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Contract Agreement Consideration | Free Contract Law Essay
In order to advise Sarah, firstly, it needs to be established whether any valid contracts exist between any of the parties involved, and, if so, to determine whether they are bilateral or unilateral contracts? Moreover, if upon establishing that a valid binding contract exists between Sarah and Tom, whether, Sarah has effectively revoked her offer to Tom. Furthermore, Has Tom Legitimately communicated his acceptance to Sarah? Secondly, it needs to be established whether a valid binding contract also exists between Sarah and Dan or, once more, whether Sarah's offer to Dan has been effectively revoked.
To start, the first requisite of any binding contract is an agreement. Therefore, in order to be able to conclude there is a contract, giving rise to enforceable obligations, it is necessary to carry out an examination of what constitutes an agreement. Traditionally, the law adopts an objective approach when trying to establish an agreement. The objective approach looks for external evidence of agreement and, traditionally, objective evidence of agreement is the existence of an offer and corresponding acceptance. As Lord Denning stated in Storer v Manchester City Council :
“In contracts you do not look into the actual man's mind. You look at what he said and did. A contract is formed when there is to all outward appearances a contract. A man cannot get out of a contract by saying: ‘I did not mean to contract', if by his own words he has done so”
However, this approach is divergent to the law adopting a subjective approach, whereby, the courts would be guided by what a person really had in mind. When trying to establish an agreement via this approach, judges often describe agreement as requiring ‘consensus ad idem' - a meeting of the minds. This situation is illustrated in Smith v Hughes. The difficulty with such an approach, however, is that subjective intentions simply are not open for inspection. To that end, in this case the traditional objective approach will be adopted.
A further requisite of any valid contract is consideration. It must be established that consideration was provided by both parties in the contract. English Law states that a contract is not usually binding unless it is supported by consideration, meaning that each party to a contract has agreed to give something of economic value in return for what is gained from the other party. In the present cases, the sum of money in return for the cars, respectively. Moreover, the capacity of each of the parties to enter into a contract must be established and the parties to the agreement must be clear as to the terms of the agreement.
Attention now must be drawn to another essential element that constitutes a valid binding contract. In most cases the general assumption is that in business agreements both parties have a mutual intention to create legal relations, thereby the contract between the two parties in question becomes legally binding and enforceable by law, should either party fail to fulfil their contractual intentions.
To begin, primarily, it needs to be established when an offer was made and by whom. Was Tom's advertisement in a local paper recognized in Law as a valid offer? or was it simply a mechanism used to invite others to make offers? Poole's technical definition of an invitation to treat would be: ‘restricted to statements indicating the maker's willingness to receive offers.' Furthermore, in Partridge v Crittenden, Lord Parker CJ stated:
“When one is dealing with advertisements and circulars, unless they indeed come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale”.
In addition to this, In the case of Carlill v Carbolic Smoke Ball Co, when referring to the contrast of an ‘offer' and an ‘invitation to treat', Bowen LJ said:
“It is not like cases in which you offer to negotiate, or you issue advertisements that you have got stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate- offers to receive offers- offers to chaffer”
To that end, it is clear that, the advert Sarah spotted in her local newspaper on the Tuesday evening was merely an ‘invitation to treat' and nothing constituting a valid offer. According to Treital an offer is:
“An expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it accepted by the person to whom it is addressed”.
Therefore, it is evident, on the Wednesday, in response to Tom's invitation to treat, it is submitted, and an offer of £1500 was made by Sarah to Tom.
In reply to Sarah's offer, it is clear that nothing constituting acceptance to the terms of the offer is made by tom. An acceptance must be unconditional and correspond with the exact terms proposed by the offeror. Poole suggests: to constitute acceptance (and thus agreement), the offeree's unequivocal expression of intention and assent must be made in response to, and must exactly match, the terms of the offer, Furthermore, the matching acceptance must be communicated to the offeror. Subsequently, at this point no binding agreement has been formed. However, again in response to Sarah's offer, Tom, then offers to sell the car to Sarah, for £1,900. In doing so, Tom makes a counter offer to Sarah, and requests Sarah to phone him if she chooses to accept his counter offer.
