Essay: Elements For Valid Contract Formation." (50 Characters)

1.Describe the elements that are required to prove the existence of a valid contract?

2.A group of friends meet for a regular drink at a hotel every Friday night. Each contributes $2 towards a group lottery ticket, which is drawn over the weekend by Lotto company. One of the group is given the role of actually buying the syndicate ticket. When in fact a winning ticket is drawn for the group the purchaser of the ticket claims the arrangement is purely social and there is no arrangement whereby he needs to share the prize. Analyse this issue in terms of contract law.

3.What is meant by the term misrepresentation. How many types of misrepresentation exist?

4.Describe the various ways in which a contract can be discharged?

Agreement is crucial for the formation of a contract

1.Following are various elements which are necessary to be fulfilled by the parties of a contract in order to bring it into existence. Non-fulfilment of these elements makes a contract void ab initio which means invalid from the beginning.

In order to bring a contract into existence, an agreement is necessary to be constructed between parties. Agreement is a foremost requirement which validates the authenticity of a contract and brings it into existence (McKendrick, 2014). In order to create an agreement, a party made an offer to another for doing or not doing a specific activity, and such offer is required to be accepted by another party without any modifications in its terms. A contract can be written or oral. The party making the offer is called ‘Offeror’, and the party who accepts such offer without any changes is called ‘Offeree’. In Carlill v Carbolic Smoke Ball co (1893) 1 QB 256 case, it was held that it is necessary that offeror has the intention to bound by the terms of the contract (Poole, 2014). For example, A points a gun at B and forced him to accept his offer. It will not be a legal contract since B had no intention to bind to the contract.

Consideration means anything which is given by the parties to a contract in lieu of a promise which is made under the contract. Without a valid consideration, a contract cannot come into existence, and it is considered as void ab initio. Generally, a consideration is anything with a monetary value, and it should have a certain worth. In Thomas v Thomas (1842) 2 QB 851 case, it was held that consideration must have certain worth in the eyes of the law (Giancaspro, 2015). For example, A agrees to give $200 to B for teaching his son mathematics; it is considered as a valid consideration.

In order to bring a contract into existence, it is necessary that parties of a contract are capable of entering into a legally enforceable contract. The capability of parties to a contract means all the parties must be of legal age which is 18 or above. A minor cannot enter into a legally enforceable contract and contract with a minor is void ab initio. As per Hart v O’Connor (1985) AC 1000 case, the parties who are singing a contract must have a stable and sound mind which means that they are able to understand what is right or wrong for them (Phillips, 2010). The contracting parties should be solvent as well because an insolvent person cannot enter into a legal contract.

Consideration is necessary for a contract to be enforceable

The thinking and intention of contracting parties must be same while entering into a legal contract. The intention of parties must be free from any force or threat, and they should provide their intention without any external influence. As per Balfour v Balfour (1919) 2 KB 57 case, social contracts cannot constitute a valid contract since parties do not intend to bind each other legally (Saprai, 2017). For example, A asked B to come to dinner at his house on a specific day, and B agrees. A contract has not been created between them since both of them did not have the intention to bind each other legally.

The terms of a legal contract must be certain since changeable or flexible conditions cannot form a valid legal contract. The terms of a legal contract can only be changed with the prior approval of all the contracting parties (Chen-Wishart, 2012).

2.In order to bring a contract into existence, the intention of all the contracting parties is a crucial requirement. While entering into a valid legal contract, all the parties must have a similar intention of binding themselves with the terms of the contract. The intention must be free from any external influence, force or threat. Whether or not parties have a legal intention to enter into a contract is determined by the circumstance which exists at the time contract’s execution (Skyrms, 2014). Therefore, the contracts which are created in a social setting and between family and friends are not legally enforceable in the court because the parties lack the intention of enforcing the agreement over other parties. As per Jones v Padavatton (1969) 2 All ER 616 case, there is a general presumption that contract between family and friends did not create legal relations since they did not have legal intention to bind themselves or others into a legal relationship instead they intend to rely solely on trust and affection (Young, 2009).

