Common law 1

Assignment 1 – “Business Agreement”

1. In relation to the above scenario discuss the nature of Ali’s advertisement with regards
to rules of offer and invitation

An offer is a definite promise to be bound on specific terms. The offer has to be specific in order
to actually constitute an offer. For example in the case of Gunthing V Lynn 1831 the facts of the
case were the offeror to pay a further sum for a horse if it was ‘lucky’. The offer was too vague
so the judge said it was not specific enough to constitute an offer. It could constitute an offer if
the offeror said that they would buy the horse if it wins the 2.30pm race at Oxford.

An offeror is the negotiating because he controls the terms and conditions of the offer i.e. he
controls the price and how long the offer stands (Ali).
An offeree is the person who is prepared to accept the offer (the other parties within the case
study).

An invitation to treat is a declaration of willingness to enter into negotiations; it is not an offer,

and can’t be accepted so as to form a binding contract.

In practice, the formation of a contract is frequently preceded by preliminary negotiations.

Some of the exchanges in these negotiations contain no declaration at all, as where one party
simply asks for information. Others may amount to invitations to the recipient to make an offer,
these being invitations to treat (this does not apply to Ali’s advertisement as its set boundaries
and does not say open to negotiations).

A distinction must be drawn between those declarations which amount to offers, and those
which only amount to invitations to treat. Sometimes, a particular type of declaration is put into
one or the other category by statute or by common law; but in all other cases it is a question of
intention. An express statement that a declaration is not an offer is effective to prevent it being
an offer, but the use of the terminology 'invitation to treat' or 'offer' in the declaration may not
be conclusive one way or the other. Otherwise, the vital question is the intention of the
declarant, though his actual intention may give way to a contradictory apparent intention.

Ali has clearly said this is an offer and not an invitation to treat from his initial advertisement
within the local paper on that Wednesday.

2. According to the rules of acceptance, signify when the agreement has been constituted
and who are the parties in agreement

Agreement is usually reached by the process of offer and acceptance and, where this is so, the
law requires that there be an offer on ascertainable terms which receives an unqualified
acceptance from the person to whom it is made. In the nineteenth century, the popular theory
was that there could be no contract without a meeting of the minds of the parties, consensus ad
idem (agreement as to the same things). This is still the general rule, so that, where the

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intended acceptance is not in accordance with the terms of the offer, the court may find that
there is no binding contract.

The strict consensus theory has, however, been modified, even apart from the exceptional rules
governing communications by post and the fact that a contract may have retrospective effect, it
is now well settled that, where one party (A) expresses an apparent intention (objective
intention) which does not express what he actually means in his own mind (subjective
intention), an apparent meeting of the minds of the parties may suffice for a binding contract.
Where A has so conducted himself that a reasonable person would believe that his clear
agreement to the terms as proposed by the other party (B), A is precluded from setting up his
real intention and is bound by the contract as if he had intended to agree to B's terms. This is
certainly the case where B believes that A's statement expresses A's intention; but B cannot
accept A's apparent offer where B knows that that does not accord with A's subjective intention.
A reasonable person would believe A's objective intention but B has no such belief without
actually being aware of A's subjective intention: one view is that A is not bound; another is that
A is bound by his objective intention.

From the case study, the offeror is Ali, for creating this deal and controlling the price and terms
of the potential agreement. In terms of whose acceptance are valid, it starts with Bob, who
posted a letter on the day the ad came out (Wednesday) accepting the offer, the postal rule
states that, where the use of the post is within the contemplation of both parties, the
acceptance is complete and effective as soon as the letter is posted. Bob essentially accepted
the off prior to the offer becoming valid, thus Ali had the right to decline.
The next person is Cindi who turned up in person on the Saturday to buy the computer,
however it stated in the ad, 500 pounds cash, as she offered Ali a cheque instead he had the
right not to sell the computer to her.
Den was next on the scene later that day, Ali accepted den’s proposal, which should have been
valid. However with Eva’s increased offer after Den had left, Ali accepted this offer. The parties
that have a valid acceptance of Ali’s offer are Den and Eva.

3. What is the implication of rules of consideration and intention with regards to Ali’s
conduct with all the parties?

In English law, a promise is not, as a general rule, binding as a contract unless it is either made in
a deed or supported by some "consideration." (This is in the case of Den) The purpose of the
requirement of consideration is to put some legal limits on the enforceability of agreements
even where they are intended to be legally binding and are not vitiated by some factor such as
mistake, misrepresentation, duress or illegality.
 
The basic feature of that doctrine is the idea of reciprocity: "something of value in the eye of the
law" must be given for a promise in order to make it enforceable as a contract. An informal
gratuitous promise therefore does not amount to a contract.
 
