CONTRACT LAW Essay Example

  • Category:
    Business
  • Document type:
    Case Study
  • Level:
    Undergraduate
  • Page:
    3
  • Words:
    2001

CONTRACT LAW

Contract Law

The issue of law at hand is what elements need to be present for a binding contract to be created between Franco and Robert, and what actions would constitute each of the elements in the agreement between them. Franco had promised Robert that he would sell him a bike for $500, and deliver it to him when the semester ends. However, he decided to extend his studies in Australia for another semester, and chose to keep the bike. Whether he can renege on this deal on not, is dependent on whether an enforceable contract was created.

In common law, a contract is an agreement between two or more parties intended to create legal obligations. The main elements of a contract are offer, acceptance, consideration and willingness to create a legal relationship. Furthermore, there must be two separate parties and an agreement entered between them. The parties can be two people, two companies or a person and a company. Secondly, the two parties must have the qualifications to agree and fulfil the terms and conditions set in the contract. They must have attained a certain age recognised by the law. In addition, they must have complete comprehension of the details of the contract. Thirdly, there must be a lawful of object of value. Commonly, money is used in exchange for products or services, though other objects of consideration have not been excluded. Finally, there must be a sufficient legal consideration. A contract must be created for lawful activities. A contract is not legally binding if its details violate the law or support illegal activities. An offer is an expression in writing, speech or conduct showing the willingness to enter a contract and to be bound by the acceptance of the offeree1. Acceptance is an expression of assent to the terms expressed by the offeror. Consideration may be a promise to undertake a particular action, or even money. If there is no agreement or consideration, any transaction between two parties cannot be enforceable as a contract.

When one party does not meet their end of the bargain, they breach the contract. Breach of contract can occur through none performance, substandard performance, unreasonable withdrawal of an offer, or through commission of criminal offences like fraud.

The main question that arises here is whether the transaction between Robert and Franco satisfies all the four elements of an enforceable contract. In Smith v Hughes, the court held that the conduct of the people entering a contract is enough to make it legally enforceable. He argued that if a man conducts himself in a manner that would make a reasonable man believe that he was accepting the terms proposed by the other party, it is interpreted that he had intended to the terms set by the other party. This means that all the elements of an enforceable contract were present in the interaction2. In Abbot v Lance is was held that an offer can be retracted before it has been accepted, however, the offer becomes irrevocable once the offeree has partly performed the relevant acts. In this case, Robert had not started performing the relevant actions like paying the amount for the bike in part or in full. This means that since Franco had not started performing relevant acts, Franco revocation of the contract does not amount to a breach of contract. This is also supported by the judgment in Veivers v Cordingley. In this case, Cordingley wanted to buy a piece of land which would have been worth more if he subdivided the plots. After several complications, Veivers agreed to help in seeking permission to subdivide the plots. He would get an extra $200,000. While Veivers was in the process of getting the permission, Cordingley withdrew the offer. It was held that the offeree has already started performing the act whose completion would constitute completion of the contract (Hare, 2003). Therefore, revocation of the offer would constitute a breach of contract. In Byrne v Van Tienhoven, the court held that the revocation of an offer is not effective before it has been communicated to the offeree. In the case of Franco and Robert, the offeree had not started performing actions that would constitute completion of the contract. Furthermore, Franco communicates to Robert about his decision to keep the bike, meaning that the revocation of the contract is effective.

Application

In this case, the four elements of an enforceable contract are present. The four elements are offer, consideration, acceptance and a willingness to create a legal relation. Franco makes an offer of selling a bike at $500 and Robert accepts the offer. However, there is no consideration because Robert does not make a promise or leave a deposit for the bike. The two parties to this contract are qualified to agree and fulfil the terms and conditions set in the contract. Furthermore, they have attained the legal age for entering into contracts as recognised by the law. Furthermore, the object of the contract a lawful object of value and the contract is being made for lawful activities. However, there is one element of a binding and enforceable contract that is absent from this transaction. There is no consideration. Without a consideration or an agreement between the two parties to a contract, then the contract cannot enforceable. Franco revokes the contractual relationship before all the elements of a binding contract are completed. This means that there was no contract that had been formed between Franco and Robert.

Conclusion

The transaction between Franco and Robert does not amount to a valid and enforceable contract because of on the four elements of a valid contract are missing. There is no consideration made by Franco, meaning that no legal agreement was made. Furthermore, when Franco revoked the transaction, Robert had not started working towards honouring his part of the bargain. Furthermore, he informs Franco of his desire to end the transaction, before he starts working towards honouring it, which is within the law. Therefore, Robert does not have a case against Franco

Question 2

The issue in this case is whether an enforceable contract was made between Jeremy and Anna and whether Jeremy is liable for a breach of contract. The two were negotiating for the sale of computer equipment. Jeremy promises to sell the equipment to Anna for $1500. Anna travels for a holiday. She later sends a postcard to Jeremy telling him that she is ready to buy the equipment for $1500. Before he receives the postcard, Jeremy sends an SMS to Anna telling him that he has already sold the computers to Bonita. Does Anna have any rights in this situation?

