Formation of Contract, Key Components and Legal Validity

This article discusses the key components of contract formation, including offer, acceptance, consideration, capacity, clarity and intent. It also covers the legal validity of contracts and the remedies available in case of breach. The article uses case studies to illustrate the application of these concepts. Subject, course code, and college/university are not mentioned.

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Question 1
Issue
The key issue of this case relates to the formation of a contract between Ben and Mojo
Beverages on the basis of the given facts.
Rule
Contract is the legal agreement having binding effect where two or more parties make a
promise to either pay the amount of consideration or to carry out the promised task (Andrews,
2015). A contract is usually created in two standard forms, which is of oral form and written
form. The oral contract includes the formation of a contract in an oral or a verbal manner, in
which the terms of contract are discussed orally, without putting anything in writing. The written
contracts are one in which the terms are created by writing them on a paper and signs being
attained on this paper. Irrespective of the kind of contract, both of these are valid in nature
(Gibson & Fraser, 2014).
For the contract to have its legal validity, it needs to have certain key components which
include offer, acceptance, consideration, capacity, clarity and intent (Abbott, Pendlebury &
Wardman, 2007). The initial requirement of contract formation is for the party to give an offer to
the other party, which covers certain terms. This is necessary to be differentiated from an
invitation to treat, which only shows the parties want to negotiate on a possible offer and the
offer instead shows that the parties want to get into a contract (Elliot, 2011). Generally, the
newspaper or the magazine adverts are deemed as offer. When such happens, the advertising
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party, based on Partridge v Crittenden [1968] 1 WLR 1204, is not required to complete the same
(Sward, 2016). Though, when it comes to such terms in the adverts which can be acted upon for
giving the acceptance, the same is deemed as a unilateral offer and a leading example of this is
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 (Bailii, 2017).
The next requirement, after an offer has been made, is to attain an acceptance on the offer
which was made to the other party. The unilateral offer can be accepted merely by performing on
the action. There is also a need to show that reliance was made on the offer. The third element is
for the offer to be coupled with consideration, which holds economic value, and the parties are
free to make decision on what it is (Trietel & Peel, 2015). In the case of Chappell and Co Ltd v
Nestle Co Ltd [1960] AC 87, the judges accepted the three wrappers as proper consideration for
the purpose of the quoted case (E-Law Resources, 2017).
Application
In the given case study, the facts are similar to that of Carlill v Carbolic Smoke Ball
Company. Here also the newspaper advertisement was taken to be the offer as a result of the
same being a unilateral offer. This offer was coupled with a valid consideration, and the same
held economic value. By performing upon the promise which had been made in this case, Ben
gave his acceptance. Despite the rumour he came across, he acted on the offer due to reliance
being placed on it and caught Lord Harry. This would make the acceptance a valid thing due to
the presence of required elements of contract forward. And as per the promise, Mojo Beverage
would owe $100,000 to Ben.
Conclusion
Indeed, a legally binding contract had been formed between the two.
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Question 2
Issue
The key issue of this case relates to the formation of a contract between Livestock
Brokers and Dorper Sheep Sellers Pty Ltd on the basis of the given facts.
Rule
As has already been stated, the formation of contract requires the presence of certain key
components and acceptance is amongst these key components. The offer as has been made has to
be accepted by the accepting party. In case there are any changes made in the original offer, the
communication is not taken to be acceptance and instead is classified as counter offer. Upon such
happens, Hyde v. Wrench (1840) 3 Beav 334 dictates that the original offer expires and cannot be
accepted later on (Marson & Ferris, 2015). The rule regarding date of acceptance is that the same
is attained when the communication reaches the offer making party. Though, the postal rules are
a leading exception of this rule (Paterson, Robertson & Duke, 2012).
Where the post is used as the mode of giving acceptance, the date on which the
acceptance letter was posted would become the date of acceptance instead of the date on which
the letter reaches the offering party and this date remains irrelevant (Latimer, 2012). The reason
for holding this is deeming the postal office as the agent of the offering party and based on the
principles of agency law, the acceptance of the agent is the acceptance of the principal. There is
the applicability of postal rules on the emails and fax communications also (Gibson & Fraser,
2013).
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The status of the postal office being the agent of the offering party was given in Byrne v
Van Tienhoven (1880) LR 5 CPD 344 (Swarb, 2015). In cases where an offer is to be revoked,
the same can be done only before the acceptance is given by the accepting party and before such
acceptance letter is posted. The case of Tallerman & Co Pty Ltd v Nathan's Merchandise (1957)
98 CLR 93 saw the judges stating that the acceptance through postal means is not justified in
those scenarios in which there is absence of justified reasons for the offering party to accept the
post as the post had not been stated as the valid mode of acceptance (Jade, 2017).
Intent is another major element in contract formation which requires the contracting
parties to have the intent of getting in a legal relation. This is followed by the parties of contract
having clarity on the terms on which the contract had been formed. The last requisite component
for forming a contract is for the parties to have the legal capacity of forming a contract and this is
defined in terms of the person being of legal age and having a sane mind capable of taking
decisions (Mulachy, 2008).
Where the parties of the contract are not able to follow the requirements put down under
the contract, the same results in the contract being contravened. And when such happens, the
non-breaching party can apply for different remedies like monetary compensation, or the
equitable remedies like injunction (Latimer, 2012).
