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Introduction In discussing the situation between Paul and James it is critical to establish whether during their discussion an actual contract had come into existence between the two parties. It is therefore necessary to examine, in relation to the scenario, whether when entering into this agreement there was an intention to create legal relations, and also due to the insolvence if this contract was brought to an end by frustration and if there was offer and acceptance.

Contract A contract is an agreement between two or more parties that is intended to be legally binding. The first requirement for any contract is an agreement which consists of an offer and an acceptance. A party will make an offer to another who accepts or rejects. It can also be said to be a statement by one party which shows willingness to enter into a contract on stated terms that must be accepted by the party to which it is addressed. There are two types of offers, a unilateral offer and a bilateral offer. In law, the term offer is defined as an undertaking by the offeror that he will be bound in contract by the offer if there is a proper acceptance of it. The offer cannot be vague or indefinite; it must be precise and express a clear intent to contract.

The case of james and Paul it seems that a contract was entered into because of the fact that Paul accepted the terms of trade given by James that is the offer and subsequently received part of the consignement as agreed, showing acceptance

Acceptance of Offer The second element is whether there had been acceptance of the terms of the offer. Here the offeree or the person to whom the offer is addressed will accept the terms of the contract. Contractual acceptance has to be a final and unqualified expression of assent to the terms of the offer. To make a contract binding acceptance has to match the offer, therefore the offeree must not seek to introduce new contractual terms into their acceptance (Neal v Merritt (1830)). Any attempt to do so amounts to a counter offer and leaves the original offeror at liberty to accept or reject the new offer as they choose (Hyde v Wrench (1840)).

The fact that Paul agreed to James terms of the offer show that there was acceptance. This is confirmed in the fact that the first consignment was delivered and accepted

Consideration English law does not enforce gratuitous promises unless they are made by deed. There should therefore normally be consideration. Where a promisee agrees to keep an offer open for a period, such a promise is only binding where there is a separate contract to that effect, supported by independent consideration. Consideration can be understood to be the price paid for a promise (Dunlop v Selfridge (1915)). Without such an option contract, the promisor is at liberty to withdraw the offer at any time before the promisee actually accepts the offer. In the case of unilateral contracts, where the offerror promises something in return for the offeree doing something, the promise only comes enforceable when the offeree has actually performed the required act. In Paul and James’ case it would appear that consideration was provided by Paul by waiting until the crop was ready and receive the first consignment

Intention to Create Legal Relations The law does not necessarily recognise the existence of a contract simply because of the presence of mutual promises. It is also necessary to establish that both parties entered the agreement with the intention of creating legal relations so that if the agreement were broken, the offended party would be able to execute legally enforceable remedies. In this scenario the fact that it was a commercial transaction and the credit terms were agreed upon, shows that there was intention to create legal relations. Wrongful traiding was introduced by s214 Insolvency Act 1986. The purpose is to protect creditors of limited companies by placing additional duties on directors which could make them responsible to contribute to the assets of the company in the event of the company going into insolvent liquidation. Aperson may be liable for wrongful trading under s214 where:

I) II)

The company has gone into insolvent liquidation At some time before the commencement of the winding up of the company that the person new , or ought to have known , that there was no reasonable prospect that the company would avoid going into insolvenct liquidation, and


That the person was a director of the company at that time.

The court may then on the application of the liquidator declare that the person is to be liable to make such contribution to the copany’s assets as the court thinks proper.

In this scenario, it seems that Paul had at some time before the commencement of the winding up had some knowledge or new that he will not avoid going into insolvent liquidation. Even when he was accepting the first consignment he new that he can not avoid the insolvency. This is evident in the fact that it was only within a week that he had reeived the first consignment and he was declared insolvent.Therefor James has some legal options to force Paul to contribute to the assets to be sold to offsets the debts. However if Paul can show that after the time that he new, or ought to have known , that there was no reasonable chance for him to avoid insolvent liquidation, he took every step with aview to minimise the potential loss to the creditors .In deciding what he ought to have done, the courts adopt a partly objective standard by considering what would have been done by a reasonable deligent person having the general knowledge skill and experience that may reasonably be expected of a person carrying out the same fuctions as Paul in this question. They courts may also use another subjective test that may increase the individual’s liability depending on the actual knowledge , skill, and experience that Paul had. The extent of the liability will depend or be determined by the reference to the losses incurred by Paul from the date when he ought to have realised that he could not avoid going itno insolvent liquidation (Re Produce Marketing Consortium Ltd 1989)

Where a person is found responsible for wrongful trading , ten in addition to his financial reposibilities , the court may also make disqualification order against him , disqualifying him from participating in any company’s management for up to 15years. This act was introduced to prevent individuals from abusing the privilege of the corporate form generally and limited

liability in particular and it give the courts wide powers to make orders disqualifying individuals from acting or participating in the management of other companies.

Inthe case of Paul it can be said that he deliberately went into trading with James fully knowing his economic status that he is likes togo into Insolvent liquidation.

Conclusion After critically examining the scenario with the application of knowledge of the different elements that are necessary in order to establish a prima facie case, James has the right to effect legal proceedings against the conduct of Paul, so that if Paul has personal assets, the court will for ce him to sale out these assets in order to offset the or liquidate the damages caused to james.

Reference  1 Adams, Alix (1996) Law for Business Students. London: Pitman Publishing

 Dobson, Paul (1997) Charlesworth’s Business Law Sixteenth Edition. London: Sweet & Maxwell Limited

 Keenan, Denis & Riches, Sarah (2002) Business Law. Great Britain: Longman

 Kelly, David & Holmes Ann (1995) Business Law. London: Cavendish Publishing

 Thomas, Roger (2001) Introduction to Business Law Module Guide. Cambridge, Anglia Law School

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