A promise, which results in creation of legal rights and liabilities, covering certain specific elements, and is drawn in particular manner, results in the creation of contract. This promise takes place between a number of parties, which has to be more than one, in which one set offers some terms to be undertaken and the other pays the consideration for upholding such terms. It can be created in a verbal manner, in which this promise is made verbally; or by writing on a document and getting the same signed by the parties, resulting in written contracts. It is important that the promise made in the contract is upheld, or it would result in the contract being breached.
In order to create a contract, there is a need to have the components of offer, which is accepted, and there is presence of consideration, intent, capacity and clarity. All these have to be present together to create a legally binding contract. The given case study revolves around the different aspects of contract law.
The key issue of this case revolves around the presence of a contract between Ashley and Adam.
The contract formation is started when a party makes an offer to another party with some specific terms. There is a need to make differentiation between an offer and an invitation to treat, as the former shows the intention of getting into legal relations and the latter denotes the intention of negotiating upon a possible contract. Hence, invitation to treat comes before the offer. The adverts which can be found in the newspapers or magazines are given the status of invitation to treat as per Partridge v Crittenden. However, where such adverts covers such terms, which can be accepted through performance, it is deemed as unilateral offer as was seen in Carlill v Carbolic Smoke Ball Company.
It is also important to differentiate between offer and request for information. Harvey v Facey was a case in which Harvey showed his interest in the Bumper Hall Pen which was being sold and he wanted to purchase the same at the lowest cash price. To this, Facey had replied that he lowest price for the pen was £900. To this, Harvey replied that they agreed to purchase the pen for 900 pounds, as this was the amount asked by Facey. And he asked Facey to send the title deed for getting early possession. It was held by the Privy Council that no contract had been formed as the stating of lowest price was mere a request for information, instead of an offer. Hence, the lack of intention led to the lack of offer in this case.
After offer has been made, it has to be accepted by the party to which the offer had been made. The acceptance has to be obtained on the exact offer as had been made. Where there is any change in the original offer, the case of Hyde v Wrench provides that a counter offer is made. And this counter offer extinguishes the earlier offer. Gibson v Manchester City Council provided that for an agreement to be present, the acceptance has to be reflected in a proper manner upon the comprehensible offer. In this case, the House of Lords analysed the wordings ‘may be prepared to sell’ as the notification of price, which was not a distinctive offer, thus denying the requirement of acceptance.
Once an offer and acceptance has been established, there is a need to show the presence of consideration element. The consideration needs to be a value or such a thing, which has an economic value and can be decided upon by the contracting parties. Chappell & Co Ltd v Nestle Co Ltd is a leading case in this matter where the court accepted the three wrappers as a valid consideration, due to the context of the case. There is also a need for the consideration to be present and if the same is past, it would not be valid. The consideration needs to only be sufficient and not adequate.
Applying the rules to the facts of this case, a discussion with regards to the intent of the two parties, i.e., Ashley and Adam was carried on. It was show that Ashley was interested in purchasing the products which Adam offered. However, none of the parties stated anything about the particularly products or their aspects. This has to be, at the very best, deemed as negotiations, taking place before offer was made. This is particularly because of a lack of a comprehensible and clear offer in this case. This conversation had only two aspects which are deemed as requisites of contract formation. The parties had the intent of creating a contract and were also interested in creating one. However, a clear offer was lacking in this case, as the parties never clearly stated that they wanted particular products for a specific price or quantity. So, there was also a lack of consideration in this case which meant that the contract was invalid.
Ashley and Adam had a conversation where the information was supplied. Applying the case of Harvey v Facey, there had been no offer made here. When an offer had not been made, the same cannot be accepted. Applying the case of Gibson v Manchester City Council, there was a sheer lack of distinctive offer. Hence, the elements required to create a contract were absent, which meant that no contract was created in between Ashley and Adam.
Conclusion:
Thus, the issue highlighted earlier has been solved and it is presented that there was no contract formation from the conversation which took place between Ashley and Adam.
The key issue of this case revolves around the presence of a contract between Ashley and Adam.
When the process of negotiations of contract takes place, the parties have to take into consideration, different points. When the process of negotiations takes place, the parties often make statements, which can be deemed as a term of the contract or a representation. When the statement becomes part of the contract, it is deemed as a term of contract. And where the statement is not fulfilled, the individuals get the option of making a claim of breach of contract. Though, where the statement is deemed only as a representation, which later on proves to be untrue, it results in the party getting the option of making a case of misrepresentation.
