Essential Elements of Legally Binding Contracts

Ann offered to sell her car to Jack for a particular amount. She subsequently rescinded the contract the day after. The offer was time bound and the revocation was received by Jack after mailing a subsequent acceptance after various communications made between them. The revocation of the offer however was received by Jack after his acceptance for the same was mailed. The issue to be determined here is if Ann and Jack in fact had a valid contract between them and if so the obligations of both the parties in the transaction.  

Rule

Common law is a body of laws that are not codified but are developed through judicial interpretations delivered by judicial precedents in England. This basically means that these are laws developed by judgments of courts in the United Kingdom. The Australian commonwealth incorporates common law principles into legal and judicial framework and thus these precedents delivered by courts of the United Kingdom have a binding effect on the judicial interpretation of disputes in Australia. This applies for contractual obligations as well and contract law in Australia is not bound by statues but by common law principles. As per common law for a contract to be valid and legally enforceable it must have the following elements (Hughes, Champion and Murdoch 2015):

• Offer and acceptance.
• An Intention to create legally binding relationships.
• Consideration for both parties.
• The respective party’s capacity to enter into the contract.
• Legality of the terms of the contract.

If all these elements are present in a particular agreement between two or more individuals then the same would be legally binding. In case of legally binding contracts the courts would hear the same in case of any breach or any form of dispute arising from it (McKendrick 2014). If any of these elements are not present the same would not have any legal value and cannot be brought to court in case of any breach or any dispute arising out of the same between the parties.

In the determination of the rights of the parties to a contract and their subsequent obligations the first step would be to establish the existence of a lawfully valid contract. The primary consideration in case such a fact needs to be established is the evidence of legally valid offers and acceptance. Offer and acceptance are key principles decided by various judicial precedents and the existence of their legality would have to be brought out in light of the circumstantial evidence. Offer, which is legally valid, has two parties, and “offeror” (the person making the offer) and an “Offeree” (the person to whom the offer is made) (Maine and Scala 2017).

The first precedent to be speak of such an instance is the judgment delivered in the historical case Carlill v Carbolic Smoke Ball co [1893] 1 QB. The ultimate principle laid down in Carlill v Carbolic Smoke Ball co [1893] 1 QB is that for an offer to be legally valid the same would have to be made by someone who has the intention to create legally binding  relationships (Milsom 2014). This means that the offeror must have an intention to create lawfully enforceable relationships with the offeree. It was laid down in this case that an offer is different from an invitation to treat or an invitation to offer, which is merely a precursory step which solicits an offer.

Offer and Acceptance Under Common Law

Accepting an invitation to treat means that a subsequent offer would be made, on the other hand accepting a valid offer creates legal relationships between the two parties and thus creates a contract between these parties. This proposition has also been considered in a landmark judgment Partridge v Crittenden (1968) 2 All ER (Hunter 2017). The court stated in Partridge v Crittenden (1968) 2 All ER that the acceptance of an invitation to treat does not form legally enforceable relationships (Hughes, Champion and Murdoch 2015).

Once a valid offer has been established in a particular scenario then the court must infer if the same had a legally valid acceptance which accompanied the offer. A valid acceptance is one that made devoid of any variation to the terms of the original offer and/or of any form of clarification regarding the offer. Another important aspect to consider when inferring acceptance is if the same was made within the time stipulated in the contract. In case of time bound contracts the same need to be accepted within the stipulated time as efflux of time devoid of acceptance would lead to a revocation of the original offer as laid down in the judgment delivered in Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109 (Llewellyn 2016).

Thus apart from the time factor the only important consideration is acceptance of the offer without any variation to the original terms and devoid of any clarifications regarding the same (Hughes, Champion and Murdoch 2015). In case of an acceptance which has a variation to the original terms of the contract or any query or clarification regarding the same it would amount to a counter-offer. A counter-offer is not a valid acceptance of the offer, in fact it is a subsequent offer which must now be accepted by the original offeror. A counter-offer also amounts to revocation of the original offer as laid down in the landmark judgment in Hyde v Wrench (1840) 49 ER 132 (Hughes, Champion and Murdoch 2015).

Application

Under the given set of facts and circumstances the issue is to determine if there was a lawfully valid contract between Ann and Jack. In order to establish the same it must be inferred that all the essentials prescribed by common law are present in the transactions between them. First, would be establishment of a lawfully valid offer made by Ann to Jack with the intention to create legal relationships as laid down in Carlill v Carbolic Smoke Ball co [1893] 1 QB (Maine and Scala 2017). The initial offer made by Ann to Jack was the sale of her car $12000 and the stipulated time for the offer was 7 days. This would create legal relationships between Ann and Jack and can be inferred as a lawfully valid offer. The communication of the offer is complete when it reached Jack.

