Essential Elements of a Valid Contract
Discuss, incorporating your understanding of contract law, the following:
i. Whether a contract was formed. If so, when was it formed and who were the contracting parties?
ii. Bernard's legal position and remedies
iii. Charleen's legal position and remedies
iv. Damien's legal position and remedies
v. The various alternative dispute resolution options available and the pros/ cons with these options
Alan is a student of Kaplan Higher Education. He just took unit "Commercial Law" in June 2015 and received a "Credit" Grade for the unit.
Whilst tidying up his book shelves, he decided to sell his textbook "Introduction to Business Law in Singapore", which was a compulsory textbook used in "Commercial Law". As he knew of various friends in Kaplan Higher Education, he posted on his Facebook page on 1 Nov 2015, as follows:-
"To all my friends who are students enrolling or are enrolled in Kaplan Higher Education. I am selling my textbook "Introduction to Business Law in Singapore", together with all the notes I took in class. The notes are written in an exercise book and very useful as I obtained a High Distinction for this unit! The selling price is $200.00. If keen, please pay me by 5 Nov 2015."
Bernard is a friend on Alan's Facebook account. He will be taking the "Commercial Law" unit on 23 Nov 2015 and is very keen to purchase the material from Alan. He immediately posted on Alan's Facebook wall on 2 Nov 2015:-
"I am keen to buy. But can you sell at $150.00?"
Charleen is Alan's younger sister who is taking her GCE "0" levels this year. She saw Alan's post and was very keen to read up on Business Law. In the morning of 2 Nov 2015, while Alan was still in bed, she told him that she will buy Alan's textbook for $200.00. Alan merely smiled. He thought that his sister must be mad to read up on Commercial Law at her age. When Charleen asked if she could pass the money to him on 6 Nov 2015, Alan was thinking about his favourite football team's performance at last weekend's match and nodded. He then went back to sleep. Damien is Bernard's friend and is a student at Kaplan Higher Education. He is not on Alan's Facebook account but know who Alan is. He heard about Alan's offer from Bernard and is keen to buy the material as he wants to do well for the unit. After obtaining Alan's handphone number from Bernard, he sent Alan an sms:-
Essential Elements of a Valid Contract
In this part of the assignment, the issue is if a really enforceable contract has been formed between the parties are not. In order to deal with this issue, there is a need to consider if the elements that are essential for the formation of a valid contract are present in this case or not. Similarly, it also needs to be considered one of the parties to the contract. For this purpose, a contract is an agreement created between two or more parties. The terms of the contract includes the rights and obligations of the parties and these can be enforced by the law. But in each case, it has to be decided objectively if an agreement has been created or in other words, if it can be stated that the parties had a meeting of the minds. Usually, in this case, the starting point of this analysis is the concept of offer and acceptance. In this context can offer is a promise or the expression of readiness by the offeror to be bound by the terms mentioned in the offer if the other party accepts the offer. At the same time, some other elements are also necessary to be present in the agreement like consideration to support the promise and intention on part of the parties of entering into legal relations. Hence, when the offeree accepts the offer, a valid contract is found between the parties. In this regard, it is required by the law that the offeror should make the offer with the intention of being bound by it (Smith vHughes, 1871). As a result of this requirement, the statements that are made only for the purpose of the meeting offers from the other party are not treated as offers. Instead, such a statement is termed as an invitation to treat.
In this case, Alan was willing to sell his book, “Introduction to Business Law”. Therefore he posted a notice on his Facebook page and mentions that he is willing to sell the textbook, as well as the notes that were taken by him during the class. At this point it needs to be mentioned that this notice is not an offer, but it is merely an invitation to treat (Leong, 1998). The reason is that the purpose behind this notice was the invite offers for the purchase of the book. After seeing this notice, and offer was made by Bernard as he wanted to purchase it for $150. The law provides that in such a case the offer needs to be accepted on exactly the same terms. On the other hand, in case of a variation in the terms, it is treated as a counteroffer. According to the law if a party has made a counteroffer, the original offer will no longer be available to such a party.
Offer and Acceptance
After seeing the notice on his Facebook page, Allen's younger sister Charleen tells him that she is also willing to read business law. Therefore, she was ready to purchase the book at a price of $200. However, in such a case, it has to be established that the parties had the intention to create legal relations when the offer to purchase the book was made by Charleen.
Similarly Damian also came to know that Alan wanted to sell the book. He was also willing to purchase the book along with the handwritten notes. As a result, we sent an SMS to Alan and expressed his willingness to purchase the book. Damien met Alan on November 4, and paid the price of the book in cash. The money was accepted by Alan and he told Damien that he will give the book, as well as the notes on November 7. Therefore it can be said that the contract was found between Alan and Damien. This can be completed due to the reason that all the necessary elements of the formation of a valid contract are present in this case.
Bernard had made an offer to purchase the book, along with the handwritten note from Alan after he saw the message on his Facebook page. But he had offered to pay only $150 for the book. When Bernard asked Alan if he will be ready to sell the book for $150, Alan had replied that he will sell the book and the notes for $200. Therefore it can be said that in this case when Bernard became ready to purchase the books and the notes from Alan for $200 but by that time, he was going overseas for three days, and therefore he put $200 in an envelope and posted the same to Alan. Alan received the letter only on November 5 when he opened the letter box. But it needs to be mentioned that in this case when Bernard had made an offer to purchase the book for $150, in fact a counter offer was made by him. According to the law, when the offeree has rejected the offer made by the other party, such party cannot be allowed to accept the offer later on. In this regard, the offer can be rejected in a case where it has been rejected out rightly or when a counter offer has been made (Dickinson v. Dodds, 1876). A counteroffer is considered to be made by a party when the offer has been accepted by the other party, but on significantly different terms. Therefore the law of contract provides that it is necessary to accept the offer exactly on the same terms (Kit-Wye, Yeo and Yang (eds), 1998). On the other hand, even if the variance in the terms of the offer is not very significant, it will be considered by the law that a counteroffer has been made (Sinnadurai, 1987). As mentioned above, when a party has made a counteroffer, such party cannot be allowed to accept the original offer afterwards. In such a case the law considers that a fresh offer has been made by the other party. Another effect that needs to be noted that in the present case is that the postal role of acceptance is also not applicable.
