Law of Contract - Likely Outcome and Reasons - Assignment Example

Title: The Law of Contract Customer Inserts His/her Name Customer Inserts Name of Tutor Customer Inserts Grade/Course (Date) (a) Likely Outcome and Reasons There are four main essential elements of a contract in common law jurisdictions such as Australia. They include: offer; acceptance; consideration; and Intention (Burton 2009, P. 45). An offer is a promise made by an “offeror” that is capable of becoming binding upon being accepted by the “Offeree”. It can take the form of an act or may be in the form of an oral or a written statement (Burton 2009, P. 46). For an act or statement to be considered as an offer it must be proven that the offeror was willing to be bound by the terms as was held in Harvey V. Farcey1.In the case, Harvey sent Farcey a telegram asking for the lowest price of a pen .Farcey replied that the lowest price was 900 pounds. Harvey agreed to buy the pen at the price of 900 pounds. The privy council held that a contract was not formed as Harvey had only responded to the request about the price but had not expressed intention to sell the pen therefore Farcey’s response was not an offer. An offer is only binding if the communication to the offeree is clear. An offer must be distinguished from an invitation to treat. An invitation to treat is the act of expressing an interest to negotiate. The person making the invitation to treat does not have any intention to be bound even if the person to whom the invitation is made accepts the invitation (Fuller 2009, P. 120). The concept of an invitation to treat was established in The English case of Spencer V. Harding2. In the case the defendants had invited tenders for their stock. The court ruled that the defendants did not intend to sell the stock to the highest bidder but were inviting bidders to make offers which they could reject or accept (Burton 2009, P. 51).When John negotiated with Monica about the valuable antique and promised to give her time to think about the terms of the agreement, he was only making an invitation to treat for her to make an offer. She did not make the offer as Mark made the offer to buy the antique from John before she could. John did not therefore owe Monica any contractual obligation. The rules of acceptance are that the acceptance must be communicated to the offeror as was held in Entorres V Miles Far East (1955) 3whereby the claimant had sent a telex while in England offering to buy cathodes from the defendants who were in Netherlands. It was held that English law applied because communication to the offeree had occurred in England; acceptance must correspond with the terms of the offer; and the acceptance must be certain, equivocal and unconditional (Hillman 2008, P. 201). Silence does not amount to acceptance as was held in Felthouse V Bindley4. In Brogden V Metropolitan Railway CO5, the court ruled that acceptance can be relayed through conduct. If the terms of the contract are changed there is no contract since it amounts to a counter-offer (Fuller 2009, P. 123).Acceptance must be unconditional. John agreed to have the memorandum of sale drawn subject to the condition that he should first seek legal advice on whether he owes any contractual obligation to Monica. By accepting to buy the antique, Mark had made an offer to buy the valuable antique from John. John could either accept or reject Mark’s offer as he was yet to communicate his unconditional acceptance. Mark could not insist that the antique was his as it still belonged to John who could decide to accept his offer and sell it to him; or accept Monica’s offer and sell it to her. (b) Legal Outcome if John’s Statement Concerning Obtaining Legal Advice was not Included in the Memorandum of Sale Consideration is an essential feature of a valid contract and is considered as the price of the contract. A contract without consideration cannot be binding. Consideration is defined as something of value promised to the other party to induce the other party to enter into contract (Heffey, Paterson& Robertson 2006, P. 65). It entails a benefit to the promisor or a detriment to the promisee. Consideration need not be adequate but it must be legally sufficient. The monetary value of the consideration is not relevant. In Chappell & Co Ltd V Nestle Co Ltd (1990)6, the court held that chocolate wrappers constituted sufficient consideration. Consideration must move from the promisee to the promisor. Past consideration is no consideration at all. In Re McArdle, Decd (1951) 7a tenant renovated a property after which the landlord promised to repay the expenses incurred in the renovation. The landlord failed to repay the expenses and the tenant filed an action. The court held that there was no contract as the promise had been made after the work had been done (Heffey, Paterson& Robertson 2006, P. 67). Consideration can be executory or it can be executed. Executory consideration involves a promise to do something and it is the most common form of contract. Executed