Discuss about the Creating Rights and Obligations Law.
A contract is an agreement in which promises are made by two or more parties who have the intention of creating rights and obligations for such parties that can be enforced in a court of law.
A contract can be described as an official agreement that has been created between two or more parties. The law allows that a contract can be created by the parties in writing or it can also be created only. The contracts that have been created in writing may use formal or informal terms. In the same way, even an entirely verbal contract can also be enforced by the law. However in such a case, it may be difficult to establish the terms of such a contract. Hence, a contract can be described as a promise that has been made by two or more parties and on the basis of which, a judgment can be made by the courts. There are certain essential elements that have to be present in an agreement due to which the agreement becomes a valid contract. If any of these elements is not present, the agreement is not a valid contract and consequently, the courts cannot enforce such an agreement.
The first such element is that of offer. Under the contract law, and offers or a promise has to be made in the contract. If there is no offer, there can be no contract. It is the first element that has to be present for the purpose of making a contract legally enforceable. In order to make an offer, at least there should be two parties. The parties should have the legal capacity to enter into a contract. In case the offer has been accepted and other elements are present, it will amount to a legally enforceable contract. When the offer is being made, the other party comes to know what is being offered and what the other party is expecting in return. It also needs to be noted that a difference exists between and offer and an invitation to treat. The law provides that an invitation to treat is made by a party when it invites the other party to make an offer. An example of the invitation to treat is the goods that have been displayed in a shop window along with their price. In the same way, the goods that have been displayed on the shelf of a shop with a price tag also amount to an invitation to treat. The difference between an invitation to treat and an offer is that while the acceptance of the offer results in the creation of a valid contract, an invitation to treat cannot be accepted for creating a valid contract.
The next element is the acceptance of the offer by the other party. When an offer has been made, the other party is required to accept the offer for the purpose of creating a valid contract. The law requires that the offer should be accepted on exactly the same terms. On the other hand, if while accepting the offer, the other party has introduced certain new terms and conditions, it amounts to a counter offer. On the other hand, a mere request for information is not considered by the law as a counter offer. Therefore in such a case, the offer remains intact. On the other hand, if a counter offer has been made, the original offer is no longer available to such a party. Hence the party making the counter offer is not allowed by the law to accept the original offer later on. The law provides that an offer can be accepted by only the party to whom it has been made. The acceptance is also required to be communicated to the other party. Merely a mental decision to accept the offer which has not been communicated to the other party does not amount to a valid acceptance. Anytime before the offer has been accepted, it can be withdrawn. In Felthouse v Bindley (1862), it was stated that silence cannot amount to the acceptance of the offer. An exception is present to the general rule which requires the communication of acceptance. This acceptance is present in case of unilateral contracts. An example of such a case was seen in Carlill v. Carbolic Smoke Ball Co. (1893).
There is an exception present to the general rule according to which the acceptance becomes effective only when it has been communicated to the party making the offer. Hence the postal rule provides that when post has been contemplated by the parties for the purpose of the exchange of promises, the rule regarding the time of acceptance changes. While an offer that has been sent by post is not effective unless it has been received by the offeree, the acceptance will be considered to be effective as soon as the letter containing acceptance is put in the mailbox (Adams v Lindsell, 1818).
On the other hand, in Entores Ltd v Miles Far East Corp (1955), it was stated by the code that when a party has sent the acceptance of the offer by using an instantaneous mode of communication, the contract is considered to be effective only when such acceptance has been received by the other party.
The next requirement that is present for the creation of the valid contract is that of consideration. Under the contract law, consideration means the thing that will be given back by the other party in return of the promise made under the contract. It amounts to an exchange that takes place between the promisee and the promisor. Without consideration, a legally enforceable contract cannot be created. There are certain rules related with consideration. The law of contract provides that consideration should move from the promisor. The law also provides that past consideration is not a good consideration (Roscorla v Thomas, 1842). In the same way, the law provides that consideration needs to be sufficient but the courts are not going to the question of adequacy of consideration.
