Topic
“An agreement is regarded as a contract when it is enforceable by law”
Table of Content
| S. No | Name of Topic | Page no. |
| 1 | Introduction | 3 |
| 2 | Contract | 4 |
| 3 | Origin and Scope | 4 |
| 4 | Elements | 5 |
| 6 | Offer and Acceptance | 5 |
| 7 | Consideration | 6 |
| 7 | Sufficiency | 6 |
| 8 | Other Jurisdictions | 7 |
| 9 | Formation | 7 |
| 10 | Affirmative defenses | 8 |
| 11 | Procedure of Making or the Terms of a Contract:
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8 |
| 12 | Bilateral and Unilateral Contracts
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10 |
| 13 | Uncertainty, Incompleteness and Severance | 11 |
| 14 | Terms which Regards an Agreement as a Contract? | 11 |
| 15 | Conclusion
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13 |
| 16 | Bibliography | 14 |
“An agreement is regarded as a contract when it is enforceable by law”
1. INTRODUCTION:
Agreements are legal and binding documents that define the obligations of all parties involved in a project, service etc. Throughout the planning, design, and construction phases of a project, the possibility of entering into an agreement or agreements always exists. Every effort should be made to identify cooperative features as early as possible in the project development stage.
The purpose of an Agreement is to:
- Provide a detailed outline of the responsibilities of the parties involved. These responsibilities are referred to as “obligations”.
- Grant permission to perform work on or across right-of-way belonging to others; provide for temporary or permanent street closures; obtain approval for any required changes of grade; etc.
- Transfer jurisdiction or abandon a section of roadway from one agency to another.
- Determine long-term responsibility for a facility such as maintenance of a traffic control signal or landscaping.
- Provide additional support to ODOT permits or other documents.
- Establish specific criteria for local land use and access management decisions affecting an ODOT transportation facility.
- Coordinate with local agencies and provide guidance on federally funded non-highway projects.
- Address funding and cost responsibilities for planning; project development; right-of-way acquisition; construction; maintenance; etc.
- Allow ODOT and local agencies to share resources through maintenance agreements.
2. Contract:
On the other hand contract is a legally binding agreement. In order for a contract to be created, one of the parties must make an offer to the other party and the other party must accept this offer. Furthermore, the circumstances in which the offer and the acceptance were made must indicate that the parties intended to enter to enter into a legal relationship. A final requirement, which distinguishes contracts for gifts, is that the two contracting parties must both give some benefit (known as consideration) to the other. There are then four requirements of a contract. There must be an offer, an acceptance of that offer, an intention to create legal relations and consideration given by both parties. So, from the above verdict the elements of a contract is as follows
Offer
+
Acceptance
+
Intentions to create legal relations = Contract
+
Consideration given by both parties
3. Origin and Scope
Contract law is based on the principle expressed in the Latin phrase pacta sunt servanda, which is usually translated “agreements to be kept” but more literally means “pacts must be kept[1]”
Contract law can be classified, as is habitual in civil law systems, as part of a general law of obligations, along with tort, unjust enrichment, and restitution.
As a means of economic ordering, contract relies on the notion of consensual exchange and has been extensively discussed in broader economic, sociological, and anthropological terms (see “Contractual theory” below). In American English, the term extends beyond the legal meaning to encompass a broader category of agreements[2].
.However, contract is a form of economic ordering common throughout the world, and different rules apply in jurisdictions applying civil law (derived from Roman law principles), Islamic law, socialist legal systems, and customary or local law.
4. Elements
At common law, the elements of a contract are mutual assent and consideration.
Mutual Assent
At common law, mutual assent is typically reached through offer and acceptance, that is, when an offer is met with an acceptance that is unqualified and that does not vary the offer’s terms. The latter requirement is known as the “mirror image” rule. If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a rejection of the original offer.
