Functions of Law in Society and Business-Topic 3-Contract-Discussion Questions

Question 1-Offer and acceptance

On Friday 10 December the following advertisement is placed in the window of Ann’s
art gallery: ‘2 copies of a very rare Blake print-$15,000 each, acceptance to be made
face-to-face’. Chas and Dave are very keen to acquire the prints but think that the
price is too high. They each offer Ann $12,000 for a copy but she refuses to sell the
prints at that price, although she says she will accept $13,500. Moreover she promises
she will keep her offer to them open until 12o’clock on the following Monday, 13
December. On the Sunday before the deadline Chas and Dave have to leave the
country on business but before they do so each post a letter stating that he agrees to
buy one of the prints at the price of $13,500. Both letters arrive on the morning of
Tuesday 14 December. In any event Ann had already sold both prints to Eve on
Saturday 11 December for a total price of $30,000 and Ann immediately called Chas
and Dave on Saturday that the offer was no longer valid.

Analyse the above situation from the point of contract law. In particular advise the
parties as to their rights and liabilities under contract law.
|-------------|----------------|----------------|----------------|
Sat Sun Mon Tue
Ann called Date of Deadline Date of
Chas and Dave posting receipt

- Advertisement is not an offer, it’s an invitation to treat

- in response to that, they offer $12,000 for the prints
- Ann counter-offers by saying she’ll accept $13,500
- According to the postal rule, the acceptance may be on Sunday
- postal method is not within the intention of the contracting parties
(stated face-to-face)
- Even if we allow postal method, the offer was no longer valid as there was
withdrawal on Saturday

Question 2-

Offer and acceptance

Adam is sitting with a group of his friends outside a public house in a harbour. He
says that he will give $100 to anyone who can swim across the harbour. Adams puts
that amount of money on the table to show the seriousness of his challenge. Ben is not
with Adam’s group but is sitting at a table next to Adam. He hears the promise but
does not say anything. Suddenly a child falls into the water from the other side of the
harbour. Ben dives into the water and begins to swim to her rescue. As Ben is
approaching the child, Adam shouts out:

‘Don’t think you are going to get my $100, because I am withdrawing my offer.’

Ben nonetheless rescues the child and climbs out onto the other side of the harbour.
Explain, with reasons, whether Ben can claim $100 from Adam under the law of
contract.

Acting for Ben:

1. Adam is making an offer to the whole world as large
 “anyone” who can swim across the harbor
2. intention to create legally binding contract
a. $100
b. withdrawal of offer

Acting for Adam:

1. “anyone” means anyone in the group only
 one-to-one communication
2. original intention:  rescue purpose
 entertainment purpose

Acceptance by conduct – by swimming to the other side of the harbour

Question 3--Consideration

Tom agreed to sell his car to Mary for $50,000. They entered into a sale and purchase
agreement. Later, on the date of exchange, Tom changed his mind and would like to
sell his car to Mary for $30,000 only. In order to make the second agreement binding,
Mary then gave $1 to Tom, being the consideration for the contract. One month later,
Tom changed his mind again and asked for the remaining $20,000 from Mary.

Advise Mary.
Whether the agreement to accept the less amount is a binding agreement or not?

 It must be supported by fresh consideration  $1

 It’s a binding agreement as the court would not argue with you about the price-
setting process

 Consideration can be less than the market value

Additional discussion questions

Question 1--Duress

A Ltd have a contract with N Ltd. A tell N that unless N enter into a five year contract
with A’s subsidiary, C Ltd., on terms which are particularly advantageous to C, they
(A) will ‘terminate their agreement’ with N. Despite the fact that the terms suggested
mean that N will make a loss on the deal with C, they agree because of the value
which they place on their contract with A. Two years later, A go out of business. N
now want to escape from the contract with C.

Advise N.

Question 2-Duress, undue influence and misrepresentation

Harry, who is 25, lives in a large house which was left to him by his parents. In 1995,
his gay friend Tom, aged 40, comes to live with him. Harry allows Tom to take all the
decisions about the organization of the household and most of the time they live
together happily. At times, however, Tom becomes violent and Harry knows that in
the past he has served a prison sentence for assault. When, therefore, Tom tells Harry
that he thinks that Harry should sell him a half share of the house for $10,000, Harry
agrees even though the house is worth about $200,000 as he fears what Tom’s
reaction would be if he refused. The transfer takes place. One year later, Tom’s
business is running into difficulties and he suggests that the house should be used as
security for a loan which he is negotiating from the bank. Tom tells Harry that the
limit of the security will be $75,000. This is untrue, as the security is in fact unlimited.
Harry goes to the bank with Tom, where the papers are presented to him for signature.
As he is about to sign the bank’s employee says: ‘Are you sure you don’t want to
think about this a bit longer or take legal advice?’ Harry says: ‘No thank you, I am
happy to trust Tom.’

Tom’s business has now, a year after the loan was made, collapsed with debts of
$500,000 and bank is seeking to enforce the security by taking possession of the
house.

Harry wishes to avoid:

a) the transfer of the half share in the house to Tom and
b) the security transaction with bank. Advise Harry.

(Some of the above questions were taken from ACCA Corporate and Business Law, R. Stone,
Contract Law, Cavendish, I. Brown & A. Chandler, Law of Contract, Blackstone Ltd.)