Business Law: Analysis of Contract Law Principles and Case Studies

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Business Law
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Table of Contents
Introduction...................................................................................................................... 3
Legal Principles................................................................................................................3
Legal Position of Joshua..................................................................................................7
Conclusion....................................................................................................................... 9
References.....................................................................................................................10
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Introduction
Contract law is the most significant law for any business. For all the business and
personal transactions and promises made, the parties need to rely on each other and
believe that they can be legally enforced in case of a breach. The contract law serves
the purpose and it aims to protect the rights of parties to contract and ensure that such
rights are enforced and not breached. It acts as a foundation for all the promises made.
The contract laws can be made enforceable only when they are all the requirements of
a valid contract are fulfilled. There are various elements of a valid contract which helps
the parties in determining its enforceability and validity. In the given assignment, legal
principles with relation to the contract are discussed and presented with reference to the
given case scenario.
Legal Principles
Contract law is an area of law under which the rights and duties of parties are
established and protected and upon fulfilment of all the essential requirements of a valid
contract, it can be made enforceable (Hillman, 2012). There are various principles under
contract law which are discussed as under:
Offer: It is a proposal by one person to another with the willingness to enter into a
contract The person making the proposal has an intention to be bound if the proposal is
accepted. The person making the offer is called ‘offeror’ and the person to whom the
offer is made is called ‘offeree’. The proposal presents the terms on which the offeror is
willing to be bound (Wacks, 2015). There are certain conditions which determine if the
offer is valid or not. These conditions are termed as essential conditions for a valid offer.
Such essentials are as follows:
 It must be communicated to the person addressed.
 It must be made with the intention of entering into a binding contract if accepted.
 It must be capable of becoming a valid contract i.e. there must be a two-way
process of compensation (Suff, 2013).
 The language of the offer must be certain and not ambiguent.
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Therefore, for a valid contract, an offer must be made by one person to another with the
intention to be bound legally. The offer must be clear and communicated to the person
addressed.
Invitation to Treat: Under contract law, the invitation to treat/offer is a principle under
which one party expresses its willingness to negotiate with other parties. There is no
intention of a person making an invitation to offer to be bound by such an invitation.
Therefore, it can be termed as a mere intention to negotiate the terms with a view to
making an offer. The invitation to offer is made generally to the public at large with the
intention to receive an offer and negotiate terms. The acceptance of an invitation to offer
does not amount to acceptance of a binding contract but an offer. There are various
cases under which the difference between offering an invitation to offer has been
established and discussed. Such a difference between offer and an invitation to offer
can be expressed as follows:
 The primary and most significant difference between the two is that in an offer,
the willingness of a party to enter into a legally binding agreement is expressed
whereas, in an invitation to offer, the willingness of a person to invite another to
make an offer or negotiate is expressed.
 The offer is an essential element for a valid contract. However, a contract can be
valid and enforceable even in the absence of any invitation to offer (Freedland,
et. al., 2016).
 Further, we accepted, the offer becomes a valid and enforceable contract
whereas the invitation to offer becomes an offer.
 Therefore, an offer can be categorised as a proposal whereas invitation of offer
can be categorised as inviting someone to make a proposal.
Carlill v Carbolic Smoke Ball Company [1892] is a decided case of English Contract
Law under which the decision was made by Court of Appeal. In this case, an
advertisement was issued by Carbolic Smoke Ball Complan stating that their smoke ball
can treat influenza and if and the person who contracts influenza even after using their
product by following the instructions properly, then her or she shall be entitled to a
reward of £100. Further, based on the advertisement, the company demonstrated its
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sincerity for the offer by depositing £100 in a separate bank account. Mrs Carlill, the
claimant purchased the smoke ball and used it according to the prescribed procedure.
Yet, she contracted influenza and therefore, she made a claim for the reward of £100
from the company. However, the defendant company denied paying the reward by
stating that it was a mere invitation to treat and not an offer and no acceptance is given
by the claimant. The issue in the case is whether the advertisement was an offer or
invitation to offer (Poole, 2016).
The arguments made by company were rejected unanimously by Court of Appeal and
the court held the contract to be valid and binding. The reasons stated by the judges are
as follows:
 The offer was considered a unilateral offer made to the world.
 The acceptance was made by satisfying the conditions of the offer.
 The purchase of smoke ball and its use by the defendant constituted
consideration.
 The company also showed its seriousness by depositing the money in a separate
bank account.
Therefore, it was an offer made to the public and it was a valid offer and a valid
acceptance.
