Elements of a Binding Contract - Essay Example

What Are the Elements of a Binding Contract? Part 3: Application of contract law to three specific cases The basic elements of a valid contract are: 1) an offer; 2) an acceptance; 3) consideration; 4) intention to be bound; 5) mutuality; 6) capacity; and 7) legality (Basic Requirements for a Contract, 2005). For the purpose of this analysis, it will be assumed that all parties are not minors, do otherwise have contractual capacity, and that none of the acts being negotiated are contrary to the law. It is worth noting that in all three cases, the parties involved failed to commit their agreements to written form. Though verbal contracts are technically enforceable, the proof is hard to come by unless two disputing parties manage to agree to the facts. The elements in each case will be evaluated against the standard of contract validity. Question 1. In Chong vs. Lee, the first and foremost finding is that a contract never existed. Their agreement fails in every way to meet the legal definition of a contract because of fundamental defects, so there was no contractual agreement to breach or sue to enforce. Way Lee offered to sell five reconditioned motorbikes to Chong for a set price, but Chong didn’t accept Lee’s offer; he deferred his answer indefinitely, saying he would “think about it.” No contractual agreement was created at that time because there was an offer but no acceptance, and both elements must be present to create a valid contract. When Chong wrote to Lee a week later, he included additional sale conditions, specifically regarding painting the bikes. No contractual agreement was achieved in this instance, either. By changing the terms of Lee’s original offer, Chong was effectively making a counteroffer, and implicit in a counteroffer is a declination of the original offer, which then ceases to exist (Graw, 2002). The Postal Rule states that an acceptance is considered conveyed and takes effect at the time it is deposited in a valid postal receptacle or given to a legitimate postal worker properly prepared for posting. A contract would have been formed even if the letter had never been received by the other party. See Adams v. Lindsell (1818). But that rule would not apply here, the main reason being that the letter Chong posted was not a simple acceptance of the original offer, but a counteroffer, and Lee could not have been presumed to have agreed to it without any knowledge of it. Even if Chong’s letter had been a simple acceptance of the original offer, a question would have arisen as to whether Lee had intended his original offer to Chong to remain good for a week or whether such a length of time would be deemed reasonable by a judge. It appears from the fact that Lee sold the bikes to other parties that he considered a week too long. Chong clearly believed that he had an agreement with Lee after he posted the letter, and he relied on that belief when creating contracts of his own with other parties to whom he planned to on-sell the bikes. If a contract had existed at that point with Lee, the fact that Chong relied on it would have prevented its revocation or modification. See Drennan v. Star Paving (1958). As it is, Chong is still obligated to perform under his agreement with the other parties, with whom binding contracts appear to have been created, even if he has to find another source for reconditioned bikes of the same type in the appropriate colors and/or pay a different price for them. If he fails to do so, these parties could successfully bring a breach of contract suit against Chong. The conclusion regarding an action by Chong against Lee for breach of contract is that it would fail because Lee was not a party to any valid contractual agreement with Chong at any time. Question 2. In Jones vs. Jimmy and Lee, the most important aspect of the case in the beginning is that Jimmy was not present when Fred Lee offered Jimmy’s services to Norah Jones, so at that time no contractual agreement was created between Jones and Jimmy because without having any knowledge of the agreement, Jimmy could not have had any intent to be bound by it. As to whether an enforceable contractual agreement arose at this point between Lee and Jones, it seems that it did. He agreed to provide a qualified escort for the agreed price, but more specifically, he agreed to provide a particular escort because the qualifications he attributed to Jimmy – if they had been true – would have been unique to Jimmy. Jimmy, of course, had nowhere near the experience attributed to him by Lee and wasn’t aware of Lee’s negotiations on his behalf, so what took place at that point seems to have all the elements of an Actionable Misrepresentation on Lee’s part: he made false statements of fact; in this case about Jimmy’s abilities to act as a guide to Singapore as well as his own ability to secure engagements on Jimmy’s behalf; he addressed those statements to the party being misled, in this case, Jones; and those statements were intended to and did in fact induce the contract (Graw 2002). Further, these misrepresentations were clearly fraudulent in nature. For these reasons, Jones would probably prevail in a suit against Lee. We don’t know whether Jones gave the money directly to Lee, but it would be a reasonable inference that she did, so there was consideration involved. Consideration is “a benefit which must be bargained for between the parties, and is the essential reason for a party entering into a contract” (Free Dictionary: Legal, 2005), and both Jones and Lee expected a benefit to accrue to themselves in the transaction. As to the question of whether Jones would prevail in a suit against Jimmy, we look at the