Part A

Elements and Terms of a Valid Contract

Q2: Meaning of Intention in Contract Law

In terms of contract law, Intention means to create a Legal relationship between the offeror and the acceptor. For a valid and lawful contract, intention is one of the most significance importance elements of a valid contract. For a contract to be valid, the intention of the parties must be valid and must be lawfully binding. If intention of the parties in a contract is not legal, or if the same is against the law, the contract is void and have no legal and lawful status as discussed in Blue v Ashley [2017] EWHC 1928 case by the honorable Mr. Justice Leggat. Another most important judgment on the point is Erogenous v Greek Orthodoc Community of SA Inc [2002] HCA 8).

Binding and Non-binding

Binding in contract law means that you are indebted under the contract law to perform a specific act as provided in the contract, a contract which satisfy all the required vital elements and which is binding on both the parties, the rules were carefully discussed in Rose & frand co v JR Cromption & Bros ltd 1925 AC 445.

Nonbinding promises frequently take the form of letters of intent or memos of understanding. When two or more parties are illuminating and reconnoitering a business connection, a nonbinding contract can help advance that relationship by recording their intentions. Crucially, neither party presumes to create an authorized association. If one party flops to execute its side of the bargain, the other individual may get angry, but there’s nothing lawfully he can do about it.

Q4: Consideration and its vitality

Consideration is the utmost vital component of a lawful contract. A promise which is made without consideration; does not create a permissible valid contract. Only those contracts are valid which have valued consideration. In a common promise unverified by consideration is not mandatory contract. Valuable consideration has been described as some right, interest, profit or advantage accruing to one party, or some restraint, disadvantage, loss or duty given, suffered or undertaken by the other at his request.

Consideration can be everything of value such as an item or facilities, each party to a legally-binding contract must agree to exchange if the contract is to be valid. If the procedure contains a promise which is not maintained by consideration; the arrangement is not a lawfully enforceable contract.

Different courts in their finding discuss different points with respect to consideration, like in the case of Balfour v Balfour (1919) 2 KB 571, CA which was a family matter consideration between husband and wife, court discuss consideration, the second case is Merritt v Merritt (1970) 2 All ER 760, CA on almost the same proposition as discussed above.

Q5: Capacity to Contract

Capacity to contract under contract law means the competency to enter into a valid and lawful contract. In this respect the most important factor and element is age of the parties to the contract. The parties to contract under the contract law must be of major age, must be sound mind, and must be capable of understanding their position to the contract. Under contract law, lunatics, those who are of unsound mind, minors and people of very old age who are unable to understand, and those who are specifically disqualified by contract law from entering into a contract are incompetent to enter into a valid lawful contract.

Part B

Discharge of Contract

Under the Contract Law, discharge of contract means that the contract come to an end between the parties. In other words, it means end of the contractual association between both the parties. A contract is said to be discharge when it ceases to operate.

Methods in which a contract may discharge

  1. Discharge by Performance

A contract come to an end when all the obligation has been performed by both the parties to the contract.

For example:

A and B enter into valid contract, in which A agrees to buy some goods from B on a certain specified price. A paid the price to B for the goods and B deliver the goods to A. In this scenario once the goods are delivered as per terms and condition and the price is paid the contract come to an end, and discharge accordingly.

  1. Discharge by Termination

Discharge by termination of the contract means that both the parties to the contract by mutual consent agrees to terminate the contract.

Part C

Exemption Clauses

An exemption clause is an arrangement in a contract that specifies that a party is limited or omitted from liability case of breach of contract or contract default.

An exemption clause is a promised term that forms part of a contract which attempts to either limit or disregard a party’s liability to the other

Classes of Exemption Clauses:

Under contract law, there are 3 classes of exemption clauses:

  1. Limitation Clause

Limitation clause means that a party to a contract have certain limitation and after discharge of that limitation, they have no further limitation accept that. These types of limitation specially applied to corporates sector like companies and their employees. For example, a company while issuing an employment letter sign a certain contract from employees in which along with other terms and condition a special condition was inserted that in case an employee died during working hours, the company will pay compensation amount of £1000, so in such case if the company pays the specified amount, they will discharge from their liabilities due to limitation clause.

  1. Indemnity Clause

In indemnity clause the parties to the contract go into the contract and precisely mention that one party is held accountable for all fatalities that the other party might cause. This is called indemnification; one party guards or protects the other if they are sued.

  1. Exclusion Clause

Exclusion clauses are frequently found under the terms and conditions part of a contract, these terms and condition are mostly found in the company’s products manual, the product manual have certain terms and condition section which by one way or the other bind the customer, and the product company discharge itself from certain liabilities, in most cases most  companies include an exclusion clause that says something like, “(company name) is not liable for any damages if our products are used unlawfully or outside of their intended use.” For example, a company which makes rat poison cannot be suit merely because a man ingests the same, as the same is not for means for ingest.

