Contract Law Report: Elements, Formal Contracts, and Legal Intentions

This report delves into the fundamental principles of contract law, outlining the essential elements required for contract formation, such as offer, acceptance, consideration, and legal intention. It differentiates between written and oral contracts, emphasizing the advantages of written agreements. The report also explores formal contracts, detailing their specific requirements and examples. Furthermore, it analyzes the concept of legal intention, examining how it applies to social and commercial relationships, supported by case law analysis. The report also clarifies the distinction between an agent and an independent contractor, highlighting their differing relationships with the principal and the implications for liability. The report includes a comprehensive bibliography of books, articles, and case laws.

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Solution
A. Contract and its elements
When two parties desire to enter into a contractual relationship then the same can be done by
forming a contract. A contract is an agreement which is enforceable in law. An agreement is the
exchange of offer and acceptance by the offeror and offeree.1
Thus, considering the concept of agreement and contract the main essentials required for the
formation of a contract are:
i. An agreement – An agreement is formed when an offer is supported by an
acceptance. thus, there are two requirements to make an agreement:
a. An offer is the first essential ingredient in contract formation. It is a proposal
which is intended by the offeror and which he transfers to an offeree orally or in
written form. It is a promise to do or not to do certain tasks in exchange of
promise on the part of the offeree2;
b. An acceptance is the second ingredient and is the intention of the offeree which is
communicated in favor of the offer that is received by him. An acceptance is the
approval of the proposal which is reciprocated to the offeror3.
ii. When an offer and acceptance is made then the parties enter into an agreement. This
agreement gets the enforceability of law when it is supported with some gain/benefit.
The consideration moves from the promisor to the promisee to support the promises
that are exchanged amid the parties4;
iii. The offeror and offeree when making the promises should have legal intonation.
Legal intention portrays that the parties are willing to go to the court of law in cases
of disputes5.
iv. The offeror and offeree should also be the parties who are capable to make a contract,
a person is said to be capable when he is not suffering from any kind of mental
incapacity. Also, the parties should have attained the age of majority as per the law of
the land.
1 Kim Forrester, Debra Griffiths, (2014) Essentials of Law for Health Professionals – eBook. Elsevier Health Sciences.
2 Gibson v Manchester City Council [1979].
3 Nissan UK Ltd v Nissan Motor Manufacturing UK Ltd [1994].
4 Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989].
5 Hadley v Baxendale [1854].

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All these essentials together make a contract which is enforceable in law.
B. Need of Written contract
A contract is a document executed by private parties by complying with the elements of contract.
In Australia, there are two kinds of contracts that can be made by the parties:6
The contract that is made by the parties orally or verbally are oral contracts and the contract that
are made by the parties on a piece of paper are written contracts. Both oral and written contract
are valid in Australia, the only requirement is that both the contract must comply with the
elements of contract. Thus, there is no law that a contract has to be in writing in order to be
binding. An oral contract has equal sanctity in law.
However, it is seen that the written contracts are always preferred when compared with an oral
contract. The basic reasons are:7
i. That it is very easy to gave meaning to the contract terms if there is ambiguity in the
contract;
ii. The true intention of the parties can be determined;
iii. Human mind is very freckle and parties tend to forget the terms. If the contract will
be in written form then it is easy to determine the intention of the parties;
iv. Courts are more inclined to rely on written terms when compared with oral terms.
Hence, written contract are preferred over oral contracts even though both are valid in law.
C. Formal Contract and its requirements
Normally when all the contract elements that is, offer, acceptance, intention, consideration and
capacity of the parties are comply with then a contract is formulated by the parties. A contract
can be oral or written. Bit, apart from these two contracts there is also one kind of contract which
is called ‘Formal Contract’.8
6 Emmanuel Laryea (2002) Paperless Trade:Oppertunities, Challenges and Solutions, Kluwer Law International.
7 Findlaw (2017) Is a verbal agreement legally binding?< http://www.findlaw.com.au/articles/5626/is-a-verbal-agreement-
legally-binding.aspx>.
8 Paul Latimer (2012). Australian Business Law 2012. CCH Australia Limited.

