The second part of an agreement is the acceptance of an offer by an offeree. “Acceptance is the unqualified agreement to the terms of the offer” (49). An agreement to an offer is considered valid if it was made by express words or by action, or inferred from conduct of the parties. For example, if the conduct of the parties, such as two parties doing business between each other, indicates that they both agreed to or worked based on certain terms that are only a draft, then that draft creates a binding contract. To make it clear between offeror and offeree, the law has stated that an acceptance that introduces new terms is a counter-offer and not an acceptance of the original offer, since it is not an “unqualified” acceptance. If the original offeror accepts the counter offer, it creates a binding contract, and if he or she rejects this counter offer then the original offer is “no longer available for acceptance” (50). Furthermore, acceptance of the offer could only be made by a person authorized to do so (53).
The law requires that the acceptance is communicated to the offeror and is not effective until it is. Waiver of the need for communication of acceptance could be dispensed with by the offeror, in cases such as unilateral offers to the general public to perform a certain action (Carlill v Carbolic Smoke Ball Co 1893). The offeror could ask for acceptance to be communicated in specific ways, but should stipulate that those are the only means by which the acceptance is valid, otherwise any means would “constitute a valid acceptance” (51).
Consideration is an element of a valid contract because the parties prove by giving sufficient consideration that they are committed and have bought the promise of the other party (57). Consideration is the exchange of something of value (contract law). Consideration gives both sides obligations and rights from the other (62). Only a person who pays the price of a contract, which is consideration, can sue on it (67). Consideration could be made by giving something advantageous to the other party or incurring “a detriment or inconvenience” on oneself.The main rules governing consideration are the following: consideration must move from the promise; it must refer to the promise and is not something that would have been done anyway, Performance of a public law duty is not consideration for a promise. Secondly, consideration must be current and could not be from the past: past consideration, which is an act that is done before a promise is made in return for it, is not sufficient to make the act binding, since it was one not made specifically for the contract (consideration, Wikipedia). Thirdly, consideration must be sufficient to make a binding contract but does not have to be adequate. This means it does not need to be equal in value to the consideration received in return, but it must be more than what is already expected or obliged of the parties to make. However, consideration of one party which is “exceedingly unequal” to that of the other party could be held to be insufficient and so the contract is invalid. In this case contracts could also be held to be invalid due to unequal bargaining power or fraud (Contract, Wikipedia).
When consideration is made for third parties, the law states that “the party to the contract who imposes the condition or obtains a promise of a benefit for a third party can usually enforce it” but cannot sue on the third parties’ behalf unless “the contracting party is suing an agent or trustee” (68). Furthermore, the claimant can seek damages on a third parties’ behalf if a contract is broken (69). The Contracts (Right to Third Parties) Act 1999 gives third parties statutory rights in certain circumstances: where the contract expressly provides a term for a third party and where that term is beneficial to the third party, unless the contracting party do not intent him to have the right to enforce it (70). Consideration could be executed consideration, which is an act that has been performed in return for a promise, or executory, when a promise is given in return for a promise.
Furthermore, law states that a consideration should be clearly made only for the existing contractual duties. So an extra consideration by one party made to the other to do an extra job is not a consideration. Performance of an existing obligation under the contract is not consideration for that promise or for a new contract (72). However, performing more than the contractual duty’s obligations may amount to consideration, and some promises to pay for certain work beyond the contract that are not extracted under duress or fraud bit which are “without apparent consideration” could be binding (Williams v Roffey Bros and Nicholls (Contractors) Ltd 1990). A promise of a reward to perform a contractual duty to a third party is regarded as consideration for the promise (63).
The third element of a valid contract is the intention of the parties to create legally binding relations. Courts presume that commercial contracts are intended to be legally binding, while social and domestic agreements are not intended to be legal “on the basis of public policy” and do not have evidence to prove that they were made with the intention of being legally binding (wikipedia). Any statement in the contract that expresses the intention not to make legal relations binding is conclusive (75). Only statements that have the status of a term, expressed or implied by the parties or by statute, are legally binding. Terms that are conditions are the root of the contract, and their breach means the contract is repudiated and the other party could discharge it. Breach of a warranty “which is not so imperative” will keep the contract but will give rise to damages (wikipedia). Stature could decide whether a certain term is a condition or warranty, and whether certain terms are implied by facts or by law, such as terms that have become implied in “standardized relationships”.
Law ensures that certain people entering into contracts that bind them have certain capacities to do so, in order to protect them or protect companies. The law sees some groups as unable to enter into binding contractual agreements because if they are not in a position to fully understand the agreement they are entering. The Minors’ Contracts Act 1987 determines the legal capacity of minors, and the capacity of a company to contract is restricted by its activities in its ‘memorandum of association’. Any company which exceeds its capacity is said to be ultra vires (beyond its legal power or authority). This is set by law to protect the shareholders and creditors of a company by preventing directors from letting the company enter contracts that are against the interest of the shareholders and creditors (76).
References:
- Common Law 1, BPP
- Contract, Wikipedia
- Consideration, Wikipedia