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Essential Elements of a Valid Contract

Discuss about the Essay for Aspects of Contract and Negligence for Business?

A contract can be defined as a legally binding agreement between two or more competent parties in which there is a promise to perform something or abstain from performing something by one party against a return from the other party known to be as consideration. Business transactions are always enforced through a contract. Contracts have found their place in all walks of life. In essence, a few elements are essential for the formation of a valid contract (Furmston et al. 2012). A contract has to be valid in the eyes of the law in order for it to be enforceable. In simple terms, contracts are agreements that give rise to obligations that are recognized by the law.  Parties entering into a contract must be competent to enter under the eyes of the law. The essential elements of a contract are as follows:

Offer is an expression or a proposition that is made by one party to another and is made with the intention for it to be binding once such proposition is accepted by the other party. The offeror must have the intent to be bound by the terms of the offer once it has been accepted by the other party. An offer can be placed with an individual, to a specified group of persons or to the world at large. An offer can be made expressly or by showing a conduct that amount to be an offer (McKendrick 2014). The element of intention is very important as there is a difference between an offer and an invitation. An invitation does not pose and obligations of performance as soon as it is accepted by the other party. One of the most significant case laws in this regard is the case of Carlill vs. Carbolic Smoke Ball Company (1893), in which it was held that the advertisement made by the company showed its intention to perform a contractual obligation once the offer is accepted by the other party.

Acceptance is the final assent given by the party to whom the offer is made to the terms of the offer. Again, in acceptance too the intention of the person accepting the offer is crucially important (Contracts and law: What you should know? 2016). Acceptance must show the intention of the party to be bound by the terms of the offer and perform contractual obligations once the contract comes into existence. An offer has to be accepted with its precise terms in order for it to be a valid agreement. An offer may be accepted expressly or by a conduct (McClelland 2013). Communication of the acceptance plays a major role in the formation of a contract. Postal Rule plays an important determining factor in such a case. If a letter of acceptance is communicated via post, acceptance is said to have taken place once the letter of acceptance is posted by the offeree.  However, if post is excluded by express terms of the offer, the rule does not apply.

Different Types of Contracts

Performing contractual obligations must be rewarded by something in return. This is known as consideration. Generally, money is the basic form of consideration. However, consideration may vary according to the type and nature of the contract (Latest Developments - UK and EU: UK and EU 2012). Consideration must not be from the past, i.e. it must be given against the promise made in the present contract. The main idea behind consideration is that the offeror has to sacrifice something against the act done by the offeree according to the terms of the offer (Cartwright 2014).

As mentioned earlier, contractual intention is one of the most vital elements while a contract is being formed. There should be an intention to create a legal relationship between the parties to the contract. In other words, the parties to the contract shall have the intention to be bound by the terms of the contract and perform their contractual obligations and made the agreement enforceable under the provisions of the law (Poole 2014). A contract is not valid under the law where there is no intention to create a legal relationship. In such cases, the onus of proof is on the party asserting to such connotation. A famous case in this regard is Balfour vs. Balfour (1919).

All people are not legally recognized to enter into a contract. The following people are considered to be incompetent to enter into a valid contract (Campbell 2014):

People of unsound mind

Minors

Bankrupts

Prisoners

There are different types of contracts based on a few criteria that are discussed below:

Express Contracts: These are contracts were the terms of the offer; acceptance and consideration are expressly stipulated. The contractual obligations are unambiguous in such contracts (Types of Contracts 2016).

Implied Contracts: These are contracts were the terms of the contract are not expressly stipulated. Such terms are implied and has to be identified by the parties to the contract. For example, sitting in a bus can be taken to be an implied contract between the passenger and the owner of the bus (Contracts 2016).

Bilateral Contracts: In these types of contracts, consideration moves in both ways, i.e. booth the parties to the contract receive a consideration.

Unilateral Contracts: These are contracts in which the consideration move only in one direction after the formation of the contract. When contractual obligations are performed, consideration is paid by the offeror to the offeree (Contracts 2016).

Types of Contracts based on Formation

Valid Contracts: The contracts that can be enforced in the courts of law are known as valid contracts. For a contract to be valid, all the essential elements of a contract has to be present, i.e. offer, proper acceptance, consideration and intention to create a valid legal relationship between the parties to the contract (Contracts 2016).

Void Contracts: A contract that cannot be enforced in the court of law is called a void contract. In such cases, the formation of the contract is tainted and the essential elements are not present.

Voidable Contracts: A contract is said to be voidable when there is a deficiency only in the free will of the parties to the contract. In other words, contracts that are made by exerting undue influence and pressure are said to be voidable under the provisions of the law (Contracts 2016). The aggrieved party or the party who has been pressurised to enter into a contract, has the option of making the contract voidable, i.e. he has the option not to perform the contractual obligations (Cornford 2013).

Illegal Contracts: Contracts that have unlawful objects are said to be illegal contracts.

