Question 1

Issue

Is there a legally binding contract between the buyer and the seller?

Legal Rules

A legally binding contract contains following essential elements: offer and acceptance, capacity to contract, intention to create legal relations, certainty of contract terms and proper consideration. When these elements present, there is a legally binding contract. A legally binding contract will not be formed if lack one of the essential elements. However, nevertheless the existence of a legally binding contract, there may be other elements such as counter-offer in the course of negotiation by parties, but they are not essential for a legally binding contract.

An “invitation to treat”refers to an intention of inviting others to make an offer to the inviter (Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401). This always exists in the course of negotiation of contract but it is not a essential element for a valid binding contract.

An offer refers to the intention to enter into contract by some conditions and terms with the offeree. Acceptance means the offeree accepts the offer and is willing to enter into contract with the offer (Turner Kempson & Co Pty Ltd v Camn [1922] VLR 498). “Intention to create legal relations”sometimes needs to be presumed, in case it is a “social or domestic agreement”the court will presume that there is no such intention, while a “commercial agreement” there is such intention.

In exchange for the promisor’s promise, the promisee must provide something valuable, which is called “consideration”.

As for “capacity to contract”, parties must be capable to enter into contract; if one is not capable doing so, he must be agented by a proper agent (Nash v Inman [1908] 2 KB 1). Juveniles and mental patients are incapable to enter into contract by their own.

Application

1.Invitation to treat

The advertisement for sale of the red Ford car constitutes an “invitation to treat”. The advertisement only represented that the seller wanted to sell a car, a red Ford without other contents, and was made to the whole world. Therefore it was an invitation to treat.

2.Offer

The seller made an offer through representing that he would sell his car to one who is interested at a price of $15,000 or near. The buyer contacted the seller after seeing the advertisement and showed interesting buying the car, he requested the seller to make an offer to him. The seller then made an offer that he would accept the price of around $15,000. Offer is the fundamental element for a valid contract since there is no contract if no offer exists.

3.Counter-offer (New offer)

The buyer said the price is high since there was some defects existed on the car and made a counter-offer to the seller by requesting that if the seller accepted the price of $12,000.

Then the seller made a new offer: he said he would an offer with a price of $14,000 to buy the car. The buyer did not accept the offer but again made a counter-offer: he would pay the seller $13,000 for the car. Through the offer-counteroffer

4.Acceptance

There is no contract until an offer is accepted. In the captioned case finally the seller accepted the