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8/7/2019 Contract part
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Oxford University Press, 2007. All rights reserved.
4
The Contract
(Part One): The Elements
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Definition of a Legal Contract
A legal contract is an agreement between
two or more parties in which legal rightsand obligations are created, and are
enforced by a court.
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Elements of a Valid Legal Contract
For a contract to be legally enforceable the contract mustcontain the following elements:
(1) AN OFFER
(2) ACCEPTANCE OF THE OFFER(3) CONSIDERATION
(4) INTENTION TO CREATE LEGAL RELATIONS
(5) CERTAINTY OF TERMS
(6) CAPACITY TO CONTRACT
All of these elements must be present before there is avalid and legally enforceable contract.
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The Elements of a Valid Contract cont
THE CONTRACT
OFFER CONSIDERATION
ACCEPTANCE INTENTIONCERTAINTY
CAPACITY
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Elements of a Contract:
1) Offer
What is an offer?
Does not have to be in writing Promissory: Promise to do something or to refrain from
doing a certain act
Intention: To be legally binding
Communication: To Promisee Certainty: Terms must be clear & certain
Finality: Must be a degree of finality with the terms
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Elements of a Contract:1) Offer cont
Objective Test:
Reasonable person test
Standard applied by courts
Contract Law v Criminal Law
Contract law applies objective test to determineliability
Criminal law applies subjective test to determine guilt
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Elements of a Contract:
1) Offer cont
Offers v. Invitations to Treat Shop Displays
Advertisements
Catalogues
Sales Puffery
Vending Machines
Delicatessens
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Elements of a Contract:
1) Offer cont
An offer must be made to another person
Offeror: party that makes the offer
Offeree: party that receives the offer
Offer made to the whole world
Carlill v Carbolic Smoke Ball Company
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Elements of a Contract:
1) Offer cont
Offer must be communicated
Offeror to Offeree
Mode of Communication
Verbal/ Writing/Post
Contemplation of the Parties
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Elements of a Contract:
1) Offer contTermination of an offer
An offer can be terminated through the following ways:
(1) Revocation
(2) Lapse
(3) Rejection By Offeree
(4) Implied rejection : counter offerEg - A offers to sell his car to B for $1000. B says toA, I will give you $750". B statement amounts to acounter offer which terminates the original offer by A
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Do you have a valid offer?
Offer
Do you have valid
offer?Yes
No
Preliminary
Inquiries
Supply of
InformationInvitation To Treat
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Elements of a Contract:
2) Acceptance
An acceptance is a final and unqualified assent to all
the terms of the offer.
Rules of acceptance :
(1) Offer still in force
(2) Offer to made by the offeree
(3) Unqualified an absolute(4) Acceptance can be in writing, oral or by conduct
(5) Silence does not constitute an acceptance
(5) Communication
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Elements of a Contract:
2) Acceptance cont
Communication of acceptance
Completed acceptance
Reasonable time
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Elements of a Contract:
2) Acceptance cont
Postal acceptance rule
Limitations to the rule
letters and telegrams
instantaneous methods of communication
addressed and stamped
actual communication contemplated
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Do you have a Valid Acceptance?
Accep t
ce
M
st M
tch the
T e r s f th e
ffe rC
ica ti
E x ce p ti
s
st a l Accep tanceU n ila te ra l
C
n trac ts
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Elements of a Contract:
3) Consideration Applies to all contracts other than contracts made under
seal/ deed. Contracts made under deed form do not requireconsideration.
1) Definition
Consideration is an essential element in every simple contract.The doctrine of consideration requires that:
(1) there must be an exchange between the parties, involving either a promisefor promise, or promise for performance; and
(2) the promise or performance given in exchange must have value.
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Elements of a Contract:
3) Consideration cont
Rules of Consideration
Consideration does not have to be adequate
Consideration must be sufficient
Consideration must not be illegal
Consideration must move from the promisee
Past consideration is not good consideration
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Rules of ConsiderationC
nsi
erati
n
Involvesa
t
al
exchangeM
stnot bepastCannot beillegalM
stnot be
il
sor
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Elements of a Contract:
3) Consideration cont
RenegotiatingDebts
Performing existing contractual obligations does not amount to goodconsideration to enforce a promise : Foakes v Beer
Example (1) : A owes B $100. A decides to pay B $90 in full satisfaction ofthe debt. B then sues A for the balance ($10). B will succeed because there isno consideration for his promise to accept $90 for full payment : Foakes v Beer
Example (2) : A owes B $100. A decides to pay B $90 earlier for fullpayment. B will not succeed for the further $10 because A has done somethingextra, he has paid earlier : Pinnels case.
