List of essential elements of a valid contract
A contract is a relationship which is established by the parties privately. Two or more individual when decide to carry out any act or omission then in order to do so adequate they require a formal document which can be established in the form of a contract. A contract can be formed in written form or in oral form. But there are few essential elements which are needed in order to form a contract which is valid and enforceable in law. (Gibson & Fraser, 2013)
Thus, the main elements of contract are:
- A contract requires an offer on the part of the offeror. An offeror makes a statement in the form of a proposal wherein he intends to describe any act or omission which he desires to be carried on by the offeree. An offer can be oral or written but needs to communicated to the offeree in order to be valid(Gibson v Manchester City Council , 1979);
- The acceptance is the approval of the offer which is communicated to the offeree by an offeror. There should be no variation as results in cancellation of contract (Hyde v Wrench, 1843). When an acceptance is made then an agreement is established amid the parties;
- Every agreement must be made amid the parties for some kind of benefit which must be exchanged amid the parties and is called consideration in the eyes of law. A consideration makes any contract enforceable (Williams v Roffey Bros & Nicholls (Contractors) Ltd , 1989);
- The parties must have legal intention when the promises are exchanged amid the parties. If the intention while aiming the offer and the acceptance is not legal then the contract is invalid in law (Jones v Padavatton, 1969);
- The parties who are making the offer must be mentally capable and must have attained the age of majority and are not barred by any law.
Thus, these are some of the elements which must be comply with by every party to make an enforceable contract.
A contract is a relationship which is established by the parties privately. Two or more persons decide the terms with which they intend to abide by and then they are into contractual duty to comply with such pre-decided terms. (Gibson & Fraser, 2013)
Now, a contract can be made by the parties by written the term (written contract) or verbally communicating the terms (oral contract). The Australian contract law has regarded both the kinds of law as valid in the eyes of law. However, when compared amid the two, it is found that the establishment of a written contact is found to be more favorable mainly because: (Findlaw, 2017)
- When a contract is in the form of written document then the courts are able to find the exact mindset of the parties which cannot be found when the terms of the contract are oral in nature;
- The parties cannot rebut what is stated by them when the contract is formed if the terms are written in nature, but, if the terms are oral then the parties can betray from there verbal communication;
- The documents are better proof when compared with oral statements;
- There is clearance which can be brought in front of court s the court need not loom what is intended by the parties as the true intention of the party can be depicted from the written term of the contract.
Thus, these are some of the reasons which can be attributed which can submit that a written contract is better when compared with an oral contract.
3. A formal contract is a kind of written contract but is different from a written contract on the pretext that in a formal contract there are few manners or standards that must be comply with. If these formalities are not complying with, then, the contract does not follow within the definition of a formal contract. (Latimer, 2012)
Now, it is important to understand the formalities that are required in a formal contract. The same are, firstly, a formal contract must have all the contact element but there is no need if presence of consideration. A contract in absence of mutual promises is also a valid contract; secondly, a formal contract has the life span of only twelve years; thirdly, if a contract is written and is signed by the parties, then, only the contract is considered to be a formal contract.
Thus, these are the formalities that are required in a formal contract. (RMIT, 2004)
The basic issue that arise is whether the purchaser of the ticket can claim the prize individually or the same must be distributed amongst all the friends.
The raised issue can be resolved by understating one of the significant elements of contract, that is, legal intention.
When a contract is made then the offeror must make an offer to an offeree who must accept the same and this exchange of promises must be supported by consideration. But, when the promises are made then the parties should have legal intention. (Latimer, 2012)
Legal intention signifies that the parties are bound by the terms of the contract legally. When the parties exchange promises then they are making the offer and the acceptance with the view to bind by the same in the court of law in cases of disputes (Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd, 1989).
Differences between written and oral contracts
There is a basic rule that when the parties are in domestic relation then the parties are exchanging promises without any legal intention and is held in (Balfour v Balfour, 1919), but, it is also held in (Esso Petroleum Ltd v Commissioners of Customs and Excise, 1976), that when the parties are in business relationship then it is assumed by the courts that they are entering into the contract with legal intention.
But, this assumptions that are raised by the courts regarding legal intention is not static and if the parties can lay down the evidence which can prove that the intention otherwise then a family or social relationship can also be held binding upon the parties. In the leading case of (Trevey v Grubb , 1982), the relationship of the parties was held to be social but the court held that the intention is legal and thus there is a contract amid the parties.
Now this relevant law is applied to the given facts,
A lottery ticket is purchased by friends by contributing $ 2. Over the weekend a prize was announced in favor of the friends. But, the purchaser of the ticket claimed that since they are friends thus they are in social relationship and there can be no contract.
However, as per Trevey v Grubb all the friends are contributing and they intent to divide the money amongst them. so, the intention is presumed to be in favor of the friends and there is a binding contract amid the parties.
When any person wishes to conduct his work with the help of others then there are two options that are available to him:
- He can appoint an agent; or;
- He can appoint an independent contractor.
When an agent is appointed by the principal then there is a need for the creation of an agency. An agency is created when the principal either expressly or impliedly delegates the work he wishes to be complying with by the agent. The agent is then authorized to carry out the work delegated to him.
The agent is authorized to conduct actions on the behalf of the principal and has the power to make any kind of binding relationship with an outsider. The relationship amid an agent and the outsider is a deem relationship amid the principal and the outsider.
Thus, when there is a relationship of an agent-principal, then, all the acts of the agent carried on within his authority falls on the shoulders of the principal.
Now,
When the independent contractor is appointed by the principal then there is no need for the creation of an agency. Rather, the independent contractor is not the authorized representative of the principal. An independent contractor is assigned with the task that is required by him to conduct but he is not working under the control and directions of the principal and is free to choose his mode of actions and to establish any kind of relationship with the third parties. the principal is not accountable with the acts of the independent contractor and is only interested in the end result. (Gibson & Fraser, Business Law 2014, 2013)
Thus, the distinction is very important to evaluate the liability of the principal. If the relationship is of an agent-principal then the principal is liable by the acts of the agent. But if the relationship is of the independent contractor-principal, then, the principal is not labia by the actions of the independent contractor.
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1989).
Balfour v Balfour (1919).
Esso Petroleum Ltd v Commissioners of Customs and Excise (1976).
Findlaw. (2017). Is a verbal agreement legally binding? Retrieved September 18, 2017, from https://www.findlaw.com.au/articles/5626/is-a-verbal-agreement-legally-binding.aspx
Gibson v Manchester City Council .
Gibson v Manchester City Council (1979).
Gibson, A., & Fraser, D. (2013). Business Law 2014. Pearson Higher Education AU.
Gibson, A., & Fraser, D. (2013). Business Law 2014. Pearson Higher Education AU.
Hyde v Wrench (1843).
Jones v Padavatton (1969).
Latimer, P. (2012). Australian Business Law 2012. . CCH Australia Limited.
RMIT. (2004). Explanation of contract law. Retrieved September 18, 2017, from https://www.dlsweb.rmit.edu.au/lsu/content/d_bus/law/business_contract/concept/explanation.html
Trevey v Grubb (1982).
Williams v Roffey Bros & Nicholls (Contractors) Ltd (1989).