Reference case laws for exemption clause 

Estrange v Graucob [1934] 2 KB 394

The plaintiff purchased a cigarette appliance for her cafe from the defendant and contracted a sales agreement, in very small print, without understanding it. The agreement provided that “any express or implied form, statement or guarantee, is hereby excluded”. The machine failed to work appropriately. In an action for breach of contract the defendants were held to be protected by the clause.

In this case, the conclusion is that when a document comprising contractual terms is signed, then, in the absence of fraud, or misrepresentation, the party signing it is bound, and it is wholly irrelevant whether he has read the document or not.”

Another most important case on the same proposition is Curtis v Chemical Cleaning Co [1951] 1 KB 805, Parker v South Eastern Railway (1877) 2 CPD 416

Part D

Remedies available for Breach of Contract

Each party under the contract law is under obligation to follow the terms and condition of the contract, a party will be in breach of contract when they failed to perfectly perform warranties, conditions or innominate terms (i.e., the terms of the contract) they have promised to perform.

Breach of contract may be of different kind like, defective performance, delayed performance, and complete nonperformance.

The consequences of breach of contract defends upon the type of terms broken.

Remedies:

A party to contract whose rights has been violated by not following terms and condition of a contract can bring a suit in a court of law, and get compensation from the party who violates the terms and condition of the contract.

Remedies in case of breach of contract can be of the following types:

  • A right to monetary compensation, that is, damagesfor failures to perform the contract
  • Right to terminate the contract
  • In some cases, specific performance of the contract or an injunction to restrain from further breach

Part E

Case 1

In such a scenario, Paula and the other resident have many remedies under the contract law. Under the contract law the contents of a contract can be divided into two parts:

Express Terms

Once the express terms have been recognized, there is no question of clarification. The document setting out the parties’ agreement must be understood quantitatively. The starting point for establishing the objective meaning is the words used by the parties. These are interpreted according to their meaning in conservative usage except there is something in the contextual showing that some other meaning would have been carried to the rational person.

The “parole evidence” rule offers that evidence cannot be acknowledged to add to, differ or oppose a written document. Consequently, where a contract has been put in writing, there is an assumption that the writing was envisioned to include all the standings of the contract, and neither party can depend on on extrinsic evidence of terms supposed to have been decided on which are not contained in the text. This presumption is rebuttable, and extrinsic evidence is acceptable if the written document was not intended to set out all the terms on which the parties had agreed.

Reference case “ICS Ltd v West Bromwich [1998] 1 WLR 896”

Implied Terms

A contract contains terms that are not being directly stated but which are implied either because the parties intend this by operation of law or by custom or usage. Terms implied in fact.

The implied terms are not being directly set out in the contract but the parties intend to include them for clarity. There are two tests that courts have adopted for the purpose of determining whether a term can be implied or not. The first is the “officious bystander” test, where a term is so obvious that its inclusion goes without saying and if an officious bystander asks the parties at the time of contracting whether the term ought to be included, the parties would reply “Oh, of course”. So basically, it can be implied that both the parties would have accepted the term and regarded it as obvious only if it had been put to them at the time of contracting, which should suffice to support the implication of the term. The other test for implication is that of “business efficacy”, where the contract would be of no use without the term. For example, it was an implied term in a contract for the use of a wharf that for a ship it is safe to lie at the wharf. Under this test, a term will be implied if the contract simply could not work without such a term. It is of crucial importance to take notice of this point here that a court will not imply a term only because it would be reasonable or desirable to do so. Further, a term cannot be implied if it is in conflict with the expressed terms of the contract.

Terms implied in law and by statute. Terms implied in law, whether the parties intended to include them or not are terms imported by operation of law. For example, in a contract for the sale of goods, it is an implied term that the goods will be of a certain quality, sold for a particular purpose and will be fit for that purpose. The law seeks to impose a standardized set of terms for certain contracts as a form of regulation. In law many terms being implied have been put into statutory form. For example, several terms are implied into contracts for the sale of goods by 12 to 15 of the Sale of Goods Act 1979.

The use of further significant terms may be implied from the nature of the relationship between the parties – for example, a lawyer must act in his client’s best interest’s contracts for professional services require the professional to act with reasonable standards of competence and a doctor has a duty of confidentiality to his patients.

Terms implied by custom or usage. It is admissible to add evidence of custom but not to contradict a written contract. Terms can also be implied by locality or trade usage.

