Formation of a Contract: Reviewing the Question Essay Example
Formation of a Contract: Reviewing the Question Essay Example

Formation of a Contract: Reviewing the Question Essay Example

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  • Pages: 6 (1377 words)
  • Published: July 18, 2018
  • Type: Agreement
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A contract is an agreement containing promises made between two or more parties with the intention of creating legal rights and obligations enforceable in a court of law. There are three essential elements that must be proven to establish a contract. The first element that must be established is whether or not there was an agreement between the parties. There must be an offer proposed by on party, and acceptance by the other. The second element is whether or not there was the intention to create legal relations.

Each party must intend to create legally enforceable obligations in the form of a contract between one another. The third element, which needs to be proven, is that there was consideration. There must be something of value passing fr


om one party to another in return for a promise to do something. Once all these three elements have been proven, a contract can then be formed. Agreement - Sarah The first part in determining an agreement is the offer. An offer is a statement or conduct showing intention to be bound, without further discussion or negotiation, on the acceptance of terms stated by the offeror, who is the person making the offer.

An offer differs from an invitation to treat, as unlike an offer, it cannot be accepted, it is only a willingness to start the offer and acceptance process. This was established in the case of Partridge v Crittenden (1968) 2 AII ER 421. An offer can be made to one person, or the world at large as found in the case of Carlill v Carbolic Smoke Ball Co. (1983) 1 QB 256.

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An offer can also be terminated, although this must occur before the acceptance. An offer can be terminated by revocation, lapse in time or rejection. A counter offer can also terminate an agreement.

A counter offer is defined as an express or implied rejection of the offeror’s original offer by the offeree. In the case of Sarah and Rebecca, an offer was made as Rebecca sent a letter to Sarah on the 5th of January offering her the bag for $120. This is in fact an offer, not an invitation to treat as there can be acceptance. The offer was made to an individual, not the world at large. Sarah received the offer from Rebecca on the 9th of January and replied with a counter offer, asking if Rebecca is able to get the bag to her included in the price of the offer. Sarah received this letter on the 11th of January.

The counter-offer was then rejected, but the offer stayed open until the 26th of January for further thoughts by Sarah whether or not she should accept the original offer. Acceptance is defined as a statement or conduct, depending on the terms of the offer, showing an intention to accept and offer without further negotiation or discussion. An acceptance has to be both absolute and unqualified, which means to comply with all terms and conditions the offer imposes. The acceptance must be reliant on the offer, this was found in the case of R v Clarke (1927) 40 CLR 227. The method of acceptance must be in the same form of that of the offer.

This can be postal acceptance,

instantaneous acceptance, written acceptance or verbal acceptance. The postal acceptance is when the partied contemplate the use of post as a medium of exchange of promises, which must then abide by the time of acceptance change rule which states that an offer by letter is not affective until received by the offeree, and acceptance is affective as soon as it is posted. This rule was found by the case of Adams v Lindsell (1818) 106 ER 250. In the case of Sarah and Rebecca, the offer was accepted on the 24th of January when Sarah sent a text message replying ‘OK you win.

I’ll give you $120 for it’. Rebecca did not open this message until the 28th of January. Because the acceptance was made as an instantaneous communication, the contract is formed when the acceptance is received. Rebecca did not receive the expectance until 2 days after the time period given. The acceptance was given in the form of instantaneous communications, where as the offer was communicated via post, the acceptance is to be in the same form as the offer. Therefore and was not made between Sarah and Rebecca. Intention to Create Legal Relations - Sarah

The fact that the parties have reached an agreement does not necessarily mean that a contract has been formed. After an agreement has been reached it must be proven that there is the intention to create legal relations. Intention can be expressed in words, writing or conduct, or implied, but if it is not present, there can be no contract. An intention to create legal relations cannot be made between social and domestic agreements, in

the form of family or friends as the courts will presume the parties do not intend to create legal relations. This rule was found in the case of Cohen v Cohen (1929) 42 CLR 91.

In the case of Sarah and Rebecca it is called a domestic agreement. In this case the onus is on Sarah to produce evidence to show that a contract was intended. If the courts find here was intention to create legal relations, the contract will continue. If not, the contract can simply not be formed. Consideration - Sarah Consideration must be present in every simple contract. Consideration is simply the price you pay to buy the other persons promise. This is the concept of price paid which was introduced by the case of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (1915) AC 847.

Consideration must be present or future, but cannot be past. Present consideration is when an act is done in return for a promise, future consideration is when the parties exchange promises and past consideration is when a promise is given after an act. Past consideration is not enforceable by law therefore consideration cannot be made. Consideration must be sufficient, meaning not repeating an existing duty. Consideration must have value, but it does not need to be adequate, though it is left to the parties to decide at the time of the agreement what is adequate.

In the case of Rebecca and Sarah the consideration is future, as Sarah intends to buy the bag for $120, which is going to be done in the future, not the present or past. The consideration

would be sufficient as there is value, in the form of the money being taken for the bag. In conclusion, the courts would not deem the situation between Rebecca and Sarah to be a contract as two of the elements; agreement and intention were not satisfied. Melissa – Consideration In the case of Rebecca and Melissa, consideration cannot be established. Consideration must be of present or future.

The consideration between Rebecca and Melissa is past consideration as Rebecca is offering the bag to Melissa for something Melissa had done in the past. The act must be done in reliance of the offer. Past consideration was deemed ineffective through the case of Roscola v Thomas (1842) 3 QB 234. Rebecca has no legal obligation to give the bag to Melissa, as the courts would find that there was no consideration. Tyrone – Agreement In the case of Tyrone and Rebecca, agreement cannot be established. Tyrone emailed Rebecca with an offer, ‘Ill give you $100 for the bag”. Rebecca replied with ‘Sounds good, how much is US$100 in Australian dollars”.

This is what is called a request for information. Tyrone replied, “You find out. If I don’t hear from you by tomorrow, ill send a money order”. A request for information is not an acceptance of the offer, and nor does it have to be if the information is supplied. This was established in the case of Harvey v Facey (1893) AC 552. Rebecca had not responded to Tyrone the next day, on the 28th of January, she received Tyrone’s money order. Acceptance must be communicated to the offeror either by words or conduct. Silence

from the offereee is not sufficient to create a contract, established in the case of Felthouse v Bindley (1862) 142 ER 1037. The court would find no legal obligation for Rebecca to give the bag to Tyrone, as there was no agreement made in the first instance.

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