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TABLE OF CONTENTS INTRODUCTION .......................................................................................................................... 2 PART 1 The essential elements required for formation a valid contract ..................................... 3 1. Agreement ............................................................................................................................... 3 1.1 Offer .................................................................................................................................. 3 1.2 Acceptance ........................................................................................................................ 4 2. Consideration .......................................................................................................................... 5 2.1 Adequacy and Sufficiency of consideration ..................................................................... 5 2.2 Privity of contract ............................................................................................................. 5 3. Intention to create legal relations ............................................................................................ 6 3.1 Domestic arrangement ...................................................................................................... 6 3.2 Commercial agreement ..................................................................................................... 6 3.3 Capacity ............................................................................................................................ 7 PART 2 The impact of different types of contract ...................................................................... 8 1. Verbal contract ........................................................................................................................ 8 2. Written contract ...................................................................................................................... 8 The parol evidence rule ........................................................................................................... 8 3. Implied contract ...................................................................................................................... 9 PART 3 The effect and meaning of different terms of contract ................................................ 10 1. Condition............................................................................................................................... 10 2. Warranty ............................................................................................................................... 10 3. Implied term .......................................................................................................................... 11 CONCLUTION............................................................................................................................. 12 REFERENCE ................................................................................................................................ 13
Aspects of Contract and Negligence for Business 2012 PART 1 The essential elements required for formation a valid contract
A contract is defined as an agreement which legally binds the parties (Business Law, 2010). A valid contract cannot be formed without these essentials elements: agreement, consideration, intention to create a legal relationship and capacity. 1. Agreement Agreement is basically reached through offer and acceptance. One party makes an offer and another party accept to create a binding contract. 1.1 Offer Offer and acceptance are the first requirements that a contract must to have to identify the validity. The elements are used to determine whether an acceptance exist between the offeror and the offeree. The offer needs to be understood in the proper sense so it has to be specific to prevent a mistake. If an offer is not clear, the acceptance will be invalid and no contract has been made. For example, Colin and Shields hide merchants in London, offer Mr. Hartog Dutch furrier to buy their Argentina hare skin with the price 30,000 skins at 10d per piece; Mr Hartog orally agreed. Finally, Collin and Shields wrote in written offer, they would buy the amount of hare skin with the price 30,000 skins at 10d per pound. It was only a third of the price offer previously. Mr. Hartog wanted this price and Colin v. Shield denied any binding contract was created. The judge decided that there was no any contract. The form of offer contained a mistake. Hare skins were generally sold per piece and Mr. Hartog realized that skins sold per pound would make advantage for him (Hartog v Colin & Shields, 1939) An invitation to treat needs to be distingue from an offer. Invitation to treat is an indication of the preparation to receive offer with the view to forming a binding contract (Business Law, 2010). An offer can be accepted to create a binding contract, but invitation to treat. Invitation to treat can be auction sales, advertisements, exhibition of goods for sale and an invitation for tender. Advertisement and exhibition of goods for sales are the suggestion for customer to make offers to purchase. For example, in the scenario, EZ Kooking sells new and used kitchen devices such
1.2 Acceptance Acceptance is an unqualified agreement to the term of the offer (Business Law, 2010). Acceptance can be expressed by action or words or inferred by conduct. However, acceptance must follow these several rules: The agreement must be clear and certain: The acceptance must match the term of the offer, if appears two offers in term, it said that there is no contract (Tinn v Hoffman & Co, 1873). Besides, the offer must be reasonable and determined objective. If offer was too vague, the contract could not be enforced (Cammell Ltd v Ouston, 1941) Acceptance must be by the person to whom the offer is made It means the offeree must direct or indirect show the acceptance to the offeror. The silence does not represent for the acceptance, acceptance must be replied. Therefore, to indicate the acceptance, the offeree must express it by words or action or through conduct as the case Carlill v Carbolic Smoke Ball Co in 1893. However, in the case which two parties frequently negotiate about the contract, its hard to classify which was offer and which was acceptance. The court would examine the cases circumstance to decide whether agreement was reached or not (Butler Machine Tool v Ex-Cell-O Corporation, 1979)
Aspects of Contract and Negligence for Business 2012 PART 2 The impact of different types of contract
There are three types of contract: Verbal (oral) contract, written contract and implied contract. 1. Verbal contract In verbal contract, two parties create a binding contract by words so it need to be clear and avoided to misunderstanding between two parties. Furthermore, agreement depends on the attitude and faith of two parties. If one of them revokes, itll hard to prove what is right, what is wrong. Verbal contract can have can be support by writing evidence such as letter, email, text (ANDRE, John, 2012) For example, a company orally discussed with a customer about the terms for the provision of services for the contract. In the draft documents passed between them, there was a clause entitling customer terminate the contract in three months notice. But before create a written contract, company did begin provide service for customer. Then customer terminated the contract and the company refused the termination. The held decided the company cannot sue because of the written evidence supported for the oral contract. (BVM Management v Roger Yeomans, 2011) 2. Written contract Written contract is the most trusted type of contract. Written contract is a printed document which collects signs of both parties. It is an evidence of the arrangement between two parties as well as an action to protect both sides from breach of contract. Consumer credit contract and transferring of share or to land must be in written (The Law Commissions Act 1965) The parol evidence rule When contract is writing, all necessary term are presented; it is referred to the written document only. Written contract must be only modified by writing, oral evidence cannot be added, varied or contradicted to the written term. Its called the parol evidence rule. The typical case follow the parol evidence rule is Hawrisk v Bank of Montreal in 1969. In this case, a solicitor signed a guarantee with a bank that the solicitor can had interest from a companys liabilities of buying the asset of a second company. The banks assistant manager oral assurance that guarantee would be released after a joint guarantee was received from the company. Then Nguyen Kim Ngan Gin | F04A - 119 8
Aspects of Contract and Negligence for Business 2012 PART 3 The effect and meaning of different terms of contract
1. Condition Conditions are terms that going to the root of a contract (Business Law, 2010). Condition is done by two parties entering into the contract. If a party breaches the condition, the contract cannot continue the other party can claim damages or end the contract. For example, in the case Associated Newspapers Ltd v Bancks in 1955, Bancks provided a drawing for Associated Newspapers (AN) and they would publish his drawing in the first page of the comic section in the newspaper. AN agreed but in the third publishing, they put Banckss picture in page three. Bancks sued AN for breach of condition and end the contract. The court held decided that the condition in the contract is Banckss picture appeared in the first page and AN breached the condition. Bancks can sue for damages (Associated Newspapers Ltd v Bancks, 1955 ) In the case EZ Kooking v Smith, the condition of contract is EZ Kooking give Smith the right to use the refrigerator in one year and Smith pay EZ Kooking 50 per month. If EZ Kooking withdraws the machine before the contract end or Smith doesnt pay fee, the other party can sued for damage or terminate the contract. 2. Warranty Warranty is an inessential term of contract. It is subsidiary to the main purpose of the agreement (Business Law, 2010). Breach of warranty entitles the innocent party the right to claim damages but cannot terminate the contract. For example, an opera singer agreed to perform for a three month period by contract. He was ill and missed some days of rehearsals. The producer fired him and rescinded the contract. The court held that missing the rehearsals would not lead to the root of the contract. Therefore, the singer just breached the warranty; the producer cannot terminate the contract. (Betti v Gye , 1876) Come back to the case EZ Kooking v Smith, EZ Kooking would guarantee the machine work probably in one year. After one month, its ice-maker stops working, instead of refuse to accept it, EZ Kooking has to fix it for the term of contract. Ms. Smith cannot claim EZ Kooking for breach of contract and get the refund for the first month.
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