lecture 3 - law of contract

7/28/2019 Lecture 3 - Law of Contract

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LECTURE 3:

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(a) The nature of contract

A contract is anagreementagreementbetween 22

or more partieor more partie whichis

enforceableenforceableatat lawlaw

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(b) The essentials of a valid contract

Agreement

Consideration (exchange of value)

Intention to create legal relations

Legal Capacity

Legality of Objects

Form

Content

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Essential Elements (i)Essential ingredients of a contract:Essential ingredients of a contract:

Agreement is formed when one party accepts the offer of another

agreement must have been entered into freely and involve a meeting ofminds

va ty o contract may e a ecte a person as een m s e nto acontract

Consideration the parties must show that their agreement is part of a bargain

each side must promise to give or do something for the other side

Intention to create legal relations the parties must have intention to have legal consequences

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Essential Elements (ii) Legal Capacity

The parties must be legally capable of entering into a contract

Legality of Object The purpose of the agreement must not be illegal or contrary to public

olic

Form

contract may be in any form (written or oral)

In some cases, certain formalities must be observed

Content

A contract must be complete and precise in its terms.

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(c) Life of a contract

It remains in existence until dischargeddischarged,usually by performanceperformance, where both

obligations.

Most common problem is the breach ofbreach ofcontractcontract, whereby one party fails tocarry out their side of the contract

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(d) Contract Types(1) UNILATERAL VS. BILATERAL

InIn a unilateral contract only one partya unilateral contract only one partypromises somethingpromises something..For instance, if a car dealer tells a customer, "I will give you that car if you

give me $15,000," (no promise yet from customer), he has made an

offer for a unilateral contractthe contract will only be created if thecustomer accepts the offer by paying the $15,000.

If the dealer says "I will promise to give you the car if youpromisepromiseto pay

me $15,000," a bilateral contract has beena bilateral contract has beenproposed because both parties mustproposed because both parties mustmake a promise.make a promise.

http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html7


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Contract Types (Contd)(2) EXPRESS VS. IMPLIED

Contracts may also be classified as "express" or "implied."

Express contractsare those in which both parties have explicitly statedthe terms of their bargain, either orally or in writing, at the timethat the contract was created.

In contrast, implied (indirect) contracts result from surroundingfacts and circumstances that suggest an agreement. Forinstance, when a person takes a car to a repair shop he expects theshop to exercise reasonable care and good faith in fixing the car and

charging for repairs. Likewise, the shop expects the customer to pay forits services. Although no formal agreement is created, an impliedcontract exists.

http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html

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Contract Types (Contd)(3) QUASI-CONTRACTS

Quasi-contractsare obligations imposed by law to avoid injustice.For instance, suppose that a man hires a woman to paint hishouse. By accident, she paints the wrong house. The owner ofthe house knows that she is aintin it b mistake but ha to

have a free paint job, says nothing. The painter would likely beable to collect something from the homeowner because heknowingly was "unjustly enriched" at her expense. Had shepainted his house while he was on vacation, he would be underno obligation to her.

http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html

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Contract Types (Contd)(4) PROMISSORY ESTOPPEL

A separate type of contract, and one that overtly exemplifies the trend

away from strict interpretation and toward fairnesstoward fairness, is created bypromissory estoppel. Under the theory ofpromissory estoppel,aparty can rely on a promise made by another party despite thenonexistence of a formal, or even implied, contract. Promissory estoppel

because of a lack of consideration (or some other contractual element)would result in injustice.

Suppose that a business owner promised an employee that he would

eventually give him the business if he worked there until he (the owner)retired. Then, after 20 years of faithful service by the employee, theowner decides to give the business to his son-in-law. The owner couldbe "estopped" from claiming in court that a true contract did not exist,because the worker relied on the owner's promise.

http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html 10


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Contract Types (Contd)(5) Simple Contract

One, the evidence of which is merely oraloral, or in writing, not under seal,writing, not under seal,

nor of record.nor of record.

As contracts of this nature are frequently entered into without thought orproper deliberation, the law requires that there be some good cause,consideration or motive, before they can be enforced in the courts. Theparty making the promise must have obtained some advantage, or theparty to whom it is made must have sustained some injury orinconvenience in consequence of such promise; this rule has beenestablished for the purpose of protecting weak and thoughtless persons

from the consequences of rash, improvident, and inconsiderateengagements. But it must be recollected this rule does not apply topromissory notes, bills of exchange or commercial papers.

http://www.lectlaw.com/def2/s157.htm

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Contract Types (Contd)

(6) Specialty - Contracts "under seal"

In centuries past, persons contracting would drip a drop of hot wax on thebottom of the contract and press a family ring into thewax, thereby signifying consent to the terms of thedocument.

Nowadays, deeds are used mostly - if not an outrightstatutory requirement - in contracts that involve realestate.

In legal theory, if a contract is a "deed", then no consideration isno consideration isrequiredrequired. If charitable donations are made under seal, they are validcontracts even though there is no valid consideration.

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Contract Types (Contd)

(7) Standard Form.

The standard formcontract is a standard document

prepared by many large organizations and setting out

the terms on which they contract with their customers.The individual must usually take it or leave it: he does

not really agree to it. For example, a customer has to

accept his supply of electricity on the electricity

boards terms; individuals cannot negotiate discounts.

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Contract Types (Contd) VALIDITY STATUS

Contracts may also be categorized as valid, unenforceable, voidable, and void.

Valid contractsValid contractsare simply those that meet all legal requirements.

Unenforceable contractsUnenforceable contractsare those that meet the basic requirements but fail to. ,

contracts related to lending money, failure to comply could make the contractunenforceable.

Voidable contractsVoidable contractsoccur when one or both parties have a legal right to canceltheir obligation(s). A contract entered into under duress, for example, would be

voidable at the request of the injured party.

Void contractsVoid contractsare those that fail to meet basic criteria, and are therefore notcontracts at all. An illegal contract, for example, is void.

http://www.referenceforbusiness.com/encyclopedia/Con-Cos/Contracts.html14

lecture 3 - law of contract

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