A legally enforceable agreement between two or more parties

The essence of contact is that there should be an agreement between the contracting parties. It is a legally enforceable agreement between two or more parties where it is normally constituted by one party making an offer and the other indicating its acceptance. The promises made by the parties define the rights and obligations of the parties. The acceptance must correspond to the offer in all material aspects. The negotiations between parties need not always lead to a contact. Inquiries may be made or offers invited but no offer may be made or, if one is made, it need not be accepted. The most important principles in the formation of contract is offer, acceptance and consideration.

Offer

In order to have a contract, there must first be an offer. It is an expression of willingness to be bound by the terms of contract. The offer may be express or implied from conduct. The person making the offer is called the offeror, and the person to whom it is made is called the offeree. An offer may be made to a definite person where its called the bilateral contract, or to the whole world at large where its called the unilateral contract.

A bilateral contract is one where a promise by one party is exchanged for a promise by the other and an offer to a definite person can only be accepted by that person and by no one else.Whereas a unilateral contract is where an offer to the whole world at large that can be accepted by anyone. For example, see the case of Carlill v Carbolic Smoke Ball Co. [1] Carbolic Smoke Ball Co. offered by reward 100 to anyone who contracted influenza after using their smoke ball. Mrs Carlill used the smoke ball as prescribed but contracted influenza. She claimed 100. Held the company was bound to pay her. The company raised defences where the that was an offer made to the public, the promise of 100 was merely an advertising not intended to create legal relations but the court rejected this argument because the company had declared it had deposited 1000 in a named bank to show their sincerity in this matter. The Court of Appeal said the advertisement in this case was an offer the wording of the advertisement clearly showd an intention to be bound to anyone accepting

According to Section 4 Sub 1 of the Contract Act 1950, communication of the offer is complete when the offeree knows about it. The offeree cannot accept an offer unless he knows of its existence because he cannot accept it without intending to do so, and he cannot intend to accept an offer of which he is ignorant. For example. See the case of Adams v Lindsell (1818) 106 ER 250, Lord Ellenborough . A wrote to B by letter, offering to sell some wool, and asked for a reply “in course of post". This offer was delayed two days in the post and consequently B’s acceptance was late in coming back. On the day before it arrived, A sold the wool elsewhere. The court said B was entitled to damages where his acceptance was complete when his letter was posted, before the wool was sold to the third party. An offer is only made when it actually reaches the offeree and not when it would have reached him in the ordinary course of post.

An offer continues to exists until it is accepted unless it is revoked. An offer may be revoked at any time before acceptance and it is irrevocable after acceptance. Revocation does not take effect until it is actually communicated to the offeree. Communication for this purpose means that the revocation must actually have reached the offeree. Thus, for revocation to be effective it must be communicated.

Intention to Create Legal Relation

Intention to create legal relation is an element necessary for the formation of a contract. Both parties must have this intention. If the parties indicare expressly or impliedly that they do not wish their agreement to be binding on them, the law would accept and respect their intention. In cases involving social and domestic situations, there is a presumption tha the party do not intend to have legal relations. See the case of Balfour v Balfour (1919) 2KB 571,CA. A civil servant D was about to return to his work in Ceylon, leaving his wife in P in England. D promised to pay 30 a month until he returned, in exchange for her agreement to support herself without calling on him for any other mantainence. The subsequently divorced and P sought to enforce D’s promise. The Court of Appeal said that although there was consideration in P’s promise, there was no contract. There are many agreements, said Atkin LJ, including most agreements between husband and wife, which the parties never intended they might be sued upon.

Acceptance

The acceptance, like the offer, must be given in clear terms. Acceptance for an offer is the final and an qualified assent to the terms of the offer The acceptance must be made while the offer is in force before the offer has been revoked or rejected. Once the acceptance is complete, the offer has become irrevocable. An absolute and unqualified assent to all the terms of offer constitutes an effective acceptance. If the offer requires the offeree to promise to do or pay something, the acceptance must be conform exactly to the offer. For example, see the case of Neale v Merrett (1930). M offered land to N at 280. N replied accepting and enclosing 80 with a promise to pay the balance by monthly instalments of 90 each. Held, no contract, as there was not an unqualified acceptance.

