CONTRACT

1. CONTRACT Unit 30

2. Match the terms with their definitions: legalcapacity, offer, consideration, acceptance, compensation, intention to belegallybound • _________________________ = power provided under law to a natural person to enter into binding contracts • _________________________ = a proposal to enter into an agreement, usually accompanied by an expected acceptance _________________________ = statement given by the person receiving the offer by which he or she accepts the offer subject to contract (a precondition for a contract to be legally binding) • _________________________ = something of value which must be given for a contract to be enforceable

3. Match the terms with their definitions: legalcapacity, offer, consideration, acceptance, compensation, intention to belegallybound • _________________________ = an expression of willingness to contract on specified terms, made with the intention that it is to be binding once accepted by the person to whom it is addressed • _________________________ = a proposal to enter into an agreement, usually accompanied by an expected acceptance • _________________________ = pecuniary remedy awarded to an individual who has sustained an injury in order to replace the loss caused by the injury

4. Preview • Definition • Requirements for a validcontract • Contractformation • Contentsof a contract (terms) • Endingthecontract • Voidablecontracts: vitiatingfactors • Remedies for a breachofcontract

5. Definition • A legally binding agreement between two or more persons which the courts will enforce • Generates rights and obligations that may be enforced by courts • Agreement arises as a result of offer and acceptance

6. Requirements for a valid contract • 1) parties must have legal capacity to enter contracts • 2) one party must make a binding offer to the other, and the offer must be accepted by the other party • 3) consideration

7. Requirements for a valid contract • 4) Agreement must be genuine • 5) in some cases, the contract must be made in a particular form • 6) the object of the contract must not be disapproved by the law

8. Contractformation • Offer • Acceptance • Consideration

9. Offer • An indication of willingness to do or refrain from doing sth that is capable of being converted into a legally binding contract • It is made by an offeror to an offeree and is capable of acceptance only by an offeree who knows of its existence

10. Offer • An offer is terminated when it has been revoked, or lapsed, or met with a counter-offer

11. Acceptance Agreement to thetermsofanofferthat, providedotherrequirements are fulfilled, convertstheofferinto a legallybindingcontract

12. Acceptance • If the method by which acceptance is to be signified is indicated by the offeror, that method alone will be effective • If it is not, acceptance may be either express (by word of mouth or in writing) or inferred by the offeree’s conduct, e.g. if he receives goods and makes use of them • Must involve some action on the part of the offeree

13. Validity of acceptance • 1) it must take place while the offer is still in force; • 2) it must be on the same terms as the offer • 3) it must be unconditional • 4) it must be communicated to the offeror

14. Consideration • An exchange of promises to perform acts in the future • An act, forbearance, or promise by one party that constitutes the price

15. Consideration • Anything of value (e.g. an item or service), which each party to a contract must agree to exchange if the contract is to be valid. • If only one party offers consideration, the agreement is not legally a binding contract. • In order for parties to be able to enforce a promise, they must have given something for it (quid pro quo): something must be given or promised in exchange or return for the promise. • A contract must be "met with" or "supported by" consideration to be enforceable; only a person who has provided consideration can enforce a contract. • Mutual promises constitute consideration for each other. ("I promise you that I will do X, in consideration for which you promise me that you will do Y").

16. Consideration: principles • 1) a valuable consideration is required, i.e. the act, forbearance, or promise must have some economic value • 2) consideration need not be adequate but it must be sufficient (it need not constitute a realistic price as long as it has some economic value)

17. Consideration: principles • 3) consideration must move from the promisee • 4) consideration must not be past

18. Counter-offer • Acceptance: Only when all the terms of the offer are agreed to • If you propose a change to the terms of an original offer, you are making a new offer – this is called a counter-offer • Counter-offer – a rejection of the original offer; there can be no contract until the counter-offer is accepted

19. Specialcases: unilateralcontracts • When the offer consists of a promise to confer a benefit on whoever may perform a specified act, the offeror waives the requirement of communication

20. Unilateralcontact • A contract type where one party is legally obligated to uphold the terms of the contract. • For example, if an individual places an advertisement in the local newspaper to provide an award in the event a missing item is returned, that individual is obligated to pay the award if the item is indeed returned.