Unilateral Contract: A unilateral contract is a one-sided contract which comes into
force when one party offers to reward another party in the event of performance of an
action. When such other person performs the act stated in the offer, then, such actions
shall be deemed as acceptance and the contract shall be valid and enforceable. The
offering party shall be then bound to pay the reward as promised (Stone and Devenney,
2017).
In another case of Fisher v Bell [1961], a shopkeeper displayed a flick knife in the
window of his shop accompanied with a price ticket displayed just next to it. The issue in
the matter was whether the display of a flick knife constituted an offer or an invitation to
treat. The court decided that in accordance with the principles of contract law, the
display of knife along with price tag did not constitute an offer but it was a mere
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invitation to treat. If that knife is bought to the counter for purchase and payment, then
the customer shall be deemed to have made an offer.
Therefore, in this case, it was established that when an item is displayed in a shop with
a price tag, then it shall be considered a mere intention to treat and not an offer.
Acceptance: When a person to whom an offer is addressed gives his assent, the offer
is said to be accepted. When the offer is accepted, then both the parties are bound
legally. No legal obligations are created for an offer unless it is accepted and
acceptance once given cannot be revoked or withdrawn. There are certain conditions
based on which acceptance is considered to be valid. These conditions includes:
 Acceptance can only be given as and when there is a valid offer
 It must not be conditional and it must be absolute.
 It must be communicated to the person making the offer
 If any mode is prescribed for acceptance, then it must be given by the prescribed
mode only (McKendrick, 2014).
 Acceptance by conduct or actions is also valid.
Consideration: In contract law, consideration is said to be something of value
exchanged between parties. It is an essential element of contract and any agreement in
which there is no consideration cannot be enforced. For making a contract enforceable
under law, all the parties to contract must receive some consideration as it is a two-way
street. For a valid consideration, there must be three elements present. These elements
include the following:
 It must move at promisor’s desire
 It must not be past but it can be prsent or future
 It must be adequate (Ayres and Schwartz, 2014).
Intention to create legal relation: This is another significant element of contract. It is
an essential element as it shows the readiness of a party to face the legal
consequences if any. Such legal consequences may arise in the event of violation of
legal rules by either party. If the parties to contract had no intention to create legal
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relations, then the contract cannot be said to be binding or enforceable. In the absence
of such intention, the parties shall have no right to sue each other as it becomes only a
mere promise (Smits, 2017).
Based on the contract laws, there comes an agreement in existence once an offer is
accepted but it may not necessarily be declared as a contract. An agreement can be
converted into a contract only when there is an ‘intention to create legal relation’
between parties. There must be an evidence present based on which it can be believed
that the parties had intention to subject their promises to law of contract. If such
intention is found, the agreement can be made enforceable and any breaching party
can be sued.
With refernce to the element of ‘intention to create legal relation’, there exists a
rebuttable presumption in various cases. In the cases of family agreeements, the
presumption is that there exists no contract. It is presumed that the there was non
intention to craete legal relations unless there is an evidence available to the contrary.
In a decided case of Balfour v Balfour [1919], the husband promised his wife to pay
her the money for maintenance during the period he worked in Ceylon. The wife was
relying on those payments for her living and maintenance expenses. In the given case,
it was decided that there was a rebuttable presumption that there was no intention to
create any legal relation between husband and wife and even considering the general
practice, agreement between husband and wife are no legally enforceable. Therefore, it
was a family agreement and it was considered not enforceable (Butler, et. al., 2013).
In another case of Jones v Padavatton [1968], a mother promised her daughter to pay
for her maintenance if she gives up her job as a secretary and instead studies for the
bar in England. She also bought a house for her daughter and eventually after a quarrel
between the two, the mother bought a suit against her daughter for possession of a
house. The court in the given case decided that there was no binding contract between
the mother and daughter and therefore cannot be made enforceable.
Legal Position of Joshua
The position of Joshua with respect to Lucci’s Shoes
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Joshua visited Lucci’s designer shoe store in Westfield and chose a pair of shoes with
price tag of £90. When he approached the counter to make the payment and purchase
the shoes, he was denied stating that the actual price of shoes is £350. Joshua denied
to pay this higher price and claimed that he was entitled to purchase the shoes for £90.
Based on the applicable legal principles of a valid contract, any product displayed in a
shop is are an invitation to treat and not an offer. This rule has been established in the
case of Fisher v Bell [1961]. The facts of the given case of Joshua are similar to the
facts of the decided case.
Here, relying on the decision of decided case, it can be stated the display of shoes in
store with a price tag was a mere invitation to treat and not a valid offer (Beale, et. al.,
2018). To make the contract enforceable and purchase the displayed shoes, Joshua
shall have to pay the price demanded by the cashier at store. The store or cashier are
not legally bound by the displayed price and therefore, it is not an enforceable contract.
