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Key Elements of a Contract

Whether a contract was formed between Emily and June, which could enable her to claim the house, or not? Whether the claim of Lewis would be upheld with regards to the exchange of title of house for an orchid, or not?

A document through which a promise is made and which creates lawful association between two or a higher number of parties, and which contains the requisites, is known as a contract. A contract can be formed by simply exchanging the words, which is known as an oral contract; and it can also be formed by putting the words in writing, which is known as the written contract. There are certain elements which have to be present for forming a new contract and these include an offer and acceptance, followed by consideration, intention to form legal relations, capacity to enter into contract and lastly, clarity with regards to the terms of the contract.

The first element relates to an offer being made by one party, which has to be subsequently accepted by the party to which the offer was made, and this is the second criteria, which is known as acceptance. The acceptance has to be attained on the offer as had been made and any changes can deem the acceptance as a counter offer, as established in Hyde v Wrench.

A crucial element in any contract is that it needs to have a consideration. A consideration cannot be past and has to be present and that it has to be sufficient and not adequate. The promisee has to give the consideration and not the promisor. An existing duty, whether public or contractual, would not be deemed as a valid consideration. The consideration has to be clearly stated and it would not be valid if it is illusionary. A consideration is the amount which is mutually decided between the parties. In the matter of Chappell & Co Ltd v Nestle Co Ltd, the three wrappers were considered as being sufficient consideration, due to the precedent condition. In other words, due to the circumstances of the case, the tree wrappers were held to have the economic value, which is necessary in a consideration.

In the matter of Forward v. Armstead, the plaintiff’s father made a promise that he would be given the plantation in the will, if the plaintiff decided to relocate himself from North Carolina to Alabama and undertook the care of the said plantation. Without entering the name in the will, as promised, the plaintiff’s father died. A claim was then made by the plaintiff to the executors of the plantation of the father and he claimed that he plantation was his. The test in this matter, in the view of the court was to determine if the consideration had been paid and that the plantation was not being given out of kindness, natural love or benevolence. The relocation of the plaintiff for the specific purpose of working on the plantation was deemed as a valid consideration by the court. And due to these reasons, the father and plaintiff’s promise was taken to be enforceable due to which the plaintiff was awarded the plantation.

Validity of Exclusion Clauses

The other elements of a contract include having the lawful intention to create a legal relation, due to which an individual has to adhere to the promises made in the contract. The parties need to be clear about all the terms which have been contained in the contract. Lastly, the parties need to have the capacity to enter into a contract, in the form of having a sane mind and legal age.

In the given case study, Emily specifically relocated from Sydney to Woodford, which is a town located in Queensland. She was promised by June that if she came and looked after the house, she would give her the house. This was an offer and when Emily relocated, it would be deemed as an acceptance of the offer. And on the basis of Forward v. Armstead, the consideration would be deemed to be present in this case. Hence, she can claim the house on this point.

June had also made a promise to Lewis that she would give the house to Lewis in exchange for the orchid which was very rare. A rare orchid has an economic value. On the basis of Chappell & Co Ltd v Nestle Co Ltd, it can be stated that this consideration would be deemed as acceptable as it had an economic value, which was mutually discussed between the parties. And on this basis, he can claim the house for himself. Further, on the basis of Forward v. Armstead, the will is not necessary.

Conclusion

On these bases, it can be concluded that a contract was formed between Emily and June, which could enable her to claim the house. Though, the claim of Lewis would be upheld with regards to the exchange of title of house for an orchid, due to a valid consideration.

Q2. The contracts often contain a term due to which the liabilities of a party are reduced or extinguished and these terms are known as exclusion clauses. In order to be valid in a lawful manner, the exclusion clauses have to be properly incorporated under the contract. The exclusion clause will be invalid in such cases where it has been subsequently entered into the contract.  The exclusion clauses, though, cannot restrict the applicability of a statutory or a common law or oppose it. Also, the exclusion clauses are required to be brought to the reasonable notice of the parties. In other words, if an exclusion clause has been included in the contract, which is signed by the parties; it is deemed that the exclusion clauses have been read, as was held in L'Estrange v Graucob.

Reasonable Notice and Incorporation

The condition is changed when the exclusion clause is contained at some other place, which is other than the contract. In the matter of Thornton v Shoe Lane Parking Ltd, due to the lack of reasonable notice to the party, regarding the exclusion clause being present at the backside of the ticket, which was not known to the plaintiff, the exclusion clause was deemed to be invalid by the court. Similarly, in the matter of Olley v Marlborough Court Ltd, the back of the ticket contained the exclusion clause. The plaintiff was not made aware about the exclusion clause in this case and a reasonable notice of the same was absent, due to which the exclusion clause was not held as valid. The court held that when an exclusion clause was mentioned at a different place, the same had to be brought to the reasonable notice of the parties.

The reasonable notice with regards to an exclusion clause has to be construed in a prudent manner. This can be elucidated with the help of Thompson v London, Midland and Scottish Railway Co Ltd. In this case, while stepping off the train, the claimant was injured. There were a number of displays over the platforms which excluded the liability of the railway company from damages to property and from the personal injury. This exclusion was also contained in the ticket. However, due to the claimant being illiterate, he could not read the clause and he claimed that the exclusion clause had not been incorporated into the contact as the same was not brought to his attention while the claim was made. It was held by the court that the clause had been incorporated in a proper manner. The reasonableness was held as the key reason behind this. The court believed that only the reasonable steps had to be taken to consider the inclusion had been incorporated properly, and it was not the duty of the railway company to ensure that each and every person knew of the clause. Hence, the claims for the damages proved unsuccessful in this case.

This case highlights that even though it is the duty of the person including the exclusion clause to bring it to the notice of the other party. However, this duty is based on reasonableness and cannot extend beyond that. So, if a person does not read the clause and signs the contract, it would not invalidate the exclusion clause and the same would also not be invalidated when the exclusion clause has been properly inserted, but the plaintiff could not read due to his illiteracy.

Case Study: Breached Contract and Force Majeure Clause

Whether the contract was breached by Fazel in this case, or not? Whether the force majeure clause would be applicable in this case, or not?

As has been explained in the first segment of this discussion, clarity regarding the terms of the contract is one of the crucial elements of a contract. When the parties sign the contract, it is crucial that all the terms are clear to the parties. When a promise is made under the contract, it is crucial that the parties keep the promise which has been made. In case one of the parties fails to keep the promise which has been made under the contract, the contract is said to be breached by such party. And in such cases, the non-breaching party can apply for damages, which usually take the form of monetary compensation; though, at times, equitable damages are also claimed, which are in the form of injunction, specific performance and rescission. The purpose of awarding damages to the aggrieved party is to put them in a place where they would have been without the contract having being breached. This was given in Addis v Gramophone  by the House of Lords.

A force majeure clause in a contract refers to the superior force, which results in an unavoidable accident owing to the chance occurrence. In such cases, the liability of the party from the obligation is extinguished. The force majeure clauses include situations like riot or war and even the acts of goods, like flood, rains, and earthquakes. However, for this clause to be applicable, it has to be shown that the occurrence was beyond the reasonable control of the party.

In the given case study, a contract had been drawn by Fazel, which was signed by Tony, as per which, Fazel had to look after Dolly (Tony’s dog) as per the terms of the contract. In these terms, the force majeure clause was present. Fazel has relied upon this clause as his defense for the condition of Dolly, where Dolly had received beauty treatment including haircut and coloring, due to Dolly being taken to the salon by Fazel’s sister. However, this reliance would not prove helpful. This is because Dolly was taken to the salon out of Fazel’s sister choice and not due to some act of god or any other force majeure clause. Yes, the dog was brought home by Fazel due to rain, which is a force majeure clause, but the dog could have been stayed there till the time Tony returned. So, relying upon the force majeure clause would not help Fazel in evading his liabilities arising out of breach of contract. The contract was breached as the dog was returned in a different condition, when the promise in the contract stated that the dog had to be returned in the same condition. This allows Tony to sue Fazel for the losses, in form of monetary compensation. However, Tony cannot make a contention that he did not understand the clause, as he had already signed the contract.

Conclusion

On this basis, it can be concluded that the contract was breached by Fazel in this case. And the force majeure clause would be applicable in this case. However, the same would not help Fazel in evading his liabilities arising out of breach of contract.

Abbott K, Pendlebury N and Wardman K, Business law (Thompson Learning, 8th ed, 2007)

Andrews N, Contract Law (Cambridge University Press, 2nd ed, 2015)

Blum, BA, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)

Bourne N, Bourne on Company Law (Routledge, 7th ed, 2012)

Helewitz, JA, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)

Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)

Marson, J, and Ferris, K, Business Law Concentrate: Law Revision and Study Guide (Oxford University Press, 3rd ed, 2016)

McKendrick, E, Contract Law: Text, Cases, and Materials (Oxford University Press, 6th ed, 2014)

Poole, J, Casebook on Contract Law (Oxford University Press, 13th ed, 2016)

Rush, J, and ‎Ottley, M, Business Law (Cengage Learning EMEA, 2006)

Stone, R, and Devenney, J, Text, Cases and Materials on Contract Law (Routledge, 3rd ed, 2014)

Addis v Gramophone [1909] AC 488

Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87

Forward v. Armstead (1847) 12 Ala. 124

Hyde v Wrench [1840] 49 ER 132

L'Estrange v Graucob [1934] 2 KB 394

Olley v Marlborough Court Ltd (1949) 1 KB 532

Thompson v London, Midland and Scottish Railway Co Ltd [1930] 1 KB 41

Thornton v Shoe Lane Parking Ltd (1971) 2 WLR 585

Contract Law

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