Contract Agreement Distribution | Free Contract Law Essay

I am interested to learn of your problems regarding the contracts with respect to the distribution of your new stapler, and I would be delighted to advise you on the issue. I understand that you telexed wholesalers Bruno and David and enquired whether either was interested in becoming distributors of your product. Both parties responded to your telex and asked for further information. I also recognise you wish to appoint David as a sole distributor of your product. I will clarify what a contract is and what is required to conclude it.

A contract in law terms is defined as an agreement that legally binds the parties. A party to contract is bound because he has agreed to be bound. The essential elements of a contract must contain the following:

The parties must have an intention to create legal relations between themselves

There is an agreement made by offer and acceptance

The obligations assumed by each party are supported by consideration given by the other

The first issue I need to counter on deciding whether or not a contract has been concluded is whether or not an offer has been made. An offer is an indication by one person ("offeror") to another ("offeree") of the offeror's willingness to contract on certain terms without further negotiations.In this case the offer is when you responded to Bruno’s telex asking for further information and offered him 10 percent commission for distributing your product.

The second issue I would like to counter is has ‘consideration’ taken place between the party accepting the offer. The principle here is that the parties to a contract must each provide something, whether money, the provision of a service or some other form of contribution to the contract. If no consideration is present, then the contract may not be enforceable. The general rule now is that acceptance must be communicated to the offeror and the contract is not effective until done so. If the offer is accepted then the contract is concluded.

From what I have observed you telexed Bruno on the 22^nd of May with the offer of 10 percent commission for distributing your stapler. You gave Bruno the deadline of the

31^st of May, stating if you heard nothing from him by this date you assumed he was accepting your offer. Bruno immediately posted his reply to you, accepting your terms. The acceptance did not arrive with yourself until the 2^nd of June, but the letter was posted and dated on the 22^nd of May. The problem we need to address here is when does an acceptance sent through the post become effective.

The postal rule under English common law states where acceptance by post has been requested or where it is an appropriate and reasonable means of communication between the parties, then acceptance is complete immediately the date the letter of acceptance is posted. As stated Bruno signed the documentation without delay and posted it on the 22^nd May. The documents were sent by post and so I understand the postal rule will apply. As stated posted acceptance is complete on posting, as in the case between Adams v Lindsell (1818). This case is similar to your situation as it was held that a binding contract was made when the plaintiff posted the letter of acceptance. The only way this contract could become void is if the offeror expressly states that acceptance has to be communicated i.e. it must reach him to be binding. Bruno now has a binding contract with yourself. There is a valid offer, acceptance, consideration and a presumed intention to create legal relations. Since the postal rule applies here, you are bound.

As regards to David he has not been made a contractual offer as David was only asked if he would be interested in your product. You did not reply to his telex regarding further information, so no offer or communication was made. The original telex you sent to David asking him if he would be interested in your stapler is classed as an invitation to treat. In contract law, an invitation to treat is an action by one party which may appear to be a contractual offer but which is actually inviting others to make an offer of their own. The distinction is important because if a legitimate contractual offer is accepted by another, a binding contract is immediately formed and the terms of the original offer cannot be further negotiated without both parties' consent. An invitation to treat may be seen as a request for expressions of interest.

I also have to give consideration to the fact that David had changed the terms of the information you sent him by telex. The terms were changed by offering to distribute from 10 percent to 5 percent, by doing this David has in fact made a counter offer.

A counter offer is an offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. The acceptance must be unconditional otherwise it is not an acceptance at all, therefore making David’s offer with yourself at present void. A void contract is automatically no contract at all. It is treated as if it had never been made, so a void contract can have no effect. This principle is demonstrated in Hyde v Wrench (1840). This case demonstrates that acceptance of an offer that one had been previously rejected will not necessarily allow a contract to be formed. Note that if an offer is made and the offeree requests additional information, this does not necessarily constitute a counter-offer but in thus particular situation this looks like it did not happen.

In conclusion David has only been made an invitation to treat and therefore no offer has been made to him despite the fact that he has changed the terms. Bruno does have a binding contract with yourself if applying the strict postal rule. In addition the three essential components of a contract have all been applied. I would advise you to overlook appointing David as a sole advisor for your product and strongly recommend that you honour you contract with Bruno, as you may be liable to pay punitive damages and a breach of contract could damage your reputation in the business community.

BIBLIOGRAPHY

HNC and HND Business Course Book, (2000), Legal and Regulatory Framework, London: BPP.
McKendrick, E. (2005), Contract Law, Text, Cases and Materials, 2^nd Ed., Oxford: Oxford University Press.
Poole, J. (2006), Textbook on Contact Law, 8^th E^d., Oxford: Oxford University Press.
http://www.lawteacher.net/contractlawcases.htm. (Last visited 22/10/07)
http://www.surrey.ac.uk/law/German/Comparative_Law/Tutorial3_Add_Material20030326. (Last visited 22/10/07)
http://www.kevinboone.com/ (Last visited 24/10/07)

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Contract Agreement Distribution | Free Contract Law Essay

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