Terms of a contract forms the basis of the entire contract. Contractual terms are generally classified under two heads as follows:

These are terms that the parties to the contract have set out specifically in their agreement. These terms are recorded in the agreement and become the reference to the contract. The entire contract is interpreted based on these express terms. The enforceability of the contract depends on the terms expressly specified in the contract (Contracts 2016).

 A contract may contain terms that are not specifically stipulated in the contract but determine its validity and enforceability. These terms are not included in the contract but are terms that the parties intended to include. The interpretation of these terms depends on the intention of the parties forming the contract. Sometimes, these implied terms are imported by the operation of the law. For example, when goods are sold, the law requires that the goods should be of a certain quality (WILLETT 2011).

As mentioned earlier, in order to form a valid contract that is enforceable under the law, it has to fulfil certain essential elements. These elements are offer, acceptance, consideration and the intention of the parties to form a legal relationship. In the given case scenario, all these elements were present and the contract between Mary and “Sales Are Us”. We will be discussing the elements with reference to the case separately.

Types of Contracts based on Nature of Consideration

The store was selling electronic goods. They made an offer to sell these goods to the common people. In essence, the offer was made to the general public at large. The intention of the departmental store was clear and the offer was a valid one. The offer was a definite promise to be bound once the terms of the offer are accepted. In this case, the store was aware of the consequences of their offer once it is accepted by the person agreeing to buy goods from their store.

The offer made by the store was accepted duly by Mary when she selected a particular television and decided to buy it. The process of acceptance was complete when Mary communicated her intention to buy one television from the store. Therefore, the acceptance is valid under the eyes of the law. Mary duly accepted the offer by making her statement to buy a television set from the store. The acceptance given by Mary was unequivocal and communicated to the offeror in a proper manner (accaglobal.com 2016).

The element of consideration was present as Mary made payments to buy the television set. A flow of consideration took place from Mary to the departmental store. Mary sacrificed money and the store sold the television set. The transaction was completed when the goods and money exchanged hands. The presence of a consideration is enough for the court to validate the contract between the parties. The question of adequacy does not arise as Mary agreed to make payments for buying the television set.

Both the parties had the intention to create a legal relationship between themselves. The store offered to sell a certain product against a price and Mary agreed to buy the television set at the agreed price. Payment was made and the sale transaction was duly concluded. This proves that both the parties agreed to honour their contractual obligations. Therefore, there was a legal relationship between the parties to the contract. Both the parties entered into the contract on their free will and with a proper understanding.

Some terms of a contract are implied by the operation of the law and the prevalent statutes of the country. These terms are not specifically incorporated in the agreement between the parties to the contract but are considered to be valid in the eyes of the law. In the given case scenario, a sale transaction took place between Mary and the departmental store. Sale of good are governed by the Sale of Goods Act 1979 in the UK. The legislation recognizes the importance of some implied terms with reference to a contract. For example, the law requires the goods to be sold to be of certain quality and if sold for a particular purpose should be fit to serve that purpose (Elements of a contract - The Law Handbook 2015). In the given case, Mary bought a television set but when she tried to use it, the set exploded causing serious physical and financial injury to Mary. Therefore, the main intention of the television set was not fulfilled.

Types of Contracts based on Validity

According to section 14 of the Sale of Goods Act 1979, when a seller sells goods in the course of business, such goods are expected to be of satisfactory quality (Sale of Goods Act 1979 2016). The section  {14 (2A)}further provides that by mentioning of satisfactory quality it means that the quality of the goods shall meet the standard that a reasonable person would regard as satisfactory by considering the description of the goods, the price and the circumstances under which the said goods were bought (Governing law and jurisdiction: Getting it right is crucial 2010). Section 14 (2B) stipulates the following with respect to the quality of the goods sold (Sale of Goods Act 1979 2016):

Fitness of the goods for the purposes it was sold

Appearance and finish

Freedom from minor defects

Durability and

Safety

In the given case, none of the stipulations of the law were maintained as the television set exploded the moment it was turned on by Mary. As a result, Mary was seriously injured and suffered significant financial losses additionally. It can be clearly inferred that the contractual obligations were not performed by the seller and the clauses pointed out by the manager of the store in the agreement between Marty and the store can be overruled. The intention of the seller was tainted and they are liable to pay compensation to Mary in this regard. Thus, the agreement can be made voidable by Mary, as there was a considerable amount of breach to the terms of the contract as stipulated by the law.

As mentioned above, the question of the goods to be of certain quality is stipulated by the provisions of the law. In the given case scenario, there was a considerable amount of breach of these statutory terms by the seller (Contract Liability | Law Teacher 2016). The terms were breached without any lawful excuse and denied to perform the obligations stipulated under the contract. The contractual obligations were refused to be performed by the store and Mary has the following remedies available:

Termination of the contract as a result of non-performance of contractual obligations by the seller

The court may provide indemnity to Mary for the losses suffered by her as a result of buying a defective product

Misrepresentation was made by the seller about the quality of the goods. The goods were not of satisfactory quality and as a result, Mary suffered severe physical injuries along with a considerable amount of financial loss. Damages can be claimed by Mary under section 2 of the Misrepresentation Act 1967

Contractual Terms

Mary will be liable to paid compensation for the breaches made by the departmental store

Replacement of goods under section 48B of the Sale of Goods Act

Remedies stipulated under the provisions of the Consumer Rights Act 2015 (Consumer Rights Act 2015 - Explanatory Notes 2016)

It can be seen that Mary has a number of remedies available to her for the injuries caused to her. The quantum of remedies to be made available will depend on the court to decide. However, Mary suffered severe physical injuries and a considerable amount of loss of pay as she was unable to earn a living for three continuous weeks. These points are to be taken into consideration by the court while granting compensations to Mary.

