BSP1004 Lecture 5- - CONTRACT LAW ESSENTIALS OF A CONTRACT Lecture 5 ESSENTIALS OF A CONTRACT •  For there to

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Unformatted text preview: CONTRACT LAW - ESSENTIALS OF A CONTRACT Lecture 5 ESSENTIALS OF A CONTRACT •  For there to be a valid contract, 4 elements need be present: Offer IntenJon to create legal Contract Acceptance relaJons ConsideraJon or Seal/Deed •  If any 1 element is missing, there will be no valid contract. •  In addiJon to these 4 elements, generally must the contract be in wriJng to be valid? OFFER •  Offer: Offering to do something - with a clear inten,on of being bound should the other party accept. •  Eg: X offers to sell his TV to Y for $200. If Y agrees, can Y insist on X selling him the TV? •  Note: Offer must be disJnguished from invita,on to treat under which - there is no clear inten,on of being bound. •  Eg: If X rings up a store to find out how much a parJcular model of a TV costs and the shop assistant replies that it costs $2000, is X’s inquiry an offer? Is the shop assistant’s reply an acceptance? Can the shop legally insist on selling the TV to X? ITT - AdverJsements •  AdverJsements are generally invitaJons to treat. •  What is the reason? ITT – Display of Goods •  Display of goods in a shop is usually an invitaJon to treat. •  What is the reason? ITT - Tenders •  When a business calls for a tender, that is usually an invitaJon to treat. •  Why is this so? •  TerminaJon of Offer Once an offer is made, it may not be valid for forever. If an offer is no longer valid, it cannot thereaZer be accepted. •  Some ways in which an offer may become invalid/terminated are as follows: Ø།  An offer may be terminated by withdrawal before acceptance, Ø།  An offer may be terminated by a counter- offer, (Eg: X offers Y his racket at $30; Y says he will pay $25; X refuses and later sells it to Z; If Y subsequently offers $30 for that racket – will X be in breach of contract?) Ø།  An offer may be terminated by a lapse of ,me, Ø།  An offer may be terminated if the offer is subject to a condi,on and the condiJon is not sa,sfied. ACCEPTANCE •  For acceptance to be valid, it must be on the same terms of the offer. •  CommunicaJon of acceptance: Ø།  For the acceptance to be valid, must it be communicated to the offerer? Ø།  Can the offerer state that he will treat the offeree’s silence as amounJng to acceptance? Ø།  However, note there are excepJons to the above two rules; eg: both parJes agree otherwise. ACCEPTANCE •  What if acceptance is sent but not received? •  The general rule is that acceptance is ____________ in such circumstances. •  However there is an excep,on in relaJon to pos,ng of le<ers. -   Eg: If A makes an offer by post to B and B accepts by post, but the leger goes missing in the post, is it possible that A may sJll be bound? Is there offer/acceptance in the following situaJons? •  •  •  •  •  •  •  •  (1) going to the restaurant and having a meal (2) going on a public bus (3) studying in NUS (4) buying shares in a public listed company (5) parking your car in a public car park (6) going to a toilet in a shopping centre (7) promising to pay $1,000 to a Charity (8) your parents promising you a trip to Europe, if you get 1st Class Honours CONSIDERATION §༊  ConsideraJon: Doing or agreeing to do something in return for the other party’s promise. §༊  Each party must provide consideraJon. If only party does, the agreement will have no consideraJon. §༊  What if X and Y enter into an agreement, each promising something (though they are yet to carry out that promise) and thereaZer X calls off the agreement? Can Y sue X on his promise? CONSIDERATION – OTHER MATTERS •  ConsideraJon does not have to be adequate in the sense that, so long as something in return is being done, it does not mager how much it is or whether it is equal to what is being given in return. •  Why is this so? CONSIDERATION – OTHER MATTERS •  ConsideraJon cannot be past in the sense that, the promise must be part of the original exchange/agreement and cannot arise subsequently as an aZer thought. •  Also note: what the other party gives need not personally benefit you, but can benefit someone else instead. (Note: this rule is known as “consideraJon need not move to the promisor”). -   Eg: if A promises B $l000, if he would paint the home of A’s parents and B does the painJng, but A refuses to pay, can B sue A? -   What important commercial document is based on this principle? DEED UNDER SEAL •  However note: a contract is enforceable without consideraJon if it is by deed under seal. •  A contract by deed under seal is very formal agreement/document typically draZed by lawyers and there is a seal agached at the end of it. INTENTION TO CREATE LEGAL RELATIONS •  The final element for there to be a valid contract is the intenJon to create legal relaJons (ie: in the sense - if something were to go wrong would the parJes have intended to take legal acJon?). INTENTION TO CREATE LEGAL RELATIONS •  In domesJc situaJons (ie between family/close friends), it is usually presumed that the parJes do not intend to create legal relaJons. •  However, there can be excepJons. INTENTION TO CREATE LEGAL RELATIONS •  In contrast, in commercial situaJons, it is usually presumed that the parJes intend to create legal relaJons. •  However, again there can