Law of Contract

1.0 Significance
The law of contract is a set of rules governing the relationship, content and
validity of an agreement between two or more persons regarding the sale of
goods, provision of services or exchange of interests or ownership. This is a
wide definition it does not cover the full field of situations in which contract
law will apply. The reason for this is due to the vast number of examples in
which contracts can arise in everyday life.
Contract is a legally binding and legally enforceable agreement.
(Claydon, Kinshela and Moore, 1999)
1.1 Formation of a contract
There are three essentials which must first exist in order to create a valid and
legally enforceable simple contract.
1. greement in the form of offer and acceptance
2. Intention to create legal relations
3. Consideration
1
!ffer cce"tance greement
Legal #ntention Consideration greement
C!$%&C%
'.0 #ntrod(ction to Case
This is a brief description of the facts regarding the case !arry " #ally
which will be analy$ed.
%&th 'arch
!arry put a notice for a famous artist(s painting at a price of ) 2*%%.
#ame day #ally told !arry +I(ll buy the painting for )2%%%,. This is an
offer made by #ally.
-ut !arry said that he needed to chec. but would respond soon.
!ffer is not acce"ted by !arry
%/th 'ay
0 letter posted by !arry to #ally saying +I can(t sell it )2%%%, but I could
sell at )22%%
This is a Co(nter offer made by !arry.
%1th 'ay
#ally received the letter from !arry posted on %/th may.
2n the same day #ally posted a 3etter to !arry stating +I(ll give you
)23%% for the painting to secure the deal and put the matter beyond the
doubt,.
#ally made an offer through this letter to !arry.
%4th 'ay
!arry 5eceived the offer 3etter from sally posted on %1th 'ay.
1%th 'ay
!arry replied the for #ally(s letter saying +I accept your offer of 1th may
for )23%%. This is the acce"tance letter from !arry.
11th 'ay
#ally changed her mind and sent a letter saying +I withdraw my offer of
1th may for )23%% and accept your offer of )22%% from /th 'ay.
12th may
!arry received the revocation letter posted by #ally on 11th 'ay.
13th 'ay
2
#ally received the acceptance letter posted by !arry on 1%th 'ay.
).0 Legal *rinci"les
These represent the core of a law as originated in a constitution, in
precedent, or else is interpreted to arise from either or together. 6hen we
consider this !arry v #ally case there are & main legal principles involved.
).1 #n+itation to treat
0n invitation to treat is merely an announcement to other that a person is
prepared to entertain an offer for a certain thing or service. This is not an
offer7 an offer may be made by a prospective buyer. 0t this stage, the retailer
may accept or re8ect that offer. #o there is no legal binding until the seller
accepts the offer made by the buyer. The invitation to treat may provide
minimal terms of a proposed offer
(,#n+itation to treat-, n.d.)
).' !ffer
0n offer signifies the enthusiasm or the intent of the of the offeror, the
person who is ma.ing the offer, to be bound with further discussion or
negotiations as soon as the offeree accepts the offer who is the person who is
addressed by the offer.
These rules apply to establish a valid offer.
The offer must be communicated
0n offer must be communicated in words or by words to the person who
is anticipated to receive it. 9nless the offer is communicated there can(t
be any acceptance or a contract.
0n offer may be made to one specific person, to a particular class
group of persons or to the whole world.
0n offer made to a specific person or to a particular class of people can
only be accepted by them only. If the offer is made to the whole world it
can be accepted by anyone who has noticed the offer.
Consideration needed where offeree wants offer .ept open.
3
If the offeror promised to .eep the offer open for a certain period of time,
the offeree must give some consideration :monetary value;.
(Claydon, Kinshela and Moore, 1999)
).) cce"tance
0cceptance is a final and un<ualified expression of consent to the terms of
an offer. 0cceptance of an offer will lead to a binding of a contract but this
acceptance has to be made with .nowledge of the offer, and with an
intention to be bound with that offer.
These rules are applied in accepting the offer.
0cceptance must be unconditional
0cceptance must be made by the offeree and indicate either by words
or conduct.
0cceptance must be made in response to the offer.
0cceptance must be communicated to offeror unless need is waived.
0cceptance must conform to re<uirements to offeror.
Courts will infer appropriate method of communicating if none
prescribed.
(Claydon, Kinshela and Moore, 1999)
).. *ostal r(le
This is a term of common law contracts which determines the timing of
acceptance of an offer when mail is considered as the medium of acceptance.
The general principle is that a contract is formed when acceptance is actually
communicated to the offeror. 0cceptance is affected as soon as the
acceptance letter is posted. This rule is only related on acceptance and it
does not affect any other transaction such as revocations, re8ections, counter
offers etc7
(Mail/o0 &(le, '009)
=
).1 &e+ocation of offer
2fferor may revo.e offer anytime prior to acceptance by offeree.
