Key Elements of a Valid Contract and Their Importance

Custom Student Mr. Teacher ENG 1001-04 28 September 2016

Key Elements of a Valid Contract and Their Importance

I. Task 1: Explain the different types of business agreement and importance of the key elements required for the formation of a valid contract. 1. Key elements of a valid contract and their importance: Contract is very important in the business to bind one or more parties with the others. Hence, contract is defined as an agreement which legally binds the parties[1]. Contract is also an agreement made between two or more parties that create rights and obligations enforceable by law. They have to follow all the conditions in contracts and can not break it. There are three basic requirements that need to be satisfied in order to make a contract: An agreement; consideration; intention and capacity

1.1.An agreement:


Offer is one of two parts of an agreement. An offer is defined promise to be bound on specific terms[2]. Generally, it’s accompanied by an expected acceptance. Offeror is the person who making an offer. Offeree is the one who accepts the offer. For example, the offeror makes an offer to purchase a car. If the offeree agrees, there is an agreement between two parties. An invitation to treat is not an offer, it’s only the invitation the other to make an offer. For instance, the advertising goods for sale through television or newspaper. An offer can be withdrew before the offeree reaches the offer or revoked before offeree’s acceptance.


Acceptance of the offer is the qualified agreement to the terms of the offer[3]. An acceptance is in oral , writing or in other communications. When an offer has been made, no contract is formed until the offeree accepts the offer. In addition, acceptance must be final and unconditional and communicated to the offeror. According to postal rule, the acceptance occurs when the letter is posted. The postal rule is not apply to instantaneous mode of communication.

1.2. Consideration:

Consideration is usually described as being something which represents either some benefit to the person making a promise( the promisor) or some detriment to the person to whom the promise is made( the promisee) or both[4]. A consideration can be executory (a promise in return for a promise) or executed (an act in return for a promise), but not past. For instance, in the case Roscorla & Thomas(1942)[5]. In addition, the consideration doesn’t have to be adequate but must be sufficient. Furthermore, consideration must be legal, clear, certain and not be illusory. 1.3.Intention to create legal relations and capacity to contract: Intention to create legal relations: there are two kinds of intention: Domestic Agreement and Commercial Agreement.

In every domestic agreement between the people who have special relationship, there is no intention to create legal relations. If there is evidence of commercial substance in domestic agreements, there is intention to create legal relation. In contract, the commercial agreements are usually intended to be legally binding. Beside the agreement, consideration and intention, there is also capacity to contract. Capacity refers to ability of parties to fully understand the rights and obligations of an agreement. However, there are some groups which are unable to enter into binding contract: Minors, drunkards, bankrupt, mentally incapacitated.

2. Different types of business agreement:

There are two types of business agreement: consumer non-consumer. 2.1.Consumer: A person will be considered as a customer if he doesn’t make the contract in business but the other parties make. The goods which customer buy must be use for private purpose. Consumers have legislative protection from unfair terms in consumer contracts. A supplier of goods or services can have an advantage over the consumer by including such an unfair term in a contract. however, consumer contracts are open to a test of fairness.

Specifically, a consumer is a person who is buying a service or a product for themselves from someone whose normal business it is to sell that product or service. When you buy goods or services you enter into a contract with the supplier of goods and services. This is called a consumer contract. The example typical example is R&B customs Brokers and United Dominions Trust Ltd 1988[6], this case is considered as a consumer sale, the company is not in the course of business.


Non- consumer contract is the contract which is made between two or more parties which are in the course of business. NN .;,LJLKLKMLMKLMKLM , M. For example, company A buy televisions from company B. the resell the products to customers and make a profit. In this case, the company A is considered as non-consumer.

II. Claim 1:

There are two parties in this case: Trung and supplier. Trung saw an advertisement in the local paper for nearly new machine. The advertisement read: “ A cutting machine $7,000 or nearest offer. In good working order. Recently tested, approved and guaranteed by the Ministry of works. Delivered to your address if within a 15 mile radius of our address”. The advertisement is an invitation to treat. Trung purchased the machine over the telephone and waited for delivery. An invoice was sent for 7,000$ and it was paid. In this case, the invitation to treat of supplier becomes an offer and Trung agreed to purchase it. It’s a good consideration between the supplier and Trung. Hence, there is a contract. However, the machine never arrived. In this situation, the supplier breach the contract. The supplier of the machine claimed that Trung should have paid for delivery and that he had sold it to another customer, Sam for 8,500$.

