The Basic Formation of General Principles of Contact - Essay Example

General principles of contact law may appear obscure to unravel, however the steps to identify the existence of a contract lies in the law and its basic formation. The formation of a contract is important to determine. It must first be determined whether a contract exists or not; if so, when it was formed; and, what terms are contained within it. When an agreement has been reached and the parties intend their agreement to be binding, or legally enforceable, then this is how, in principle, a contract comes to exist.1 As a general approach, in order for a contract to exist there must be an agreement, consideration, and an intention to create legal relations. There is also an objective and subjective component. The objective test relies on whether or not an "independent observer, appraised of the background facts known to the parties, would consider there to have been an agreement, and if so what agreement".2 It is beneficial to reduce an agreement expressly, or in written form, where there will be little doubt to its existence and content or terms.3 Where there are doubts, however, the law uses a two-fold process of offer and acceptance.4 Firstly, an offer intends to make a contract. For an offer to be complete, there must be an intention, it must be communicated, and it must be certain and complete. No further steps are anticipated. "I accept" will form a contract. It will not be an offer if the offeree does not hear it from the offeror.5 The offer may be destroyed by withdrawal by the offeror, a lapse of time specified by the offeror, or at a reasonable time after being made, and also by being superseded by a subsequent offer (by offeror or offeree), or lastly being rejected by the offeree.6 Offers must be distinguished from an invitation to treat. An invitation to treat gives the offeree a chance to make an offer to purchase the item. Some examples include: Advertisements or shop displays.7 Unilateral offers are contracts where the acceptance and performance are simultaneous, and takes the form of: "If you do this then I promise that" (examples: rewards and tenders). The contract is unilateral because only the offeror is bound.8 Until the offeree performs, he/she has not accepted. When performance has happened, the offeree has nothing left to do.9 However, there are problems with unilateral offers. The normal rule is that you can revoke until communication of acceptance, which may lead to unfair results. The "Walking to York" example suggests that you must walk all the way to York in order to have accepted the unilateral contract. Thus, walking 80%, or partial walking, is not acceptance. Performance then must be complete or the offer can be revoked.10 Partial completion, however, may give rise to quantum meruit, which allows for the offeror to revoke the offer but to award the offeree a reasonable value for the time and effort he has put in up to the time of revocation. It is usually imposed to avoid the unjust enrichment of one party at the expense of another. For there to be a valid acceptance of an offer, there must be a mirror image of the offer without adding anything new.11 The communication of acceptance must be expressly or impliedly dictated.12 Silence is not acceptance.13 In order for a contract to be considered binding there must be consideration. The Pollock definition of consideration is: "An act or forbearance of one party, or the promise thereof is the price for which the promise of the other is bought, and the promise thus given for vale is enforceable." There must be a benefit - detriment component to show a causal link. The case of Thomas v Thomas states that "consideration means something which is of some value in the eye of the law, moving from the plaintiff to defendant. It may be some benefit to the plaintiff or some detriment to the defendant".14 More specifically, however, the formation of a straightforward civil engineering contract follows a similar process. It may proceed in the following stages: invitation to tender; tender or quotation; letter of intent; and acceptance.15 The invitation, or tender, is usually a pre-offer,16 whereby the employer invited one or more contractors to tender quotations for a specified piece of work. As the case of Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] claims, there is no obligation for the person inviting tenders to accept the lowest or any offer, although there may be an obligation to consider all tenders properly submitted.17 For a tender, or quotation, there is "an offer by the contractor to perform work for the price or rates quoted and on the terms under his offer".18 As the case of Croshaw v Pritchard [1899] confirms, even if there is an estimate, it may amount to an offer.19 Moreover, a letter showing intention is usually written to a tenderer upon receipt of tenders, which forms: "we intend to place a firm order with you shortly" and may also hold: "please commence work as soon as possible".20 Furthermore, if the contractor begins work after such a letter of intent, he is then entitled to be paid a reasonable sum for work performed even if the contract somehow does not go through.21 Lastly, the acceptance is simply the unconditional accepting of the tender. In addition, a contract may not have an agreement for a lack of certainty, which means it was