Contract Law: Formation and Acceptance

• A contract is a legally binding agreement
• Governed by contract law, it is enforceable in a court of law.
• Contract law deals with the rights and obligations established by agreements, addressing issues like formation, validity, and breach

Formation of Contracts

• Formation requires several key elements: offer, acceptance, consideration, intention to create legal relations, and certainty of terms
• The 'offer' must be a clear, definite promise to be bound, made with the intention that it becomes binding upon acceptance
• It can be made to a specific person, or to the world at large
• An 'invitation to treat' is merely an invitation to make an offer and is not an offer itself

Acceptance

• Acceptance must be unconditional and communicated to the offeror
• It must exactly mirror the offer's terms (the "mirror image rule")
• Any variation constitutes a counter-offer, which voids the original offer
• Acceptance can be communicated explicitly (e.g. verbally or in writing) or implied through conduct
• The postal rule: acceptance is effective when the acceptance letter is properly posted, not when it is received
• The postal rule does not apply to instantaneous forms of communication like email or telephone

Consideration

• Consideration is something of value (can be a promise) bargained for in exchange for a promise
• It can be a benefit to the promisor or a detriment to the promisee
• It must be sufficient but need not be adequate
• Sufficiency means the law recognizes it as having some value
• Adequacy relates to its market value, which courts generally do not examine
• Past consideration is generally not good consideration

Intention to Create Legal Relations

• Parties must intend their agreement to be legally binding
• In commercial agreements, there is a strong presumption that the parties intend to create legal relations
• In social or domestic agreements, the opposite is presumed, although it can be rebutted with sufficient evidence
• Letters of comfort are common in commercial settings
• They provide reassurance about a party's ability to fulfill its obligations, but without a legal guarantee
• Whether a letter of comfort is binding depends on its wording and the intention of the parties

Terms of a Contract

• These are the promises and obligations that each party agrees to
• They can be express (explicitly stated) or implied (not expressly stated but assumed)
• Express terms are those specifically agreed upon by the parties, either orally or in writing
• Implied terms can arise from custom, statute, or the intentions of the parties
• Terms can be classified as conditions, warranties, or intermediate terms
• Conditions are essential to the contract and their breach allows the injured party to terminate the contract and claim damages
• Warranties are less important terms, and their breach only allows the injured party to claim damages
• Intermediate terms can be treated as either conditions or warranties depending on the severity of the breach

Void and Voidable Contracts

• A void contract is one that is not legally binding from the outset
• A voidable contract is one that is initially valid but can be canceled by one or more parties under certain circumstances
• Mistake, misrepresentation, duress, and undue influence can affect the validity of a contract

Mistake

• A mistake is an incorrect understanding by one or more parties
• Common mistake: both parties make the same mistake about a fundamental fact
• Mutual mistake: both parties are mistaken, but about different things
• Unilateral mistake: one party is mistaken, and the other party knows or ought to know about the mistake
• A common mistake renders a contract void if it concerns the existence or fundamental quality of the subject matter
• A unilateral mistake may make a contract void if it relates to the identity of the other contracting party and identity is important

Misrepresentation

• It is a false statement of fact made by one party to another that induces that party to enter into the contract
• It can be fraudulent (deliberate), negligent (careless), or innocent
• Fraudulent misrepresentation allows the injured party to rescind the contract and claim damages
• Negligent misrepresentation also allows recession and damages
• Innocent misrepresentation may only allow recession

Duress

• Occurs when one party is forced into a contract against their will, through threats or coercion
• Physical duress makes a contract voidable
• Economic duress can also make a contract voidable if illegitimate pressure is applied

Undue influence

• It involves one party taking advantage of a position of power over another
• Actual undue influence requires proof that the stronger party actually exerted influence
• Presumed undue influence arises in certain relationships (e.g. solicitor-client) where one party is presumed to have influence over the other

Illegality

• An illegal contract is one that is prohibited by statute or common law
• It is generally void
• Contracts to commit a crime or contracts that restrain trade may be illegal

Capacity to Contract

• Certain individuals or entities may have limited capacity to enter into contracts
• Minors (those under the age of majority)
• Corporations (acting beyond their powers)
• Individuals with mental disabilities

Breach of Contract

• It occurs when one party fails to perform their obligations as specified in the contract
• It can be actual (the breach has already occurred) or anticipatory (one party indicates they will not perform)
• Remedies for breach of contract include damages, specific performance, and recession

Damages

• Monetary compensation awarded to the injured party to compensate for their losses
• The aim is to put the injured party in the position they would have been in had the contract been performed
• Damages must be reasonably foreseeable and caused by the breach
• Remoteness of damage limits the extent of recoverable damages to those that naturally arise from the breach

Specific Performance

• A court order requiring the breaching party to perform their contractual obligations
• It is only granted when damages are inadequate
• Typically used in contracts for the sale of land or unique goods

Recession

• The cancellation of a contract, restoring the parties to their pre-contractual positions
• It is available in cases of mistake, misrepresentation, duress, or undue influence
• Equitable remedy and is discretionary

Frustration

• Occurs when an unforeseen event makes performance of the contract impossible or radically different from what was intended
• The event must not be the fault of either party
• Examples include destruction of the subject matter, government intervention, or personal incapacity
• Frustration discharges the contract, releasing the parties from future obligations