next critical juncture in the timeline of events to see what happened once he became aware of the agreement, because at some time after the initial conversation between Lee and Jones, Jimmy was told about the “deal” Lee had made for him. Up until this point, Jimmy did not posses an intent to be bound by the agreement because he was completely unaware of its existence. At this point, he could have refused to become a party to the agreement after the fact and whether or not the money was returned to Jones by Lee, Jimmy would have had no culpability in the matter whatsoever. However, Jimmy apparently agreed to be bound by the agreement because he did, in fact, proceed to perform – or attempt to perform – the service for Jones. This is a separate and voluntary action on Jimmy’s part, and his performance constitutes a promise to deliver the service, albeit implied (Heffey, Paterson and Hocker, 2000). So at this point, he has made himself a party to the contract. We don’t know for sure whether Lee paid Jimmy all or even part of the $500 to perform this service, but it’s reasonable to infer that Jimmy wouldn’t have been motivated to do such a thing for free. So it appears that Jimmy became obligated under the contract because he agreed to do what Lee had promised, received consideration, and gave evidence of his intention to be bound by attempting performance (Heffey, et al, 2000). We don’t know whether Jimmy knew in advance of taking Jones on the tour that Lee had exaggerated his qualifications because if he did, he would have had a duty to disclose the true facts to Jones. He did not do so. Even if he didn’t know of the exaggerations, he knew that he was not a qualified tour guide, and his silence on these points constitutes a material misrepresentation to Jones. Whether an Actionable Misrepresentation suit could be brought against Jimmy might depend on him having all the knowledge that Lee had, including the extent of the exaggerations, and then forming a deliberate intent to continue Lee’s misrepresentation to Jones through his own silence on the matter. It appears that this is, indeed, what happened. Since both Lee and Jimmy were involved to some extent, even to the point of conspiring together to commit a fraudulent act against Jones for their own personal gain, the most reasonable course would be to sue them both and leave the determination of the extent of the involvement and liability of each to the court. Jones’ remedy in this case would fall under Expectation Damages. This could be in the form of restitution – return of the $500 she paid to Lee – or reliance damages, which would seek to restore the injured party to “where they would have been” and would perhaps include something for the loss of her time. Another option available would be specific performance under equity, a common law remedy, wherein Lee would be obligated to deliver to Jones what was originally promised to her. In London Bucket v. Stewart (1951), specific performance was found to be an unsuitable remedy because the work to be performed was standard; with expectation damages, the plaintiff could find another contractor to satisfy their needs. In this case, the service is more unique, but the availability and suitability of the specific performance remedy would depend to a great extent on whether Lee was, in fact, in the guide business, and had access to guides whose qualifications more closely matched those he falsely attributed to Jimmy. Jimmy could claim that restitution damages should be reduced for the amount of the service he did provide. In Osteen v. Johnson (1970), partial performance entitled the Defendant to retain a portion of the amount paid by the Plaintiff for the reasonable value of the services he did provide. But the services Jimmy provided fell more than a little short of Jones’ expectations, and more importantly, didn’t in any way correspond with what Lee promised Jones at the time the agreement was made, so Jimmy’s claim for partial payment would be weak at best, if not unconscionable if allowed. That does, however, bring up a point that might be made as to whether Jones had a duty to mitigate her damages, at least as far as the expense of her time, as soon as she became aware that Jimmy was not, in fact, delivering the service for which she had paid. As this fact must have become apparent fairly quickly, one might wonder why she spent the entire period of time with Jimmy enduring this unsatisfactory experience. Duty to mitigate is typically applied to what an aggrieved party does after the failure of an agreement, not when the failure becomes apparent while the transaction is in progress. Even if Jones had acted to protect the waste of her time, the promised service was not performed in any measure, regardless of the time factor. If the fact that Jones did not stop the tour when it became obvious that Jimmy was not qualified to conduct it arose, according to Roper v Johnson (1873), the burden of proof is on the wrongdoer to show that the claimant’s actions, in this case waiting until after the entire tour had been conducted to assert that the service was not as represented, were unreasonable under the circumstances. Question 3. In Chan vs. Ho, the main question appears to be whether the landlord, Chan, can sue to recover the $1600 difference between the original rent Ho, an artist, agreed to pay for the studio she was using, and the reduced rent Chan agreed to accept from her while Ho was preparing for an art exhibition. It is clear that the original agreement for rent on the studio was $400 per week, but it seems equally clear that in response to Ho’s request, Chan agreed to reduce the rent to $200 per week – the word used was “drop” the rent. We