5. Offer and Acceptance
The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. This can be called a concurrence of wills or consensus ad idem (meeting of the minds) of two or more parties. The concept is somewhat contested. The obvious objection is that a court cannot read minds and the existence or otherwise of agreement is judged objectively, with only limited room for questioning subjective intention: see Smith v. Hughes[3]. Richard Austen-Baker has suggested that the perpetuation of the idea of ‘meeting of minds’ may come from a misunderstanding of the Latin term ‘consensus ad idem’, which actually means ‘agreement to the [same] thing’[4]. There must be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent, and a contract will be formed when the parties have met such a requirement[5]. An objective perspective means that it is only necessary that somebody gives the impression of offering or accepting contractual terms in the eyes of a reasonable person, not that they actually did want to form a contract.
6. Consideration
Consideration is something of value given by a promissor to a promisee in exchange for something of value given by a promisee to a promissor. Typically, the thing of value is an act, such as making a payment, or a forbearance to act when one is privileged to do so, such as an adult refraining from smoking. The purpose of consideration is to ensure that there is a present bargain, that the promises of the parties are reciprocally induced. The classic theory of consideration required that a promise be of detriment to the promissor or benefit to the promisee. This is no longer the case.
7. Sufficiency
Consideration must be sufficient, but courts will not weight the adequacy of consideration. For instance, agreeing to sell a car for a penny may constitute a binding contract[6]. All that must be shown is that the seller actually wanted the penny. This is known as the peppercorn rule. Otherwise, the penny would constitute nominal consideration, which is insufficient. Parties may do this for tax purposes, attempting to disguise gift transactions as contracts.
Transfer of money is typically recognized as an example of sufficient consideration, but in some cases it will not suffice, for example, when one party agrees to make partial payment of a debt in exchange for being released from the full amount[7].
Past consideration is not sufficient. Indeed, it is an oxymoron. For instance, in Eastwood v. Kenyon[8], the guardian of a young girl obtained a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise because taking out the loan to raise and educate the girl was past consideration—it was completed before the husband promised to repay it.
The insufficiency of past consideration is related to the preexisting duty rule.” The classic instance is Stilk v. Myrick[9], in which a captain’s promise to divide the wages of two deserters among the remaining crew if they would sail home from the Baltic short-handed, was found unenforceable on the grounds that the crew were already contracted to sail the ship through all perils of the sea.
The preexisting duty rule also extends beyond an underlying contract. It would not constitute sufficient consideration for a party to promise to refrain from committing a tort or crime, for example[10]. However, a promise from A to do something for B if B will perform a contractual obligation B owes to C, will be enforceable – B is suffering a legal detriment by making his performance of his contract with A effectively enforceable by C as well as by A[11].
Consideration must move from the promise. For instance, it is good consideration for person A to pay person C in return for services rendered by person B. If there are joint promises, then consideration needs only to move from one of the promises.
8. Other Jurisdictions
Some common-law and civil-law systems[12] do not require consideration, and some commentators consider it unnecessary—the requirement of intent by both parties to create legal relations by both parties performs the same function under contract. However, legislation, rather than judicial development, has been touted as the only way to remove this entrenched common law doctrine. Lord Justice Denning famously stated that “The doctrine of consideration is too firmly fixed to be overthrown by a side-wind[13].”
9. Formation
In addition to the elements of a contract:
- a party must have capacity to contract;
- the purpose of the contract must be lawful;
- the form of the contract must be legal;
- the parties must intend to create a legal relationship; and
- the parties must consent.
As a result, there are a variety of affirmative defenses that a party may assert to avoid his obligation.
10. Affirmative Defenses
Vitiating factors constituting defenses to purported contract formation include:
- mistake;
- incapacity, including mental incompetence and infancy/minority;
- duress;
- undue influence;
- unconscionability;
- misrepresentation/fraud; and
- Frustration of purpose.
Such defenses operate to determine whether a purported contract is either (1) void or (2) void able. Void contracts cannot be ratified by either party. Void able contracts can be ratified.
11. Procedure of Making or the Terms of a Contract:
A contract is made up of terms. All of the promises which the contract contains, whether they were made expressly or impliedly, will be terms.
Terms can find their ways into contracts in one of two ways, they can be expressed in speech or writing or they can be implied. Express terms are actually agreed by the parties in words, implied terms are implied either by the court (on the grounds of the pressured intention of the parties) or by a statute.
