Contract Law Free Essays

BUSINESS LAW ASSIGNMENT ————————————————- â€Å"To create a binding agreement the acceptance must occur, and that ‘acceptance’ must be final and absolutely unconditional. This is clear under Australian contract law. † ————————————————- ————————————————- Discuss the accuracy of this statement. We will write a custom essay sample on Contract Law or any similar topic only for you Order Now In order to discuss the accuracy of this statement we must first understand the concept of ‘acceptance’. The easiest way is to first study the definition of the word. ‘The action of consenting to receive or undertake something offered† (Google Translate). To accept in the terms of the law is defined as â€Å"Law Compliance by one party with the terms and conditions of another’s offer so that a contract becomes legally binding between them. â€Å" (The American Heritage Dictionary of the English Language, Fourth Edition). Contract Law is the main area of the law that this statement is referring too. It is true that in order to have acceptance in a binding agreement both parties must be 100% clear in content of the contract and also what the circumstances are if the contract is broken in any way. However we must also state the agreement is not the sole factor in a Legally Enforceable. There must also be intention and consideration to allow the contract to become legally binding. In order to fully grasp this statement we must look at how contract law has developed from history to the present day and also to analyze the cases that have pushed these advancement or changes. To firstly be able to discuss the accuracy of the statement I believe it is vital to know how contract law came about and how acceptance plays a part in it. In order to do this we must have knowledge about the history of contract law and some of the first cases where acceptance existed. At the very beginning the first form of contract law would be seen as a verbal contract. As knowledge developed we can see that contract law can be traced back to the civil law system that was created in Western Europe and can date back as far as 439. BC. However contract law was first known as English Contract Law and was related to Lex Mercatiora which is a common law system used throughout Europe during the medieval period. English contract law was first activated during the industrial revolution which began around 1760. The role that agreement played in the first cases of English contract law was that agreement can only remain if both sides of the party see the terms on offer in unambiguous and unequivocal way. The court must also determine whether or not an offer has been put forward and if it has been accepted. In order to do this they ask if a reasonable person would consider the outcome is lawfulness and correct. There are many cases in early history of English contract law where we can see that acceptance plays a major part. These cases also help develop the contract law system and the understanding of acceptance. One of these case is the How to cite Contract Law, Papers Contract Law Free Essays Contract is an agreement between two or more competent parties in which an offer is made and accepted, and each party benefits. No contract can come into being unless the following features exist: an actual offer, an acceptance, consideration (this means that each party will contribute something of a material value to the bargain) and an intention to create legal relations. The agreement can be formal, informal, written, or just plain understood. We will write a custom essay sample on Contract Law or any similar topic only for you Order Now (a) For a contract to exist the offer must be made and then accepted. An offer may be defined as a statement of the terms put forward as the basis of the bargain which carries with it a promise, express or implied, to adhere to the terms. A legally binding offer will include clearly stated terms, intention to do business and the communication of that intention. The offer must be clearly stated, because it may be held to be too vague to compromise a valid offer. This happened in Guthing v Lynn in 1831 where the buyer of the horse promised to pay the seller an extra ? â€Å"if the horse is lucky for me†, this was held to be too vague to be enforceable. Apart from that a legally binding offer should be distinguished from an invitation to treat. Invitation to treat means an â€Å"invitation to offer† and can be described as an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed. A display of goods in a shop window, with or without a price tag is a merely an invitation to treat. Customers are making offers to sellers and sellers then decide if they want to accept. (Fisher v Bell, 1961)[1]. Anton is making an offer to Bernard and it was communicated successfully as Bernard replied back by post. The offeree, by acceptance, agrees to be bound by all the terms of the offer. Such acceptance must fulfill three main rules: first of all, it must be the ‘mirror image’ of an offer, and secondly it must be firm, because conditional acceptance is not binding. The last rule is that the acceptance should be communicated to the offeror. The offeree must be agreeing to all the terms of the offer and not trying to introduce new terms, otherwise this response will be held to be a counter-offer, not an acceptance. Counter-offer is an attempt to vary the terms of the existing offer to more favourable terms. Such reply is not considered to be an acceptance. Instead, the reply is treated as a â€Å"counter offer†, which the original offeror is free to accept or reject. In Hyde v Wrench[2] defendant offered to sell his farm for ? 1000, and firstly claimant said that he would pay only ? 50, but afterwards accepted to pay the original price. He heard nothing from the defendant later. It was held that there was no contract between parties and Wrench was free to sell the farms to somebody else. It is very important to distinguish the counter-offer from a mere request of information. In Stevenson v Mclean an offer to sell iron at a certain price was not destroyed when the offeree enquired whether payments might be in inst alments, It was held that it was not a counter-offer, merely an enquiry as to whether terms might be varied, and the original offer was not destroyed. In order to analyse whether the contract existed in this scenario it is necessary to understand whether Bernard’s question about hire-purchase terms was an enquiry or a new offer. In the case of Scamell v Ouston (1941)[3] the House of Lords found that vague statements by the both parties as to a hire purchase arrangements for the sale did not amount to a binding contract. In this case Viscount Maugham stated: â€Å"in order to constitute a valid contract, the parties must so express themselves that their meanings can be determined with a reasonable degree of certainty†. Bernard’s question about hire-purchase arrangements was not expressed adequately and moreover he said that he will need finance, therefore, it can be argued that he is attempting to vary the terms of an existing offer to get more favourable terms for himself, therefore he is making a counter-offer. Counter-offer has an effect of canceling the original offer and so the original offeror can decide whether to sell it to somebody else at the price he has stated and the terms of the original offer. To conclude it can be stated that Bernard’s letter was not a mere enquiry of negotiation, but a counter-offer, which Anton didn’t accept. Therefore there was