Economics & Finance Insights | econosasy.com https://econosasy.com Sat, 20 Sep 2025 05:08:44 +0000 en-US hourly 1 https://wordpress.org/?v=6.8.8 Management Accounting https://econosasy.com/2025/09/05/acco-1095/ https://econosasy.com/2025/09/05/acco-1095/#respond Fri, 05 Sep 2025 00:56:32 +0000 https://econosasy.com/?p=594

Management Accounting

ACCO 1095

Introduction

The concept of sustainability emerged in 1987 in a report named “Our Common Future” (Brundtland Commission,1987) which was started by the United Nations. The report stated that “sustainable development is development which meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Building on this foundation, the concept of sustainability reporting emerged as a means for companies to disclose accurate and transparent data about their economic, environmental, and social performance. Heemskerk et al (2002) defined it as issuing reports of companies’ activities on the above dimensions to both internal and external stakeholders. The emphasis on the disclosure of accurate data towards sustainable development was also highlighted by Agama & Zubairu (2022).

This essay explores development of sustainability reporting, highlighting the significance in addressing morality which traditional accounting system neglected. Furthermore, it will discuss the rise of sustainability reporting as an increasing demand for transparency and accountability. Lastly, it examines whether sustainability reporting brings back morality into accounting by taking BP Deepwater Horizon Oil Spill as an example.

Traditional Accounting Systems: Limitations in Addressing Morality

Traditional accounting systems, despite being essential in measuring the financial metrics of the company, fall short in reporting the impact of their operations in subjective and moral aspects. In other words, these systems primarily focus on financial outcomes such as profits, costs, and the efficiency. They are limited to account for the ethical implications of business decisions (Gray,2007). Moreover, the extensive focus on the financial aspect of companies often disregarded the environmental issues, and social matters were considered the responsibility of the public sector. (Laine et al., 2021)

The ‘Enron Scandal’ illustrates how traditional accounting systems that focused on financial metrics failed to adhere to ethical standards leading to a remarkable downfall in history. When the scandal was revealed in October 2001, it eventually led to the bankruptcy of the company. It used mark-to-market (MTM), a revised traditional and cost accounting method to hide its losses and debt from the investors and creditors (Li, 2010).

The American energy-trading company based in Houston, Texas was the world’s largest audit and accountancy partnership. In late 2001, the company handled 25% of energy trading in the United States. It transformed from being a gas pipeline operator to a financial intermediary, and its annual revenue surged from $13.5 billion in 1991 to more than $100 billion in the year 2001 (Petra & Spieler, 2020). However, in the mid-2000s, the stock price dropped from $90 per share to $1 per share at the end of 2001, resulting in the shareholders’ loss of about $11 billion. Later it suffered the largest bankruptcy in American history, running into losses of up to $586 million (Li, 2010).

The main cause of the scandal was a lack of truthfulness in reporting the health of the company. They used SPEs (Special Purpose Entities- a set of assets as collateral) to hide the debt and losses of the company from the stakeholders. Accounting rules allow the company not to report the SPEs if the independent party has at least 3% of the SPEs assets. Enron guaranteed their bank debts by using SPEs as their collateral it enabled them to convert loans and assets into revenue. Also, it transferred the stock to SPEs giving them additional assets. However, the liabilities owed were not reported in the financial statements. In turn, the SPEs were in short debt when the stock price plummeted (Benston & Hartgraves, 2002; Li, 2010).

Another tool used was Mark-To-Marketing, where the company recognised the present value of future cash inflows of a long-term contract, and the costs associated with it were expensed. Furthermore, any changes in the market value of these contracts were reported later as annual earnings in the financial statements. The main challenge associated with it was estimating the present value of future cash flows of contracts which lasted 20 years (Palepu & Healy, 2003). In other words, the company by recognising all the revenues of the future cash flows, which might not happen or are not realised yet, overestimated the profits misleading the financial results. The example stated by Palepu & Healy (2003) shows how the company acknowledged its profits of over $110 million for a 20-year deal with Blockbuster Video to stream entertainment, neglecting the market demand and the practicality of the deal. Furthermore, to satisfy investor trades kept forecasting high future cash flows and low discount rates (Li, 2010).

