Contract law PDF

Preview

Summary

Contract and examples of law of contract is a branch of civil law, giving to business arrangements of various contract may be defined binding two or more which they acquire rights, owe duties and respect of the subject matter of that descriptions of the nature of contracts business recognized and en...

Description

Contract law Nature and examples of contract The law of contract is a branch of civil law, giving special recognition to business arrangements of various kinds. A contract may be defined as Legally binding agreement Between two or more parties By which they acquire rights, owe duties and have obligations In respect of the subject matter of that agreement. Other descriptions of the nature of contracts are: Mutual business agreements Agreements recognized and enforceable by law Commercial agreements with legal consequences Rights and duties created and defined by an agreement Agreement between two persons which the law will enforce Arrangements by which the parties are legally bound to comply with the terms of face the possibility of court action by aggrieved persons for failure to comply.

Freedom of contract Voluntary However, is capable of abuse such that the agreement may be more apparent than real, one party may have been misled by the other. Contracting out: there may be a valid inclusion clause exempting parties from liability of limiting liability. Another aspect of the voluntary nature of contract arises when statutory bodies supple a service to the public or to business, often in monopolistic or semimonopolistic situation. It may be that no such obligations can be imposed, for example, by issuing a person or business with ‘standard terms and conditions’ even where the services are in fact used: Airways Corporation of New Zealand Ltd. V Geyserland Airways Ltd (1996).

-

-

is called terms: that is, the rights and obligations consisting of what was said, done or written with the intention that they constitute a part of the contract The breach of a major term may allow the aggrieved party to cancel the contract. The breach of a lesser term will provide only a right of damages As well as the terms actually incorporated into a contract, called express terms, the law may also imply terms on the basis that they are necessary for the contract to work or they are so obvious that they go without saying.

Implied terms

Performance and Promises A contract will often consist of performing one act in return for another The purchase of and payment for goods in a supermarket A contract can also be based solely on promises. An action for breach can be based on two grounds: 1. Carrying out the contract but doing so wrongly (breach in performance) 2. A failure to perform at all (breach of promise). Enforcement and remedies A remedy is the means given by law for the recovery of a right, or of compensation for its breach. A contract may be directly enforceable if a promise to perform is ordered to actually take place by the court, as a result of an action in equity for a court order of specific performance. Indirect enforcement normally takes the form of the recovery of damages (money compensation) for losses suffered by reason of a breach of contract.

Contents of Contracts

The terms of a contract (the express and implied terms together) must be sufficiently certain that the courts would be able to understand what they mean. Agreement and contracts Every contract is an agreement, but not all agreements are contracts. Simple contracts A simple contract is one which contain the six basic elements of a contract and may be expressed in a variety of forms. A simple contract involves the element of exchange.

-

A verbal agreement; A written agreement; The making of a deed; or An implication arising from the conduct of the parties

A defective contract may be void, voidable and enforceable.

Elements of a simple contract 1. Intention to create legal relations; 2. Offer and acceptance 3. Consideration; 4. Capacity; 5. Genuine consent; and 6. Legality (lawfulness of object)

Exemption clauses: A provision in a contract under which one of the parties to the contract is excluded, or exempt, from being sued for damages, negligence, loss or nonperformance of the contract.

Forms of contract: Contracts may come into existence as a result of a verbal agreement, a written agreement, the making of a deed, or an implication arising from the conduct of the parties. However, there are a number of contracts which are required to be in writing, or to be endorsed by writing, if they are to be actionable for breach. Contracts may come into existence as a result of:

Intention to create legal relations Not all agreements are contracts An important factor that distinguished legally binding contracts from other arrangements is the intention of the parties Where the courts have decided that legal intention was present, this aspect is satisfied. Nature of intention The law requires that the parties to a contract should have the intention, express or implied, to enter into a relationship with legal consequences, recognized by the courts. Without this

intention, even if all the other elements are present, there is no contract at all. What determines whether or not an alleged party passes or fail this test of validity? The court must look at the intention of the parties. This is considered on an objective basis; that is to say, it is not what may or may not have been in the minds of the parties when the agreement was made, but what reasonable persons would have understood their intentions to have been in the particular circumstance. Facts such as the value of the subject matter of the agreement, its significance to the parties and whether the agreement was recorded in writing are all relevant to the determination of what the parties intended. Domestic (family) and social arrangements Agreements that occur in the context of family and social relationships may lack any intention to create legal relations. Agreements between members of a family, or between close friends, or arising out of some other social circumstance, will often not be contractual. Balfour v Balfour (1919) 2 KB 571, ALL ER Rep 860

Business arrangements Usually contain the element of contractual intention by the parties Normal contractual intention can be avoided by using specific words A clause or phrase in an agreement that purports to negate the intention can be effective, if the clause or phrase is clear in meaning and properly communicated.

