LW2903 Business and Law Assignment LUI SIU LUN 51199553

CITY UNIVERSITY OF HONG KONG

SCHOOL OF LAW

LW2903 BUSINESS AND LAW

MID-SEMESTER COURSEWORK ASSIGNMENT

SEMESTER B, 2008/2009

Instructor: Mohammed J. SHAH

Student Name: LUI SIU LUN

Student ID: 51199553

Seminar group: S 10

Programme: BBAAC

Deadline: 6 March 2009

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LW2903 Business and Law Assignment LUI SIU LUN 51199553

There are two issues in this case, i.e. the fence matter and the sale and purchase

of farmland. The following will apply the basic legal principles in the formation of

contract – offer, acceptance and consideration- to analyze this case study situation in

a logical way and discuss if there are valid contracts formed between Alex and Bob

both in the fence and in the sale of farmland matter. Of course, I will apply different

cases decided by courts to support my arguments.

First of all, let me discuss the fence matter. Alex constructed a high fence along the

boundary of his farmland. His neighbor, Bob, threatened Alex, “I would go to the

court for an injunction to have the fence pulled down”. In other to avoid going into

trouble, Alex promised Bob, “I’ll reduce the height of the fence if you agree not to go

to the court for an injunction”.

In this circumstance, Bob did not have legal right to against Alex. Although Alex

promised Bob he would reduce the height of the fence if Bob agree not to go to the

court for an injunction, there were not a valid consideration. Consideration is a vital

element to form a complete contract, which is not limited only to money and can be

anything which is valuable. In law’s point of view, a contact is bound only if the

promise sought to be enforced is supported by a consideration.

Yes, all we know forbearance to sue can be a valid consideration. Based on the

case ‘Cook v Wright (1861) 1 B & S 559, 121 ER 822, Queen’s Bench’ [1], if the claim

of Bob was valid and honest, which means Bob had a good cause of action, it surely

was a good consideration. If the situation was like this, Alex could not break his

promise since he got the consideration of forbearance to sue by Bob.

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However, constructing a high fence along the boundary of Alex’s farmland was

lawful. If Bob went to the court for an injunction to have the fence pulled down, he

definitely failed to do that. How could Bob sue Alex if erecting the fence is legal? So,

Alex’s promise was not binding since the ‘forbearance’ was invalid. The promise

given by Alex was not supported by a consideration, and was merely an agreement

from which Alex did not receive any benefit.

According to the law cases ‘Combe v Combe [1951] 1 All ER 767, Court of Appeal’

[2] , there was no contract since no consideration existed. We can also refer the case

‘Dunlop Pneumatic Tyre v Selfridge & Co Ltd [1915] A.C. 847’[3] which held that the

contract was invalid unless consideration had been given to support the promise.

What Alex promised to Bob was just a gratuitous promise but not an oral contract

because it was not made for any consideration. Because there was not a legally

binding contract between Bob and Alex, Bob cannot sue Alex for this matter.

As to the sale of farmland matter, I advise Bob that he can sue Alex. Let’s analyze

this matter step by step.

On 31st January 2009, Alex placed an advertisement in the Real Estate Daily in

order to sell his farmland as soon as possible. Generally, an advertisement is not an

offer but an invitation to treat. An offer is an oral or written expression by a party to

effect forming a binding agreement with other party. Likewise, Alex’s advertisement

was just an invitation to treat even although it showed Non-negotiable. It means Alex

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LW2903 Business and Law Assignment LUI SIU LUN 51199553

was inviting other to make a contract and do the bargaining process. According to the

concept and principles of the topic “formation of contract—offer and acceptance”, an

invitation to treat made by Alex had no any legal effect.

The case example “Fisher v. Bell [1961] 1 Q.B. 394, [1960] 3 All E.R. 731”[4]was

quite as the same as this case. Placing the advertisement by Alex was just like a shop

displayed an item with marked price to express their willingness to make contracts

with customers. So, one of the functions of the advertisement was to further the

bargaining process.

On 2nd February 2009, after the inspection, Bob talked to Alex, “I’ll think about it

and let you know”. From what Bob talked to Alex, we can conclude that Alex made an

offer agreeing to sell his farmland at HK$20 Million to Bob.

On 3rd February 2009, Bob posted a letter to Alex telling him that he would not

buy it. However, Bob later phoned Alex on the same day, leaving a message on Alex’s

answering machine stating that he would like to buy the farmland and told Alex to

disregard the letter sent that morning.