Finally, Enron Scandal highlighted the failure to address the ethical implications, by focusing on the technicality. Their focus on making profits, lack of transparency in the financial reports, and using tools to hide their losses caused their downfall leading to insolvency. This Scandal signifies the need for moral responsibility and integrity. The emphasis on traditional accounting ruling out morality was also mentioned by Kraus, Mikes, and Véliz (2024), which highlighted that when companies focus on monetisation, they tend to overlook moral concerns, and lead to decision-making only on the monetary terms.  

Rising Trends in Sustainability Reporting

In recent years, there has been a rising interest in sustainability reporting among companies as they realise the impact of their operations on the environment. There is a greater demand for transparency, accountability, and corporate governance as the trust in the businesses declines (Dilling, 2010). Furthermore, organisations are aligning their reports with the frameworks of sustainability reporting such as the UN SDGs and the GRI frameworks. They provide global guidelines to the business and the government in integrating, people, planet, and prosperity (United Nations, 2022). Additionally, the GRI framework introduced in 1997, draws attention to the significance of stakeholder engagement and established reporting process for businesses to identify and prioritize their impact on social factors (GRI, 2020). A survey conducted by KPMG (2022), reveals the surge in the reporting from 64% in 2011 to 79% in 2022 of N100 companies, while the reporting of G250 companies remained the same to 96% from 2020.

Does Sustainability Accounting Bring back Morality into accounting?


Although there has been a rise in sustainable reporting among businesses, does this truly indicate organisations are making real progress toward sustainability? The case of the BP Deepwater Horizon Oil Spill (2010) acts as an example where sustainability reporting failed and shows that it depends on the authenticity of the company in striding towards sustainability and the reporting they have done.

The Deepwater Horizon Oil spill occurred on April 20, 2010, in the Gulf of Mexico. Nearly, 4.1 million barrels of oil were spilled into the ocean for 87 days before the well was sealed, which made it the worst environmental disaster in US history. The series of explosions led to the death of 11 workers and injured many others (Fourcade,2011). The spill caused severe environmental impact leading to contamination, including deep-ocean communities and over 1600km of shoreline. It resulted in the stoppage of fishing up to 20 million hectares in the Gulf of Mexico (Makocha et al., 2019).

Before the disaster, BP had been recognised as a top sustainability reporter aligning with GRI frameworks and received awards for its reporting. Despite presenting reports with high values and integrity between the years 2005 to 2009, it failed to reveal, important facts and opinions (Lewis, 2011). In its 2009s annual report, the company highlighted its commitment to safety and development, reducing carbon emissions, investing in renewable energy, and minimising its environmental impacts (BP, 2009). However, the reports did not disclose the risks involved in the drilling operations and they failed to implement safety measures.
The disaster exposed the reality of BP’s safety culture, as opposed to the image of sustainability and safety. News articles suggest that BP has made money-saving shortcuts that compromised safety and increased the risk (Lewis,2011; Press, 2010). However, this contradicts the commitments outlined in BP’s sustainability report (2008), where they stated new Operating Management Systems were implemented to address the safety and environmental risk.

Another root cause for the oil spill was BP’s rush to finish the well which was delayed by several weeks, as explained by Oil industry expert and geophysicist Roger N. Anderson in an interview. The decision to replace the heavy drilling mud with seawater, despite the objection of the superintendent, led to a massive explosion (Shavelson, 2025). Their decision to rush the well undermines their commitment as they promised – “no accidents, no harms to people and no damage to the environment” (BP Sustainability Review, 2008, p.10).
This case illustrates the disparity between sustainability reporting and the actions taken by the organisation. Despite company’s claims to have efforts in sustainability reports, their actions led to the disaster which contradicts, revealing significant gaps between their values and practices. The example also emphasises that sustainability reporting doesn’t necessarily bring morality into accounting, as it was used to create positive image of the company, rather than genuinely incorporating sustainability practices (Wagner et al. 2009). Moreover, Oliver Boiral (2013) emphasises that the reliability and the transparency of sustainable reports remain a question.

