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The Basic Ingredients For The Formation Of Any Contract

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Question:

Can Mike, Tom, Steve and Mary have any Claims against Bob?

 

Answer:

The basic ingredients that are required for the formation of any contract are agreement (offer plus acceptance), consideration, and intention of the parties and the capacity of the contractual parties. (Adams, 1997)

All these ingredients should be analyzed in order to understand whether the claims that are raised against Bob are valid or not?

A contract is an agreement which has the enforceability of law. An agreement is made when an offer is supported by acceptance. When an offer transfers his desire acts/omissions to an offeree with a hope that an approval will be received then it is an offer (Butler Machine Tool v Ex-Cell-O Corporation [1979]). When the offeree grants his approval to the offer so received then it is called acceptance. (McKendrick & Liu, 2015)

But, when instead of accepting the offer, changes are brought in and a conditional acceptance is made then it is invalid and such act is called counter offer which has the capacity to cancel the original offer. The counter offer then becomes the new offer which must be approved to make a contract (Hyde v Wrench [1840]). Further, when the acceptance is made by letter or post, then as per rule in Adams v Lindsell (1818), the acceptance is complete when the letter is posted. No revocation of offer will cancel the contract amid the parties.  (McKendrick & Liu, 2015)

Also, when no offer is made but offers are invited via advertisements, auctions, tenders, etc, then it is called invitation and is not equivalent to an offer. The inviter receives offers from the public and hen he accepts the offers then a valid contract is made (Partridge v Crittenden [1968]).

Apart from offer and acceptance, every agreement amid the parties should be sustained by consideration which makes such agreements enforceable in law. Consideration is benefits/gain/advantage which is paid by one party to another in exchange of the promises that is complied with by the parties. If there is no consideration the acts are gratuitous and there is no contract (Commonwealth v Verwayen [1990]). (Stone & Devenney, 2015)

The parties should also exchange their promises with legal intention. If the offer or offeree is exchanging offers and acceptance with no intention to bind by the same legally, then such kinds of contract have no significance. Whether parties are in domestic or commercial relationship, the contract are only enforceable when they intent to be legally bound by the same Cohen v. Cohen (1929). (Latimer, 2012)

The parties should also be mentally stable and major in order to be capable to make a valid contract.

Application

The law is now applied to each and every situation.

An email was sent by Mike to Bob on 1st January wherein he offers to sell his laptops at a price of $300 each (including insurance, delivery and GST). He offered 30 laptops.

Normally, advertisements, tenders, display are invitations, but, the mail sent by Mike is an offer and thus Bob if accepts the offer of Mike then there is a contract amid the two.

 


But, on 2nd Jan, Bob instead of accepting the offer, make changes and revert by stating that he is willing to buy the laptops provided the price is $ 300 inclusive of GST. The acceptance made by Bob is not a valid offer because acceptance must be absolute and unqualified. But, the acceptance made by Bob was conditional and thus is a counter offer. This counter offer has cancelled the offer of Mike.

So, now the offer made by Bob on 2nd is valid. This offer was rejected by Mike on 3rd January.

So, no contract exists between Bob and Mike. The acceptance of Bob on 5th has no significance as no acceptance can be made against an offer which was rejected by the parties already. 

The invoice of $ 9,000 send by Mike will not make the contract valid.

Now, Bob was in need of hard-drives, so he ordered 5 drives from Tom on 10th January at the rate of $50 each. Thus, an offer is made by Bob which as accepted by Tom on 12th January through post but he agreed to accept the offer provided he will make delivery at the end of month. The acceptance by post by Tom has resulted in the formation of contract on 12th itself. As per postal rule, the acceptance is deeming to take place as soon as the letter is posted. The email by  Bob on 14th for cancellation of offer has no significance.

Tom’s letter reaches Bob on 15 January, and the hard-drives are delivered a few days later with an invoice for $ 10 000, which Bob refuses to pay.

Also, Steve used to look after the cat of Bob. Later Steve was in need of computer so he asked for the same from Bob by writing to Bob on 1ts February. Bob agreed in exchange for the favors made by Steve. However, the promise by Bob has no significance because it is a promise which is made for a past act and in Australian contract law; there is no scope for past considerations (Roscorla v Thomas (1842)).

Lastly, Bob is dealing with Mary in order to buy a van. Mary sent a document wherein she offered the sale price for the van at $33,000. The document requires the signature of Bob agreeing with the document terms. Bob accidently signs the document and faxes the same to Mary. When Bob signs the document he is of the view that he has signed a document of some other supplier.

Now, Bob has no legal intention to abide by the document which he has signed and sent it to Mary. The offer made by Mary as accepted by Bob but without any legal intention and which is the main essence of any valid contract. The parties are in commercial relationship but the intention of both the parties is different and is not in consensus with each other.

So, Bob has no legal intention to abide by the contract.

Conclusion

Mike cannot sue Bob because no valid offer was accepted by either of the parties. So, there is no contract amid the two.

Bob must pay $ 10,000 to Tom because there is a valid contract with Tom which was established on 12th January itself hen the letter of acceptance was posted.

Bob is not compelled to provide computers to Steve because the consideration that is provided by Bib against the favors of Steve was for a past act and thus has no value in law.

Mary cannot force Bob to honor the contract because there is lack of legal intention.

 

 

References

Books/Articles/Journals

Adams, M (1997). Australian Essential Management Law, Routledge.

Latimer, P (2012) Australian Business Law 2012.

McKendrick, E,  Liu Q (2015) Contract Law: Australian Edition. Palgrave Macmillan.

Stone, R, Devenney J (2015) The Modern Law of Contract. Routledge.

Case laws

Adams v Lindsell (1818). 

Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401.

Commonwealth v Verwayen [1990] HCA 39.

Cohen v. Cohen (1929) 42 CLR 91.

Hyde v Wrench [1840] 49 ER 132

Partridge v Crittenden [1968] 1 WLR 1204.

Roscorla v Thomas (1842) 3 QB 234

OR

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