Contract Law

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General Introduction

For parties to be bound by an agreement, it must first be determined if a prima facie valid and enforceable contract exists. A contract can be defined as an agreement containing promises made between two or more parties with the intention of creating certain legal rights and obligations and enforceable in a court of law [1].

For a legally binding contract to exist the following elements must be satisfied:

1. An offer must exist

2. The offer must be accepted

3. Consideration must pass between the parties

4. The parties must intend the agreement to be legally binding

5. The parties must have the legal capacity to enter into a contract

6. The contract cannot be for an illegal purpose.

This essay will explore aspects of contract law based on two scenarios advising the correct legal position.

Case One - Known Facts

Negotiations took place between two parties for the sale of a car from Boris (the seller) to Michael (the purchaser) with the intent to create legal relations. The application of contract law is required to determine the legal position and remedies involved.

Case One - Issues of the Law

The matters for legal consideration involved in case one include:

1) Did negotiations give rise to an offer and acceptance?

2) Was the revocation of the counter-offer by Michael effective?

3) Did consideration pass between the parties?

4) What remedies are available to Boris for breach of contract?

Case One - Application of the Law

Offer and Acceptance

For an agreement to be legally enforceable there must be an offer by the offeror to be bound by certain terms. This offer can be in writing, orally or by conduct and made to an individual, group or even to the world at large. This offer must be followed by an unqualified acceptance communicated by the offeree to the offeror.

The offeror must indicate an intention or a willingness to be bound by the offer, otherwise it will be seen as an invitation to commence negotiations, or the soliciting of an offer[2]. An offer – an expression of willingness to contract on terms stated[3] is sometimes difficult to distinguish from an invitation to treat, as illustrated in the case Harvey v Facey [1983] AC 552 and Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.

Applying these principles to our case, Michael the buyer, is the offeree and Boris, the seller, is the offeror. The offer made by Boris created the ability for Michael to form a contract upon unconditional acceptance of the terms. If the courts experience difficulties determining the legality of offer and acceptance, the objective test would be applied. If a reasonable person believed an offer had been made or that the parties had reached an agreement based on their conduct, then they will be bound, notwithstanding the possibility of there being no real ‘meeting of the minds’[4]. In applying this, a reasonable person would conclude the inspection of the car and time allowed for consideration amounts to an offer rather than an invitation to treat.

Having determined an offer was made, the next step is to establish if there was an acceptance of the offer. To make sure there is a “meeting of minds” to create a contract, the acceptance of an offer must be unqualified (no questions, absolute, complete) with nothing further to be negotiated between the parties[5]. As such, it must be determined if Michael’s written response to Boris constitutes a counter-offer or a request for further information.

If it was a request for further information, as in Stevenson, Jacques & Co v McLean [1880] 5 QDB 346, the offer remains open and could have been accepted. However, Michael materially altered the offer terms by confirming he would pay a reduced sum. Furthermore, the language used by Michael suggests he was making a counter-proposal – he was advising Boris whilst he was happy with the condition of the car, $2000 was beyond...
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