The supplier is prepared to return Trung’s cheque for $7,000. Situation 1: The way from supplier’s place to Trung’s place is within a 15 miles. The supplier offered Trung to buy the machine and free delivery fee to his address if within a 15 miles radius of his address. In addition, the length of the way from Trung’s place to supplier’s place is 15 miles. Therefore, Trung can sue the supplier for breaching of the contract. Situation 2: The way from supplier’s place to Trung’s place is more than 15 miles. The supplier offered that the delivery fee will be free if the length of the delivery way is within 15 miles. However, the way from supplier’s place to Trung’s place is more than 15 miles. Thus, Trung must pay the delivery fee in order to own the machine.

III. Claim 2:

There are two parties in this case: Robert( the husband) and Theresa( the wife). Robert and Theresa are planning to divorce. They have spent their married life in a house which they bought in joint names, with the help of a mortgage which has six years still o run. Robert and Theresa agree that Robert will move out of the house and if Theresa meets the mortgage repayments for the next six years, Robert will, at the end of that time, transfer sole ownership of the house to her. There is a domestic agreement between Robert and Theresa. Hence, there is no legally binding between the couple. However, Theresa pays the mortgage for a year, at which point Robert says he has changed his mind, and doesn’t intend to transfer his share of the house to her. Thus, there is evidence of commercial substance of Robert. .

It’s similar to the case Merritt& Merritt, 1970 6. Therefore, Theresa can sue him for breaching of contract. If Robert had changed his mind before Theresa had started paying the mortgage, the offer can be revoked any time before the acceptance of Theresa. Hence, Theresa can not sue Robert for breaching of the contract. If there is the same case, the husband should be careful and consider about his benefit when he decide to transfer the owner ship to his wife. In addition, the wife should get divorced with her husband before making a contract to be sure that she will own the house when she finishes paying the mortgage.

IV. Claim 3:

There are 3 parties in this case: Tung, Linh and the hotel. Tung is 16 years old and his friend, Linh is 19 years old. In this case, Tung is in minor group and he is unable to make a contract and irresponsible for all he acts. Tung books the hotel as part of the contract he states that all drinks and extra food are to be put on the bill. The hotel asks for a deposit of $500 which Tung pays but does not state his age. In this situation, there is a contract between Tung and the hotel. However, Tung is in minor group so he is unable to make a contract but the hotel didn’t check and care about his age. One night, Linh became hopelessly drunk, did not know what she was doing and damaged hotel hotel property. Linh was in drunkard and she caused the damages for the hotel. Although she was hopelessly drunk, she only needn’t to pay the damages when she was making the contract. According to Law of Torts, Linh caused the damages and did the legal wrong acts.

Hence, Linh must pay for the damages which was caused by her in this case. The following day they were asked to leave the hotel. They refused to pay the outstanding bills and the hotel gave them a bill for $10000 for the damage they caused. The contract was made between Tung and the hotel. However, the hotel did’t ask his age and allowed him to hire the room. Hence, this is the hotel’s wrong action and Tung needn’t to pay for the outstanding bill of him and Linh.

On the other hand, Tung is in minor group so his parents must pay for the outstanding bills. Therefore, in this case, Linh must pay $ 10.000 for the hotel’s damages. Tung and Linh needn’t to pay for the outstanding bills. However, Tung’s parents must pay for the bill. If Linh made a contract with the hotel and Tung didn’t make it, Linh must pay the outstanding bills for the hotel. Linh is more than 18 years old and she must respond for all her acts. Therefore, the outstanding bill must be paid by Linh and there is no wrong action of the hotel. If there is a similar case, the hotel should ask for the customer’s age before accepting him to hire the room.

V. Task 4: Explain the differences among conditions, warranties and innominate terms with examples to illustrate. 1. Conditions: The condition is defined as a term which is vital to the contract , going to the root of the contract[7]. When a condition is breached, the injured party can sue for the damages. For example, in the case Poussard and Spiers (1876)8, the singer can not sue the company because she breached the condition of the contract. Singing in an opera throughout a series of performance is considered as fundamental to the contract

. 2. Warranties:

Warranties is a less important term. It does not go to the root of the contract, but is subsidiary to the main purpose of the agreement 8. The warranty terms can be breached without highly important consequences. For example, in the case Bettini and Gye, 1876[8], the breach of the clause is considered as breach of warranty. Hence, the producer must accept the opera singer’s services