Invitation to Treat
On these grounds, it can be set in the present case also that a counter offer was made by Bernard had made a counteroffer when he expressed his willingness to purchase the book and notes for $150. Therefore it is not possible for Bernard to accept the offer later on. Similarly, the postal rule of acceptance will also not be applicable.
The notice on Alan's Facebook page was also seen by his younger sister Charleen. She had always wanted to read business law. As a result, she informed Alan that she was willing to purchase the book for $200 along with the handwritten notes. But in reply, Alan did not say anything and simply smiled. Alan had remained silent, because he thought that Charlie was not serious when she expressed her desire to study business law. Therefore, when Charleen asked Alan if she could pay the price of the book on November 6, Alan merely nodded in replying. At the time he was thinking about his favorite football team. Later on Alan went to sleep, and did not took the offer seriously. But Charleen raised $200 on his table on November 6. As a result, the issue arises if the sentiment can be enforced by the law. For this purpose, it has to be seen if all the elements that are necessary for the formation of a valid contract are present in this case (Storer v. Manchester City Council, 1974). Among these elements, it is also necessary that the parties to the event should have the intention of creating legal relations.
The law provides that in cases involving domestic and social agreements, there is a presumption which provides that it was not the intention of the bodies of entering into legal relationships. As a result in such cases, it has to be established in the court that indeed the parties intended to form legal relationships. Similarly, there is another requirement under the contract law which provides that the offer needs to be accepted expressly (Beatson, 1998). On the other hand, in the present case, it can be said that the offer was not expressly accepted by Alan when Charleen expressed her desire to purchase the book for $200. As a result, it can be concluded in this case that there is no valid contract between Allen and Charleen.
In the present case, Damien had not seen the offer on Alan's Facebook page. Damien came to know regarding the offer made by Alan from Bernard. He decides that he will purchase the book at that price. Therefore, he sent an SMS to Alan in which she had shown his desire to purchase the textbook and the handwritten notes. Damien also asked Alan if he can pay the price of the book to him on November 4 in Kaplan Higher Education. Therefore, he gave $200 to Alan as the payment for the textbook and handwritten notes on Alan. Alan promised to give the material on November 7. However, instead of giving the original textbook, he purchased another textbook and gave it to him, along with his notes. Therefore in this case, it can be said that a valid contract was created between Alan and Damien but the terms of his contract had been breached by Alan.
Counteroffer and Postal Rule of Acceptance
Other than the traditional methods that can be used by the parties for resolving disputes between themselves by litigation, there are many alternative dispute resolution methods available. Therefore, when a dispute arises between the parties, it is available to the parties to take the cost of legal action in order to protect their interests. But it is also true that in such cases, the parties may be concerned as a result of the time and money that needs to be spent for the trial, as well as the risks and bridges that are present in case of litigation. Under these circumstances, it is realized by the parties that alternatives to litigation should also be used for resolving disputes. Similarly, the courts also encourage the parties to use the alternative dispute resolution processes. In this regard, the major processes that can be used by other parties include mediation, arbitration and neutral evaluation.
Under the process of mediation, the mediator, who is a neutral third party, facilitates and guides the parties in arriving at a mutually acceptable agreement to the dispute with the help of negotiations. Hence, according to the process of mediation, the mediator does not try to find out which party is at fault. The task of the mediator is to help the parties and for this purpose, it focuses on the ways through which the parties may find a solution to the dispute that is capable of satisfying their concerns. Similarly in this case, the decision is not forced.
According to the method of arbitration, the parties agreed that they will present their dispute before a neutral third party who is known as the arbitrator. Therefore, the arbitrator hears the case and gives his decision regarding the dispute. While the arbitration proceedings are going on, it is available to the parties or their lawyers to present the case before the arbitrator. In this way, the arbitrator gives his decision on the bases on the merits of the case. This decision is considered as binding for the parties.
Another method that is available to the parties is that of neutral evaluation. In this case, the evaluator, who is a neutral third party, reviews the case and gives an evaluation regarding the merits of the case. In case of this method, the parties and their lawyers present the case before the evaluator and also the major evidence. The evaluator provides the best estimate of the chances of success of the parties during the trial.
Therefore, other than the process of litigation, the above-mentioned alternative dispute resolution processes can also be used by the parties.
Andrew Phang Boon Leong, 1998, Cheshire, Fifoot and Furmston's Law of Contract, Second Singapore and Malaysian Edition, Butterworths Asia
Dato' VisuSinnadurai, 1987 The Law of Contract in Malaysia and Singapore: Cases and Commentary, 2nd edn, Butterworths (Singapore)
Beatson, 1998, Anson's Law of Contract, Twenty-Seventh Edition, Oxford University Press
Lum Kit-Wye, Victor Yeo and Low Kee Yang (editor), 1998, Contract Law, Butterworths Asia pp. 202
Lum Kit-Wye, Victor Yeo and Low Kee Yang (eds), 1998, Contract Law, Butterworths Asia
S. Atiyah, 1995 An Introduction to the Law of Contract, 5th edn, Clarendon Press (Oxford)
Dickinson v. Dodds (1876) 2 Ch.D. 463
Smith vHughes (1871) LR 6 QB 597
Storer v. Manchester City Council  3 All E.R. 824
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