Business Contract Case Analysis


Contract law places its foundation in the existence of a valid and a valid acceptance between the parties to the contract expressing willingness to be bound by the terms of the contract. The legality of the contract, therefore, largely depends on the existence of an offer communicated by the offeror clearly and precisely to the offeree who in turn communicates his or her acceptance to the terms and conditions of the contract. Where this is the case, a legally binding contract exists, and any party to the contract who violates the terms of that contract is liable for breach of the same.

An offer therefore refers to a proposal by a party to enter into a contractual transaction based on a greed terms and conditions. It is an expression of willingness to transact on agreed terms, which are binding upon acceptance by the party to whom the proposal is addressed. How the offer is communicated or expressed, is very important to the formation of a legally binding contract as it determines the urgency or nature of the offer to contract. The offer may thus take different expressions including through a letter, newspaper, email, telegraph, and through face to face communication. In the given case, a valid offer existed as Bob had offered to buy John’s 2008 Aton Martin DB9 for $15,000. This offer was communicated to John via the post office and was dully received on 10th January 2010. The offer expresses Bob’s willingness to buy the 2008 Aton Martin for that price. Should John accept this terms, Bob will be bound by these terms and cannot, therefore, change his mind and decide to buy a 2009 Aton Martin DB9 for the same price. This will constitute an entirely new contract which will similarly depend on the acceptance of the John.

Once an offer has been made to the intended party, which is the offeree, has a duty to either accept or reject the offer within a reasonable time depending on the nature of the proposed contract. An acceptance, therefore, refers to the final and unqualified expression of acquiesce to the terms and conditions on offer. It is the formal consent from the party to whom the offer is made, expressing readiness to enter into a legal transaction based on the terms and conditions on offer. The acceptance must, therefore, be manifestly communicated and must convey the willingness to contract on the very terms and conditions on of the offer. Where the offeree changes the terms of the offer upon which he is willing to contract, this does not amount to an acceptance but rather a counter offer. The consent must thus be through the objective expression of the willingness to contract on the given terms and the concept of a “meeting of the minds” does not apply. Under the theory of a “meeting of the minds”, a party to a contract could deny the breach of a contract asserting that he although he appeared to be bound by the terms of the contract, he never truly intended to be bound by the agreement. The theory is too vague as the other party to the contract has no way of knowing the other party’s real intentions. Thus, for there to be a valid acceptance, there must an objective expression as defined by Spencer,: “Words are interpreted as they were reasonably understood by the man to whom they were they were communicated, not as they were understood by the man who spoke them” (Spencer 1973).

The case between Bob and John, therefore, exhibits the two contractual elements of offer and acceptance. There was a valid and legal acceptance by John of the offer made Bob as there was a manifest objective expression by John willing to be held by the provisos of the offer, thereby constituting a legal contract. This objective expression was communicated by John on January 12, indicating that he accepted the purchase price. After the identification of the two primary elements of a contract, that is, the existence of an offer and acceptance, it is safe to conclude that a valid contract existed.

However, the bone of the debate is whether, there was an acceptance before Bob received John’s letter, which he had sent by post accepting the terms of the offer made by Bob. Was John allowed to reject the offer simply because his initial acceptance had been received by Bob? This brings to the rules of acceptance under contract. The law of contract has a number of rules of safeguards the formation of a valid contract by regulating the process of accepting the terms of the offer. One of these rules is the postal rule of accepting the terms of the contract, where the offer was made via a post office.

The postal acceptance rule is a rule of convenience which aims to control the moment at which a contract is formed where the communication between the parties is by post. This tenet was established in the case of Adams V Lindsell ([1818] 1B &Ad, 681) where the court stated that a valid contract existed upon the posting of acceptance to the post office and not upon the receiving of that letter by the other party to the contract. Under this rule, therefore, where the form of communication between the parties is by post, an offer is considered to have been in existence all the time it has been at the post office, and acceptance is received upon the posting of the same. Communication by post can be agreed upon by the parties either directly or impliedly through the conduct of the parties. The raison d'être of this rule is that, communication by the post office is subject to delay and the parties could not be simultaneously aware of the communication. Therefore, the parties, when communicating acceptance by post, could not be aware of the precise the acceptance had been received. The rule, therefore, tries to avoid the unique and mischievous consequences which could arise if it were held that an offer might be rejected at any time until the offeree was in a position of accepting it, had actually received it.

The communication between John and Bob was by post, and although there are no directly agreed means of communication, the post is impliedly the preferred means of communication. The offer was made to John through the use of the post and John subsequently sent his reply, accepting the offer by the same post office through the letter dated 12th January, 2010. This letter was posted by John and thus, it constituted a valid acceptance from John hence creating a legally binding contract between him and Bob. The telephone communication by John to Bob rejecting the offer and giving a new price amounted to counter offer and upon whose acceptance created a valid contract between the two parties.

However, in regards to the initial offer by Bob, John was legally bound to carry out his obligations under the contract failure to which amounted to a breach of the said contract. Bob could thus sue John for damages for breach of the contract which existed between them. The damages would then be awarded to Bob in order to place him in the position he would have been in if the contract had been performed.

In conclusion, in the given case, there was a valid offer from Bob which was sent to John via post office. Upon receiving the offer, John accepted the terms in writing and posted the same to Bob hence creating a valid offer. These two actions thereby create a legally binding contract between the two parties who are bound by the terms of the contract. The breach of the said contract raises a suit for damages.

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