Requirements for a Valid Contract of Sale

98468-Draft

Structure: Issues, Legal rules and application

Introduction:

In relation to the contract of sale, examine the three elements required for a valid contract and illustrate how the law relating to them developed.

Legal Issues:

1) What is the contract of sale?

2) Oral or Written Contract and their enforceability

3) What are the three elements required for a valid contract?

4) How has the law developed in relation to these elements?

5) Any other issues

Roman law

In Roman law, there were a numerous clauses of contractual types. Which meant that only certain types of contract were recognises and enforceable legally. Only if there was a formula by which an agreement could be enforced was there a contract. Four different types of contract were recognised, consensual, real, verbal and literal contracts.

Consensual contracts were completed via consensus. These were without the need of following a particular form. This type of contract usually featured sale, rent and service contracts. Consensual contracts became binding and enforceable on the basis of mere agreement. This was due to the fact that these contracts had great commercial importance. These contracts were used prominently in sale, hire, partnership and mandate.

Real contracts involved the agreed transfer of property to the transferee, the agreement of the parties to the transfer was not sufficient enough to create an actionable obligation. If the parties only consented to a loan of money, the person receiving the promise cannot enforce the agreement as the giver is not obliged to transfer the sum. If the giver did transfer the money, an obligation would be created and so the receiver would have to pay the money back.

In order for a contract to become binding it was acceptable to show consent in any way however, Justinian’s introduced an important exceptiomn to this rule. If the parties to the contract agreed in advance that bargain should be reduced to writing then until the agreement was written down the contract did not become binding. However, under Roman law giving arra, something to bind the bargain was used as an evidence of parties intention to enter into a binding contract.

Verbal and literal contracts observed a certain form in order to create an obligation. The contract had to be concluded in the form of an oral question and answer.

One of the elements of contracts was creation of an obligation which was actionable .For example if A agreed to loan a sum of money to B, then B was not able to enforce that agreement. The reason being A was not obliged to transfer that sum of money to B as promised. However, as soon as A transferred the funds promised to B as a loan, an obligation on B was created to pay that money back and this obligation was actionable. This obligation came into existence only because A handed over the money.

A contract also existed if there was an action to enforce the promise existed. This is known as formula that was suitable for the circumstances of a particular case. A contract would be treated as valid if there was a valid abstract stipulation existed in certain form. For example if A requests B to pay him a sum of money and B agrees or consents to do that then an abstract stipulation would be created. On the other hand a valid contract also existed if A promises B in the form of a stipulation. Under Roman law an agreement was capable of action by simply reducing it in to the form of question and answers. For example the person who is a promise says “Do you promise to build a house according to such and such specifications?” and the other person answers “I promise” then there was no need for a witness or need to reduce the agreement in writing. Stipulation originated from the surety ship given during the judicial proceedings.^[1]

Every obligato arises either ex contractu or ex delicto. Althought in modern days, contract seems to us a ‘fundamental conception which symbolizes formation of an obligation by agreement (by pactum). It should be noted that not every agreement gives rise to an obligation. Obligatio means a bond which ties two people together which is more effective than merely creating a duty.

As can be seen a contractual obligation arises from agreement which can only arise between persons who are capable of legal acts. Not every agreement becomes legally binding and enforceable contract unless it satisfies certain requirements thus making it clear that not every agreement is a binding contract. (quum nulla subset causa praeter conventionem…..^[2])

In contract of sale a sale need not be of a specific thing. A person was allowed to sale an option or a genus that is a thing or quantity of a specific kind however it must be out of something which the seller had otherwise it was not considered as a sale. For a sale to be valid there must be a price which is real and fixed. The price, need not be adequate however there must be a bargain. As long as the price was not too low it was always left to the parties to make their own bargain. However there was an exception to this rule known as laesio enormis. The seller of a land could refuse the performance if the land he owned was sold at a less than half price unless the buyer agrees to pay a full price. It was also necessary that the price agreed must be paid in terms of money and not in terms of goods. This was to identify the seller and the buyer separately and to differentiate their duties^[3]. Also the price had to be certain. If for example the parties agreed to a sale stating “at a fair price” then it was held that there is no sale. The price need not be stated as a fixed sum of money. It was acceptable to say “ at yesterday’s market price”, or “at a price I gave for the other”. Any further uncertain element in price terms did not vitiate the sale.

