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1. Access to Business Level 3
Contract Law



Task 2) The rules of offer and acceptance, and in particular the postal rule, are
products of the 19
th
century. They have little relevance to the modern commercial
world, and are in need of reform. Discuss
The rules of offer and acceptance and in particular the postal rule are old because they
are products of the 19
th
century. Despite that fact, most of the rules are still relevant to
the modern commercial world, and perhaps the only rule that needs reform is the Postal
rule. There are many rules of offer and acceptance, but this essay will only focus on two
rules of offer and acceptance respectively.
Under the first rule of an offer, it is stated that only an offer can be accepted and must
not be an invitation to treat. Invitation to treat is a statement that is, “at most, inviting
people to come forward and make an offer” (Duxbury, 2008:12). One case to illustrate
this is Fisher v Bell where the ‘offer’ for selling the knife is considered as an invitation to
treat. It is good for businesses because they can reject the customers’ offers and can
control their stock. On the other hand, it can cause misleading advertising and
misleading people. However, it is the person at the point of sale that could decide to
accept or reject customers’ offers, therefore this rule is good for businesses to be flexible
in dealing with different customers. This rule is relevant to the modern world because it
allows businesses to be in a better position to advertise their products but at the same
time not be commit to their adverts and can amend them to suit changes such as
customers’ behaviour or any VAT rate.
The second rule of an offer states that it must be communicated to the offeree in order
for it to be considered as an offer. One case to demonstrate this is Powell v Lee when it
was held that there was no contract between Powell and the school since there was no
authorised communication. This rule is a positive one because it helps the offeror and
offeree to be clear on what is being the offered. On the downside, one might end up
doing the conduct of acceptance whilst being unaware of the offer and this could lead to
unfairness because the benefit of the agreement will not go to the offeree. In general,
this is just a common sense rule put into legal form; it helps to prevent victims from being
bullied into accepting the offer without knowing it. It is still relevant to the modern world
since very often victims are tricked into accepting the offer without knowing about the
terms of the offer and so they need the law to protect them.
For an acceptance to be made it must be unconditional, as any change in terms of the
offer will kill off the original offer and therefore it becomes a counter offer. One case to
illustrate this rule is Hyde v Wrench when the counter offer of £950 has kills off the
original offer of £1000. This rule favours the business as it protects the businesses’
interest when making the offer and it allows the business to be in control of the price of
goods on offer. On the other hand, it appears to have a negative impact on customers
because they are not aware of the complexity of the law regarding offer and acceptance,
but just assume they are negotiating and unaware they are destroying the original offer
price. However, this rule makes the clear separation between different offers and aids
the business in making sales at the intended price. It is still relevant to the modern
business world despite the fact that it was created in the 19
th
century.

2. Access to Business Level 3
Contract Law



When an offer is made, the mode of acceptance will depend on what the offeror has
specified. It could be by the mode that the offeror insisted on or by a speedier mode. A
case to illustrate this is Entores v Miles Far East Corp which telex was used as the
mode of acceptance. In practise, this rule of acceptance allows flexibility for the offeree
to use a speedier mode if the mode requested by offeror proves to be time consuming.
On the other hand, if the offeror insists on the mode then it could be rigid; in certain
situation the offeree could be at disadvantage because of the mode insisted. For
example, if the mode insisted is to reply by email but the offeree is unable to access to
his email on time then the acceptance cannot be made. However, this rule of
acceptance allows businesses to make sales of their products but not be bound to a
particular customer. Overall, the mode of acceptance rule is still relevant to
contemporary business world.
The Postal rule applies when acceptance by post is the chosen, obvious or reasonable
mode of acceptance. Where the offeree accepts by post, the acceptance is completed
the moment it is posted. One case to illustrate this rule is Adam v Lindsell where the
plaintiff posted his acceptance for buying wool to the defendant and it was held that the
acceptance is valid even though the letter was delayed. This rule is damaging
businesses because it slows down the selling process and sometimes it causes the
business having to pay charges in case they have sold the unique item to one customer,
while other customer has posted letter of acceptance to them but the letter got lost. It
could sometimes benefit the customer if they choose to secure their acceptance by post
but for some reasons it could not get to the business offering the product. However, this
clause was created in the 19
th
century when letters were often delayed, in modern world
this is rarely the case due to the improvement in services by Royal Mail. Furthermore, in
cases such as Holwell Securities v Hughes, the Court is aware of the irrelevant of the
Postal rule and tried to abandon the rule: it was held that since “notice in writing” is
stated by the offeror, the Postal rule does not apply. Perhaps while most of the rules
under offer and acceptance are still relevant, the Postal rule is in need of reforming.
In conclusion, it depends on how the businesses apply the rules of offers and
acceptance in their dealing as they can become an aid or hinder the businesses. As this
essay illustrated, most of the rules under offer and acceptance created in the 19
th

