Formation of Contract

9 Key excerpts on "Formation of Contract"

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  eBook - ePub

  Contract Law

  A Straightforward Guide

  • (Author)
  • 2014(Publication Date)
  • Straightforward Publishing Digital

    (Publisher)

  Ch. 2

  Forming a Contract

  In this chapter we look at the main principles underpinning forming a contract. We look at the nature of contracts and the notion of offer and acceptance plus certainty of contract and terms implied into a contract. The intention to create legal relations is examined along with different types of contract and capacity to enter into a contract.

  Underpinning all contracts are four main principles: 1) A contract is an agreement between the parties to that contract-one person makes an offer and the other accepts that offer 2) Both parties have an intention to be legally bound by the agreement-this is usually known as an intention to create legal relations 3) Parties to the agreement need to be absolutely clear as to the terms of the agreement – this is the main area of contention with contracts, as we will see later

  4) There must be consideration provided by each of the parties to the contract – this means that one person promises to give or deliver and the other promises to pay. The offer and the payment – either monetary or in kind - is the consideration. When making a contract, or entering into a contract all parties to the contract must have the legal capacity to enter into a contract. Very importantly, a contract, in most cases, does not have to be in writing – a piece of paper is not necessary, the agreement and evidence of that agreement forms the basis of contract. There are a few important exceptions, including contracts relating to interests in land (Law of property (Miscellaneous Provisions) Act 1989, s 2(1)) and consumer credit (Consumer Credit Act 1974). We will outline those contracts that do need to be in writing later on in this chapter. Other factors affecting formation include:

  •  Form-the way the contract is created (e.g. the sale of land can only be made in the form of a deed) Form is an issue with specialty contracts but not with simple contracts

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  Law

  Made Simple

  • D. L. A. Barker, C. F. Padfield(Authors)
  • 2014(Publication Date)
  • Made Simple

    (Publisher)

  7 THE LAW OF CONTRACT In his book Principles of the Law of Contracts, Sir William Anson defined a contract as a legally binding agreement made between two or more parties, by which rights are acquired by one or more to acts or forebearances on the part of the other or others. Shortly it may be defined as an agreement between two or more parties which is intended to have legal consequences. The agreement referred to in the definition means a meeting of minds, called in law consensus ad idem, signifying that the parties are agreed together about the same thing. The definition also emphasizes that the parties to the contract must intend that their agreement shall be legally enforceable. Unless the law regognizes this and enforces the agreements of parties, it would be impossible to carry on commercial or business life. For this reason the law of contract plays a leading role in courses on business studies. These contractual agreements give rise to rights and obligations which the law recognizes and enforces. But certain agreements, such as domestic and social arrangements, are not intended by the parties to be legally binding. The law allows for this. Thus, if Cumming and Gowing agree to meet for dinner and Gowing fails to turn up, the law will do nothing in the matter. The agreement was not intended to create legal rights and duties, and, as such, it is not a contract in law. Every contract is an agreement, but not every agreement is a contract. The object of the law of contract is to identify those agreements which it will enforce and those which it will not. This is of prime importance and will be referred to later in more detail. 1. Essentials of a Valid Contract An agreement will be enforced when the following essential elements exist: (a) Offer and Acceptance. There must be an offer by one party and an acceptance of it by the other. (b) Intention to create legal relations. (c) Capacity of the parties. Each party must have the legal capacity to make the contract.

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  Unlocking Contract Law

  • Chris Turner(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  2 Formation of a contract: Offer and acceptance AIMS AND OBJECTIVES After reading this chapter you should be able to:

    Understand the essential requirements for valid formation of a contract

    Understand the basic character of an offer

    Distinguish between an offer and an invitation to treat

    Understand the need for communication

    Understand how offers can be withdrawn and in what circumstances

    Understand how an offer can be terminated

    Understand the basic character of acceptance

    Distinguish between a counter-offer and a mere enquiry

    Understand the significance of different methods of communication

    Understand the circumstances in which unilateral contracts are made

    Critically analyse the area

    Apply the law to factual situations and reach conclusions

  2.1  Formation of Contracts and the concept of agreement

  We know from our introduction to the law of contract that the law concerns ‘bargains’ that are made between parties. The major significance of the word ‘bargain’ is that it involves an agreement that is binding on both parties. In contract law, then, it is insufficient merely that an agreement exists between two parties but rather that it involves that specific type of agreement which is enforceable by both parties in a court of law.

  A contract is completed when both sides honour an agreement by carrying out their particular side of the bargain. It is a breach of contract when a party fails to do so.

  However, because of the special nature of contractual agreements, we cannot identify a breach of contract where we may feel that we have not got what we paid for or ‘bargained’ for, without first showing that the agreement was indeed a contract.