Mere puffs Statements of enticement, flatter and exaggeration that are not intended to be taken seriously or to become an enforceable part of a contract. E.g. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. [1891-4] All ER Rep 127.

Making a contractual agreement 1. Unless the parties have made a binding agreement, they will have no legal obligation (in contract) to each other; and 2. If they have made one, then: a. Everything agreed between them in the process known as offer and acceptance becomes part of the contract. Things not agreed on or forgotten are outside the contract. b. Everything agreed on now creates legal rights and obligations for the parties. If promises are not carried out, or terms are broken, then redress can be obtained through court action- but only for those matters that the parties have agreed on. c. Any changes to the contract cannot be introduced unilaterally. Any variations of the contract (i.e. additions or alterations) must be agreed to by both parties. Inner thought processes of the parties are irrelevant. Outward signs more important.

Three requirements or signals which must be present to constitute an agreement. 1. Offer 2. Acceptance 3. Certainty and completeness The special case of tenders

proposal will produce a contract-rather than simply starting of negotiations or trying to interest the other party An offer can be made: By spoken words In writing- by print of electronically; By conduct; or By a combination of any of the above. An offer can be made to A legal person (which can be an individual or incorporated body); A specific group of people; or Exceptionally, to the whole world: Carlil v Carbolic Smoke Ball Co [1893} 1 QB 256 [1891-4] All ER Rep 127

A person who makes an offer is known as the offeror. An offeree is a person to whom an offer is made. Statements and actions which are not offers 1. The giving of information in response to a query. Often in the course of negotiation a question is asked, and a response is given which provides information to the question. This type of answer is not usually an offer, because there is never any intention that it should be. E.g.: Harvey v Facey [1893] AC 552. The Privy Council decided that the telegram sent by the defendant was just a statement concerning the price and not an offer.

The Offer What is an offer? An offer is; A sign, statement or action That a person is willing to enter into a legal contractual relationship Should his or her promise/proposal be accepted An offer can usually be identified by Clear and specific terms rather than generalities Some indication of a willingness to be bound and an awareness that the other party’s acceptance of this

Exception- in rare cases the person providing the information may include words which make it clear that this is more than information and that an offer is being made.

Communication of the offer: 1. The person it is intended for must receive the offer. If someone else receives it, it is not a valid offer to him or her. 2. The offer must actually reach the offeree. If this is not done, the offeree is unaware of the possibility of a contract and has nothing to accept.

Statements of intention. These kinds of statement occur when persons broadcast that they have decided to buy, sell or deal. Such statements are not offers because there is no intention that they have any binding or legal significance. E.g.: Harris v Nickerson [1873] LR 8 QB 286

whether the offeror would consider remaking the offer on new terms. 3)

When an offer lapses, it has simply come to an end. It cannot therefore be subsequently accepted. Lapse may occur: o Through the passage of time. If an offer is expressed to last for a specified time and that time has passed, then lapse occurs. o If not time is specified then an offer will lapse after a reasonable time. o By death. Offerer dies, an offer lapses.

2.

3.

Invitations to treat. These kinds of statement or action are designed to encourage or entice offers from others. They show only a willingness to start the offer and acceptance process, which may in time produce an offer and eventually a contract. Even where the word ‘offer’ appears, it may really be a form of enticement or attention-seeking.

The common law regards invitations to treat as having no legal significance because The party making them never intends to be legally bound by them; and There would be severe legal and practical difficulties if they were regarded as offers. In rare circumstance, there is something in the statement or action which makes it clear that the maker has moved beyond enticement for offers, and is showing an intention to be legally bound by making an offer.

Lapse

Terms of the offer: If the terms are not communicated as part of the offer, then they have not been accepted and are not part of the contract. Where the offer is in the form of a written document, its contents will become terms of the contract upon acceptance. Exception: Common law and statutes imply terms Termination of the offers An offer will come to an end when it; Is accepted by the offeree Is rejected by the offeree; Lapses; or Is revoked by the offeror 1) Acceptance When an offer is accepted, the process of agreement is completed. 2)

Rejection Rejection occurs when the offeree, by words or conduct, makes an outright refused of the offer. When this occurs, the offer is brought to an end and cannot subsequently be accepted. An example of this is a counter-offer. If the offeree makes a request for information about the offer, this is not a rejection or a counter-offer, so the original offer is still available for acceptance. This includes the situation where the offeree inquires

