A report about law of contract

Title Page

Prepared for: Mr. John M. Andre (Lecturer)

Prepared by: Trịnh Ngọc Sơn(David)

ID: FO4-149

Number of word: 3280

Business Law

1
Table of Contents
Title Page.........................................................................................................................................1

Table of Contents.............................................................................................................................2

Introduction......................................................................................................................................4

1.The importance of the essential elements required for the formation of a valid contract............5

1.2 Acceptance.............................................................................................................................6

1.3 Consideration.........................................................................................................................6

1.4 Intent to create legal relations................................................................................................7

1.5 Apply in case 2 of scenario:...................................................................................................8

2 the impact of different types of contract.......................................................................................8

2.1Written contract.......................................................................................................................8

2.2 Oral contract...........................................................................................................................9

2.3 Implied contract...................................................................................................................10

2.4 Apply in case 1 of the scenario.............................................................................................11

3 The meaning and effect of term in different contract and given contract...................................11

3.1 Term of contract and clauses................................................................................................11

3.1.1 Express term..................................................................................................................11

3.1.2 Limitation clause...........................................................................................................12

3.2 The relative important of contractual terms.........................................................................12

3.2.1 Condition.......................................................................................................................12

3.2.2 Warranty........................................................................................................................13

3.2.3 Innominate term............................................................................................................13

3.3 Apply in case 2 of scenario..................................................................................................14

Conclusion.....................................................................................................................................15

2
Reference.......................................................................................................................................15

Appendix........................................................................................................................................16

3
Introduction

The purpose of this report is to give an overview about the law of contract; the scope of the
report can be seen as follow:

 Task 1: The importance of the essential elements required for the formation of a valid
contract

 Task 2: The impact of different types of contract

 Take 3: The meaning and effect of term in different contract and given contract

4
1.The importance of the essential elements required for the formation of a valid contract

A contract may be defined as an agreement which legally binds the parties (BPP, 2010). For a
valid contract, it always contains 4 elements include: Offer, acceptance, consideration and
intention.

1.1 Offer

The first element will be referring which is offer; an offer is a definite to be bound on specific
terms (BPP, 2010, Pg59). An offer must be specific, clear and communicated to avoid the
misunderstanding or trick between people.

Case law: A Newspaper advert placed by the defendant stated: £100 reward will be paid by the
Carbolic Smoke Ball Company to any person who contracts the influenza after having used the
ball three times daily for two weeks according to the printed directions supplied with each ball...
£1000 is deposited with the Alliance Bank, showing our sincerity in the matter. Mrs. Carlill
purchased some smoke balls and used them according to the directions and caught flu. She
sought to claim the stated £100 reward. The manufacture argued that the offer was too vague and
not specific; moreover it isn’t possible since it was offered to the whole world.

Decision: The Smoke Ball must protect the user during the period of use, and the offer is valid

Explanation: Since Smoke Ball Company deposit £1000 in the bank, it proved the intention to be
bound by the law of them. Although the offer didn’t have time limit but it showed the specific
and reasonable time for the person who caught influenza when using the ball. Finally, according
to the Court of Appeal, It is possible to offer to the whole world. Therefore, this is a valid offer.

However, there is a problem related to the offer should be distinguished. It is the invitation to
treat. It differs from the offer at the offer can be bound by law to be accepted, but invitation to
treat cannot be accepted. In the case Partridge and Crittenden 1968, Mr. Partridge have an
advertisement on the magazine to sell some bramble finches, but it was an effort to induce the
offers, so it was invitation to treat.

5
1.2 Acceptance
Acceptance is the unqualified agreement to the term of the offer, and the acceptance can be
express by word or a specific action (BPP, 2010). The acceptance is only valid if it satisfies the
following condition:

 Launched in time according to the provisions of the contract

 Accept all the content of the offer

In the Carlill v Carbolic Smoke Ball Co 1893 which was mentioned in the previous section, the
acceptance of Mrs. Carlill is the action that he purchase and use the smoke ball.

Accept the offer may be by writing, orally or by specific action. However, it should be noted that
silence is not considered agreed in the contract

Case law: In the case of Felthouse and Bindley 1862: the claimant wrote to his nephew offering
to buy the nephew’s house for £30.15, adding “if I hear no more about him, I consider the house
mine at that price”. The nephew intended to accept his uncle’s offer but did not reply. He told the
defendant, an auctioneer, not to sell the house. Owing to a misunderstanding the house was sold
at auction to someone else. The uncle sued the auctioneer in conversion (BPP, 2010).

Decision: The action failed

Explanation: As mentioned before, silence isn’t considered as an acceptance, therefore the uncle
don’t have the valid contract with his nephew.

