contract part

8/7/2019 Contract part

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Oxford University Press, 2007. All rights reserved.

4

The Contract

(Part One): The Elements


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Definition of a Legal Contract

A legal contract is an agreement between

two or more parties in which legal rightsand obligations are created, and are

enforced by a court.


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Elements of a Valid Legal Contract

For a contract to be legally enforceable the contract mustcontain the following elements:

(1) AN OFFER

(2) ACCEPTANCE OF THE OFFER(3) CONSIDERATION

(4) INTENTION TO CREATE LEGAL RELATIONS

(5) CERTAINTY OF TERMS

(6) CAPACITY TO CONTRACT

All of these elements must be present before there is avalid and legally enforceable contract.


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The Elements of a Valid Contract cont

THE CONTRACT

OFFER CONSIDERATION

ACCEPTANCE INTENTIONCERTAINTY

CAPACITY


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Elements of a Contract:

1) Offer

What is an offer?

Does not have to be in writing Promissory: Promise to do something or to refrain from

doing a certain act

Intention: To be legally binding

Communication: To Promisee Certainty: Terms must be clear & certain

Finality: Must be a degree of finality with the terms


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Elements of a Contract:1) Offer cont

Objective Test:

Reasonable person test

Standard applied by courts

Contract Law v Criminal Law

Contract law applies objective test to determineliability

Criminal law applies subjective test to determine guilt


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1) Offer cont

Offers v. Invitations to Treat Shop Displays

Advertisements

Catalogues

Sales Puffery

Vending Machines

Delicatessens


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1) Offer cont

An offer must be made to another person

Offeror: party that makes the offer

Offeree: party that receives the offer

Offer made to the whole world

Carlill v Carbolic Smoke Ball Company


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1) Offer cont

Offer must be communicated

Offeror to Offeree

Mode of Communication

Verbal/ Writing/Post

Contemplation of the Parties


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1) Offer contTermination of an offer

An offer can be terminated through the following ways:

(1) Revocation

(2) Lapse

(3) Rejection By Offeree

(4) Implied rejection : counter offerEg - A offers to sell his car to B for $1000. B says toA, I will give you $750". B statement amounts to acounter offer which terminates the original offer by A


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Do you have a valid offer?

Offer

Do you have valid

offer?Yes

No

Preliminary

Inquiries

Supply of

InformationInvitation To Treat


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2) Acceptance

An acceptance is a final and unqualified assent to all

the terms of the offer.

Rules of acceptance :

(1) Offer still in force

(2) Offer to made by the offeree

(3) Unqualified an absolute(4) Acceptance can be in writing, oral or by conduct

(5) Silence does not constitute an acceptance

(5) Communication


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2) Acceptance cont

Communication of acceptance

Completed acceptance

Reasonable time


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2) Acceptance cont

Postal acceptance rule

Limitations to the rule

letters and telegrams

instantaneous methods of communication

addressed and stamped

actual communication contemplated


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Do you have a Valid Acceptance?

Accep t

ce

M

st M

tch the

T e r s f th e

ffe rC

ica ti

E x ce p ti

s

st a l Accep tanceU n ila te ra l

C

n trac ts


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3) Consideration Applies to all contracts other than contracts made under

seal/ deed. Contracts made under deed form do not requireconsideration.

1) Definition

Consideration is an essential element in every simple contract.The doctrine of consideration requires that:

(1) there must be an exchange between the parties, involving either a promisefor promise, or promise for performance; and

(2) the promise or performance given in exchange must have value.


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3) Consideration cont

Rules of Consideration

Consideration does not have to be adequate

Consideration must be sufficient

Consideration must not be illegal

Consideration must move from the promisee

Past consideration is not good consideration


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Rules of ConsiderationC

nsi

erati

n

Involvesa

t

al

exchangeM

stnot bepastCannot beillegalM

stnot be

il

sor


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3) Consideration cont

RenegotiatingDebts

Performing existing contractual obligations does not amount to goodconsideration to enforce a promise : Foakes v Beer

Example (1) : A owes B $100. A decides to pay B $90 in full satisfaction ofthe debt. B then sues A for the balance ($10). B will succeed because there isno consideration for his promise to accept $90 for full payment : Foakes v Beer

Example (2) : A owes B $100. A decides to pay B $90 earlier for fullpayment. B will not succeed for the further $10 because A has done somethingextra, he has paid earlier : Pinnels case.


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3) Consideration cont Promissory Estoppel

The strict application of the doctrine of consideration is modified

with the doctrine of promissory estoppel. The doctrine ofestoppel operates to enforce certain promises which have notbeen supported by valuable consideration.

