Formation of a Valid Contract

John is a wine merchant and the owner of Broadway Cellars. At a wine tasting he displayed a bottle of Grange Hermitage wine with a card attached which read:

‘Special, Grange Hermitage for only $500 per bottle, lodge a written order together with a cheque to purchase this rare wine.’

Peter tasted the wine and decided to purchase a quantity. The next day he posts an order together with a cheque for $30,000 stating that he will purchase five cases (60) bottles. Grange Hermitage is a famous Australian wine and the true market price for the wine that Peter ordered was $1,000 per bottle. The order and the cheque arrived at the cellars the three days later but by then all of John’s stock had been sold. One week later John wrote to Peter saying that he could not fill the order and returned the cheque. Before receiving the letter Peter had invited his business associates to a luncheon where he proposed to serve the Grange Hermitage. He was highly embarrassed and cancelled the luncheon Peter was offered five cases of the same Grange Hermitage by Mary for $35,000. He refused the offer because he had cancelled the luncheon. Peter alleges that because of the cancelled luncheon he has lost business valued in excess of $40,000. Peter now wishes to take legal action against John to recover his losses. Give your opinion as to Peter’s chances of success against John discussing the principles involved.

This assignment will test the students’ ability to construct a legal argument and carry out detailed legal research.

The paper aims to cover the topics related to the law of contract in business situations. There are several aspects which constitute contract law. One of the most important aspects of this law is the formation of a valid contract which is actually derived through the analysis of the five essential elements of contract. These elements are generally the same across all jurisdictions. The five essential elements of a valid contact are offer, acceptance, consideration, intention and capacity. The paper specifically highlights the requirements related to the primary elements of offer and acceptance (Knapp, Crystal and Prince 2016). Offer is the initial stage of initiating a relationship of contract.  Until and unless a offer is accepted by the party to whom it is directed willingly it does not give rise to a valid contract at law. This ascent of the offer is termed as an acceptance. The paper will also analyze the damages which an aggrieved party may claim in terms of contractual breach. The issue which has been identified in the situation which has taken place between John and Peter in relation to the purchase of the wine which had been displayed for sale is that whether a valid contract had been formed between them or not on the basis of which a legal claim can arise. The issue is analyzed through the identification of various laws related to the contract and the application of such laws on the factual scenario.

• At the wine shop of John it had been seen that there was an display stating that ‘Special, Grange Hermitage for only $500 per bottle, lodge a written order together with a cheque to purchase this rare wine.’
• Peter having have tasted the wine have made an post to purchase the wine which according to the manner which had been described through the display
• The actual price of the wine which has been attempted to be purchased was $1000 every bottle
• However the post and the check which had been directed by Peter towards purchasing the wine had arrived late
• Peter had given invitation to his business associates where he proposed to sever the wine in context
• However a letter had been sent by John stating that the wine had been sold out before the invitation had been made by peter
• A new offer was made to purchase the same wine at $35000
• The offer was not accepted by Peter
• Peter claims that he has suffered losses which are worth $40000 due to the cancellation of the lunch

Requirements of Offer and Acceptance

Offer

The offer as discussed above is any statement or expression which one party makes to another party having terms and conditions contained in it which is to take the form of a legal relationship binding in both the party once it has been accepted by the other party. It is important to note that all statements and expressions cannot be considered as a valid offer at law and have to be classified into an actual offer and an invitation to treat. There are various cases in which the difference between an offer and an invitation to a treat has been made by the court. It is important to distinguish between them because the offer has a legal significance but the invitation to treat has no form of legal significance (McKendrick 2014). The rules of common law are also applicable in the Australian legal system when it comes to contract law. One of the primary cases which provided a precedent towards the distinction between an offer and an invitation to treat is that of Partridge v Crittenden [1968] 1 WLR 1204 and Fisher v Bell [1961] 1 QB 394. The court provided through their judgement that all Advertisements are to be considered as an invitation to offer rather than an offer themselves. This is because in case the law considered all advertisements as an offer rather than an invitation to an offer it will make the person making the advertisement liable to every person who has shown an intention to purchase the item. Thus an advertisement is to be considered as an invitation to an offer and only which a person makes an intention against such advertisement to purchase the goods it would be considered as an offer and is upon the discretion of the offeree that it is to be accepted or not.

Acceptance

The next stage which is relevant to the situation is that of acceptance of the offer. Once an offer has been made it is upon the person making to whom it has been made to accept it. However there are certain rules which need to be complied with to determine whether the offer which has been made is a valid offer at law or not. The first of the rule is related to the unequivocal acceptance and the second rile is related to communication of acceptance. The first rule provides that the acceptance has to be exact of which is contained in the offer and if any discrepancies are there it would be considered as a counter offer as highlighted by the case of Hyde v Wrench (1840) 49 ER 132. In the rule as there have been various cases which have provided guidelines as to how the communication procedure is to be carried out. One of such rules is that of the postal rule where communication of acceptance is stated to have been completed as soon as the letter of acceptance is posted and has been addressed in a correct manner. This rule had been provided by the case of Adams v Lindsell (1818) 1 B & Ald 681. It is to be noted that the postal rule of acceptance is not applicable in other form of communication modes. It is also not applicable when a letter has been posted in form of a counter offer, offer or revocation of offer. It has been stated by the court in the case of Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344 that the letter of revocation has to actually reach the person to whom the offer has been made for the purpose of being valid at law.