Consideration can be of two types, executory consideration and executed consideration. In case of executory consideration, an exchange of promises takes place for performing acts in the future, for example a contract related with the supply of goods according to which A dozen made a promise to deliver goods to B at some future date and in return, a promise is made by B to play on delivery. In case A fails to deliver the goods, it can be considered as a breach of contract and B can sue A. If the goods are delivered by A the consideration becomes executed.
In case of executed consideration, if a party has made a promise in exchange of an act of the other party, when such act is completed, the consideration is known as executed consideration. An example can be given of a unilateral contract in which a reward of $500 has been announced by A to any person who finds and the returns have lost handbag and if B returns the bag, the consideration provided by B is executed consideration.
As mentioned above, the general rule provides that past consideration is not good consideration. However there are certain exceptions to this rule. When the promisor has made a previous request to the other party for providing the goods or services, then a promise that has been made after the goods or services were provided is considered as binding (Lampleigh v Braithwait, 1615). Similarly if something has been done in context of business and both the parties clearly understood that it will be paid for, then also the past consideration is treated as good consideration (Re Casey’s Patents, 1892). These principles were also followed by the Privy Council in Pao On v Lau Yiu Long (1980).
The Law contract also provides regarding consideration that it should be something of a value even if the courts do not go into the issue of legacy of consideration. The result of this position is that things like natural love and affection are not treated by the law as good consideration (Eastwood v Kenyon (1840).
Another requirement related with creating a valid contract is the intention of the parties to enter into a legal relationship. This invention is essential for a valid contract. In this way, the law requires that while entering into the agreement, the parties should have the intention that they are going to enter a legal relationship. The purpose behind the introduction of this requirement is to differentiate between purely social/domestic agreements and the agreements that have been created in context of trade and commerce. Without this requirement, even the routine promises that are made by us in our daily life will also become legally enforceable and the courts will be burdened with a large number of cases. Therefore, a promise made by a friend to go to dinner or a promise made by the father to purchase a new bicycle is not enforceable by law if the parties did not have the intention of creating a legal relationship.
Certainty is the next element that should be present in a valid contract. The law contract requires that the terms and conditions that have been mentioned by the parties in the agreement should have been mentioned clearly and understood by the parties. In case the terms of the agreement are not certain, such a contract is not a valid contract.
According to the contract law, another element that should be present in a valid contract is the capacity of the parties. In this context, capacity to contract means the legal capacity of the parties to enter into a contract. According to the Law, minors, the persons of unsound mind, persons under intoxication etc. are not allowed by the law to create a valid contract. In Nash v Inman (1908), Nash was a tailor who had entered into a contract for supplying Inman, a student at Cambridge for the supply of 11 fencing waistcoats. At that time, Inman was a minor and he already had an adequate supply of clothes. When the cost of these coats was claimed by Nash, Inman tried to rely on his lack of capacity and succeeded.
The court stated that like a lunatic, a minor is also not capable of making a contract in the strict sense of the word. However if a person satisfies the needs of the minor or lunatic and supplies the necessaries of life to such a person, it will be implied that such person has an obligation to repay for these services and this obligation can be enforced against the estate of the minor or the lunatic. But it needs to be mentioned that the basis of this obligation is not contractor but instead the obligation to make a fair payment regarding the needs of the minor that have been satisfied by another person. Therefore, it can be said that a contract created with a minor or a lunatic is voidable under the common law except the necessities of life supply to the minor. In this way, a minor can enter into a contract for supplying the articles at a reasonable price that are reasonable and necessary for supporting the minor in his station in life if the minor does not have a sufficient supply of such articles. However, such a contract can become enforceable only if the two following conditions are satisfied. First of all the contract should be related with the supply of goods that are reasonably necessary for supporting the minor in his station in life and the minor should not already have an adequate supply of these articles.
References:
Adams v Lindsell (1818) 106 ER 250
Carlill v. Carbolic Smoke Ball Co. [1893] 2 Q.B
Eastwood v Kenyon (1840) 11 Ad. & E. 438
Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3
Felthouse v Bindley (1862) EWHC CP J 35,
Lampleigh v Braithwait (1615) Hob 105
Nash v Inman [1908] 2 KB 1
Pao On v Lau Yiu Long [1980] AC 614
Re Casey’s Patents [1892] 1 Ch 104
Roscorla v Thomas, (1842) 3 QB 234
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