21. Example • If the offeror offers a reward for information, a person able to supply the information is not expected to accept the offer formally • The act of giving the information constitutes the acceptance, the communication of the acceptance, and the performance of the contract

22. Intention to create legal relations • If it can be shown that it was not the intenion of the parties to create a legally binding relationship, there is no contract • Presumption: if the agreement is with family or friends, the agreement was not intended to be binding; commercial agreements – the other way round

23. Legal capacity • The age of majority + mental capacity

24. Terms • Conditions or duties which have to be carried out as part of a contract, arrangemens which have to be made before a contract is valid

25. Contentsofthecontract: terms • Express terms • Implied terms

26. Express terms • Terms that the parties have specifically agreed to, being terms the parties either said or wrote

27. Implied terms • Example: you buy a boat. The first day you go sailing the boat sinks. You complain to the seller, he says the contract did not promise that the boat would float • One of the terms implied into a contract of sale –that goods are of satisfactory quality and are fit for their purpose

28. Terms of a contract • Term: a promise that is part of the contract • Terms of a contract: • 1) conditions • 2) warranties

29. Condition • A fundamental term • If a party does not carry it out, you not only have the right to claim damages, but also to treat the contract as terminated

30. Warranty • A term of contract of lesser importance • Does not deal with the main purpose of the contract • If you have not carried out your obligations under a warranty, the other party has the right to sue you for damages, but not to terminate the contract

31. Ending the contract • 1) a contract can be set aside (cancelled) if it later appears there was sth wrong (misrepresentation, duress, mistake, undue influence) • 2) a contract can be discharged where the contract is valid, but comes to an end because it has been carried out (performance),the parties agree to end it (agreement) , or there is a serious breach of contract (breach)

32. Termination of a contract • Performance • Express agreement • Breach • Frustration

33. Discharge by performance • Only after you have carried out everything you promised to do in the contract, exactly in the way you agreed to do it, your contractual obligations will be discharged

34. Discharge by agreement • Parties may agree that the contract should end automaticaly if some event occurs or after a fixed period of time

35. Discharge by breach • A party has made it clear that he will not carry out the contract, or • The party has not performed his obligations properly

36. Consequencesof a breachofcontract • Some breaches give you the right to sue for damages, but not the right to terminate the contract • Has there been fundamental breach or not? • Condition or warranty?

37. Example • In the contract it states that you must deliver 10,000 tonnes of tomatoes on 23 May. You deliver tomatoes two days later, on 25 May. • If the date of delivery was a condition, the other party has the right not only to claim damages, but also to end the contract,i.e. he can refuse to take delivery.

38. Example • If the delivery date is a warranty, he does not have the right to refuse the tomatoes, only to sue you for any loss he might have suffered because you delivered two days late

39. Remedies for breachofcontract • The injured party may demand the following: • 1. to have what they gave returned to them (‘restitution’) • 2. compensation for their loss (‘damages’) • 3. the other party to be forced to perform the contract (‘specific performance’)

40. Remedies for breachofcontract • In the common-law tradition, damages is the usual remedy that a court awards for a broken contract • Restitution and specific performance – available only in certain circumstances

41. Discharge by frustration • Example: you hire a room in a pub for your band to put on a show. Before the date for the show, the pub gets burned down. The fire is not your fault, nor the fault of the owner of the pub. The fire has made it impossible to carry out the contract: discharge by frustration

42. Force majeure • It is usual for commercial contracts to include a force majeure clause: a list of events considered to be outside the control of the parties, e.g. labour disputes, war, riot, accident, fire, flood, etc.

43. ValidityofContracts • Valid • Void • voidable

44. ValidityofContracts • Void contract – one that was never legally valid • Voidable c. – can have legal effect but could be made void if you want to rescind it (=annul) • Valid c. – legally enforceable

45. Reasons to have a contract set aside: vitiating factors • Misrepresentaion • Duress and undue influence • Mistake

46. Misrepresentation • A representation – a statement that was made to encourage you to enter into a contract, but it does not itself become part of the contract • Misrepresentation (false representation) – you cannot bring an action for breach of contract, but you can bring special acton for a misrepresentation if you would not have otherwise entered into the contract

47. Remedies for misrepresentation • Misrepresentation makes the contract voidable • Recission: if you rescind the contract, the parties are put back in the position they were in before the contract was entered into. It is as if the contract never existed • Damages: you can sue for financial compensation if you have suffered any losses

48. Duress and undue influence • Duress: either actual violence or the threat of violence was used to make the other party enter into the contract (“sign this contract or I’ll shoot you!”) • Undue influence: improper pressure other than violence (e.g. blackmail)

49. Mistake • If absolutely fundamental, as it gets to the very heart of the transaction, the contract will be considered void from the outset

50. Questions • 1. For the formation of a contract, consideration is one of the three requirements to make an agreement into a contract. What are the other two requirements? • 2. What is the difference between an express tem and an implied term?