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Assignment 2324
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Unit name Business Law 100

Unit code 11011

Assignment title Assignment Two: Four Step Process

Lecturer's name Alice Urud

Date submitted 3st May 2014

Student’s comment to tutor An excellent tutor. She explains clearly the format to the students so that we
can understand the way to apply the four steps.

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Question 1

STEP 1:

The area of law in this question is the elements of agreement required for the formation
of a valid contract.

STEP 2:

There are three main elements required to form a legally enforceable contract: Intention
to be legally bound, agreement and consideration.

An agreement requires a meeting of the minds of both parties. The two sub-elements,
offer and acceptance must present to form an agreement.

Offer is a statement that indicates a willingness to contract. There are two parties
involve in an offer: Offeror and offeree. The offeror is the person who makes offer and
the offeree is the person who receives the offer from the offeror.

An offer must be sufficiently complete, which is the basic aspects that must be outlined.
What is being offered, for what price, in exchange for what purposes, are the questions
that will often be asked.

An offer must also be promissory to carry out the willingness of the offeror to honour the
offer. This is shown in the case of Harvey v Facey [1893] AC 552 (Duperouzel 2014).

In this case, Harvey sends a telegram to Facey to ask whether he will sell them the
Bumper Hall Pen. He asksFacey to telegraph him the lowest cash price. Facey
replies“the lowest price for Bumper Hall Pen is £900.” Harvey replies and agrees to
purchase the pen. Conversely, Facey refuses to sell and Harvey sues.

The issue states whether Harvey’s statement “Lowest price for Bumper Hall Pen £900”
an offer capable of being accepted by Facey. The court finds that Facey only provides a
merely statement on what terms he might be willing to sell. It is not a promise to Harvey
and thus the agreement is not legally enforceable.

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An offer must be more than a mere expression of interest in doing business.

An advertisement is not an offer, it is only an invitation to treat. This is shown in the case
of Partridge v Crittenden [1968] 2 All ER 421 (Duperouzel 2014).

Furthermore, the items displayed for sale is an invitation to treat and not an offer. This is
shown in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd [1953] 1 QB 401.

An offer can also be made to a specific person, a group of people or the world at large.
This is shown in the case of Carlill v Carbolic Smoke Ball Co [1893] 1QB 256.

In this case, the Carbolic Smoke Ball Company manufactures patented 'Smoke Balls'
during an influenza widespread in England in 1891. The purpose is to prevent influenza.
The company publishes an advertisement in a newspaper to offer anyone who purchase
the smoke balls a reward of £100. An amount of £1000 are deposited in a bank account
by the company to show their seriousness of their offer. Elizabeth Carlill, who sees the
advertisement, has purchased and used as directed. But she nevertheless suffers from
influenza and claims the reward promised by the company. The company refuses to
pay.

The issue mentions whether an offer made to everyone in the world at large accepted by
an individual who knows the offer is valid. According to the court, the offer is capable of
acceptance as it is made to the world at large. There is no reason to address the offer to
anyone in the whole world, accept the offeror intends to do. Thus, an enforceable
contractwith the company is created.

In addition, an offer can lapse by passing of time or be revoked before acceptance.

It can be destroyed if rejection occurs.

An original offer will lapse if a counter-offer is made.

Acceptance, which is also the sub-element of the agreement,is an agreement on the

terms of an offer.

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It is a mirror imageof an offer and must be identical with each other, “meeting of the
mind”.

It can only come from the person to whom the offer was made.

An acceptance must be communicated to the offeror and no particular form is required.

It cannot be undone once communicated because the agreement was formed at the
time when acceptance communicated to offeror.

The general rule of acceptance is an acceptance occurs when communicating to offeror,

the maker of offer. It is effective once communicated to the offeror.

The postal acceptance rule is the exception of an acceptance, based on the mode of
offer. When the parties agree the method of acceptance may be by post, the offer will be
accepted once a properly addressed letter is dropped in the mail box. This is shown in
the case, Adams v Lindsell (1818) 106 ER 250.

In this case, Lindsell writes to Adams and offers him some wool. He askes for a reply by
post. The letter is delayed in the post. Adams posts a letter of acceptance once
receiving the letter. After posting the letter of acceptance, but before Lindsell has
received it, Lindsell on-sellsto a third party. Adams sues for breaching of contract.

