Blo1105 Business Law- Binding Contract Assessment Answers

1. List and explain briefly each of the components required to demonstrate that a binding contract exists.

2. Does a contract have to be in writing to be binding? In your answer explain whether this is the case, and further whether it is a good idea to put an agreement in writing.

3. What is a formal contract? Explain the ‘formalities’ of such a contract and give two examples.

4. A group of friends meet for a regular drink at a hotel every Friday night. Each contributes $2 towards a group lottery ticket, which is drawn over the weekend by Lotto company. One of the group is given the role of actually buying the syndicate ticket. When in fact a winning ticket is drawn for the group the purchaser of the ticket claims the arrangement is purely social and there is no arrangement whereby he needs to share the prize. Analyse this issue in terms of contract law.

5. Why is it important under law to distinguish between a party who is an agent for a principal, from that of an independent contractor? In your answer explain the legal implications of each relationship.

Answers

1) A contract is binding for all the parties entering into a contractual relationship. It is evident that a valid offer should be made with a right intention. A valid contract has 5 essential components that make it enforceable by law.  All these elements are important to form a legal relationship in between the parties.  Contract is a voluntary association in between the parties to the contract which is enforceable by law. The terms mentioned in a contract are mandatory for both the parties. A contract is formed after an offer and followed by an acceptance.  This makes a contract binding from both the end. A promisor and the promise have a serious duty to follow the instructions as mentioned in the deed (Helewitz, 2006). A contract formed without a lawful intention is not valid. There should be a lawful intention in between the parties to the contract. A contract formed without a proper intention is not binding for both the parties. In such a situation any one party to the contract can break any clause mentioned in the contract. Gratuitous agreement for the reason doesn’t forms a legal relationship (Carter, 2013). The intention of parties in such agreement is not clear.

A contract is only valid if it involves lawful consideration. A contract without consideration is not enforceable by law. For tee reason there should be a valid consideration at the time of formation of the contract. This makes a contract valid enough to be enforceable at court. Validity of a contract is under question if the parties to the contract are the competent enough to get into a legal relationship. This is clear from the statement that the parties forming a contract should be capable enough to form a legal relationship (Oughton.2000). In absence of such a situation a contract is void under the act. These are the pre-conditions that make a contract valid enough to be enforceable at court. For example a person suffering from mental illness has no right to get formed a contractual relationship? Contract made with any incompetent person is invalid by law hence not enforceable.  To make a valid contract there should be a free consent from both sides. It is an essential part of an agreement which indicates that any party without a free consent can revoke the contact. These conditions make a contract enforceable by court. Absence of any of the one element makes the contract invalid and unenforceable by law (Mulcahy, 2008).

2) It is not important that the contract should be in writing to make it enforceable by law. For the reason oral contract are also enforceable by law. These contracts are valid and legally binding on both the parties and are equally enforceable as Written Contract. The only problem with the oral contract is at the time of breach. This makes it difficult for the court to look into the terms and conditions. Any of the party to the contract can turn down the contractual agreed terms later on. It is difficult to enforce the verbal contract as the terms and conditions are not explicit (Burrows, 2016). Basically in such a contract a contractual relationship is only formed after seeing the conduct in between the parties. The problems with the enforceability occur if any one of the party to the contract denies or lies in the court. For such a reason, written contract are more referred as they are enforceable (Kramer, 2010). This doesn’t reduce the validity of an oral contract. They are legally valid by law and problem only occurs in case of breach. Implied contracts are based on the conduct of the parties. In such a contractual relationship, the court looks into the past conduct in between the parties. As it is difficult to find the evidences, court gives ore validity to the implicit conduct in between the parties to the contract (Mulcahy and Tillotson, 2004).

However it is recommended to make a written contract due to its legal enforceability in the court of law. This contract can easily be enforced in the court.  The written contract can be used as a proof n court. In case of breach by any of the party, the opposite party has all rights to file a suit against other.  The oral contracts don’t provide are complicated in case of enforceability as the clauses are implicit in nature (Miller and Jentz, 2009). There is no formal written agreement in between the parties. There is a possibility that any one person in the contract can deny the implicit contract in between the parties. This can create problem in future at the time of enforceability. This is the reason that most of the people rely on written contract. Clarity is only provided by the written contract due to its applicability as mentioned in the contract. A written contract gives a right to avoid disputes in between the parties hence makes it a better choice in order to form a contract (O'Riordan,2003).

3) A formal contract is signed in between two or more parties under a formal seal. It is similar to a valid contract where the parties to the contract agree on the clauses as mentioned. To create a formal contract it is important to understand the essentials of a valid contract. A formal contract cannot be formed without proper offer and acceptance, intention, consideration, capacity and free consent.  A formal contract is created with an intention to create a Leal relationship. These contrasts are negotiable in nature and hence enforceable. These contracts are common in nature and involve consent in between two parties. It includes a promissory note, cheque, memo, invoice, bill etc. These documents are legally enforceable by law (Plimpton, 2007). Formal contract includes a leases, deeds, agreements etc. An informal contract is one made without a proper seal. This is event from the nature of the contract that it should be formal in nature to make it enforceable by the court. Most common contract formed in a business is sales order, warranty, Purchase order etc (Charman, 2013).  It is important to satisfy the components of a valid contract. It is obvious in nature that a formal contract is formed to give a legal effect to the document. This makes it legally enforceable in the court in case of breach. Both the parties to the contract are into an obligation to obey the clauses as mentioned in the contract. A formal contract is important from the point of view of legal enforceability. They are applicable due to its intention and impact (Rush and Ottley, 2006).