Elements of the doctrine of estoppel: There must be a promise by the promisor to the promisee

The promisee must have relied on the promise

The promisee will suffer detriment if the promisor is allowed to go backon his promise

It would be unconscionable (unfair) to allow the promisor to break hispromise


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Elements of Promissory Estoppel

Promissor

Estoppel

Promise/Representation/

Ass mptionReliance Material etriment Unconscionabilit


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Promissory Estoppel contWalton Stores v Maher

Waltons case was seen as important in the development of the doctrine,

because it extended the operation of the doctrine to create a new right ofaction.

Promissory estoppel only operates when all the above elements have beensatisfied. Promissory estoppel has its origins in the High Trees Case. Thedoctrine has been extended in the High Courts decision in Walton Stores.

The principle of promissory estoppel only applies when it would beinequitable/unconscionable (unfair) to allow the promisor to go back on hispromise.


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Promissory Estoppel contExample:

A enters into a lease agreement with B. The lease

provides that A pays B $500 weekly rent. A thenfalls into financial difficulty and asks B if he couldreduce the rent for 12 months to $300. B agrees. Arelies on Bs promise to accept $300 rent, and payshim that amount. 12 months later B sues A for thedifference in rent ($200 week).

Advise A.


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4) Intention to Create Legal Relations Commercial agreements

For a contract to be legally enforceable there must be anintention by the parties to be legally bound. In Commercial

and Business Agreements there is a presumption that the partiesintend to create legal relations: Edwards v Skyways.

Exclusions:

1) Express

This presumption can be rebutted but the onus is on the party seeking to exclude legal relations.

An express exclusion of intention by the parties will be given effect by the courts.

2) Social & Domestic Agreements.

There is a presumption that social and domestic agreements are not intended to create legalrelations. However this can be rebutted by evidence to the contrary.


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4) Intention to Create Legal Relations cont

Husband & Wife Agreements

The courts consider domestic arrangements between husband

and wife to be social agreements and not legally enforceable:

Balfour v Balfour.

Exceptions:

If the agreement between husband and wife involves

essentially a commercial matter then the agreement will be

enforceable : Milliner v Milliner.


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Do you have an intention to create

legal relations?

Do theparties have

an intention tocreate

legal relations

Yes

Check to see whether

the intentionhas been

expressl excl ed

If intentionhas not

beenexcl dedcheck

forotherelements

o

Check if the

commercial

pres mptionapplies

Check if the social/

domestic

pres mptionapplies

If thecommercial

pres mptionapplies

check forother

elements


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Elements of a Contract:5) Certainty of Terms As a general rule the courts will not enforce vague or

incomplete agreements.

However the courts will strive to fund a valid contract. If

terms are uncertain, the courts may clear the uncertainty

by the ff means:

- Trade customs & Usage

- Previous dealings between the parties to determine the

essential terms of the agreement.


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Elements of a Contract:6) Capacity to Contract

The capacity of certain persons to enter into legal

contracts may be affected.

Especially minors, drunkards and bankrupts.


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6) Capacity to Contract Minors

Minors

Minors are any persons below the age of 18.

Contracts with minors fall within three categories:

- Valid

- Voidable; and

- Void Valid Contracts - 2 types: Contracts for

Necessaries and Contracts for Beneficial Service.


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6) Capacity to Contract

Minors contContract for Necessaries Necessaries are defined as goods suitable to the condition in life of such a minor

and to his actual requirements at the time of such sale and delivery.

Two important questions arise:

(1) Can the goods/services be classed as necessaries for a person in thecircumstances of the minor in question?

(2) Were the goods/services in fact necessary to the minor at the time?

If the answer is yes to both these questions then there will be a valid contractand the minor will have to pay.

Examples of goods/services which are necessaries include: food, housing,education, medical and legal expenses.


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6) Capacity to Contract Minors cont

Contracts for beneficial services

The key question here is to ask:

Does the contract of service provide a benefit to the minor?:

Hamilton v Lethbridge.


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Minors cont

Voidable Contracts

These are contracts which can be avoided by the minor before

he/she turns 18 or within a reasonable time after he/she turns

18.

They apply to contracts which are of a permanent

nature/continuing obligation. Eg: shares, leases and

partnerships. With voidable contracts the minor can free himself from future

obligations, but will have to pay for benefits already received.


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Minors cont

Void Contracts

Contracts other than for necessaries or beneficial contract of

service are void against the minor.

Contracts involving loan repayments are also void against the

minor.

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