When a false statement, which relates to a fact, is made as a result of which, the other party is forced to go through the contract or is induced into entering into the contract, misrepresentation takes place. Where only a statement is made for the present situation or for the past facts and the same relates to contract, where by the party is influenced to go forward with the contract, it is deemed as representation. Behn v Burness was a case in which it was held by Justice Williams that representation for a contract is related to the contract, but the same never forms a part of the contract. In the case of Ecay v Godfrey, there was a statement made regarding the soundness of the boat. When the matter reached court, it was deemed that the statement made for the soundness was a representation and it had to be considered as an adequate matter for being deemed as a term of the contract. Also, it was shown that the advice relating to the survey of boat covered no aspiration of relying upon the statement which had been made.
There are five vitiating contracts which can be found in a contract and the result of which is the contract being voided. Where the vitiating factors are present, the contract can be invalidated, as a result of which, the terms covered under the contract, coming to an end. The five vitiating factors include misrepresentation, illegality, mistake, undue influence and duress. In Turner v Green it was held that a misrepresentation was a false statement, made in connection to the term of the contract, whereby the party was induced to entering of contract.
In order to create a contract, it is important that the basic elements provided in the previous segment are present. In case these are not present, a contract is not deemed to have been formed. The case study shows that Ashley and Adam decided to create a contract. However, before finalizing this contract, both of them drank alcohol and a statement was then made by Ashley where she presented that she would be willing to purchase anything which Adam was willing to offer. However, this is not a term of contract, owing to the lack of clarity and can be best deemed as representation. This is because this statement can be deemed as having been made for inducing Adam in the contract.
There was a lack of lucid and clearly comprehensible offer in this case. The reason for this stems from the representation made by Ashley, instead of an offer. Applying the case of Ecay v Godfrey, this had to be considered only as a statement owing to the lack of clarity with regards to what was being offered, the price at which it was offered or the terms of this offer. The statement was not clear in any manner, which denied the ability of the statement being deemed as a term of the contract.
When an offer was not made, an acceptance cannot be obtained. The lack of the other elements of a contract, along with offer and acceptance, helps in clearly establishing that no contract had been created at this stage. For making a case of misrepresentation, there was a need to be presented that Adam had been induced to enter in the contract. Though, where a contract had not been created, a claim for misrepresentation cannot be made by Adam, as the statement was vague, resulting in the lack of contract.
Conclusion:
Thus, the issue highlighted earlier has been solved and it is presented that there was no contract formed even at this stage in between Ashley and Adam as a result of representation having been made, instead of terms of contract. And without the presence of a contract, a claim for misrepresentation would not be present.
The key issue of this case revolves around the presence of a contract between Ashley and Adam.
To reiterate, there are certain key elements of contract which have to be present to create a contract and apart from the three explained in detail earlier, i.e., offer, acceptance and consideration, there is a need to concentrate now upon the interplay of clarity, capacity and intent. It is of utmost importance that the terms on which the contract is being created are comprehensible and not ambiguous. In case of ambiguity in the terms of contract, the performance of contract becomes difficult and can also result in different issues being brought forward on the basis of the contractual elements. As a result of these reasons, there is a need for the contractual terms to be very clear. These contractual terms act as the foundation of the contract which give rise to different rights and liabilities of the parties, allowing the matter to be presented before a court of law.
There is a need for the parties to the contract, to have a clear intent of creating legal relations, particularly with regards to the liabilities for not fulfilling the contractual terms. The intent denotes that the parties known that there would be legal repercussions for not following the promise made under the contract. The objectivity test given in Carlill v Carbolic Smoke Ball Company is of assistance in this case. This test provides that for deciding upon the intent of thee parties, the viewpoint of a rationale bystander has to be considered, based on the facts of the case.
The last requirement is for the parties to have the contractual capacity. This refers to the ability of the parties to be able to enter into a contract and is usually covered in terms of sound mind and legal age. The legal age is taken to the age of majority, which means 21 or over. There is also a need for the parties to be free from any kind of coercion, duress or under the influence of alcohol as these have the ability of affecting the judgment of the person. In Singapore, the Minors’ Contracts Act is applicable which has been modified from the common law, in order to give validity to the contracts, which the minors enter into. As a general rule, the contracts do not have the power of entering into a contract and the contract cannot be enforced against minors. However, there is an exception to this rule in the context of the contracts entered for supply of necessity which binds the minor to pay for the contract. The supplies are related to the goods and the services which are deemed as an important element for living. And till the time such contracts are repudiated by the minors upon attaining majority, within a reasonable period of time, the minors cannot be bounded by the contract.
