Law in Business

On 15th October 2010 East Midlands Airways (EMA) advertise a second-hand Airbus 321 for sale in an aviation industry trade journal for ? 12. 5m. Later that same day, Colvin, the Chief Executive Officer of Houston Aviation Ltd, phones EMA’s Managing Director Patricia. Colvin says that his firm would very much like to view the Airbus 321 but that he is off on a 5 day business trip to Dallas, Texas and will not be able to view the aircraft until he returns.Patricia says that if another buyer comes forward she will have to sell the Airbus 321 to that buyer. Colvin then says he will pay ? 100,000 if EMA promises not to sell the Airbus 321 to another buyer for the next 5 days. Patricia agrees to this. Analyse whether any contract has been made between the parties and if so, what are its terms? Refer to the facts briefly and discuss the relevant case law that supports the conclusions you arrive at in your answer. Also advise on any practical implications for the parties.In legal term s a contract is defined as ‘Any legally binding agreement voluntarily entered into by two or more parties that places an obligation on each party to do or not do something for one or more of the other parties and that gives each party the right to demand the performance of whatever is promised to them by the other parties. ’[1] In this essay I am going to look at whether a contract has been made by the two parties, I will then look at the elements of this contract, what this contract means, whether it has been breached and the results of this. I will use relevant case law to support my findings.The first thing to consider is that the advert placed in the industry based journal is an invitation to treat. They have advertised a price in the journal of ? 12. 5m however this is not an offer so they are not obliged to sell at this price. An invitation to treat is an invitation to negotiate, or an invitation to make a deal. [2] We can be sure that this is an invitation to tre at and not an offer if we look at the case of Partridge v Crittenden (1968). In this case the defendant was advertising in a magazine for sale of a bramblefinch for 25 shillings. Under the Protection of Birds Act 1954 it was illegal to offer for sale a bramblefinch.A customer then posted a cheque asking for the bramblefinch. The defendant was held not guilty as the advertisement was an invitation to treat not an offer. After the invitation to treat Colvin contacted Patricia and made an offer to her that he would give East Midlands Airways ? 100,000 if they agreed not to sell the Airbus 321 in the next five days. Patricia agreed to the terms of this offer and therefore a contract was made They both agreed to the terms of the contract voluntarily. There are two types of contract unilateral and bilateral. Almost all contracts are bilateral because both sides make a contractual promise to the other. 3] In this situation the contract is bilateral this is because Colvin has made an offer of ? 100,000 and Patricia has accepted it, therefore there are two parties involved. A contract will only come into existence if the offer which is accepted contains all of the terms of the contract. A court must be able to obtain with certainty exactly what was agreed. [4] They take an objective view asking whether the reasonable person would have thought that the agreement was sufficiently certain. In Sudbrook Trading Estate Ltd v Eggleton (1983) a lease gave a tenant an option to buy land at a price above ? 12,000 as agreed by two valuers.The tenant wanted to buy the land however the landlord refused to appoint a valuer as it said he must in the contract. This was held as the contract was certain and the landlord should have appointed a valuer. In this situation Colvin offered to give EMA ? 100,000 in return for them not selling the plane for five days. The five days is a set period of time, however there is no set period of time for the paying of the ? 100,000. This could be con sidered evidence for lack of certainty of the product. For an offer and acceptance to become a contract, the parties must have had an intention to make the agreement legally binding.The view the courts take is that they don’t look into whether the parties actually intended to create a legal agreement but whether they appeared to the reasonable person to have that intention. [5] In Parker v Clark Lord Devlin said ‘ the question (whether or not there is a binding contract) must, of course, depend upon the intention of the parties, to be inferred from the language they use and from the circumstances in which they use it’ In this situation Patricia isn’t legally bound to sell the plane to Colvin however she is legally bound not to sell the plane for five days, as Colvin is to pay EMA.An agreement can also not amount to a contract unless each party gives some ‘consideration’ to the other. In bilateral contracts the consideration of both parties tak es the form of a promise to do something in the future. [6] In Currie vs Misa the definition of consideration was made ‘ A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to on party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other. ’ Colvin is offering to give ? 