Rules of Common Law in Australian Legal System

Consideration

Consideration is the promise which each of the party provides to the promise of the other party. It is loss and gain a party has in relation to the contract. A contract without consideration being present in it is a void ab initio. One of the most important rules in relation to the application of consideration at contract law is that it needs to be adequate and present and not sufficient as per the value of the other consideration. This means that the consideration need not match the market value of the product for the purpose of being valid at law. This rule had been provided through the case of Chappell v Nestle [1960] AC 87.

Damages

Damages in contract law are a significant part of the system. They are one of the forms of remedies which are available to the party who has suffered a breach of contractual rights. The other kinds of remedies include specific performance, recession and injunction. The notion of damages had been discussed by the courts on various occasions and many guidelines have been provided to analyze them. One of such guidelines had been stated through the case of Addis v Gramophone [1909] AC 488 where it has been stated that the purpose of providing damages to a party is to ensure that they are again placed in a position which they would be in case no breach of contract had been done by the other party. Another case which discusses the notion related to the damages at contract law is the case Hadley v Baxendale (1854) 9 Ex Ch 341. In this case the rules regarding the remoteness of damages to be provided had been discussed. The ratio decidendi in this case was that only those damages which a reasonable person may foresee at the time of the formation of the contract or those damages which have been discussed or contemplated between the parties to the contract before formation are to be provided by law.

Application of the rules to the facts of the case

It had been provided through the situations that at the wine shop of John it had been seen that there was a display stating that ‘Special, Grange Hermitage for only $500 per bottle, lodge a written order together with a cheque to purchase this rare wine.’ This can be considered as an advertisement or goods which are displayed in a shop. Through the application of the rules stipulated by the above discussed case of Fisher v Bell it can be stated that the display in Johns shop was an invitation to offer rather than an offer. It has already been discussed above that offer has a legal significance but the invitation to treat has no form of legal significance. The displays of goods do not form an offer and no acceptance can be made against them. The notion which has been provided by the case of Partridge v Crittenden would be applicable here as if the display is treated as a offer than John would be liable to all person who has sent the check in the way in which it has been sent by Peter. Peter having have tasted the wine have made a post to purchase the wine which according to the manner which had been described through the display. Thus in the given situation through the application of contract law principles of offer and acceptance it can be stated that the post of check which has been sent by Peter is not a valid form of acceptance. Until and unless the offer which has been sent by Peter to John would have been accepted there would not be any formation of valid contract. However the post and the check which had been directed by Peter towards purchasing the wine had arrived late and the wine has already been sold out and thus there is no acceptance in the part of John. In the given situation the postal rule will not be applicable as it is not applied on offers. Thus there is no formation of valid contract.

Damages and Remedies for Breach of Contract

The element of consideration is satisfied in the situation. This is because although the consideration which has been provided by Peter for the purchase of the wine is not matching the market value it would be considered as a valid consideration as per the rules provided by the case of Chappell v Nestle [1960] AC 87. This is because consideration is required to adequate and not to have sufficiently matched the market value.

The issue of damages which Peter could have got are addressed in this section of the paper. Peter had thrown a party to his business associates as he was sure that he will be getting the wine and he had therefore proposed them to serve the wine. He has made a claim that he has suffered a loss of $40000 due to the breach of the contract. Even in case there was a contract between the parties, Peter would have not got the damages. This is because although damages are provided to a party to ensure that they are again placed in a position which they would be in case no breach of contract had been done by the other party the damages here are too remote. As per the principles of the case of Hadley v Baxendale only those damages which a reasonable person may foresee at the time of the formation of the contract or those damages which have been discussed or contemplated between the parties to the contract before formation are to be provided by law.  Any reasonable person in the position of John would not foresee the lunch and the loss of 40000 and further this loss was also not contemplated before the contract was formed. Thus there is no right which Peter has in the situation.

Conclusion

Form the above discussion it can be derived that there are no chances which Peter has to make a successful claim against John fir the breach of contract

References

Adams v Lindsell (1818) 1 B & Ald 681

Addis v Gramophone [1909] AC 488

Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344

Chappell v Nestle [1960] AC 87

Fisher v Bell [1961] 1 QB 394

Hadley v Baxendale (1854) 9 Ex Ch 341

Hyde v Wrench (1840) 49 ER 132

Knapp, C.L., Crystal, N.M. and Prince, H.G., 2016. Problems in Contract Law: cases and materials. Wolters Kluwer Law & Business.

McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).

Partridge v Crittenden [1968] 1 WLR 1204