Contracts

CONTRACTS

Overview

Kinds of ContractElements of ContractClassification of ContractSetting aside a ContractRemedies for a Breach Contract

Contract

A voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.

Kinds of Contracts

OralWritten

Oral Contract

An oral contract is a contract the terms of which have been agreed by spoken communication, in contrast to a written contract, where the contract is a written document. There may be written, or other physical evidence, of an oral contract – for example where the parties write down what they have agreed – but the contract itself is not a written one.

Written Contract

A written contract generally refers to a written document outlining an agreement between two parties. The parties can be individuals, businesses, or organizations. All factors or portions in the agreement must be included in the agreement, and each party involved has to sign the document in order for it to be considered valid.

Written Contract

In many cases, a written contract is typed and submitted by a licensed attorney. This doesn’t have to be the case, as simple contracts can be written by the individuals involved. To ensure their validity, contracts written in this way should be approved by an attorney.

Elements of Contract

At common law, the elements of a contract are offer, acceptance, intention to create legal relations, and consideration.

Offer and Acceptance

Offer and acceptance analysis - is a traditional approach in contract law and is one of the elements required for the formation of a legally binding contract. Offer and acceptance consists of the expression of an offer to contract on certain terms by one person (the "offeror") to another person (the "offeree") and an indication by the offeree of its acceptance of those terms.

Offer

Offer - is a statement of the terms on which the offeror is willing to be bound. It is the present contractual intent to be bound by a contract with definite and certain terms communicated to the offeree. Unilateral contract Invitation to treat Revocation of offer

Offer

Unilateral contract - or one-sided, contract, one party, known as the offeror, makes a promise in exchange for an act (or abstention from acting) by another party, known as the offeree.

Invitation to treat - An invitation to treat is a mere declaration of willingness to enter into negotiations; is is not an offer, and cannot be accepted so as to form a binding contract.

Offer

Revocation of offer - An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree.

Acceptance

Once valid acceptance takes place a binding contract is formed. It is therefore important to know what constitutes a valid acceptance in order to establish if the parties are bound by the agreement. There are three main rules relating to acceptance:

1. The acceptance must be communicated to the offeree.

2. The terms of the acceptance must exactly match the terms of the offer.

3. The agreement must be certain.

Acceptance

Communication - The acceptance must be communicated. Prior to acceptance, an offer may be withdrawn. Postal Rule - Where it is agreed that the parties will

use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box.

Acceptance

The terms of the acceptance must exactly match the terms of the offer - If the terms differ this will amount to a counter offer and no contract will exist.

The agreement must be certain - When viewed objectively it must be possible to determine exactly what the parties have agreed to.

Intention to be legally bound

Intention to be legally bound - is a technical term used in contract law, particularly English contract law, to denote a court's presumption that parties to an agreement wished it to be enforceable by a court.

Consideration

Consideration - is the concept of legal value in connection with contracts. It is anything of value promised to another when making a contract. It can take the form of money, physical objects, services, promised actions, abstinence from a future action, and much more.

Consideration

Consideration to create a legally enforceable contract entails a detriment to the promisee OR a benefit to the promisor. Under the notion of "pre-existing duties", if either the promisor or the promisee already had a legal obligation to render such payment, it cannot be seen as consideration in the legal sense.

Classification of Contracts

Contracts on the basis of creationContracts on the basis of executionContracts on the basis of enforceability

Contracts on the basis of creation

Express contract - Express contract is one which is made by words spoken or written.

Implied contract - An implied contract is one which is made otherwise than by works spoken or written. It is inferred from the conduct of a person or the circumstance of the particular case.

Quasi or constructive contract - It is a contract in which there is no intention either side to make a contract, but the law imposes contract.

Contracts on the basis of execution

Executed contract - It is a contract where both the parties to the contract have fulfilled their respective obligations under the contract.

Executory contract - It is a contract where both the parties to the contract have still to perform their respective obligations.

Partly executed and partly executory contract - It is a contract where one of the parties to the contract has fulfilled his obligation and the other party has still to perform his obligation.

Contracts on the basis

Valid contract - A contract which satisfies all the conditions prescribed by law is a valid contract.

Void contract - A void contract is a contract which is valid when entered into but which subsequently became void due to impossibility of performance, change of law or some other reason.

Void agreement - An agreement not enforceable by law is said to be void. Such agreements are void- ab- initio which means that they are unenforceable right from the time they are made.


Voidable contract - A voidable contract is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is set aside by the aggrieved party, it remains a valid contract.

Illegal agreement - n illegal agreement is one the object of which is unlawful. Such an agreement cannot be enforced bylaw. Thus, illegal agreements are always void – ab- initio (i.e. void from the very beginning)


Unenforceable contract - It is contract which is actually valid but cannot be enforced because of some technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical defect involved is removed.

Setting aside a contract

There can be four different ways in which contracts can be set aside. A contract may be deemed 'void', 'voidable', 'unenforceable‘ or 'ineffective'.


Voidness implies that a contract never came into existence. Voidability implies that one or both parties may declare a contract ineffective at their wish. Unenforceability implies that neither party may have recourse to a court for a remedy. Ineffectiveness implies that the contract terminates by order of a court where a public body has failed to satisfy public procurement law.


MisrepresentationMistakeDuress and undue influenceIncapacityIllegal contracts


Misrepresentation - Misrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract.

Mistake - is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. Common law has identified three different types of mistake in contract: common mistake, mutual mistake, and unilateral mistake.

Mistake

Common mistake - occurs when both parties hold the same mistaken belief of the facts.

Mutual mistake - occurs when both parties of a contract are mistaken as to the terms. Each believes they are contracting to something different.

Unilateral mistake - occurs when only one party to a contract is mistaken as to the terms or subject-matter.


Duress and undue influence - is an equitable doctrine that involves one person taking advantage of a position of power over another person through a special relationship such as between parent and child or solicitor and client.

Incapacity - Sometimes the capacity of either natural or artificial persons to either enforce contracts, or have contracts enforced against them is restricted.


Illegal contracts – An illegal agreement, under common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end.

Remedies for breach contract

Breach of contract - is failure to perform as stated in the contract. There are many ways to remedy a breached contract assuming it has not been waived. Typically, the remedy for breach of contract is an award of money damages. When dealing with unique subject matter, specific performance may be ordered.

Types of Damages

Compensatory damagesLiquidated damagesNominal damagesPunitive or exemplary damages

Types Damages

Compensatory damages - which are given to the party which was detrimented by the breach of contract. With compensatory damages, there are two heads of loss, consequential damage and direct damage.

Liquidated damages - are an estimate of loss agreed to in the contract, so that the court avoids calculating compensatory damages and the parties have greater certainty. Liquidated damages clauses may be called "penalty clauses" in ordinary language, but the law distinguishes between liquidated damages (legitimate) and penalties (invalid).

Types of Damages

Nominal damages - consist of a small cash amount where the court concludes that the defendant is in breach but the plaintiff has suffered no quantifiable pecuniary loss, and may be sought to obtain a legal record of who was at fault.

Punitive or exemplary damages - which are used to punish the party at fault. These are not usually given regarding contracts but possible in a fraudulent situation.

fin

Documents

Contracts