a) Offer
An offer normally starts off as a type of proposal. For example, someone may propose to you the idea of going on holiday together; at first this is just a suggestion, however when terms are created and formed, this turns into an offer and in some circumstances a contract. You may agree to share the costs with your friend, at this point, the idea is no longer a proposal but an offer to pay. If your friend accepts this offer, you then have a contract, where your duty is to pay the agreed sum, and your friend also has the obligation to pay his sum.
According to article II – 4:201(1) of the Draft Common Frame Reference, “A proposal amounts to an off if:
a) it is intended to result in a contract if the other party accepts it; and
b) it contains sufficiently definitive terms to form a contract”
b) Invitation To Treat
An invitation to treat is NOT an offer. An invitation to treat is where someone invites someone else to make an offer and then will consider whether to accept reject. If it is an invitation to treat there can be no contract. If displaying a good is considered an invitation to treat, rather than an offer, the shopkeeper is free to change the price of the product, as he is not bound by contractual terms.
Examples of invitation to treat are: articles in shop window, advertisements in newspapers and magazines
Rules about offers
1) Offer must be certain, i.e. both parties know EXACTLY what they have agreed to
2) Offer can be made by any method: writing / spoken / conduct (e.g. at an auction by raising your hand
3) Contracts can be between anyone – (Principle Freedom of Contract): to a single person or a group
4) Offer must be communicated in order to be effective: Person who accepts the offer must know that it is an actual offer when he accepts it, e.g. reward poster for cat, neighbour finds and returns cat but does not know of reward, is not entitled to rewards because does not know of offer.
5) Must be in existence, i.e. within specified time period or if this does not exist, within a reasonable time.
An Acceptance
Must be an agreement to ALL terms of the offer; It MUST be communicated to the offeror – silence will not do. Conduct will suffice, i.e. performing an action that shows you accept the contract, e.g. attending school. Any way of communicating will do as long as it is EFFECTIVE. E-mails are effective when they arrive at the person they were sent to.
POSTAL RULE states that an acceptance is effective as soon as it is posted, if the post is a REASONABLE method to use.
Consideration
Both parties must contribute (put something into) to the contract. Both sides must show that they have given something in return for the other person’s promise. In fact this is the whole purpose of the contract. Consideration must be worth something (value) but it does not have to be worth the same on both sides (adequate); If both sides are happy with the agreement it does not matter what the value is.
Following are NOT good consideration:
Consideration in the past – If the thing being offered already took place before the contract was signed then it cannot be consideration.
If you promise to do something which legally you have to do (a duty to do) then this can’t be consideration.
Cessation of an offer
An offer Ceases when:
1) When time limit for completion expires or lapses
2) If the offer is withdrawn before it is accepted – REVOKED – the person who the offer is being made to must know it is being revoked
3) When it is rejected; When the person selling says no to an offer
4) When a counter offer is made by the offeree, this ends the first contract
Contracts
Definition = According to article II - 1:101 of the Draft Common Frame Reference, "A contract is an agreement which is intended to give rise to a binding legal relationship, or to have some other legal effect. It is a bilateral or multilateral juridical act."
Intention to create legal relations
It is always accepted that in a business agreements it is always presumed by both parties that the agreement is legally binding unless one side can show that it did not intend this. Social and domestic agreements take place in the family and are not normally binding and cannot normally legally be enforced in courts.
Terms of a contract
(i) Express terms = These are very specific and easily understandable by both sides. Can be written or verbal.
(ii) Implied Term = This is not obvious, normally unmentioned and not written, but is assumed to be part of the contract. E.g. that there exists trust between a manager and a worker.
(iii) Conditions = These are the most important terms in a contract and are crucial to the contract taking place. If one side breaks a condition, the other can cancel and is entitled to sue.
(iv) Warranties = Less important part of contract. If broken the contract still carries on but innocent party can sue.
Consequences of entering into a contract:
- the intended legal effect, as agreed by the parties to the contract
- but also other legal effects, which are not intended by the parties, but is supplied by mandatory or dispositive law
(i) Performance = Contract ends when both sides have done everything they needed to do to finish the contract: Whole contract (all parts) MUST be completed; must be performed within a reasonable or specified time.
= Both parties agree / decide to end the contract before it has been completed – can include compensation
(iii) Frustration = Something happens that means the contract cannot be finished or completed if:
- Property involved in contract is destroyed e.g. by fire
- Person due to perform / finish contract because they are ill
- A law is passed that would make the performance (completing) a contract illegal.
Breach of contract
This happens when a CONDITION in the contract is broken. Innocent party can decide whether to continue with contract or end it
Damages:
Innocent party can claim for damages for “natural and foreseeable “ loss
Can claim for specific performance / injunction / rescission
Exclusion Clauses
A clause written in a contract that says how a person is not liable; this is disliked by courts.
Exclusion Clauses are limited by:
Unfair Contact Terms Act
- person cannot be excluded from liability if death or serious injury is a result of negligence
- exclusion clause has to be reasonable
- in consumer law the liability of a person cannot be limited if the outcome of the contract is very different from that that was reasonably expected (performance)
Third Party Rights in a contract
The contract says they have rights or gives them a benefit provided they are made clear who they are in the contract:
- By name
- As a member of a group or class of people
- OR Answers to a particular description
Those under the age of eighteen are able to make a contract but:
- The contract has to be for necessaries, e.g. food / clothing / housing / legal advice and is binding OR
- The contract has to be a beneficial contract of service, e.g. work / training / apprenticeships or something similar and is binding.
- All other contracts are not binding and are VOIDABLE and a minor can pull out of the contract at any time.
