Question

On May 1, Newtown Motors, a used-car dealer, wrote a letter to O’Reilly, stating that: “We have a 1969 Pontiac Firebird in mint condition that we will sell you for $12,500 at any time before June 1. [Signed] Newtown Motors.”

Having heard nothing from O’Reilly by May 15, Newtown Motors sold the car to another party. On May 25, O’Reilly told Newtown Motors that he accepted the offer and tendered $12,500. When Newtown Motors told O’Reilly it had sold the car to another party, O’Reilly claimed Newtown Motors had breached their contract.

Please answer the following questions and provide the reasoning behind your conclusion, i.e. list the applicable rule, and provide an analysis by applying the facts to the rule to reach a conclusion.

In whose favor would a court likely rule?

Answer 1

In the present case, court will rule in favor of Newtown Motors.

The factual analysis of the case with respect to Contract Law:

When Newtown Motors told O’Reilly it had sold the car to another party, O’Reilly claimed Newtown Motors had breached their contract. However, as per contract law, there was no contact in existence between them. The analysis of the facts is as under:

1. First of all we need to understand what a contract means and how it is created.

A contract is an agreement between two or more parties creating reciprocal obligations enforceable at law. The elements of a contract are mutual consent, offer and acceptance, consideration, and legal purpose.

Mutual consent is typically established through the process of offer and acceptance.

2. Now we need to understand the meaning of offer, acceptance and rights of offeree and offeror.

An offer is a display of willingness by a promissor to be legally bound by terms they specify, made in a way that would lead a reasonable person in the promisee's position to understand that an acceptance is being sought and, if made, results in an enforceable contract.

Means an offer is just willingness to legally bind by terms specified, not the contract and need to be accepted to result is an enforceable contract.

3. Now, we need to understand the rights of the offeror and terms of acceptance to become a legally enforceable contract.

Ordinarily, an offeror is permitted to revoke their offer at any time prior to a valid acceptance. This is partially due to the maxim that an offeror is the "master of his offer."

In the case of options, the general rule stated above applies even when the offeror promises to hold the offer open for a certain period of time.

Like in present case, Newton Motors has given an offer, not entered into contact, that they will sell the car at a specified price before 1^st June.

O’Reilly has not communicated his acceptance. Hence, Newton Motors being the “Master of his offer” is permitted to revoke their offer at any time prior to a valid acceptance.

4. When will the offer cannot be revoked by offeror during the specified period?

If the offeree gives some separate consideration (discussed below) to keep the offer open for a certain period of time, the offeror is not permitted to revoke during that period.

If O’Reilly had given certain amount let say $1000 to Newton Motors to keep the offer open upto June1, then Newton Motors was not permitted to revoke during that period. However, no such incident happened in present case.

5. What is the meaning of acceptance and how a legally enforceable contact is formed?

An acceptance is an agreement, by express act or implied from conduct, to the terms of an offer, including the prescribed manner of acceptance, so that an enforceable contract is formed.

However, in present case, O’Reilly has not given any kind of expression to terms of offer made by Newton Motors. So there was no acceptance, hence, no legally enforceable contract is existed between O’Reilly and Newton Motors.

So, no question of breach of contract arises.