3

Formation of Contractual Relationships

The following facts have occurred.

Hilary advertised a printing press in a specialist trade journal for £15,000. Eleanor wrote to Hilary
offering to buy it for £10,000. Hilary replied by return of post saying she would accept £13,000. When
she heard nothing further from Eleanor, Hilary wrote again saying she would accept £10,000. Eleanor
says she no longer wants to buy the printing press.

Hilary wrote to Amy offering for sale an office computer for £1,000. The morning that she received
the letter Amy wrote to Hilary agreeing to buy at the asking price. After she had posted the letter, but
before it was delivered, Amy changed her mind and sent Hilary a fax asking her to ignore the letter
when it arrived.

Hilary decided to have a grand summer sale at her art gallery. She put large notices in the windows of
the gallery stating that a valuable painting by Trumpeter, a famous artist, would be available for only
£1 to the first customer who came into the gallery at the commencement of the sale, together with a
free signed print of another Trumpeter painting. Olivia waited outside the shop for two days before
the sale started to be sure of getting the painting, but as she entered the shop, Hilary told her that
the painting by Trumpeter was no longer for sale.

Questions for Discussion:

Required;

1. Define contract law and describe all the blue prints of a contract.

A contract is a legal agreement between two or more parties that are legally bounded to
follow the obligations (McCamus, 2015). Contract is a unique document that might have
some exceptions but usually the parties are free to agree to whatever condition mentioned in
it. Such contracts are known as ‘ freedom of contracts’. One of the simplest contracts is when
a person enters a grocery store to purchase good; they are exchanging money for goods
(Mitchell, 2009). A contract may not be in a written form but can be verbal. Such verbal
contracts are as credible as a written contract maybe. A contract law is usually an affective
legal agreement to resolve future disputes and to bind them mutually for an obligation. The
law of contract is usually self-regulatory. Hence, they do not require any interventions. If the
contract of law is brought before the court, the court will not consider whether the terms and
conditions on the contract were fair and justified or not. They were agreed upon the time of
signing so the contract has to be enforced. In seldom cases, the court intervenes from the
principle of contractual freedom. This usually happens when one party uses the bargaining
power.

For a contract law to be implemented, it should follow the following protocols (MacMahon,
2018):
1. The contract should be a detailed explanation of the terms and conditions
2. The contract shall be accepted by both the parties
3. Services, money etc. should be the factor of exchange between the parties
4. Both the parties shall be in good mental health and above the minimum age
while signing the contract
5. Both the parties shall have positive intent to execute the contract
6. The contract shall have terms and conditions that could be legally enforced.

Contract law is based on the civil law since it is between individuals. However, it is based on
the common law of the country. According to the Anglo-American common law, a contract is
based on acceptance, an offer, consideration or mutual agreement. Contracts may also have a
clause called ‘choice of law’ which can be used according to the country where the contract is
signed. In case of breech of law by any of the parties, the concerned jurisdiction law of the
country is followed.
When one of the party’s breeches the contract, the other party may legally sue them for
damages. However, in some case, the court asks the party that has breeched the contract to
fulfil the contact as per the promise rather than putting money damages on them. Unclear
contracts that are not well-written and detailed may also give birth to disputes.
Misunderstanding such contract laws is common and the court will settle their matter (Law
Commissions, 2002).

2. Explain the court system in relation to the English legal system and advise the
parties above which court(s) action to pursue.
In the English court system, the Supreme Court is the most powerful court of the country. It
was previously called the house of the lords. Supreme court looks at the appeals from the
‘court of appeals’, which is the second powerful jurisdiction body of the country. Five justices
run the Supreme Court while the court of appeal has three justices. The ‘court of appeals’
hears appeals from the high court and the country courts. The high court is the third most
powerful court of the country. High court hears the appeal directly for the high profile civil
cases and the cases of the country court. High court is further divided into three main
divisions:
1. Queen’s bench: QBD hears the cases of violation of contracts
2. Chancery Division: ChD deals with cases related to land law, company laws
and partnership laws.
3. Family Division: Family division hears only family cases related to divorce
and child custody.
County court and magistrate courts are the basis courts of the country. All low profiles cases
are first entertained here.
County court is further divided into
1. One district judge where the hearing is informal and deals and no costs are awarded
here.
2. One circuit judge where the proceedings are accelerated
Magistrate court deals with criminal cases but also deals with family matters involving
adoption and contract orders etc.
In these cases, there is only one case where the breach of contract is done and that is between
Hilary and Amy. Hilary can contact the country court since that will be the first instance of
contact in case of breech of contract. One district judge will listen to her case informally and
try to solve it. If both the parties do not agree upon the solution, the case will be forwarded to
High court.