century are still relevant to contemporary business world; however the Postal rule is in
need of reform. Perhaps if it could be changed to “the acceptance is completed the
moment it reaches the offeror” so that the offeree and the offeror would make efforts to
use a more reliable method of acceptance and therefore avoiding potential legal
proceeding.

3. Access to Business Level 3
Contract Law



Task 3) Draft an opinion/advice to the respective parties in relation to the
scenarios:
a)
Seller Ltd can be held liable for breach of contract if a contract exists. In order for a
contract to exist there must be four elements: agreement, consideration, intention and
capacity. If there is one element missing then there is no contract. The issue arising in
this case is concerning agreement, which is made up of offer and acceptance. The offer
has been clearly communicated to the offeree. The offeree has chosen to accept the
offer by post on the 8 February. At first glance, it would have been considered an
acceptance under the Postal rule as illustrated in the case of Adam v Lindsell, where
the offer for sales of wool was accepted by post. At the point the letter is posted, the
acceptance should have been formed. However, the terms of the offer from Seller Ltd
included “notice in writing” has set aside the Postal rule and therefore the Postal rule
does not apply in this case. This is demonstrated in the case of Holwell Securities Ltd
v Hughes, when the Court decided that the plaintiff must to comply strictly with the
conditions of the offeror – which “notice in writing” to be replied within six months and
respectively override the Postal rule. For this reason, the letter got lost meaning there
was no acceptance provided by post.
However, Buyer Ltd can be considered to have accepted the offer if the mode of reply
was appropriate and the acceptance had been communicated to the offeror by the
phone. It has been noticed that Buyer Ltd communicated the acceptance to Seller Ltd
via a speedier mode than the one requested by Seller Ltd, therefore Buyer Ltd can seal
the agreement if the acceptance was communicated to the offeror. A case to illustrate
this is Entores Ltd v Miles Far East Corporation where it was held that the acceptance
over telex is occurred the moment the message is read.
The managing director of Buyer Ltd has called Seller Ltd, and the moment the secretary
has heard the acceptance, the agreement has been formed. Even though it has been
clearly stated that the acceptance must be receive by the Sales Director, the secretary
has acted on his behalf when he was out of the office. It is held that a secretary owes
fiduciary duties to the company which are similar to those of a director and therefor has
power to contract on behalf of the company excluding certain roles that only vested in
the directors (Smith and Keenan’s, 2011). The secretary could have asked Buyer Ltd to
call back or transfer the call to the authorised person, but the fact that she received the
call and took the message meaning she was assumed to have the power toward the
contract. In addition, the secretary answered the phone call during office hours also
validated the communication of acceptance. This is demonstrated in the case of
Mondial Shipping and Chartering BV v Astarte Shipping Ltd when the Court
expects business should have an efficient office hours to deliver the communication to
the organisation. The action of the secretary answered the call and received the
message during office appears to be a good acceptance and therefore a contract was
formed. For these reasons, Buyer Ltd could consider suing Seller Ltd for breaking the
contract.

