Introduction to business law chapter 2 - Contract Law

Legal Contract

A contract is an agreement made between two or more parties which is legally binding on them. Contractual relationships are fundamental to business. Most people will envisage a contract as a signed document such as a contract for a mobile phone or the hire of a car. However, contracts may be made orally or even inferred from the conduct of parties.

Essential elements of a contract

The following elements are essential to the formation of a valid contract:

Agreement (offer and acceptance of definite terms).

Consideration (a promise to give, do, or refrain from doing something in return for a similar promise).

An intention to create legal relations (usually presumed in a business transaction).

Compliance with required formalities where applicable (although some contracts can be made orally, others must be in writing or by deed to be legally enforceable).

Capacity to contract (there are special laws relating to minors, drunks, mentally disabled persons, and corporations).

How terms are implied in a contract

Terms can be implied in a contract either through common law or through statute.

Void Contract

Void contract: It is not a contract and so has no legal effect. A contract purporting to transfer ownership of goods from party Z to party Y that is void will mean that the ownership of goods never passed, and any further contract purporting to pass the goods on from party Y to party X will also be void.

Voidable contract

Voidable contract: It is a contract that is binding on one party but the other party has the option to have it set aside. Until the contract is set aside, it is treated as a valid contract and goods can be legally transferred under it.

Unenforceable contract

An unenforceable contract: It is a valid contract that the parties are at liberty to carry out, but if one of the parties refuses to carry out their side of the contract the courts will not enforce it. An unenforceable contract only causes problems if it is breached. A contract for the sale of land which is not in writing is unenforceable.

Implied terms

Terms can be implied into a contract by statute or common law. Such as the consumer rights Act 2015 which sets terms as to the quality of products.

Unenforceable terms

There are some unenforceable terms which if put into a contract will not be enforced. Such as the Consumer Rights Act 2015 which states that clauses in consumer contracts (business to consumer) which seek to exclude a party’s liability for death or personal injury through negligence are ineffective.

Bilateral contract

Most contracts are bilateral, which means that each party takes on some sort of obligation, usually promising to do something in return for a promise to do something from the other party.

For example, if Ashwina promises to sell her car to Bejal for £2,000 and Bejal promises to give Ashwina £2,000 is a bilateral contract.

Unilateral contract

A unilateral contract is where one party promises to do something, usually in return for completion of a specified act, but occasionally for refraining to act. The other party does not have to promise to carry out the act.

For example, Carl’s offer to pay a reward of £500 if his lost pet python is returned to him is a unilateral offer. If anyone returns the python, then Carl is obliged to pay the reward (a unilateral contract is formed). However, no one is obligated to look for the python and return it.

Form of contracts

Usually, a contract may be made in any form; it could be made by word of mouth, by conduct, or in writing. Contracts which can be made in any form are known as simpleor parol contracts.

Contract made by conduct

A contract is made by conduct when the actions and behavior of the parties objectively demonstrate an intent to be bound, even without a signed written document or spoken words.

Speciality contracts

However, certain types of contracts have to be in a particular form, in writing or by deed, to be legally enforceable by the courts. These types of contracts are known as specialty contracts.