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IPAC Example: Contract Law Problem
Problem: Derek was really excited when he saw the advertisement as he is about to open his own antique home decor shop and he is in the process of sourcing antique home decors for the shop. Therefore, Derek eagerly called his brother Sam and the following conversation took place: Derek: “Hi brother, I saw your advertisement of selling an antique chandelier. Was it the one that our great grandmother passed on to you? It would be amazing if I could have it in my new shop. What is the lowest price?” Sam: “Mate, the best price I could do for you is $2,500.00.” Derek: “Brother, I have spent a lot of money to get the shop ready for opening recently and I wouldn’t be able to afford $2,500.00. Would you accept $2,000.00?” Sam: “Derek, you know how much this chandelier means to me and I would never try to sell it if it wasn’t because your sister-in-law and I desperately need the money to repair the water damage in our house. How about $2,000 and I will also give you the original replacement light bulb that comes with the chandelier?” Derek: “Ok then, it’s a deal.” Later on the day, Sam found out that he had won a million-dollar lottery, and he no long needed to sell the chandelier. Sam then called Derek and said: “Hi, I am just calling to let you know that I have decided not to sell the chandelier anymore and I am sorry for changing my mind.” Advise Derek as to whether there is a contract between Derek and Sam.
Issue
The central question is whether a binding contract was created between Sam and Derek when Derek said “Ok then, it’s a deal” to Sam’s offer of the chandelier for $2,000 plus the original bulb, and if so, whether Sam’s later revocation is valid. Contract formation requires offer and acceptance, consideration, and intention to create legal relations; Sam’s library notice was an invitation to treat, Derek’s $2.000 reply a counter-offer, Sam’s “$2.000 + bulb” a fresh offer, and Derek’s “Ok then, it’s a deal” an acceptance.
Principle 1 Application 1
Invitation to Treat
• Principle: Retail displays, catalogues, and advertisements are invitations to treat, not offers, because they merely invite offers and preserve the seller’s freedom to accept or reject.
• Application: Sam’s library notice board ad for the antique chandelier was an invitation to treat. Derek’s subsequent phone call constituted the first offer, which Sam was free to accept, reject, or counter.
Principle 2 Application 2
Offer & Counter-Offer
• Principle: A counter-offer rejects and replaces the original offer; it extinguishes the prior offer. As in Hyde v Wrench, a counter-offer cannot later be revived.
• Application: Derek’s $2.000 request was a counter-offer to Sam’s $2,500. When Sam replied, “$2.000 and I’ll also give you the original replacement bulb,” he made a fresh offer under the rule in Hyde v Wrench.
Principle 3 Application 3
Acceptance & Communication
• Principle: Acceptance must be an unqualified assent to the exact terms, communicated by the offeree in response to the offer. In R v Clarke, acceptance was ineffective where the offeree acted without knowledge of the reward offer.
• Application: Derek’s “Ok then, it’s a deal” was an unequivocal acceptance of Sam’s $2.000 + bulb offer, communicated directly and with full knowledge of those terms.
Principle 4 Application 4
Consideration
• Principle: Consideration must be definite and real; the court must be able to ascertain its legal value.
• Application: Sam’s promise to transfer the chandelier and original bulb was a moving consideration from Sam; Derek’s promise to pay $2.000 was a consideration moving from Derek. This mutual exchange satisfies the requirement for consideration
Principle 5 Application 5
Intention to Create Legal Relations
• Principle: Commercial agreements carry a presumption of legal intent absent clear contrary evidence.
• Application: Although Sam and Derek are siblings, their negotiation over an antique chandelier for a commercial shop was a business transaction. The urgency and formal negotiation demonstrate an objective intention to be legally bound.
Defences
• Late Revocation: An offeror can revoke up until acceptance, but the revocation must reach the offeree first. Sam’s attempt to withdraw came after Derek’s acceptance, so it is ineffective
• Lack of Intention: Domestic arrangements ordinarily lack legal intent, but this presumption is rebutted in commercial contexts. The formal sale negotiation here evidences a clear intent to create legal relations.
• Uncertainty of Terms: Courts strive to uphold contracts by implying or clarifying uncertain terms where possible. Sam’s promise to include “the original replacement light bulb” is clear enough.
Conclusion
Therefore, a valid contract was formed when Derek accepted Sam’s $2.000 + bulb offer. All elements, invitation to treat followed by offer/counter-offer, clear acceptance, consideration, and intention to create legal relations, are satisfied. Sam’s attempted revocation after acceptance is legally ineffective. Derek may enforce delivery of the chandelier and bulb or seek damages; given the chandelier’s uniqueness, specific performance is the most appropriate remedy.