3. Advise Hilary as to whether binding contracts exist between herself and each of
the following people: Eleanor, Amy and Olivia.
HILARY VS. ELEANOR:
There is no binding contract between Hilary and Eleanor. When Hilary made an
advertisement to sell her printing press, it will be treated as an invitation. In return, Eleanor
made an offer to buy the printing press for an offered price. The advertisements are made to
get an offer. An offer is a wiliness of a person to follow a contract once signed. In this case,
there was no contract signed between both the parties. The offer was made to the
advertisement, which was an invitation to treat. Once Eleanor posted an offer, Hilary was
allowed to either accept it or reject it. Acceptance of an offer is an unconditional agreement to
the offer terms (Office of Fair Trading,1996). However, in return to the offer of Eleanor,
Hilary made a counter offer. When Hilary replied to the post of Eleanor, she did not accept it
or reject it. In fact she made a counter offer. When a counter offer is made, it terminates the
first offer and hence the first offer of Eleanor does not longer exist. Finally, when Hilary
accepts the offer of Eleanor, it was no longer accepted since Hilary made a counter offer and
rejected the first offer of Eleanor. In this case, there is no legal binding or contract between
both of them.
HILARY VS. AMY:
In this case, Hilary sent a letter making an offer to Amy to buy her computer. Amy accepted
the offer by replying her back and hence the contract is confirmed. Such a contract is not
allowed to be annulled and revoking it is a breach of contract (Hondius,1997). In case of
postal rules, once the acceptance is posted, it becomes effective. It does not depend on the
receiver to receive it to become effective. Hence, in this case, as soon as Amy had posted the
acceptance, the contract was formed between them. Her fax to ignore the letter cannot be
taken into consideration. However, there are some limitations for the post to be affected.
Such a letter should be handled to the concerned post offices directly and should be stamped
and addressed. Hence, if Amy has followed all the postal rules, the acceptance is verified and
effective now. Hence, it can be concluded that the contract exists between them and Amy’s
fax cannot annul it.
HILARY VS. OLIVIA:
In this case, Hilary placed an invitation, which is not a contract. It’s an invitation to treat as
mentioned earlier. Hence, there was no contract between Hilary and Olivia since it involves
an invitation and could be treated with an offer but Hilary said that the painting is no longer
available for sale (Beale, 2002). Hilary cannot be questioned for this.

4. Explain and discuss the various remedies available to the parties

Breech of contract occurs when any of the party is not able to perform the primary obligation.
As a result, one party that has broken the contract pays compensation in the form of money or
service to fulfil the loss that has occurred to the first party. This is called damages (Whittaker,
2013). Damages are estimated and broken two types: Remoteness and measures
Remoteness means to find out how far is the damage done while measures of damages is to
calculate the amount that can be paid to the suffered party that will give them the same benefit
if the contract was fulfilled. Also, the court can ask the party that has violated the contract to
fulfil the contract according to the terms and conditions. This happens when the decided
amount placed as a remedy is not enough to fulfil the damages of the other party. In this case,
the court may ask the violated party to complete the contract. Lastly, the remedy called
‘rescission’ is when the court asks the innocent party to treat the contract as if it was never
made and ignore it. Further, the innocent party is asked to withdraw all the amount and
services that had been invested in the contract (McCamus, 2015).
In this case, there is only one breech of contract between Hilary and Amy. Hilary is allowed
to go to the court and court may decide the remedy according to the above discussion.

References :
Mitchell, C. (2009) “Contracts and Contract Law: Challenging the Distinction Between the
‘Real’ and ‘Paper’ Deal,” Oxford Journal of Legal Studies. Oxford University Press (OUP),
29(4), pp. 675–704. doi: 10.1093/ojls/gqp023.

MacMahon, P. (2018) “Conflict and Contract Law,” Oxford Journal of Legal Studies. Oxford
University Press (OUP), 38(2), pp. 270–298. doi: 10.1093/ojls/gqy011.

Law Commissions (2002). Unfair Terms in Contracts. London: The Stationery Office. Law
Commission Consultation Paper No. 166, Scottish Law Commission Discussion Document
No.119.Available on the internet at http://www.lawcom.gov.uk/or
http://www.scotlawcom.gov.uk/.

Office of Fair Trading (1996). Unfair Contract Terms Bulletin, Issue No.2. London: Office of
Fair Trading.

Hondius, E. (1997). Unfair contract terms:Towards a European law. Introduction. European

Review of Private Law, 5, 121–134.

Beale, H. (2002). Finding the remaining traps instead of unifying contract law. In: S.
Grundmann & J. Stuyck (Eds.). An academic Green Paper on European Contract Law, pp.
67–72. The Hague: Kluwer.

Whittaker, S., 2013. Good faith, implied terms and commercial contracts. Law Quarterly
Review, 129(3), pp.451-469.

McCamus, J. D. (2015). The New General ‘Principle’of Good Faith Performance and the New
‘Rule’of Honesty in Performance in Canadian Contract Law. JCL, 32, 103.