Intention to Create a Legal Relationship - Case Study Example

Name: Instructor: Course: Date: Number of Words (1565) Соntrасt lаw (Нyроthеtiсаl саsе аnаlysis) Introduction The case between Allen, Barry and Cate is one that is related to contracts in business. A contract is an agreement which is legally binding between two parties1. There are various elements of contract that must be present in an agreement for it to be considered as a valid contract. These elements include; offer and acceptance, an intention of creating legal relations, a consideration, the legal capacity of the parties involved, a consent of the parties which is genuine as well as the legality of the agreement2. When a contract agreement is deficient of one or more of these elements, it cannot be regarded as a valid contract. Offer and Acceptance Being an element of contract which is essential, an offer and acceptance is evident in the case among the parties in our scenario Allen, Barry and Cate. The contract here is to sale the ownership of Allen to Cate in the caravan park business. Allen did offer to sell his share in the business to Cate who willingly accepted the offer without any form of duress. The parties did agree on the terms of the contract and they all signed the agreement. This means the agreement became an enforceable document after signing3. Allen is seen to make another offer of selling his share in the business to Edith. Considering this principle, Allen needs to understand that, one can only withdraw an offer that he or she had proposed to another person before the other person accepts that offer. In this case, Allen cannot withdraw the offer that he had already made to Cate who had accepted it. For the withdrawal to be effective, Allen must communicate to Cate of the withdrawal. However, this is not possible since the parties had already sealed the agreement. Intention to Create a Legal Relationship From our scenario, it is evident that the parties to the contract had the intention of creating a legal relationship. This is an indication that, the document that they signed was not only an agreement by a legal document that binds all the parties. By selling his shares to Edith, Allen will be breaching an agreement with which he is already bound to the other parties. Allen should understand that, this is a commercial agreement whose rebuttable intention is usually to create an agreement which is legally binding. Therefore, Allen cannot sell his shares to Edith. Consideration Consideration is an essential element that must be present to make a contract valid. In the law of contract, consideration is defined as the price that is paid for the promise that was made by the other party4. The price should be something that has value and not necessarily money. It can be in the form of an interest, some right, and benefit that goes to the other party. When a consideration is not present in a contract agreement, that contract cannot be considered as valid5. In our scenario, the parties had not agreed on the parties had not arrived on an agreed consideration for the contract. This means that, the contract is void. However, when the terms of the contract are well defined in the agreement, and the consideration agreed upon and methods of determination are well defined; such a contract cannot be revoked on the basis of lack of a consideration. Allen needs to know that, they had already set out the terms of the contract expressly. The parties to the contract had already made statements that they agreed up on before entering the contract. These statements are well presented in the minutes that were signed by Allen, Barry and Cate. In the minutes, it is clearly stated that, “The valuation of that share will be determined by independent certified third party valuers (it is envisaged that Detel Valuers Pty Ltd whose offices are in Pitt Street Sydney will be used). A 10% deposit will be paid upon valuation.” The parties also agreed that “Cate will pay Allen a royalty of between 2-4% of the annual profits from the business on an ongoing basis for the use of the land.” These express terms on the consideration are binding statements that cannot be breached by the parties to the contract. Allen should also know that, singing the written agreement was a binding term to the contract, meaning that, all parties are bound to the terms that are set out in the contractual document. Therefore, Allen cannot sell his shares to Edith. If he sells the shares, he will be breaching the terms of the contract which are the conditions set out in the minutes, it means that, he will be breaching a condition. Based on consideration, it is also important for Allen to be aware that, documents that are already signed are regarded as under seal6. Documents that are under seal do not need a consideration so as to have a binding contract. Singing alone is an enough consideration. Legal Capacity Allen also needs to be aware that, all the parties that were involved in making the contract were all over 18 years and had a legal capacity to enter into contract. Therefore, all parties were free to enter into contract according to the law. People who do not have legal capacity to enter into contract include; those who have mental impairment, minors, bankrupts, corporations and prisoners7. In our case study, the parties involved in the contract, no one of them fall under this category. Therefore, it is a valid contract that no one can breach. Consent Another point that Allen needs to understand is that, he entered into the contract at free will and a proper understanding of what was happening with all the parties. This means that, the consent between Allen, Cate and Barry was genuine. When a contract is entered with genuine consent among the parties, that contract is considered to be valid8. Allen should also know that, the consent that was genuinely given by the parties was not influenced by matters such as; mistake, false statements, duress as well as undue influence. When Allen sells the shares to Edith, then, he will be breaching an essential element to a contract and will be liable to pay damages to Cate as result of breaching the contract. Void Contracts When Allen will be selling his shares to Edith, the two parties will be entering into a void or an illegal contract. An illegal contract is one that goes contrary to the public good9. It is not enforceable by the law. Some of the illegal contracts include; a contract that is entered to commit a crime, fraud or a tort, sexually immoral contracts, contracts that prejudice public safety, those that bias the administration of justice, those that promote corruption within public life and those that are aimed at defrauding the revenue. The contract that Allen will enter into with Edith is one that does not promote the administration of justice. Allen will be going against the agreement they made with Cate. It is a contract that promotes corruption since Allen sees that he will gain more money than what he was going to receive form Cate. The contract is void and cannot be enforced by the law. At common law, there no contract that has been formed in such circumstance. Money that will be transferred under the formation of a void contract can be recoverable. This means that the contract that Allen and Edith will enter into will not hold and Edith will require recovering the main paid as a consideration for the contract. The two parties will go back to their original status. Termination of a Contract Before entering into a new contract with Edith, Allen should end the contract that he had entered with Cate. This means that, he will retain his shares back and gain the capacity to sell them again. However, retaining the shares to his possession will depend on the consent of Barry and Cate. A contract can be terminated in different ways including; performance, agreement between parties, operation of law, impossibility of performance and breach of a contract10. Based on these methods, Allen cannot terminate the contract with Cate. There is no performance that has been carried out. Barry has already refused Allen selling the shares to Edith. This means that, ending the contract with Cate will be difficult since the three parties will not be able to arrive at an agreement. The contract cannot be terminated by operation of the law since no party is bankrupt, or completed 15 years as per the Limitations of Actions Act 1958 (Vic). There is no impossibility of performance of the contract that requires it to be terminated. The breach of the contract by Allen cannot also warrant the termination of the contract. The reason is that, the parties are still bound by the conditions expressed during the making of the contract. In such a case, Allen will be required to pay Cate all the losses in form of monetary damages that she has suffered. In the law of contract, there are four remedies that are available to the wronged party including; self-help, specific performance, damages and rescission. Conclusion The scenario presented in the case study is one whereby, Allen cannot breach the contract made between him, Barry and Cate. The elements and terms of contract are binding as presented in this essay. Therefore, Allen must continue with the original contract. Works Cited Community Legal Information Center. “What are the basic requirements for making a valid contract?” Business and Commerce, (2012). Government of Western Australia. “Four Essential Elements of a Contract,” Small Business Development Corporation, (2015). The Institute of Law. “Elements of a Contract,” Judicial Education Center, (2015). Joseph, Chris. “What Are the Elements of a Business Contract?” Demand Media, (2015). Kumar, Shivam. “Essential Elements of a Valid Contract,” Business Law, (2012). The Law HandBook. “The Law of Contract,” Fitzroy Legal Service, (2013). Thomson Reuters. “Making a legally valid business contract,” Find Law, (2015). Read More