CONTRACT LAW

THE LAW OF CONTRACT Most relationships between the stakeholders

in business are governed by contracts. A contract is a legally binding agreement

between two or more parties; i.e. An agreement that a court will enforce.

ELEMENTS OF A LEGALLY BINDING CONTRACT Offer Acceptance Consideration Intention to contract Consent to contract Capacity to contract Legality of form Legality of purpose

OFFER Every contract must contain an offer to make

a contract. This can be done in one of three ways: Verbally, e.g. “I’ll give you €1,000 for that

computer” In writing or by post By conduct, such as a customer handing over a

newspaper and money to a shop assistant

ACCEPTANCE Acceptance of an offer can be communicated

verbally, in writing, or by conduct. The acceptance of an offer results in a legally

binding agreement.

CONSIDERATION Consideration is what one party gives

another as proof of an agreement. E.g. payment

The consideration does not however need to be monetary. However, it must be real, have a measurable value and physically pass between the two parties.

Consideration provides evidence of a contract.

INTENTION TO CONTRACT The parties to the contract must have

intended to create a legally binding contract. Contract law assumes that:

All business agreements, written or legal, are intended to be legally binding.

All social and private agreements are not intended to be legally binding. E.g. a person who goes back on a promise to buy a

friend a meal cannot be brought to court, as there was no intention that the promise would form a legal contract.

CONSENT TO CONTRACT Consent to contract means that each party

must give genuine agreement of their own free will to the making of the contract.

Consent to enter a legally binding contract may not exist if: A person is pressurised against their will A person enters a contract as a result of

dishonesty or deliberate misrepresentation. A genuine mistake can be shown to have

happened.

CAPACITY TO CONTRACT Capacity means that the people agreeing to

the contract must have the legal right to do so.

People who do not have the legal right to enter into contracts are: Anyone under 18, except for items considered

normal purchases. People who are drunk, insane or of ‘unsound

mind’. Diplomats, because they can claim diplomatic

immunity.

LEGALITY OF FORM Legality of form refers to the manner in

which the contract is drawn up. Most contracts can be verbal, written or

implied in conduct.

LEGALITY OF PURPOSE To be legally binding, a contract must have a

legal purpose and not break any laws. This means it cannot involve committing a

crime, defrauding the state of taxes or unfair restraint of trade.

ELEMENTS OF A LEGALLY VALID CONTRACT

1. Offer

2. Consideration

3. Acceptance

4. Intention to contract5. Capacity to contract6. Legality of form7. Legality of purpose

INVITATION TO TREAT Price Tag: An invitation to treat refers to a sign

or advertisement by a shopkeeper, either in a newspaper or a shop window, offering goods for sale at a certain price.

Not Offers to Sell: Such signs are not offers to sell goods at that price but in fact are invitations to the public to make an offer to buy the goods at that price.

Acceptance: The shopkeeper is free to accept or reject the offer and no contract exists until an acceptance is made.

INVITATION TO TREATExample: John Byrne sees a jacket in a shop window with a price

tag of €20. When he goes to the counter to purchase the jacket he is told that the price tag is incorrect and should read €200. The shopkeeper refuses to accept the €20. What are John’s rights?

Solution: The shopkeeper is perfectly within his rights. The price

tag was not an offer to sell at that price, but an invitation to John to make an offer to buy at that price. Realising the mistake, the shopkeeper refused John’s offer and no contract existed.

CONTRACT TERMINATIONA legal contract can be terminated under certain circumstances. Termination of a contract means it can no longer be legally enforced.Legal contracts can be legally terminated through:

Performance This termination of contract occurs when the parties

involved fulfil all their obligations Agreement

If all parties to a contract agree to terminate the contract, this can be done regardless of whether the purpose has been achieved.

Bankruptcy If one or both parties declares bankruptcy, the contract

cannot be honoured.

CONTRACT TERMINATION Frustration

Some unforeseen event(s) prevents the contract being completed. E.g. bad weather, death of one party.

Breach of Contract This is where one party breaks a condition of the

contract. A condition is an essential element of a contract.

REMEDIES FOR BREACH OF CONTRACTThe following remedies exist when a contract has been breached: Damages: The injured party sues the other party

for monetary compensation, i.e. damages to compensate him for the loss he has suffered.

Rescind the Contract: The court places both parties back in the same position they were in before they entered the contract.

Specific Performance: The court orders that the contract be carried out as per the original agreement.

CASE STUDY