Besides the above, a common area in a building, hotel, etc. is otherwise a tradition consider to be part and parcel of the same building, and overall, the resident has the right to use the same and to keep it clean and teddy. So, under the traditional law as well the said common area would be considered as part of the contract and the council as such is under obligation to repair the same, make it clean and tidy, and make it able to be used by the residents of the said building.

Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 per MacKinnon LJ

The Moorcock [1889] 14 PB 64.

Case 2

Remedial Approach Peter needed

Before giving advice to Peter for his loss, let briefly reiterate the basic elements regarding contract especially ‘’implied’’.

The term ‘’ CONTRACT ‘’ has been described “an agreement between the parties, enforceable by law, entered with free consent and for some consideration ‘’. The standard definition of contract rests up the legality of terms that agreed by contracting parties. Not a slightest departure from a valid ingredient makes it enforceable by the court of law. A contract pursued with true letter and spirit. Contract does not merely lay that who will pay and who will perform for, but it definitely requires an intention of the parties to mutually agree for something legal.  Valid contract defines and describe rights and duties between the parties and they are called the ‘’ terms’’ of the contract.

Some of these terms are ‘’express’’ terms, Express terms of a contract are those which are expressly mentioned by the parties to the contract in their agreement,

Are implied conditions legally binding?

Yes, despite not being expressly included in the contract, implied terms are legally binding and can hold as much weight as an express contract in the courts.

As they aren’t always clearly outlined, they can be only be applied if they meet certain standards.

Breach of implied contract elements

The element of a contract breach can lead to consequences like,

  • A state, most significant part of the contract that needs to be completed.
  • A warranty, an inscribed term for promises or agreements.
  • An innominate term; that sit between a condition and guarantee.
  • The guilt party can be found accountable for damages and could face a command to perform the contract terms

Following to consider when to face breach of contract,

  • Does the contract exist?
  • Proof of breach has been made,
  • Proof that the breach has caused damages,
  • Does it need to be resolved in the court?

The time peter enters the hotel and was allowed, either verbally or in writing to use the hotel Rooms, has thus legally enter into a contract with the hotel concerned. Now standard rules and principles will be applicable between Peter and hotel management. Peter is legally bond,

  • To pay the rent as per terms agreed,
  • To maintain the decorum to hotel status,
  • To remain peaceful during his stay,
  • Not to damage any article in the room etc.
  • To vacate the room after completion of agreed period.

As stated above, legal contract constitutes mutual rights and duties between the parties, hence, like Peter, the hotel management is also under some obligation in respect of their customers (Peter),

  • The hotel management is under obligation to take all safety measures to safeguard the person and luggage of its customers,
  • The hotel management is sole responsible to depute reliable employees for housekeeping and other concerned task in the hotel
  • The hotel management should not allow any out sider to access to its room rented to customers,
  • The hotel management is duty bound to install CCTV cameras as per modern time requirement to avoid any untoward incident,

As there was no written agreement between hotel management and Peter but Hotel management was supposed to protect and take care of Peter’s luggage. Doors of the rooms were automatically locked, therefore responsibility rest upon the hotel management to be answerable that who decode the automation of the door. The hotel management also responsible to interrogate its household/housekeeping crew who were deputed to do cleanliness works of the rooms.

The move mentioned conditions should not be designed for specific customers but applicable on all those who stay in the hotel. There is no need that peter to enter in a specific and express contract with hotel management for the safety of his person and luggage.

In the giving situation Peter is will deserve to claim for compensation in the court of law for the loss of his laptop and he needs no express terms to be entered between him and hotel management for such claim.

Reference case laws

  1. (BP Refinery (Westernport) v Shire of Hastings(1977) 52 ALJR 20, 26)
  2. Marks and Spencer plc v BNP Paribas[2015] UKSC 72

 References:

  1. Cohen, M.R., 1932. The basis of the contract.  L. Rev., 46, p.553.
  2. Chen-Wishart, M., 2012. Contract law. Oxford University Press.
  3. Burton, S.J. and Andersen, E.G., 1989. The World of a Contract. Iowa L. Rev., 75, p.861.
  4. Adams, J. and Brownsword, R., 1990. Contract, consideration and the critical path. The Modern Law Review, 53(4), pp.536-542.
  5. Hesselink, M.W., 2005. Capacity and capability in European contract law. European Review of Private Law, 13(4).
  6. Corbin, A.L., 1912. Discharge of Contracts. Yale LJ, 22, p.513.
  7. Von Hippel, E., 1967. The Control of Exemption Clauses a Comparative Study. International & Comparative Law Quarterly, 16(3), pp.591-612.
  8. Harris, D., Campbell, D. and Halson, R., 2002. Remedies in contract and tort. Cambridge University Press.

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