A conditional acceptance is not an acceptance. When it is stated ‘subject to contract’, it means that the parties do not intend to be bound until a formal letter is prepared and signed by them. An acceptance whether oral or return must be communicated to the offerol for the contract to be enforced. On principle, an unexpressed acceptance to an offer does not result in a contact. For instance, see the case of Felthouse b Bindley (1863) 142 ER 1037. P discussed the purchase of a horse from his nephew J, and prices were discussed. On 2 January, P wrote to J saying “If I hear no more about him, I consider the horse is mine at 30-15". J did not reply, no money was paid, and the horse remained in J’s possession. J decided to sell the horse to P and told an auctioneer D to withdraw it from a sael, but D forgot rhis instruction and sold the horse elsewhere. P now sued D in conversion, claiming the horse was his property. The Court of Common Pleas said that there was no contract. P’s letter was an open offer that had not been accepted. If the offeror prescribes only acceptance within a stated time, only the time requirement has to be complied with a request of acceptance “by return of post" relates only to time, and the offer may be accepted by telegram or verbal message.

Consideration

Consideration is some benefit received by a party who gives a promise or an act. In general, a promise unsupported by consideration is not a binding contract. Consideration must move from the promisee where the person whom the promise is made must furnish the consideration. For example, A receives 5 in return for which he promises to deliver goods to B. Here, the money A receives is consideration for the promise he makes to deliver the goods. Paying or promising to pay money in return for the supply of goods or services constitutes the most common form of consideration. A promise to perform an existing obligation is not sufficient consideration, but a promise to do something different is good consideration.When the act constituting the consideration is completely performed, the consideration is said to be executed. For example, if the customer pays a phone booking or ordering the phone, it is an executed consideration. Whereas, when the consideration takes the form of a promise to be performed in the future, it is executory. For example,if the customer pays the contract price at a date agree by both parties, it is called executory consideration.

Consideration need not be adequate or equivalent to the promise, but it must be some value. It is the matter for the parties themselves to determine what they consider is the proper value of their acts or promises. Payment of a smaller sum of money is not a satisfaction of an agreement to pay a larger sum, even though the creditor agrees to take it in full discharge. If A owes B 100, and B agrees to take 75, there is no consideration for the forgiveness of 25. For example, see the case of Foakes v Beer (1884) LR AC 605,HL. D obtained a judgement debt against P, but agreed to accept payment by instalments over five years and not to take any further proceedings to enforce the judgement. When all the instalments had been paid, D claimed the interest added automatically to a judgement debt not paid promptly, and the House of Lords reluctantly upheld her claim, P had given no consideration for D’s promise not to make such a claim and D could not be held to that promise.

Remedies for a Breach of Contract

A breach of contract occurs where a party to a contract fails to perform his obligations under contract. When a contract is broken, the injured party may have several courses of action open to him. There are various remedies available to a party where there has been a breach of contract. The remedies for a breach of contract are rescission of contract, damages, specific performance, injunction and restitution.

The equitable remedy of rescission can be used to describe where if one party has broken the contract, the other party may treat the contract as rescinded and refuse further performance. By treating the contract as rescinded he makes himself liable to restore any benefits he has received for instance if he has agreed to sell goods and has received all or part of the price, he must return it,unless it is a term of the contract that he need do not so. If the breach has only been a breach of warranty, the injured party must perform his part, although he has a right of auction for damages.

Whenever there is a breach of contract by one party, the other is entitled to bring an auction for damages. If he has sustained loss, he is entitled to substantial damages, for instance see the case of Sunley Ltd v Cunard White Star Ltd. (1940) 1K.B. 740 where C agreed to carry S’s machine to Guernsey, but owning to their delay, the machine arrived a week later. S proved no loss of profit. Held, S’s damages were (1) £20, one week’s depreciation of the machine, (2) £10, interest on the capital cost, maintenance and wages. If in fact, he has sustained no loss from the breach he will not be entitled to substantial damages but only can claim nominal damages.

Instead of awarding damages to the injured party, a specific performance may be granted. Specific performance means that the actual carrying out by the parties of their contract and in a proper case the court will insist on the parties carrying out their agreement.This remedy, however, is discretionary, and will not be granted in any of the following cases where damages are an adequate, where the court cannot supervise the execution of the contract for instance building contract, where one of the parties is a minor, and in contracts to lend money.

An injunction is an order of the court restraining a person from doing some act. It will be granted to enforce a negative stipulation in a contract where damages would not be an adequate remedy. For example, see the case of Metropolitan Electric Supply Co. v Ginder (1901) 2 Ch.799 where G agreed to take the whole of the electric energy required by his premises from the plaintiffs. Held this was in substance an agreement not to take energy from any other person and it would be enforced by injunction.

Where there is a breach of contract, the injured party, instead of suing for damages, may claim payment for what he has done under the contract. His right to payment does not arise out of the original contract, but is based on an implied promise by the other party arising from the acceptance of an executed consideration. This is a termed of a restituation. For example, see the case of Planche v Colburn (1831) 8 Bing 14 where P was engaged by C to write a book to be published by the instalments in a weekly magazine. After a few numbers had appeared the magazine was abandoned. Held P could recover on a restituation for the work he has done under the contract.

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