no contract between Anton and Bernard and Anton was free to sell the boat to Celine. However from the other point of view, it can be argued that Bernard’s phrase that he is willing to accept Anton’s offer identifies that he is just asking some further information and tests out whether further negotiation with Anton is possible. This means that the original offer was not destroyed, but due to the fact that his reply was vague it can be considered not enforceable, as offerees should explain them clearly as well as the offerors. Therefore no contract took place in this situation. (b) In this scenario Bernard replied by return of post, and accepted Anton’s original offer. Usually, communication is effective only when it reaches the offeror or the offeror’s place of business. However, Postal rule is a well-known legal principle in contract law. The postal rule of acceptance of an offer became entrenched in the common law of contact in the English courts and therefore in the Australia courts during the nineteenth century. And the postal rule is an exception to the general rules of contract law in common law countries that acceptance takes place when communicated. The posting rule states, by contrast, that acceptance takes effect when a letter is posted. The rule was established by Anthony in the 19th century cases, starting with Adams v Lindsell (1818)[4], which was later confirmed in Dunlop v Higgins (1848)[5]. In Adams v Lindsell it was held that once a letter of acceptance is posted, a contract comes into existence immediately. Moreover, it makes no difference whether the offeror actually receives the letter. This was demonstrated in Byrne v Van Tienhoven (1880)[6], where the letter of revocation reached the claimant too late to be effective. If a letter of acceptance were to be lost, acceptance has still taken place. Therefore, applying this law in the scenario it can be argued, that when Bernard sent his return by post accepting Anton’s offer, the contract came into being. Moreover, it has been always possible for offerors to avoid the postal rules either by specifying a different method of communication, or by stating that they would not be bound until receipt of an acceptance letter. In this scenario Anton in his offer requested a reply by return of post, therefore as a reasonable person he should have understood that there might be any delays and that it takes time to deliver a postal letter. He didn’t take any precautions, therefore he is now bound by the contract with Bernard. The relevance of this early 19th century rule to modern conditions, when many quicker means of communication are available has been highly criticised and questioned, however the rule remains for the time being. (c) The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence. However offeror has a right to expressly require a particular method of communication. (Holwell Securities Ltd v Hughes (1974[7]). It is uncertain whether precise observance of these conditions is necessary in order to make the acceptance binding. However, it is clear from the scenario that Anton required specifically a reply by return of post. Generally if acceptance does not occur in the way, specified by an offeror generally there is no agreement. Therefore by making a telephone call and saying that he is accepting the offer, Bernard is not complying with Anton’s requirements. This means that in this scenario no contract was formed. However, Bernard can argue that making a telephone call is the other method bu which equally achieves the offeror’s purpose, and this will be a valid acceptance, as it happens in Tinn v Hoffman (1873)[8]. In this case, acceptance was required by return of post. It was held that this could mean by telegram or verbally, or by any other means that were not later than a letter written by return of post. If the court accepts his argument that telephone call is as equal as a reply in post, then the court may held that he accepted the original offer, therefore contract was formed between Bernard and Anton Word Count – 1491 words Bibliography Textbooks 1. Catherine Elliott, Frances Quinn, Contract Law, 4th edition, Longman 2. Jill Poole, Textbook on contract law, 9th edition, Oxford University Press. 3. Sarah Riches, Vida Allen, 2009, Keenan and Riches Business Law, 9th edition, Pearson. 4. Stefan Fafinski, Emily Finch, 2009. Law Express: Contract Law, 2nd edition, Pearson. Websites: 1. Networked Knowledge, Contract Law Homepage. Available at: http://netk. net. au/contractlaw. asp [Accessed on 13th March 2010] 2. Formation of contract. Law of Contract resources. Available at: http://www. lawofcontract. co. uk/formation/index. php [Accessed on the 10th of March 2010] ———————– [1] Fisher v Bell [1961] 1 QB 394 [2] Hyde v Wrench [1840] 3 Beta 334 [3] Scamell v Ouston [1941] AC 251 [4] Adams v Lindsell [1818] EWHC KB J59 [5] Dunlop v Higgins [1848] 1 HLC 381; 9 ER 805 [6] Byrne v Van Tienhoven [1880] 5 CPD 344 [7] Holwell Securities v. Hughes [1974] 1 W. L. R. 155, [1974] 1 All E. R. 161 (C. A. ) [8] Tinn v Hoffman Co [1873] 29 LT 271 How to cite Contract Law, Essay examples Contract Law Free Essays string(141) " the charterers had no substantial assets and that the charterers would otherwise go into liquidation if the charter rates were not lowered\." Introduction In today’s economic climate businesses often exert commercial pressure during contract negotiation stages. This is a normal part of the process and parties to a contract generally know when pressure being exerted is lawful. Although there is a difference between commercial negotiation and illegitimate pressure, it is often difficult to distinguish between the two. We will write a custom essay sample on Contract Law or any similar topic only for you Order Now Furthermore, because economic duress can arise from pressure that is not in itself unlawful, parties may be unaware that the pressure they are subjecting a party to a contract is actually economic duress. Despite this, if a court finds that one party to a contract has exerted illegitimate pressure on another party, the innocent party may be able to establish a claim of economic duress. Given how uncertain the economy is at present, hard bargaining is a common form of negotiation, though it is vital that businesses are aware of the risks when exerting pressure that is likely to be deemed illegitimate. It is unclear how this distinction can be made, nonetheless, which suggests that further clarity is needed within this area. This study intends to explain the developments that have taken place in the doctrine of economic duress and why the courts perceived a need for a more robust approach in light of the Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1 case. Duress Duress is a common law defence that allows a contract to be set aside in instances where one party has been subjected to force or pressure from the other party to enter into the contract. Duress has been defined as â€Å"making someone do something against his will, or making someone perform an illegal act, by using threats, coercion or other illicit means† (Dictionary, 2014: 1). Duress is basically the use of unlawful means to force another to perform an act by either threatening them or performing an act of violence. The party claiming duress will be required to show that they did not have a choice but to enter into the contract (Cserne, 2009: 57). Economic duress, on the other hand, is a fairly new phenomenon that is becoming an important tool for determining whether a contract that