Conclusion

In a nutshell, Sustainability Reporting surged to overcome the pitfalls of Traditional Accounting Systems, in addressing the ethical, moral, and environmental implications as shown in the case of Enron’s Scandal. Although conceptual frameworks such as GRI and UN SDGs aim to promote transparency and accountability of their impacts, real-world scenarios like BP’s Deepwater Horizon Oil Spill showcase the difference between the reporting and the company’s behaviour in stride for it. Finally, it depends on the company’s authenticity in fulfilling the commitment outlined in their reporting.

References

]]> https://econosasy.com/2025/09/05/acco-1095/feed/ 0 BAE SYSTEMS: Growth and Financial Insights https://econosasy.com/2025/08/30/bae-systems-growth-and-financial-insights/ https://econosasy.com/2025/08/30/bae-systems-growth-and-financial-insights/#respond Sat, 30 Aug 2025 05:00:32 +0000 https://econosasy.com/?p=634

BAE SYSTEMS

Growth and Financial Insights

Abstract

This essay analyses the economic performance of BAE Systems, one of the world’s largest defence and aerospace companies, by examining the impact of technological advancements, political factors, and interest rate fluctuations on its growth. It highlights BAE Systems’ strategic investments in research and development, particularly in digital intelligence and sustainable technologies, which have strengthened its market position and increased its sales revenue from £20.86 billion in 2020 to £25.28 billion in 2023. The paper also explores the influence of geopolitical events, such as the Russia-Ukraine conflict and the AUKUS alliance, which have driven significant growth in international defence orders, resulting in record-high backlogs and rising share prices. Furthermore, the analysis demonstrates that despite the Bank of England’s interest rate hikes from 0.5% in 2021 to 5.25% in 2023, BAE Systems has maintained financial stability, supported by a declining debt-to-asset ratio, a strong interest coverage ratio, and improved profitability margins. Overall, the findings indicate that technological innovation, political alliances, and rising global defence demand have enabled BAE Systems to achieve sustainable growth and strengthen its competitive advantage in the international defence market.

Introduction

The company I selected for this essay is BAE SYSTEMS. It is one of the largest defence companies that deals with manufacturing and rendering services related to arms and ammunition and information technology solutions. A global company that established a benchmark in the defence market in different countries – the UK, the US, Saudi Arabia, and Australia. This essay will discuss the performance of the company considering specific factors and further will explain how the interest rates were affected during the pandemic. The essay will assess the impact of the two factors using trend and Financial analysis.

Factors Affecting Performance:

Technological Factors

BAE SYSTEMS is the merger of The General Electric Company, plc (GEC) and British Aerospace plc (27th April 1999). Their main vision is to be dominant in international defence, aerospace, and security. In addition to that the company has an extensive network from warfare systems to intelligence gathering to armoured vehicles (BAE Systems). The two external influences that affect the company are the Political and legal factors and the Technological aspects. Constant innovation and the development of technology are essential for a defence company to build compatibility and efficiency of the products. Over the past few years, the company has invested in research and development and collaborated with other companies to bring digital intelligence. In the year 2020, the company aimed to invest in technology which would increase the sustainability of products as well as reduce the environmental impact of it (Annual Report, Bae System). The company was involved in the production of F-35 Lightning II aircraft in the year 2020 and achieved the full rate production in the year 2021 to 151 (Annual Report 2021, BAE SYSTEMS)(Appendix 1:Figure1)

For sustenance in the competitive market, companies should constantly innovate and improve their products (Hasan Ayaydin and Ibrahim Karaaslan,2014).  In the last 3 years, it has invested almost 1.6 billion in technology and research and development to maintain the diverging capabilities. Currently, the firm commenced to bridge between the cyber domains and the military domains to share critical information and ease decision-making. It clearly states in the annual report that it aims to develop its technologies with emerging difficulties. Their advancement in technological aspects has significantly affected their revenue and made them the seventh-largest defence contractor by revenue. The sales revenue of the business rose from 20,862 million to 25,284 million in just the last four years from 2020-23 (Five Year Summary, BAE SYSTEM) (Appendix2: Figure2).

