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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
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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 4. Intention to contract 5. Capacity to contract 6. Legality of form 7. 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 treat Example: • 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 termination A 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 Contract The 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.
