car’s rejection of Simons counter offer was not just a dismissal of the counteroffer but also a restitution of the original offer which Simon could accept and complete the contract. It is clear from Simon’s case that there was a valid offer, but an offer alone cannot constitute a valid contract, and there must be acceptance. For acceptance to be valid, the parties to the contract must manifest their assent. The rules of acceptance dictate that acceptance must be communicated. The issue in Simons Case is not whether acceptance was communicated but rather if the communication was done appropriately to warrant acceptance before the offer was revoked. On Monday afternoon, at 3pm, Simon posted a first class letter to Giant Car accepting their offer for 6,000. Giant Car had not heard from Simon and sold the car to Nicholas the same afternoon and at 6:30pm they sent an email to Simon informing him that the car had been sold. The letter from Simon accepting the offer arrived the following morning. The question here is at what time, if any, the contract became complete. The general rule of acceptance is that acceptance takes place when it is communicated.8 However, the posting rule is an exception of this rule. The posting rule provides that acceptance takes place as soon as a letter is posted. This implies that acceptance is deemed effective once it is sent by the offeree as contrasted to when it is received by the offeror. The postal rule was set out in Adams v Lindsell9 where the defendant wrote to the claimant with an offer to sell wool and asked for a reply through the post. Upon receiving the letter, the claimant mailed a letter accepting it. However, the initial letter had delayed in the post and the defendant had assumed the claimant was not interested and had sold the wool to someone else. The plaintiff made a claim for breach of contract. The court decided that a contract had been created the instant the letter was posted. In arriving at this decision, Law J noted that it would be impractical to complete a contract through the post if it were to consider a contract was made after the letter was received. It would be impractical since the claimant would not be bound until they got word that their acceptance had been received, and this would continue indefinitely. The approach here is that the offeror was making an offer to the other party at all times the letter was in the post. When the offeror posts his acceptance there is an imaginary meeting of minds which completes the offer and renders acceptance effective. This position was also confirmed in Henthorn v Fraser10 where the plaintiff received an offer from the defendant to purchase property within 14 days. The plaintiff responded to the offer through the post the following day. The defendant then withdrew his offer before receiving the acceptance but after it was posted. The question was whether there was a valid contract. The court followed the principle in Adams11 and noted that acceptance is deemed effective from the instant the letter accepting it is posted and not when it is received. From this analysis, it is evident that there was a valid contract between Simon and Giant Car and that Giant Car are now in breach for selling the car to Nicholas. Bibliography Elliot C and Quinn F, Contract Law (Pearson Longman, 2007). Judge S, Business Law (Palgrave MacMillan Limited, 2009). Maclntyre E, Business Law (Longman, 2010). Riches S and Allen V, Business Law (Pearson Longman 2011). Wild C and Weinstein S, Smith and Keenan's Company Law (Pearson Longman, 2005). Cases Adams v Lindsell [1818] EWHC KB J59 Henthorn v Fraser[1892] 2 Ch 27 Hyde v Wrench (1840) 3 Beav. 334. Livingstone v Evans [1925] 4 D.L.R. 769 Stevenson v McLean[1880] 5 QBD 346. Read More