Contract Law 1 Elements of a contract

Elements of a contract Agreement Consideration Intention to enter into legal relations In most cases there are no formal requirements However, for the contract to be enforceable, the parties must have the capacity to contract Freedom of contract is the key idea underlying English contract law In English law, for a contract to be enforceable, three elements are required: What are they? Agreement Consideration Intention to enter into legal relations In most cases there are no formal requirements – can be written, oral or even instant messaging, although in certain cases such as the sale of land there must be formal written document. The parties must have the capacity to contract – not minors, not drunk, of sound mind

1. Agreement An offer An offer is a specific and definite proposition to the offeree, manifesting the offeror’s clear intention to be bound. An offer ends if: the offeror revokes it the offeree rejects it, makes a counter offer, or does not respond within the stated time period IThe first element is agreement. Agreement has 3 elements The first is an offer An offer is a specific and definite proposition to the offeree, manifesting the offeror’s clear intention to be bound. f the offeror revokes it (=withdraws it) at any point before it has been accepted (provided that the offeree has not given consideration to keep the offer open) If the offeree rejects it If the offeree makes a counter offer: A counter-offer the offeree responds with a suggestion of different terms. The law regards this as a rejection of the original offer, which means that it ceases to exist. If the offeree does not respond within the stated time period (the offer lapses).If no time period stated, it he does not respond within a reasonable period of time

Offer v invitation to treat An invitation to treat invites the other party to make an offer which can then be accepted or rejected. There is a distinction made in English law between an offer and an ITT. An ITT invites the other party to make an offer which can then be accepted or rejected. It has no contractual significance. Invitations to treat include most advertisements, goods offered at auction and products for sale on shop shelves. (Difference ads: usually not specific enough to be an offer, or no clear intention to enter into legal relations, or practical problem supply/demand) Shops – avoid legal problems.

Agreement ii) Acceptance A unequivocal agreement by the offeree to all the terms of the offer, made directly to the offeror or to his agent. No additional terms If the offeree proposed additional terms, it is a counter offer Must be clear but does not have to be explicit, it can be inferred from his conduct. Situation 1: Ann offers to sell Bob a watch for £100. Bob offers to pay Ann £50 pounds. Ann says no. Bob says he will pay £100 pounds for the watch Is Ann contractually bound to accept the £100 in exchange for the watch?

Agreement iii) Communication of acceptance By post: acceptance occurs (and the contract becomes binding) at the moment the letter is posted For methods of instant communication: the contract generally becomes binding when the acceptance is received by the offeror Entores Ltd v Miles Far East Corporation [1955] If the time of reception is uncertain: “No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie.” Brinkibon Ltd v Stahag Stahl GmbH [1983] This is important because rules about the communication of the acceptance dictate when the contract becomes binding. By post: acceptance occurs (and the contract becomes binding) at the moment the letter is posted (=the postal rule). (subject to conditions, including that acceptance via the post was reasonably contemplated by the parties, or stipulated by the Or) Situation 2: On Monday, Carl offers to sell Dan a car for £5,000. They agree that if Dan decides that he wants the car, he can accept in writing. On Tuesday Dan posts a letter agreeing to buy the car. On Wednesday Carl sells the car to someone else for £6,000. On Thursday Carl receives Dan’s letter and calls him to say that the car has already been sold. Can Dan bring a claim for breach of contract? For methods of instant communication such as telephone ( the contract generally becomes binding when the acceptance is received by the offeror. (Entores Ltd v Miles Far East Corporation [1955] ) BUT For email, answer phones and other devices where the time of reception is uncertain, the law is not totally clear. One approach is that it is effective when it can reasonably be supposed to have been accessed > considering usual working practices (The Brimnes, 1974) Can silence constitute acceptance? It can but its rare and must be agreed freely by both sides.

2. Consideration A contract is an “enforceable bargain” Both parties must offer consideration This must be sufficient but does not have to be adequate It cannot be past It cannot be given by a third party In English law, a contract is an “enforceable bargain” That means that Both parties must offer consideration Consideration The element of exchange in a contract (something of value given by one party to another to induce the other to contract) Both parties to the contract must contribute something (eg money, goods, performing a service or not doing something) Consideration must be sufficient (= it must have some economic value) but does not have to be (=is not required to be) adequate (" a fair price") (You can have a contract to sell a Ferrari for £20- it is legally sufficient even though it is not adequate. The court doesn't care that the sum is not adequate - there is no requirement that the consideration is in any way proportional). Past consideration (something already given/done before the other party makes an offer of recompense) is not sufficient. Both parties must bring something to the bargain. If one party already did the action before the other party promised anything in exchange, he doesn’t bring anything to the bargain, don't provide consideration. It cannot be given by a third party Situation 3: Susan is renting a flat from Bill. She repaints the living room. When Bill sees it he is pleased, and tells her he will give her £50 towards the cost of the paint. He then changes his mind. Can Susan bring a claim for breach of contract?

3. Intention to create legal relations Commercial or business context: presumption that parties intend to be bound by their promises Domestic and social situations: presumption that there is no intention to be legally bound The third element is the intention to create legal relations, that is that both parties intended that there should be legal consequences if they broke the promise they had made In a commercial or business context there is a strong presumption that parties intend to be bound by their promises In domestic and social situations There is a presumption that there is no intention to be legally bound > husband and wives, brothers and sisters, friends often make agreements and have no intention that they should be able to sue or be sued in relation to those agreements. However both these presumptions are rebuttable (can be disproved using evidence) So in a number of cases involving husbands and wives who are in the process of separating, the court has held that financial agreement that they made were contracts, since there was an intention to create legal relations Balfour v Balfour 1919 Merritt v Merrit 1970

Unilateral contracts Most contracts are bilateral Unilateral contracts occur when the offeror promises to do something in return for another party performing an act or service Most contracts are bilateral – they involve an exchange of promises Unilateral contracts are a special kind of contract. They occur when the offeror promises to do something in return for another party performing an act or service For example – someone offers a reward for the safe return of their kitten PRESENTATION

Unilateral contracts In unilateral contracts there is no requirement of notification of acceptance If someone performs the required act, the contract becomes binding. His act is referred to as “executed consideration” His act is referred to as “executed consideration” (p43) > term we use when someone has actually fulfilled their promise, as opposed to executory consdieration, which is when a promise has not yet been fulfilled

Deeds A formal, written document Signed in the presence of a witness Affixed with a seal (for companies) Unlike a contract… Unlike a contract the party receiving the benefit of the deed is not expected to give any consideration.(ie it can be used for gifts, e.g. to transfer land or proerty)