4. Access to Business Level 3
Contract Law



b)
i. Security Ltd is bounded to accept the instalment arrangement if there is a new
contract exists on top of the existing contract between Retailer Ltd and Security
Ltd. For a contract to exist there must be four elements combined: intention,
agreement which is made up by offer and acceptance, consideration and
capability. If one of the elements is missing then there is no contract. The fact
that Retailer Ltd sent a letter promising to pay the balance over the following 6
months shows that Retailer Ltd is conducting a counter offer and therefore the
offer and acceptance element is missing for the new contract to exist. This is
demonstrated in the case of Hyde v Wrench, when the counter offer of £950 has
kills off the original offer £1000 for the farm. In addition, Retailer sent a cheque of
£10 000 which is less than the £20 000 payable stated from the existing contract.
It therefore did not form a good consideration since it is a lesser sum. The rule
which stated that payment of a lesser sum does not form a good consideration is
illustrated in the case of Pinnel’s when the defendant Cole has paid the plaintiff
Pinnel a sum of less than the debt before it was due, but it is still not a good
consideration. It can be concluded that because the two elements agreement and
consideration were missing for the new contract to exist, Security Ltd is not
bounded to accept the instalment arrangement.

Perhaps a wise decision Security Ltd could make is to accept the payment of
£10000 and once the company received the full amount of debt, they could then
sue Retailer Ltd for interest. It is implied that interests are usually occur when
paying by instalments, as demonstrated in the case of Foakes v Beer, when Mrs
Beer is entitled for all the interest from Dr Foakes because he made a payment of
lesser sum and then paid off all the debt in instalments but not the interest. The
Court held in favour of Mrs Beer and decided that Dr Foakes is liable to pay the
interest of the debt. By accepting the £10 000, Security Ltd reduces the risk of
having a bad debt and is in a better position to sue Retailer Ltd under the law of
contract.

ii. Security Ltd could be able to claim the additional cost from Retailer Ltd if there
was a contract exists for the extra works. For a contract to exist there must be
four elements combined: intention, agreement which is made up by offer and
acceptance, consideration and capacity. If one element is missing then there is
no contract. At first glance it seems like the agreement element was missing. The
rule of offer and acceptance states that the offer has to be communicated to the
offeree, as illustrated in the case of Powell v Lee when it was held that there was
no contract between Powell and the school since there was no authorised
communication. The fact that Security Ltd attempt to do the addition work first
before asking Retailer Ltd means that the agreement element did not exist since
the offer has not been communicated to the offeree.

In further look into the case, the existing contract states that Security Ltd has to
provide the installation as consideration for the contract. It is therefore Security

5. Access to Business Level 3
Contract Law



Ltd’s duty to finish the job. The rule of consideration states that the promise to
carry out existing duty is not a good consideration, as illustrated in the case of
Collins v Godefroy when the duty to appear in Court is legally required and
Collin could not use it to form a consideration for his contract with Godefroy. To
provide a good consideration, the conduct has to be over and above the existing
duty, as demonstrated in the case of Glasbrook Bros v Glarmorgan CC in
which the police have provided above their normal duty by providing stationery
guard for the mine company. The act of conducting the additional work in order to
finish the existing duty is not a good consideration and therefore it is unlikely that
they could claim the additional cost. Security Ltd could be in a better position to
claim if they could ask Retailer Ltd before they do the work and get their
acceptance to cover the cost. In addition, Security Ltd has to provide evidence
that they have gone beyond their normal duty in doing that additional work in
order to form a good consideration for the contract and being able to claim for the
cost.

c)
Alan could leave the job immediately if there was no contract between Alan and Bart’s
Auction Room. In order for a contract to exist there must be four elements combined:
intention, agreement which is made up of offer and acceptance, consideration and
capacity. If one element is missing then there is no contract. At first glance it looks like
the intention of the contract was formed between Alan and Bart’s. He also might have
accepted the offer for the contract by conduct when he took the job. The fact that Alan
accepted the low pay rate in exchange for the promise of ‘extensive training’ shows that
the consideration is valid. The issue in the case is concerning capacity of minor sine
Alan is aged 17 at the time.