The doctrine of consideration has, however, also struck at many promises which were not
"gratuitous" in any ordinary or commercial sense. These applications of the doctrine were
stressing that consideration had to be not merely "something of value," but "something of value
in the eye of the law".   The law in certain cases refused to recognise the "value" of acts or
promises which might well be regarded as valuable by a person.

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 4. Describe the rules regarding capacity of the parties

This is where it says who has the chance of being involved in mutual assent of making a contract
with Ali
Starting with Bob, he does not have the capacity to end a contract, because he has not been
able to satisfy the terms of the contract
Cindy also does not have the capacity to contract because she has not been able to satisfy the
terms of the contract
Den also didn’t have the capacity to contract with the offer Ali made initially, but when Den
renegotiated with Ali and made the first offer void, a new counter offer had been made, Den
than had the capacity to enter contract and he showed his intention which Ali accepted.
Eva initially came in with a counter offer which was a big beneficial for Ali so he accepted this
and a new contract was made.

5. Discuss various types of business agreements and essentials for a valid contract

A contract must contain the following elements in order to be valid and enforceable by law. If
these are not present, there is no contract
Agreement: the parties must have entered into an agreement – offer and acceptance (Ch. 4)
Consideration: agreement must be supported by valid consideration (Ch. 5)
Intention to create legal relation: the parties intend that their promises shall be legally binding

Even if the essential elements are present, the validity of a contract can be affected by the
following:
Form: General rule is that a contract can be in any form – written or oral. However, certain
contracts need to be in particular format, if not, they are not valid.
Genuine consent: validity of a contract will be affected if a person has been misled into a
contract, or there is some kind of pressure on him, or even if one of the parties is mistaken as to
the precise nature of the contract.
Capacity of the parties: some persons like minors, insane persons etc. cannot enter into a
contract
Content: a contract must be complete and in precise, unambiguous terms.
Legality: contract that is illegal or against public policy will not be enforced by courts

Void contract
Cannot be enforced and confers no right to either of the parties. Not a contract at all and the
parties are not bound by it. The term indicates that the attempt of the parties to form an
enforceable agreement has been defeated due to some incapacity, flaw in consent or illegality.
Eg: grounds of morality, social considerations, against public policy, impracticability, etc. If
property or goods has been transferred, it can be recovered even if it has changed hands to a 3 rd
party, because the party will acquire no title to the goods

Voidable – contract is treated as valid unless and until it is avoided, i.e. it can be rescinded or
affirmed at the option of one of the parties.

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  Where consent is caused by coercion, fraud or misrepresentation, contract is voidable at
the option of the party whose consent was thus obtained.
 A voidable contract becomes void when it is avoided by the other party. But, if it is
affirmed, then it becomes a valid contract.
 A person who purchases goods which are the subject of a voidable contract which is not
avoided, need not give it up as he acquired title to it
Unenforceable – contract that is good in substance but cannot be enforced due to some
technical default. If one party refuses to perform, the other party cannot compel him to do so.
Eg: debt barred by limitation (lapse of time)

In conclusion I’d like to mention how a contract should be drafted up. Contract terms and
conditions should set out the rights and responsibilities of each party to the contract. All parties
should make sure they read and understand the terms and conditions of a contract before they
accept it. If an individual does not think the contract will meet their needs, try to negotiate with
the business and ask for the terms and conditions to be amended. If they are still unhappy with
contract offered to them by the business, shop around for an arrangement that better suits their
needs. 

There are four essentials to the formation of a valid contract. These are:
1. Intention to create legal relations.
2. Offer and acceptance.
3. Consideration.
4. Consent.

Intention to create legal relations.

There can be no contract unless the parties intend to create legal relations.
Offer and acceptance.
This means that one party must make an offer and the other party must accept that offer. For
example a supermarket is not making an offer by displaying its goods. The customer, in fact,
makes the offer to the supermarket at the check-out. An offer will lapse if you make a counter-
offer. However, a enquiry as to whether the other party would accept different terms will not
cause the original offer to lapse.
Consideration.
"Consideration" is the second half of the bargain. If someone offers to sell a motorcar for
$30,000, then the $30,000 is the "consideration". It is often the price paid. Consideration does
not have to be adequate to form a binding contract. A contract to sell a diamond ring for $1 is a
valid and legally binding contract. A promise is not legally binding.
However, there is one exception to this rule. If the promise is made in a written document called
a "deed", then the promise to do something for free is legally binding.
Consent
There must be genuine consent to the contract. Often there will not be genuine consent if one
person is under a misapprehension as to certain fundamental facts. if someone is induced to
enter into a contract by the fraud of another, I do not have to carry out my side of the bargain if
I do not want to. Or if threatened with force into signing a contract, then there will be no valid
contract.