There is a duty which has been posed over the parties to the contract and this is based on the principle of good faith, with regards to the disclosure of the material information regarding the contract, which is present with them. Lambert v Co-operative Insurance Society Ltd was a case in which the court held that the insurance policy had to be rescinded as there was an absence of proper disclosure. In order to make a care regarding misrepresentation, a crucial requirement is to show that the party had relied on the false statement of fact made to them. In Attwood v Small, the House of Lords denied the escape of contract by Attwood, claiming misrepresentation, as they held that Attwood had not relied upon the statement.
Once an offer is accepted, the contractual terms become clear and are finalized. And a contract having the capacity of binding the parties in a legal manner is created once all the relevant elements for the creation of contract are present. During the formation of contract between Ashley and Adam, there was nothing which could lead to Adam believing that Ashley was below the age of 21. This led Adam to believe that Ashley had the requisite contractual capacity for the contract formation purposes.
On the grounds of good faith, there was a failure on part of Ashley as she did not disclose to Adam that she was still a minor. Apart from this, not only she lied about having the contractual capacity, she also misrepresented a statement of fact where she showed that she had turned major, but in reality, did not have the majority age. Applying the case of Lambert v Co-operative Insurance Society Ltd to the present case, the contract can be rescinded at the option of Adam. Apart from this, he can make a claim of misrepresentation against Ashley as she had misrepresented a major fact of this case. This would again allow him to get the contract rescinded since contracts formed from misrepresentation are voidable.
On the other hand, Ashley can talk to Adam regarding this issue and ask to continue with the contract upon attaining majority, which was due just in one week. Hence, she can ask for Adam to continue with the contract instead of getting the same rescinded. This would allow the parties to continue the contract upon Ashley attaining majority on the same terms as were formed under the drawn contract.
Conclusion:
Thus, the issue highlighted earlier has been solved and it is presented that there was indeed a contract formed between Ashley and Adam. And Adam has an option of getting the contract rescinded owing to the misrepresentation of her age. Or, he could choose to continue with the contract, upon Ashley attaining majority in the next week.
Articles/ Books/ Journals:
Andrews N, Contract Law (Cambridge University Press, 2nd ed, 2015)
Blum BA, Contracts: Examples & Explanations (Aspen Publishers Online, 4th ed, 2007)
Elliott C and Quinn F, Contract Law (Pearson Education Limited, 9th ed, 2013)
Emanuel S, Contracts (Aspen Publishers, 8th ed, 2006)
Gibson A and Fraser D, Business Law (Pearson Higher Education AU, 2013)
Helewitz JA, Basic Contract Law for Paralegals (Aspen Publishers Online, 5th ed, 2007)
Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31st ed, 2012)
Marson J and Ferris K, Business Law Concentrate: Law Revision and Study Guide (Oxford University Press, 3rd ed, 2016)
McKendrick E, Contract Law (Pearson Education Limited, 11th ed, 2015)
Mulcahy L, Contract Law in Perspective (Routledge, 5th ed, 2008)
Poole J, Casebook on Contract Law (Oxford University Press, 13th ed, 2016)
Stone R and Devenney J, Text, Cases and Materials on Contract Law (Routledge, 3rd ed, 2014)
Tabalujan BS, Toit-Low VD and Huan JLY, Singapore Business Law (BusinessLaw Asia, 7th ed, 2015)
Cases:
Attwood v Small [1838] UKHL J60
Behn v Burness (1863) 3 B & S 751
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87
Ecay v Godfrey [1947] 80 Lloyds Rep 286
Gibson v Manchester City Council [1979] UKHL 6
Harvey v Facey [1893] UKPC 1, AC 552
Hyde v Wrench [1840] 49 ER 132
Lambert v Co-operative Insurance Society Ltd [1975] 2 Lloyd’s Rep 485
Partridge v Crittenden [1968] 1 WLR 1204
Turner v Green [1895] 2 Ch 205
Legislation:
Contract Law
Minors’ Contracts Act (Cap 389, 1994 Rev Ed)
Others:
Singapore Legal Advice, Requisite elements in the formation of a contract (14 August 2012) <https://singaporelegaladvice.com/law-articles/requisite-elements-in-the-formation-of-a-contract/>
Singapore Law, Ch.08 The Law of Contract (30 April 2015) <https://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-8>
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