The Law of Contract - Essay Example

al Affiliation) DENNING, DEVLIN AND DREDD LLP A contract can be defined a legal agreement between 2 or more parties, and that is binding. The first requirement of any contract is an agreement, which is always made up of an offer and acceptance. At least 2 parties are needed. These are the offeror (makes the offer) and the offeree (accepts the offer). In this paper, I will present valid explanations of what an offer, an invitation to treat, acceptance, consideration, and Promissory Estoppel are, as well as the rules and procedures applicable to them. Key words Contract, offer, invitation to treat, acceptance, consideration, Promissory Estoppel Offer This is an open expression of willingness to contract that is often made with the sole intention of becoming binding on the offeror once the offeree accepts it (McIntyre 2008, pg. 12). Difference between an Offer and an Invitation to Treat Genuine offers are usually different from invitations to treat, which are mere invitations of offers which can either be rejected or accepted. Invitations to treat do not become legally binding once persons to whom they are addressed communicate their acceptance of their terms. The famous Carlill v Carbolic Smoke Ball Company [1893] 2 QB 256 case is perfectly suited to this scenario. Examples of invitations to treat include the following: a) Auction When an auctioneer calls for bids, he is also making an invitation to treat, which consequently opens the door for offers. The bids put in by people at auctions are offers which are subject to acceptance or rejection by the auctioneer. In the same vein, the bidder can withdraw his/her bid before it is accepted. Case reference: Payne v Cave (1789) 3 Term Rep 148 b) Display of Goods Display of products on supermarket shelves or shop windows are invitations for clients to make offers; they are not offers to sell the products. c) Advertisements Advertisements are considered to be invitations to treat, but may be confused with offers when they unilateral. d) Statements of price A mere statement of price at which parties are willing to sell is not offer. Case reference Harvey v Facey [1893] AC 552. e) Tenders In cases where products are advertised for sale through tender, the statements are not offers but invitations to treat. Acceptance This is an unqualified and final indication of acceptance of the terms of an offer. Rules and Methods of Acceptance There must be a clear indication, by the offeree, of a willingness to be bound by its terms. If an offer is to form an agreement it must be accepted according to its clear terms. It should match the offer exactly and ALL terms should be accepted. An offer can be accepted through conduct. For instance, an offer to purchase goods can be accepted by sending the offeror those goods. Acceptance can have no legal impact until the offeror is made aware of it; this is because it would bring the offeror hardship if he/she is bound without the knowledge that his/her offer has been accepted (Judge 2009, pg. 25). The common rule is that a postal acceptance becomes effective when the acceptance letter is posted (even if such a letter is delayed, lost, or destroyed). The postal rule will however not apply in case it is excluded by the offer’s express terms. Offers which require that acceptance is communicated in a particular manner can be accepted only in that manner. In cases where acceptance occurs through instantaneous media like email, it will become effective at the time and place it is received. It is important to note that an offeror cannot say that an offeree’s silence equates to acceptance. A communication does not become an acceptance in case it attempts to alter the terms of an offer (Elliot & Quinn 2009, pg. 43). In such cases it is considered to be a counter-offer, which the offeror is free to accept or reject. For instance, if the offeror agrees to trade on the standard terms of his/her offer and the offeree indicates acceptance but on different terms, that is a counter-offer. Whenever a counter-offer is made it equates to a rejection of the first offer which cannot be accepted or restored unless the parties involved agree. Case references: Partridge v Crittenden [1968] 1 WLR 1204; Pharmaceutical Society of Great Britain v Boots Cash Chemist (Southern) Ltd [1953] 1 QB 410; Henthorn v Fraser [1892] 2 Ch 27; Adams v Lindsell [1818] 1 B & Ald 681; Entores v Miles Far East Corp [1955] 2 QB 327; Hyde v Wrency [1840] 3 Beav 334. Consideration and Promissory Estoppel This is the notion of legal value in relation to contracts. It is anything valuable that is promised to another party when making a contract, and can take the form of physical objects, avoidance of future action, money, services, and much more. Consideration to draw a legally binding and enforceable contract consists of a detriment to the one who makes the promise (promisor) OR a benefit to the one to whom the promise is made (promisee). Based on the concept of pre-existing duties, if the promisee or promisor was already obligated to render such a payment, it cannot be viewed as consideration from a legal perspective (Judge 2009, pg. 28). Rules of Consideration 1. Consideration MUST NOT be Past If one party performs a voluntary act and another party then makes a promise, the consideration for that promise is classified