A counter offer alters the terms of the original offer or adds new terms to the offer. Therefore the counter offer is itself a new revised offer from the offeree to the offeror, which they are free to accept or reject, this can be seen in Hyde v Wrench.The legal effect this has is that Sarah's original offer has now been revoked by Toms counter offer.
Revocation is the termination of the offer by the offeror. In negotiations towards a bilateral contract, the general rule is that the offeror is at liberty to withdraw the offer at any time before acceptance, furthermore, revocation of an offer is not effective until communicated to the offeree. However, as in this case, it can be the offeree who revokes the offer whereby, the revocation occurs by implication in which the response to the offer is a counter offer.
In Reply to Toms offer, Sarah then proceeds to phone Tom and makes a further counter offer of £1800, to Tom in return for the car. Thus, as established above, revoking Toms counter offer. In reply to Sarah's offer, Tom states that he wishes to consider the offer and notes he will phone Sarah with his decision as to whether he is to accept it or not.
On the Friday morning, Sarah then notices another car for sale at £1800, or nearest offer, cash only. As established previously, this can only be considered as an invitation to treat, made by the owner of the car, Dan. For, In this instance, Dan is merely initiating negotiations from which an agreement might or might not in time result.
In response to Dan's invitation to treat Sarah posts a note to Dan, in which, on appearance, she makes a counter offer of £1700 to Dan in return for the car. Though, this could also be interpreted as a ‘letter of intent' by the judiciary, as seen in the case of British Steel Corporation v Cleveland Bridge and Engineering Co. Ltd. But the legal status of a letter of intent is uncertain. It may give rise to liability in contract where the act as been performed pursuant to a letter of intent as in Trollope & Colls Ltd v Atomic Power Constructions ltd. However, a letter of intent may give rise to a ‘simple' contract between the parties, as was the case in Tesco Stores Ltd v Costain Construction Ltd in which Judge Seymour QC concluded that:
“The natural interpretation of a ‘letter of intent' of the sort now under consideration is that it is an offer to engage the addressee to commence the execution of work which it is anticipated will, in due course, be the subject of a more formal or detailed contract”
However, it also need be considered, if the Bench where to distinguish this as a valid offer. If the case be, and a valid offer is identified by the courts,within Sarah's offer she requests Dan not to sell the car to anybody else. Additionally she states she will return to Dan's house at 5pm with the cash. As discussed, in doing such, it may possibly be seen that Sarah has shown her intention to be bound to this contract, moreover she is providing consideration towards an agreement. If this where to be established, In doing so, and fundamentally, upon attainment of Dan's acceptance, this could be seen to form a unilateral contract, reasons being, within the offer, Sarah is requesting Dan's performance of not to sell the car to any other parties. In a Unilateral contract, performance of the act constitutes the acceptance. A unilateral contract consists of a promise given in return for an act. Whereas, in comparison, a standard bilateral contract consists of a promise for a promise, as is evident in Sarah and Tom's predicament, for no act is requested in Sarah's offer. Moreover, the general rule in bilateral contracts is that an offeror cannot waive the need for communication and stipulate that silence will constitute acceptance. As in contrast, in unilateral contracts, performance of the act constitutes the acceptance thus, there is, no need to communicate the fact that you are attempting to perform that act. Authority for this principle is again seen in the decision in Carlill v Carbolic Smoke Ball Co.
Later that Day, Sarah then attempts to revoke her offer to Tom via a phone call. Unable to do so, Sarah then asks her friend, constituting a third party, to communicate Sarah's revocation to Tom. It is now necessary to discuss the circumstances in which an offer may be terminated or negatived.
