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Published: Fri, 02 Feb 2018
Three cases of binding agreement
A contract in law terms is defined as an agreement that legally binds between two or more parties. Therefore, a party to contract is only bound when he has agreed to be bound. If there is a valid contract existing between Alex and Bob, it must meet the standards as follows: First, the parties must have an intention to create legal relations between themselves. Second, there should be an agreement being made by offer and acceptance. Finally, the obligations assumed by each party are supported by consideration given by the other.
To identify the binding agreement between the parties, three cases will be taken account of, namely, oral agreement about “avoiding sunlight reflection”, bookstore transaction between Alex and Bob, and bookstore contract between Alex and David.
a) Oral Agreement between Alex and Bob:
An offer is an unambiguously definite promise or proposal to be bound on specific terms, which can be made in oral, writing or by conduct. Within the case, the offer is when Alex promised Bob to apply an extra layer to avoid sunlight reflection if Bob agreed not to go to the court for an injunction, which was accepted by Bob, which is similar to another case of Callisher v Bischoffsheim(1870) : Plaintiff threatened to sue the Government of Honduras for an alleged debt, while defendant promised to provide bonds to the value of £600 if Plaintiff promised not to sue for an agreed time. The action of “not to go to the court” is Bob’s consideration, which is found when a person receives whatever he requests in return for a promise whether or not it has an economic value, provided it is not too vague. In terms of law, Withdrawal of threatened legal proceedings will amount to consideration, even if the claim is found to have no legal basis, provided that the parties themselves believe that the claim is valid. Therefore, there is a valid offer, acceptance, consideration and a presumed intention to create legal relations between Alex and Bob.
b) Bookstore Transaction between Alex and Bob:
Offer or Invitation of Treat: The problem we need to address here is whether the advertisement placed by Alex is an offer or invitation of treat. In contract law, an invitation to treat is a statement or expression made by a person to invite offers for consideration. In other words, the invitation of treat is not an offer because it is not in a definite form capable of being accepted in identical terms. In most of the cases, an advertisement should be regarded as an invitation of treat instead of offer, unless it is a definite promise and unilateral in nature, like Carlill v Carbolic Smoke Ball Co. (1893).
In this case, the advertisement posted by Alex should be an invitation of treat. Just as the case of Partridge v Crittenden (1968), the newspaper advertisement without sufficient details was held to be an invitation to treat only. Within Alex’s one, he provided much information in the advertisement including the position, price, payment method and even the claim “terms not negotiable”, with no intention to satisfy every acceptance. In this way, if treated as an offer, it could lead to many actions of breach of contract against Alex, as his “stock” of bookstore is limited (only one bookstore).
After Bob inspected the bookstore, a real offer was made by Alex, and the terms of the offer was assumed to be the same as the one in the advertisement. At this moment (3rd January), Bob should provide acceptance, which is an unconditional agreement to the offer received by the offeree (Bob) who is willing to be bound to the offeror (Alex) by all the terms of the offer. However, Bob rejected the offer by posting a letter and then providing “acceptance” in answering machine at the same day.
Acceptance or Rejection: Bob’s rejection to the offer would be effective when the letter was received (6th January), in accordance with the Postal Rule. However, it may not be reasonable to use it here, for it cannot be applied among every type of communication (for example, an offer or a rejection). It is also not applicable to instantaneous method of communication such as phone; otherwise the acceptance would take place when and where the message is received. The rules on telephones and telex were laid down in Entores v Miles (1955) and confirmed in brinkibon v. Stahag Stahl (1982), which suggested that during normal office hours, acceptance takes place when the message is printed out rather than when it is read. Consequently, when Bob used the answering machine to communicate the acceptance, there is a delay between sending and receiving message, which means the communication is not instantaneous. Therefore, according to the basic rule, acceptance would take place when the message is actually heard by Alex. However, Alex never received the “acceptance” because of the failure of his answering machine. In this point, there would not be any acceptance, but the rejection to the offer provided by Alex.
Counter Offer made by Bob: Drawn from the above, now we are aware that the quoted “acceptance” is actually not a real one. Bob had changed the terms of the information Alex provided. The terms were changed from a full one installment into two, which indicates that Bob had virtually made a counter offer, one made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically means rejection to the prior offer, which requires an acceptance under the terms of the counter offer or the absence of contract. Therefore, Alex’s offer became void when Bob made the counter offer (5th January). This principle is demonstrated in Hyde v Wrench (1840): acceptance of an offer that one had been previously rejected will not allow a contract to be formed. Noticeably, if an offer is made and the offeree requests additional information, this does not necessarily constitute a counter offer. But in this case, Alex’s offer had already fixed the terms of the way for installment and claimed that terms were non-negotiable, Bob’s action should be regarded as providing a counter offer, but not providing an acceptance or requesting additional information.
Because an offer must be communicated to the offeree (transferred to Alex) before it can be accepted, Alex cannot be said to accept an offer, of which he is ignorant. Felthouse v Bindley (1862) would be similar to this by the requirement that the offeree must be aware of the existence of the offer for it to be valid and enforceable. In this case, the counter offer made by Bob did not effectively reach Alex. The failure of communication was not the fault of Alex, but the answering machine company. As a result, there was no acceptance in this agreement, but only Bob’s counter offer.
c) Bookstore Contract between Alex and David
Based on the analysis previously, there would be no legally binding agreement between Alex and Bob. Alex was entitled to sell his bookstore to David. The concluded contract on 12th January was a valid contract between Alex and David.
For case a), oral as the agreement was, all the essential elements in the formation of contract can be found, therefore, it amounts to be a valid contract between Alex and Bob. Alex is in bound to fulfill the contract, which is to apply extra layer on the windows.
For case b), it would follow a schedule like this:
There exist no contract between Alex and Bob because when both parties provide offers, no acceptance is provided followed by. So that Bob cannot sue Alex for breach of contract.
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