consideration consists of performing an act rather than promising to do the act (Burton 2009, P. 52).In Australian Woollen Mills Pty Ltd V The Commonwealth8, the commonwealth government had announced that it would pay subsidies to wool manufacturers who bought and manufactured wool locally. The plaintiff manufactured wool locally for some time and received subsidies from the government but the government stopped paying subsidies abruptly. The plaintiff argued that he had purchased wool in pursuance of the directive from the commonwealth government which had an obligation to fulfill its promise. The court held that there was no contract as the promise made by the government was a policy and could not amount to consideration. There was therefore no quid pro quo as the plaintiff had also not furnished the government with any consideration. The court further ruled that the government was only creating an incentive to improve the wool industry but it did not intend to create legal relations with wool manufacturers (Burton 2009, P. 57). Consideration is only exempted where the doctrine of promissory estoppels operates and in cases of contracts under seal such as land deeds. Promissory estoppel is an equitable doctrine which only operates if it would be unjust for the promisor not to fulfill his promise. In Central London V High Trees9, it was held that the doctrine could only apply in cases where there was already an established contractual relationship; and could only be used as a defence but could not found a claim (Hillman 2008, P. 205). The element of intention means that parties to the agreement must be intending to establish a legally binding contractual relationship. Intention to create legal relations is normally supported by consideration but it is an independent requirement with its own legal force. In Air Great Lakes Pty Ltd V KS Easter (Holdings) Pty Ltd10, parties had entered an agreement involving sale of an airline business. Easter repudiated the contract and claimed that there had been no intention that the document signed by the parties was legally binding (Fuller 2009, P. 126). The court held that intention could be proved by both the actions and words of the parties. The intention to be bound by the terms of the contract maybe express or maybe implied by the courts from the prevailing circumstances. Social or domestic agreements and arrangements do not give rise to an intention to create legal relations at common law. They include agreements between family members, friends and social acquaintances (Burton 2009, P.58). In Balfour V. Balfour11, the court held that agreement agreements between a husband and a wife living together in the same house were not meant to be legally binding. Commercial agreements are usually held to be legally binding unless the parties insert honour clauses meant to indicate that the agreement are not meant to be legally binding. In Rose and Frank & Co V Crompton, the appellants and the plaintiffs had entered into a commercial agreement for the supply of tissue paper. When recording he contract the parties had stipulated that the agreement was not a legal or formal agreement as it was only an honourable pledge of the parties. Lord Atkin held that there was no contract between the parties as the parties had clearly expressed the fact that they did not wish to enter into a legal relationship (Heffey, Paterson & Robertson 2006, P. 70). In Orion Insurance V Sphere Drake Insurance12, it was held that even if a commercial agreement revealed an intention to create legal relations, the intention maybe negated by evidence indicating that the agreement was only made for goodwill purposes. Intention is also negative if the statement or promise made by the promisor is vague13 There was no contract between John and Monica as Monica had not furnished John with any consideration. A gratuitous promise is null and void under the law of contract. The promise from John to Monica had been gratuitous and thus unenforceable in law. There was no intention to create legal relations as the promise had been made during social discussions and Monica had not suffered any detriment from relying on the promise. If John had not included the condition of obtaining legal advice in the memorandum of sale, there would have been a valid contract between Mark and him as he would have accepted Mark’s offer of buying the valuable antique from him by signing the memorandum. Monica could not insist that the antique was hers as there was no valid contractual relationship between her and John at any time whatsoever. References Burton, S. (2009). Restatement of contract law. St. Paul, Minn, West Pub. Co, pp 45-61. Fuller, L., (2009). Basic contract law. St. Paul, Minn, West Pub. Co, pp 120-130. Heffey, P., Paterson, J., & Robertson, A. (2006). Validity of contracts. Pyrmont, N.S.W., Law book Co, pp 64-74. Hillman, R. (2008). The richness of contract law: an analysis and critique of contemporary theories of contract law. Dordrecht, Kluwer Academic Publishers, pp 201-210. Read More