The Simpkins v Pays (1955) 1 WLR 975 case is a good example in which the court defined legal enforceability of a contract. In this case, three friends purchased a lottery ticket together, but only one of them had the money, so they decided that they will buy the ticket from the money of one friend and other two will pay their share later. They won the lottery, and the friend who bought the ticket stated that it is a social contract and he is not obligated to share the price of lottery with others since only he paid for the ticket. The court held that all the parties have valid intention to bind themselves in the terms of the contract and the other two friends have intention to pay back the amount of lottery ticket (Mahdi, Anuar, Razmin & Yusoff, 2013). The court provided that the winnings of the lottery will be divided equally between all three parties since they have entered into a valid contract.

Parties must have the capacity to enter into a legally enforceable contract

In Trevey v Grubb (1982) 44 ALR 20 case, the court held that friends who pooled their money together in order to purchase a lottery ticket have entered into a valid contract. The winning of the lottery was distributed among them equally since they fulfil the essential requirements of a contract (Gibson & Fraser, 2013). Similarly, in the given case, a group of friends pooled together money for purchasing a lottery ticket. After purchasing the ticket, the member who bought the ticket stated that there was no valid agreement between them and it was just a social contract. As per the judgements of the cases mentioned above, the group members have entered into a valid legal contract since they all have similar intention to purchase the ticket and share the winning price. The winning of the lottery will be distributed between all the members since they are bind by the terms of their legal contract.

3.Misrepresentation is defined as false representation of a fact during the formation of a contract either intentionally or sometimes negligently. A contracting party misrepresents information to other parties in order to encourage them to enter into the contract. After entering into a legal contract, the party suffers a financial loss due to misrepresentation of a fact (Gregen, 2013). For example, if A used false or misleading information to lure B into signing a legally enforceable contract and due to which B suffered monetary loss, it is called misrepresentation. During a contract, if a contracting party did not rectify a wrong fact which causes monetary loss to another party is also considered as misrepresentation. Misrepresentation of a fact makes a contract voidable which means the validity of the contract is based on the will of representee. As per the judgement of Esso Petroleum v Mardon (1976) QB 801 case, a false statement is an essential requirement in a misrepresentation (Twigg-Flesner, 2013). Following are different types of misrepresentation.

Fraudulent misrepresentation occurs when a contracting party has knowingly made a false statement in order to induce another party for entering into a contract. It is also considered as fraudulent misrepresentation if the party making the statement did not believe that the statement is true or the statement is reckless as regards its truth. In this misrepresentation, the claimant who has been the victim can claim the party for both rescission and damages. In Derry v Peek (1889) UKHL case, Lord Herschell stated that fraudulent misrepresentation is defined when a statement is made without knowing it to be true, without belief in its truth or careless as to whether it be true or false (Mitchell & Mitchell, 2010).

Intention to create legal relations is necessary for a valid contract

In negligent misrepresentation, a party who is trying to induce another party to enter into a contract must ensure that reasonable and appropriate care for ensuring the accuracy of the representation has taken; the representation may lead to the party to enter into a legal contract. Lack of reasonable care for ensuring the truth of the statements can hold wronged party victim of negligent misrepresentation. As per Howard Marine v Ogden (1978) QB 574 case, negligent misrepresentation can occur when a party makes a careless statement that did not have sufficient reason to believe in its truth (Andrews, 2016).

In innocent misrepresentation, the party who is inducing another party to enter into a legal contract by making a false statement had reasonable ground for believing that it is true at the time. An innocent misrepresentation is neither fraudulent nor negligent. A person who suffered loss due to innocent misrepresentation can still file a suit for damages, but he/she cannot pursue rescission. (Schroeter, 2013)

4.There are various ways to discharge a contract, and it relates to the circumstance in which the contract is discharged. After discharge of a contract, the contracting parties freed from their obligations and duties under the contract. Following are different ways in which a contract can be discharged.

Discharge by Performance: In a contract, if both parties performed their obligations and duties then the contract is discharged. As provided in the Cutter v Powell (1795) EWHC KB J13 case, the general rule of discharge through performance provides that the performance of the contracting parties must be exact and precious. The case provided that completion of the performance triggers by the payment: no completion, no payment (Freedland, et al., 2016). In case a party did not fully perform his/her obligation as per the contract, it will amount to a breach of the contract, and other parties can claim for damages. For example, A asked B to build his house for $20,000. B constructed the house and A paid him $20,000 which discharged the contract.

