Chapter 7 - Contract law (Part 1). At the end of this chapter you should be able to: describe how contracts can be classified, distinguish formal contracts from simple contracts, identify the six essential elements required to make a valid contract, explain how the law determines whether parties to a contract intend to create a legal relationship, define the term ‘offer’ and distinguish it from an ‘invitation to treat’,...
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Contract Law
Part 1
Chapter 7
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Valid contract
• An agreement made between two or more parties, giving rise to legal rights and obligations which the law will enforce
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Classifications
Classifications Validity Performance Format Formation
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Formation
FORMATION
EXPRESS IMPLIED QUASI
Dependant on By operation of associated conduct law w
WRITTEN SPOKEN
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Intention to create a legal
relationship
Social/domestic agreement Business agreement Assumpti
on No intention to create legal relationship
(Balfour v Balfour)
Intention to create legal relationship
Prove Intention to create
legal relationship
(Todd v Nicol) (Wakeling v Ripley)
No intention to create legal relationship
• Financial disadvantage leaving job
• Expenses incurred in moving
• Selling belongings
• Presumption rebutted in contract
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Format
SIMPLE FORMAL
Verbal, written, implied Written
Consideration must pass Does not require
in both directions consideration passing
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Essential elements of a
contract
• Intention to create a legal relationship
• Offer and acceptance
• Form and/or consideration
• Capacity of parties
• Reality of consent
• Legality of object
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• Offer: A proposal by the offeror that if accepted
by the offeree will create a legally binding contract
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Rules with respect to offer
• An offer is not required to be in any particular form
• The person who makes the offer is called the
offeror; the person to whom the offer is made is the offeree.
• An offer can be made to one or more persons,
even the whole world
• All terms of an offer must be communicated to the offeree
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Rules with respect to offer
- termination
• An offer can be revoked at any time before acceptance
• Revocation must be communicated to offeree
• An offer will lapse if:
1 not accepted within the time stated, or
2 within a reasonable time, or
3 if a counter offer is made, or
4 if a party loses its contractual capacity.
• An offer can be revoked at any time:
1 before acceptance, and
2 if communicated to the offeree.
• An offer will be terminated if rejected
• Death of the offeree or offeror may terminate an offer
• An offer will be terminated if a condition precedent is not met
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Rules with respect to offer -
termination
Termination of offer
Conditional Death of
offer offeree/offeror
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Communication by post: (postal rule): If it is agreed
that post is the method of acceptance and the letter
is stamped and addressed correctly, acceptance
occurs when posted
2 Acceptance relies on the knowledge of an offer.
3 Acceptance must be unqualified.
Acceptance can only be made by the offeree.
Acceptance must take place within a prescribed time or
within a reasonable time.
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Consideration
• Consideration can be regarded as
something done or promised by one party (the promisor) in exchange for something done or promised by the other party (mutual promises).
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Promisor and promisee
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Rules of consideration
1 Past consideration not valid for simple contract
2 Amount of consideration is irrelevant
3 Nature of consideration must be definite
4 Consideration must be able to be performed
5 Consideration must not be illegal or unlawful
6 Consideration must extend beyond what person is already obliged to do in terms of:
a) requirement by law
b) compliance with contract already existing
7 Consideration must move from the promisee
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Promissory estoppel
• If one party to a contract, by its behaviour, leads the other party to the contract to believe a certain state of affairs exists between them, the courts will support that state of affairs rather than the terms of the contract
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Contracts required to be in writing
• Transfer of ownership of a British ship or share in a ship
• Appointment of an agent where the agent will be contracting by deed (Power of
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Contracts required to be
evidenced in writing
Via
• Letters passing between parties
• Receipt for a deposit
• Cheque signed by the purchaser.