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The law of contracts considers such questions as whether a contract exists, what the meaning of it is, whether a contract has been broken, and what compensation is due the injured party. The essential elements of the formation of a valid and enforceable contract can be summarized under the following headings: 1. There must be an offer and acceptance, which is in effect the agreement. 2. There must be an intention to create legal relations. 3. There is a requirement of written formalities in some cases. 4. There must be consideration (unless the agreement is under seal). 5. The parties must have capacity to contract. 6. There must be genuineness of consent by the parties to the terms of the contract. 7. The contract must not be contrary to public policy. In the absence of one or more of the essentials, the contract may be void, voidable or unenforceable. Among these seven elements only three are needed to be present under British law in order for a contract to be valid and enforceable. There must be an offer and acceptance, which is in effect the agreement. In order to decide whether a contract has come into being it is necessary to establish that there has been an agreement between the parties. In consequence it must be shown that an offer was made by one party (the offeror) which was accepted by the other party (the offeree) and that legal relations were intended. A proposal to enter into certain arrangements, usually accompanied by an expected acceptance. For example, an offer to purchase a house for $50,000. It is a proposition to do a thing. An offer ought to contain a right, if accepted; compelling the fulfillment of the contract and this right when not expressed is always implied. By virtue of his natural liberty, a man may change his will at any time, if it is not to the injury of another; he may, therefore, revoke or recall his offers, at any time before they have been accepted; and in order to deprive him of this right the offer must have been accepted on the terms in which it was made. Any qualification of, or departure from those terms, invalidates the offer unless the same be agreed to by the party who made it. When the offer has been made, the party is presumed to be willing to enter into the contract for the time limited, and if the time be not fixed by the offer, then until it be expressly revoked or rendered nugatory by a contrary presumption. Suppose Bob puts up an ad in a Real Estate Magazine implying that he would like to sell his house for $28,500.00. Dole on the other hand offered to buy the house within one week for $27,000.00. Bob declined from Doles offer. Though Dole made a valid offer. An offer must be distinguished from an invitation to treat. For example, a Ralph Lauren sport shirt is displayed in a department store with a price tag of $50. This is merely an invitation to treat. Another example is a billboard (containing text: Pepsi only $1.00 for 2 liters limited time only). This is also considered as an invitation to treat. An invitation to treat is therefore not considered as an offer. The act of agreeing to (accepting) the terms of an offer. For example, an employee accepts an offer of employment by agreeing to work for the employer for the wages offered. A draft, payable at a determinable future, date upon the face of which the drawee acknowledges his obligation to pay it at maturity. It is an agreement to receive something which has been offered. To complete the contract, the acceptance must be absolute and past recall and communicated to the party making the offer at the time and place appointed. In many cases acceptance of a thing waives the right which the party receiving before had; as, for example, the acceptance of rent after notice to quit, in general waives. the notice. The acceptance may be express, as when it is openly declared by the party to be bound by it; or implied, as where the party acts as if he had accepted. The offer, and acceptance must be in some medium understood by, both parties; it may be language, symbolical, oral or written. For example, persons deaf and dumb may contract by symbolical or written language. At auction sales, the contract, generally symbolical; a nod, a wink, or some other sign by one party, imports that he makes an offer, and knocking down a hammer by the other, that he agrees to it. Acceptance of a bill of exchange the act by which the drawee or other person evinces his assent or intention to comply with and be bound by, the request contained in a bill of exchange to pay the same; or in other words, it is an engagement to pay the bill when due. It will be proper to consider, 1, by whom the acceptance ought to be made; 2, the time when it is to be made; 3, the form of the acceptance; 4, its extent or effect. The acceptance must be made by the drawee himself, or by one authorized by him. On the presentment of a bill, the holder has a right to insist upon such an acceptance by the drawee as will subject him at all events to the payment of the bill, according to its tenor; consequently such drawee must have capacity to contract, and to bind himself to pay the amount of the bill, or it, may be treated as dishonored. As to the time when, a bill ought to be accepted, it may be before the bill is drawn; in this case it must be in writing or it may be after it is drawn; when the bill is presented, the drawee must accept the bill within twenty-four hours after presentment, or it should be treated as dishonored. On the refusal to accept, even within the twenty-four hours, it should be protested. The acceptance may be made after the bill is drawn, and before it becomes due or after the time appointed for payment and even after