Elements Of A Binding Contract: Offer, Acceptance, Consideration, Capacity, And Intention To Create Legal Relations

Does a Contract have to be in Writing to be Binding?

1.List and Explain briefly each of the Components required to demonstrate that a binding Contract exists.

2.Does a Contract have to be in writing to be Binding?

3.What is a Formal Contract? Explain the ‘formalities’ of such a contract and give two examples.

4.Analyse this Issue Lotto Company in terms of Contract law

5.Why is it Important under law to Distinguish between a party who is an agent for a principal, from that of an Independent Contractor?

Contracts can either be written or oral depending on the key elements which must be present; offer acceptance and consideration with the intention of creating an agreement which is legally binding. Also,there should be capacity and legality.

Offer- An offer is made when one party proposes and is accepted by the other party. This should be distinguished from mere intentions to negotiate.  It is a forbearance or a return promise, for the exchange of performance for the promise. It demonstrates the willingness to enter into the bargain so that the other party's willingness is justified as a conclusion of the agreement.  An offer should have terms which are certain and intent to enter into a contract (Cross, & Miller,2012)

There should also be acceptance which is a definite and unconditional agreement set out in the offer. It can be written or oral, and has to reflect the originally made offer.

Consideration- the parties to the contract must receive something of value or significant, in which in the absence of such a thing, they would be disadvantaged.

Capacity- capacity covers mental capability of a person to enter a contract. It covers infancy and mental competence to enter into a contract. If one of the parties does not have the mental competence to sign a contract, then a contract will not be binding. Similarly, those considered as children under the law, mostly 18 years and in other countries like America 16 years are considered to lack capacity to consent and hence enter into a valid contract.

Intention to be legally bound by agreement- There should also be the intention to create binding relations. If a person A promises person B to give them money so as to go somewhere together, and person A fails to give money to B after going together, then person A cannot be sued for the money because their intentions at the promise were more of social as opposed to creating an agreement which is legally binding (Bowrey, Handler, & Nicol, 2015)..

Formalities of a Contract

A contract can be oral or written, but certain contracts are not binding and enforceable unless they are in writing. Such contracts include contracts of sale and buying of land and mortgage contracts. Agreements of sale and finance credit agreements for consumers. Most oral contracts are enforceable but difficult to prove the details of the agreement. If an agreement is not in writing, the elements of a valid contract should be fulfilled. In Gordon V Macgregor (1909) 8CLR 316, High Court of Australia the CJ held that when an oral contract is entered into in writing then the written contract is the only evidence which will be administered in court, unless it is proven that the written contract did not embody all the factors in the agreement (Ayres, & Ayres, 2012).

Oral agreements are generally legally binding as long as they are conscionable, made in good faith equitable and reasonable. Oral contracts also require consent and mutual understanding where both parties are aware of what is going on. If for example a person hires a cleaner, both parties should know how many rooms are being cleaned. Oral contracts are difficult to enforce because they present many difficulties.  Other contracts are silent and do not even require words like going to a convenience store and purchasing bread. Written contracts have some advantages; they are definite and clear, and the signatures of both parties are in record to show the intentions to be legally bound. To sum up, when there is good faith when parties come into a transaction, it important that a contract is put into writing so as to avoid disputes. The parole rule of evidence prevents outside evidence on oral agreements where there are no ambiguous aspects. In Joachim V Weldon 1962 OK 276, the court held that if an oral contract is to be enforced by a court of equity, the evidence should be clear, forcible and content in a way that there is not reasonable doubt as to the terms of the contract. The judicial preference is to use the aspects of written contracts. When a contract is written, most of the aspects which should be construed are out of the window (Latimer, 2012).

A formal contract is a contract which contains the necessary elements of a contract and is put into writing. An informal contract does not necessarily contain all the necessary elements of a contract and can time be oral. The difference between the contracts is how enforceable they can be in a court of law. Most cases do not require contracts to comply with formalities. However, there are certain impositions by the statute in particular contracts. The statute of Frauds 1677 UK provides the requirements for such contracts. In Australia, formalities to protect consumers require that consumers are given copies of contracts as a term to make proving such contacts easier.

Commercial Contract Signing Options

In contracts for the sale of land, they should be written and signed by the parties involved according to Section 126. If such dispositions are not put into writing, an action cannot be brought against a person. This is seen in the Victorian Act Instruments Act 1958 (Vic). Accordingly, consumer contracts and contracts of guarantee require written and signed agreements before an action is brought against a person.

