CHAPTER 2 Achieving Contract Formation Introduction A contract

CHAPTER 2 Achieving Contract Formation

Introduction • A contract is an agreement between two or more parties that the law recognises and will enforce if necessary. • Businesses enter into contracts with individuals, other businesses and governments to buy and sell goods, services and intellectual property. Contracts can be written, verbal, express or implied. • There should be ‘complete freedom to contract’. This means people entering a contract should have the right to include in it whatever they wish.

Consumer Protection • It has become evident that not everyone has full and free options when entering into a contract, particularly consumers. • As consumers are becoming more vulnerable, the importance and influence of the consumer protection movement has grown. • Both State and Federal Legislation aims to ensure that consumers are treated fairly and to provide protection to those who may be disadvantaged when it comes to entering into contracts.

Contracts For a contract to be formed and recognised by law, the following elements must exist between the parties entering in to the contract: • An intention to create legal relations. • An agreement – consisting of an offer and acceptance. • Consideration or form. The validity or enforceability of the contract is then established by confirming the existence of: • Contractual capacity. • Genuine consent. • Legality of object.

Classification of Contract by Validity Valid Contract – legally binding upon all parties concerned because all six essential elements are present Void Contract - has an essential element missing from the agreement and therefore the agreement has no legal effect. Voidable Contract - because of the conduct of one party, or certain other circumstances, one party may be able to withdraw from the contract. Unenforceable Contract - cannot be enforced because of some kind of technical defect. Illegal - A contract to perform something illegal is void and therefore has no legal effect.

Simple Vs. Formal Contracts A simple contract may be in the form of a written document, a verbal agreement or implied by the conduct of the parties. For a simple contract to exist, it is essential that consideration be present – the exchange of a benefit and a burden between the parties. Both parties give up something and receive something back in return. A formal contract does not require consideration but instead takes its validity from the special and technical way in which it is written down.

Intention to Create Legal Relations • For an agreement to be a contract there must be intention by the parties that their agreement results in binding legal obligations. • Agreements that are clearly social or domestic in nature are not normally intended to be contractual, and therefore would not generally result in legal consequences. • For agreements that are clearly of a business nature, the courts will generally assume that the parties intended to enter into a binding contract.

Agreement: Offer and Acceptance the courts use the principles of offer and acceptance to establish whethere has been an actual agreement (‘a meeting of minds’). • An offer is the communication of a genuine intention to be bound, on certain terms, by the offeror (the person making the offer). • If this offer is then met by an unconditional ‘yes’ from the offeree (the person accepting the offer) there is acceptance and agreement.

What is an Offer? An offer must be communicated to the other party to be valid. It may be communicated verbally, in writing, by email, website or text. An invitation to treat is not an offer but an invitation to the other party to make an offer. In these circumstances the person making the invitation is in a position to receive and, therefore, accept or reject offers made by offerees responding to their invitation to put forward offers. Common examples of invitations to treat include: • Advertisements • Goods Displayed on shelves or in shop windows • Price lists and catalogues

What is an Offer? An offer can be made to: • A particular person, in which case only that person can accept or reject it. • To a particular class or group of persons, in which case only a member of that class or group can accept or reject it. • To the world at large, in which case anyone can accept it.

Other Features of An Offer • An offer may be conditional • An offer may be revoked at any time prior to acceptance • A mere request for information is not an offer

Has an Agreement Been Reached? The courts must consider whether the facts, when viewed objectively as a whole, and with regard to all surrounding circumstances, demonstrate that, from the view of reasonable persons on both sides, a concluded agreement has been reached. If the parties have not reached agreement on the terms which they regard as essential for a binding contract, there can be no binding agreement.

Consideration is the exchange of ‘something’ for ‘something’, or a promise for a promise, that turns the agreement into a contract. Consideration is essential to every valid simple contract, be it verbal, written or implied. Without the exchange of consideration the only way an agreement can be a valid contract is if it is a formal contract. Consideration may be: • A promise for a promise. • An act for a promise. • Forbearance.

Rules for Consideration • • Consideration must be present or future, but not past. Consideration must be more than a person is already obliged to do. Consideration must not be unlawful. Consideration must be possible to perform.