The vital questions that arise now are; was this a valid way for Sarah to revoke her offer to Tom, via a third party? In addition, did Tom receive Sarah's revocation in time, before he gave his acceptance to Sarah? On the first issue, in Dickinson v Dodds, it was established that revocation of an offer need not be communicated by the offeror personally, it is satisfactory as long as it is done via a reliable third party. To that end, Sarah's revocation in the eyes of the law could be seen as valid. However, as fore mentioned, the revocation of the offer must have been communicated to Tom before the time of his acceptance. It is unclear if Tom did receive the revocation, before the time of his acceptance. The Courts will look at this crucial aspect when trying to establish a binding agreement. If Tom did not receive Sarah's revocation before the time of his acceptance, the revocation will not be legitimate.
Turning attention again to Sarah and Dan's quandary, it is evident that Dan has proceeded to receive Sarah's offer of £1,700. As earlier established, Sarah's request for Dan's performance of, ‘not selling the car to anybody else', could in the eyes of the Law make this, if upon attaining Dan's acceptance, a unilateral contract. To that end, on receiving Sarah's offer, moreover, in response to Sarah's additional request for Dan not to sell the car to any other parties, Dan then refuses a further offer of £1,700, matching Sarah's offer, from a further offeror, Laura. The essential element now evident in this situation is, by refusing Laura's offer, Dan has performed the act requested within Sarah's offer. In this way it could be seen in a court of law, as providing his acceptance to the offer, reason being, as previously established, in unilateral contracts carrying out the stipulated task is enough to constitute acceptance of the offer, authority for this is recognized in the case of Carlill, fore mentioned.
Moving on, Sarah, unable to raise the capital promised in return for Dan's car, attempts to revoke her offer to Dan, via an email. Article 9(1) of the EC Directive on Electronic Commerce 2000, states that:
“Member states shall ensure that their legal system allows contracts to be concluded by electronic means…”
Thus, making this, a valid means of Sarah revoking her offer to Dan. However, as previously discussed, if Sarah's offer where to be seen in the Law courts as that of a Unilateral context, Dan's performance of the act ‘not to sell to any other parties' stipulated in Sarah's offer, may well make Sarah's revocation invalid, for Dan has, as earlier established in doing such, accepted Sarah's offer.
Again turning attention to Sarah's state of affairs with Tom, Sarah then receives a text message from Tom in which he states his acceptance to Sarah's offer of £1800 in return for Tom's car. In Law, the question here could now arise as to whether Tom has effectively communicated his acceptance? In standard bilateral negotiations the general rule is that acceptance must be communicated to the offeror, so has Tom effectively done such via a text message? In reply, on examination of this case it is apparent that Sarah communicated her offer to Tom via a telephone call. It is generally accepted that telephone negotiation is a form of instantaneous communication, what's more, where an instantaneous method of communication has been used to make an offer, it is valid that a Instantaneous method of acceptance is valid, moreover it will take place where and when it is received. Hereby, making Toms Acceptance bona fide
In conclusion, In relation to Sarah and Tom, it is paramount to identify whether Sarah's revocation was communicated to Tom, via a third party, before Tom gave his unequivocal acceptance to the offer. If would be the case that tom did not obtain Sarah's revocation before he gave his acceptance, it would be evident that a legally binding contract has been formed, between the two parties, For all other requisite elements of a contract are evident. Consequently, if Sarah where not to fulfil her intentions, Sarah would be in breach of the contract. For that reason, it would be advised that Sarah implement her objectives towards this issue.
Accordingly, In relation to Sarah's circumstances with Dan, it appears that a legally binding contract has been formed. If Sarah where not to execute her intentions in regards to such, she would also be in breach of her contract with Dan, to that end I would again advise Sarah to fulfil her obligations with regards to this matter.
Word count : 2530
- Adams, J, N, Browns ford, R (2004) Understanding Contract Law. 4th ed. London. Sweet & Maxwell
- Clark, P. (2007) Contract Law, Revised Ed. Brighton: Straightforward Publishing
- Furmston, M (2007) Cheshire, fifoot & Furmston's Law of Contract. 15th Ed.Oxford: Oxford University Press
- Peel, E. (2007) Treital on the Law of contract, 12th Ed. London: Sweet & Maxwell.
- Poole, J (2006) Textbook on Contract Law, 8th Ed. Oxford: Oxford University Press.
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