Their significant increase in their revenue led to a wider scope in the defence market. The share price of the company rose from 631.40 in 2020 to the present-day value of 1351.50 (Yahoo Finance)(Appendix3:Figure3).

 Due to the strong demand for defence in the country, their market strategies, and the increased profitability of the company. An increase in the share prices and the earnings per share has created a wider demand for the stocks in the market attracting the investors to make more investments to the company.

Political Factors

Political and Legal factors influence a company, Bae Systems being a multinational company operating in different countries like the UK, the US, Australia and internationally must comply with complex rules and regulations, and different tax policies. Being their services directly relevant to the defence sectors of the economy and the government the company must satisfy its stakeholders. The common problem associated with dealing with international orders in a defence market would be handling sensitive information. The company has started with lobbying activities to communicate the information to the government and the policymakers. In addition to that, the geopolitical tensions and the Russian-Ukraine war have led to an increase in the profitability of the company by increasing the orders. To strengthen support for Ukraine the company has signed agreements to aid the army with supply of the arms, training, and repairs. The company in the first agreement gave its consent to support and work in cooperation with the Armed Forces Ukraine to get aware of their requirements. Moreover, it acceded with the supply of 105mm Lights guns from within Ukraine and created a framework in the second agreement(BAE SYSTEMS,31 Aug 2023). It had set a record of £21.1 billion in new orders in the first half of the year 2023 for submarines and fighter aircraft boosting its order backlog of £66.2 billion. According to the article in Financial Times, the company has become the second-best performer in the blue-chip FTSE 100 due to the shares of the company rising dramatically to 70 per cent since the start of 2022 (Sylvia Pfeifer, August 2023). Moreover, the company is dramatically progressing in the international markets as the European nations increase their spending on defence, which has led to a rise in orders, one of them was the German nation ordering for Eurofighter Typhoon Aircraft (Sylvia Pfeifer, February 2022). Furthermore, the AUKUS Alliance, a trilateral alliance between the countries Australia, the UK and the US could benefit  BAE SYSTEMS as this and ASC Pty Ltd were chosen to manufacture submarines for the future, enhancing the relations. The AUKUS Alliance has increased their opportunities and enabled them to soar into other markets as well. According to the Economic Times, Australia intends to give 4.6 billion Australian dollars for production of the nuclear-powered submarines (Economic Times, March 2024) Major acquisitions in the past have also boosted the company’s performance and international relations, for example, acquiring the Tenix Defence Company in Australia in 2008 made them the biggest Australian Defence Company in Australia.  Furthermore,  the preliminary results of 2023 of the company highlighted that the portfolio of the company improved as they have been receiving contracts from the Czech Republic, US Army Ammunition Plant and more(Preliminary results of 2023, Bae Systems).Looking at the financial aspect of the company the overall sales operating in different markets are $848 billion, $68 billion, $330 billion, $148 billion, and $265 billion in the US and Canada, the UK, Europe, the Middle East, and Asia Pacific respectively (Annual Report 2023,BAE SYSTEMS) (Appendix 4:Figure4).

Effect of Interest Rates

Coming to the interest rates in the UK, there has been a hike in the interest rate from 0.5% in 2021 to the present day 5.25%. Increasing interest rates by the Bank Of England is a counter policy to curb down the rising inflation in the economy. Businesses with debts and start-ups are more likely to be impacted by the rise in interest rates, as their cash outflow increases in terms of paying higher interest rates with low disposable income. On the other hand, there hasn’t been a significant impact of interest rates on BAE SYSTEMS company. The debt-to-asset ratio in the past three years was, 71%, 63%, and 66%, in the years 2021,2022,2023 respectively. The debts to assets ratio compares the total debts owed by the company against the total assets owned. Although the rate was high in the beginning the company is coping to decrease it further, which is a positive sign for the development. The interest expense of a company rose from £314,000 in 2021 to £339,000 in 2023 (Yahoo Finance,2024) (Appendix 5: Figure 5) due to the change in the interest rates. The average interest coverage ratio of the company is around 7.1 which states that the company can pay its interest expenses on the debts (Finbox.com,2024). The earnings per share also rose to £61.3 at the year-end of 2023 from £55.2 in 2021, which indicates that the rise in interest rates hasn’t affected much while other factors influencing. The profitability margin of the company has also increased over the years to 8.05% (Yahoo, Finance) (Appendix 6: Figure 6).