has been entered into is enforceable or not. Economic duress happens when a person’s economic interests are damaged from being forced or coerced into entering into a contract. This type o f duress has been defined as the â€Å"unlawful use of economic pressure and/or threats intended to overcome the free will of a person, in order to force him or her to an involuntary agreement or to do something that he or she would not otherwise do† (Business Dictionary, 2014, 1). Economic duress is essentially a contract law defence that allows a person to dispute the formation of a binding contract by arguing that that they were forced to enter into the contract. Previously, parties to a contract could only rely on the doctrine of consideration for protection when they were being subjected to economic duress. Consideration is the price that one party will pay for another party’s promise (Card et al; 2003: 63); Collins v Godefroy (1831) 1 BAd 950. The doctrine of consideration does not allow parties in a contract to insist on further payments to perform tasks they are already required to perform under the contract simply because they are in a stronger bargaining posi tion; Stilk v Myrick (1809) 2 Camp 317. Economic Duress and Commercial Pressure It is now widely accepted by the courts that undue commercial pressure can amount to duress. The doctrine of economic duress has evolved significantly from various trade union decisions including; Universe Tankships v International Workers Federation (â€Å"The Universe Sentinel†) [1983] 1 AC 366 and Dimskal Shipping v International Works Federation (â€Å"The Evia Luck†) [1992] 2 AC 152. In The Universe Sentinel, a trade union, which had blacklisted a ship, forced the owner to provide payment before they would remove the ship from the black list. As there would have been disastrous consequences if the ship could not sail, the owner made the payment. Because the ship owner had no other practical choice but to make the payment, he later brought a successful claim for the recovery of the money by establishing economic duress. Similarly, in The Evia Luck a trade union insisted that a ship owner signed various contractual documents so that his ship could sail, which was fou nd by the court to be a form of economic duress. In order to make an economic duress claim, there are a number of elements the claimant will need to be established. These are; a) that the pressure was illegitimate; b) that the pressure was a significant cause that induced the claimant to enter into the contract; and c) that the practical effect of the pressures means that the claimant has no other choice but to enter into the contract (Ohrenstein, 2013: 2). The claimant will be entitled to avoid the contract and claim restitution of any monies that have been paid under it if these elements can be established. In deciding what amount to illegitimate pressure, the court will take a range of factors into account. For example, in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] EWHC 185 it was made clear that the court will be required to consider whether the breach of contract was an actual or threatened breach; whether the person whom exerts the pressure has acted in good or bad faith; whether the claimant had any real or practical alternative but to give in to the pressure; whether the claimant protested at the time; and whether the claimant sought to rely on the contract. One of the most successful forms of economic duress is a threat to breach a contract. In Siboen and The Sibotre [1976] 1 Lloyd’s Rep 293 charterers of two ships threatened to break their charterparties by refusing to pay the agreed charter rate if the rate was not lowered. The owners of the ships had been informed that the charterers had no substantial assets and that the charterers would otherwise go into liquidation if the charter rates were not lowered. You read "Contract Law" in category "Essay examples" Thi s information was not actually true but it caused the owners to reduce the rates nevertheless. It was found that economic duress could apply to this situation as all of the relevant factors were present. Since this decision, the courts seem to have accepted that economic duress is coercive and therefore worthy of the same relief as duress to the person or property (Chen-Wishart, 2012: 316). In spite of this, the practical application of economic duress has been subject to much confusion and it has been questioned when, if ever, renegotiations should be enforced. It would seem, under the doctrine of consideration, that renegotiations can never be enforced on the basis that â€Å"no additional consideration supports the promise to pay more or accept less† (Chen-Wishart, 2012: 316). Under the promissory estoppel doctrine, the promise to pay the same for less can be enforced in limited circumstances, though this does not apply if illegitimate pressure has been exerted. Therefore, if it can be demonstrated that illegitimate pressure has been applied to the renegotiation of a contract, that contract will not be enforceable. Because commercial contracts are extremely competitive, it is likely to be the case that some form of pressure will always be applied. Though the question to be determined is whether the pressure that has been applied is legitimate or not. This is l ikely to be extremely problematic and thus cause a great deal of complexity for the courts. As exemplified in the cases above, threats to blacklist a ship and refuse its release may constitute duress. Further examples of where economic duress has occurred can be seen in the cases of North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 and Pao On v Lau Yiu Long [1979] UKPC 17 where threats to terminate a contract in the absence of a renegotiation is also illegitimate unless it can be legally justified. What will be deemed â€Å"legally justified† is largely a matter to be determined based upon individual facts and circumstances, though there is likely to remain a lot of confliction in this area. In Williams v Roffey Brothers Ltd [1991] EWCA Civ 5 the Stilk case was severely limited by the courts. Here, the consideration requirement was extended to include â€Å"practical benefits† and thereby covered the promise to perform an existing contract. Here, a number of contractors promised to refurbish 27 flats with a sub-contractor performing the carpentry. Before the flats were finished, the sub-contractor realised that he had under-priced the contract and was resultantly facing financial difficulty. The main contractors offered the sub-contractor a financial inducement to finish the contract on time. It is trite law that consideration is needed for a party to that contract to be able to sue on it. Since the sub-contractor was doing no more than he was already bound to do under the contract, consideration was lacking. Surprisingly, it was held by the court that because the contractors had received a benefit from the sub-contractor, in that they avoided the penalty clause of the main contract, the sub-contractors claim was successful. This did not mean that consideration was present as the benefit did not move from the promisee, although there was a clear departure from the orthodox principle of consideration principle. The doctr ine of consideration maintains that a contract will not be supported by the performance of an existing duty unless that duty exists by virtue of a third party contract (Noble, 1991: 141). This decision conflicts with the decision in Stilk which demonstrated that consideration needs