Revocation Revocation occurs when the offeror deliberately withdraws or cancels the offer. It is not enough for the offeror to change his or her mind- there must be communication of this to the offeree. To be effective, a revocation must reach the offeree prior to completion of acceptance The revocation is usually made by the offeror The revocation may sometimes be communicated by other people Exception- option contracts. An offer cannot be revoked where the parties have made a valid option contract. The purpose of this kind of contract is to keep an offer open for acceptance for a specified time. A valid option contract can be made: By simple contract, including consideration; or By deed (for deeds) A valid option contract made in either of the above ways must be binding. 4)

Once an option contract is made, then: The offeror is bound to keep the offer open until the option date expires If the offeror does revoke, he or she is in breach of contract and liable in damages to the offeree

The Acceptance: What is an acceptance? 1)Definition: An acceptance is: A sign, statement or action Which shows intention to be legally bound by the terms of the offer. To be effective, the acceptance response must show an absolute and unqualified assent to all of the terms of the offer. It must be clear that the bargaining process is now at an end. Response to offers must be considered very carefully, because they may not be acceptances. Acceptances can be made: Orally; In writing- by print or electronically; By conduct; or By a combination of any of these.

2) Cross offers Cross-offers occur when two identical offers are made which cross each other in the course of communication. Responses which are not acceptances:

Queson  2 Alastair Moore is the CEO

of Angler and Lekyap Ltd, a supplier of domestic white wear. He

has decided to invest in some New Zealand art to display in the company’

s reception area. He is particular ly keen to acquire the sculpture of a pair

of hands called The Washers, by noted local artist, Robert Lesse. He has made contact

with Paige Black, the art collector who owns the work and has advertise d the

painting for sale for $250,000. Alastair arranged an appointm ent to view the

work on a Monday afternoon in July this year. After carefully examinin g the piece,

which is as stunning as he’d envisione d, he says, “I'll give you $200,000 for it.”

Paige replies, “No, $250,000 is a reasonabl e price. $225,000 is as low as I'll go.”

Alastair’s response is that $220,000 is the best he can do. When the response to an offer does not display the characteristics of an acceptance, then it could be: A request for information; A counter-offer; or A conditional acceptance 1) Request for information It is important to remember that questions about the offer or queries as to possible changes in the offer do not always amount to a counter-offer or rejection of the offer. The comments may be only a request for further information or seeking clarification. The offer can still be accepted at some later date. 2) Counter-offers A counter-offer consists of both:

-

-

An express or implied rejection of an existing offer; and The introduction of a replacement offer, since the original offer is now ended by the rejection. Who may make an acceptance of an offer? An acceptance can be made only by the person who: Is aware of the offer and, in reliance. On it, decides to accept; and Is the person to whom the offer was made

An offer to an individual or a class of people can be accepted only by that person or class. An offer to the world, because of its nature, may be accepted by anyone. An offer to an organization (e.g. a corporation or partnership) may be accepted by a properly authorized person, as an agent for the organization. Carrying out the acceptance 1. There must be a positive act of acceptance by the offeree or his or her agent: It is not sufficient for a person to decide to accept. There must be some kind of overt act, which is usually a written or spoken message of acceptance. It may alternatively be a course of conduct, or action- such as the fall of a hammer at an auction, or the choice of a drink on payment of money into a vending machine. If the offeree remains silent, this is not normally regarded as acceptance- even when the offeror tells the offeree that this method of acceptance will be satisfactory or required. The law of contract will not allow acceptance by default. Felthous v Bindley (1862) 142 ER 1037 2.

3.

Where the offeror indicates a particular act or method of acceptance may be used, then the acceptance may be done in that way, or by any other less-advantageous method. Where the offeror prescribes that a valid acceptance can be made by only one method, it must be done in that way.

Communication of the acceptance 1. With some offers (especially those made to the whole world), it is not necessary to communicate any acceptance. Usually, the acceptance will consist of

2.

3.

the doing of as act, and communication will be impractical. When an acceptance can be made by post, then the acceptance is complete when the message is posted, rather than when it is received. This postal rule for acceptance applies regardless of whether the letter arrives on time, or is delayed or lost in the post and regardless of fault. It is only necessary for the offeree to prove that: The postal rule applied to the situation The letter containing the acceptance was posted; and An authorized post box was used or the letter was given to a person authorized to receive post mail. The Contract and Commercial Law Act 2017 sets out the rule as to when acceptances made by electronic forms of communication will be effective, unless the parties agree otherwise. Electronic communication is defined broadly in s209, and would certainly include communication via text (SMS) message, email message and websites. Where acceptance is by one of these methods, it will be effective according to the rule set out in s 214. That is, where the offeror has designated an information system for the purpose of receiving the acceptance, then acceptance will be effective when the message enters that information system; otherwise, acceptance will be effective when the message comes to the attention of the offeror....