3. Innominate terms:

The Innominate term is the term which is not a condition term or warranty term. The decision will depend on the nature and effect of the breach. If the effects are serious, the term will act as a condition. In contrast, If the effect of the breach is minor and not serious, the warranty term can be considered. For example, in the case Hong Kong Fir Shipping Co Ltd and Kawasaki Ltd(1962)[9]

VI. Task 5:

What do you understand about law on standard form contracts and give examples. The standard form contract is a standard document prepared by many large organizations and setting out the terms on which they contract with their customers. The individual must usually take it or leave it: he does not really” agree to it”[10]. There are some important features of standard contract. For instance, it’s often used by large corporation or as an attempt to limit liability for damages or losses. The standard form of contract is also used to delayed by the party presenting the standard form agreement[11]. In addition, the company’s representative and customers have no authority to negotiate the standard terms contract. In addition, the standard form contract is also defined as a contract between two parties that does not allow for negotiation.

It is often a contract that is entered into between unequal bargaining partners, such as when an individual is given a contract by the salesperson of a multinational corporation[12]. However, the standard form contract is rarely read. Although the information is discovered, the people might have no time to read it. The expected payoff from reading the contract is low and few people would be expected to read it. However, Standard form contracts may exploit unequal power relations. Once the goods is really important to the customer and they must accept the standard form of contract in order to own the goods. The consumer must accept the standard provisions and does not have the ability to change those terms .

This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms. This issue might extenuate if there mare more suppliers who can offer different terms. This is one typical example for standard form of contract: The Franchisee Plaintiffs’ arguments that the forum selection clause is unconscionable and that it is a contract of adhesion may be taken together. “An unconscionable bargain is one which no man in his senses and not under delusion would make on the one hand, and … no honest and fair man would accept on the other.” The fact that the Franchise Agreement was presented on a take it or leave it basis and was not subject to negotiation renders it neither a contract of adhesion nor unconscionable[13].

VII. Claim 7:

1. The Claim:

There are three parties in this case: Thanh, Tung and another party. Thanh won a contract to refurbish a blocks of 20 flats, the work to be completed within 12 weeks. There is a contract between Thanh and another party to refurbish the blocks. He subsequently subcontracted with Binh to install central heating in each of the flats for a fixed price of $20,000; $10,000 of which was to be paid on completion and the rest being paid in weekly installments. In this case, Thanh promised to pay Binh half of money. Binh agreed to complete the work in 12 weeks. There is an agreements between Binh and Thanh. Hence, there is a contract.

After 6 weeks, Binh is unable to finish the work in 12 weeks because he had underpriced the work involved. After that, Thanh offered to pay Binh an addition $500 for each flat so long as they were all furnished before the due completion date. According to Force Majeure, when the parties can foresee that difficulties are likely to arise but the parties can not foresee their precise nature or extent, Force majeure is applied[14]. Thus, it’s Thanh’s duty to pay more money for Binh to work.

Binh carried on…work on the flats. In this case, Thanh ran out of money and he agreed to pay $5,000 of the money outstanding from the originary agreement. At this time, Binh has a consideration but Thanh didn’t. It’s not an agreement between Binh and Thanh. After that, Thanh awarded a prize $10,000. Thus, it’s Thanh’s duty to pay Binh this amout of money because the contract was made between Binh and Thanh. All in all, Thanh must pay Binh $10,000 of his award prize.

2. The Effects of Exlusion Clause:

An exclusion clause is a clause which seeks to release one of the parties from liability should something go wrong with the contract[15]. Sometimes, the contract are unfair with some of the parties. Thus, the exclusion clauses will avoid liability for certain breaches of the contract. An exclusion clause must be incorporated into contract before it has legal effect. There are three ways of exemption clause which might be incorporated into a contract: by signature, reasonable notice and previous course of dealing.

When a term is unusual, the attention of other parties is drawn to it when the contract is made. The example is in case Interfoto Picture Ltd and Stiletto Visual Programmes Ltd 1988[16]. However, there are some people or organizations who rely on the exclusion clause to make benefit for themselves, the court will interpret any ambiguity. It means that the terms must be clear and specific to be easy for other parties to understand. For example, in the case Hollier and Rambler Motors 1972[17], the acts of the garage can be considered as the negligence.

Reference pages:

1. Common law, BPP professional Education

2. Contract Law, Catherine Elliott and Frances Quinn






  • Subject:

  • University/College: University of Chicago

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 28 September 2016

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