The contract between Alan and Bart’s seems like a valid contract because it has all the
elements, including capacity. The fact that Alan took the low pay job with the promise of
‘extensive training’ has shown that this is a beneficial contract of service with a minor.
Since ‘the training’ consists of “a half day course on how to lift heavy items” which is not
beneficial for Alan since he wants to become an art dealer, the contract is void as regard
to minor. This is illustrated in the case of De Francesco v Barnum where the fourteen
year old girl was apprenticed for seven years in order to learn to dance, in the condition
that she will not get married during the time. It was found that the contract was
oppressive and not beneficial to the girl, therefore she is not bounded by the contract.
For that reason, Alan – as regard to minor- could leave the contract immediately.

6. Access to Business Level 3
Contract Law



e)
Fiona v Walter the shop keeper
Fiona can get the refund if Walter has breached the contract between them. In order for
a contract to exist there must be four elements combined: intention, agreement which is
made up of offer and acceptance, consideration and capacity. If one element is missing
then there is no contract. At first glance it seems that all elements of a contract have
been met: Fiona offers to buy the toaster and Walter accepted it, a consideration was
given and intention about the contract was formed. Fiona also has the capacity to get
into the contract. For these reasons a contract was formed. The issue arisen here
concerning contents of the contract, in which Walter has expresses that he is excluded
from liabilities since he has given an exclusion clause notice.
Fiona can get the refund if the exemption clause that Walter provided is invalid. For an
exemption clause to be valid it has to pass Parliament’s control. Parliament uses UCTA
to control exemption clauses. Fiona can be protected under the UCTA if she is a
consumer in this case. Section 12 of the UCTA states that to establish a “consumer”
status two conditions must be met that 1) one party must be selling in the course of
business and the other party must be buying not in the course of business 2) the goods
that are bought must be ordinary use for private use. Fiona has bought the item from the
shop for her personal uses and it is a toaster which she uses very often, therefore it is
established that Fiona is a consumer and she is protected under UCTA.
Section 6 UCTA states that one cannot exclude or limit liability for section 12,13,14 and
15 of SOGA where a consumer is concern. Section 14 of SOGA states that “goods
should be of satisfactory quality and fit for the purpose it was bought”. In relation to the
case, it was pointed out that Fiona is a consumer; she bought a toaster to use to make
toasts but the toaster ceased to function “a few days later”. The fact that she only used
toaster for a few days means that the goods was not of satisfactory quality, therefore
section 14 SOGA has been breached. Respectively, section 6 UCTA has also been
breached for not meeting section 14 SOGA where Fiona – the consumer is concerned
and as the result, the exclusion clause given by Walter is not valid. One case to illustrate
this is R&B Customs Brokers Co Ltd v United Dominions Trust Ltd, where the
exclusion clause cannot cease liability for sales of defective car because it is not fit for
the purpose. As the result the exemption clause is invalid.
Fiona can sue Walter for breaching condition term of contract, which she could claim for
damages and terminates the contract. She also could sue the shop keeper for breaching
warranties terms of the contract, for which Fiona can only claim for damages. It is better
that Fiona sue Walter for breaching the condition since Fiona could be entitled for the
damages and future potential loss as well as being able to terminate the contract.
Walter v the manufacture
The shop keeper can sue the manufacture if the manufacture has breached the contract
between them. In order for a contract to exist there must be four elements combined:
intention, agreement which is made up of offer and acceptance, consideration and