Ann however, revoked the offer the subsequent day through mail, the revocation would not be legally valid till it has reached Jack. However on receiving the offer by mail Jack posted a clarification stating that he would like to make monthly payments of $1000 for 12 months and purchase the car through this mode of payment. This was a clarification of the terms of the original offer and thus does not constitute a valid acceptance as envisaged by the judgment in Hyde v Wrench (1840) 49 ER 132 (Hughes, Champion and Murdoch 2015).

Revocation of Offers and Counter-Offers

This would ideally amount to a counter-offer. A counter-offer does not constitute a valid acceptance and further as decided by the court in Hyde v Wrench (1840) 49 ER 132 a counter-offer results in the revocation of the original offer as it is a new offer completely and thus must be accepted by the original offeror (Hughes, Champion and Murdoch 2015). Thus for a lawfully valid contract to be concluded Ann would have to accept this variation in terms of the original offer. Ann received this communication on the 4^th March. As of 4^th March Ann had already posted her revocation of the offer, however the same had not reached Jack and thus apart from the aspect of the counter offer, the original offer still stood.

However when Ann received this counter offer from Jack on the 4^th March her original offer had in effect been rescinded following the judgment in Hyde v Wrench (1840) 49 ER 132 (Maine and Scala 2017). Thus Ann would have to either accept this offer of part payments to form a lawfully valid contract. However she made no such communication and her revocation of the offer was on the way to Jack (Hughes, Champion and Murdoch 2015). Thus in effect there was no contract concluded between Ann and Jack as Jack had replied with a counter offer which has negated the original offer and Ann had not sent any acceptance to this counter offer.

Conclusion

To conclude, a legally enforceable contract had not been concluded between Ann and Jack in light of the counter-offer made by Jack to Ann. This in effect revoked the original offer made by Ann and Ann did not communicate any form of acceptance to the counter-offer made by Jack.

Question 2

Issue:

Does Betty have any legal rights against Qualal Motors for obtaining compensation for the injuries and the damage to his car?

Rule:

The section shall address issues related to injury arising out of negligence and whether compensation can be claimed in cases of negligence arising out of exclusion clauses. The emphasis shall be on issues related to compensation arising out of any injury and what are the factors that can lead to a party getting compensation out of any injury. The rule pertaining to the factual scenario is that of “exclusion terms” in a contract. The terms “exclusion clause” or a “disclaimer” are terms which are used interchangeably to mean that when an injury arises and damages are claimed, the clause intends to limit the liability in cases of that injury or damage.

These clauses are generally found in a contract and they intend to restrict the rights of a party and they are means of excluding liability. The intention of the exclusion clause is to favour the stronger party and benefit him in an agreement. The inclusion of the exclusion clause aims to limit the damages the injured party can claim in case of any damage or injury. For an exclusion clause to be effective, it is essential for the party to the contract to be aware of the terms of the exclusion clause. The exclusion clause should be part of the contracting terms and the parties who are intending to be legally bound by the contract need to be aware of the terms of the exclusion clause.

Analysis of the Case: Ann and Jack

The question is if negligence can be excluded by the method of exclusion clause and what happens when injury accrues as a result of negligence. The general rule of application of exclusion clause in a contract is that the clause has to be in the notice of the parties. The parties have to be aware that a clause of such nature exists. In the case of Olley v Marlborough [1949] 1 KB 532, it was held by the court that the parties have to accept the exclusion clause and if the acceptance of the exclusion is not made by the party, it cannot be claimed that the parties are bound by the exclusion clause.  In the case, the court held that the notice at the back of a door in the hotel room excluding liability was ineffective as the contract had already been beforehand and the claimant had seen the notice after that. Therefore, since the claimant had seen the notice after the contract had been made, it cannot be held that the exclusion clause did not form part of the contract.

Again in the case of Thornton v Show Lane Parking [1971] 2 WLR 585, the issue was regarding the binding effect that the exclusion clause has on the rights of the parties. In this case, the defendant’s negligence gave rise to the injury of car of the claimant. The terms in the agreement excluded liability in cases of personal injuries that arose out of negligence. The question make a pertinent enquiry regarding the knowledge of the parties regarding the exclusion clause, whether they knew about the incorporation of the exclusion clause before entering into the contract.