to be of economic value to be deemed good consideration and that it needs to move from the promise as also shown in; White v Bluett (1853) 23 LJ Ex 36; Thomas v Thomas (1842) 2 QB 851; Shadwell v Shadwell (1860) 9 CBNS 159; and Scotson v Pegg (Scotson v Pegg (1861) 6 H N 295). It has also been argued by Cheshire et al; that; â€Å"the time has come to recognise formally the alternative definition of consideration and admit that the rationale behind the refusal to enforce some types of consideration is pure policy† (Cheshire et al; 2012; 77). Arguably, it appears that the consideration principle is rather outmoded and in need of reform so that a more robust approach to economic duress can be taken by the courts. At present, much confusion arises as to when economic duress can be used as a defence. Judges thus need to err on the side of caution to prevent commercial pressure being mistaken for economic duress and vice versa. Still, as stressed by the court in Adam v Opel Gmbh v Mitras Automotive [2007] EWHC 3481; â€Å"the list of matters to be considered in assessing legitimacy is not exhaustive, and the weight to be attached to each of them will depend on the facts of the individual case.† Furthermore, it was also stated in the case that the decision to be made will involve some element of value judgement when considering whether the pressure that was exerted on the claimant crossed the line from that which must be accepted in normal robust commercial bargaining. It is clear from the decision in this case that the courts have made some attempts to provide clarity in this area and that each case will be decided on its own facts. In the more recent case of Kolmar Group AG v Traxpo Enterprises Pyt Ltd [2010] EWHC 113 it was evidenced that a contract variation between a supplier and a customer will unlikely amount to duress if the supplier is unable to perform a contract as a result of financial difficulties that will cause the supplier to become insolvent. Another problem that arises when it comes to economic duress is whether lawful conduct can amount to illegitimate pressure. Whilst it is possible, it is also extremely rare as shown in CTN Cash and Carry Ltd v Gallaher Ltd [1993] EWCA Civ 19; GMAC Commercial Credit Ltd v Dearden [2002] All ER (D) 440 (May) and Wright v HSBC Bank plc [2006] EWHC 930 QB. Consequently, economic duress will continue to pose many problems as there will always be a debate as to whether particular circumstances may or may not give rise to a claim for economic duress. Because of the uncertainty within this area, it is evident that a more robust approach needs to be taken so that greater clarity and consistency can be provided. Economic duress has also been criticised for being causation-led, thereby meaning that a lack of causation will prevent a successful claim from being made. In Pao On v Lau Yiu Long [1979] UKPC 2 it was pointed out by Lord Scarman that in deciding whether causation was present, it will need to be considered whether the claimant; a) protested; b) had a practical alternative open to him; c) received independent advice; and d) acted promptly. This decision has been criticised for being inconclusive and failing to take into account the fact that claimants may not think that there is any point in protesting. This was recognised by Chen-Wis hart when it was argued that; â€Å"these factors are inconclusive. The victim may not protest because he sees no point in it or he may not wish to antagonise the coercing party whose performance he needs† (Chen-Wishart, 2012: 318). It is clear that the facts and circumstances of each case will be the determining factor as to whether the claimant has suffered economic duress or not. Because of the uncertainty that exists in this area, however, it is often difficult for those entering into commercial contracts to acknowledge that they are exerting pressure that is considered illegitimate, especially when there is a possibility that lawful pressure will also be capable of amounting to economic duress. As a result of this, Young warns against exerting commercial pressure that the courts may possibly consider economic duress: â€Å"Abusing your upper hand can leave the strong open to claims† (Young, 2012: 23). Conclusion Overall, whilst the doctrine of duress is well established in English law, the doctrine of economic duress still remains largely uncertain. This generally arises from the difficulty of distinguishing between legitimate and illegitimate economic duress. As such, it is up to the courts to decide when a person’s economic interests have been damaged from being forced or coerced into entering into a contract. Hence, the court will be required to consider whether the re-negotiation of the terms of the contract were lawful and whether the person being subjected to the economic duress, should be entitled to rescind the contract that they entered into. This is an important defence in ensuring that parties to a contract have equal bargaining power. Nevertheless, the practical application of economic duress has been subject to much confusion over the years, which may result from the reasoning that has been provided by the courts. There appears to be a lack of consistency that is being pr ovided, which highlights the need for future reform to this area. Whilst there is a difference between commercial negotiation and illegitimate pressure, it has proven extremely difficult to distinguish between the two, especially since lawful conduct can also amount to illegitimate pressure. In order to provide clarity to this area, it seems as though a more robust approach is therefore needed by the courts. References Business Dictionary. (2014) Economic Duress, [Online] Available: http://www.businessdictionary.com/definition/economic-duress.html [07 July 2014]. Card, R. Murdoch, J. and Murdoch, S. (2003) Estate Management Law, OUP, 6th Edition. Carr, N. (2011) Walking the Line – The Balance Between Legitimate Negotiation and Economic Duress, Available [Online]: [07 July 2014]. Chen-Wishart, M. (2012) Contract Law, Oxford University Press. Cserne, P. (2009) Duress in Contracts: An Economic Analysis, Contract Law and Economics, Volume 6, 2nd Edition. Furmston, M. P. Cheshire, G C. and Fifoot, C H. (2012) Cheshire, Fifoot and Furmston’s Law of Contract, Oxford University Press: London. Dictionary. (2014) Duress, [Online], Available: http://www.yourdictionary.com/duress [07 July 2014]. Noble, M. (1991) For Your Consideration, New Law Journal, Volume 141, Issue 1529. Ohrenstein, D. (2013) Key Developments in Contract Law: Economic Duress, Radcliffe Chambers, [Online] Available: http://www.radcliffechambers.com/media/Misc_Articles/Key_Developments_in_Contract_Law_-_Economic_Duress_2013.pdf [07 July 2014]. Young, A. (2012) When Pressure Turns to Duress, Construction Law Journal, Volume 23, Issue 5. Cases Adam v Opel Gmbh v Mitras Automotive [2007] EWHC 3481 Collins v Godefroy (1831) 1 BAd 950 CTN Cash and Carry Ltd v Gallaher Ltd [1993] EWCA Civ 19 Dimskal Shipping v International Works Federation (â€Å"The Evia Luck†) [1992] 2 AC 152 DSND Subsea Ltd v Petroleum Geo Services ASA [2000] EWHC 185 GMAC Commercial Credit Ltd v Dearden [2002] All ER (D) 440 (May) Kolmar Group AG v Traxpo Enterprises Pyt Ltd [2010] EWHC 113 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 Pao On v Lau Yiu Long [1979] UKPC 17 Scotson v Pegg (Scotson v Pegg (1861) 6 H N 295) Shadwell v Shadwell (1860) 9 CBNS 159 Siboen and The Sibotre [1976] 1 Lloyd’s Rep 293 Stilk v Myrick (1809) 2 Camp 317 Thomas v