Law of Contract: Formation and Key Elements

Law of Contract Lecture 2 Overview

• The lecture aims to enable students to identify and understand key aspects of contract law.
• Key topics include why business executives should study contract law, the concept of a contract, basic doctrines/principles, and essential elements for valid contract formation (offer/acceptance, consideration, intention to create legal relations, capacity to contract).

Importance of Studying Contract Law

• Contract enforcement serves as the basis for modern business/commercial law, according to Professor Samuel Kofi Date-Bah.
• The Law of Contract forms the substrata (essential foundation) of business/commercial law.

Defining a Contract

• A contract has been defined as a binding agreement between parties.
• It can also mean an agreement where parties intend to be legally bound.
• A legally binding agreement where persons undertake specific obligations or have specific rights.
• It can be understood as an agreement creating obligations which the law enforces or recognizes.
• Sir Frederick Pollock defined it as an agreement, consists of the exchange of promises, recognized by law giving rise to enforceable rights and obligations.
• A contract requires an offer and acceptance with mutual intention of being binding and enforceable.
• It is a voluntary, deliberate, and legally binding agreement between two or more competent parties.

Summarizing the Law of Contract

• The Law of Contract is grounded on the existence of an agreement.
• No contract exists if parties do not mutually agree on the subject matter and terms.
• It concerns promises between persons to carry out obligations enforceable in court.
• Examples of contracts include employment contracts and SPAs (selling/buying of goods and international commercial/trading activities).
• Basic principles/doctrines govern all forms/types of transactions, which helps in the formation of a contract.

How a Contract Functions as a Doctrine

• A contract facilitates the exchange of goods and services in a business or commercial scenario.
• They are used when people make promises or enter into agreements, generally facilitating exchange of goods/services.
• Contracts provide the legal devices, procedures, rules, and principles for creating legal rights/obligations that enable exchange.

Contractual Rights vs Obligations

• A "right" is an entitlement, belonging to someone who claims it.
• An "obligation" is a duty to act or not act in a specified manner.
• Each contract creates rights and obligations via binding agreements or promises.
• Contractual rights/obligations are based on agreements/promises undertaken voluntarily by parties.

Binding Promises

• Contracts bind parties to honor or comply with the contract terms/agreement.
• Binding contracts require an intention to adhere to mutually exchanged promises contained within them.
• Legitimate expectations arise from parties' mutual intention to be bound by exchanged promises.
• Breaching a term may cause disappointment/economic losses, entitling the other party to a cause of action.
• A cause of action is a situation that entitles a party to a remedy in court against the other.
• Not all promises are intended to create binding legal ties, like promises made in jest. There must be an intention to adhere to the said promise.
• It is when parties display a clear intention/desire to adhere to mutually exchanged promises that a contract is binding.

Contract Parties

• Contracts involve those (natural, legal) desiring to conduct business.
• Those entering a contract are called “Parties”.
• The parties’ identities must be certain, and their contract capacities must not be in question.

Subject Matter

• Every contract has a subject matter, which is what the parties agree to do or not do.
• It must be lawful and aligned with public policy/morality.

Doctrine of Freedom

• Parties are the best judges of their interest, and the courts would respect pre-agreed terms.
• Courts enforce genuine contracts with capable parties, freely entered.
• Courts don't interfere with agreements entered voluntarily.

Doctrine of Sanctity

• Parties can determine contract terms, and obligations must be honored as "sacred."
• Courts compel parties to keep promises unless terms are onerous, unjust, unfair, or illegal.

Doctrine of Privity

• Contracts generally only provide benefits/rights to the parties involved.
• Exceptions to this principle will be addressed in subsequent lectures.

Essential elements

• For a contract to be binding, there has to be an offer, and consequent acceptance of that offer
• The contract also needs and intention to create legal relations upon parties
• There must be some form of consideration involved in the deal
• All parties involved have to have the capacity and legality of the said parties

"Offer" Defined

• An offer is an expression of willingness to contract on certain terms, intending it to be binding upon acceptance by the other party (NTHC v Antwi SCGLR 117).
• An offer is a proposal where the Offeror/Promisor expresses intentions to enter a contract/agreement with the Offeree/Promisee if the offer gets accepted.

Forms of Offer

• An offer can be done via several formats, be it in writing, via conduct, or even verbally
• Verbal offers are known as offers by words, but the exception is in the sale of land
• In a written format, once the opposing party accepts the offer, there is a binding contract
• An offer can be implied by behavior that shows intention to contract.

Required terms and conditions

• An offer has to have terms and conditions listed, based upon which the Offeror proposes and the Offeree is willing to work.

Clarifying the term

• Offer terms must be clear, precise, and definite to promote understanding to lower the chances of future disputes, crucial for its enforcement in contract.
• Contract is unenforceable if parties are not ad idem (minds don't meet, no common understanding of terms) due to a lack of clarity.
• Raffles v WWichelhaus 159 E.R. 375: no contract existed since the contract was ambiguous in stipulating which ship would deliver cotton.
• A.C. Falk v Williams (1900) also relates to the ambiguity causing issues of lack of contract

Communication imperative

• An Offer has to be communicated to allow proper consideration and potential rejection
• The communication can be via behaviour, writing and even verbally

Valid addressee

• The communication has to go directly to the correct person for whom it is intended.
• Taylor v Laird (1856): The Offer must be communicated so the intending Offeree can properly determine to reject or accept the offer.