refusal to accept so as to bind the acceptor. The acceptance may also be made supra protest, which is the acceptance of the bill, after protest for non-acceptance by the drawee, for the honor of the drawer, or a particular endorser. When a bill has been accepted supra protest for the honor of one party to the bill, it may be accepted supra protest, by another individual, for the honor of another. As to the form of the acceptance, it is clearly established it may be in writing on the bill itself, or on another paper, or it may be verbal; or it may be expressed or implied. An express acceptance is an agreement in direct and express terms to pay a bill of exchange, either by the party on whom it is drawn, or by some other person, for the honor of some of the parties. It is Usually in the words accepted or accepts, but other express words showing an engagement to pay the bill will be equally binding. An implied acceptance is an agreement to pay a bill, not by direct and express terms, but by any acts of the party from which an express agreement may be fairly inferred. For example, if the drawee writes 'seen,' 'presented,' or any, other thing upon it, (as the day on which it becomes due,) this, unless explained by other circumstances, will constitute an acceptance. An acceptance in regard to its extent and effect, may be either absolute, conditional, or partial. An absolute acceptance is a positive engagement to pay the bill according to its tenor, and is usually made by writing on the bill ' accepted,' and subscribing the drawee's name; or by merely writing his name either at the bottom or across the bill. But in order to bind another than the drawee, it is requisite his name should appear. A conditional acceptance is one which will subject the drawee or acceptor to the payment of the money on a contingency. The holder is not bound to receive such an acceptance, but if he do receive it he must observe its terms. A partial acceptance varies from the tenor of the bill, as where it is made to pay part of the sum for which the bill is drawn, or to pay at a different time. There must be an intention to create legal relations. It is commonly said that in addition to the fact of agreement, assumed by the law as the foundation of contract, it is necessary also that there should be an intention in the parties to create legal relations between themselves. The law does not automatically intervene merely because of the presence of mutual promises. Agreements are made every day in domestic and social life, where the parties do not intend to invoke the assistance of the Courts should the engagement not be honoured. To offer a friend a meal is not to invite litigation. In deciding the question of intention the courts have regard to two main presumptions: 1. that domestic agreements are unenforceable without proof of intention to create legal relations and 2. that commercial agreements are enforceable in the absence of clear legal proof that legal relations were not intended. The subject can be considered under two headings: 1. Cases where the parties have not expressly denied their intention to create legal intentions The defendant was the Chinese ambassador situated in the Philippines. His wife alleged that, while they were both in China, on leave and when it had become clear that she could not travel and accompany the ambassador to the Philippines because of her pregnancy, the husband had promised to pay her $50,000 a month as maintenance during the long visit to Manila. The wife sued for breach of the agreement. The court appeal held that no legal relations had been contemplated and that she had to fail. 2. Cases where the parties expressly deny any intention to create legal relations A strip bar/night club would fall under this category. Since the judges appear to recognize that the clubs and bars are particularly fraudulent in nature between the partners and co-owners involved in the establishment. Therefore the partners would rather discuss business matters and allegations within their own roof. They would stick to each others word of honour rather than go to the courts. There must be consideration (unless the agreement is under seal). The inducement, price or motive that causes a party to enter into an agreement or contract. It is something of value that is given in exchange for getting something from another person. For example, rent payments paid to receive the right to rent an apartment. A compensation which is paid, or all inconvenience suffered by the party from whom it proceeds. Or it is the reason which moves the contracting party to enter into the contract. A cause or occasion meritorious requiring a mutual recompense in deed or in law. A consideration of some sort or other is so absolutely necessary to the forming a good contract that a nudum pactum, or an agreement to do or to pay any thing on one side without any compensation to the other, is totally void in law, and a man cannot be compelled to perform it. But contracts under seal are valid without a consideration or perhaps, more properly speaking, every bond imports in itself a sufficient consideration though none be mentioned. Negotiable instruments, as bills of exchange and promissory notes, carry with them prima facie evidence of consideration. The consideration must be some benefit to the party by whom the promise is made, or to a third person at his instance; or some detriment sustained at the instance of the party promising by the party in whose favor the promise is made. Considerations are good when they are for natural love and affection; or valuable when some benefit arises to the party to whom they are made, or inconvenience to the party making them. They are legal, which are sufficient