Terms implied by the Terms implied by statue
Courts
Offer (proposes express terms)
+
Acceptance
Figure: The ways in which terms arise
According to a research of ‘University of Western Sydney’ these four elements or ingredients make an agreement legally banded. Such as an offer to do something which clearly states and defines its intentions. Generally, the greater the value of the contract, the longer the life of. This offer includes –
- Advertisements which include price details
- Tender submissions
- Formal quotations
- Proposals to lease
The offer must be clearly understood and its acceptance must be definite. Where acceptance is given with conditions, the acceptance is not complete until the conditions are fulfilled.
Acceptance can be given in the following ways:
- Verbally
- In writing
- By action which clearly indicates acceptance
The parties to the agreement must understand that the agreement can be enforced by law. However, for a contract to be binding, it does not have to expressly state that you understand and intend legal consequences to follow. For example, given that your intention will be presumed, it must be made absolutely clear if you do not intend your agreement to be a binding agreement.
In a business arrangement, the promise must involve an exchange of something of value (the ‘consideration’). This is usually the payment, or promised payment of money but can be anything of value.
12. Bilateral and Unilateral Contracts
Contracts may be bilateral or unilateral. A bilateral contract is the kind of contract that most people think of when they think “contract” and indeed represents the vast majority of contracts. It is an agreement in which each of the parties to the contract makes a promise or set of promises to the other party or parties. For example, in a contract for the sale of a home, the buyer promises to pay the seller $200,000 in exchange for the seller’s promise to deliver title to the property.
In a unilateral contract, only one party to the contract makes a promise. A typical example is the reward contract: A promises to pay a reward to B if B finds A’s dog. B is not under an obligation to find A’s dog, but A is under an obligation to pay the reward to B if B does find the dog. The consideration for the contract here is B’s reliance on A’s promise or B giving up his legal right to do whatever he wanted at the time he was engaged in the finding of the dog.
In this example, the finding of the dog is a condition precedent to A’s obligation to pay, although it is not a legal condition precedent, because technically no contract here has arisen until the dog is found (because B has not accepted A’s offer until he finds the dog, and a contract requires offer, acceptance, and consideration), and the term “condition precedent” is used in contract law to designate a condition of a promise in a contract. For example, if B promised to find A’s dog, and A promised to pay B when the dog was found, A’s promise would have a condition attached to it, and offer and acceptance would already have occurred. This is a situation in which a condition precedent is attached to a bilateral contract.
13. Uncertainty, Incompleteness and Severance
If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law[14]. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price or safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract[15].
If there are uncertain or incomplete clauses in the contract and all options in resolving its true meaning have failed, it may be possible to sever and void just those affected clauses if the contract includes a severability clause. The test of whether a clause is severable is an objective test—whether a reasonable person would see the contract standing even without the clauses.
14. Terms which Regards an Agreement as a Contract?
Express terms: A contract is formed when an offer is accepted/ the offeror proposes a set of terms. If the offer is accepted by the offeree, these proposed terms becomes legally binding as the tems of the contract.
Terms implied by the court: The courts have the power to imply agreement or terms into contracts. Despite having the power the courts have always made it plain that they are not prepared to make a contract for the parties. The sourts will imply a term only on the basis that it was so obviously intended to be a part of the contract that the parties felt to need to mention it (Macintyre, Essentials of business law)
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The above appeal stated that both the parties were agreed before the term was implied by the court. The jetty owner had breached the term and was therefore in breach o0f contract. It was obviously intended by both parties that the mooring should be safe.
Customary terms: Terms may be implied by the courts on the grounds that they are customary in a particular trade, customary in a particular loyalty or customary between the parties.
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Here the custom term was implied on the basis of an agricultural base.
Enforcement and Contract Defenses
If a court determines that a contract exists, it next must decide whether that contract should be enforced. There are a number of reasons why a court might not enforce a contract. These are called defenses to the contract. Contract defenses are designed to protect people from unfairness in the bargaining process, or in the substance of the contract itself. If there is a valid defense to a contract, the contract may be voidable, meaning the party to the contract who was the victim of the unfairness may be able to cancel or revoke the contract. In some instances, the unfairness is so extreme that the contract is considered void, in other words, a court will declare that no contract was ever formed. What are some of the reasons a court might refuse to enforce a contract?