The issue is whether the agreement reaches prior to Lindsell before she sells the wool
to the third party. The court says that once Adams posts the letter of acceptance to
Lindsell, an agreement is formed. This is the effect of the postal acceptance rule.
Lindsell asks for a reply by post is in no position to deny that the mode of acceptance
used by Adams is effective (Duperouzel2014).

Besides, for instantaneous communication such as telephone, email and facsimile,

postal acceptance rule is not valid. In this circumstances, an agreement is formed at the
time and place where acceptance is communicated to offeror. This is shown in the
cases Entores Ltd v Miles Far Eastern Corp [1995] and N M Superannuation Pty Ltd v
Baker (1992).

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A legislation for contract formation by electronic means is practiced in states and
territories. For example, Electronic Transactions Act 2000 (NSW) and Electronic
Transactions Act 2000 (Vic) (Duperouzel 2014).

Once the communication enters the information system of the offeror, the electronic
communication takes place.

The present of an appropriate indication of identification and approval are important for
an agreement.

STEP 3:

An agreement is only legally enforceable when the offer and acceptance present at the
time the agreement is formed in the situation. The agreement made by Mark Jackson to
James Price needs to be undertaken.

The question here is whether the contract between James and Mark is legally
enforceable.

Given that Mark has provided a sufficiently complete offer to James. Every fundamental
aspects such asoffering James the consultant position, a flat fee of $35,000 with a
parking spot will be given and the period James’ web design services must be
provided.Thus, the parties has formed a valid contract.

From Mark words, he has provided a promissory offer to pay James $35,000 with a
parking spot provided. Thus, an enforceable contract is formed between Mark and
James.

The offer and acceptance agreement between Mark and James are identical as Mark
offers James the consultant position and Mark receives it.

An acceptance is made by James to Mark, who makes the offer.

Mark is unable to breach the contract with James as a contract is formed once James
accepted.

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Mark has indicated the mode of acceptance in writing by the end of the day. Thus,
postal acceptance rule is applied.

When James fails to send an email because of the sudden storm, he drafts a letter to
Mark at the time Mark doesn’t answer his phone. He posts at 4.30pm on Monday, which
is before the time mentioned by James. A binding contract is formed once James posts
the letter.

STEP 4:

In conclusion, the agreement between Mark and James is legally enforceable. A

contract is formed and Mark fails to terminate it with James.

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Question 2

STEP 1:

The area of law relevant to this question is the intention to be legally bound and
consideration.

STEP 2:

To form a legally enforceable contract, the three elements: Intention to be legally bound,
agreement and consideration must present at the same time in the condition.

An agreement is legally enforceable only if the parties intended to be legally bound in a

contract.

The intention of the contract must be proved by both parties and judged objectively. The
court will always ask a reasonable person regard the agreement as intended to be
binding by looking at the surrounding circumstances.

When the parties are in a commercial or business relationship, they are intended to be
legally bound. This is shown in the facts of Esso Petroleum Ltd v Commissioners of
Customs and Excise [1976] All ER 117 and Ermogenous v Greek Orthodox Community
of SA Inc [2002] HCA 8; (2002) 209 CLR 95.

In this case, Esso Petroleum has produced a set of commemorative coins as the
collectors' items. They promise to give a free coin with every 4 gallons of petrol
purchased. The Commissioner of Customs and Excise argued that the free coins were
"produced in quantity for general sale" and were therefore subject to a purchase tax.

The issue is whether Esso has the intention to be bound by the offer of giving the coins.
The court said that the terms of the promotion were intended to be a legally binding
promise. The coins were therefore subjected to the purchased tax. Although the coins
were described as a gift, they would be assumed as an intention to be legally bound in
the commercial circumstances.

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In the case of Ermogenous, the Greek Orthodox Community of SA invites Ermogenous
to become the head of the Greek Orthodox Church in Australia. He accepts the offer
and comes in Australia where he serves as archbishop for 23 years. He is paid a salary
and the Community refuses to pay him for the accumulated leave at the end of his
appointment. They argue that the agreement is not intended to be legally bound.

The issue is whether the appointment of the archbishop is intented to be bound in the
contract of employment. The court mentions that Ermogenous is entitled to payment for
the accumulated leave. The presumption is that they intend to be bound in the particular
circumstances. "An agreememt with a minister of religion does not mean the agreement
is not intended to be legally binding if the circumstances indicate otherwise, when an
incorporated non-religious body makes the agreement and it provides monetary and
economic benefits to the minister" (Lambiris 2011, 183).

