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Table of Contents
1.1 explain essential elements of valid contract by relating to
the above scenario
1.2 explains different types of contracts and explains their
impact any special rules need to be considered.
1.3 explain terms of contract their meaning effects.
2.1 apply the elements of contract in the scenario of Alan and
2.2 evaluate the effect of different terms in given contracts.
2.3 evaluate the effect of different term in given contracts.
3.1. Differentiate tort liability with contractual liability.
3.2 explain negligence in law of tort with other concepts
associating with it.
3.3 explain vicarious liability and its role in the business
4.1 apply the rules on tort of negligence and comment whether
Ciara can claim damages from Arthur Anderson.
4.2 analyse the situation to decide whether the company is
vicariously liable for the action of Mr. plenty
Explain essential elements of valid contract
according to contract law.
A contract is a
legally binding or valid agreement between two parties. A contract is an
agreement which will be enforced be the law. This Definition is satisfied when
the following elements are present:
There must be an
agreement. Since nobody can agree with himself (though he may resolve to do or
do an act), there must be at least two parties to an agreement. One of them
will make an offer, and other in every respect, there is agreement between the
The parties must
intend their agreement to result in legal relations. This means that the
parties must intend that if one of them fails to fulfil a promise undertaken by
the agreement, he shall be answerable for that failure in law. It is evident
that not all agreement is intend to produce legal consequences.
If, for example,
John agrees to
lend his cycle to his friend Arun but later refuses to let him have it, an
action for damages will not lie against John because the two friends did not
con-template, when entering in to the agreement, that it should be enforceable in
law. Similarly, if a father fails to pay his son the promised pocket money, it
is obvious that the son cannot sue the father. The former agreement is of
purely social character, the latter is a domestic arrangement. Neither of these
agreements qualifies as a contract.
English law is not
content with these two requirements. It requires further that either
consideration must be present or that the contract should be in a deed.
The parties must have
capacity to contract.
The reality of the
contract must not be affected by circumstances which render the contract
unenforceable, voidable, void or illegal.(charlesworth’s
business law fifteenth edition Paul Dobson Clive M.Schmitthoff p.3)
Formation of contract
The essence of
contract is that there should be an agreement
between the contracting parties. This agreement is normally constituted by one
party making an offer and the other
indicating its acceptance. The acceptance
must correspond to the offer in all material aspects. The negotiations between
the parties need not always lead to a contract. Inquiries may be made or offers
invited but no offer may be made or, if one is made, it need not be accepted. Before
the concepts of offer and acceptance can be considered in detail, it is
necessary to distinguish certain statements preliminary to the offer from the
offer itself. (Charlesworth’s business
law fifteenth edition Paul Dobson Clive M.Schmitthoff p.11)
An offer is a
definite promise to be bound by specific terms. It can be defined as–an n
expressed or implied statement of the terms on which the maker is prepared to
be contractually bound if it is accepted unconditionally. An offer can be made
to a single individual, to a class of person or even to the world at large. The
offer can be accepted only by the person or one of the persons to whom it is
made to. The person who makes the offer is referred to as the “offeror” and the
person to whom the offer is made to is referred to as the “offeree”
& co Arcas ltd.
claimants agreed to purchase from the defendant 22,000 standards of wood of
fair specification over the seasons of 1930.
was also an option to purchase more in the year 1931. The 1930 transaction took
place but the defendant refused to supply wood in 1931 saying the agreement was
too vague. The court believed that the offer was not too vague. The 1930
contract was regarded as evidence for the 1931 transaction.
§ The Acceptance
‘A positive act
by a person to whom an offer has been made which, if unconditional, bring a
binding contract into effect.’ The
contract comes into effect once the
offeree has accepted the terms
presented to them. This is the point of no return; after acceptance, the
offeror cannot withdraw their offer
and both parties will be bound by
the terms that they have agreed. Acceptance
may be by express words, by action
or inferred from conduct. (Charlesworth’s business law fifteenth
edition Paul Dobson Clive M.Schmitthoff p.17)
v Metropolitan Railway Co 1877
facts: for many years the claimant supplied coal to the defendant. He suggested
that they should enter into a written agreement and the defendant’s agent sent
a draft to him for consideration. The parties applied to their dealing the
terms of the draft agreement, but they never signed a final version. The
claimant later denied that there was any agreement between him and the
the conduct of the parties was only explicable on the assumption that they
agreed to the terms of the draft.
an essential part of most contracts.
It is what each party brings to contract. A valuable consideration in the sense
of the law may consist either in some right, interest, and profit or benefit
accruing to one party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other. “From Currie v Misa 1875”
promises to give Baron GBP 100. Baron has to give nothing in return. As there
is no consideration, this is a graduations promise and not legally enforceable.
Consideration may be executed (an act in return for a
promise) or Executory (a promise in
return for a promise). It may not be past,
unless one of three recognized expectations applies.