7. Access to Business Level 3
Contract Law



capacity. If one element is missing then there is no contract. At first glance it seems that
the manufacture has made an offer to supply toasters to the shop and Walter has
accepted it. The intention for the contract was formed between them and both parties
have agreed to consideration of the contract. The shop keeper and the manufacture
have capacity for the contract. It could be concluded that there was a contract exists
between Walter and the manufacture. The issue arises in this case is concerning the
contents of the contract, in which the manufacture has exclusion clause that exclude
them from liabilities caused by faulty products.
Walter can be protected under UCTA if he can prove that he is a consumer. However,
section 2 UCTA defines consumers as 1) one party must be selling in the course of
business and the other party must be buying not in the course of business 2) the goods
that are bought must be ordinary use for private use. Therefore Walter is not a
consumer. Under Section 6 UCTA, for non-consumer contract, the exclusion clause has
to pass the “reasonableness” tests before it could be valid. If one test fails then the
exclusion is invalid. One of the tests of “reasonableness” is “whether customer given the
exclusion clause plus extra incentive”. The fact that Walter has not received any
incentive with the exclusion clause means that the exclusion clause given by the
manufacture has failed the test. Respectively, the exemption clause given by the
manufacture is invalid and Walter could sue the manufacture. It is recommended that
Walter sues the manufacture for breach of condition which allows him to claim for
damages vis-à-vis Fiona’s case, as well as being able to terminate the contract and look
for a more reliable supplier. One case to demonstrate this is Britvic Soft Drinks Ltd v
Messer UK Ltd, where the CO2 level has exceeded the level stated in the contract. It
was held that the defendant could not rely on the exclusion clause to limit their liabilities
for breach the implied conditions under section 14 of the SOGA, since the parties did not
negotiate about the clause.

8. Access to Business Level 3
Contract Law



d)
i. Alan could not sue CA if the contract between them has been discharged. In
order for a contract to exist there must be four elements combined: intention,
agreement which is made up of offer and acceptance, consideration and
capacity. If one element is missing then there is no contract. It seems that an
agreement has been formed between Alan and the shop, they had intention of a
contract in mind at the point of sale, Alan had given £40 in consideration for the
contract and the fact that Alan was 17 but the painting is necessary for him to
develop his career as an Art dealer fulfilled the capacity element. Therefore, a
contract was formed between Alan and CA. The issue in this case is whether that
contract has been discharged because of the fire broke out.

At first glance Alan cannot sue because CA has frustrated the contract. The law
on frustration states that a contract can be ended by frustration when the subject
matter of the contract is destroyed. In this case, the fire broke out has destroyed
both the premise that store the painting and the painting itself, thus CA is unable
to carry out their duty because a physical impossibility event has took place.
Hence, Alan could not sue CA for breach of contract because the contract has
been discharged by frustration and as the result CA is not liable to pay for the
loss of the painting nor the £40 deposit. One case to illustrate this is Taylor v
Caldwell, when the contract between the two parties had been frustrated
because the hall where the performance takes place was destroyed by fire.

At second glance, Alan could receive some remedies if he chose to claim under
the equity. The Law Reform (Frustrated Contracts) Act 1943 had made some
important changes to the recovery of money payable, in which the Court is
allowed to use discretion to decide in particular cases. By claiming under equity,
it does not give him the damages due to the loss of the painting, but he may get
back the deposit of £40. In addition, the contract did not mention storage fee but
since it is generally occurred, Alan could get his deposit back minus the deposit
fee of the painting.

ii. Alan could sue CA if CA has breached the contract. In order for a contract to exist
there must be four elements combined: intention, agreement which is made up of
offer and acceptance, consideration and capacity. If one element is missing then
there is no contract. It seems that an agreement has been formed between Alan
and the shop, they had intention of a contract in mind at the point of sale, Alan
had given £40 in consideration for the contract and the fact that Alan was 17 but
the painting is necessary for him to develop his career as an Art dealer fulfilled
the capacity element. Therefore, a contract was formed between Alan and CA.
By refusing to carry out their obligation in giving the painting to Alan, CA has
breached the contract and Alan could claim for remedy.

