The Foundation Of Business Law: Consideration And Legal Intentions In Contract Formation

Issue

Discuss about the Foundation of Business Law.

Whether Derrick and Carmelo have established a valid contract between themselves?

The same has to be evaluated considering two basic elements of the contract, that is, consideration and legal intention of the parties.

When people intents to make a valid contact then there are few ingredients that are required for its formation. A contract is formed when an offer (intention of an offeror to carry out some performance or in action) is undertaken which is duly accepted (when the intention of the offeror is approved by a offeree) by competition parties (offeror and offeree). (The LawHandBook, 2016)

However, in the present given task in order to determine the contractual relationship between Derrick and Carmelo, it is important to understand two more essential elements. They are consideration and legal intent of the parties.

The offeror and the offeree are the parties who make a contract between them. The promises which are exchanged by them should not be gratuitous in nature but must be made between the parties in support of some kind of gain or benefit which in the law of contract is called consideration. For example, in Dunton v Dunton (1892), Mr Dunton agreed to pay his wife provide she behave in sober manner. It was held that to behave in sober manner is a good consideration and thus Mr Dunton must pay his wife. So, a consideration is basically something which is of sufficient value to support the promises though it may not be adequate in nature and is held in Chappell v Nestle (1960), wherein ‘wrappers’ were considered as sufficient consideration . (Lawskool, 2016)

Also, a valid consideration only exists when it is supporting the promises which are of future or present transactions. Any benefits which hold up promises of past are invalid and is held in Roscorla v Thomas (1842), the promise which was desired by the party (that the horse must be sound) does not hold any support and is thus not enforceable. The only consideration that was provided was for that the horse must be sold. (Moles & Bangia, 1998)

Also, it is important to submit that whenever some extra consideration is added in any pre existing promises amid the parties, then, the new consideration must be such which supports some extra benefit. If the extra consideration is supporting those promises which are to be performed regardless of any new support, then, such extra consideration is not enforceable upon the parties and is held in Lampleigh v Braithwait (1615). (McKendrick & Liu, 2015)

Relevant Law

Another element that is very necessary so that the promises that are exchanged amid the parties are enforceable is the intention of the parties to the contract. When the parties make promises to each other then the intention of the parties must be legal in nature and not domestic.

The intention is legal when while making promises the parties wish to inflict their promises in the court of law.  In commercial contract the legal intention is normally found. But, an intention is not legal when the parties when make promises does not inflict their promises in the court of law. In Rose and Frank & Co v Crompton [1923] though the parties are principal-agent of each other but the relationship was not held with legal intent. In family/domestic arena the presence of legal intent is normally not found (Balfour v Balfour (1919). But, the basic rule of the presence if legal intention is not hard and fast and legal intention can be proved in domestic relationship by laying down proof in support of the same Jones v Padavatton (1969). Similarly, at times there is no legal intention when the contract is made between commercial parties. So every exchange of promises between the parties has to be looked into individually in order to determine whether there is presence if legal intention or not. (J Clark, 2016)

After, analyzing the basic legal principles that guide the relationship of an offeror and an offeree. The same is now applied to the given facts and circumstances in order to prove whether Derrick and Carmelo have established a valid contract between themselves especially after considering consideration and legal intention of the parties.

Carmelo, cousin of Derrick, has made a request to him to place a seat on the NBA for an event in June 2016.  Derrick promised to check the availability and then respond with an email. Through an email, Derrick makes an offer of one place left on the NBA wherein he will be provided with a premium travel/accommodation at a price of $25,000.  He further submitted that he can keep the offer open till tomorrow (till business hours). He submits that an acceptance in the form of text or an email will be appropriate.

But, in response to the offer, Carmelo only offered him $20,000 and the rest he submits can be recovered against the services he has offered as an accountant (filling of personal/business tax returns). Derrick approves of the offer of Carmelo but asks Carmelo to deposit the amount in his bank.

Application of Law

Now, it is submitted that the relationship amid the parties is of family relations, but, they do intent to abide by their promises from the very fact that Derrick has asked Carmelo to deposit the money in his bank in order to protect his interest.

But, the consideration which is provided by Carmelo was not valid in law. As he has provided the benefit for an action of past nature and that to the same has been moved from the promisee and not the promisor and hence is invalid. So, there is lack of consideration to support the promises that are made amid the parties.

Conclusion

Thus, though there is legal intention to support the promises which are made between derrick and Carmelo, but the consideration is invalid in law so there is no contract between the parties.

There are two basic issues that are required to be analyzed in the given scenario. The same are:

1. To evaluate the elements that are required for the formation of an agreement are established in order to make a valid contract amid Derrick and Carmelo?
2. If a valid contract between the parties is formed, then, Carmelo has any right to persuade Derrick so that he gave premium accommodation and travel to him?

