Contract Formation and Breach

This assignment delves into the intricacies of contract formation, outlining the five essential elements required for a legally binding agreement: offer, acceptance, consideration, intention to create legal relations, and legality. It further examines the concept of breach of contract and the potential remedies available to the aggrieved party. The provided scenario illustrates the application of these principles in a real-world lease agreement.

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Business Law Assignment
Lease Contract
22-Jan-18
(Student Details: )

Business Law Assignment
A contract is a legal document, which gives certain rights to the parties to such contract,
and also imposes liabilities on such parties, where the terms of the contract are not followed.
Forming a contract involves a number of phases and has five distinctive elements (Paterson,
Robertson & Duke, 2012). These are also present in the daily based contracts like rental
agreement, property lease or purchase and the like. This discussion is focused on highlighting the
lease agreement entered by person X, in terms of the contract elements, and the result of possible
breach of this contract.
Person X had moved to San Diego from Stanford for the purpose of studying in Ashford
University. This individual wanted a rented accommodation, for which they saw an
advertisement in the newspaper. Upon contacting the landlord for this accommodation, the
landlord quoted a different price than the newspaper advertisement, on which person X raised a
different price. This resulted in the landlord putting up a final offer of $200 per week. The
landlord also put certain conditions like no smoking in the apartment, no changes to the flooring
or walls, certain damage related issues and that a security deposit of $200 would also have to be
deposited, which would not be returned in case the conditions of rent are breached. The lease
agreement was drawn for a period of six months, renewable at the agreement of both parties for
same conditions, but with adjustments to rent, for the next six months. A lease agreement was
thus formed.
In order to form a contract, and for it to have a legal validity, there is a need for the
presence of five elements. These dive elements are offer, acceptance, consideration, capacity and
legality (Blum, 2007). The very first step in forming a contract is for a valid offer to be present.
An offer is made when one party offers certain terms to the other part. The offer has to clear
provide what terms are being offered so that the other party can give their acceptance clearly. An
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Business Law Assignment
important aspect of offer is that it is to be differentiated from an invitation to treat (Treitel &
Peel, 2015). An invitation to treat shows that the party wants to negotiate on a possible contract,
but unlike an offer, there is a lack of intention of creating legal relations. The advertisements
which are given in the newspaper, are deemed as invitation to treat, as was seen in Partridge v
Critenden (1968) 2 All ER 425. So, the newspaper advertisement given for the apartment in the
aforementioned contract was an invitation to treat (Stone & Devenney, 2014).
The next stage in the formation of contract is acceptance. Once a contract has been
formed, it has to be accepted by the party to which the offer was made. In this regard, it is crucial
that the acceptance is given to the exact terms on which the contract was made (Elliot, 2011).
Where there is any change, for instance in the price at which the product is offered, it would be
deemed as a counter offer, as per Hyde v Wrench (1840) 49 ER 132, and this results in the
original offer exhausting (Marson & Ferris, 2015). Thus, the conversations which took place
between the landlord and person X, involved counter offer due to the changed consideration
element.
The next element required for creating a contract is consideration. The amount which is
paid for undertaking the contractual term is the consideration. It has to be present and cannot be
past. Also, it needs to be sufficient and not adequate (Clarke & Clarke, 2016). It is a value which
is mutually decided between the parties. However, the consideration is deemed as valid only
when it has economic value. Chappell and Co Ltd v Nestle Co Ltd [1960] AC 87 brings clarity to
the economic element as in this case, the judges accepted the three wrappers as valid
consideration (E-Law Resources, 2017). In the aforementioned scenario, $200 was the value of
consideration and this was valid due to $200 holding economic value.
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Business Law Assignment
The fourth element in formation of contact is for the parties to have the intention of
creating such relationship, which would result in legal rights and responsibilities, and have
possibility of attracting legal liabilities. The contracts drawn in commercial context come with
the presumption under the law that the parties hold the intention of creating legal relations
through the undertaken contract (Andrews, 2015). As the lease agreement in the scenario
presented above was in commercial context, the intention is present. The last element in contract
formation is legality. The terms on which the contract is formed have to be legal, and cannot be
against any statutory or common law (McKendrick & Liu, 2015). In the aforementioned
scenario, there was nothing illegal in the conditions put by the landlord or in the statements made
by person X.
A contract is thus formed with the presence of the five elements mentioned above, as
have been present in the lease agreement drawn between person X and landlord. Where the terms
on which such contracts are based are not upheld, it results in the contract getting breached. And
when this happens, the aggrieved party can claim monetary compensation or equitable remedies.
For instance, in the lease agreement drawn above, where person X starts smoking in the rented
apartment, the drawn lease agreement would be breached. This would not only result in the
security amount being forfeited but also would give the landlord the opportunity to make a claim
against person B for breach of contract.
To conclude, the formation of a contract is a complex process which includes the
presence of five crucial elements of offer, acceptance, consideration, intention and legality. Upon
such elements being present, a legally binding contract is formed. It is important that the terms
mentioned in the contract are fulfilled properly. Where this is not done, the aggrieved party can
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Business Law Assignment
raise claims of breach of contract and get compensated for the loss they had to bear for the
breach undertaken.
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Business Law Assignment
References
Andrews, N. (2015). Contract Law (2nd ed.). UK: Cambridge University Press.
Blum, B.A. (2007). Contracts: Examples & Explanations (4th ed.). New York: Aspen Publishers.
Clarke, P., & Clarke, J (2016). Contract Law: Commentaries, Cases and Perspectives (3rd ed.).
South Melbourne: Oxford University Press.
E-Law Resources. (2017). Chappel v Nestle [1960] AC 87 House of Lords. Retrieved from:
http://www.e-lawresources.co.uk/Chappel-v-Nestle.php
Elliot, C. (2011) Contract Law (8th ed.). London: Pearson.
Marson, J., & Ferris, K. (2015). Business Law (4th ed.). Oxford: Oxford University Press.
McKendrick, E., & Liu, Q. (2015). Contract Law: Australian Edition. London: Palgrave
Macmillan
Paterson, J.M., Robertson, A., & Duke, A. (2012). Principles of Contract Law (4th ed.). Rozelle,
NSW: Thomson Reuters (Professional) Australia.
Stone, R., & Devenney, J. (2014). Text, Cases and Materials on Contract Law (3rd ed.). Oxon:
Routledge.
Treitel, G H., & Peel, E. (2015). The Law of Contract (14th ed.). London: Sweet & Maxwell.
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