Thomas (1842) 2 QB 851 Universe Tankships v International Workers Federation (â€Å"The Universe Sentinel†) [1983] 1 AC 366 White v Bluett (1853) 23 LJ Ex 36 Williams v Roffey Brothers and Nicholls (Contractors) Ltd [1991] 1 QB 1 Wright v HSBC Bank plc [2006] EWHC 930 QB How to cite Contract Law, Essay examples Contract Law Free Essays string(131) " be satisfaction for the whole is known as the rule in Pinnels case which was later re-affirmed by the House of Lords in Foakes v\." Issue â€Å"The mere existence of the core elements of offer, acceptance, and consideration will not guarantee a legally enforceable contract†. Discuss. A contract is an agreement which normally consists of an ‘offer’ and an ‘acceptance’ and involves the ‘meeting of the minds’ or consensus between two or more parties with the intention to create a legally enforceable binding contract. We will write a custom essay sample on Contract Law or any similar topic only for you Order Now Therefore in this essay, the four core elements needed for the formation of a contract such as offer, acceptance, and consideration and intention to create legal relations will be discussed briefly. Offer An offer is a proposal whereby the parties are willing to contract on a specific set of terms, made by the offeror with the intention that, if the offer is accepted, the parties will be bound by a contract. An offer may be made to an individual, group, or even to the world at large as seen in the case of Carlill v. Carbolic Smoke Ball Co. [1893]. However, offer is distinguished from an invitation to treat which is not an offer but an offer to consider offers. Acceptance of an invitation to treat does not lead to a contract and therefore in Pharmaceutical Society of Great Britain v. Boots cash Chemists (Southern) Ltd [1953], the defendant had made an invitation to treat by having his goods display on the shelves and this is not an offer. When the customer picks up goods from the shelf, to the cash register, he makes an offer to buy the goods. Only when the casher accepts the offer by taking the payment from the customer is when a contract is formed. Offers may be terminated in a number of ways such as Revocation, Rejection, Lapse of time, Failure of a condition or Death. Acceptance An acceptance converts promise by offeror into an agreement in either oral or writing which must exactly reflect the original offer made. The offeree must intend to accept the offer, else no agreement is made by parties. To be effective, acceptance must be communicated. A mental decision to accept is not sufficient. The general rule is that an agreement is concluded when and where communication of acceptance is received and it has to be absolute and unconditional. In relation to instantaneous modes of communication such as by telephone, fax or email, and the Electronic Transactions Act 2000, acceptance is deemed to be received when it is given to the offeror even if they do not read it. This applies in relation to where post is used a special rule called the ‘postal rule’ applies. Under this rule, provided the post is contemplated by the parties both expressly or by implication, acceptance occurs, when and where the letter is posted as in the case of Adams v. Lindsell [1818]. However when doing business, the ‘Silence’ rule is generally not considered an acceptance, even if the offeror sates that it is, unless both parties agreed as in Felthouse v. Bindley [1862]. For cross-offers, contract law states that no acceptance is made as it implies a lack of consensus between the parties at the time of making the offers like in the case of, Tinn v. Hoffman Co [1873]. Acceptance in the case of unilateral agreements generally takes the form of performing an act. If an agreement is uncertain in a material respect it cannot constitute a binding contract. This might occur if the agreement is ‘vague or ambiguous’ or incomplete. Consideration Consideration is the price that is asked by the promisor in exchange for their promise. In many jurisdictions consideration is not an essential element of a contract and it is sufficient that parties have reached a binding agreement. However, the common law requires that, for an agreement to be binding, the promisee must provide consideration for the promise they have received. Thus, gratuitous promises are generally not enforceable. It is for the promisor to stipulate the consideration for his promise either directly or indirectly and is not for the promisee to proffer something and call it consideration. However, provided the consideration stipulated it legal, it can take virtually any form and, importantly, must have value but need not be adequate. The case regarding the nature of such consideration is Chappell v Nestle which expressed the view that a ‘peppercorn’ could constitute valuable consideration if stipulated by the promisor, even if the promisor was not fond of peppers and would discard the corn. Past consideration is not good consideration as consideration must come into existence either with or after the promise. Where the stipulated consideration predates the promise, it will not be considered good consideration. Therefore in, Roscola v Thomas [1842], the promise was not binding because the only â€Å"consideration† provided for a promise about the soundness of a horse was entering into the original contract which had occurred before the promise was made. Existing Public Duty’ is one situation where no consideration occurs when the promisee is already under a public duty to perform an act and the same act is purported consideration. In Glassbrook Bros Ltd v. Glamorgan County Council [1925], the police were providing protection over and above what is considered legally effective and therefore due to the sufficient consideration the mine owners should honour their promise of payments. The next situation for insufficient consideration where there is no detriment would be ‘Repeating an existing duty owed to the promisor’. In Stilk v Myrick [1809], the remaining crew of sailors did what they were contractually required to do and therefore there was no consideration for the captain’s promise but for Hartley v. Ponsonby [1857], there was sufficient consideration since the ship became unseaworthy and Hartley was required to do more than what he was initially expected to do. Part-payment of a debt is not good consideration for the creditor’s promise to forgo the balance. In paying part of the debt the promisee is doing no more than performing an existing contractual duty owed to the promisor. This rule, that payment of a lesser sum on the day cannot be satisfaction for the whole is known as the rule in Pinnels case which was later re-affirmed by the House of Lords in Foakes v. You read "Contract Law" in category "Papers" Beer [1884]. Promissory Estoppel will allow a promise to be enforced although the promisee has not provided consideration for that promise. This may provide relief to an innocent party. The modern doctrine developed in Central London Property Trust v. High Trees House Ltd [1947], Denning J, expressed an obiter dictum that the plaintiff was estopped from going back on his promise to reduce the rental. There were, however, two important limitations to the doctrine such as, it applied only where the parties were already in an existing contractual relationship and it provided only a defence to a claim made by the promisor in violation of the promise but it could not found a claim. Intention For a contract to exist, the parties to an agreement must intend to create