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A formal contract is a kind of written contract but to be precise a formal contract is a kind of
contract which requires certain necessities to be fulfilled in order to consider a contract as a
‘formal contract’. Thus, not every written contract is a formal contract and there are few
requirements to convert a contract into a formal contract. The requirements are:
i. That all the contract elements are not required to be present in a formal contract;
ii. There is no need for the presence of any kind of benefit to make a formal contract,
thus, absence of consideration will also make a contract enforceable. There is no need
for the mutual transfer of promise. A written document send in the form of deed to
another party is a kind of formal contract;
iii. A formal contract has the validity of 12 years and after the time span the contract
become unenforceable;
iv. It is necessary that every formal contract must be in written form;
v. It is necessary that a formal contract should be signed by the parties.
The two examples of formal contracts are:
i. Those contracts which are valid without any need to prove the parties intention and
the court rely on the supporting documents to establish the validity of contract. These
are court of records. For example, to be of good behavior, be kind etc.
ii. The contract which are signed and in the form of deed are contract of seal and are
formal contracts
D. Legal intention of the parties
Legal intention of the parties signifies that the offeror and offeree should make offer and
acceptance with the intention they will abide by the promises in legal manner. So, if any disputes
arise then they are willing to go to court of law. However, there is a basic presumption, that if
parties are in social relationship then there is no intention but the same is present when they are
in commercial relationship. But, this presumption can be annulled if evidence are produced. It
was held in Simkins v pays [1955]9 that parties are contractually bound even when they are in
social relationship provided there is legal intention to bind by the contract.
Now,
9 Simkins v pays [1955],

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It is submitted that every Friday night a group of friend meet for drink. $ 2 is contributed by
every friend for a lottery ticket which is taken out over the weekend. Only one friend is
authorized to buy the ticket. When the group won the lottery, the purchaser submitted that since
the relationship is social so there is no contract.
It is submitted that the contribution was made by all the friends in regular manner with the
intention that if they win then they will share the money. Thus, though they are friends but the
legal intention to bind by the ticket jointly is mutual. Thus, by applying the law in Simkins v pays
[1955], it is submitted that evidence is adduced which rebut the principal that there is no legal
intention in social relationship.
Thus, the prize must be distributed amid all the friends as there is a valid contract amid the
parties.
E. Agent or Independent contractor
There is a need to make a distinction of a person as an independent contractor and an agent
mainly because it is their relationship with the principal that analyses the liability of the
principal.
If the person is an agent then he is the authorized representative of the principal and is in the
employment contract with the principal. Every act of the agent is binding on the principal as he is
acting as per the direction of the principal.
But, if the person is an independent contractor then he is not working under the direction and
control of the principal and there is no employment contract. The acts of the contractor are
independent and the principal is not held accountable for the same.10
10 Andy Gibson, Douglas Fraser (2013) Business Law 2014, Pearson Higher Education AU.

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Bibliography
Books/Articles/Journals
Andy Gibson, Douglas Fraser (2013) Business Law 2014, Pearson Higher Education AU.
Forrester, Kim , Griffiths, Debra (2014) Essentials of Law for Health Professionals – eBook.
Elsevier Health Sciences.
Laryea, Emmanuel (2002) Paperless Trade:Oppertunities, Challenges and Solutions, Kluwer
Law International.
Latimer, Paul (2012). Australian Business Law 2012. CCH Australia Limited.
Case laws
Gibson v Manchester City Council [1979].
Hadley v Baxendale [1854].
Nissan UK Ltd v Nissan Motor Manufacturing UK Ltd [1994].
Simkins v pays [1955]
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989].
Online Material
Findlaw (2017) Is a verbal agreement legally binding?<
http://www.findlaw.com.au/articles/5626/is-a-verbal-agreement-legally-binding.aspx>.