Business Law: Case Study Law of contract Essay Example

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    Business
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  • Level:
    Undergraduate
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Business Law: Case Study Law of contract

Question 1:

STEP 1: Principles or issue of law

The central legal issue is whether the element of agreement required for the realisation of a legally binding contract between Mark and James exists.

STEP 2: Rules of law relevant to the identified legal issue

At the common law, as demonstrated in the case law of N M Superannuation Pty Ltd v Baker [1992]1, the element of agreement would make a contract legally enforceable in the event that proper indications of consent are apparent. Here, agreement could be argued to define the reciprocal consent and understanding of the terms of the agreement. What this means is that the parties to a contract need to reciprocally agree to the terms of the contract and in the same sense. Simply put, it comes down to the scheme of ‘offer and acceptance. As indicated in the case law of Entores Ltd v Miles Far Eastern Corp [1955]2, an agreement comes to effect at the time and the place when acceptance is eventually communicated to the offeror, hence indicating acceptance. At this rate, acceptance would denote an expression of assent to the contract terms. The case law considered that the offeree has to show ‘acceptance’ in the same sense that the offeror requests. In another case law of Harvey v Facey [1893]3, the courts also held that the validity of acceptance should be contingent on whether the offeree has understood the offer in the same sense as the offeror.

In yet another case law of Partridge v Crittenden [1968]4, the court held that an “offer” must go beyond merely expressing an interest in doing business to inviting someone to make a promise. Hence, to examine whether an acceptance valid, it should be assessed whether a promise has been made or whether the offeree acted in a manner suggesting he elicited response. Consequently, as acceptance of a contract has to elicit an act rather than a mere promise, it is not a requirement that the offeree provides notice of intended performance on condition that an offeror has asked for it. Conversely, if the offeree believes that the offeror will not know of the acceptance within a reasonable time, the offeror’s duty to be bound by the contract is absolved, except for cases where the offeree has made logical attempt to provide notice5.

The case law of Harvey v Facey [1893]6 also shows that a contract has to have elements of offer and acceptance. Correspondingly, the offeror has to be informed logically within a reasonable time by the offeree once he has accepted the offer. In other words, the offer would be invalid until it is eventually accepted. The acceptance is essentially the last and unconditional expression of agreement to the terms of an offer. Still, offer has to be accepted in line with its precise terms in order for it to create a valid agreement. Another condition is that it has to exactly correspond to the offer. The terms have to be accepted in its entirety7.

However, as indicated in the case law of Adams v Lindsell (1818)8, acceptance would have no legal effect until it is ultimately communicated to the offeror. At this juncture, the postal acceptance rule applies, which demands that the acceptance takes effect once a letter of acceptance is mailed, comes to effect. Hence, the issue of delays in delivery of the letter by the postal service are not considered. Indeed, as demonstrated in the case law of Entores Ltd v Miles Far Eastern Corp [1955]9, a contract becomes enforceable at the time and the place an acceptance is communicated to the offeror.

Step 3: Application of the law to the facts of the case

In the present case scenario, the element of mutual agreement exists, as Mark and James reciprocally consented to the terms of their agreement in the same sense. Mark made an offer and James accepted the offer, which also denotes an expression of assent to the contract terms. The case law considered that the offeree has to show ‘acceptance’ in the same sense that the offeror requests.

Mark approached James and explained that he was looking to do up his store’s website. James later expressed his interest in helping Mark, who also told James that he would email him on Monday with an offer. The offer contained the terms of the contract, where James would offer his web design services for a two-week for a fee of $35,000. The offer is to be accepted within the same day.

In brief, existence of offer and acceptance element means that the Mark has authenticated his intention to accept an offer. Similarly, it means that Mark’s acceptance is both categorical and unconditional10. James accepted the offer in the same sense as Mark.

The acceptance has a legal effect as it has ultimately been communicated to the Mark through a letter. He drafts and emails a letter of his acceptance. However, due to technical reasons, the email does not work. He also calls Mark to agree to the terms but Mark does not pick the phone. He therefore writes a letter to Mark and posts it at the post office at 4.30pm on Monday. However, Mark receives the letter on late Tuesday afternoon and only seeks to make a counter offer a day later once he realised has had to pay James $15,000 more.

Here, the postal acceptance rule applies, where it would be seen that James’ acceptance took effect once he posted the letter of acceptance. The postal rule would not have applied when the express terms of the offer that Mark made had exclude it: Entores Ltd v Miles Far Eastern Corp [1955]11. In fact, Mark only demanded that a written acceptance be made.

Step 4: Conclusion

In conclusion, the element of mutual agreement required for the formation of a legally binding contract between Mark and James exists. Mark and James reciprocally agreed to the terms of the contract and in the same sense and within a reasonable time.