The offeror may revo.e the offer anytime prior to acceptance by the
offeree. It is sufficient if the offeree gets to .now about the revocation
form a reliable source, so revocation must not be communicated
personally to the offeree.
0 posted revocation of an offer is effective only when delivered.
0s told before, the postal rule does not apply on revocation. This means
that a posted revocation is only effective when it is received by the
offeree. If the offeree has accepted it prior to receiving the revocation
letter, the acceptance ahs affected so that revocation will not be effective.
(Claydon, Kinshela and Moore, 1999)
).2 Legal #ntention
2nly an agreement :offer and acceptance; is not enough to create a contract.
There is a re<uirement of proof of intention to be bounded in a legally
enforceable contract. There is a presumption that the parties to an agreement
of a family, domestic or non commercial agreement should not intend to be
bound. 0nd also there is a presumption that parties to a commercial or a
business related agreement intend to be bound.
(#ntention to /e legally /o(nd, '009)
*
..0 30am"le Case laws
Case 3aw is the decisions, interpretations made by 8udges while deciding on
the legal issues before them which are considered as the common law or as
an aid for interpretation of a law in subse<uent cases with similar conditions.
These are the example case laws for the legal principles mentioned above.
..1 Fisher + 4ell (#n+itation to treat)
0 seller displayed a flic. .nife in his shop among the other .nives which
were on sale. -ut the flic. .nife was illegal to sell. 2ne day the plaintiff who
was a police officer complained that the defendant has bro.en the law by
offering the flic. .nife to sell.
The court held that it was not an offer, but an invitation to people to come
and ma.e an offer to purchase the product.
(,Fisher + 4ell-, Se"tem/er '009)
..' Carlill + Car/olic Smo5e 4all Co. (!ffer and acce"tance)
The Carbolic #mo.e -all Company in a newspaper advertisement
announced that they will pal 1%% pounds to any person who contracted
influen$a after using their product as advised. 'rs. Carlil purchased and
used the smo.e ball. !owever she got contracted influen$a and she claimed
for the reward of 1%% pounds from the company.
The court decided that the offer made by the company was a unilateral
contract. This means that the offer is made at the world at large, which will
result in a contract with anyone who comes forward and accepts.
(,Carlil + Car/olic Smo5e 4all Com"any-, 6ecem/er '00.)
..) 7yde + 8rench (Co(nter !ffer)
6rench offered to sell his farm to !yde for 12%% pounds, !yde declined the
offer. 2n &
th
>une 6rench again made an offer to !yde to sell his farm for
1%%% pounds and he stated that it is his last offer. 2n 1
th
>une !yde offered
4*% pounds for the land, but 6rench refused and informed it on the 2/
th
>une. 2n 24
th
>une !yde agreed to buy the farm for 1%% pounds without any
additional agreement with 6rench, but 6rench reused to sell his farm.
The court held that no contract existed because !yde(s counter offer on 1
th
>une has re8ected the original offer which cannot be revived.
:+7yde + 8rench (19.0) ) 4ea+ )).-, n.d.)
&
... &ose and Fran5 : Co + Crom"ton : 4ros Ltd (#ntention)
In a contract for supply of carbon?tissue paper it stated that, +This
arrangement is not entered into as a formal or legal agreement, -ut is only a
definite record of the purpose and intention of the parties to which they each
honorably pledge themselves, that it will be carried through, with mutual
loyalty and friendly cooperation,. The contract was terminated without the
re<uired notice.
The plaintiff claimed for breach of contract. -ut the court held that
arrangement was binding in honor only, and not enforceable because of
express statements made by the parties.
(,&ose and Fran5 : Co + Crom"ton : 4ros Ltd-, ;(ne '009)
..1 4yrne + <an %ienho+en ( &e+ocation of offer)
2n 1 2ctober 111% "an Tienhoven wrote from an office in Cardiff offering
tin plates for sale to -yrne, who was in @ew Aor.. They sent a letter
revo.ing the offer on the 1th, which did not reach @ew Aor. until the 2%th.
-yrne received the first letter offering plates on the 11th, and sent a telegram
bac. the same day accepting the offer. 0 letter was then sent on the 1*th
again confirming the acceptance of the offer. Blaintiffs has already made
arrangements to sell the tin plate to another party, they sued the defendants
for breach of contract.
The court held that the withdrawal letter should reach the offeree before
accepting. Bosting the revocation letter is not sufficient. -ut for acceptance,
it is enough to post the acceptance letter. The contract is made right after
posting the acceptance.
:+4yrne + <an %ienho+en (1990) 1 C*6 )..-, n.d.)
/
1.0 nalysis
The advertisement which the shop .eeper displayed in the shop with a price
labeled as )2*%% is not an offer. It is an invitation to treat. This means the
buyer has to come and ma.e an offer. :Cx7 case law D Eisher " -ell; #ally
ma.es an offer to !arry saying that she will purchase the paiting at )2%%%.