not reasonably clear and certain.22 Also, the parties' intention to be bound by the agreement is similar to general contract law, whereby it can be expressed or implied intention to be bound.23 Consideration is again a factor and the benefit - detriment idea stated above applies. The consideration may consist of a "promise to pay money, perform a job, forego an existing legal right, or any other commercial value matter".24 In a civil engineering contract, consideration may be easy to determine. Basically, the contractor agrees to the works and the employer agrees to pay for it, whereby consideration is thus exchanged by both parties.25 In essence, this is the formation of contract relations. Similarly, tort law plays a role. Tort is a fault-based system where there is a legal wrong, and the main purpose is compensation, appeasement, retribution, deterrence and loss distribution. A right-of-action means being able to bring action in court for any wrong act or injury consisting in the infringing of a right created other than by contract.26 If either party to the engineering contract breaks a term of the contract, and thereby causes loss or damage to the other party, such as the physical destruction of property, then the liability may take two possible forms, breach of contract - which is a breach whereby to take due care and skill. But, the other is known as liability in tort.27 Liability in tort includes various types of civil wrongs, such as "negligence, nuisance, defamation, breach of statutory duty, etc". It basically stems from a "failure of one person to take care to avoid injury, loss, or damage to the other".28 In contract, there must be a legal relationship with the parties; however, in tort, no pre-existing legal relationship is necessary. In commercial, engineering, or construction contracts, negligence is the branch of tort law that is most frequent. It may arise if there is an "accident causing personal injury or death, and/or loss of, or damage to, property".29 If care is expected from a person then this is a duty. An example comes from the Murihead v Industrial Tank Specialities Ltd and Others [1985]. Here the contract involved installation of a tank with pumps to circulate water. It occurred that the pumps were not a proper voltage under England voltages and they cut-out. The purchaser had an obvious claim again the contractor of the pumps based on them not being fit for purpose required. But, the contractor became insolvent and the judgement was in the sum of 150,000, could not be carried. In such instances, a person can rely on tort law as an alternate. Here the tortuous act must be identified, the person who committed it, and whether that person had a duty of care. If this duty was breached then a claim can be made against the manufacturer of the electric motors for the pumps based on the fact that the manufacturer knew the motors were to be used in pumps in the United Kingdom and were not suitable for use.30 The main difference will be calculating damages. In both cases, the court will "attempt to place the buyer in the same position as if the wrong or breach had not been committed". But, in tort pure economic loss is not usually foreseeable, and only if physical damage of an accident is caused by negligence, or physical injury and medical expenses or loss of earnings are to be associated, will this claim pay.31 With regards to the dispute resolution procedures included in standard forms of engineering contracts, it must be noted that there are a range of dispute processes used to resolve civil engineering disputes. These include conciliation (or mediation), adjudication, arbitration and litigation.32 In the case of litigation, "proceedings are governed by the Civil Procedure Rules and so there is no capacity for the parties to agree their own rules of procedure". In the case of conciliation, adjudication and arbitration the parties may agree rules.33 The "ICE Adjudication Procedure 1997 contains procedure for civil engineering contracts in any country, and it is similarly designed to comply with the adjudication provisions of the Housing Grants, Construction and Regeneration Act 1996".34 The procedure has five steps. First, a statement of case is given at the referral date; then the other party has 14 days of the referral date to give a response; subsequently, the adjudicator has discretion on the proceedings which include site visits, meeting parties and specific documents; then, the adjudicator can get legal and technical advice as long as he has notified the parties of his intention; lastly, the adjudicator gives a decision within 28 days of the referral date.35 Moreover, arbitration rules are conducted under The Construction Industry Model Arbitration Rules (CIMAR) 1998.36 These rules are not in themselves contained as cross-referencing to the Arbitration Act 1996 is required. Under the procedure of the rules, the arbitrator may choose the procedure to be adopted from a short hearing (Rule 7), documents (Rule 8) or full procedure (Rule 9).37 Under the provisional relief, a "partial award may be issued at any time; but once made, it cannot be reopened". According to Michael O'Reilly, this is useful "where the claimant has won the liability stage of arbitration; or where a claimant seeks some relief relating to property, the arbitrator may order on a provisional basis."38 Read More