be excepJons (eg: when parJes use terms like “subject to contract”, “leger of intent”, “memorandum of understanding”, there may not be an intenJon to create legal relaJons). - Why would parJes want to enter into such an arrangement? Is there consideraJon/intenJon to create legal relaJons in the following situaJons? •  •  •  •  •  •  •  •  (1) going to the restaurant and having a meal (2) going on a public bus (3) studying in NUS (4) buying shares in a public listed company (5) parking your car in a public car park (6) going to a toilet in a shopping centre (7) promising to pay $1,000 to a Charity (8) your parents promising you a trip to Europe, if you get 1st Class Honours InternaJonal Comparisons Offer Acceptance Considera1on Inten1on to Generally, Create Legal must it be in Rela1ons wri1ng? China Yes Yes No No No US Yes Yes Yes No No India Yes Yes Yes Yes No Indonesia Yes Yes No No No Vietnam Yes Yes No No No Malaysia Yes Yes Yes Yes No VARIATION OF CONTRACT •  Once a contract is entered into, subsequently one party may want to make changes/variaJons to the contract. •  Do you think the courts will allow such variaJons easily? If not, why not? VariaJon of Contract •  However, if the original contract expressly and clearly states that such changes can be made, then the changes may be upheld. VARIATION OF CONTRACT •  If the original contract does not expressly/clearly state that such changes can be made, then effecJvely, it is likely making a new contract – in parJcular: the parJes must agree (offer and acceptance) & there must be consideraJon. •  In relaJon to consideraJon, if any 1 of the following 4 elements, are present, the courts have held that, that would suffice: Assuming the contract does not allow the variaJon, for it to be effecJve, there must be: Offer Acceptance ConsideraJon Fresh O Seal or Deed ConsideraJon R O Williams v O Promissory R Roffey R Estoppel (1) FRESH CONSIDERATION §༊ This refers to a situaJon where both parJes agree and both parJes get a fresh/new/direct benefit because of the change. §༊ In such a situaJon, the change can be enforced. (2) CHANGES BY DEED UNDER SEAL §༊ This refers to a situaJon where the change is agreed to by both the parJes by deed under seal. §༊ In such a situaJon, the change can be enforced. (3) WILLIAMS V ROFFEY EXCEPTION §༊  This refers to a situaJon where one party, X, iniJates a change without there being fraud or dishonesty on his part and the other party, Y agrees. §༊  But later, Y objects to the changes. §༊  If Y has gogen, for pracJcal purposes, some benefit or avoids some detriment, the change can be enforced. §༊  (Note: this focuses on the indirect benefit/ detriment to the party objec,ng to the change). Example •  I agree to manufacture pens for you at $10 each. •  AZer that, cost of raw materials go up and I am in financial difficulJes. •  I inform you that I cannot fulfill the order unless you pay me $12 per pen. •  You agree. •  AZer I deliver the pens to you (same quanJty/date as per contract), you refuse to pay the extra. •  Can I sue you for the extra? •  However, what if you agreed to pay more because, you had already entered into a contract to sell the pens to Z for $20 each and if you did not deliver, Z will sue you? (4) PROMISSORY ESTOPPEL §༊  This refers to a situaJon where a change is iniJated by one party, X and the other party Y agrees . §༊  But subsequently, Y goes back on his promise. §༊  If it is very unfair to X (from the court’s viewpoint) if Y were to go back on his promise, the change can be enforced §༊  (Note: this focuses on the unfairness to the party insis,ng on the change). Example •  I agree to manufacture pens for you at $10 each by the 30th of October. •  Later I receive another urgent order. •  I do not have the capacity to fulfill both orders and so ask you whether it is alright if I delivered a week later (ie vary delivery date). •  You agree. •  However, when 30th October comes, you change you mind and decide to sue me for non- delivery. •  Am I liable (ie is the variaJon effecJve)? •  •  •  •  Summary For there to be a valid contract, there must be offer, acceptance, consideraJon (or the document must be a deed under seal) and an intenJon to create legal relaJons. If any one element is missing there will not be a valid contract. For it to be valid, a contract generally does not have to be in wriJng (though a business should seek to have it in wriJng wherever possible to avoid disputes). Once a contract is made, if the parJes seek to vary the contract and such variaJons are not allowed by the original contract, they may not be upheld unless some “excepJon” (namely, fresh consideraJon/deed under seal/ Williams v Roffey/promissory estoppel) is saJsfied. However, there can be uncertainJes as to whether these excepJons apply to a given set of facts – so it is best for the business to have an express/clear variaJon clause in the contract. Readings •  RC Chapter 2 of RC and/or TB Chapter 3- 4 (in respect of both books, need not read part on “parJes to the contract” which will be covered later) and case from lawnet.com. ...
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This note was uploaded on 11/01/2011 for the course BIZAD BSP 1004 taught by Professor Ravichandran during the Spring '11 term at National University of Singapore.

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