To establish the existence of a contract the essential elements are: Offer and Acceptance, Intention to create legal relations and consideration. Whether all the necessary elements are present may depend on how the contract is "classified," in terms of the intention of the offeror at the time the offer is extended.
Offer and Acceptance
An Offer is to present something for acceptance or rejection:
(Encarta ® World English Dictionary © & (P) 1998-2005) in order for an offer to be the basis for a contract it must be made in a way that expresses a willingness to enter into a bargain. An expression of intent or an invitation to treat does not provide the basis for a contract. An offer is a proposal by a person, referred to as the offeror that a contract is entered into. An offer can be revoked at any time prior to acceptance. An offer must be distinguished from an invitation to treat, supply of information.
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Case - Harvey V Facey (1893) Harvey telegraphed the defendant ‘will you sell us Bumper hall pen - the lowest price? Facey replied ‘lowest price for Bumper Pen £900. Harvey regarded this reply as an offer but the telegraph was just a statement. No contract has being made because there was no offer in the first place.
An Acceptance must be unconditional and unequivocal. It must be communicated to the party making the offer by the party accepting the offer. Only the intended offered has the ability to accept the offer. The method of acceptance may be chosen by the party making the offer e.g. letter. If the supposed acceptance is conditional it is viewed as a counter offer. If the purported acceptance is unclear, it is not a valid acceptance. offer continues to exist until the time stated for expiration, or if no time limit is stated, within a reasonable time. A contract is formed by acceptance of an offer and the people involved must have legal capacity to act.
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Neale V Merrett (1930) Neale offered to sell land for £280 to Merrett. Merret accepted the offer by paying £80 and Undertaking to pay £200 at £50 instalment ally. The offer is to pay the entire 280 at once hence there has being no acceptance.
Intention to create legal relations
For a contract to be enforceable, its intention has to be legally bound. The court applies two presumptions to a case: Social contract and commercial contract.
Social contract - the court make assumption that domestic arrangement rarely intend to be legally bound for example Case -
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Mackey v Jones (1959) a niece was promise by his uncle if he assist him on the farm, the farm will be willed to him, the uncle died and the farm was willed to another relative and at the time of the offer the boy was 14 years. The nephew recovered 2 yrs wages but not the land because it was a mere statement of intention.
Commercial Contract relates to business dealings where parties in business engage on an agreement, it is presumed they intend to be legally bound.
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Case - Mr v Continental air flight (2005) A man won a lawsuit against Continental Airlines Inc over the airline's refusal to allow him and his daughter to board d flight, flight was overbooked and they were 'bumped off'. Their luggage had already been loaded on the aircraft however, and they were not allowed to retrieve it. The man was awarded USD3,110 in compensation; including money for his non-refundable, pre-paid, USD2,000 cost of the tickets was refunded.
Consideration
A promise must be supported by consideration in order to be enforceable as a contract. Consideration is the benefit given for the promise or performance of the other party. In a "bilateral contract", each party's promise is the consideration for the promise of the other. The most common consideration in ordinary commercial transactions is, the payment of money for the sale of goods or services. “Consideration must be sufficient but need not to be accurate…it must have value in the eye of the law , but need not be adequate ( IPA (2002) Law, chap 4, p.39)”
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Case - The high court ruled in Aga v Firestone (1992), ruled that the case was “voluntary and unenforceable promise not supported by consideration“. A signed document was given to a party to right of first refusal with regard to a stud farm.
In conclusion the basic elements leading to the formation of a contract are usually the making of an Offer, Acceptance of the Offer, Intention to create legal relations and Consideration. The process of offer and acceptance results in a "mutuality of obligation" or "bargained for exchange" which is at the heart of a valid contract. Intention to be contractually bound is another key element of an enforceable contract, social contracts rarely intend to be legally bound but commercial contract are in most case legally bounding. Consideration is the last element as it involves a party promising to give another in return for latter promise. While the basic principles of contracts apply in the majority of circumstances, there are many distinctions and exceptions. Variations may occur due to the subject matter of the contract, the types of parties or the particular industry involved.
References
- AIRLINE INDUSTRY INFORMATION-(C)1997-2005 M2 COMMUNICATIONS LTD (Airline Industry Information, Nov 17, 2005)
- Bpp publicising limited (1990) Business Law. Chapter 4 pages 59 ( Harvey v Facey), page63 (Neale v Merrett 1930)
- Brian Doolan, principles of Irish Law, (fifth Edition) Gill and Macmillan. Chapter 8 page90 (Aga Khan V Firestone 1992)
- Institute of public administration (2002) Business and company law text, stage 2, undergraduate program, chapter 4, p.39.
- I.S. Design, Inc. v. Gasho of Japan, Int'l, Ltd., N.Y., New York County Sup. Ct., No. 123120/95, Feb. “Failure to pay Design Firm: breach of oral Contract”
- Encarta ® World English Dictionary © & (P) 1998-2005 Microsoft Corporation. All rights reserved.