do not know for how long the landlord intended the rent to be reduced, or if the landlord meant for the rent to merely be deferred. According to the case summary, Ho represented to her landlord that her cash flow problem was temporary in nature and fixed in time. This would give weight to the interpretation that whatever the landlord had in fact agreed to was also temporary and probably fixed to the same time, after which the rent would revert to its original level once the underlying factor, in this case Ho’s cash flow problem, was no longer an issue. As to the question of the back rent, the real question is whether the agreement was that the rent would be deferred or reduced during the art show. On the one hand, it would be a generous landlord indeed who would simply agree to cut his rental income on a particular unit in half for two months, in which case Ho’s interpretation that the rent had been reduced, at least for that period of time, may not have been reasonable. On the other hand, if Ho was a good tenant, Chan may well have decided it was better to lose a little money over a short period of time in order to retain a good tenant since tenant turnover is not without expense. However, the case summary also mentions that the exhibition was very successful, so a question arises in my mind as to whether Chan was motivated to seek back rent not because that was the original intent, but because he believed that Ho could afford to pay it. Ho’s interpretation that she did not owe back rent draws strength from the closer synonymous relationship between the words “drop” and “reduce” than between “drop” and “defer” if, in fact, the word the landlord used was “drop.” This modification to the rental agreement was never committed to writing, but it didn’t have to be. According to the Residential Tenancies Act of 1995, rental agreements not only are not required to be put in writing, but in addition to being valid if only verbal, they may also be valid if merely implied (Office of Consumer and Business Affairs, Government of South Australia, 2005). We don’t know whether the original rental agreement was in writing, but Division 3, Part 4, 55 (3), (4), and (5) of the Residential Tenancies Act states: (3) The rent payable under a residential tenancy agreement may be reduced by mutual agreement between the landlord and the tenant.  (4) A reduction of rent may be made on a temporary basis so that the rent reverts to the level that would have been otherwise applicable at the end of a specified period. (5) If the rent payable under a residential tenancy agreement is increased or reduced under this section, the terms of the agreement are varied accordingly. Whether Chan would be successful in recovering the so-called back rent from Ho would probably depend either on Chan convincingly demonstrating his corresponding and original intention to do so, or on Ho proving the reasonableness of her interpretation that she would not have to do so. In the end, the decision might turn on facts not known at this time, such as the existence of similar arrangements made with other tenants, or made with Ho at other times, or that Chan knew the cost of re-letting a space on average exceeded the amount of rent that would be lost through an agreement to permanently forego the reduced amount for the amount of time specified, and only changed his mind when he discovered that Ho’s show went well. The relationship between a landlord and tenant is essentially one of buying and selling the use of space. Landlords are not in the business of giving rental space away for less than the market value, even temporarily, except perhaps as an inducement to attract tenants. It is likely that Chan rents to other artists, and unless he is quite a patron of the arts, it is not likely that he intends to make a habit of reducing rent for artists, Ho or any others, every time they experience a cash flow problem or need to divert cash to an urgent artistic use. For this reason, I believe Chan would probably prevail in a suit against Ho with regard to the back rent even if he did, in fact, “reinterpret” his version of the story only after finding out how well the exhibition went. Otherwise, the standard of reasonableness of either party’s interpretation of the agreement from the words that were spoken might come down to something as simple as the culture or nature of local legal custom regarding landlord tenant relations; specifically, whether disputes regarding gray areas tend to be interpreted in favor of the tenant or in favor of the landlord. If custom in this regard varies widely from one jurisdiction to another, the outcome would be hard to predict unless we knew in what specific geographic location this landlord tenant relationship existed. References Basic requirements for a contract. (2005). Retrieved Apr. 10, 2006, from AussieLegal at http://www.aussielegal.com.au/informationoutline~nocache~1~SubTopicDetailsID~712.htm Free Dictionary: Legal by Farlex, Inc. (2005). Consideration. Retrieved Apr. 12, 2006, from http://legal-dictionary.thefreedictionary.com/consideration. Graw, S. An introduction to the law of contract (4th ed). (2002). N.S.W.: North Ryde. Heffey, Paterson and Hocker. Contract commentary and materials (9th ed). 2000. N.S.W.: LBC Information Services. Office of Consumer and Business Affairs, Government of South Australia. (2005). Residential Tenancies Act 1995: Overview. Retrieved Apr. 12, 2006, from http://www.ocba.sa.gov.au/tenancies/overview.html. Parliament of South Australia Online, South Australian Acts and Regulations. (2005). Residential Tenancies Act 1995. Retrieved Apr. 13, 2006, from http://www.parliament.sa.gov.au/Catalog/legislation/Acts/r/1995.63.htm. Read More