If there are two different notes of the memorandum, they can be joined together if there is a signature on one note and terms in the other. However, there must refer to each other by implication or expressly. This is seen in Elias v George Saheley & Co Barbados Ltd (1983) 1C AC 646 where the document can include a mark or a sign of the individual to show the contract or document was recognized by the parties, by putting a mark. If the requirements of 126 are not met, then a contract is considered invalid (Mehta, 2012)

In Australia, formalities generally exist to prevent fraud. However, in the doctrine of part performance contracts are enforceable in part despite non-compliance with the necessary formalities, as we see in the case of McBride v Sundland (1918) 25 CLR 69. However, difficulty arises in determining acts which constitute such performance.

Commercial contracts should be written or recorded in documents. If a contract is written, it should be signed by the parties to an agreement or on behalf of the parties. Contracts are usually signed at the end of the document by convention. However, parties can choose how the contracts will come into effect without formal signatures or when faxed signature pages are exchanged. If there is a deviation of the custom form of entering the contract, it is important that parties record an agreement to that effect to have evidence of the agreement to that effect.

Many options exist nowadays including digital signatures. If such signatures are used on a draft contract, then the contract will be effective. The instinctive preference would be to use the digital signatures while sending an email; such would require a conscious effort than just logging into a person's computer and sending their email. IP assignments need to be in writing and should be executed as conveyancing documents, deeds, and real property. Under English laws, these are rather exceptions than a rule.

A gambling contract is a contract which there is the performance of one party which is contingent on the outcome of a bet which is enforceable in most jurisdictions by statute. The scenario given is an example of a gaming and gambling contract. When the price is paid and there is a winning lottery, the person who pays and wins owns the money prima facie. However, in the scenario above, everyone contributes $2 to the lottery ticket which wins. One group is tasked with buying the ticket, and upon winning the purchaser does not feel like the rest of the members need to have a share in the price.

From the above scenario, we see a verbal contract which can be difficult to prove because the court cannot precisely determine what took place. This, however, does not mean that the court will not enforce the contract. The risk in the scenario is the ambiguity of the contract and the burden of proving what transpired between the interested parties. So we see a group of people having the burden of proving that they had a share in the prize, and they have an equal share in the prize. Therefore, it is just not a social arrangement ( Kozolchyk, 2014).

The group can prove interested in the prize, by demonstrating their intentions at the paying of the $2.which was that all parties benefit equally if any prize is won. Therefore, if they can prove that, it will be the courts job to decide whether there was a formation of a contract and the stakes of the parties involved in the process. The court will further decide if a breach occurred and whether the parties are entitled to damages, like specific performance, where whoever holds the money gives everyone in the group their entitled amount. The only problem which may arise is if the parties are not able to clearly identify and point out the terms of the agreement. Therefore, the parties are entitled to the expected sum, if they can prove there was the existence of an oral contract.

An agency relationship is a fiduciary relationship where the agent acts as if it were the principal acting. There is a manifestation of consent in agency relationship where the agent is subject to consent and control of the principal. The instructions of the principal are binding on the agent. Also, the actions of the agent are binding to the principal. An independent contractor uses their own equipment and resources in carrying out their work. The terms of a contract are binding to the independent contractor. The acts of an independent contractor, as opposed to the agent, are not binding to their employer. AN independent contractor also carries out duties and functions independently, and they are not controlled by their employees, and their omissions or acts are not binding to their employees. An agent also works to benefit the principal and even makes third party contracts on behalf of the principal. An independent contractor works for their employee and receives payment for the work done; and just works to fulfill their duties (Hammer,2016).

An agency relationship could be apparent or implied authority. Implied or apparent authority can be assumed by an outsider where it appears as if there is the authority. Consequently, the company or principal will be prevented from denying the existence of such authority. For apparent or implied authority to be asserted, someone with actual authority should represent the person's authority by appointment to a certain position or allow such person to carry out certain activities. In appointment to a certain position, in the daily running of a company, the director binds the company while implementing daily running of company activities.  An example of allowing someone to carry out certain activities is the activities of directors or senior executives over time are binding to a company. In agency, however, the agent has to act within the limits of the given authority, and if they act ultra vires, they can be liable for activities which are carried out outside the given authority. If a manager is given the mandate to act as a manager their mandate does not extend to selling the entire company. In agency relationship also, the agent can be liable for not performing due diligence while carrying out their day to day activities. The agent also has the duty to not let their interest conflict with the principal, not to disclose confidential documents, not to make secret profits and not to delegate authority Braun, & Starlinger, 2011). In Independent contractual relationships, have wide discretion in carrying out their activities, they can make decisions outside the employer's knowledge.

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Law and Practice.