Law of Contract

Law of Contract

Introduction

A contract is an agreement between two or more parties. A legally binding contract involves agreements between two people that is enforceable in law. Many people come across contracts in their everyday lives. For example, in exchange for weekly or monthly salaries, employees will engage in a contract with their employers, in the supermarket, the exchange of money for drinks and food bought is also a case of a contract, and commercial contracts involve a case where suppliers are handed money in exchange of customers being supplied with goods (Peel, E. and Treitel, G. 2007, 1). Therefore the law of contract applies to the obligations and rights of an agreement between two or more parties – individuals, organizations, or companies). This essay will examine the case scenario presented between Haws Consultants and BKS Supplies while identifying key elements in a contract. The analysis is meant to advice Haws Consultants about their legal options.

The Elements of a Contract

Making of a Contract

Contract formation starts with an offer. This may be an offer for money in return for goods, services in return for other services, or the guarantee for later payment. It is also a show for interest in agreeing to terms between the parties involved. From an offer, the other party can either accept the offer making the basis of an agreement or deny the offer and make a counteroffer (Herriot, P. et al., 1997, 158). However, the invitation to make deals should be differentiated from actual agreements; this is the case of Haws Consultants, they wrote a check after seeing an advertisement on a catalog. Therefore it would be impossible to say that BKS Suppliers breached their terms of a contract by asking for additional payment for the goods ordered.

Key Elements of a Contract

A contract will be considered valid if it meets the following key requirements. Contracts should be based on an offer, consideration, acceptance, and mutuality of obligation, including legality and capacity (Waddams, S. 2010, 340. Contracts don’t need to be in writing; however, a written document would be required for disposition or sale of property or land and entail all the agreement terms.

Offer: is a pledge to act or not to act, that is made in the promise of doing the same in exchange. Some offers need not entail the return of similar actions such as acting or forbearance from taking action. The offer must be extended to initiate a contract. It includes the terms and conditions, including the agreement’s details. Just like BKS Suppliers, businesses will make an invitation to purchase their products through advertisements letting people know they are interested in conducting business.

Acceptance: once an offer has been put forward, it is in the hands of the offeree to either reject or accept the proposal and its conditions. Acceptance should be made in the way specified in the offer. Acceptance is only warranted if the offeree is aware of the offer, and the offeree shows interest to accept the offer. Offers can be accepted either verbally, through mail or emails, it may also include any other reasonable manner (Herriot, P. et al., 1997, 154). Some offers are only accepted through non-performance or the performance of a particular action and are called unilateral agreements.

Consideration: there be an exchange of a valuable thing in legal agreements. Consideration means that the other party is giving something in return. Usually, money is exchanged for property, products, or services offered for the exchange of money. In the case scenario, Haws Consultants wrote a check to BKS Suppliers in exchange for the specific goods they had needed.

Mutuality of obligation: is closely related to consideration, where both parties must be obliged to perform their functions, or the law will treat the party as if neither party is bound to act upon. When both the offeror and the offeree exchange the promises to perform, one party may be denied the absolute right to cancel the contract (Waddams, S. 2010, 342). Such types of agreements grant to provide one party with an opportunity to fulfill its function while not freeing the other part of its duty to perform.

Legality: contracts cannot be made to oversee the function of illegal practices. For instance, it is not possible for a drug dealer to legally enforce a contract of their business counterpart fails to pay them. Each party involved in a contractual agreement must show the legality of their actions.

Capacity: for any valid contract, the parties involved must fully be able to have the legal ability to enter the contract. For instance, it is illegal to get into contracts with minors, persons below the age of eighteen years old. Moreover, people with mental illness or of unsound minds cannot enter into any valid contracts.

Advice to Haws Consultants on their Legal Position

Generally, public advertisements do not qualify for an offer. In the case of Haws Consultants and BKS Suppliers, they are just an invitation to make offers as in “Partridge v Crittenden (1968)”. If only BKS Suppliers advertisement had included a reward option where there are particular terms to be met to claim the reward since contracts cannot be in play under vague circumstances as in “Gunthing v Lynn (1831)” (Collins, H. 1994, 229)

Unilateral Contract

Considering the case of “Carlill v Carbolic Smoke Ball Company (1893),” in an advertisement, Carbolic Smoke Ball Company stated that they would offer a reward of one hundred pounds to any individual who used the smoke ball as instructed but still got infected by influenza. The court decided that even though the offer was made to the global audience and Mrs. Carlill did not provide any notification as to her offer acceptance, her actions met the stated terms, this meant that a valid contract was in play and she, therefore, deserved the reward (Merkin, R. 2010). This is a case of unilateral contract where the offeror promises a reward in return for meeting stated term, and the rights of communication of acceptance were waived.  A unilateral offer is only acceptable when the request is entirely performed. However, considering the advertisement put forward by BKS Suppliers, it does not meet the conditions of a unilateral offer. There were no rewards and particulars that interested buyers should have complied with.