As earlier indicated, there are four main elements of a valid contract. These are offer, consideration, acceptance and a willingness to create a legal relation. For the law to conclude that the two parties in the transaction have reached an agreement, it is necessary to establish whether there has been an offer and acceptance. It is clear that the two parties have entered into some negotiations where Jeremy has proposed terms that have been accepted by Anna. The question that begs is whether accepting the proposal amounts to making an offer. In Gibson v Manchester City Council, it was found that any offer made must be definite. An offer cannot be qualified or tentative3. When the conduct of one of the parties to a transaction implies that the process of bargaining has been left open, then an offer has not been made. In Foley v Classique Coaches Ltd, Maugham LJ argued that all the materials terms within the contract have to be agreed upon to create a binding obligation. A contract is not made by an agreement that the parties will agree in the future. Maugham LJ also stated that a contract is not created when the material term has not been implied by law or has been settled. This means that the interaction between Anna and Jeremy was a negotiation process that did not culminate in the formation of a contract. In Courtney & Fairbain Ltd v Tolaini Brothers, Lord Denning MR said that the court would be unable to estimate the damages in a negotiation process, where it would be difficult to tell whether the negotiations would be successful or not4. Therefore, under such a circumstance, there would be no legal obligation for either party, and the proposal made can be disregarded by one of the parties with impunity. It is clear that Anna is making an offer to buy the computer equipment. In Taylor v Laird, it was held that an offer does not take effect until it the offeror has received it because it would be unfair to bind a party in a negotiation process to an offer that they do not know about.

Application

When Jeremy makes a proposal to Anna that he is selling some computer equipment, Anna expresses an interest to buy the equipment. Expression of interest does not amount to an offer, because someone could change their mind. Jeremy tells her to communicate to him by Friday, whether she will buy the computer equipment. By the time Jeremy sells the equipment, he had not received Anna’s offer made through a postcard, which delayed in the post. Therefore, the transaction between Jeremy and Anna never became a contract. It was a simple matter of negotiation. As it was found in Taylor v Laird, an offer does not take effect until the offeror receives it. The offer made by Anna would have become effective if Jeremy had received it, however, it the fact that, by the time Jeremy sold the equipment, he had not received Anna’s offer absolves him from any liability. Secondly, in this transaction, all the elements of a valid contract are missing. In Foley v Classique Coaches Ltd, it was found that that all the materials terms within the contract have to be agreed upon to create a binding obligation. What Anna did was creating a situation where they two parties would agree in the future. However, in Foley v Classique Coaches, the court found that contracts cannot be made by an agreement that the parties will agree at a future date. By delaying in making her offer, Anna left the negotiation process open, meaning that Jeremy could sell the computer equipment to anyone who made an offer before Anna. It would be impossible to tie Jeremy to an offer that he has not received. Anna may prove that she had sent a postcard to Jeremy to make an offer, however, in defence, Jeremy can prove that, by the time he received an offer, he had already entered into a contract with another person, and honoured his part of the bargain in that contract.

Conclusion

In this case, Anna does not have any rights. She started a negotiation process which never became a contract because she delayed in making her offer. This left the negotiation process open. When a negotiation process is left open, the offeror is free to negotiate with as many people as possible and form a contract with a person who makes an acceptable offer first. Bonita made an acceptable offer before Anna could make hers. Therefore, even if Anna started the negotiation process earlier than Bonita, she failed to meet all the condition of a valid contract earlier than Bonita, which locked her out of the transaction. Basically, there was no contract made between Anna and Jeremy, therefore, he is not liable for any breach of contract.

Bibliography

Steele, Jenny. Contract Law: Text, Cases, & Materials: Text, Cases, and Materials .Oxford: OUP, 2012

1Jenny Steele. Contract Law: Text, Cases, & Materials: Text, Cases, and Materials .(Oxford: OUP, 2012), pg 131

2
Jenny Steele. Contract Law: Text, Cases, & Materials: Text, Cases, and Materials .(Oxford: OUP, 2012), pg 154

3
Jenny Steele. Contract Law: Text, Cases, & Materials: Text, Cases, and Materials .(Oxford: OUP, 2012) pg 88

4
Jenny Steele. Contract Law: Text, Cases, & Materials: Text, Cases, and Materials .(Oxford: OUP, 2012), pg 111