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binding contract

evergreen ltd offers to sell 100 bottles of house wine to tai fai ltd at $400per bottle on Monday. the offer to tai fat ltd states telephone an acceptance by 5p.m. today and delivery will take place on Fridaytai fat ltd faxes its acceptance at 3:00 p.m. , the fax machine informing the office clerk that message has been properly relayed to evergreen. However the fax machine of evergreen has not been fitted with a new printing cartridge so the acceptance is not received tai fat ltd believes the contract is formed and therefore it enters a contract with parkin ltd for selling the 30 bottles of house wine at $600 per bottle and it will deliver next Tuesday

Q1.advice whether there is a binding contract between evergreen and tai fai ltd

Q2.whether the advice would be different if tai fat ltd telephone its acceptance tue morning?

1 Answer

  • Kevin
    Lv 7
    10 years ago
    Favorite Answer

    Comfort letters or letters of intent have been in use for centuries in all forms of commerce. In construction the essential feature or purpose of a letter of intent is to get work started (be it design, construction operations or the commencement of manufacture and/or supply) in anticipation of the parties, to the letter of intent, entering into a formal contract in due course. The letter of intent allows work to commence in the situation where the parties (or one of the parties) are not yet in a position to execute a formal contract. It may be that the contract terms have not been finalised, and are still being negotiated, or perhaps the employer is awaiting planning approval or finance. Because letters of intent create obligations and indicate an intention to enter into a contract in the future they are fraught with difficulties and the drafting of such letters requires careful consideration. A letter of intent may inadvertently give rise to a binding contract with continuing and defined obligations - where one was not intended. Alternatively, the letter of intent may allow one party to delay, and in extreme cases avoid, entering into a formal contract at all. One party may be able to exploit the situation and benefit from such uncertainties as a right to payment on a quantum meriut (that is, a reasonable sum for work done or services rendered) and a time obligation restricted to carrying out the ordered works in reasonable time as opposed to a programme or fixed completion/delivery date. Clear and unambiguous drafting is required to avoid potentially serious liabilities and disputes.

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