  So the first thing that may need to be determined in any contract case is that there is proof that a contract actually exists, as opposed to some less formal, and thus unenforceable, arrangement between the parties. It is possible to tell if the arrangement is a contract because to be so it must have been formed according to certain standard rules. These are the rules of Formation of Contract

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  Law and the Built Environment

  • Douglas Wood, Paul Chynoweth, Julie Adshead, Jim Mason(Authors)
  • 2021(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  2 The Law of Contract 2.1 General principles The law of contract is frequently the fi rst ‘ case law ’ subject to which students are introduced when they commence their legal studies. The main reason for this is that contracts affect the general public more than most areas of law and arise daily in business and commercial life. The contract is the most important stage in the process when land or buildings are transferred and when building projects are undertaken. The ‘ golden age ’ of the law of contract was in the nineteenth century when its major principles were evolved on free market ideologies. Many of the cases referred to in this chapter date from this ground breaking period. The case illustrations used are not limited to this period, however, and the case law referred to in this chapter ranges from the very old to the very modern. A contract is a legally binding agreement. It is a bargain and each side, or party to the contract, must contribute something to it for it to be valid. Not every agreement is a contract nor is it intended to be so. The legally binding element must be present before a valid contract can emerge. In other words the parties must be able to demonstrate their intention to adhere to the agreement made. The protection afforded by entering into a contract is that if it is broken by one party to it, the other party must be able to take the contract-breaker to court if desired. A distinction is made between the situation where the parties exchange mutual promises, known as a bilateral contract, and a unilateral contract where one party promises to do something in return for the other party carrying out some task. When the task is completed the promise made in a unilateral contract becomes enforceable. 2.2 Formalities A contract may be made in any form that the parties wish. This is the case regardless of the sums involved or the complexity of the agreement.

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  South Pacific Contract Law

  • Jennifer Corrin-Care(Author)
  • 2015(Publication Date)
  • Routledge-Cavendish

    (Publisher)

  CHAPTER 2 FORMATION OF AN AGREEMENT INTRODUCTION This chapter examines the elements necessary for a binding agreement to arise. The courts have developed rules to assist in determining this. These rules are very useful when trying to analyse facts. However, it should always be borne in mind that the rules are only tools to be used in trying to identify the essence of a contract. Some lawyers consider that the rules are too restrictive and that it is more important to look at the circumstances as a whole to see whether there is a contract, rather than to analyse the facts to establish separate legal elements of an agreement. 1 The artificiality which may result from adherence to the rules in complex cases was pointed out in New Zealand Shipping Co Ltd υ AM Satterthwaite & Co Ltd, 2 where Lord Wilberforce said: English Law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance, and consideration. There may be cases where the courts are prepared to find that the essence of contract is present, even though it is difficult or impossible to analyse the transaction in terms of the rules discussed in this chapter. 3 Nevertheless, the rules are a useful starting point and regional courts expect counsels’ arguments, in disputes regarding the existence of an agreement, to be founded on the rules. 4 AGREEMENT The first essential element of a simple contract is an agreement. As discussed in Chapter 1, a contract is a legally binding agreement made between two or more people who intend it to have legal effect. There are therefore two elements: an agreement and legal enforceability. This chapter discusses the first element, but is should always be borne in mind that not all agreements are legally enforceable

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  Contract Law

  • Chris Turner(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  3   

  Formation of a contract: consideration and intention

     3.1 The nature and purpose of consideration

  1	Contract law concerns enforcement of promises based on mutual agreement.
  2	In the early forms of contract law (debt, detinue, covenant) proof that a binding agreement existed was easily found in the form of the agreement (i.e. was only binding if under seal).
  3	Enforcing informal agreements developed in the sixteenth century with the law of assumpsit:
  •	the law would still not enforce merely gratuitous promises;
  •	so the law had to develop an element that could distinguish between a proper contractual agreement that would be enforced, and something less that would not.
  4	This was the origin of the element of consideration:
  a)	Proof was required that the party seeking to enforce the contract was in fact a party to a mutual agreement by contributing something in return for the promise of the other party.
  b)	This was the quid pro quo – one thing in return for another.
  c)	I n the sixteenth and seventeenth centuries, the courts asked for evidence of the existence of this extra element before they would acknowledge the existence of the agreement in law.
  d)	Defining consideration was and remains a problem.

