A contract is a legally binding agreement or relationship that exists between two or more parties to do, or abstain from performing certain acts. A contract can also be defined as a legally binding exchange of promises between two or more parties that the law will enforce. For a contract to be formed an offer made must be backed with an acceptance of which there must be consideration. Both parties involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform. An agreement is a form of cross reference between different parties, which may be written, oral and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable.
All contracts are agreement because there must be mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer. The creation of a binding contract that the courts will enforce requires the contracting parties to meet a number of requirements that are prescribed by the law of contract.
While these requirements are not numerous, they must, nevertheless, be met before the agreement creates rights and duties that may be enforceable at law. These requirements are referred to as the elements of a valid contract and consist of the following: Offer An offer is an expression of readiness to do something which, if followed by the unconditional acceptance of another person, results in a contract. For example, if a company tells you that it will sell you 100 boxes of red wine at the price of $100,000, that company is making you an offer. If no time limit is specified, an offer is valid for a reasonable length of time before the offeror (the person who makes the offer) can revoke or cancel it.
To avoid potential disputes, however, the offeror should specify the deadline for the acceptance of an offer. It is also important to note that the offeror cannot take silence as a form of acceptance. This means the offeror cannot say “If I do not hear from you within 10 days, then I will assume that you have accepted my offer and will pay for the product”. An offer must be distinguished from an “invitation to treat”, which merely invites other people to make offers but is not in itself an offer. Examples of invitations to treat include: invitations to tender, displaying goods on the shelves of a shop, and the advertisement of goods or services in newspapers or on television (unless it is expressly stated that the advertisement is an offer).
Acceptance An acceptance is an expression of unqualified and unconditional conformity to all the terms set out in the offer. It can be oral or in writing or even implied. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. Thus, the essentials of a valid acceptance are: •Acceptance must be absolute and unconditional.
•Acceptance must be communicated. Such communication need not be in writing or by words spoken, but may also be implied. Mere desire to accept a proposal without proper communication of the same is not acceptance. · •Acceptance must be in the mode prescribed by the offeror. · •Acceptance must be given within the prescribed time or in absence of such time, it must be within a reasonable time. There can be no acceptance unless there is proper knowledge of the offer. Rudder v. Microsoft Corp. (1999) An Internet access company offered its services to potential customers by way of a membership agreement.
Potential customers were directed to scroll down through the agreement and, if satisfied with the terms (including the monthly fee), were directed to click on a box. By clicking the “I agree” box, membership and online access would be granted to the member. A user of the service wished to terminate his membership, claiming that the provider was in breach of the contract by failing to provide accurate information about the accounts chargeable to his credit card. When no agreement could be reached, the user (and others) joined in a court case against the Internet company for breach of contract.
At trial, the judge examined the sign-up process and observed that scrolling through the agreement and then clicking the “I agree” box on the screen was the equivalent of examining the pages of a written contract and then signing the last page. The court concluded that the user was bound by the agreement and dismissed the case. Capacity (the authority or ability to make contracts) Persons under the age of 18 (called “minors”) and lunatics (mentally disordered or intoxicated persons) do not have the capacity to enter into contracts.
Any contracts that are made by persons who are lacking in legal capacity are voidable: that is, the party who needs the protection can seek to avoid the contractual liability. An exception to this rule arises when the parties enter into a contract for “necessaries” (a legal term for “necessities”, which means the goods or services that are suitable to the condition of life of a minor and to that minor’s actual requirements at the time of the sale and delivery, such as clothes or food). A minor who fails to pay for “necessaries” can be sued by the seller. Hendrick attended an auction sale while in an intoxicated state.
Everyone at the sale, including the auctioneer, was aware of his condition. When a house and land came up for auction, Hendrick bid vigorously on the property and was the successful bidder. Later, when in a sober state, he was informed of his purchase, and he affirmed the contract. Immediately thereafter, he changed his mind. He repudiated the contract on the basis that he was drunk at the time and that the auctioneer was aware of his condition. When the case came before the court, the court held that he had had the opportunity to avoid the contract when he became sober, but instead, he affirmed it.
