Relevance Rule of Law - Case Study Example

Legal Case Study The Principle of Law The principle of law requires that for a valid contract to come into force there must be consideration moving between the parties and that both parties must be aware and have intended to form a legally binding agreement (Marshall & Daniel, 2012). Relevance Rule of Law to the Identified Issue In order for parties to have a legally binding agreement, they should satisfy certain requirements. These requirements include an offer, an acceptance, consideration and intention for the parties to be legally bound or form an agreement enforceable by the law (Graw B & Graw S, 2008). In this case, the issue is to establish whether there was any consideration between the parties and whether the parties had intention to form a legally binding relationship. Parties are said to have formed a legally binding agreement if at the time of making the agreement they had intended to be legally bound (Marshall & Daniel, 2012). However, the criteria for judging the intention of the parties to establish a legally binding agreement are objective. The court has to examine whether a reasonable person under similar circumstance would construe the relationship to have been intended to be binding. The objectivity test is dependent on the court presumption in establishing the parties’ intentions to be legally bound. The presumptions are based on the circumstances under which the parties formed the relationship (Graw B & Graw S, 2008). According to Marshall and Daniel (2012), the agreement between friends is considered not intended to culminate in legally enforceable relationship. However, in the chase either of the parties intends to enforce the agreement in the court of court of law they can do so by providing the basis for which such decision be established. According to Graw B and Graw S (2008), consideration is anything of value exchanged between the parties, a detriment or benefits one party suffers at the expense of the other by relying on the promises made by the other party. In the case of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 855, the judge defines consideration as the price for which the promise of the other party is bought thus making the value of the promise enforceable. In the case of Currie v Misa (1875) LR 10, Exch 153 the court issued that consideration comprises of accumulation of some detriment to the promise or benefit to the promisor for relying on the promises. Mere promise without the backing of consideration is not legally enforceable. Only the person who delivers consideration can enforce the contract. However, mutual exchange of promises between parties can amount to consideration hence making the agreement enforceable. In this case, the issue was between two friends concerning the sale of a BMW car. Application of the Facts in the Case In the case study, Josh had expressed his interest to sell the 15 years old BMW car to Matt at a value of $5,000. Though he communicated his intention to Matt, Matt, on the other hand, stated that he would call him the following morning to give his feedback. However, it is apparent that Josh learned about the actual value of the car and called Matt to inform him that he had changed his mind. This had happened before Matt had decided whether he would buy or not buy the car. From their initial discussions, Matt had informed his friend Josh of his desire to buy a BMW car. Also, Josh had expressed his desire to sell the car to Matt by stating the value as $5,000. However, the fact that Josh canceled the request he had made to Matt before he received declaration of the Matt’s intention to buy the car is an implication that the two parties had not decided to form a legally binding agreement. The reason for Josh changing his mind to sell his car to Matt was his realization that the actual value of the car was above $20,000 and not the $5,000 he was offering to sell. However, as in the case of Thomas v Thomas (1842), 2 QB 851, had Matt promised to buy the car it would not matter that the value at which they agreed to sell was below the market price. In this case, Thomas has stated in his will that his wife would choose to stay in their residential house and have £100 besides other provisions. After the death of Thomas, his two brothers entered into an agreement with the wife of the deceased in which she agreed to stay in the house and pay £1 annually for maintenance as long as she did not remarry. However, following the death of one of the brothers the surviving brother claimed that the agreement with deceased’s wife was not valid because there was no consideration. However, the court held that the agreement to pay £1 annually was sufficient consideration hence the agreement was enforceable. In a different case of Williams v Roffey Bros [1990] 2 WLR 1153, the defendants had made an agreement with Shepherds Building Association to refurbish a block of 27 flats. The agreement included a liquidated damages clause in case they failed to complete the work in time. The claimants were engaged in carpentry work at a value of £20,000. Six months later the plaintiff realized they could not complete the work because the price was low. After informing the defendant, he was promised an additional £575 per flat in order to facilitate quick completion of the work. However, after working for more six weeks, he ran out of money because he had only received £500 hence he was unable to complete the work. The defendant hired another worker to complete the work and refused to pay the claimed the agreed amount arguing that the claimant had not provided any consideration and that he had a contractual obligation to complete the existing work. However, the court held that the claimant had provided consideration by helping the defendants to avoid penalty clause hence the defendant was liable to pay for the extra amount they promised. The court established that the both parties had intention to be bound by the agreement hence the agreement was binding. They arrived at the conclusion based on the circumstances surrounding the formation of the agreement. Considering that parties intentions and consideration are the basic requirements for the established of enforceability of the agreement at the time of contract formation, there is need to determine the circumstances under which Josh and Matt formed the agreement. It is essential to establish objectively whether Josh and Matt intended to form a binding contract. The parties are friends, and it is apparent the environment in which they formed the agreement was social as there was no indication of commercial intentions. Josh was involved in businesses of selling the car and could not articulate the actual value or loss he could make from the sale at the time of he was promising to sell the car. Furthermore, Matt did not state his intention whether to buy or not to buy the car as he promised to communicate later. In this context, it appears the two parties were not intending to form a legal agreement, and their promises were made in a friendly environment (Khoury &  Yamouni, 2010). In the light of this information, one can construe that the agreement between Josh and Matt would not have been affected by the price at which Josh had intended to sell his car to Matt. If Matt had agreed to pay the $5,000 amount, Josh had opted to sell the car the contract would be enforceable. However, Josh called Matt to cancel his previous request to sell the car before exchange of any consideration between the parties. By cancelling the offer before its acceptance makes the promises void. Therefore, the court may not enforce the agreement on the basis of lack of consideration. Furthermore, even if the parties had intended to form a binding contract the agreement could not be valid without acceptance of the terms or any consideration (Khoury &  Yamouni, 2010). Therefore, any reasonable person could not construe the parties’ promises as intended to form a binding contract and there was no consideration between the parties to make the promises legally binding. The suggestion by Josh to sell the car to Josh can be considered as invitation to treat (Khoury &  Yamouni, 2010), of which Matt could place an offer to buy the car. Even then, Josh could decide whether to accept Matt’s offer or reject. In this regard, there was no legal agreement between Josh and Matt. Possible Conclusions In conclusion, a reasonable person can interpret the parties’ promises as intending to form a binding agreement. It is possible that the agreement is not legally enforceable because Josh and Matt did not intend to be legally bound and did not exchange any considerations at the time they were making the agreement. Matt cannot enforce the contract since the agreement did not satisfy the requirements of a legally binding agreement. Also, Josh had right to change his mind before forming the agreement. Bibliography Currie v Misa (1875) LR 10 Exch 153. Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, 855. Graw, B. and Graw Stephen. 2008. An Introduction to the Law of Contract, (Lawbook Company, 2008, 1-524). Khoury, Daniel and Yamouni Yvonne S. 2010. Understanding Contract Law, (LexisNexis Butterworths, 2010, 1-506). Marshall, Kevin S. and Daniel Juanda L. 2012. Principles of Contract Law (Vandeplas Publishing, 2012, 1-828). Thomas v Thomas (1842), 2 QB 851. Williams v Roffey Bros [1990] 2 WLR 1153. Read More