Objective test theory

• An Offer needs to go to the correct person to allow said person to make a valid decision
• The test that has to be applied is objective, rather than subjective when determining intentions. The decision has to come for the words and actions of the person, rather than their personal state of mind
• An Offer is intended to be a transaction directly with the person it is addressed to. If someone else tries to involve themselves and complete the transaction without expressed direction

Group or class offers

• If an offer is directed towards a class or a group of people, valid and clear acceptance has to be determined,
• The intentions of the Offeror are paramount when the offer goes out to a group. Therefore if the intention is for a transaction with the individual member from the class, said individual may accept. However if it is the group, rather than the person, then it must be considered the group instead.

Public Offer

• With public offers there is an understanding that it follows as the performance of the act at hand, or if there is a set condition for it, then the conditions are completed
• It has to be with any member of the public, as there is indifference as to the person who ends up completing it, so long as the offeror intended for a member of the public, they will accept the contract.

What counts as an offer.

• A General Offer is an offer that is made for and to the public, or everyone at large
• If a person does follow through on an acceptance without knowledge of the offer, the acceptance cannot proceed, especially at the time of the acceptance.

Not a counter offer

• Counter Offers aren't valid
• An old 1873 Tinn v. Hoffman case determined from a ruling that counter offers kill previous offers.

Not an invitation to treat

• "invitation to treat” means an offer that invites the other party to offer a follow up of some sort, that is not binding
• Gibson v. Manchester City Council (1979) The use of the phrase “’we may be prepared to sell to you’” does not follow the requirements of finality.

What amounts to a treat

• A shop’s display of a flick knife was not to sell goods but was an invitation to do so, under the court of Fisher v. Bell
• Pharmaceutical Society of Great Britain v Boots Cash items that the customer took from the shelves did not constitute an offer.
• Grainger v. Son & Gough catalogues and brochures were deemed to be "invitations to treat"

Advertisements - general and the exceptions

• Advertisements are mainly to show to the public rather than an actual intention to sell Paridge v. Crittenden This 1968 decision involved a magazine advertisement of “Bramblefinch cocks and hens".

• Exceptions: Carlill v Carbolic Smoke Ball The advertisement indicated the intention for its advert which therefore bound them to action once the client bought the items as per instructions

Revoking an Offer

• Exceptions include rewards for lost property, such as Williams v. Cawardine (1833).
• Auctions, such as in Harris v. Nickerson, which stated that the auction and its advert were not to be taken as factual.
• There is right of the bidder, plus that of the auctioneer, for any items listed which has the ability of removing anything before acceptances

What has to happen for proper action

• There is a hammer, or something similar that provides valid action.
• No reserve price, where the item has to go to highest bidder, even from a starting point.
• The acceptance of a offer relies on several stipulations

Termination By Revocation

• An offeror has the ability to withdraw or revoke an invitation, without acceptances,
• There have to be communicated, and done by the person sending the invitation, by which verbal message or by conduct
• It cannot be in action once an acceptance takes action.

Means of Communications for post

• If sent via post it has to fully received, not just at time spent.
• A person has to have the chance to revoke before the other party accepts

Errington v. Errington

• a person cant revoke a person acting, under a unilateral promise as action has been spent upon the action
• The end for termination also includes the ability to revoke an action it the offer or the invite has been revokes through rejection or nullification, as per Tinn v. Hoffman (1873)

Terminates once actions takes place

• If someone asks for specific actions, and then turns it down it no longer applies as per Hyde v. Wrench (1840) . It can only be changed if it is resubmitted from the offeror
• After the correct time has passed in the offer

Valid for only a short time

• It may be too distant in its execution from the original time, which needs acceptances immediately, which provides no real time to act according to Manchester Diocesan Council for Education v. Commercial and General Investment Ltd. (1970)

Death invalidates

• Should parties die, either in their own intentions or in the invite there cannot be continued action to it under, as happened through Bradbury v. Morgan (1862) unless knowledge is gained in the same actions then only to be considered.

Acceptance

• If you intend to accept, there has to be intention and agreement with that acceptance
• An offer has to meet with what prescribed, and within authorized formats, in totality for the parties at action., as silence should never been understood as the same intentions.
• This action requires that there requires action during that offer, which the offeror can require specific means be done

Mirror

• This can only occur when the intention from each and all sides has been the same, that is as "mirror", without making changes or seeking to make changes

Can be rejected and made void under counter offers

• This has to absolute, and unless otherwise there is an understanding that is has to be for a qualified acceptance, the offeror should reject or allow for something new instead, according to Deegbe v. Nsiah [1984-86]

Needs action as defined

• Acceptance has to be in acceptance fully, and from the agent or offer that the offer receives, Carlill v. Carbolic Smoke Ball where the mind, bodies and intent have to work together
• For situations where a person has to make a signing, acceptance has to be notified

The signing must be shown as an action

• Question: a mere signing is enough for all actions

Conditions and Limitations

• For any situations, unless otherwise specified, the receiving party must have valid and clear and immediate intentions, Tinn v. Hoffman (1873), Manchester Diocesan Council for Education v. Commercial and General Investment Ltd
• A valid and real exchange means that all actions have to be in effect real immediately, with full support and real understanding

Requirements for Actions

• It has to involve the same stipulations, conditions, to the best of understanding

Knowledge of Actions

• This includes the party who is known about that particular agreement, unless knowledge can be shown about it. Therefore this might cause conflict, such as Clarke High Court of Australia

What amounts to actions

• In a case, if there is performance of a set action, the fact those set of actions might show agreement, there has to be the "postal rule",

Explore the essentials of contract law, including its importance in business and the definition of a contract. This lecture covers the basic doctrines, principles, and elements necessary for valid contract formation, such as offer, acceptance, consideration, and intention to create legal relations.