legal relations. Usually, the presence of consideration will provide evidence of this, but not always, so that this requirement must be separately proved in each case. The onus is on the party seeking to prove the contract to demonstrate intention and the nature of the relationship between the parties, while relevant, no longer carries with it any presumption about the contractual intention of the parties involved. When assessing each case the courts used to apply certain presumptions to different types of contract, thus, typically, domestic or social contracts were presumed not to have been created with an intention to create legal relations, even though the ‘agreements’ contain promises made by parties and commercial agreements were presumed to have such intention. However, under the domestic and social agreements, unlike Balfour v, Balfour [1912], whose marriage was not broken down at the time of the agreement, in Merritt v. Merritt [1970], the couples were having a broken marriage and were not living together at the time they made the agreement. Therefore court agreed that it was an intended legally enforceable agreement and Mr. Merritt was ordered to honour the agreement. These two cases show that the courts look at the seriousness of the consequences to the plaintiff to say that there was an intention to create legal relations. For Voluntary Agreement, parties do not normally intend legal relations and therefore, in Teen Ranch Pty Ltd v. Brown (1995), since Brown volunteered to work with no legal contract of employment signed, the courts held that there was no evidence of intention to create legal relations and therefore he was not able to claim for any worker’s compensation for his injury from the defendant. For Business/Commercial agreements, the parties will normally intend it to be legally binding. In such a case, showing otherwise will be difficult. But, the test of intention is objective. Where the parties to a commercial agreement do not intend it to be binding they may use what are known as â€Å"Honour clauses† to indicate that the agreement is binding in honour only but not legally. For instance in Rose and Frank Co v. Crompton and Bros Ltd [1925], although the business agreement between these parties had all the indicators of being a legally binding agreement, due to the honour clause it contained, the courts held that this business agreement was not legally enforceable. Vitiating Factors In addition to these core elements, there are also vitiating factors such as Formalities, Incapacity, Mistakes, Misrepresentation, Illegality, Duress and Undue influence which may hinder a contract from being legally enforceable. This essay will therefore be concentrating only on six such factors which vitiate a contract by depriving it of its efficacy. First, Incapacity is made up of parties who have limited contractual capacity entitlement such as minors, corporations, bankrupts, mentally unsound and intoxicated. Common law has restricted the capacity of minors to contract. However, there are a number of exceptions to these restrictions. For corporations, under the Corporations Act, 2001 (Cth) a company is given the legal capacity and powers of an individual. As for Bankrupts, under the Bankruptcy Act 1966 (Cth), they are still allowed to contract but with a limited contractual capacity. As for a contract with the mentally unsound or intoxicated person, it can be voidable if it can be proven to be not for their necessaries or they were suffering from a degree of mental instability or were so drunk that they were incapable of understanding the matter of the contract. Second, Mistakes are categorized as Common, Mutual, Unilateral and Non est factum. For common mistakes, parties are into an agreement but due to a common error as to some fundamental fact the contract may be void by the common law. A mutual mistake is made by both parties concerning a material fact that is important to the subject matter of the contract and so no genuine agreement is made and the contract is void. For unilateral mistake, it occurs when one party is mistaken about some aspect of the contract but the other is not and for the Non est factum, it is established where a party is mistaken about the nature of the document they are signing. Therefore for both of these mistakes, no genuine agreement is made and the contract may be void or voidable. Third, Duress is the use of violence to induce contract and this shows lake of voluntary agreement. The types of duress present would be to a person, to goods and to the economic. Duress to a person is an actual or threatened violence to one contracting party or their immediate family or near relatives. Duress to goods is the wrongful threats to seize, damage or destroy the goods of one contracting party and economic duress is economic pressure beyond normal acceptable commercial practices. The remedy of these types of duress is that contract can be voidable at option of coerced party. Fourth, Undue influence, where established, will also render a contract voidable. It occurs when there is an inequality of power between the contracting parties which results in the weaker party entering into a contract with the dominant party. Not all such transactions will result in a remedy but where the influence that exists between the parties can be classified as ‘undue’ the weaker party will have the choice of rescinding the contract. Undue influence may take two forms which is express undue influence where the dominant party acts in such a way as to effectively deprive the other of their free will and presumed undue influence which occurs where the dominant party holds a position of trust or confidence over the weaker party. Fifth, Misrepresentation would be either, Fraudulent, Innocent or Negligent. Fraudulent misrepresentation is a false statement of fact made knowingly or without belief in its truth, or recklessly, or carelessly as to whether it is true or false, with the intention to induce a person to enter into a contract, and which did induce the contract, causing the innocent party to suffer loss. The remedy for this is in the tort of deceit. For recession and/or damages at the option of the injured party the remedy may be under Part V, Trade Practices Act. Innocent misrepresentation occurs when the maker of a statement of fact believes it to be the truth, than there is a lack of intentional deceit. Therefore to attend the right in equity to rescind o resist an action for specific performance, the remedies may be under the Misrepresentation Acts in SA and ACT, Part V, Trade Practices Act and Fair Trading legislation. As for Negligent misrepresentation, this occurs when the maker of the statement innocently but carelessly makes a false statement, which the innocent party relies on and suffers loss. The remedy for this may be under the tort of negligence for damages and the contract may be rescinded. Sixth, Illegality deals with both criminal conduct which is conduct prohibited by statute and conduct regarded as contrary to public policy. Statutory illegality encompasses contracts directly prohibited by statute, contracts entered into for an illegal purpose, contracts performed illegally and contracts otherwise made void by statute. As for Common law illegality and contracts which are contrary to public policy, encompasses a broader range of conduct, including contracts prejudicial to the administration of justice, contracts promoting corruption in public life, contracts prejudicing the status of marriage, contracts promoting