Discharge by Agreement: In this case, both the contracting parties decide to release each other from the obligations of a contract by agreeing to bring it to an end. As provided in Good v Cheesman (1831), accord and satisfaction are crucial requirements for discharging a contract by agreement (Meeson & Kimbell, 2013). Accord means agreement and satisfaction means consideration which ensures that each party must agree to discharge the contractual obligations.

The terms of the contract must be certain

Discharge by Breach: A contract may discharge when one of the contracting parties breach its conditions. In case of a breach of a contractual obligation or condition, the victim party has the right to repudiate the contract and claim for damage. A party cannot discharge a contract in case of a breach of warranty. In case a party indicates its intention for not performing his/her contractual obligations, the innocent party has the right to take action against the breach, and he/she does not have to wait for the breach to actually occur. In Hochster v De la Tour (1853) 2 E & B 678 case, it was held that the innocent party have the option to either sue immediately or wait for the breach to actually occur (Rotherham, 2010).

Discharge by Frustration: The contracting parties may be excused from performing their contractual obligations if due to some unexpected event the performance of contract becomes impossible. In case of a frustrated contract, all the parties are discharged from their contractual obligations, and neither of the parties can sue for breach. In Condor v Barron Knights (1966) 1 WLR 87 case, it was held that personal incapacity resulted in frustrating the contract (Chen-Wishart, 2012). In this case, an employee was dismissed before his contract has ended because doctors suggested that working in the same environment will not be safe for him.

References

Andrews, N. (2016). Misrepresentation and Coercion. In Arbitration and Contract Law (pp. 189-203). Springer, Cham.

Chen-Wishart, M. (2012). Contract law. England: Oxford University Press.

Freedland, M., Bogg, A., Cabrelli, D., Collins, H., Countouris, N., Davies, A. C. L., ... & Prassl, J. (Eds.). (2016). The contract of employment. Oxford University Press.

Gergen, M. P. (2013). Negligent misrepresentation as contract. Cal. L. Rev., 101, 953.

Giancaspro, M. (2015). Should the Practical Benefit Principle Extend to Contract Formation?. University of Adelaide Law Research Paper No. 2015-13. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2649759

Gibson, A., & Fraser, D. (2013). Business Law 2014. Melbourne: Pearson Higher Education AU.

Mahdi, N. M. N., Anuar, N. I. M., Razmin, N. H., & Yusoff, N. D. M. (2013). Enforceable contracts: intention to create legal relations. International Business Information Management Association, 1194-1199.

McKendrick, E. (2014). Contract law: text, cases, and materials. England: Oxford University Press (UK).

Meeson, N., & Kimbell, J. (2013). Admiralty jurisdiction and practice. Abingdon-on-Thames: Taylor & Francis.

Mitchell, C., & Mitchell, P. (Eds.). (2010). Landmark cases in the law of tort. London: Bloomsbury Publishing.

Phillips, J. (2010). Protecting Those in a Disadvantageous Negotiating Position: Unconscionable Bargains as a Unifying Doctrine. Wake Forest L. Rev., 45, 837.

Poole, J. (2014). Casebook on contract law. England: Oxford University Press, USA.

Rotherham, C. (2010). Unjust Enrichment and Contract by Tariq Baloch. The Modern Law Review, 73(1), 161-164.

Saprai, P. (2017). Balfour V Balfour and the separation of contract and promise. Legal Studies, 37(3), 468-492.

Schroeter, U. G. (2013). Defining the Borders of Uniform International Contract Law: The CISG and Remedies for Innocent, Negligent, or Fraudulent Misrepresentation. Vill. L. Rev., 58, 553.

Skyrms, B. (2014). Evolution of the social contract. England: Cambridge University Press.

Twigg-Flesner, C. (2013). The Europeanisation of contract law: current controversies in law. Abingdon-on-Thames: Routledge.

Young, M. (2009). Understanding contract law. Abingdon-on-Thames: Routledge.