00,000 in the future and Patricia is offering to not sell the plane for five days. This also fits Sir Frederick Pollocks definition of consideration as being ‘the price of promise. ’[7] Consideration must be sufficient but need not be adequate, it must have some economic value and consideration must move from the purpose. [8] When looking at whether consideration is sufficient we are looking at whether that which has been provided relates to the value of that which is being contracted for. When looking at this situation ? 100,000 does not seem a lot compared to ? 12. m for the plane, however Colvin isn’t buying the plane just the right that it not be sold for five days, so the amount does appear to be sufficient. In Thomas v Thomas (1842) the executors of a will promised the deceased’s widow that she could live in the matrimonial home if she paid ? 1 rent and continued to maintain the property. The court held that the widow had provided something of value in exchange for the executor’s promise despite the fact it was in no way adequate in relation to the price of the property. However, it was legally sufficient. When looking at this case it is clear the Colvin’s ? 00,000 is sufficient. Colvin’s consideration obviously holds economic value. Patricia’s consideration of not selling the plane for five days may hold economic value for Colvin as he will make money out of the plane if he gets the chance to purchase it. The consideration in this situation is executory as Colvin has promised to give Patricia ? 100,000 in t he future. Another example of executory consideration is in Nicolene Ltd v Simmonds the consideration of both parties is executory as the defendant promised he would deliver the 3000 tons of steel bars, and the claimants promised that they would pay for them.Colvin’s consideration will become executed when he pays the ? 100,000. We must then consider whether both parties had the capacity to make any contract they please. In this situation from the information we are given there is no reason to suggest that both Colvin and Patricia didn’t have the capacity. A contract is made up of express terms and implied terms. Express terms of the contract are contained in the offer [9]. Sometimes it can be very difficult to tell what are the express terms in a contract, assurances and promises are often made over a period of time.However in this offer it is clear that the express terms are that Colvin gives EMA ? 100,000 and in return Patricia will not sell the plane for five days. Both parties are in the Aviation Industry with Colvin the Chief Executive Officer of Houston Aviation Ltd, and Patricia is the Managing Director of East Midlands Airways. This means that both parties will have a similar level of knowledge on the subject of the contract, the plane, so we do not need to consider that one party has more knowledge that the other.This happened in Oscar Chess Lt v Williams (1957) when the defendant sold a car to a car dealer saying it was a 1948 model, it turned out to be a 1939 model. The defendant was not found liable as the dealer had considerably more knowledge about cars, and what the defendant said was a representation rather than a term. If Patricia breaches the contract by selling the plane within 5 days then Colvin is within his right to refuse to pay the ? 100,000. If Colvin breaches the contract then EMA can take action for that amount of money.In conclusion, I think that there has been a verbal contract made between East Midlands Airways and Houston Aviation. This resulted from the invitation to sell by EMA which led to Houston Aviation making an offer of ? 100,000, not for the plane, but for EMA not to sell the plane for five days. This was accepted by EMA. The agreement would have been considered sufficiently certain by the reasonable man. Then it was established that both parties did intend to enter the agreement, and both showed consideration making promises for the future. References Macintyre, E (2010). Business Law. 5th ed.Harlow: Pearson Education. 77,79,88,103,108,134 Murray, R (2008). Contract Law The Fundamentals. London: Thomson Reuters. 48,49 http://law. yourdictionary. com/contract Partridge v Crittenden (1968) 1 WLR 1204, 2 All ER 421, (1968) 112 SJ 582 Sudbrook Trading Estate Ltd v Eggleton (1983) AC 444, (1982) 3 WLR 215, (1982) 3 all ER 1, HL Parker v Clark (1960) 1 WLR 286, (1960) 1 All ER 93, (1960) 104 SJ 251 Currie vs Misa (1875) LR 10 Exch 153, 44 LJ Ex 94, 23 WR 450, Ex Ch Thomas v Thomas (1842) 2 QB 851 Nicolene Ltd v Simmonds (1953) 1 QB 543, (1953) 2 WLR 717, (1953) 1 All ER 822, CAOscar Chess Lt v Williams (1957) 1 WLR 370, (1957) 1 All ER 325, (1957) 101 SJ 186, CA Bibliography Macintyre, E (2010). Business Law. 5th ed. Harlow: Pearson Education Murray, R (2008). Contract Law The Fundamentals. London: Thomson Reuters. http://law. yourdictionary. com Denoncourt, J (2009) Business Law. Oxon: Routledge Cavendish ———————– 1. http://law. yourdictionary. com/contract [1] Macintyre, 2010, p77 [2] Macintyre, 2010, p79 [3] Macintyre, 2010, p88 [4] Macintyre, 2010, p103 [5] Macintyre, 2010, p108 [6] Murray, 2008. p48 [7] Murray, 2008, p49 [8] Macintyre, 2010,p134