The Court claimed that the issue in cases of exclusion clauses is whether the defendant had brought the contents of the exclusion clause to the party’s knowledge when the contract was entered into. The Court held that the notice at the back of the door was dispensed after the party had entered into the contract and therefore it cannot be held that the clause was incorporated into the contract. The Court therefore stated that the notice was not incorporated and therefore cannot be held to be binding on the parties.

In the case of Chapelton v Barry UDC [1940] 1 KB 532, the court held that the exclusion clause was not mentioned in the contract and was therefore the terms were not incorporated into the contract. In the mentioned case, the claimant had not read the back of the ticket and without reading the ticket, had put the ticket in his pocket. The exclusion clause in the ticket was in the favour of the council where his liability was excluded in case a personal injury accrued to the claimant. The court held that from the point of a reasonable man, it is not possible to expect a person to check the receipt before putting them back in the pocket.

The words of the notice stated that a person can obtain the deck chair and then get the ticket later. It is reasonable for a man to not check the details of the ticket. It is not expected of any person to check the details of the ticket and also know that the ticket contains the contractual terms. The ticket is not supposed to contain contractual terms and any person who keeps the contractual terms in the ticket which is not meant to be checked by any claimant has done so with the intention of escaping liability.

Conclusion

Since the notice contained in itself a suggestion regarding obtaining the chair, it can be said that the notice constituted the offer and if the chair was collected, it would lead to an acceptance of the offer. Therefore, if the offer and acceptance is done, it is believed that the parties have entered into the contract and that the contract binding on the parties. Hence, once the contract has been entered into between both the parties, the Council cannot introduce new terms into the contract after it has been formed. The parties had already entered into the contract and therefore it was not open to the Council to incorporate any new terms into the contract. 

Application:

            Batty’s car broke down while he was driving to work, when he called the garage and was told them of the difficulty in his situation and therefore the garage QUalal Motors agreed to send their mechanic Eddie to repair the car. Eddie after checking the car said that the car cannot be repaired on the road and had to be taken to be towed to the garage. Eddie communicated that information to Betty and he agreed. A worn clip on the towing gear which was used by Eddie slipped open as a result of which the car fell. The car then ran over Betty’s feet and hurt his toes as well as injured the car. The car’s suspension was damaged and Betty suffered injuries on his toes.

The towing vehicle’s vehicle had an information mentioned which stated that the towing is undertaken at the risk of the customer and that the employees have no liability for any damage that is incurred and any damaged on the car or any consequential loss that was caused on the car which was being towed. After the car was injured, Betty wrote to the garage Qualal Motors seeking compensation that was incurred by him and also claimed compensation for the injury to the toes. The compensation claimed also aimed to cover the car damage. Qualal Motors rejected Betty’s claim and notified them of the notice that was mentioned in the garage as well as on the towing vehicle. As per the case of Chapelton v Barry UDC [1940] 1 KB 532,.

it was held that once the parties have entered into a contract, the Council did not have the authority to incorporate anything new to the already existing contract. If any clause is mentioned after the parties have entered into the contract, that clause shall be not be treated as binding. Again, in the case of Thornton v Show Lane Parking [1971] 2 WLR 585, it was held that the intention of the exclusion clause shall not be to escape liability once an injury has been done or after an act of negligence. Applying the principles of exclusion clause, the court in the case of Olley v Marlborough [1949] 1 KB 532 held that the exclusion clause has to be notified to the parties before entering into the contract and that if the parties are told about the exclusion clause after the contract has been entered into, the exclusion clause cannot be held to be binding.

In this case, the information regarding the escape of liability was notified at the back of the towing vehicle and it was not known to Betty before entering into the agreement. It is not reasonable for a man to check the rear side of a towing vehicle for the information regarding any terms that exclude liability.

The exclusion clause is not binding on Eddie as he did not have any information regarding the same before entering into the contract.

Reference List

Chapelton v Barry UDC [1940] 1 KB 532

Hughes, W., Champion, R. and Murdoch, J., 2015. Construction contracts: law and management. Routledge.

Hunter, H., 2017. Modern Law of Contracts.

Llewellyn, K.N., 2016. The common law tradition: Deciding appeals (Vol. 16). Quid Pro Books.

Maine, H.S. and Scala, D.J., 2017. Ancient law. Routledge.

McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).

Milsom, S.F.C., 2014. Historical foundations of the common law. Butterworth-Heinemann.

Olley v Marlborough [1949] 1 KB 532

Thornton v Show Lane Parking [1971] 2 WLR 585