as being in the past. This rule stipulates past consideration is not valid and therefore is not a consideration. Consequently, it cannot be employed to sue on any contract (Wild & Weinstein 2009, pg. 43). Exceptions to this Rule a) Previous Request If the promisor had earlier requested the other party to offer goods or services, then any promise made following the provision of those goods or services will be binding. Case reference: Lampleigh v Braithwait (1615) Hob 105. b) Business Situations If something is conducted in a business manner and it is well understood by all parties that it will be paid for, then past consideration is valid and effective (Elliot & Quinn 2009, pg. 44). Case reference: Caseys Patents [1892] 1 Ch 104. The Privy Council applied the principles of Lampleigh v Braithwait, based on their interpretation with regard to Caseys Patents, in Pao On v Lau Yiu Long [1980] AC 614. c) The Bills of Exchange Act 1882 S27 (1) provides that any antecedent liability or debt is legal consideration for bills of exchange. For instance, if A repairs B’s car and B gives A a $10 cheque after a week, the work A did is valid consideration in return for the cheque (Wild & Weinstein 2009, pg. 49). 2. Consideration MUST BE Sufficient but NEED NOT BE Adequate So long as there is some value in consideration, the courts will not question its adequacy. When consideration is recognized by courts to be of value, it is classified as sufficient or real and will therefore not be investigated to determine if all parties in the contract have equal value. 3. Consideration MUST move from the Promisee Any party that wishes to enforce the contract should prove that they offered consideration; it is not sufficient to show that another party provided consideration (McIntyre 2008, pg. 65). The promisee should show that consideration was provided by him/her (in other words, "moved from" him/her). The consideration must not move to the promisor, but problems may arise if there are three parties involved. Case reference: Price v Easton (1833) 4 B & Ad 433 4. Forbearance to Sue If one party has a legitimate claim against another (in tort or contract) but promises that it will forebear from the enforcing the claim, it will be viewed as valid consideration if it is made in exchange for a promise by the other party to settle the said claim (Riches & Allen 2009, pg. 51). Case reference: Alliance Bank v Broom (1864) 2 Dr & Sm 289. 5. Existing Public Duty If someone is required by the public to perform certain duties, then agreeing to perform those duties does not amount to adequate consideration for a contract. Case reference: Collins v Godefroy (1831) 1 B & Ad 950. On the other hand, if that person goes beyond public duty, then there might be a case for valid consideration (Elliot & Quinn 2009, pg. 37). Case reference: Glassbrooke Bros v Glamorgan County Council [1925] AC 270. 6. Existing Contractual Duty If a person promises to perform something they are already bound to perform under a contract, that is not seen as valid consideration (Judge 2009, pg. 75). This can be contrasted with two cases, namely Stilk v Myrick (1809) 2 Camp 317, and Hartley v Ponsonby (1857) 7 E & B 872. 7. Existing Contractual Duty owed to a Third Party If a party promises that it will perform something for a different party, but is already required by contract to do that for a third party, this is viewed as good consideration. Case reference: Scotson v Pegg (1861) 6 H & N 295. 8. Part Payment of a Debt Here, the general rule is that if one party owes some money to another party and agrees to pay part of that sum in full settlement, the rule is that part-payment of that debt does not qualify as good consideration for a promise to write off the balance (Wild & Weinstein 2009, pg. 45). Case references: Pinnel (1602) 5 CoRep 117a); Stilk v Myrick (1809); Foakes v Beer (1884) 9 App Cas 605; C (a Debtor) [1996] BPLR 535; and Ferguson v Davies (1996) The Independent December 12th 1996. Rules of Promissory Estoppel The first rule is that the promisor must provide clear statements that he is not intending to enforce his legal rights. The promise can be implied or express (Riches & Allen 2009, pg. 16). The second rule is that the promisee should have acted on the promisor’s promise. Case references: Ajayi V. Briscoe (1964) 1 WLR 1326, and Alan Co. Ltd V El Nasr & Import Co. (1972) 2 QB 18. The third rule is that it would be illegal for the promisor to go back on his/her promise and claim his/her legal rights after the promisee had depended on it (Riches & Allen 2009, pg. 28). The fourth rule is that promissory estoppels cannot be enforced against the promissor. It can only be used as a form of defense and not as a sword (McIntyre 2008, pg. 68). Case references: Combe V. Combe (1951) CA; Wyven Developments (1974) 1 WLR 1097; Evenden V. Guildford City AFC (1975) QB 917; and D & C Builders v Rees (1965) 2 QB 617 References Elliot, C., & Quinn, F. 2009, Contract Law, 7th edition, Pearson Longman, New York. Judge, S. 2009, Business Law, 4th edition, Palgrave MacMillan, London. McIntyre, E. 2008, Business Law, 4th ed. Pearson Longman, New York. Riches, S., & Allen, V. 2009, Business Law, 9th edition, Pearson Longman, New York. Wild, C., & Weinstein, S. 2009, Smith and Keenans Company Law, 14th edition, Pearson Longman, New York. Read More