Did Bob make an acceptance to the offer provided by Alex? The answer was yes.

Acceptance is the unconditional assent to the proposed terms of the offer, which

must be actually communicated to offeror by offeree or offeree’s agent. Remember,

the postal rule only applies to acceptance by post of an offer; the rejection letter is

not applicable the postal rule and only effective until actual receipt. So, the rejection

letter sent by Bob was not valid on 3rd February 2009.

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However, on the same day, Bob left a voice message on Alex’s answering machine

stating he accepted Alex’s offer. Again, postal rule does not apply to instantaneous

method of communication (voice message, fax, e-mail, SMS, etc). Therefore, the

contract was only completed when Bob’s acceptance was received by Alex or where

the message could be reasonably supposed to have been received by Alex.

Logically, Bob’s acceptance by voice message must be received by Alex earlier than

the rejection letter. So, the acceptance was deemed to be received successfully by

Alex even although Alex did not know about Bob’s message.

We can apply the case ‘Entores Ltd v Miles Far East Corp., [1955] 2 QB 327’[5] in

this situation. In the case where ink of fax machine finished or e-mail not checked,

the acceptance sent through the instantaneous method like this was deemed to be

received successfully. Therefore, the failure of Alex’s answering machine was not an

important determinant whether the acceptance was received successfully or not. It

was Alex responsibility to make sure the answering machine work well and played

back the message.

According to Receipt Rule, the contract was concluded at once when Bob’s

acceptance was received. Even though they did not do the documentation work,

their word of mouth had bound a contract. Consequently, the contract for the sale

and purchase of farmland between Alex and Bob was bound on 3rd February 2009.

Alex could not revoke his offer from this moment since Bob showed his acceptance

already.

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Nevertheless, on 8th February 2009, Alex made a contract for the sale of his

farmland to David’s company at HK$40 Million. Because Alex had made a contract

with Bob already, the contract made with David was invalid and Alex just broke the

contract to Bob.

In conclusion, Bob does not have legal right against Andrew for the matter of fence,

because Bob did not support a valid consideration for Alex’s promise. However, Bob

can go to the court to sue Alex for breaking the contract for the sale of the farmland

since Bob had sent an acceptance to Alex successfully.

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LW2903 Business and Law Assignment LUI SIU LUN 51199553

Endnotes:

1.Cook v Wright (1861) 1 B & S 559, 121 ER 822, Queen’s Bench

After a verdict for the defendant in an action on three promissory notes, the plaintiffs

moved

that the evidence did not show want of consideration for the notes, and that they

were entitled

to a verdict.

2.Combe v Combe [1951] 1 All ER 767, Court of Appeal

A husband promised his wife, whom he was divorcing, a permanent annual

allowance of £100. The husband never paid and after 7 years his ex-wife sued on the

basis of the promise.

The court held: no contract since no consideration.

3. Dunlop Pneumatic Tyre v Selfridge & Co Ltd [1915] A.C. 847

Viscount Haldane based his argument on three fundamental principles in law. First,

the doctrine of privity requires that only a party to a contract can sue. Second, the

doctrine of consideration requires a person with whom a contract not under seal is

made is only able to enforce it if there is consideration from the promisee to the

promisor. Third, the doctrine of agency requires that the principal not named in the

contract can only be sued if the promisee was contracted as an agent. In application

to the facts, Haldane could not find any consideration between Dunlop and Selfridge,

nor could he find any indication of an agency relationship between Dew and

Selfridge. Consequently, Dunlop's action must fail.

4. Fisher v. Bell [1961] 1 Q.B. 394, [1960] 3 All E.R. 731

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The court upheld the first instance decision. Lord Parker, C.J., delivering the

judgment, noted that, although the display of a knife in a window might at first

appear to "lay people" to be an offer inviting people to buy it, and that it would be

"nonsense to say that [it] was not offering it for sale", whether an item is offered for

the purpose of the statute in question must be construed in the context of the

general law of the country. He stated that the general law of the country clearly

established that merely displaying an item constituted an invitation to treat.

5. Entores Ltd v Miles Far East Corp., [1955] 2 QB 327

Entores was a London-based trading company that sent an offer for the purchase of

copper cathodes by telex from a company based in Amsterdam. The Dutch company

sent an acceptance by telex. The contract was not fulfilled and so Entores attempted

to sue the owner of the Dutch company for damages.

The court held: The contract between two parties was completed when the

Defendant’s acceptance was received by the Plaintiff in London.