 

The decline in the debts to assets ratio, average interest coverage ratio and increase in profitability incline the company towards growth. The company experiences growth as there has been significant spending on defence by different nations. Comparing different ratios and their reach in the international defence market and the rise in market capital indicates that the company is progressing significantly.

Conclusion

In a nutshell, the performance of the company has been developing significantly. The breakthroughs for the company were the technological advancement that they developed to meet the requirements and investment in Research and Development. Furthermore, the increased spending in the defence market boosted its performance effectively. It is evident from analysing the financial ratios, stocks and dividends earned on it the company has revamped its sales and productivity and gained market exposure.

References

• www.Baesystems.com. (2019)- Five Year Summary – BAE Systems. [online] Available at: https://investors.baesystems.com/financial-information/five-year-summary

• Baesystems.com. (2023). Available at: https://www.baesystems.com/en-uk/article/bae-systems-establishes-local-presence-and-signs-agreements-to-support-ukraine

• Baesystems.com. (2024). Available at: https://www.baesystems.com/en/article/bae-systems-teams-with-ams-to-reinforce-support-of-artillery-systems-in-ukraine [Accessed 22 Mar. 2024].

• BAE Systems (2024). Policy Summaries. [online] Baesystems.com. Available at: https://www.baesystems.com/en/sustainability/governance/oversight/policy-summaries/lobbying-and-political-support#:~:text=For%20example%2C%20we%20are%20in [Accessed 22 Mar. 2024].

• Finbox.com. (2024). The Complete Toolbox For Investors | finbox.com. [online] Available at: https://finbox.com/LSE:BA./explorer/interest_coverage/ [Accessed 22 Mar. 2024].

• Gopalakrishnan, K., Yusuf, Y.Y., Musa, A., Abubakar, T. and Ambursa, H.M., 2012. Sustainable supply chain management: A case study of British Aerospace (BAe) Systems. International Journal of Production Economics, 140(1), pp.193-203.

• Hartley, K., 2012. Company survey series: I: BAE systems PLC. Defence and peace economics, 23(4), pp.331-342.

• Jazayeri, M. and Scapens, R.W., 2008. The Business Values Scorecard within BAE Systems: The evolution of a performance measurement system. The British Accounting Review, 40(1), pp.48-70.

• Statista Department (2023a). BAE Systems R&D expenses 2012-2020. [online] Statista. Available at: https://www.statista.com/statistics/640987/bae-systems-r-and-d-costs/

• www.ft.com. (n.d.). UK defence group BAE Systems lifts profit forecast as military spending soars. [online] Available at: https://www.ft.com/content/9053e11d-99d6-4642-a0dc-ac7f761abb98 [Accessed 22 Mar. 2024].

• UK interest rates: Bank boss says cuts ‘on the way’. (2024). BBC News. [online] 21 Mar. Available at: https://www.bbc.co.uk/news/business-68618436#comments [Accessed 22 Mar. 2024].

• uk.finance.yahoo.com. (n.d.). BAE Systems plc (BA.L) valuation measures & financial statistics. [online] Available at: https://uk.finance.yahoo.com/quote/BA.L/key-statistics

• USD 3 billion deal with UK gets Australia closer to having a fleet of nuclear-powered submarines. (2024). The Economic Times. [online] 22 Mar. Available at: https://economictimes.indiatimes.com/news/defence/usd-3-billion-deal-with-uk-gets-australia-closer-to-having-a-fleet-of-nuclear-powered-submarines/articleshow/108703395.cms?from=mdr [Accessed 22 Mar. 2024].

• uk.finance.yahoo.com. (n.d.). BAE Systems plc (BA.L) income statement – Yahoo Finance. [online] Available at: https://uk.finance.yahoo.com/quote/BA.L/financials [Accessed 22 Mar. 2024].

]]> https://econosasy.com/2025/08/30/bae-systems-growth-and-financial-insights/feed/ 0 Business and Company Law https://econosasy.com/2025/07/10/business-and-company-law/ https://econosasy.com/2025/07/10/business-and-company-law/#respond Thu, 10 Jul 2025 05:00:00 +0000 https://econosasy.com/?p=643

Business and Company Law

Law-1091

Introduction

“The client has a small business, selling and repairing IT devices.” In the two situations where a reconditioned tablet and an iPhone 14 are being sold, the customers assume that they are in a contract with the client and are entitled to the goods and services. The principles of contract law and the offer and acceptance are the core issues to address in both events. This essay will analyse the two scenarios by applying relevant case laws to advise the client regarding the existence of a contract with both the parties. Further, this essay will discuss elements of the ‘offer and acceptance’, as a reference to examine the client’s situation.

David Kelly, Ruth Hayward, and Ruby Hammer (2011)

Defined a contract as a ‘legally binding agreement where the agreement is enforceable by law and complies with legal requirements.’ An agreement refers to the mutual understanding between the parties where an offer has been made and accepted by the other party to form an agreement. To be a valid contract, an agreement can be written or oral, where the offeror and offeree agree on terms to come into a contract. Certain elements differentiate between an agreement and a binding contract; these include an offer, acceptance, intending to create legal relations, and compliance with the legal requirements (David, Ruth, and Ruby, 2011, p. 234).

Scenario 1:

The first scenario is the disagreement between the price shown and the price at the till. On the display, the price clearly stated it was £100, but the client learned that the tablet was priced at £200 at the till. The display of goods, here the reconditioned tablet is the invitation to treat, and anyone interested can start to make an offer and the client decides to accept or reject the offer.  Unlike offer and acceptance invitation to treat is the starting point to negotiate the terms between the offeror and offeree. To become a contract, it must be accepted by both parties and with a binding obligation (Ewan, 2010, p. 76).

The case law Fisher v Bell (1961) illustrates the actual difference between an Invitation to treat and an offer.  In the above case, the defendant was accused under a criminal offence of offering the flick knife for sale which was displayed as “Ejector Knife-4s” under the Restrictions of Offensive Weapons Act 1959. It was disregarded by the court and explained that any item that has been displayed is an invitation to treat rather than the offer itself and does not constitute a contract.

Similarly, the Pharmaceutical Society of Great Britain v Boots Chemists (Southern) Ltd (1953) supports the statement that the customer is not in contract with the client. In this case, the court concludes that a contract is formed when the cashier accepts the customer’s offer to purchase goods, specifically medicines, at the given price obeying the rules and regulations.

The case law clarifies that the customer who was inclined to buy the refurbished tablet at the display with the £100 sticker was an invitation to treat but not the offer by the client. Further, the client upon realising that the incorrect price, has the right to reject the offer.

Additionally, the disagreement in the price of the goods makes it a void contract which was demonstrated in the case of Hartog v. Colin & Shields (1939). The court’s decision was in favour of the seller stating that a contract is voidable, or in simple terms no legal agreement is formed when there is a clear mistake in the price. In this instance, it was confined to the price of the hare skins, which was intended to be 10 shillings per skin but accidentally written as 10 pence per skin. The court also mentioned that the buyer couldn’t take advantage despite knowing the mistake and no contract is formed at a mistaken price and requires a mutual assent to be a contract.

In relevance to the case law, the customer’s insistence on buying the product at an errored price makes the contract voidable. The mistake in price made by the seller was unilateral and the seller has the right to correct it. Moreover, the customer is not entitled to the good as the client refused to sell the tablet at an errored price, hence no contract is created between them.