Tort is a branch of civil law and in general, tort signifies a civil wrong. Civil law deals with disputes between private parties. Tort relates to civil and private offences for which the court may grant monetary compensation to the aggrieved party. In the given case, hot coffee was accidentally poured by an employee of the “Film Flops” on the hand of Paul and later it was found that the employee was intoxicated. Strict liability is an important tort law doctrine that holds a person liable for damages caused by his acts. Under the strict liability doctrine, liability is imposed on a party without finding the fault as in such cases, finding a faulty will definitely result in negligence (Deakin, Johnston and Markesinis 2012). The plaintiff is only required to prove that a civil wrong has taken place and the defendant is responsible for such a wrong for which the plaintiff suffered injuries. The primary aim of strict liability under the law of tort is to prevent reckless behaviour and prevent them from causing significant injuries to other people.

Although, both tort and contracts deal with obligations, it is possible to distinguish between them. In contracts, the parties to the contract voluntarily accept contractual obligations. Whereas in tort obligations arise out of the acts of a person. The obligations in tort are compulsorily imposed by the operation of the law. A significant case in this regard is the case of Donoghue vs. Stevenson, in which the law imposed an obligation on not breaching the duty of care. In contract, the liabilities are determined between the parties to the contract and liability arises only when such terms of obligations are breached by the parties to the contract. On the other hand, liability under tort arises only when there is breach of duty fixed by the law (Contractual and tortious liability analysis | Law Teacher 2016). Therefore, it can be seen that the nature and incidence of liability is different for tort and contracts. In tort the liability is fixed by the law and in contracts, the liability is determined by the parties to the contract as incorporated by the terms of the contract.

Express Terms

Negligence can be said to be a failure to perform a duty of care that a general person would exercise in normal circumstances. Under negligence the nature of obligation is not determined by the parties but by the operation of the law (Clarke 2016). Causation is an important element while determining the nature and quantum of negligence. The key question here becomes whether injuries have been suffered or not “but for” the negligence of the defendant. An important case with respect to causation is the case of Barnett v Chelsea and Kensington HMC (1969). Determining the duty of care is also an essential element for determining liability under negligence. Once the nature of the duty of care is established, the actions of the defendant are judged by the standard of a reasonable man for ascertaining whether there was a breach of the duty or not (BASIC PRINCIPLES OF ENGLISH CONTRACT LAW 2016). A notable case in this regard is Blyth v Birmingham Water Works (1856). Another important aspect of liability under negligence is remoteness or foreseeability. The nature and extent of damage to be caused by an act determines the extent of liability under negligence. If a negligent act causes injury to a plaintiff, the foreseeability of the incident is determined. In the given case, the employee of Film Flops was intoxicated and was not in a condition to exercise his duty of care. This situation resulted in causing injury to Paul. It was foreseeable that an intoxicated person will not be able to impart his duty in a proper manner (Negligence 2016). Therefore, strict liability arises on part of the employee and that of Film Flops. The following important factors are to be ascertained while defining liability under negligence:

The defendant owed a duty of care

The defendant was in breach of such a duty

The breach of duty caused damage to the plaintiff

The damage was not too remote

All these elements are required to be verified before the court passes a judgement. However, under the law of tort, the plaintiff is only required to prove that there was a duty of care to be performed and the plaintiff was in breach of such a duty.

Vicarious liability is a doctrine under the English tort law that imposes a strict liability on the employers for the acts of their employees. Under this doctrine, an employer is held liable for the wrong doings of their employee while the employee is imparting their duties (Tan 2015). An important case in this regard is the case of Lister v Hesley Hall Ltd (2002). In the mentioned case, it was held that where an action of tort is closely connected with the duties that are to be performed by the employee, the employer can be found to be vicariously liable for such tort of the employee (Riley 2010). The concept of enterprise risk can be found in the Supreme Court case of Catholic Child Welfare Society v Institute of the Brothers of the Christian Schools (2012).

Implied Terms

In the given case, Film Flops can be held vicariously liable for the acts done by its employee that caused harm to Paul. The employee was intoxicated and poured hot coffee on the hand of Paul while he went to see a movie. The employee was performing his usual duty at that time and in the course of his employment. The tort or wrong doing took place in the premises of the employer and Paul suffered injuries due to the negligent act of the employee.  Therefore, the employer can be found vicariously liable for the acts of its employee and Paul can take legal action against Film Flops.

References

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