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Chapter 7 - Contract law (Part 1). At the end of this chapter you should be able to: describe how contracts can be classified, distinguish formal contracts from simple contracts, identify the six essential elements required to make a valid contract, explain how the law determines whether parties to a contract intend to create a legal relationship, define the term ‘offer’ and distinguish it from an ‘invitation to treat’,...
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Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill Australia Contract Law Part Chapter Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Valid contract • An agreement made between two or more parties, giving rise to legal rights and obligations which the law will enforce Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-3Australia Copyright © 2000 McGraw-Hill Valid contract Intention to create legal relations Legality of object Terms:- Express/implied Offer Acceptance Conditions Warranties Form Consideration Exclusionary clauses Reality of consent Copyright Capacity of parties 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-4Australia Copyright © 2000 McGraw-Hill Classifications Classifications Validity Copyright Performance Format Formation 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-5Australia Copyright © 2000 McGraw-Hill Validity V a lid ity V a lid V o id A ll e s s e n tia l e le m e n ts p re s e n t, th e re fo re la w w ill e n f o rc e o n b e h a lf o f e ith e r p a rty Copyright N o le g a l e ffe c t V o id a b le U n e n fo rc e a b le E n title d to b e re s c in d e d b y in n o c e n t p a rty E s s e n tia l e le m e n ts p r e s e n t b u t te c h n ic a lity p r e v e n ts it fr o m b e in g e n fo rc e d Ille g a l P u r p o s e o r o b je c t o f c o n tr a c t is ille g a l 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-6Australia Copyright © 2000 McGraw-Hill Performance PERFORMANCE EXECUTED One party to contract has completed their part of the contract Copyright EXECUTORY Both parties have obligations to perform 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-7Australia Copyright © 2000 McGraw-Hill Formation FORMATION EXPRESS IMPLIED Dependant on associated conduct QUASI By operation of law w WRITTEN SPOKEN Copyright 7-8Australia Copyright © 2000 McGraw-Hill 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Intention to create a legal relationship Social/domestic agreement Assumpti No intention to create legal relationship on (Balfour v Balfour) Prove Intention to create legal relationship (Todd v Nicol) (Wakeling v Ripley) Copyright Business agreement Intention to create legal relationship No intention to create legal relationship • Financial disadvantage • Presumption leaving job rebutted in • Expenses incurred in contract moving 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e • Selling belongings 7-9 by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill Australia Format SIMPLE Verbal, written, implied Consideration must pass in both directions passing Statute of limitations – yrs 12 yrs FORMAL Written Does not require consideration in both directions Statute of limitations - Contract of Record Contracts under Seal (Deeds) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 7-10 by Barron & Fletcher Slides© prepared by Kay Fanning Copyright 2000 McGraw-Hill Australia Essential elements of a contract • • • • • • Intention to create a legal relationship Offer and acceptance Form and/or consideration Capacity of parties Reality of consent Legality of object Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-11 Copyright © 2000 McGraw-Hill Australia Offer • Invitation to treat: An invitation to invite people to make offers Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1952) QB 795 • Offer: A proposal by the offeror that if accepted by the offeree will create a legally binding contract Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-12 Copyright © 2000 McGraw-Hill Australia Rules with respect to offer • An offer is not required to be in any particular form • The person who makes the offer is called the offeror; the person to whom the offer is made is the offeree • An offer can be made to one or more persons, even the whole world • All terms of an offer must be communicated to the offeree Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-13 Copyright © 2000 McGraw-Hill Australia Rules with respect to offer - termination • An offer can be revoked at any time before acceptanc • Revocation must be communicated to offeree • An offer will lapse if: not accepted within the time stated, or within a reasonable time, or if a counter offer is made, or if a party loses its contractual capacity • An offer can be revoked at any time: before acceptance, and if communicated to the offeree • An offer will be terminated if rejected • Death of the offeree or offeror may terminate an offer • An offer will be terminated if a condition precedent is not met Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 7-14 by Barron & Fletcher Slides© prepared by Kay Fanning Copyright 2000 McGraw-Hill Australia Rules with respect to offer termination Termination of offer Rejection Lapse Conditional offer Copyright Revocation Death of offeree/offeror 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-15 Copyright © 2000 McGraw-Hill Australia Rules of acceptance Acceptance must be communicated to offeror by an authorised person Exception: Offeror waives the right to receive notification of acceptance Communication by post: (postal rule): If it is agreed that post is the method of acceptance and the letter is stamped and addressed correctly, acceptance occurs when posted Acceptance relies on the knowledge of an offer Acceptance must be unqualified Acceptance can only be made by the offeree Acceptance must take place within a prescribed time or within a reasonable time Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-16 Copyright © 2000 McGraw-Hill Australia Consideration • Consideration can be regarded as something done or promised by one party (the promisor) in exchange for something done or promised by the other party (mutual promises) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-17 Copyright © 2000 McGraw-Hill Australia Promisor and promisee Promisor • Person undertaking to perform the consideration Promisee • Recipient of the consideration Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-18 Copyright © 2000 McGraw-Hill Australia Rules of consideration Past consideration not valid for simple contract Amount of consideration is irrelevant Nature of consideration must be definite Consideration must be able to be performed Consideration must not be illegal or unlawful Consideration must extend beyond what person is already obliged to in terms of: a) requirement by law b) compliance with contract already existing Consideration must move from the promisee Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-19 Copyright © 2000 McGraw-Hill Australia Rules of consideration (continued) Part payment of a debt will not be adequate consideration Consideration is essential in all simple contracts Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-20 Copyright â 2000 McGraw-Hill Australia Promissory estoppel ã If one party to a contract, by its behaviour, leads the other party to the contract to believe a certain state of affairs exists between them, the courts will support that state of affairs rather than the terms of the contract Elements • The promisee has altered their position in reliance on a new promise • It would be impossible for the promisee to return to their original position without detriment • It would be unfair for the promisor to renege Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-21 Copyright © 2000 McGraw-Hill Australia Contracts required to be in writing • Transfer of ownership of a British ship or share in a ship • Appointment of an agent where the agent will be contracting by deed (Power of Attorney) • Bills of exchange and promissory notes • Cheques • Assignments and mortgages of life insurance policies • Assignment of copyright • Contracts for marine insurance Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-22 Copyright © 2000 McGraw-Hill Australia Contracts required to be evidenced in writing Via • Letters passing between parties • Receipt for a deposit • Cheque signed by the purchaser Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7-23 Copyright © 2000 McGraw-Hill Australia ... Conditional offer Copyright Revocation Death of offeree/offeror 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7- 15 Copyright... communicated to the offeree Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7- 13 Copyright © 2000 McGraw-Hill Australia... Capacity of parties 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 7- 4Australia Copyright © 2000 McGraw-Hill Classifications