Setting aside the contract
There can be four different ways in which contracts can be set aside. A contract may be deemed ‘void‘, ‘voidable‘, ‘unenforceable’ or ‘ineffective’. Voidness implies that a contract never came into existence. Voidability implies that one or both parties may declare a contract ineffective at their wish. Unenforceability implies that neither party may have recourse to a court for a remedy. Ineffectiveness implies that the contract terminates by order of a court where a public body has failed to satisfy public procurement law. To rescind is to set aside or unmake a contract.
Contractual terms
A contractual term is “any provision forming part of a contract”.[35] Each term gives rise to a contractual obligation, breach of which can give rise to litigation. Not all terms are stated expressly and some terms carry less legal weight as they are peripheral to the objectives of the contract.
Terms implied in fact
Implied terms
Status as a term
In nominate term
15. Conclusion:
Contract theory is the body of legal theory that addresses normative and conceptual questions in contract law. One of the most important questions asked in contract theory is why contracts are enforced. One prominent answer to this question focuses on the economic benefits of enforcing bargains. Another approach, associated with Charles Fried, maintains that the purpose of contract law is to enforce promises. This theory is developed in Fried’s book, Contract as Promise. Other approaches to contract theory are found in the writings of legal realists and critical legal studies theorists. In conclusion we can say that any agreement is regarded as a contract when it is enforceable by law. Recently it has been accepted that there is a third category, restitution obligations, based on the unjust enrichment of the defendant at the plaintiff’s expense. Contractual liability, reflecting the constitutive function of contract, is generally for failing to make things better (by not rendering the expected performance), liability in tort is generally for action (as opposed to omission) making things worse, and liability in restitution is for unjustly taking or retaining the benefit of the plaintiff’s money or work[16].
Bibliography
- Ewan McKendrick, Contract Law – Text, Cases and Materials (2005) Oxford University
- P.S. Atiyah, The Rise and Fall of Freedom of Contract (1979) Clarendon
- Randy E. Barnett, Contracts (2003) Aspen Publishers scott Fruehwald, “Reciprocal Altruism as the Basis for Contract,” 47 University of Louisville Law Review 489 (2009).
- http://www.oregon.gov
- Australian government/Department of innovation, Industry, science and research. http://www.innovation.gov.au/SmallBusiness/Pages/default.aspx
- Scott E. Barnett, controllers 2003 Aspen Publishers.
[1] Hans Wehberg, Pacta Sunt Servanda, The American Journal of International Law, Vol. 53, No. 4 (Oct., 1959), p.775.; Trans-Lex.org Principle of Sanctity of contracts
[2] 2008 Merriam-Webster online dictionary
[3] (1870-71) LR 6 QB 597
[4] R. Austen-Baker, ‘Gilmore and the Strange Case of the Failure of Contract to Die After All’ (2002) 18 Journal of Contract Law 1
[5] e.g. Lord Steyn, ‘Contract Law: Fulfilling the Reasonable Expectations of Honest Men’ (1997) 113 LQR 433; c.f. § 133 BGB in Germany, where “the actual will of the contracting party, not the literal sense of words, is to be determined”
[6] Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701 in which the wrappers from three chocolate bars was held to be part of the consideration for the sale and purchase of a musical recording.
[7] The rule in Pinnel’s Case – Foakes v Beer (1884) 9 App Cas 605
[8] Eastwood v. Kenyon (1840) 11 Ad&E 438
[9] (1809) 2 Camp. 317.
[10] Collins v. Godefroy (1831) 1 B. & Ad. 950.
[11] See, e.g., Shadwell v. Shadwell (1860) 9 C.B.N.S. 159.
[12] e.g. In Germany, § 311 BGB
[13] Central London Property Trust Ltd. v. High Trees House Ltd. [1947] KB 130
[14] Fry v. Barnes (1953) 2 D.L.R. 817 (B.C.S.C)
[15] Hillas and Co. Ltd. v. Arcos Ltd. (1932) 147 LT 503
[16] Beatson, Anson’s Law of Contract (1998) 27th ed. OUP, p.21