Luật học - Chapter 7: Contract law 1

This is the prescribed textbook for your course.Available NOW at your campus bookstore!CONTRACT LAW 1CHAPTER 7Learning objectivesAt the end of this chapter you should understand:how to define contracts according to validity, performance and formationhow contracts can be classifiedhow to distinguish formal contracts from simple contractsthe six essential elements required to make a valid contract—FROLICwhat is meant by an intention to create a legal relationship and how this is determined by the lawthe distinction between an offer and an invitation to treatLearning objectives (cont.)rules with respect to offer and acceptance including the postal acceptance rulethe meaning of ‘consideration’ and the consequence for a contract lacking considerationthe rules regarding consideration how a contract lacking consideration may be enforceable if placed in a particular formthe requirements of contracts required to be in writing and those required to be evidenced in writing.Introduction An understanding of the law of contract is of fundamental importance in the context of business practice.Valid contract An agreement made between two or more parties, giving rise to legal rights and obligations that the law will enforce.Valid contract (cont.) Intention to create Legality legal relations of objectTerms: express/implied Offer Form Acceptance Conditions Warranties Consideration Exclusionary clauses Reality of Capacity of consent partiesClassifications of contractsClassifications Validity Performance FormationValidityValidVoidVoidableUnenforceableIllegalAll essential elements present, therefore law will enforce on behalf of either partyNo legal effectEntitled to berescindedby innocent partyEssential elementspresent but technicalityprevented from beingenforcedPurpose or object ofcontract is illegalValidityPerformance Executed ExecutoryOne party to contract has completed its partof the contract Both parties have obligations to performFormation Express Implied Quasi wWritten SpokenBy operation of lawDependent on associated conductEssential elements required to form a contract (FROLIC)Intention to create a legal relationshipOffer and acceptanceForm and/or considerationCapacity of partiesReality of consentLegality of objectContract of recordContracts under seal (deeds)SIMPLEVerbal, written, impliedConsideration must pass in both directionsStatute of limitations—3 yearsFORMALWrittenDoes not require consideration passing in both directionsStatute of limitations—12 yearsFormatFormatIntention to create a legal relationshipNot all agreements give rise to legally enforceable obligations.People who make agreements must intend the agreement will give rise to a legally enforceable obligation.The law makes some presumptions about this depending whether the agreement is of a social, domestic or commercial nature.Intention to create a legal relationship (cont.)Social/domestic agreementBusiness agreementAssumptionNo intention to create legal relationship (Balfour v. Balfour)Intention to create legal relationshipProveIntention to create legal relationship(Todd v. Nicol; Wakeling v. Ripley)No intention to create legal relationshipFinancial disadvantage leaving job Expenses incurred in moving Selling belongingsPresumption rebutted in contractOffer + Acceptance = AgreementThe second element required to create a valid contract is an offer, and an acceptance of the offer.An offer is a proposal. When accepted it creates a legally binding agreement—a contract.An offer needs to be distinguished from an ‘invitation to treat’.Invitation to treat vs OfferInvitation to treat: an invitation to people to make offers. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd (1952) 2 QB 795Offer: A proposal by the offeror that, if accepted by the offeree, will create a legally binding contract.Online auctions: listings on online auction sites will be regarded as offers, not invitations to treat. Smythe v Thomas (2007) NSWSC 844Rules with respect to offerAn 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.Termination of an offerOffer will lapse if: acceptance is not made within the time stated, orwhere no time is stated, if the acceptance is not made within a reasonable time, or a counter-offer is made.Offer can be revoked at any time:before acceptance, andif communicated to the offeree.Offer will be terminated if rejected.Death of the offeree or offeror may terminate an offer.Offer can be terminated if a condition precedent is not met.Rules with respect to offer—terminationTermination of offerRejection Lapse Revocation Conditional Death of offer offeree/offerorRules of acceptanceAcceptance 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 must comply with the conditions of the offer.Acceptance must be in reliance of 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.Form and/or considerationFor an agreement to be regarded as a contract, it must either be supported by consideration or be a formal contract.This is the third element required to form a valid contract.Consideration is something done or promised by one party (the promisor) in exchange for something done or promised by the other party (mutual promises).Promisor and promiseePromisorPerson undertaking to perform the considerationPromiseeRecipient of the considerationRules of considerationCan be present or future, but not past.Must be of some value, but need not be adequate.Must be definite, not vague.Must be capable of being performed.Must not be illegal or unlawful.Must be more than a person is already required to do, in terms of:requirement by lawcompliance with contract already existing.Must move from the promisee.Cannot be satisfied by part payment of a debt.Essential in all simple contracts.Promissory estoppelIf 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.ElementsThe promisee has altered his/her position in reliance on a new promise.It would be impossible for the promisee to return to his/her original position without detriment.It would be unfair for the promisor to renege.Contracts required to be in writingSome contracts are required by statute to be contained in one written document. Examples:Bills of exchange and promissory notesChequesAssignments and mortgages of life insurance policiesAssignment of copyrightContracts for marine insuranceContracts required to be evidenced in writingLetters passing between partiesReceipt for a depositCheque signed by the purchaser