For example:

A lease deed in between the parties is a formal contract. The deed draws formal consent in between both the parties and includes all the necessary obligations to be followed. It is signed by both the parties to the contract and includes the tenure. These contractual agreements are legally enforceable by the court.

Bill drawn by the parties in case of sales agreement is enforceable by law. These are the formal document made in between the parties to the contract. It includes ever information about the goods and its price. Clauses in case of breach of contract are also mentioned in the contract. They are drawn under a formal seal and are applicable by law.

Hence, it is clear that a formal contract does exist and includes all the stipulated conditions as important in a valid contract.

4) Issue: Are social agreement enforceable by court and do they create a legal relationship in between the parties.  Is it mandatory to divide the prize won in a lottery in between all the members?

Rule: As per the law social agreement are not enforceable by law until and unless it involves a sum of money. These contracts are only enforceable by the court if they involve a sum of money.  The contractual relationship in between the parties arises if the amount of money is big and do involve a serious concern.

Application:

In the given situation there is no formal agreement among the friends. As per the objectivity test, it is important to check the mutuality in between the parties.  This portrays an agreement to share the prize as mutually consented. As per both the cases, Trevey v Grubb (1982) 44 ALR 20 and Simkins v pays [1955] 1 WLR 975, one who purchases the lottery ticket on behalf of the other members has an obligation to receive a prize. It is due to the existence of the social agreement where all the parties mutually agreed to hare the sum. All the members are entitled to receive the sum as spend in the lottery. This case is based on the contract made under the social and domestic agreement in between the parties. It is mandatory for every individual to divide the sum. As per the social agreement it is important to derive applicability in order to make it enforceable. The intention in the given situation is monetary that makes its legally binding on the individual (Stone, 2005).

Conclusion

Social agreement is not intended to be enforced b the court.  They can be rebutted depending upon the seriousness of the contractual relationship.  The contract only arises in case of presence of money and depends upon the seriousness. In the given situation there is a contractual relationship which involves a sum of money. This is evident from the given situation that the given case involves social agreement which is enforceable by law. It is obligatory in the given case.

5) A relationship in between the principal and agent is describes as an agency. An agent is an individual appointed by the principal on his behalf. He acts as a legal representative from his side and goes through all the formal appointment.   The law of agency creates a formal relationship in between the parties. The agent has same power and obligation as a principal.  An agent is appointed where the task is been done on a contractual basis. In such a situation, an assigned member does all the contractual formalities and deal with the other parties. A contractor appointed by an individual is describes as a principal and agent. The relationship is fiduciary in nature and involves utmost trust.  The agent acts in the behalf of the principal and do all the duties as made in the agency agreement. The principal is responsible for the act done by the agent. He has to complete all the tasks as made mandatory in the agreement. The agent has to fulfil all the obligations as mentioned in the contract. It is important to understand the nature of act in between the parties and should focus on ascertaining utmost interest. The principal and agent relationship is based on the famous English master and servant relationship. In such cases, master is responsible for the act of a servant. He has an obligation to fulfil all the duties as given by the master (Wishart, 2007).

The agency is valid in the court of law and creates a legal obligation. An agent acting in the behalf of the principal has an obligation to do all the duties in an effective way. In case of non-furnishing of the duties, the agent is questionable as per the contractual agreement. The goal of such contract is to get work done in an easy way. This is only applicable if the formal relationship of agency is established in between the parties. The agent has a duty to fulfil all the obligations as made at the time of formation of an agency and has a duty to discharge his duty with utmost diligence.

References 

Burrows,A.2016. A Restatement of the English Law of Contract. Oxford University Press

Carter, J. 2013. The Construction of Commercial Contracts. Bloomsbury Publishing

Charman,M.2013. Contract Law.Routledge

Helewitz, J.2006. Basic Contract Law for Paralegals. Aspen Publishers Online

Kramer, A.2010. Contract Law: An Index and Digest of Published Writings. Bloomsbury Publishing

Miller,R and  Jentz,G.2009. Cengage Advantage Books: Fundamentals of Business Law: Excerpted Cases. Cengage Learning

Mulcahy,L. and Tillotson,J. 2004. Contract Law in Perspective. Psychology Press

Mulcahy,L.2008. Contract Law in Perspective. Routledge

O'Riordan,J.2003. A2 Law for OCR. Heinemann

Oughton.2000. Sourcebook on Contract Law. Cavendish Publishing

Plimpton,L.2007. Entrepreneur Legal Guides. Entrepreneur Press

Rush,J. and Ottley,M.2006. Business Law. Cengage Learning EMEA

Stone, R. and Devenney, J.2015. The Modern Law of Contract. Routledge

Stone,R.2005. The Modern Law of Contract. Psychology Press

Wishart,M.2007. Contract Law. OUP Oxford