When the parties are in a purely domestic or social agreement, they are unable to be
legally bound but it can be rebutted by providing a clear evidence to the contrary.

Consideration also must be performed to form a legally enforceable contract.

Consideration is an exchange of promise. There must be given something in return in a

promise. It is the price paid for the other person's promise (Duperouzel2014).

There must be a promisee, the person who receives the promise and the consideration
moves from. The role of promisee must be assumed by both parties.

To enforce a contract, consideration must be provided.

Consideration is only for informal contracts which is not performed in deed form.

Anything valuable to promisor can be consideration, can be either a thing, money or

promise.

Consideration must also be sufficient in the eyes of the law, even though just only a
small amount. The case Thomas v Thomas (1842) QB 851, has performed this principle.

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In this case," before Thomas dies, he desires that if his wife survives him, she is allowed
to live in his house until her death. After his death, Thomas' executors take account of
this wish and enter into an agreement with Ms Thomas, allowing her to occupy the
house in return for payment by her of £1 a year and a promise to keep the house in
good repair" (Lambiris 2011, 261-262).

The issue is whether it is legally enforceable to the sufficient consideration provided by

Ms Thomas to make the agreement with executors. The court says that it is not in any
sense equivalent in value to benefit that have been provided to Ms Thomas under the
agreement. Thus, Ms Thomas is entitled to enforce the agreement.

Consideration must also be provided for the promisor's promise to perform the
obligation, to ensure the validation of it. It cannot relate to a pre-existing obligation which
is a poor consideration. This principle is shown by the case Carlill v Carbolic Smoke Ball
Co [1893] 1QB 256.

The Carbolic Smoke Ball Company manufactures patented 'Smoke Balls' to prevent
influenza. An advertisement is published in a newspaper to offer anyone who purchase
the smoke balls a reward of £100. An amount of £1000 are deposited in a bank account
by the company to show their seriousness of their offer. Elizabeth Carlill purchases and
uses as directed after she reads the advertisement. But she nevertheless catches
influenza and claims the reward promised by the company. The company refuses to
pay.

In this case, the issue is whether the act of buying and using the smoke ball provided
the necessary consideration for an enforceable promise to pay the reward. The court
says that Carlill's act has shown her expectation of the promissory reward. The
consideration is given in exchange for the promise and sufficient to be bound.

Consideration is not valid if the performance of a promise is an existing obligation. The

case Stylk v Myrick (1809) 2 Camp 317; 170 ER 1168 has performed this principle
(Duperouzel 2014).

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STEP 3:

An agreement is legally valid if the parties intend to be legally bound and sufficient
consideration is provided. The agreement made by James and Mark should be valued.

The question is whether the contract is valid by having the intention to be bound and
consideration.

Mark and James are only in a business relationship. Although Mark is James's brother
friend, we cannot simply assume that two of them are in a social relationship as they
have just met few times at some social functions. Thus, two of them intend to be bound
with the contract.

As Mark is the promisor and James is the promisee, who has received James' offer,
there is a consideration.

The proposal stating $35,000 salary with a parking spot is provided when James is
onsite, is sufficient to be entitled. This shows that consideration is performed.

After receiving the email from Mark, James satisfies with the terms and accepts
immediately by drafting an email to Mark. Failure to email Mark made him at a loss and
he quickly drafts a letter and posts to him at 4.30pm on Monday. The act of James has
provided the necessary consideration for an enforceable promise.

STEP 4:

As a conclusion, the contract formed between Mark and James is valid as both parties
intend to be bound and the performance of consideration.

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References

List of cases referred to:

Adams v Lindsell (1818) 106 ER 250

Carlill v Carbolic Smoke Ball Co [1893] 1QB 256

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] All ER 117

Harvey v Facey [1893] AC 552

Thomas v Thomas (1842) QB 851

List of other sources:

Duperouzel, Christian. 2014. "Lecture 3: Making a contract." PowerPoint lecture notes.

https://lms.curtin.edu.au/bbcswebdav/pid-2824618-dt-content-rid-11389062_1/xid-
11389062_1.

Lambiris, Michael. 2011. First Principles of Business Law. 4th ed. Sydney: CCH
Australia Limited.

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