There are two types of remedies that Alan could claim for: common law’s remedy
and equity’s remedy. At first glance, common law’s equity is better because it

9. Access to Business Level 3
Contract Law



allows Alan to terminate the contract and claim for damages. However, since
Alan still needs the painting to pursue his career as an Art dealer, he should
choose to claim for equity because common law’s remedy is not satisfactory.
Alan should seek the Court’s equity for order of specific performance, where the
Court could force CA to deliver the painting to Alan.

10. Access to Business Level 3
Contract Law



Task 4) Explain in no more than 750 words in total for all the questions below:
a. the ways in which a contract can be terminated
To “discharge” or “terminate” of a contract means bring the contract to an end and as the
result, both parties are free from obligations under the terms of the contract. A contract
can be terminated by performance, agreement, frustration or breach.
A contract can be terminated by performance, meaning when both parties have carried
out their obligations. This is the most occurrences form of discharging a contract. For
example, when the house is built and the builders are paid the contract is generally
terminated. The rule under performance states that part performance is a breach and
the contract cannot be terminated. There are exceptions to the general rule, such as in
the case of building a house: the builders can build the house without a roof and expect
to get paid before they can build the roof.
A contract can be terminated by a mutual agreement by both parties. This can be
included in the terms of contract that, that the contract is ended after the happening of
an event or after a fixed period of time. In addition, it may also allow one party to
terminate the contract by giving notice in advance. One example is employment
contracts, where the employee agreed to work for the employer for a fixed period of
time. After that time, the contract is terminated and the employee can leave to find
another employer.
When there is a supervening impossibility after the contract has been concluded, that is
neither the parties’ fault, the contract is terminated under the frustration rule. The
frustration rule applies when 1) the subject matter of the contract is destroyed, 2) non-
occurrence of an event on which the contract is based, 3) incapacity where the contract
requires personal performance and 4) after the contract is made, a law is passed to
make the performance of the contract is illegal. However, the frustration rule does not
apply when it is self-induced: when one party can foresee the event and difficulty arising
but still chose to enter the contract, which the party has the obligation to carry out their
duty. In addition, frustration rule does not apply where the contract becomes more
difficult to perform but not impossible. Under the rule of frustration, future remedies are
ended but past payment is still in obligation hence deposits are usually not claimable.
The Law Reform (Frustrated Contracts) Act 1943 relaxes this rule and allows the
Courts to use discretion to allocate past payment when it’s fair and just to do so.
A contract can be terminated by breach. This means when one party does not carry out
its obligations. Under the law of breach, there are two types of remedies: common law
remedy and equity remedy. Common law remedy is usually better because it allows the
party to claim for damages and terminate the contract, while equity only allows the party
to claim for remedy. Equity remedy is based on the Courts’ discretion, which they can be
decoration, injunction or by order of specific performance. The damage of breach is
decided by the Court based on the importance of the contract.
b. the different types of terms in a contract

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Contract Law



The terms are the statement of a contract. The term can be oral, written or by conduct. It
can be classified in two ways: implied or express terms and conditions or warranties.
Express terms are terms which have been agreed to orally, by writing or by conduct. It is
in contrast with implied terms, which are terms that are assumed. Factors of assumption
can be from the industrial general practises, Parliament or the Court. The Courts and
Parliament usually look at SOGA 1979, especially Section 12,13 and 14 for implied
terms of the contract.
Terms of a contract can also be conditional or of warranties. Breach of condition allows
the party to claim for damages and terminate the contract. Breach of warranties only
allows the party to claim for damages. The distinction between them is at the Court’s
decision by looking at the importance of the term of the contract. Sometimes Parliament
decides by way of status such as SOGA 1979, that a term is a condition.
“Exclusion clauses” within the terms of contract are not favourably by the Court and
Parliament when the contract was made between parties of unequal bargaining
positions. It needs to pass the Parliament’s control by looking at status and then the
Court’s strict interpretation and incorporation controls before it could be consider valid.