Application
In the given case study, the facts highlight the intention of the parties to create legal
relations. This can be evidenced from the offers and counter offers made between them. The
communication which had been sent on 01st June to Livestock Brokers by Dorper Sheep Sellers
in form of a letter would be deemed as an offer as the same offered the other party some terms,
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where there was presence of consideration element also. A counter offer was made by Livestock
Brokers on this offer in which they asked about the sale to be financed in general terms. On this
counter offer, an acceptance was required as the original offer ended with this counter offer. As
no reply had been given on this by Dorper Sheep Sellers, a contract was not formed due to lack
of acceptance.
The communication which was sent on 14th December would be deemed as a new offer
since the original offer was ended with the counter offer of 06th June. Where this is deemed as
acceptance, the communication was sent through fax and not through post. Based on Tallerman
& Co Pty Ltd v Nathan's Merchandise, this was not a justified manner of acceptance. Thus, this
acceptance would remain invalid. Again, due to the lack of acceptance, a contract cannot be
deemed to have been formed, and a lack of contract means no breach of contract can be claimed.
It would be irrelevant that owing to the transmission error the fax was not received by
Dorper Sheep Sellers as the postal rules of acceptance apply and the date of communication is
the date of sending the communication.
Conclusion
Thus, no contract was formed in this case between the two parties.
Question 3
Issue
The key issue of this case relates to the legal rights of Stuart on the basis of the given
facts.
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Rule
Where a contract has been formed and the same is required to be amended at a later stage,
there is a need to redraw the contract to cover the amended terms. This helps in giving a
conclusive effect to the amendments and also helps in the application of the amended terms. In
case the contract is not amended or revised, the original contract is applicable and the
amendments continue to be invalid.
Estoppel is a key principle which helps in stopping the individuals from making such
assertions which are opposite to their earlier position regarding certain matter (Waddams, 2011).
Equitable estoppel is a leading defensive principle which helps in restricting the party from
obtaining an unfair advantage of another party owing to false language or conduct. This doctrine
essentially stops a person from inducing another person, in a particular manner, as a result of
which the other party is harmed. Thus, a person is restricted or precluded from attaining such a
position which is differentiated from the previous time, where the different positions would lead
to harming the other person (Blum, 2007).
Unconscionable conduct refers to a conduct which is unreasonable, particularly the one
which defies good conduct (Vout, 2009). Promissory estoppel under the contract law helps in
preventing the individuals from acting in such a manner whereby the promise has been made to
not do something and the other individual relying on this promise, acts on it (Blum, 2007). This
can be explained with the help of Central London Property Trust Ltd v High Trees House Ltd
[1947] KB 130 case. This case saw the agreement being attained between the two parties to
accept a lower rent during the period of hardships. This promise was not supported with any
consideration. When the war time was over, the claimant asked for the rent to be restored to the
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original rent. And the decision was given in the favour of claimant and the rent was increased
from the period when the hardships ended. The case is more famous for its obiter statement in
which Denning J stated that the claimant would have been unsuccessful where they would have
claimed the amount of rent for the hardship period and in such case the claimant would have
been stopped from claiming such high rent even when this promise was unsupported with
consideration. This was due to the reliance placed by the defendant in this case on the promise
made regarding half rent to be paid during the hardship period and the same being accepted by
the claimant (Stone & Devenney, 2014). A key concept is that of misrepresentation where a
false statement of fact results in the ability of the aggrieved party to rescind the contract
(McKendrick, 2014).
Application
In the given case study, the facts are similar to that of Central London Property Trust Ltd
v High Trees House Ltd. This would mean that the verdict of this case can be applied on the
given case study. This would mean that Start would have to pay the full rent amount from
December 2014 to Westphalia Marts and the reduced rent would not continue. Though, the
applicability of promissory estoppel would mean that Westphalia Marts cannot ask Stuart for
paying the shortfall amount since the period of January 2014. The reason for this is the reliance
made by Stuart on the made promise. This is also because of the unconscionable conduct of
unconscionable conduct undertaken by Westphalia Marts as reliance was made by Stuart on the
reduced rent. The lack of consideration would not impact the promise made and this cannot be
used as an excuse by Westphalia Marts to force Stuart to make payment of the reduced rent. The
unconscionable conduct would be due to the breach of promise where Westphalia Marts showed
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that the income of Mall was healthy. This was false statement of fact made, resulting in presence
of misrepresentation.
Conclusion
Thus, Stuart can use promissory estoppel to stop Westphalia Marts from claiming the rent
for reduced period. Also, claims for unconscionable conduct and misrepresentation can be made
by him against Westphalia Marts.
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References
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1892). Retrieved from: http://www.bailii.org/ew/cases/EWCA/Civ/1892/1.html
E-Law Resources. (2017b). Chappel v Nestle [1960] AC 87 House of Lords. Retrieved from:
http://www.e-lawresources.co.uk/Chappel-v-Nestle.php
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McKendrick, E. (2014). Contract Law: Text, Cases, and Materials (6th ed.). Oxford: Oxford
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Swarb. (2015). Byrne v van Tienhoven and Co: 1880. Retrieved from: http://swarb.co.uk/byrne-
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v-crittenden-qbd-1968/
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