This is an offer made by #ally. -ut !arry did not accept this offer
immediately. !arry writes to #ally stating that the selling price will be
)22%%. !arry changes the terms and conditions through this letter so this is a
counter offer made by !arry. -ecause of this counter offer the original offer
made by #ally to purchase the painting at )2%%% lapses. :Cx7 case law D
!yde v 6rench;
#ally once again made an offer on 1
th
'ay to purchase the painting at )23%%
in order to secure the purchase. This offer is accepted by !arry on 1%
th
'ay
and posted the acceptance letter on the same day. Bosting the acceptance
letter creates a legal binding contract between !arry and #ally. :Cx7 case law
D Tallerman F co " @athan(s merchandising pvt ltd.; 2n 11
th
'ay #ally
changes her mind and posts a withdrawal letter of the offer she made on 1
th
'ay. #ally still has not received the acceptance letter by !arry. -ut
according to the Bostal rule the receiving date of the acceptance letter is not
important. Bosting of the acceptance letter has already created a legal
binding contract between the two parties. 0nd also the posting of the
withdrawal letter is not sufficient to validate the withdrawal. It has to be
received by the other party. This means that the postal rule is inapplicable in
withdrawing an offer.
!arry receives the withdrawal letter on 12 'ay but there is already a legal
binding contract because harry accepted the offer on 1%
th
'ay as he posted
the acceptance letter on that day. :Cx7 case law D -yrne " "an Tienhovan;
1
2.0 Concl(sion
0 legally binding contract is created on the 1%
th
'ay as !arry posts his
acceptance letter on that day. #ally(s withdrawal letter is not valid as it did
not reach !arry before he accepted #ally(s offer. Cven though #ally didn(t
receive the acceptance letter before she posted the withdrawal letter,
according to the postal rule posting the acceptance letter is sufficient to
create a legally binding contract.
0 violation of contract is where one of the parties fails to subsist up to his or
her responsibilities under the contract without a legally valid excuse. Eailing
to complete each others responsibilities means, failing to perform as
promised, ma.ing it unfeasible for the other party to perform, ma.ing it
recogni$ed there is an purpose not to perform.
0s there is a legally binding contract, both parties should act as the contract
made. #ally has to purchase the painting at )23%% and !arry has to sell the
painting at )23%%. 0ny party failing to act as this condition can be sued for
breach of contract. The plaintiff can claim fro the loss and damages occurred
by the defendant(s breach of contract.
4
=.0 &eferences
-oo.s
Claydon 6, Ginshela 5, 'orre -.>. :1444;. Cdith Cowan 9niversity,
306 11%%, 3egal Eramewor. Huide.
0rticles? >ournals etc7
-yrne v "an Tienhoven :111%; * CBI 3==, :n.d.; 5etrieved #eptember
%&, 2%%4 from 3aw Cssays 9GJ httpJ??www.lawessays
u..com?revisionarea?contractlaw?cases?byrnevsvan
tienhoven.php
Carlil v Carbolic #mo.e -all Co. :2%%=, Iecember; 5etrieved #eptember
%*, 2%%4 from 9G 3aw 2nlineJ
httpJ??www.leeds.ac.u.?law?hamlyn?carlill.htm
Eisher " -ell. :2%%4, #eptember; 5etrieved #eptember %*, 2%%4, from
6i.ipediaJ httpJ??en.wi.ipedia.org?wi.i?EisherKvK-ell
!yde v 6rench :11=%; 3 -eav 33=. :n.d.; 5etrieved #eptember %&, 2%%4,
from 3aw Cssays 9GJ httpJ??www.lawessaysu..com?revision
area?contractlaw?cases?hydevswrench.php
Intention to be legally bound. :2%%4, 'ay; 5etrieved #eptember %=,
2%%4, from 6i.ipediaJ
httpJ??en.wi.ipedia.org?wi.i?IntentionKtoKbeKlegallyKbound
Invitation to treat :3egal Iictionary;. Ln.d.M 5etrieved #eptember %3,
2%%4, Erom IuhaimeJ
httpJ??www.duhaime.org?3egalIictionary?I?InvitationtoTreat.aspx
'ailbox 5ule. :2%%4, #eptember; 5etrieved #eptember %3, 2%%4 from
6i.ipediaJ httpJ??en.wi.ipedia.org?wi.i?'ailboxKrule
5ose F Eran. Co v >5 Crompton F -ros 3td, :2%%4, >une; 5etrieved
#eptember %&, 2%%4 from 6i.ipediaJ
1%
httpJ??en.wi.ipedia.org?wi.i?5oseKFKEran.KCoKvK>5KCromptonKF
K-rosK3td
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