Furthermore, if the parties agreed on the price then it was held that there was a sale, even though something else was substituted for the agreed price, datio in solutum. On the other hand, if parties agreed to alter the price which was originally agreed upon then this was treated as an entirely new contract which then replaced the original one

What is a Contract?

A contract is a promise or set of promises, express or implied from circumstances, written or oral, made by one party to another. The breach of promise or promises entitles the other party to claim appropriate remedy. Oral contracts are just as binding as written contracts provided there is enough evidence that a contract between the parties exists. A contract is an agreement between two or more parties to do or abstain from doing something. An agreement must have following features in order for it to be binding in law.

Agreement

The words ‘agreement’ and ‘contract’ are nearly synonymous in their meaning. Judges often say that there needs to be consensus ad idem (agreement on the same thing). It is clear that there can be a contract even if the parties involved are not in agreement.

In Tamplin v James (1880), a pub was advertised for sale by auction. The particulars of the auction made it clear what the boundaries were of what was being offered. Next to the pub there was a field which had been used in conjunction with the field however the particulars stated that the field was not being offered for sale. The defendant made the highest bid and secured the pub but as a result he argued that he had only bid such an amount because he believed that the field was being offered as well. This was rejected by the Court of Appeal as it had been clearly described in the particulars that the bidding was for the pub only. This is an aspect called the objective test of agreement, whereby such arguments as ‘I made a mistake’ very often fail to be successful.

Generally, it is vital that the parties reach a firm agreement if they wish to pursue the Courts to they had. This can be established by an acceptance of an offer which is unconditional.

Consideration

Considerations must consist of something which was either of benefit to the person who made the promise or detrimental to the person to whom the promise was made. Therefore when the car dealer promises to deliver the car that promise is a consideration for the promise from the buyer to pay the agreed price. In Roscorla v Thomas^[4] the seller of a horse promised that the horse was free of vice after it was sold to Roscorla. It was held that Roscorla could not sue for breach of undertaking as there was lack of new consideration.

In Currie v Misa^[5] D issued a cheques to P however, P sued D on that cheques which was issued to pay off pre existing debt. D claimed that P had not given any new consideration for that debt however it was held that P was entitled to the money.

Intention

Of the three elements required for a binding contract, intention to create legal relations is the most recently developed and the least important. This is due to the fact that many of the agreements normally excluded by this requirement are already excluded by the need for something bargained in exchange under the doctrine of consideration. The intention requirement is only needed when there is a consideration but there is an argument that the agreement is not a contract.

In the law of contract, intention is objectively ascertained. It comes down to whether or not the Court believes that the transaction is of a kind which any reasonable person would have intended to be of a binding nature.

In Rose and Frank Co v J R Crompton^[6] D agreed in writing to supply paper tissues to P quoting prices for six month period. However a clause provided that this arrangement shall not be subject to legal jurisdiction in the law court. When D terminated the arrangement P sued for breach of contract and non delivery of goods. I t was held that the arrangement was not a binding contract but each order which was accepted created a binding contract.

Conclusion

It seems to me that although the basic elements of contract have been retained in the modern Contract law it has been simplified and made more systematic to suit the modern society. For example, under current Contract legislation offer and acceptance represents the mechanism of contract formation.^[7] It is laid out step by step and supported by case law how it operates in practice. Under Roman Law on the other hand the contract formation had rigid rules. The law clearly has changed to take account of changes in the society as well as technology.

Also a mere promise never becomes a binding contract unless it is made in a deed or supported by some consideration. This aspect of contract is similar in Roman as well as current law.

Bibliography

1.Roman Law by Andrew Borkowski

2. Rita Antonie Meyer Spasche Roman Law, Recovery of benefits .

2.Law of Contract by Cheshire, Fifoot & Furmston 13^th Edition Butterworths

2. Manual of Roman Rivate Law by Buckland published by Cambridge University Press 1939

3. Historical introduction to Roman law by H F Jolowicg, Cambridge University Press 1952

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Footnotes

^[1] Mitteis Aus Rom. U. Burgerlichem Recht, Festschrift fur Bekker 1907, Manual of Roman Private Law page 294

^[2] page 250 Manual of Roman Private Law.

^[3] Proculian view

^[4] 1842

^[5] 1875 LR 10 Ex 153, page 64

^[6] 1923 Page 150

^[7] see G Percy Trentham Ltd v Archital Luxfer Ltd 1993, The Law of Contract by G H Treitchel published by Sweet & Maxwell page 17,19 and 45