Question Two

STEP 1: Principles or issue of law

The principle of law is that for a contract to be considered valid there has to be an element of ‘consideration’ and an ‘intention that the contract be legally bound by the parties to the contract.’ Hence, in the given case scenario, the central legal issue is whether the elements of ‘consideration’ and ‘intention’ exist in the contract.

STEP 2: Rules of law relevant to the identified legal issue

At the common law, for a promise to be considered to be enforceable as a contract, the element of consideration has to exist. As the court indicated in the case law of Carlill v Carbolic Smoke Ball Co [1893]12, a consideration would only be viewed to be valid when provided in reply to the offeree’s promise to perform certain services under the current agreement. Hence,“consideration” is the value at which a promise made by a party to a contract determines an exchange. Under such circumstances, a promise provided for such a value would be viewed to be legally enforceable. Hence,consideration means that a contract has to mainly entail an exchange of an item of value in exchange for goods or services.

Consideration can be in form of a gain conferred to the promisor, or a loss that the promisee has to incur at the promisor’s expense. Therefore, any new promise without the backing of a consideration is not legally enforceable in an event that the consideration is not sufficient. Under the terms of the doctrine of consideration therefore, the Common Law requires existence of “mutual exchange” to form a contract.

At the common law, there is also no constraint that the exchanges made be equivalents. In fact, in the case ofThomas v Thomas (1842)13, the courts viewedthat any consideration should be sufficient, although it has to be adequate in the eyes of the law, whether the amount (value) is smaller or huger. This shows thatthe courts tend to concentrate on the existence of consideration in place of assessing the comparative value of the promises.The only limitation to the “value consideration” is that it requires that an item given in exchange for a service has to be estimable in monetary terms.

An element of intention also determines whether a contract is enforceable. It is supposed to create legal relations between the two parties to a contract. As is confirmed in the case law of Esso Petroleum Ltd v Commissioners of Customs and Excise [1976]14, the parties to a contract have to show an “intention” that they expected the contract to ultimately have legal consequences. The case law also shows that an agreement that relates to business relationships or, in this case a contract that is commercial in nature, is legally enforceable. The parties to a contract must therefore intend that their contract have legal relations.

Step 3: Application of the law to the facts of the case

An element of intention exists in the present case scenario. The evidence the case provides shows that the transaction between Mark and James was intended to be commercial in nature, as Mark had promised to pay James $35,000 in exchange for James service of building a website. Hence, despite them being friends (as they had met at a social function during James’ brother birthday), Mark’s intention was to pay for James’ services. Therefore, since the contract is commercial in nature, an intention to create legal relations is automatic. Such a scenario is indicated in the case law of Ermogenous v Greek Orthodox Community of SA Inc [2002]15, the court held that contracts relating to business relationships are automatically enforceable by the law, and that that concerns of social aspects are insignificant. For this reason, since relationship between James and Mark is commercial in nature, the case law would assume that the two are aware of the legally binding nature of their agreement.

The element of consideration, which here denotes “value,” is present in the present case scenario. Mark offered to pay for James web design and development services at a price of $35,000, in return, Mark wrote a letter before the end of Monday and sent it at 4.30pm.

The content of the email denotes a consideration of $35,000, which James had to either accept or reject. Hence, doctrine of “value consideration” is applicable to the case as the amount that Mark offered is estimable in monetary terms, in this case $35,000. At the common law, as showed in the case law of Thomas v Thomas [1842]16, existence of consideration exists when a promise is made to pay for the services of the offeree.

STEP 4: Conclusion

In conclusion therefore, the element of “intention” exists in the given case scenario as the commercial nature of the relationship between Mark and James, the element of ‘consideration’ also exist since Mark made an offer to pay $35,000 for the revamping of website.

Bibliography

Adams v Lindsell (1818) 106 ER 250

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117

Harvey v Facey [1893] AC 552

NM Superannuation Pty Ltd v Baker and Others, (1992) 7 ACSR 105

Partridge v Crittenden [1968] 2 All ER 421

Thomas v Thomas (1842) QB 851

1
NM Superannuation Pty Ltd v Baker and Others, (1992) 7 ACSR 105

2
Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

3
Harvey v Facey [1893] AC 552

4
Partridge v Crittenden [1968] 2 All ER 421

5
MacMillan, C & Stone, R 2012, Elements of the law of contract, University of London International Programmes, London

6
Harvey v Facey [1893] AC 552

7
Owen, K. (2001). Law for Non-law Students. Sydney: Cavendish Publishing, Sydney

8
Adams v Lindsell (1818) 106 ER 250

9
Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

10
O’Gorman, D 2013, «Redefining Offer in Contract Law,» Mississippi Law Journal vol 82 no 6, pp1050-1096

11
Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3

12Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

13
Thomas v Thomas (1842) QB 851

14
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117

15
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

16
Thomas v Thomas (1842) QB 851