Having done so, he was bound by his acceptance, and he could not later repudiate the contract. Lawful consideration. Another essential element of a valid contract is the presence of ‘consideration’. Consideration has been defined as the price paid by one party for the promise of the other. An agreement is legally enforceable only when each of the parties to it gives something and gets something. The something given or obtained is the price for the promise and is called ‘consideration ‘subject to certain exceptions; gratuitous promises are not enforceable at law. The ‘consideration’ may be an
act (doing something) or forbearance (not doing something) or a promise to do or not to do something. It may be past, present or future. But only those considerations are valid which are ‘lawful’. The consideration is ‘lawful’. unless it is forbidden by law; or is of such a nature that, if permitted it would defeat The provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or is immoral; or is opposed to public policy. Gilbert Steel agreed to supply steel for the construction of a number of apartment buildings that University Construction was erecting in three separate locations.
The agreed price for the steel was $153 and $159 per tone for the two required grades of steel. The first two buildings were completed at this price. Steel prices increased before building at the third location was to commence, and a new contract was entered into to supply steel for the buildings at $156 and $165 per tonne. During construction, the prices of steel increased substantially and Gilbert Steel approached University Construction for an increase to $166 and $178 per tonne. Gilbert Steel prepared a new written contract containing these prices and two other clauses that the parties had not discussed.
University Construction did not sign the agreement as a result and continued to pay for the steel but paying less than the invoiced amounts until a significant balance was owing. A dispute over amounts owing resulted in Gilbert Steel taking legal action. The issue before the court concerned the enforceability of the oral agreement to pay the higher $166 and $178 per-tonne prices, since the written agreement provided only for payment at the $156 and $165 per-tonne rates. The court concluded that no consideration existed for the promise to pay the higher per-tonne rates and that the oral agreement must fail on that basis.
Intention to create legal relations There must be an intention among the parties that the agreement should be attached by legal consequences and create legal obligations. Agreements of a social or domestic nature do not contemplate legal relations, and as such they do not give rise to a contract. An agreement to dine at a friend’s house is not an agreement intended to create legal relations and therefore is not a contract. Agreements between husband and wife also lack the intention to create legal relationship and thus do not result in contracts. (a) M promises his wife N to get her a purse if she will sing a song.
N sang the song but M did not bring the purse for her. N cannot bring an action in a Court to enforce the agreement as it lacked the intention to create legal relations. (b) The defendant was a civil servant stationed in Ceylon. He and his wife were enjoying leave in England. When the defendant was due to return to Ceylon, his wife could not accompany him because of her health. The defendant agreed to send her ? 30 a month as maintenance expenses during the time they were thus forced to live apart. She sued for breach of this agreement. Her action was dismissed on the ground that no legal relations had been contemplated and therefore there was no contract.
(Balfour vs Balfour) The entire contract must legal Agreements that offend the public good are not enforceable. If parties enter into an agreement that has an illegal purpose, it may not only be unenforceable but illegal as well. The agreement though satisfying all the conditions for a valid contract must not have been expressly declared void by any law in force in the country. Transport North American Express Inc. v. New Solutions Financial Corporation (2002).
A trucking company entered into a complex borrowing agreement with a financial corporation for its business financing and the buy-out of certain shareholders, which included royalty payments, monthly monitoring fees, legal and administration fees, and a commitment fee, as well as a monthly interest rate of 4 percent. Shortly thereafter, the parties revised the agreement, but it remained as an agreement that would call for an interest rate of 4 percent per month and administrative and other fees of approximately 31 percent.
Both parties agreed that they did not intend to act illegally, but the interest rate exceeded the 60 percent limit imposed by the Criminal Code, as an interest rate of 4 percent per month exceeded the Criminal Code limit by 0. 1 percent, calculated on an annual basis. The borrower applied to the court for a declaration that the agreement was void and illegal. The case eventually went to the court of appeal, where the court held that the provision in the agreement that provided for an interest rate of 4 percent per month was void and struck it from the agreement, with the rest of the agreement remaining enforceable. Conclusion All contracts are agreement because there must be mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer.