Transcript Slide 1

Definition of a Legal Contract
A legal contract is an agreement between
two or more parties in which legal rights
and obligations are created, and are
enforced by a court.
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Elements of a Valid Legal Contract
• For a contract to be legally enforceable the contract must
contain the following elements:
(1) AN OFFER
(2) ACCEPTANCE OF THE OFFER
(3) CONSIDERATION
(4) INTENTION TO CREATE LEGAL RELATIONS
(5) CERTAINTY OF TERMS
(6) CAPACITY TO CONTRACT
• All of these elements must be present before there is a
valid and legally enforceable contract.
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The Elements of a Valid Contract cont…
OFFER
CAPACITY
CONSIDERATION
THE CONTRACT
ACCEPTANCE
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CERTAINTY
INTENTION
Elements of a Contract:
1) Offer
What is an offer?
– Does not have to be in writing
– Promissory: Promise to do something or to refrain from
doing a certain act
– Intention: To be legally binding
– Communication: To Promisee
– Certainty: Terms must be clear & certain
– Finality: Must be a degree of finality with the terms
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Elements of a Contract:
1) Offer cont…
Objective Test:
• Reasonable person test
• Standard applied by courts
• Contract Law v Criminal Law
• Contract law applies objective test to determine
liability
• Criminal law applies subjective test to determine guilt
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Elements of a Contract:
1) Offer cont…
Offers v. Invitations to Treat
•
•
•
•
•
•
Shop Displays
Advertisements
Catalogues
Sales Puffery
Vending Machines
Delicatessens
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Elements of a Contract:
1) Offer cont…
An offer must be made to another person
• Offeror: party that makes the offer
• Offeree: party that receives the offer
Offer made to the whole world
Carlill v Carbolic Smoke Ball Company
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Elements of a Contract:
1) Offer cont…
Offer must be communicated
• Offeror to Offeree
• Mode of Communication
• Verbal/ Writing/Post
• Contemplation of the Parties
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Elements of a Contract:
1) Offer cont…
Termination of an offer
An offer can be terminated through the following ways:
(1) Revocation
(2) Lapse
(3) Rejection By Offeree
(4) Implied rejection : counter offer
Eg - A offers to sell his car to B for $1000. B says to
A, “I will give you $750". B statement amounts to a
counter offer which terminates the original offer by A
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Do you have a valid offer?
Invitation To Treat
Do you have valid
offer?
Yes
No
Offer
Preliminary
Inquiries
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Supply of
Information
Elements of a Contract:
2) Acceptance
• An acceptance is a final and unqualified assent to all
the terms of the offer.
Rules of acceptance :
(1) Offer still in force
(2) Offer to made by the offeree
(3) Unqualified an absolute
(4) Acceptance can be in writing, oral or by conduct
(5) Silence does not constitute an acceptance
(5) Communication
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Elements of a Contract:
2) Acceptance cont…
• Communication of acceptance
• Completed acceptance
• Reasonable time
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Elements of a Contract:
2) Acceptance cont…
• Postal acceptance rule
Limitations to the rule
•
•
•
•
letters and telegrams
instantaneous methods of communication
addressed and stamped
actual communication contemplated
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Do you have a Valid Acceptance?
Acceptance
Must Match the
Terms of the Offer
Communication
Exceptions
Postal Acceptance
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Unilateral
Contracts
Elements of a Contract:
3) Consideration
•
Applies to all contracts other than contracts made under
seal/ deed. Contracts made under deed form do not require
consideration.
1) Definition
Consideration is an essential element in every simple contract.
The doctrine of consideration requires that:
(1) there must be an exchange between the parties, involving either a promise
for promise, or promise for performance; and
(2) the promise or performance given in exchange must have value.
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Elements of a Contract:
3) Consideration cont…
•
Rules of Consideration
•
•
•
•
•
Consideration does not have to be adequate
Consideration must be sufficient
Consideration must not be illegal
Consideration must move from the promisee
Past consideration is not good consideration
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Rules of Consideration
Consideration
Involves a mutual
exchange
Cannot be illegal
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Must not be past
Must not be
ilusory
Elements of a Contract:
3) Consideration cont…
Renegotiating Debts
• Performing existing contractual obligations does not amount to good
consideration to enforce a promise : Foakes v Beer
Example (1) : A owes B $100. A decides to pay B $90 in full satisfaction of the
debt. B then sues A for the balance ($10). B will succeed because there is no
consideration for his promise to accept $90 for full payment : Foakes v Beer
Example (2) : A owes B $100. A decides to pay B $90 earlier for full
payment. B will not succeed for the further $10 because A has done something
extra, he has paid earlier : Pinnels case.
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Elements of a Contract:
3) Consideration cont…
• Promissory Estoppel
The strict application of the doctrine of consideration is modified
with the doctrine of promissory estoppel. The doctrine of
estoppel operates to enforce certain promises which have not
been supported by valuable consideration.
Elements of the doctrine of estoppel:
– There must be a promise by the promisor to the promisee
– The promisee must have relied on the promise
– The promisee will suffer detriment if the promisor is allowed to go back
on his promise
– It would be unconscionable (unfair) to allow the promisor to break his
promise
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Elements of Promissory Estoppel
Promissory
Estoppel
Promise/
Representation/
Assumption
Reliance
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Material Detriment
Unconscionability
Promissory Estoppel cont…
Walton Stores v Maher
• Walton’s case was seen as important in the development of the doctrine,
because it extended the operation of the doctrine to create a new right of
action.
• Promissory estoppel only operates when all the above elements have been
satisfied. Promissory estoppel has its origins in the High Trees Case. The
doctrine has been extended in the High Courts decision in Walton Stores.
• The principle of promissory estoppel only applies when it would be
inequitable/unconscionable (unfair) to allow the promisor to go back on his
promise.
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Promissory Estoppel cont…
Example:
• A enters into a lease agreement with B. The lease
provides that A pays B $500 weekly rent. A then falls
into financial difficulty and asks B if he could reduce
the rent for 12 months to $300. B agrees. A relies on
B’s promise to accept $300 rent, and pays him that
amount. 12 months later B sues A for the difference
in rent ($200 week).
• Advise A.
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Elements of a Contract:
4) Intention to Create Legal Relations
• Commercial agreements
For a contract to be legally enforceable there must be an
intention by the parties to be legally bound. In Commercial
and Business Agreements there is a presumption that the parties
intend to create legal relations: Edwards v Skyways.
Exclusions:
1) Express
This presumption can be rebutted but the onus is on the party seeking to exclude legal relations.
An express exclusion of intention by the parties will be given effect by the courts.
2) Social & Domestic Agreements.
There is a presumption that social and domestic agreements are not intended to create legal
relations. However this can be rebutted by evidence to the contrary.
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Elements of a Contract:
4) Intention to Create Legal Relations cont…
• Husband & Wife Agreements
The courts consider domestic arrangements between husband
and wife to be social agreements and not legally enforceable:
Balfour v Balfour.
Exceptions:
If the agreement between husband and wife involves
essentially a commercial matter then the agreement will be
enforceable : Milliner v Milliner.
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Do you have an intention to create
legal relations?
Yes
Do the parties have
an intention to create
legal relations?
No
Check to see whether
the intention has been
expressly excluded
Check if the
commercial
presumption applies
If intention has not
been excluded check
for other elements
If the commercial
presumption applies
check for other
elements
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Check if the social/
domestic
presumption applies
Elements of a Contract:
5) Certainty of Terms
• As a general rule the courts will not enforce vague or
incomplete agreements.
• However the courts will strive to fund a valid contract. If
terms are uncertain, the courts may clear the uncertainty
by the ff means:
- Trade customs & Usage
- Previous dealings between the parties to determine the
essential terms of the agreement.
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Elements of a Contract:
6) Capacity to Contract
• The capacity of certain persons to enter into legal
contracts may be affected.
• Especially minors, drunkards and bankrupts.
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6) Capacity to Contract – Minors
Minors
• Minors are any persons below the age of 18.
• Contracts with minors fall within three categories:
- Valid
- Voidable; and
- Void
• Valid Contracts - 2 types: Contracts for
Necessaries and Contracts for Beneficial Service.
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6) Capacity to Contract
– Minors cont…
Contract for Necessaries
• Necessaries are defined as goods suitable to the condition in life of such a minor
and to his actual requirements at the time of such sale and delivery.
Two important questions arise:
(1) Can the goods/services be classed as necessaries for a person in the
circumstances of the minor in question?
(2) Were the goods/services in fact necessary to the minor at the time?
• If the answer is yes to both these questions then there will be a valid contract
and the minor will have to pay.
• Examples of goods/services which are necessaries include: food, housing,
education, medical and legal expenses.
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6) Capacity to Contract
– Minors cont…
Contracts for beneficial services
• The key question here is to ask:
Does the contract of service provide a benefit to the minor?:
Hamilton v Lethbridge.
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6) Capacity to Contract
– Minors cont…
Voidable Contracts
• These are contracts which can be avoided by the minor before
he/she turns 18 or within a reasonable time after he/she turns
18.
• They apply to contracts which are of a permanent
nature/continuing obligation.
Eg: shares, leases and
partnerships.
• With voidable contracts the minor can free himself from future
obligations, but will have to pay for benefits already received.
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6) Capacity to Contract
– Minors cont…
Void Contracts
• Contracts other than for necessaries or beneficial contract of
service are void against the minor.
• Contracts involving loan repayments are also void against the
minor.
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