Contract Elements: Types, Characteristics, Legal Cases
A contract is an agreement that the law will apply and it’s created between two or more parties or between businesses where both parties will sign a contract if they agree to the offer of one party. Acceptance is important in a contract as both parties would have to accept or reject the offer that’s offered to them from the offeror.
An offer is a statement of terms that is given by one party to another which the party is prepared to form a contract. An offer could be made in different types of ways such as in a written document, verbally made offer, either made face to face or on phone and by a machine as long as the acceptance is given directly to the offeror.
An offer could come to an end in different types of ways:
- Lapse of time is one way an offer could end where the offeror is introducing terms to the offeree however after an amount of time left between the terms, the offer will automatically end as there is no sound from the offeree. A case explaining lapse of time is “Ramsgate Victoria Hotel v Montefoire (1866)” this is about a defendant offering to purchase shares in the claimant company at a certain price. However, after six months the claimant accepted the offer but it was no longer existed as a lapse of time was left in between the offer.
- Rejection is another way of ending an offer where an offeror makes an offer to the offeree but the offeree doesn’t accept the offer. “Raffles v Wichelhaus (1864)” this case is about refusing the payment of the amount of surat cotton.
- Revocation is a way of ending an offer. It is when the offeror is taking back the offer so that the offer does no longer exist. This can be seen in the case “Routledge v Grant (1828)” it was an offer to sell a property and the offer remained open for 6 weeks. After 3 weeks the seller changed their mind and decided not to sell the property so this shows that the offer is ended and there is no chance of the buyer trying to buy it.
- Death is a way that an offer could end. If a contract is created and either an offeree or offeror has passed away, the contract will automatically end so they will not be able to carry it on however, some legal obligations continue after death.
A counter offer is an offer slightly changed from the original offer. For example, a car seller makes an offer of the car to £300 however the offeree disagrees and slightly changes the offer to a lower price and says £250. A case study based on this is “Hyde v Wrench (1840)”. This is a case where an offer was made to sell a farm for £1000 but the offeree changed it and created another offer saying £950. And the seller of the farm rejected it because the offeree is creating its own offer.
Invitation to treat:
An invitation to treat is not an offer. It is something that encourages negotiation. Negotiation is a discussion reaching an agreement. There are two examples of case studies. One is “Fisher v Bell (1961)”. It is about a gravity knife was displayed at a shop window with a tag price but it wasn’t on sale it was just there for invitation to treat and so the shopkeeper couldn’t be guilty selling restricted weapons. Another case is “Carlill v Carbolic Smoke Ball Company (1892)”. This was about a carbolic smoke ball company advertising an offer of £100 to anyone who used the products from the advertisement but caught the flu. The advertisement claimed £1000 deposited with the bank the court accepted the offer and claimed it to be a contract. An offer is a proposal while an invitation to offers inviting someone to make a proposal. An invitation to treat is the proposal before the actual offer. The main difference is that, with an invitation to treat there is no intention that your statement will create a binding contract, whereas with an offer there is.
Acceptance is when an offeree receives the offer and agrees to the terms of what has been offered. When the offeree stays silent this could mean that they don’t want to accept the offer which will end it. When an offeree accepts an offer, they will have to sign a contract showing that they accepted the rems and conditions. Acceptance can happen by post however there are rules that apply to the post such as making sure that the letter is signed and stamped, and the offeree must be able to prove that they sent the letter. The contract is a proof by showing a signed agreement based on the offer so if there is something wrong about this offer in the future, they will have proof of signed contracts so there will be nothing to argue about.
Duress is pressure from one party to another which consents a party to a contract. For example, holding a gun to another party so they can accept the contract. It could be known as forcing or threatening. “R v Graham (1982) a defendant lived with his wife and homosexual lover. His lover threatened him into killing his wife. The Court did not regard the threats as sufficient to constitute the defence of duress. Lord Lane devised a two-part test for duress by threats.
“Brinkibon Ltd v Stahag Stahl (1983)” Brinkibon Ltd, were a company that was based in London. They were buying steel from the defendants, Stahag Stahl, who were sellers based in Austria. The issue in this case is Acceptance of Brinkibon’s offer had been by way of telex from London to Austria to see If the contract is accepted or not.
The postal rule is a rule that applies where posts are held as it is for communicating and acceptance. The postal rule does not apply to direct/instant forms of communication. Henthorn v Fraser is a case where the complainant and the defendant had been negotiating the purchase price of houses. An original offer to buy the houses for £600 had been rejected. The defendant, Mr Fraser, handed the complainant, Mr Henthorn, a note that detailed an option to sell the property for £750, which would be valid for 14 days. While this offer was being considered, another buyer was interested and the defendant concluded a contract with them instead. The next day, the defendant then withdrew the offer to the complainant by post. This note did not reach Mr Henthorn until 5pm. In this time, Mr Henthorn had already responded to the offer by post with an unconditional acceptance to buy the houses for £750.
Consideration is when either parties put on something to offer to each other. It is something of a value given in exchange for a promise. There are three rules for consideration. Consideration must be pivot. A case on this is “Re McArdle (1951)” this is based on a women and her child promising to pay £488 because they did a decoration the promise was unenforceable as all the work was done.
Consideration cannot include a third party. “Dunlop v Selfridge Ltd (1915)”. Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price. The agreement held that if the tires were sold below the recommended retail price, they will charge a fee. This was agreed between the dealer and Selfridges. However, Selfridges sold the tires below the recommended price and Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between the dealer and Selfridges. Dunlop was not listed as an agent within the contract and could therefore not be included as a valid third-party who had rights to claim on the contract.
Also, the consideration agreement can be of some value but doesn’t have to be equal so if someone give a car that was £1000 to another person, that person can give a car for £950 which is off the value but if it is accepted by each party then they can exchange it. A case study based on consideration is “Chappel v Nestle (1960)” Nestle ran a sales promotion so they did an agreement if people send in 3 chocolate bar wrappers and a postal order for 1-shilling 6d they would be sent a record. Chappel owned the copyright in one of the records offered to the people. However, if the wrappers were a token or a condition, the court wouldn’t say anything as the notice will be valid and nestle will sell their records.
It is to enter a legally binding agreement or contract. If there isn’t intention, the contract will be assumed of not legal. There are social and commercial agreements in intention. A commercial agreement could also be linked to a business agreement. A case study on this is “Kleinwort Benson Ltd V Malaysia Mining Corporation Bhd” in this case, the bank agreed to loan MMC Metals. The bank asked MMC to guarantee loan. They did not accept the policy and did not want to create a contract so then the bank charged them a higher rate.
The social or domestic agreement is when there is no presumption to be legally binding. A case study based on this is “Balfour v Balfour” a husband brought his wife to England from Sri Lanka. Then the husband had to return but wife stayed for medical reasons. He promised to pay her £30 a month until his return. However, he failed to pay, so the wife sued the husband.
“Merritt v Merritt” Mr and Mrs Merritt married in 1941. In 1966 Mr Merritt left the family home to live with another woman. Mr Merritt agreed to pay Mrs Merritt £40 per month and so they signed a document when Mrs Merritt payed the mortgage, he would transfer the house to her name. Mr Merritt contended the agreement was a domestic arrangement between husband and wife and there was no intention to create legal relations.