1.3 Consideration
Consideration is usually described as being something which represent either some benefit to the
person making a promise or some detriment to the person to whom the promise is made
(Elliott&Quinn, 2007)

Consideration is valid when both patties exchange the benefit or something of value such as a
thing, a promise, money or service. For example: A will pay $100 for B to clean A’s house, a give
B money and B provide the service. However, something illegal and impossible can’t count as
consideration

6
Case Law: Broom had an overdraft of £ 22,000 with the bank, and they ask him provide a
security. Mr. Broom promise to do so but he never did. As a result, the bank sued him. Mr.
Broom argued that there wasn’t consideration for his promises to provide security.

Decision: There is a consideration between the bank and Mr. Broom.

Explanation: The consideration of the bank can be understood as promises not to sue Mr. Broom
for a while, and give him time to show the security. Therefore, there is a consideration between
two parties.

1.4 Intent to create legal relations

If two or more parties make an agreement without any intention of being legally bound by it, that
agreement will not be regarded by the counts as a contract (Elliott&Quinn, 2007)

There are two cases happen in this element, first is the domestic contract, and second is the
commercial contract.

The domestic agreement isn’t presumed to have the intention

Case law: A mother promised to pay her daughter $200 per month if she gave up her job and
study for the bar. Later on, the Mother agreed orally to purchase a house for the daughter to live
in. She purchased a large house so that the daughter could rent out other rooms and use the
income as her maintenance. The daughter then married and did not complete her studies. The
mother sought possession of the house, but the daughter want to enforce the agreement (Jones v
Padavatton, 1969).

Decision: There isn’t a valid contract between the mother and her daughter

Explanation: the mother and daughter is a family and it is the domestic contract, moreover, both
contracts are oral. Therefore the court presumed that there is no intention to create legal relation
in this case.

The commercial agreement is the contract between the individual business, and it always
presumes that there is an intention to create legal relative.

7
Case law: Esso ran a promotion whereby any person purchasing four gallons of petrol would get
a free coin from their World Cup Coins Collection. The question for the court was whether these
coins were 'produced in quantity for general resale' if so they would be subject to tax and Esso
would be liable to pay £200,000. Esso argued that the coins were simply a free gift and the
promotion was not intended to have legal effect and also that there was no resale (Esso
Petroleum v Customs & Excise, 1976).

Decision: There is an intention to create a legal contract

Explanation: Esso has use the coin to support his business; therefore it will be counted as a
commercial contract and presumed to have legal intention. However, Esso didn’t sell coin for
money so there was no resale in this case.

1.5 Apply in case 2 of scenario:

In case 2 of scenario Ms. Smith made an offer to lease a refrigerator for one year at the rate of £
50 per month, and EZ Kooking accept with that. The consideration of EZ Kooking is the
refrigerator which exchange with the promises to pay money every month for 1 year of Ms
Smith. This is the commercial agreement between two parties. EZ Kooking intent to create a
legal contract to rent their product, and Ms. Smith intent to create a legal contract to lease
product which fulfill her need. This contract has all of necessary element to be a valid contract
between two parties.

2 the impact of different types of contract

Base on the form, there are two types of contract include written contract, oral contract. Parties
based on the conditions and circumstances of their own to choose the form accordingly.
However, in some cases, the law sets out a form required for each type of contract, the parties
shall strictly comply with regulations. If they violate the form of the contract will lead to the
ability to make the contract invalid.

2.1Written contract
Written contracts include contracts under transaction documents or data messages electronic.

Characteristic:

8
  There are some contract must be in document for example: transfer of share, transfer to
land and consumer credit contract
 It is the evidence which is hard to negate.
 It only can modify by writing
 Most of complex transaction are made in document
(John, 2012)

Case law: An Internet access Company offered its services to potential customers by way of a
membership agreement. Potential customers were directed to scroll down through the agreement
and, if satisfied with the terms (including the monthly fee), were directed to click “agree” on a
box. A user of the service want to terminate his membership, claiming that the provider was in
breach of the contract by failing to provide accurate information about the accounts chargeable to
his credit card. When no agreement could be reached, the user joined in a court case against the
Internet Company for breach of contract.

Discussion: This case is a type of written contract for distance selling. The user has click on the
“agree” in the bottom of the agreement, this electronic signature has the same power as sign in
document. It means the users has read and understands all the term in the agreement and satisfy
with that. Therefore, it is valid contract; the user can’t terminate the contract without penalty.

2.2 Oral contract

Oral contract can be expressed by words or by specific behavior of the parties.

Characteristic:

 Common but perjury, trick and misunderstanding between both patties usually happen
 Accept by specific action such as buy item
 Could be supported with written evidence of terms
(John, 2012)

Case law: A mother promised to pay her daughter $200 per month if she gave up her job and
study for the bar. The daughter did so in 1962. Later on, the Mother purchased a house for the
daughter to live in. She purchased a large house so that the daughter could rent out other rooms
and use the income as her maintenance. The daughter then married and did not complete her
studies. The mother sought possession of the house, but the daughter want to enforce the
agreement (Jones v Padavatton, 1969).