     3.2 Defining consideration

  1	Originally no single definition could be found.
  2	Often the view taken was that consideration was no more than the reason why the promise should be enforced in the case.
  3	It was first seen as a rule of evidence, and later as a moral obligation, neither of which makes consideration an essential in identifying a binding contract.
  4	Nineteenth-century judges saw the essential difference between speciality agreements and ‘parol’ agreements (Eastwood v Kenyon

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  Text, Cases and Materials on Contract Law

  • Richard Stone, James Devenney(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Chapter contents 2.1 Introduction 26 2.2 Forming an agreement 26 Additional reading 76 Chapter 2 Forming the agreement FORMING THE AGREEMENT 26 | 2.1 Introduction ‘Agreement’ is central to the English law of contract. In most cases that are adjudicated the courts regard themselves as giving effect to an agreement reached between the parties. The question of whether such an agreement has been formed is therefore a crucial one. The agreement must also be intended to be legally binding. This aspect is considered in detail in Chapter 3. The focus in this chapter is on the mechanisms that the courts use to decide whether an agreement has been reached. The topics that are covered include, first, formalities. To what extent does English law use formal mechanisms to decide whether an agreement has been reached? Generally this will happen where a ‘deed’ is used, or where a statute requires formality in relation to a particular type of contract. The more general approach is, however, simply to look for informal evidence of agreement. In other words, courts decide whether an agreement has been reached by taking an ‘objective’ approach, looking at what the parties have said or done as indicators of their state of mind. The identification of a matching offer and acceptance is the most common way for the courts to find that an agreement has been made. An offer must be distinguished from an invitation to treat, and an acceptance from a counter-offer. The time and place of acceptance can cause problems when parties are contracting at a distance. Special rules apply to posted acceptances, as opposed to those communicated by tele-phone or electronically. The chapter concludes by considering the ways in which an offer is revoked, and when will it lapse if not accepted. 2.2 Forming an agreement There are a number of possibilities as to the way in which it could be decided if the parties have reached an agreement.

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  Aspects of Civil Engineering Contract Procedure

  • R. J. Marks, R. J. E. Marks, R. E. Jackson(Authors)
  • 2013(Publication Date)
  • Pergamon

    (Publisher)

  C H A P T E R 2 LEGAL ASPECTS OF CONTRACTS The Formation of a Contract This chapter deals with the general principles of English law relating to the Formation of Contracts. The legal aspects of the carrying out of civil engineering contracts are dealt with in later chapters under the appropriate subject-headings. Several Acts of Parliament affect civil engineering contracts. In general, however, the making of civil engineering contracts is governed by the ordinary rules of the English law of contract and is not regulated by any code laid down by statute. The law of contract is largely common law; it consists in the main of rules evolved from judicial decisions rather than rules made by legislation. Civil engineering contracts are usually made in writing in one of the standard forms dealt with in Chapter 3. These forms have many advantages and their use is to to be desired. It is important to remember, however, that in general the making of a contract requires no formality. A binding contract may be made as well by an exchange of letters as by the parties signing an elaborate printed document. Subject to certain exceptions, dealt with below, a binding contract may equally well be made by word of mouth. There is no legal reason, although there are many practical ones, why a civil engineering contract should not be made orally. Employers, consultants or contractors are unlikely to choose to make a civil engineering contract for a large project orally, or by exchange of letters. It is not wholly unknown, however, for contracts involving large sums of money to be made in one of 18 LEGAL ASPECTS OF CONTRACTS Offer and Acceptance The Offer The basis of contract is agreement. Agreement is composed of an offer and an acceptance. In order to see whether a contract has been made the law looks to see whether one party has made an offer to do or refrain from doing something, and, if so, whether that offer has been accepted by the other party.

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  Contract Law

  • Chris Turner(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

   Z 3.1 The nature and purpose of consideration 1 Contract law concerns enforcement of promises based on mutual agreement. 2 In the early forms of contract law (debt, detinue, covenant) proof that a binding agreement existed was easily found in the form of the agreement (i.e. was only binding if under seal). 3 Enforcing informal agreements developed in the sixteenth century with the law of assumpsit:  O the law would still not enforce merely gratuitous promises;  O so the law had to develop an element that could distinguish between a proper contractual agreement that would be enforced, and some- thing less that would not. 4 This was the origin of the element of consideration: a) Proof was required that the party seeking to enforce the contract was in fact a party to a mutual agreement by contributing something in return for the promise of the other party. b) This was the quid pro quo – one thing in return for another. c) In the sixteenth and seventeenth centuries, the courts asked for evidence of the existence of this extra element before they would acknowledge the existence of the agreement in law. d) Defining consideration was and remains a problem. 3 Formation of a contract: consideration and intention Defining consideration 29  Z 3.2 Defining consideration 1 Originally no single definition could be found. 2 Often the view taken was that consideration was no more than the reason why the promise should be enforced in the case. 3 It was first seen as a rule of evidence, and later as a moral obligation, neither of which makes consideration an essential in identifying a binding contract. 4 Nineteenth-century judges saw the essential difference between speciality agreements and ‘parol’ agreements ( Eastwood v Kenyon). Definitions • Benefit/detriment (Currie v Misa). • The promise of the one is the price for which the promise of the other is bought (Dunlop V Selfridge).

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