sexual immorality and contracts in restraint of trade. Where conduct is classified as illegal or contrary to public policy it is generally held to be unenforceable, there are, however, some exceptions to that rule and, in some cases, it may be possible to sever the offending terms and enforce the remainder of the contract. My conclusion based on the facts of this essay, is that the presence of the four core elements with the avoidance of vitiating factors will make a contract to be legally enforceable and binding. Therefore, I am strongly agreeing with the discussion question given above. References Andy Gibson and Douglas Fraser, 2007, Business Law. Australia: Pearson Education Australia [online], http://www. australiancontractlaw. com/law/formation-agreement. html [10 February 2010] [online], http://www. australiancontractlaw. com/law/formation-consideration. html [14 February 2010] [online], http://www. australiancontractlaw. com/law/formation-intention. html [16 February 2010] [online], http://www. australiancontractlaw. com/law/formation-capacity. html [20 February 2010] [online], http://www. australiancontractlaw. com/law/avoidance. html [25 February 2010] How to cite Contract Law, Papers Contract Law Free Essays string(66) " the contract was discharged as it included an implied condition\." â€Å"The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate – a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to the execution, or the like. Yet this does not in itself affect the bargain which they have made†¦Ã¢â‚¬  (per Lord Simon in British Movietonews Ltd. v. We will write a custom essay sample on Contract Law or any similar topic only for you Order Now London and District Cinemas [1952] A. C. 166 at 185). Discuss this dictum and explain the respects in which it needs to be qualified. This quote refers to the doctrine of frustration.In order to adhere to the essay question, it is important to establish what frustration is. The essence of frustration was identified in Davis Contractors Ltd v Fareham Urban District Council[1] by Lord Radcliffe. He asserts that â€Å"Frustration occurs whenever the law recognises that without the default of either party, a contractual obligation has become incapable of being performed because of the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract†.The doctrine excuses parties from further contractual performance when unforeseen events, subsequent to contract formation, make performance illegal, impossible, or radically different from the obligations the parties undertook at formation[2]. The doctrine was established in the nineteenth century. Prior to this, supervening events provided no excuse for non-performance therefore contractual duties were regarded as absolute. The leading case for this is Paradine v Jane[3]. The claimant sued the defendant for rent. The claimant sued the defendant for a failure to pay rent for three years on leased lands. Jane asserted as a defense that the lands had been seized and occupied by Prince Rupert of Germany, and that Jane had been put out of possession and frustrated in the performance of his duties under the lease and was not bound to perform under the contract. The court held that when a party creates â€Å"a duty or charge upon himself, he is bound to make it good, if he may, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. † In British Movietonews Ltd. v London and District Cinemas[4]. The contract was made with regards to film distribution.It included a stipulation in the contract which allowed the defendant to end the arrangement given that there was a four week notice. The parties entered into a supplementary agreement which affirms that the original contract would remain until the order was cancelled. This was due to the fact that the Cinematograph Film Order proscribed them from distributing or obtaining any films without license except it was for â€Å"securing public safety, the defence of the realm, maintenance of public order or efficient prosecution†. However this order went on for longer than expected.The claimant contended that this meant that payment would persist but the defendants opposed. On first instance Lord Slade agreed with the claimants. The appeal was allowed as it was held that the delay could not have been envisaged and the situation had altered significantly from the intentions the parties had created the contract on, hence it couldn’t continue. Lord Simon, on appeal in the House of Lords stressed that the meaning of â€Å"an unexpected turn of events† had been misconstrued and applied too generally thus includes non-frustrating events.He avows that a â€Å"frustrating event must be regarded as introducing a new situation to which no lim it can be put†. The appeal was allowed. Looking at the dictum by Lord Simon, it is possible to infer that he is not in favour of the doctrine of frustration but leans towards the approach of absolute liability as he states â€Å"The parties to an executory contract are often faced, †¦Ã¢â‚¬ ¦ with a turn of events which they did not at all anticipate†¦Ã¢â‚¬ ¦. Yet this does not in itself affect the bargain which they have made†¦Ã¢â‚¬  He takes the point of view that the doctrine has not been employed appropriately by the courts as if it was, there would be fewer terminations of contracts and effective use of other methods like adaptation and force majeure clauses[5]. In the last phrase of this dictum , Lord Simon concluded that although exceptional circumstances may exist, courts must take cautious steps when walking through the door of interpretation and they must never turn their backs on the terms contained in contracts.To Invalidate a contract may carry a greater legal consequence than initially foreseen by the courts. A question to raise is; what if a party to the contract anticipated a future turn of event but assessed the risk involved and notwithstanding, entered into the contract. Should the court step in to cut the tight rope from such a person’s neck when he or she is facing the guillotine? The role of the courts is to seek justice and not to bail us out when things are not going our way.For now, there are certain events that can amount to frustration and the courts can fall back to these precedents to make an informed decision. These events include physical impossibility, non-occurrence of a particular event, supervening illegality, death or incapacity for personal service, requisitioning of ships and interferences with chaterparties, sale and carriage of goods, building contracts, change in the law and performance of only one party affected. Only few of these will be discussed further.Physical impossibility is concerned with where the performance of the contract is made impossible by the destruction of a specific thing that is essential to that performance. Such is the case of Taylor v Caldwell[6] where the claimant hired the Surrey Gardens and Music Hall from the defendant to put on four concerts. The hall was destroyed by an accidental fire before the concerts started and the claimant sought damages to cover the expenses incurred in preparing for the concert. Both parties were excused because the contract was impossible to perform.Frustration was the grounds in which the contract was discharged as it included an implied condition. You read "Contract Law" in category "Papers" The theory of implied term was elaborated on by Blackburn J. He suggests that a contract is discharged because the parties have agreed that the contract cannot be preformed if the frustrating event