There are two broad
types of valid consideration – executed
and Executory. If consideration is
past then it is not enforceable.
is an act in return for a promise.
The consideration for the promise is a performed, or executed, act.
An offers reward for
the return of lost property, his promise becomes binding when B performs the
act of returning A’s property to him. A is not bound to pay anything to anyone
until the prescribed act is done. Therefore in Carlill’s case, the claimant’s act,
in response to the smoke ball company’s promise of reward. (ACCA, Corporate & business law p.68)
§ Intention to create
agreement will only become a legally binding contract if the parties indented
this to be so this will be strongly presumed in the case of business agreement
but not presumed if the agreement is of a friendly social or domestic nature.
Jones v Vernons Pools
facts: the claimants argued that he had sent to the defendant a football pools
coupon on which his predictions entitled him to a dividend. The defendants
denied having received the coupon. A clause on the coupon stated that the
transaction should not ‘give rise to any legal relationship… but … be binding
in honour only’.
this clause was a bar to an action in court.
§ Legal capacity of the
parties to act
Not all people are
completely free to enter into a valid contract. The contracts of the
groups of people listed below involve problematic consent, and are dealt
with separately, as follows:
People who have a mental
Young people (minors);
Corporations (people acting on
behalf of a company); and prisoners.
§ People who have a mental
people are free to enter into contracts even though they may have a mental
impairment, or are temporarily disabled by drugs or alcohol. They are, however,
sometimes vulnerable to being bound by contracts they do not fully understand.
The question of capacity to make the contract often arises only after the contract
is in place. People with disabilities and their advocates will find some
protection in the rule that a contract is not valid and enforceable unless
there was genuine consent to its making. Capacity to give consent involves a
general understanding of the nature of the contract (not necessarily its fine
details). A person with a mental impairment, for example, may have the capacity
to understand some contracts (for example, buying a loaf of bread), but
not to understand other, more complicated contracts (for example, buying a car
on credit). Where a person with a disability did not understand the general
nature of the contract, a court can intervene to set aside the contract only
if: The other party knew (or ought to have known) of the disability or lack of
capacity and it would be unfair for them to take advantage of that; and The
benefit received by the other person has not been sold to a third party who did
not know the previous transaction might not be valid. Generally, to escape the
consequences of a contract, the other party should be notified of the intention
not to be bound by the contract within a reasonable time.
§ Binding contracts and
Contracts for the
supply of "necessaries" will generally be binding. There are no hard
and fast rules to identify what is "a necessary", but it does include
the sorts of things the young person needs to live a reasonable lifestyle. It
includes basics such as:
A place to live
Medicine And so on.
It will also include
any contracts relating to the young person`s education, apprenticeship or
something very similar, if it can be shown to be of benefit to the young
person. While a court has not yet considered the issue specifically, mobile
phones are probably not necessaries. The young person contracting in this
situation will be held bound to pay a reasonable price (although that may not
be the contract price) for necessaries actually sold and delivered.
("Delivery" is a technical term. Generally, delivery takes place when
the seller has given the buyer
the power to take the goods away.) Where necessaries have been sold but there
has been no delivery, the young person does not have to take delivery or pay
for the goods.
contracts and young people
classes of contracts are not binding on a young person, namely:
which are not for necessaries; and
for the repayment of money lent or to be lent (that is, any form of credit
a young person has already paid money under a non-binding contract, that money
will not be recoverable unless no benefit has been received by the young
person. The young person can, however, refuse to make any further payments
under the contract. It is not certain who then own goods that are not
necessaries. It appears that they become the property of the young person
unless the young person has fraudulently misrepresented their age. Even after turning 18, a person cannot confirm a prior
contract and then become bound by it. Any money paid by a young person under
such circumstances may be recovered.
Bankrupt people are
not deprived of their general capacity to contract. During their imprisonment,
prisoners may enter contracts, including contracts to buy and sell prison still
apply, so that the permission of Corrections Victoria is required before a
prisoner may sign for, deliver or receive any document.
§ Consent of the Parties
Entering into a
contract must involve the elements of free will and proper understanding of
what each of the parties is doing. In other words, the consent of each of the
parties to a contract must be genuine. Only where the essential element of
proper consent has been given is there a contract which is binding upon the
parties. The ultimate consequences of establishing that no proper consent was
given to enter the contract are matters dealt with when considering remedies
for breach of contract. Proper consent may be affected by any of the
Only a few types of
mistakes will cause the contract to be non-binding on the parties to it: they
must be mistakes that go to the very basis of the agreement. For example, where
there is a contract for the sale of a car that both parties assume to exist,
although in reality it has been destroyed by fire, this contract is non-binding
on the parties. By contrast, where the parties are only mistaken about the
model of the car, then this contract would be binding.
Another example is
when a person signs a written document mistakenly believing that it relates to
something entirely different from what in fact it does relate to, in this case