The displayed shoes shall be considered as an invitation to treat and cannot be treated
as a valid offer and Joshua therefore, has no authority to claim shoes for £90.
In the given scenario, there was an invitation to treat by the Lucci store by displaying the
shoes for purchse and an offer to purchase the shoes was made by Joshua for £90.
The offer made by Joshua was however declined by the cashier and therefore, no
acceptance was given. As a result, Joshua cannot purchase the shoes for £90 from the
store.
Position of Joshua with respect to promise made by his mother
Based on the applicable case laws and the principles of contract law, there is a family
contract between Joshua and his mother. His mother promised him to pay £25000 for
paying his University fees. As discussed in case of Balfour v Balfour [1919], there
exists no legal relation between both mother and son. Therefore, the agreement
between Joshua and his mother cannot be called a contract as there was no intention to
create legal realtions between two.
The promise made by mother of Joshua cannnot be made enforceable as there exists
no contract between Joshua and his mother. The mother shall not be bound by the
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promise made to Joshua and he has no right to sue his mother for the promosed
money.
Position of Joshua with respect to Gym membership
The local Gym announced a fantastic offer under which free membership was offered to
first 10 people for next three months who complete 20 press ups in 60 seconds.Joshua
was the first person to complete the challenge and based on the offer announced, he
was eligible for free membership of three years. However, the gym refused to grant him
free membership for next three months even after the challenge was completed by him.
Based on the legal principles of contract laws and the principles established in the case
of Carlill v Carbolic Smoke Ball Company [1892], the gym made an offer to the
public. The facts of this case are similar to the decided case of Carlill vs Carbolic. When
an offer is made by one party to large public and the reward is promised upon fulfillment
of conditions stated, then, it shall be considered a unilateral offer. In givan case, the
Gym made an offer to public and stated the condition, upon fulfillment of which free
membership shall be offered. Here, it can be stated that the offer given by Gym is a
unliateral offer and the unilateral offers are valid and enforceable (Barker, 2014).
The advertisment by Gym shall be considered a valid offer and it was addressed to a
large audience and there was an intention to create legal relation between the parties.
The offer made by the Gym shall be considered as valid and the Gym shall be bound by
the offer made. In the given case, Joshua shall have the right for contract enforceabilty.
Therefore, based on the legal principles of contract laws and their application in ten
given case, Joshua shall have the right to sue Gym for free membership for three
months. The contract between Joshua and the Gym was enforceable and valid.
Conclusion
From the study of report, it can be concluded that for a valid contract to be craeted and
made enforceable, there must be certain elements present. These elements may
include valid offer, acceptance, consideration and an intention to create legal relations.
The parties to contract must ensure that all such elements are covered. Further, in the
given case scenario, Joshua had no right to claim the Lucci shoes for £90 as there was
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no offer made by store but a mere invittaion to offer. Further, there was a promise made
between Joshua and his mother but that promise cannot be enforced as they had no
intention to create legal relations. Lastly, Joshua had a right to have three months free
membership to the Gym as there was a unilateral offer made by the parties and such
offer was accepted by Joshua.
References
 Ayres, I. and Schwartz, A., 2014. The no-reading problem in consumer contract
law. Stan. L. Rev., 66, p.545.
 Barker, D., 2014. Law made simple. Routledge.
 Beale, H., Fauvarque-Cosson, B., Rutgers, J. and Vogenauer, S. eds.,
2018. Cases, materials and text on contract law. Bloomsbury Publishing.
 Butler, D., Christensen, S., Willmott, L. and Dixon, B., 2013. Contract Law Case
Book.
 Freedland, M., Bogg, A., Cabrelli, D., Collins, H., Countouris, N., Davies, A.C.L.,
Deakin, S. and Prassl, J. eds., 2016. The contract of employment. Oxford
University Press.
 Hillman, R.A., 2012. The richness of contract law: an analysis and critique of
contemporary theories of contract law (Vol. 28). Springer Science & Business
Media.
 McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University
Press (UK).
 Poole, J., 2016. Textbook on contract law. Oxford University Press.
 Smits, J.M. ed., 2017. Contract law: a comparative introduction. Edward Elgar
Publishing.
 Stone, R. and Devenney, J., 2017. The modern law of contract. Routledge.
 Suff, M., 2013. Essential Contract Law. Routledge-Cavendish.
 Wacks, R., 2015. Law: a very short introduction(Vol. 180). Oxford University
Press, USA.
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