Now, both these issues that are raised are evaluated on a basic presumption the two most important elements which are needed for any contract formation, that is, consideration and legal intention of the parties are present in given situation.

Now, as already submitted that when people intents to make a valid contact then there are few ingredients that are required for its formation. A contract is formed when an offer (intention of an offeror to carry out some performance or in action) is undertaken which is duly accepted (when the intention of the offeror is approved by a offeree) by competition parties (offeror and offeree). (The LawHandBook, 2016)

To make an agreement the two basic requirements are offer and acceptance. This agreement when combined with intention and consideration results in the formation of a contract. Thus, these two elements, that is, offer and acceptance are defines and understood herein below:-

1. First element in the formation of agreement – OFFER – When one party, called an offeror, exchange promises with another party, called offeree, then, an offer is said to be made (Carlill v Carbolic Smoke Ball Co (1893) wherein the company has made an offer with clear terms and conditions which an expectation of approval. The promise which is exchanged by an offeror is basically the intention of an offeror which he expects from an offeree to be performed. An offer can be made in many forms, such as, verbal, written, electronic, etc. Whenever any offer is made then it must reach in the knowledge of the offeree to consider the same as valid.
2. Second element in the formation of agreement – ACCEPTANCE – As soon an offer is received and brought to the knowledge of the offeree then it is the duty of the offeree either to confirm to the same or to deny the same. When the same is confirmed then it is acceptance in the eyes of law. This acceptance should reach to the knowledge of the offeror to make it valid in law (R v Clarke(1927)

But, the acceptance which is made by an offeree should be such which matches with the terms of the offer. There should not be any deviation in the terms of the acceptance and offer to make them valid and binding.

However, if the offeree while making the acceptance brings some variations in the offer, then, the approval of the offeree is not valid in nature and this action of the offeree is called counter offer in law (Hyde v Wrench [1840] wherein instead of accepting the offer the offeree has made a counter offer nullifying the offer. Counter offer implies that the original offer which is made by the parties is nullified when a counter offer is made and the only offer which is then valid is counter offer only. The offeree who has made the counter offer is the new offeror and the original offeree is then called the offeror who may then agree or disagree with the same. 

Conclusion

The parties who are making the offer and the acceptance must also be of sound mind and must also be major in order to make a valid contract.

Thus,

All the contract elements, that is, agreement, capacity of the parties, consideration and legal intention makes a valid contract in law. 

Now, the legal principles is applied in order understand whether all contractual elements are met between Derrick and Carmelo.

However, the discussion is analyzed on the presumption that consideration and legal intention amid the parties are already met.

As already submitted, that Carmelo, cousin of Derrick, has made a request to him to place a seat on the NBA for an event in June 2016.  Derrick promised to check the availability and then respond with an email.

Derrick offered his services @ 25,000. But, the offer made by Derrick is not accepted and a counter offer was made by Carmelo @ $20,000.

At this point, it is submitted, that the offer made by Derrick is nullified by the counter offer which is made by Carmelo. So, now the offer which is valid is the one which is made by Carmelo of $20,000. Carmelo is the new offeror and Derrick is the new offeree.

The offer of Carmelo is approved by Derrick on the terms specified by Carmelo.

So , an offer was approved by acceptance by capable parties with legal intent and consideration.

So, a contract is made between them.

But, if Derrick is not able to fulfill his promises, then there is breach of contract. So, Carmelo can only sue Derrick but cannot compel him to give premium accommodation and travel to him.

Conclusion

Thus, a valid contract is made between Derrick and Carmelo.

However, Carmelo can sue Derrick for damages but cannot force him to provide premium accommodation and travel.  

Reference List

Books/Articles/Journals

McKendrik & Liu. 2015. Contract Law: Australian Edition. Palgrave Macmillan.

Case laws

Balfour v Balfour (1919)

Chappell v Nestle (1960).

Carlill v Carbolic Smoke Ball Co (1893).

Dunton v Dunton (1892).

Hyde v Wrench [1840]

Jones v Padavatton (1969).

Lampleigh v Braithwait (1615)

Roscorla v Thomas (1842).

Rose and Frank & Co v Crompton [1923].

R v Clarke (1927)

Online Material

Clark J (2016) Intention to create legal relations  (Online). Available at: https://www.australiancontractlaw.com/law/formation-intention.html. [Accessed on 29^th September 2016].

Lawskool. (2016). Contract Law summary (Online). Available at: https://www.lawskool.com.au/content/contract_law_summary_2012_-_sample.pdf. [Accessed on 9^th October 2016].

Moles & Bangia (1998) Consideration – in Acceptance of Contract (Online). Available at: https://netk.net.au/Contract/04Consideration.asp. [Accessed on 9^th October 2016].

The LawHandBook (2016) Essentials elements of a contract (Online). Available at: https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/. [Accessed on 9^th October 2016].