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Elements of a Contract:
3) Consideration cont Promissory Estoppel
The strict application of the doctrine of consideration is modified
with the doctrine of promissory estoppel. The doctrine ofestoppel operates to enforce certain promises which have notbeen supported by valuable consideration.
Elements of the doctrine of estoppel: There must be a promise by the promisor to the promisee
The promisee must have relied on the promise
The promisee will suffer detriment if the promisor is allowed to go backon his promise
It would be unconscionable (unfair) to allow the promisor to break hispromise
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Elements of Promissory Estoppel
Promissor
Estoppel
Promise/Representation/
Ass mptionReliance Material etriment Unconscionabilit
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Promissory Estoppel contWalton Stores v Maher
Waltons case was seen as important in the development of the doctrine,
because it extended the operation of the doctrine to create a new right ofaction.
Promissory estoppel only operates when all the above elements have beensatisfied. Promissory estoppel has its origins in the High Trees Case. Thedoctrine has been extended in the High Courts decision in Walton Stores.
The principle of promissory estoppel only applies when it would beinequitable/unconscionable (unfair) to allow the promisor to go back on hispromise.
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Promissory Estoppel contExample:
A enters into a lease agreement with B. The lease
provides that A pays B $500 weekly rent. A thenfalls into financial difficulty and asks B if he couldreduce the rent for 12 months to $300. B agrees. Arelies on Bs promise to accept $300 rent, and payshim that amount. 12 months later B sues A for thedifference in rent ($200 week).
Advise A.
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Elements of a Contract:
4) Intention to Create Legal Relations Commercial agreements
For a contract to be legally enforceable there must be anintention by the parties to be legally bound. In Commercial
and Business Agreements there is a presumption that the partiesintend to create legal relations: Edwards v Skyways.
Exclusions:
1) Express
This presumption can be rebutted but the onus is on the party seeking to exclude legal relations.
An express exclusion of intention by the parties will be given effect by the courts.
2) Social & Domestic Agreements.
There is a presumption that social and domestic agreements are not intended to create legalrelations. However this can be rebutted by evidence to the contrary.
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Elements of a Contract:
4) Intention to Create Legal Relations cont
Husband & Wife Agreements
The courts consider domestic arrangements between husband
and wife to be social agreements and not legally enforceable:
Balfour v Balfour.
Exceptions:
If the agreement between husband and wife involves
essentially a commercial matter then the agreement will be
enforceable : Milliner v Milliner.
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Do you have an intention to create
legal relations?
Do theparties have
an intention tocreate
legal relations
Yes
Check to see whether
the intentionhas been
expressl excl ed
If intentionhas not
beenexcl dedcheck
forotherelements
o
Check if the
commercial
pres mptionapplies
Check if the social/
domestic
pres mptionapplies
If thecommercial
pres mptionapplies
check forother
elements
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Elements of a Contract:5) Certainty of Terms As a general rule the courts will not enforce vague or
incomplete agreements.
However the courts will strive to fund a valid contract. If
terms are uncertain, the courts may clear the uncertainty
by the ff means:
- Trade customs & Usage
- Previous dealings between the parties to determine the
essential terms of the agreement.
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Elements of a Contract:6) Capacity to Contract
The capacity of certain persons to enter into legal
contracts may be affected.
Especially minors, drunkards and bankrupts.
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6) Capacity to Contract Minors
Minors
Minors are any persons below the age of 18.
Contracts with minors fall within three categories:
- Valid
- Voidable; and
- Void Valid Contracts - 2 types: Contracts for
Necessaries and Contracts for Beneficial Service.
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6) Capacity to Contract
Minors contContract for Necessaries Necessaries are defined as goods suitable to the condition in life of such a minor
and to his actual requirements at the time of such sale and delivery.
Two important questions arise:
(1) Can the goods/services be classed as necessaries for a person in thecircumstances of the minor in question?
(2) Were the goods/services in fact necessary to the minor at the time?
If the answer is yes to both these questions then there will be a valid contractand the minor will have to pay.
Examples of goods/services which are necessaries include: food, housing,education, medical and legal expenses.
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6) Capacity to Contract Minors cont
Contracts for beneficial services
The key question here is to ask:
Does the contract of service provide a benefit to the minor?:
Hamilton v Lethbridge.
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6) Capacity to Contract
Minors cont
Voidable Contracts
These are contracts which can be avoided by the minor before
he/she turns 18 or within a reasonable time after he/she turns
18.
They apply to contracts which are of a permanent
nature/continuing obligation. Eg: shares, leases and
partnerships. With voidable contracts the minor can free himself from future
obligations, but will have to pay for benefits already received.
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6) Capacity to Contract
Minors cont
Void Contracts
Contracts other than for necessaries or beneficial contract of
service are void against the minor.
Contracts involving loan repayments are also void against the
minor.