In a nutshell, the owner is not bound to sell the tablet at £100 as per the principle of offer and acceptance. The price tag at the display was an invitation to treat as highlighted in Fisher v Bell (1961), and the customer’s offer was rejected by the owner resulting in no formation of the contract. Additionally, in Hartog v. Colin & Shields (1939), the contract was considered voidable due to a pricing error. As the price is £100, the client has the right to refuse, and no contract is formed at the mistaken price.

Scenario 2:

The second scenario involves an assumption of existence and a breach of contract between the shop owner and the trader. The seller proposed to sell a reconditioned iPhone 14 on 21st July for £500 and insisted on ‘notice in writing required by 28th July’. The letter of acceptance was sent by post on 22nd July, which wasn’t received by the owner until 30th July, meaning he received it after the deadline.

As per the postal rule which was introduced in Adam v Lindsell (1818), it is considered that the offer has been accepted as soon the letter is posted properly by the offeree. (Ewan, M 2010). In this case, the claimant (Adam) was sent an offer to buy wool from the defendant (Lindsell) on 2nd September and was requested to send acceptance by return post. Adam received the letter on 5th September due to an error. Despite accepting the offer on the very day, the letter was received much later by Lindsell, assuming Adam didn’t accept the offer, he sold the wool to a third party. The court held in favour of the claimant determining that the contract was formed when the claimant posted the acceptance rather than when the letter was received.

Drawing relevance from this case, the trader posted the acceptance on 22nd July, within the time frame, however it was received after two days (30th July). Assuming that the rule is relevant, the contract would be valid as it proves the offer was accepted when the letter was sent on 22nd July. It would lead breach of contract as the owner sold the iPhone to his sister on 29th July for £400. On the contrary, the owner conditioned it with a specific deadline ‘notice in writing required by 28th July’ where in this case the postal rule doesn’t apply, as he received it after the deadline.

The case law Holwell Securities v Hughes (1974) explains the limitations of the postal rule when the acceptance is not received within the deadline. In this case law, the defendant (Holwell) was sent a letter to buy certain property by the plaintiff (Hughes). The defendant agrees to sell the property with a clause stating ‘notice in writing required’ within six months. The acceptance letter sent by the plaintiff was never received by the defendant within the stipulated time frame. The court concluded in favour of the defendant, stating that the acceptance must be received by the date and therefore no contract was created.

This case law is relevant to this scenario. Although the trader’s acceptance was posted on 22nd July it didn’t reach the client until 30th July. Since the client didn’t receive the acceptance within the deadline no contract exists between the trader and the client as illustrated in Holwell Securities v Hughes (1974).

Revisiting the scenario, the client sold the iPhone to his sister for £400 assuming that offer was rejected. The trader accused the client of breach of contract after discovering the good was sold and claimed he was entitled to goods as he accepted the offer. Alternatively, as mentioned above no legal agreement was established between them. At this point, since no binding contract was formed the trader has no ownership of the goods. Having received no communication from the trader the client was free to sell the good to the other party.

In summary, the postal rule and the case law provide an understanding of the formation of contracts. Concerning the Postal rule and the case law, the client is not bound by a contract and was free to sell the goods to his sister without breaching of contract.

Conclusion
In reference to the principles of offer and acceptance and the reported cases, the client is legally justified. In case one the client has the right to refuse to sell the tablet at a mistaken price as the display of good was an invitation to treat. In case two, the client is unlikely to breach the contract as the acceptance was not received in the time frame.

References

Books

  • Kelly, D, Hayward, R, & Hammer, R 2011, Business Law, Taylor & Francis Group, Milton. Available from: ProQuest Ebook Central. [11 November 2024].
  • Ewan, M 2010, Business Law fifth edition e-book, Pearson Education UK, Available from: ProQuest Ebook Central. [16 November 2024].

 Cases

  • Fisher v Bell [1961] 1 QB 394
  • Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 (Court of Appeal)
  • Hartog v. Colin & Shields (1939) 3 All ER 566
  • Holwell Securities v Hughes [1974] 1 WLR 155
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