9
Decision: The daughter can’t claim for the possession of the house

Explanation: As an explanation in the previous task about intention, the contract was dismissed
because the domestic agreement presumed not to have intended to create legal relationship.
However, it still has the oral contract before the case is brought to court. A mother made an offer
to pay money for the daughter for her promises, and the daughter accepted.

2.3 Implied contract

An implied contract is an agreement that is formed by nature of the conduct or behavior of the
parties (WiseGeek, n.d)

Characteristic:

 Not written, not oral between the two parties

 Can override written, such as dependence on employer’s past actions (e.g., paying
severance pay)
(John, 2012)
Case Law: The claimant moored his ship at the defendant's wharf on the river Thames. The river
Thames is a tidal river and at times when the tide went out the ship would come into contact with
the river bed. The ship became damaged due to uneven surfaces and rocks on the river bed. The
claimant sought to claim damages from the defendant and the defendant argued that there was no
provision in the contract warranting the condition of the river bed (The Moorcock, 1889)

Decision: The wharf owner have to pay for the damage of the claimant‘s ship

Explanation: there is an implied term in this case, which is the responsibility of the wharf owner.
The time when he operated the wharf, its mean he needs to provide a safety for all the ship
mooring in his wharf. The wharf owner violated the term of the contract; therefore he must pay
the compensation.

2.4 Apply in case 1 of the scenario

In the case 1 of the scenario, EZ Kooking advertised for their product in radio with the sentence
“if the product is not delivered on or before the written Delivery Date, they will refund 50% of

10
the purchase price”. It similar with the valid offer in Carlill v carbolic Smoke Ball, 1893, “if any
person who contracts the influenza after having used the ball three times daily for two weeks
according to the printed directions, Carbolic Smoke Ball Company will pay £100 reward”.
Therefore, it can be counted as a valid offer of EZ Kooking. The claimant accepts the offer by
going to the store and purchases the product. At that time, an oral contract was establish between
claimant and EZ Kooking. In addition, there is one more contract happened which was collateral
contract because the written contract happened at the same time with the oral contract. Therefore,
the promises about delivery service are the term of the contract, and EZ Kooking must refund the
money.

3 The meaning and effect of term in different contract and given contract

In the process of making the contract, the parties may try to convince others by many words.
These expressions can be written into the contract to become the terms of the contract, the terms
which make up the content of the contract. If the terms of the contract are not complied by
parties, it means that the content of the contract is violated. The party violated the term will have
to suffer the sanctions which prescribed by law or agreement of the parties.

3.1 Term of contract and clauses

3.1.1 Express term

Definition: Terms which are clearly agreed upon by all parties to be part of a contract (John,
2012)
Case Law: The claimant purchased a cigarette vending machine for use in her cafe. She signed
an order form which stated in small print 'Any express or implied, condition, statement of
warranty, statutory or otherwise is expressly excluded'. The vending machine did not work and
the claimant sought to reject it under the Sale of Goods Act for not being of merchantable quality
(L'Estrange v Graucob, 1934)
Decision of court: Her claim was unsuccessful
Explanation: After the claimant sign the contract, it mean she has agreed all the term in the
contract and willing to be bound by the law. The case she didn’t see the small print that was her
fault.

11
3.1.2 Limitation clause
Definition: Clause whereby one party seeks to limit their liability (John, 2012)
Case law: The plaintiff deposited a bag in a cloak-room at the defendants' railway station. He
received a paper ticket which read 'See back'. On the other side were printed several clauses
including "The company will not be responsible for any package exceeding the value of £10."
The plaintiff presented his ticket on the same day, but his bag could not be found. He claimed
£24 10s. As the value of his bag, and the company pleaded the limitation clause in defense
(Parker v South Eastern Railway, 1877)

Decision: The judgment was given for plaintiff

Explanation: In this case, the South Eastern railway has limited their responsibility for package
that has value above £10, and it is a reasonable note. The value of plaintiff’s package is £24 10s
which exceed the limitation, therefore the SE railway don’t have responsibility for that package.

3.2 The relative important of contractual terms

Contracts will always contain different types of terms (said or written), some more important
than others. The more important terms are called "conditions", the less important terms are called
"warranties"(Lawhandbook, 2010)

3.2.1 Condition
Definition: Something which goes to the core purpose of a contract (John, 2012)

Effect: If one party has any violation of any condition, no matter how small, the other party will
has the right to terminate the contract and sue for damages.