occurs. This begs the question, how fair is this tool? It is definitely a useful tool to the defendants as they will always have a way of being excused from a contract. Non-occurrence of a particular event rose out of the deferment of the coronation of King Edward VII due to his sudden illness.Performance of the contact depended on the existence of the event. This was also evident in the case of Krell v Henry[7]. The court held that the defendant was excused from paying the rent as both parties must have regarded the holding of the procession on the date planned essential to the contract. The rent agreed was inflated because of the procession. This was one of the factors the court used to support the fact that the contract was entered into solely to view the procession. It is clearly evident that the flats could have been used on those days.The contract was frustrated as the performance of the contract on those days would not attain the purpose of the agreement which was to view the procession. It also possible to infer that the purpose was frustrated because the rent agreed was inflated because of the procession. If this was not the case, the defendant would have hired a cheaper room without the view. On the other hand, there are some categories which will not amount to frustration. This comprises of self induced frustration, where a force majeure clause is enabled, forseeability, onus of proof, commercial inconvenience and leases. If one of the parties caused the frustrating event, this is known as self induced frustration and is no frustration in law. In J Lauritzen AS v Wijsmuller BV, The Supper Servant Two;[8] according to Hobhouse LJ, courts use the term self-induced frustration when â€Å"one party has been held by the courts not to be entitled to treat himself as discharged from contractual obligations†. At the Court of appeal, it was stated that the concept of frustration did not operate to remove the defendant’s liability under the contract with the claimant.Bingham LJ felt that it was â€Å"inconsistent with the doctrine of frustration as previously understood on high authority that its application should depend on any decision, however reasonable and commercial, of the party seeking to rely on it†. A controversial category is the commercial inconvenience. Lord Radcliffe in the case of Davis Contractors v. Fareham UDC[9]stresses that inconvenience or material loss itself does not cause the principle of frustration to be proven. In addition, there must be an alteration in the duty or obligation.This is apparent in Tsakiroglou Co Ltd v. Noble Thorl G. M. B. H[10]. This contract surrounded the sale of groundnuts which was rigid in terms of the date of delivery. It was held the contract had not been frustrated by the closure of Suez Canal. If the delivery date was made an important aspect of the contract, the results might have been different. The House of Lords felt it was still possible to transport the goods though it would have been more expensive. A pertinent decision was whether this would make a significant difference to the original contract. An increase of expense is not a ground of frustration† as held by Lord Simonds. This goes hand in hand with Lord Simon view in the British Movietonews case putting frustration into its proper use which is to end contracts that are no longer possible to carry out. Another case which can be used to reflect Lord Simon view is the case of Staffordshire Area Health Authority v South Staffordshire Waterworks Co[11]. The defendant agreed ‘at all times hereafter’ to supply water to a hospital at a fixed price. Some years later, the cost of supplying the water was twenty times the contract price.Lord Denning articulated the opinion that by reasoning of continuing inflation, a different situation had materialised in which the contract has ceased to bind. However the other members of the Court of Appeal did not accept his view. They went along with the orthodox view that any decrease in the purchasing power of sterling or the deflation of a foreign currency in which a debt is expressed is a stake which must be borne by the creditor. Provision must be made in the contract if he does not wish to bear the risk. It is not unusual in leases for the terms of the contract to provide for modification of the price to take account of inflation. One way of avoiding substantial numbers of frustration cases is using force majeure clauses when drafting the contract. A force majeure clause is a limitation statement made in a contract which prevents parties having to strictly comply with the terms in the contract in unjust situations and prevents the provider from being liable to a customer for failure to perform their obligations. This is beneficial to the courts because they don’t want to allow the doctrine to act as an escape route for a party for whom the contract has simply become a bad bargain.This would also help to enforce Lord Simon’s view and limit the use of frustration as consumers are less likely to bring an action when such clauses are in place and it will also encourage them to read and comprehend the contract fully before agreeing. An illustrative case is Channel Island Ferries v. Sealink UK Ltd[12], in which there was a force majeure clause which allowed the party failing to perform the contract to avoid liability because they had already anticipated the event therefore it cannot be classed as a frustrating event.There are a variety of disadvantages of the doctrine that support Lord Simon’s proposal to narrow down the scope. To look at it plainly, parties might just prefer to bite the bullet and continue despite a burden being placed on one of them. Another is that frustration only recognises one legal consequence: termination. However, if we were to apply such adaptation techniques as in Germany, it would be difficult and time-consuming to reproduce a contract that will fully encompass every eventuality that may arise[13], even if it made full use of express provisions like force majeure clauses.Such clauses can be criticised themselves in their use, for example, in an American journal[14],they have been said to subject parties to a painful choice, where they can either reconcile and preserve their relationship, or part in it response to a fractured relationship. They are often drafted with the suppliers’ interests in mind referring to an issue of â€Å"impossibility† when truly it is a mere case of commercial inconvenience.On the other hand, even though suppliers may impose dishonest forc e majeure clauses, most customers under long term contracts are not willing to bring an action because it is too expensive and time-consuming as well as disruptive, destroying any possibility of ongoing relationships. To conclude, Lord Simon was accurate in recognising the flaws with the concept of frustration which was it being used as a quick and easy way to manage unsuccessful contracts, however it has become more challenging than expected. In trying to keep a tight rein on the use of frustration, Lord Simon is attempting to take a firm approach of carrying out contractual obligations as it is evident the future cannot be predicted. The parties are required to envisage numerous possibilities when the contract is being drafted and be able to protect against them. On the other hand, narrowing the use of the doctrine may result in sincere cases being ignored.Leon E. Trakamn â€Å"Declaring Force Majeure: Veracity or Sham? †, available at: http:/works.bepress. com/leon_trakman/4 How to cite Contract Law, Papers