Contracts
What is a
contract?
A contract
is a binding, legally enforceable agreement.
What is a
contract?
A contract
is a binding, legally enforceable agreement.
Binding:
Once a party enters into a contract that party must do
what was agreed in the contract.
Legally
enforceable: If a party to a contract does not do what
they agreed to do, the other party can enforce the contract by
suing the breaching party in a court of law.
What is a
contract?
If Mr A and
Ms B agree to meet at for lunch at 12:00 noon today do they have a
contract? Why or why not?
What is a
contract?
If Mr A
asks Ms B if she will buy his iPod for £200 and she says yes, do they have a
contract? Why or why not?
What is the
difference between an agreement to meet for lunch and an agreement to buy an
iPod ?
If Mr A and
Ms B come to an agreement to rob a jeweller's shop and to divide the proceeds
between them, do they have a contract?
Why or why not?
If Mr A
decides to keep all the money can Ms B sue him?
Everet and
Williams formed a partnership wherein they agreed to 'deal in commodities'. The
items they were selling were the proceeds of several acts of robbery.
Everet
believed that Williams was not dividing the money equally as agreed so Everet
went to court and sued Williams to account for all money received.
Court said
that the agreement between Everet and Williams was based on an illegal act and
cannot be enforced.
Everet
v Williams [1725]
Sources of contract
law
Case Law
Has existed for several centuries
i.e. Everet v Williams [1725]
Legislation
More recent (19th century)
i.e. Unfair Contract Terms Act 1977
Forms of contracts
General
Rule: Contracts may
be in any form – spoken, in writing, in a deed
Exceptions: (when certain forms are required)
u in writing - transfer of shares,
sale of land, contracts of guarantee
u by deed - transfer of land, lease for more
than 3 years
Examples:
u 1.S offered to sell his house to B
for £200 000. B said “I accept. I will buy your house for that price.” Does S
and B have a binding and enforceable contract?
u 2. S offered to sell his car to B
for £20 000. B said “I accept your offer.” Do they have a binding and
enforceable contract?
Generally, parties have the freedom to contract and make
their own bargains
Exception: In standard form contracts
Terms are set out on a standard written document prepared by
the organisation
i.e.
contract to fly with an airline
contract to
purchase electricity
subject to statute
law
i.e. Consumer
Credit Act 1974
Unfair
Contract Terms Act 1977
Forms of contracts
Contracts made electronically
Electronic Commerce (EC Directive) Regulations 2002
Regulation 9: ‘where a contract is to be
concluded by electronic means a service provider shall, prior to an order being
placed by the recipient of a service, provide to that recipient in a clear,
comprehensible and unambiguous manner the information….’
Electronic Communications Act 2000
Section 7: allows
the use of electronics signatures to be incorporated into or associated with
electronic communications or electronic data…
Contracts
For a
contract to be valid and binding the following essential elements
must be satisfied:
- Agreement (Offer and
Acceptance)
- Intention to create legal
relations
- Consideration
- Legal capacity to contract
- Consent
Agreement: Offer and Acceptance
Offer
A proposal made on certain terms by the oferror
with a promise to be bound if the offeree accepts the terms
Acceptance
The unconditional agreement to all the terms
of the offer.
Bilateral
contracts
è each party takes on an obligation
è a promise to do something in
exchange for something from the other party
Unilateral
contracts
è one party promise to do something
usually in return for an act
è other party does not have to promise
to do the act
Carlill
v Carbolic Smoke Ball Company [1893]
Agreement:
Offer and Acceptance
An offer
must be distinguished from an invitation to treat – most advertisements
are mere invitations to treat.
An
advertisement in a magazine for the sale of wild birds was merely an invitation
to treat and not an offer for sale as prohibited by the Protection of birds Act
1954. Partridge v Crittenden [1968]Act.
Intention
to Create Legal Relations
The parties
must intend that the agreement entered into are binding and legally
enforceable.
In case of
dispute, the court will consider the conduct of the parties and the nature of
the agreement.
Consideration
What is
consideration?
Consideration
is the price that one contracting party bought the promise or the act of
the other party. Dunlop Pneumatic Tyre v Selfridge [1915]
For an
agreement to be binding and legally enforceable, there must be a valid
consideration from both parties.
Stilck
v Myrick [1809]
Hartley
v Ponsonby [1857]
Sometimes
the parties do not actually exchange the consideration at the time they make
the contract – they only promise to exchange consideration at a later date.
“I will
pay you £200 for your iPod next Monday if you would deliver it to me that day.”
A promise
to exchange consideration in the future is a valid consideration and is called
“Executory Consideration.”
The
contract is binding as soon as the promises are exchanged even
though the consideration is to be given or done in the future.
Contractual Capacity
For a valid contract to be made, it is necessary
that the parties have the capacity as individuals to enter into legally binding
agreements, that is, the power to subject themselves to obligations that are
enforceable at law.
If one of
the parties proves that it did not have legal capacity, then the court will
rule that the contract is not enforceable
Legality of contracts
Contracts
may be illegal either under legislation or under common law.
Under statute
i.e. Competition Act 1998 prohibits price fixing
agreements and other anti-competitive acts
Under common law
Contracts to commit a crime or a tort
An
agreement to secure a knighthood for a price is a corrupt practice and is
against public policy and cannot be enforced. Parkinson v College
Ambulance [1925]
Consent
There are
circumstances that can make an agreement
either totally unenforceable or voidable by one of the contracting parties.
These circumstances are called vitiating factors.
Vitiating
factors may be misrepresentation, mistake, duress, undue influence
NB: this
matter will be discussed further next week
Other essential
feature of a contract
Privity of contracts
Contract is binding only between the offeror and offeree
Except:
è Contracts made for the benefit of a group of
persons Jackson v Horizon Holidays Ltd [1975]
è Contracts (Rights of Third Parties) Act 1999
- for contracts
made for a third party’s benefit
Contract Law and Tort Law
Similarities
ü Civil law
ü Important in the business world
ü May arise from the same cause of action
ü Compensation is the usual remedy
ü Limitation period: 6 years (for most torts)
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