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Introduction to Contract Law (1) (Elements to make up a binding contract:,…
Introduction to Contract Law (1)
A contract is an agreement which is enforceable by law between two or more persons for some purpose, their intention being to create a legally binding contract.
Elements to make up a binding contract:
1)
Offer
A person is said to make an offer when he indicates to another his willingness to enter into a contract on the terms which he sets out in the offer.
Offeror
: The party who makes the offer
Offeree
: The party to whom the offer is made
Once the offeree accepts the offer, an agreement comes into being.
An offer may be oral or writing.
An offer must be communicated to the offeree before it can be accepted. The offeree cannot accept an offer unless he knows of its existence.
An offer is the last step before acceptance by the offeree.
Situations which do not amount to an Offer:
a) Invitation to Treat
an invitation to treat is an invitation to others to enter into negotiations which may lead to the making of an offer, eg display of goods in a self-service shop is an invitation to treat, not an offer
b) Supply of Information
The supply of information or a statement of selling prices given in reply to a request is not an offer. Eg, A ask B; "what is the lowest price for your car". B replies: "$3,000". A says: "I agree to buy your car for $3,000"
c) Declaration of Intent
A statement expressing an intention to do something is not an offer capable of being accepted.
Eg. H&M announced that there would be a big mid-year sale, but it was later cancelled. You went to H&M believing there to be a sale, can you sue H&M fir breach of contract? In the first place, was it an offer at all? No.
Termination of Offers
:
a) Revocation of Offer
An offer can be revoked at any time before it is accepted but the revocation must be communicated to the offer.
This means that the offerree must actually know of the revocation of the offer by the offeror.
b) Rejection by Offeree
a) the offeree communicates his rejection of the offer to the offeror or
b) the offeree makes a counter offer. A counter offer is a new offer made by the offeree by modifying the original terms of the offeror's offer.
c) Lapse of offer
a) Death of either offeror or offeree before acceptance. Death after acceptance does not affect the contract.
b) Where the offer has not been accepted within the prescribed time. If there is no time limit set, it lapses after a reasonable time.
2. Acceptance
It is the unconditional consent by the offeree to all the terms of the offer.
Acceptance may be oral, writing or by conduct.
The acceptance must conform to the prescribed method.
Acceptance must be absolute and unconditional ie. the offeree must accept all the terms of the offer without modification.
Acceptance must be communicated
Two exceptions:
1) Acceptance by Post (The Postal Rule)
Acceptance by letter or telegram is complete when the letter is posted, even if it arrives late or never arrives. This is known as the "Postal Rule"
2)
When Communication of Acceptance has been Waived
If the offeror expressly or impliedly waives the need for communication, then acceptance need not be communicated. For example, if an offer to made to world at large, the doing of the act by the offeree is acceptance. There is no need to communicate your acceptance first before doing the act.
3. Intention to create Legal Relations
Before a contract can be legally enforceable, it must be shown that the parties had intended the contract to be legally binding. If they expressly state that intention, the courts will respect it. If it is not expressly stated, the courts will apply the following presumptions.
Presumptions
1. Commercial and Business Agreements
The court presumes that the parties intend their contract to be legally binding. But the parties to a business agreement can easily get out of this by expressly indicating that the contract is to be binding "in honour only" ie. not enforceable.
2. Domestic and Social Agreements
The court presumes that the parties do not intend their agreement to have legal effect. Again, this can be rebutted if the parties indicate expressly that they want to have a legally binding contract.
4. Consideration
Consideration is some benefit or profit accruing to one party or some detriment or loss suffered of undertaken by the other.
Every agreement involves a promise, either to do something or not to do something. A promise is only legally binding if it is made in return for another promise or an act. This requirement for 'something for something' is called consideration. The party making the promise must gain some benefit for the promise while the party receiving the promise must suffer some detriment.
Promisor
: The party who makes the promise to do something or not to do something.
Promisee
: The party to whom the promise is made.
Rules of consideration
:
a) consideration must be real
This means that the consideration give must be of some value, however small. eg. a) acts of love and affection eg. between parent and child.
b) acts done out of moral or social duty eg. act of a lifeguard saving a downing child
b) Consideration need not be adequate
The general rule is that the parties are free to decide on the terms of their contract. As long as some value is given, it does not matter whether it is proportionate in value to the thing given in return.
c) Consideration must move from the promisee (Privity of Contract)
Privity of contract means that only a party to a contract can sue or be sued on that contract. This means that the person to whom the promise is made must furnish the consideration. No third party can derive an benefit or incur any liability on a contract to which he is not a party to. If a person has given nothing, he cannot enforce the promise if it is not kept.
d) consideration must be legal
eg. Daniel agrees to pay Alex $50,000 if Alex poisons Vin's coffee. Alex's act of poisioning Vin's is iilegal. he cannot therefore sue Daniel for the money even if he carried out what he promised to do.
e) Consideration must not be past
When a promise is made in exchange for an act which has already taken place in the past, then there is no value for the promise.