to support the contract or illegal, which render it void. If the performance be utterly impossible, in fact or in law, the consideration is void. A mere moral obligation to pay a debt or perform a duty is a sufficient consideration for an express promise, although no legal liability existed at the time of making such promise. But it is to be observed that in such cases there must have been a good or valuable consideration; for example, every one is under a moral obligation to relieve a person in distress, a promise to do so, however, is not binding in law. One is bound to pay a debt which he owes although he has been released; a promise to pay such a debt is obligatory in law on the debtor and can therefore be enforced by action. In respect of time, a consideration is either: Executed, or Something done before the making of the obligor's promise. In general, an executed consideration is insufficient to support a contract but an executed consideration on request or by some previous duty, or if the debt be continuing at the time, or it is barred by some rule of law, or some provision of a statute as the act of limitation, it is sufficient to maintain an action; Executory, or something to be done after such promise; Concurrent, as in the case of mutual promises, and; A continuing consideration. When the consideration turns out to be false and fails there is no contract as, for example, if my father by his will gives me all his estate, charged with the payment of a thousand dollars, and I promise to give you my house instead of the legacy to you, and you agree to buy it with the legacy, and before the contract is completed and I make you a deed for the house, I discover that my father made a codicil to his will and by it he revoked the gift to you, I am not bound to complete the contract by making you a deed for my house. II. Mrs. Lim owns an apartment unit, which is rented out. She has to work outstation for six months. She asked her friend Jackie to collect the rent at the end of every month for six months, while she was absent. Jackie collected the rent and deposits them into Mrs. Lim’s bank account every month. When Mrs. Lim returned after six months, she told Jackie that she will give her $500 for the good work. Can Jackie enforce the promise? Let us first of all examine if all of the elements in a contract are present in the case. Was there an offer? Yes. Mrs. Lim offered Jackie $500 for collecting and depositing the rent collected. Was the offer valid? Yes. Was there an acceptance? Yes. The problem did not mention if Jackie said yes or no to the offer. Therefore it is assumed that silence means yes. Besides who would not want to receive an additional $500? Was there an intention to create legal relations? No. Because they were socially related. They were friends. This falls under the social and domestic agreement stating that if it is a domestic agreement between husband and wife, relatives or friends, it is presumed that there is no intention to create legal relations unless the circumstances point to the opposite conclusion. Was a consideration present? No. But a past consideration was present in this situation. Mrs. Lim made the offer after the service was performed. This service was deemed free in the first place. Therefore there was no consideration. Can Jackie enforce the promise? Well, first and foremost, not all the elements of a valid contract were present. Yes there was an offer and acceptance but two other ingredients were missing: a.) the intention to create legal relations and b.) consideration. Second, the promise was merely stated in words and not put into writing. Under the English law of contracts, all agreements should be put into writing otherwise it would be considered invalid/void. The promise is therefore deemed unenforceable. Last but not least, the word “good work” is vague. The term used was not specific. This is similar to the example given in the Principles of Business Law Thames Publication wherein “D agreed to pay a further sum if it was lucky. The offer in this example was too vague. It therefore does not constitute to the validity of the agreement. In conclusion, Jackie cannot enforce the promise of $500 by Mrs. Lim. Bibliography: References: Contracts in a Nutshell (Nutshell Series) By Claude D. Rohwer, Gordon D. Schaber, West Information Pub Group, Paperback,4th edition (June 1997). The Law of Contracts (Hornbook Series. Student Edition) By John D. Calamari, Joseph M. Perillo, The West Group, Hardcover - 850 pages, 4th edition (July 1998). Contracts By John D. Calamari, Joseph M. Perillo, West Information Pub Group, Paperback, 3rd Bk&dsk edition (June 1999). Contracts By Lazar Emanuel, Emanuel Law Outlines, Paperback, (August 1999). The Law of Obligations and Contracts By Hector S. De Leon, Rex Bookstore, Paperback, Revised Editoin (July 1998). The American Bar Association Guide to Consumer Law : Everything You Need to Know About Buying, Selling, Contracts, and Guarantees By American Bar Association. Paperback (January 1997). Anson's Law of Contract By William Reynell Anson, J. Beatson. Paperback (August 1998) Introduction to English Law : (Originally Elements of English Law) (Originally Elements of English Law) By William Geldart, et al. Paperback (November 1995) The Law (In Plain English) for Small Businesses By Leonard D. Duboff. Paperback (July 1998) Http://www.about.com (RE: Contracts) Http://www.infoseek.com (RE: Contracts) Http://encarta.msn.com (RE: Contracts) Http://www.ask.com (RE: Contracts) Http://www.go.com (RE: Contracts) Http://www.altavista.com (RE: Contracts) Http://www.mamma.com (RE: Contracts) Http://www.lawlinks.com Word Count: 2846
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