Case law: Madame Poussard entered a contract to perform as an opera singer for three months.
She became ill five days before the opening night and was not able to perform the first four
nights. Spiers then replaced her with another opera singer, but Poussard want to enforce the
contract (Poussard v Spiers, 1876)

Decision: Poussard violated the contract, and Spiers has right to replace her

12
Explanation: The core purpose of this contract is the voice of Poussard, so it is the condition and
Poussard can’t comply it in the first tour night. Therefore, she was in breach of the contract.

3.2.2 Warranty
Definition: Something which doesn’t goes to the core of a contract (John, 2012)

Effect: warranty is the less important terms, therefore the party which is violated can't cancel the
contract despite how serious violation.

Case law: Bettini agreed by contract to perform as an opera singer for a three month period. He
became ill and missed 6 days of rehearsals. The employer sacked him and replaced him with
another opera singer (Bettini v Gye, 1876)

Decision: The employer still needs to continue the contract

Explanation: Bettini didn’t violate the condition of contract which was the performance in front
of audiences. He just violated the warranty by missing in the rehearsal. Therefore, the contract
remains in force.

3.2.3 Innominate term

Definition: Also known as “intermediate terms” there are term which can be broken with either
important or trivial consequences, depending on the nature of the breach. If the effects of the
breach are serious, the term will act as a condition; if they are minor, it acts as a warranty (BPP,
2010)

Case law: A ship was chartered to the defendants for a 2 year period. The agreement included a
term that the ship would be seaworthy throughout the period of hire. The problems developed
with the engine of the ship and the engine crew was incompetent. Consequently the ship was out
of service for a 5 week period and then a further 15 week period. The defendants treated this as a
breach of condition and ended the contract. The claimants brought an action for wrongful
repudiation arguing the term relating to seaworthiness was not a condition of the contract. (Hong
Kong Fir Shipping v Kawasaki Kisen Kaisha, 1962)

Decision: The claimant won

13
Explanation: The innominate term was first introduced in this case. The “seaworthy” was
unspecific and unclear for the judge to decision which was a condition or warranty. Instead of
trying to find that term belong to condition or warranty; the judge evaluated the effect from the
term. The ship didn’t work for 20 weeks out of 104 weeks; the effect is not much so the court
decides it belonging to the warranty. The agreement must continue, but the defendant was denied
the contract. Therefore the claimant won in this case.

3.3 Apply in case 2 of scenario

In this case, the contract between two parties is valid contract. However, the refrigerator‘s ice
maker didn’t work. It is a small function of the refrigerator and it didn’t affect the main function
of the refrigerator which known as the core purpose of the contract. Therefore, EZ Kooking
violated the warranty of the contract, but Ms. Smith abandoned the agreement and returns the
refrigerator although the contract must continue. In conclusion, Ms. Smith was in breach of the
contract and Mr. Jones will win.

Conclusion

14
In this report, it has showed many relevant cases for each type of theory to bring a clear
explanation for reader. After that, it applies in given contract to analysis and gives my opinion
about each case.

Reference

Elliott, C. and Quinn, F. (2007) Contract law. 6th ed.

Lawhandbook.org.au (2010) THE TERMS OF A CONTRACT. [Online] Available at:

http://www.lawhandbook.org.au/handbook/ch12s01s03.php [Accessed: 19 Nov 2012].

Wisegeek.com (2003) What Is an Implied Contract? [Online] Available at:

http://www.wisegeek.com/what-is-an-implied-contract.htm [Accessed: 19 Nov 2012].

BPP. (2010) Business Law. London:.

15
Appendix

Case 1 of scenario: The undersigned agrees that all products are purchased and that there is no
warranty other than that provided by the manufacturer and there the customer is not to consider
there being any warranty, express or implied from the seller. If the manufacturer does not include
a warranty then the items are without any warranty.

Item purchased: Name of purchaser:

Purchase amount: Address of purchaser:

Purchase date:

Deliver date:

Signed:

Seller: EZ Kooking Purchaser:

The owner also advertises on the radio that for any product bought during December or January,
if the product is not delivered on or before the written Delivery Date, he will refund 50% of the
purchase price. He believes that if this is not in the written contract then it is actually
unenforceable by the buyer.

Case 2 of scenario: The owner is currently being sued by the wife (Louise Cassidy-Williams) of
one of his customers. Her husband (Marty Jay Williams) bought her a new rice cooker (on
December 15th for delivery by January 5th) for her birthday (January 6th) from EZ Kooking, and
the item was delivered on January 7th. The wife is suing claiming that her husband should receive
back 50% of the purchase price because it was promised in the radio advertisements. The owner
claims he has no responsibility because nothing about refunding 50% of the purchase price was
stated in the written contract.

16
Partridge and Crittenden 1968: The defendant placed an advert in a classified section of a
magazine offering some bramble finches for sale. S.6 of the Protection of Birds Act 1954 made it
an offence to offer such birds for sale. He was charged and convicted of the offence and appealed
against his conviction.

17