The nature of contract: A contract is an agreement between 2 or more parties which is enforceable at law The essentials of a valid contract: Agreement Consideration (exchange of value) Intention to create legal relations Legal capacity Legality of objects Form Content
LECTURE 3: LAW OF CONTRACT (a) The nature of contract A contract is an agreement between or more parties which is enforceable at law (b) The essentials of a valid contract • Agreement • Consideration (exchange of value) • Intention to create legal relations • Legal Capacity • Legality of Objects • Form • Content Essential Elements (i) Essential ingredients of a contract: • Agreement • is formed when one party accepts the offer of another • agreement must have been entered into freely and involve a ‘meeting of minds’ • validity of contract may be affected if a person has been misled into a contract • Consideration • the parties must show that their agreement is part of a bargain • each side must promise to give or something for the other side • Intention to create legal relations • the parties must have intention to have legal consequences Essential Elements (ii) • Legal Capacity • The parties must be legally capable of entering into a contract • Legality of Object • The purpose of the agreement must not be illegal or contrary to public policy • Form • contract may be in any form (written or oral) • In some cases, certain formalities must be observed • Content • A contract must be complete and precise in its terms (c) Life of a contract It remains in existence until discharged discharged, usually by performance performance, where both parties fulfill their contractual obligations Most common problem is the breach of contract, whereby one party fails to contract carry out their side of the contract properly (d) Contract Types (1) UNILATERAL VS BILATERAL In a unilateral contract only one party promises something For instance, if a car dealer tells a customer, "I will give you that car if you give me $15,000," (no promise yet from customer), he has made an offer for a unilateral contract—the contract will only be created if the customer accepts the offer by paying the $15,000 If the dealer says "I will promise to give you the car if you promise to pay a bilateral contract has been proposed because both parties must make a promise me $15,000," http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html Contract Types (Cont’d…) (2) EXPRESS VS IMPLIED Contracts may also be classified as "express" or "implied." Express contracts are those in which both parties have explicitly stated the terms of their bargain, either orally or in writing, at the time that the contract was created In contrast, implied (indirect) contracts result from surrounding facts and circumstances that suggest an agreement For instance, when a person takes a car to a repair shop he expects the shop to exercise reasonable care and good faith in fixing the car and charging for repairs Likewise, the shop expects the customer to pay for its services Although no formal agreement is created, an implied contract exists http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html Contract Types (Cont’d…) (3) QUASI-CONTRACTS Quasi-contracts are obligations imposed by law to avoid injustice For instance, suppose that a man hires a woman to paint his house By accident, she paints the wrong house The owner of the house knows that she is painting it by mistake but, happy to have a free paint job, says nothing The painter would likely be able to collect something from the homeowner because he knowingly was "unjustly enriched" at her expense Had she painted his house while he was on vacation, he would be under no obligation to her http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html Contract Types (Cont’d…) (4) PROMISSORY ESTOPPEL A separate type of contract, and one that overtly exemplifies the trend away from strict interpretation and toward fairness, fairness is created by promissory estoppel Under the theory of promissory estoppel, a party can rely on a promise made by another party despite the nonexistence of a formal, or even implied, contract Promissory estoppel can be evoked if allowing a promisor to claim freedom from liability because of a lack of consideration (or some other contractual element) would result in injustice Suppose that a business owner promised an employee that he would eventually give him the business if he worked there until he (the owner) retired Then, after 20 years of faithful service by the employee, the owner decides to give the business to his son-in-law The owner could be "estopped" from claiming in court that a true contract did not exist, because the worker relied on the owner's promise http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html 10 Contract Types (Cont’d…) (5) Simple Contract One, the evidence of which is merely oral, or in writing, not under seal, nor of record As contracts of this nature are frequently entered into without thought or proper deliberation, the law requires that there be some good cause, consideration or motive, before they can be enforced in the courts The party making the promise must have obtained some advantage, or the party to whom it is made must have sustained some injury or inconvenience in consequence of such promise; this rule has been established for the purpose of protecting weak and thoughtless persons from the consequences of rash, improvident, and inconsiderate engagements But it must be recollected this rule does not apply to promissory notes, bills of exchange or commercial papers http://www.lectlaw.com/def2/s157.htm 11 Contract Types (Cont’d…) (6) Specialty - Contracts "under seal" In centuries past, persons contracting would drip a drop of hot wax on the bottom of the contract and press a family ring into the wax, thereby signifying consent to the terms of the document Nowadays, deeds are used mostly - if not an outright statutory requirement - in contracts that involve real estate In legal theory, if a contract is a "deed", then no consideration is required If charitable donations are made under seal, they are valid contracts even though there is no valid consideration 12 Contract Types (Cont’d…) (7) Standard Form The standard form contract is a standard document prepared by many large organizations and setting out the terms on which they contract with their customers The individual must usually take it or leave it: he does not really ‘agree’ to it For example, a customer has to accept his supply of electricity on the electricity board’s terms; individuals cannot negotiate discounts 13 Contract Types (Cont’d…) • VALIDITY STATUS Contracts may also be categorized as valid, unenforceable, voidable, and void Valid contracts are simply those that meet all legal requirements Unenforceable contracts are those that meet the basic requirements but fail to fulfill some other law For instance, if a state has special requirements for contracts related to lending money, failure to comply could make the contract unenforceable Voidable contracts occur when one or both parties have a legal right to cancel their obligation(s) A contract entered into under duress, for example, would be voidable at the request of the injured party Void contracts are those that fail to meet basic criteria, and are therefore not contracts at all An illegal contract, for example, is void http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html 14 ... The nature of contract A contract is an agreement between or more parties which is enforceable at law (b) The essentials of a valid contract • Agreement • Consideration (exchange of value) •... parties fulfill their contractual obligations Most common problem is the breach of contract, whereby one party fails to contract carry out their side of the contract properly (d) Contract Types (1)... implied contract exists http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html Contract Types (Cont’d…) (3) QUASI-CONTRACTS Quasi-contracts are obligations imposed by law to avoid