Acceptance of Contract

Silence cannot validate the acceptance in contract formation. Usually, acceptance is communicated to the offeror in to be valid as in the case of “Entores v Far Eastern Corporation (1955).” Silence cannot imply the acceptance of an offer by an offeree. Acceptance is not valid until it is communicated to the offeror.

Communication by post presents several practical difficulties when it comes to the contractual agreement. After an offer is posted, the offeree accepts the offer and mails their acceptance. The acceptance letter takes several days to arrive. It brings a problem, when does the offer come into practice, just after the offeree has posted the letter or after the offeree receives the letter. There is the case of the letter never arriving at their destined address. In this case, the courts developed an exception when it happens that the letter never arrived. This was established in the case of “Adams v Lindsell (1818) and Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879)” The postal acceptance rule was established here where acceptance is complete when accepted (Brownsword, R. 2006, 314). The risk of delay and loss is squarely on the offer. However, this is only an exception to the general rule of acceptance. It does not apply where the letter was placed to the wrong address. Recently courts have had a problem with the postal acceptance rule as it continuously presents several practical challenges. English law requires an almost immediate communication, such as email and fax.

Change of Mind

Until a contract is formed, there is no legal commitment, and any party is allowed to change their minds and leave the negotiating table any time before acceptance. If an offer has been set for a specific period of time, the offeror cannot withdraw the offer until this period is over. Communication is necessary for an actual revocation to go through. According to “Byrne v van Tienhoven (1880),” it is not a must for the offeror to communicate directly to the offeree but can do so using a reliable source (Brownsword, R. 2006, 314). In a unilateral offer, it may seem unfair for the offeror to revoke the contract when the offeree was already acting on his promise. However, the Court of Appeal in the Schweppe v Harper [2008] stated that such cases would be rare.

Privity of Contract

This is a doctrine of common law that blocks an individual who is not a party to that contract from enforcing such a contract, even if the contract was meant to direct benefits to the third-party. “Contract (Rights of Third Parties) Act 1999” in the United Kingdom reformed the doctrine of privity of contract and gave an individual who was not a party to enforce the terms of the contracts on particular circumstances. In a case of “Dunlop v Selfridge (1915),” in the contract between Dunlop and Selfridge, the court ruled that a third-party couldn’t sue Selfridge over price agreements because they were not in agreement with the company (Chen-Wishart, M., 2012). However, the privity rule can cause inequities and disadvantages to the third-parties in some situations. This is why the “Contract (Rights of Third Parties) Act 1999” was established to provide an exception to this rule.

Exceptions to the Rule of Privity

Under the “Contract (Rights of Third Parties) Act 1999,” a person who is not a party to a contract has been granted rights to enforce some terms of the contracts is special circumstances. The parties in the contract can set limits and restrictions on third party rights. If the contracting parties are willing, they may contract out of the right to prevent third-party rights from being invoked (Spruill Jr, J. 1940, 551). The Act is applicable to most of the contracts and precludes the possibility of the harshness of the contract rule Privity in general.

Privity of contracts occurs only between the parties involved in the contract, usually contract the sale of goods and services. Horizontals involve a case where the benefits of the contract agreement have to be given to a third party. Vertical privity involves a contract between two companies and another independent contract between one of these companies and another company or individual. If a third party stands to benefit from a contract between two parties, it cannot go beyond the provision of its benefits in the contractual agreement (Whittaker, S. 1996, 122). This is best explained where a manufacturer sells products to a supplier who, in turn, supplies goods to retailers. The retailers sell these goods to consumers. The contract of privity does not exist between the consumer and the manufacturers.

Conclusions

Haws Consultant needs to understand the laws that determine to contracts to avoid getting themselves in a similar situation like the one with BKS Suppliers. Haws Consultant should know that several elements make up a contract; they include an offer, acceptance, consideration, mutuality of obligation, legality, and capacity. If all these main elements are present in a contractual agreement, then that contract will be valid. Haws Consultant should be careful in making their future contracts by ensuring that the other party has agreed to the terms and conditions before they ratify or accept the contract. This essay also identified that the contract made by Haws Consultant was not valid and proposed measures that would ensure this is not repeated.