Essential Elements of a Valid Contract
Discuss about the Difference Between Offer and Invitation.
A contract is an agreement between two parties which is legally enforceable. It is necessary that there must be valid contract between the parties. The first and most important requirement of valid contract is agreement between parties which normally consists of an offer, acceptance, consideration and intention to create legal relations between parties[1]. Following are the essential elements of contract:
Offer- there is no specific method to constitute an offer. A contract is a valid contract if offer is given by one party to the other. Offer can be given by one person to an individual, group, or whole world. We can understand this with the help of case law that is Carlill v Carbolic Smoke Ball Co, Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1[2]. In this case, court held that there is valid offer given by the company, and the language of the offer clearly understandable to enforce[3].
Acceptance- acceptance is the statement by which offeree agrees the offer by oral statement, written statement or by conduct. It is necessary that only that person can accept the offer to which offer is made. Acceptance must be related to the given offer only, and it must be conveyed to the offeror. We can understand this with the help of case law, Crown v Clarke (1927) 40 CLR 227[4].
Consideration- consideration is the price that is paid in exchange of promise. Consideration must be present for the valid contract. It is not necessary that consideration can be only it can be any right, benefit, interest or any other thing. Common law in Australia required that agreement can only be bind upon parties if consideration is there[5].
Intention to create legal relations- the contract between the parties is not enforceable merely because there is agreement between the parties. It is necessary that parties to the agreement must enter into legally binding agreement. We can understand this with the help of the case law that is Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd[6].
Usually, it is considered that intention is there if consideration is present in the contract, but this consideration is not always true. Therefore, it is necessary that this requirement must be proved in each case separately. The burden to prove that there is intention to create legal relations is on the party who seek to prove that there is valid contract between parties and also the relationship between the parties[7].
Difference Between Offer and Invitation
La Trobe University organizes a Ball for the staff and students of university, and the VC of the university is concerned about the security at the campus. He approached local police for the security of the ball.
Senior Sergeant Ratty of police advises him that there is a police van which patrolling the area of university at the time of ball night but officials of university demands the extra security and they want 2 police officers on the dance floor while performing their duty and an extra van in the campus of university. Sergeant Ratty agrees and stated that this will incur extra charges because police are providing extra security to the university but officials think that this is the duty of the police to give protection and there is no need to pay extra amount for that. Later after giving extra security police charges $5000 for their services and send invoice to the university.
In the present case there is valid contract between the police and university which consists all the essential elements of contract that is offer, acceptance, and consideration, and intention to create legal relation.
University gives offer to the police for providing extra services which was accepted by the police and there is also valid consideration of 5000 dollar between the parties. There is valid contract between the parties.
Offer accepted by university can be deemed that intention to create legal relations is also present in the case of university also.
In the present case all the essential elements of valid contract are present that is offer, acceptance and consideration. Therefore university is liable to pay invoice of $5000 sent by police department for providing extra security to the university at ball night.
A valid contract is an agreement between two parties. Contract is legally binding on the parties if offer made by offeror is accepted by the offeree. For making the contract legally binding on the parties it is important that following elements are present in the contract:
It is necessary that contract must be oral or in written form between the parties, and there must be intention to create legal relations between the parties[8].
It is necessary for valid contract that one party gives offer to another party and offeree must accept the offer given by the offeror. Offer given by party must be in written or oral form, and there is no particular form to give an offer. Offer is communication between two persons in which one person promise to do something if another person to whom offer is made does something.
Offer
Offer is different from invitation to treat. Invitation to treat is just an invitation to parties to make offer and this invitation to treat is not considered as an offer. Invitation to treat is not legally binding on the parties. Reply received on behalf of invitation to treat is considered as an offer and acceptance of that offer is considered as a valid contract between parties. We can understand this with the help of case law Pharmaceutical Society of Great Britain v Boots Court of Appeal [1953] 1 QB 401; [1953] EWCA Civ 6; [1953] 1 All ER 482, [1953] 2 WLR 427[9].
Communication of offer is completed when offer is given to the offeree. When offeror gives offer to the offeree then it is assumed that communication of offer is completed[10].
Acceptance of an offer is an oral or written statement through which person to whom offer is made agreeing to the offer. Acceptance of offer is valid when it is communicated to the offeror or when it comes in the knowledge of offeror. In other words contract is binding on partners when acceptance of the offer is received by the offeror. We can understand this with the help of case law Bressan v Squires Supreme Court of New South Wales [1974] 2 NSWLR 460[11].
In the present case, the management committee of Dodgy Accounts Associates meets and took decision that Mr. Dowell is appointed as senior accountant for the firm, and one member of the committee that is Mr Welwisha send the telegram for the same to Mr. Dowell. Telegram stated that formal letter of appointment was send by mail, and after receiving the telegram Mr. Dowell posts a letter to the committee in which he accept the offer of committee. Later committee decided not to appoint Mr Dowell.
In this case there is valid offer made by the committee to Mr. Dowell because in a meeting committee decided to appoint Mr. Dowell, and after this decision Mr. welwisha send letter to Mr. Dowell which stated that Mr. Dowell is selected for the post of senior accountant in the firm, and also stated that formal appointment letter is sent by mail. Offer is valid when one party by oral or written statement or by his conduct make promise from other party to do something, and in this Mr. Welwisha by letter shows that Mr. Dowell is appointed for the post of senior accountant.
Contract is binding when other party accepts the offer and acceptance is communicated to the offeror. In this Mr. Dowell gives his acceptance through letter and same was posted to the committee. Therefore this contract is valid and binding on parties.
There is valid offer and acceptance is given which shows that parties have intention to create legal relations. There this contract is valid and legally binding on Mr Dowell and Dodgy Accounts Associates.
References:
ACL, Formation <https://www.australiancontractlaw.com/law/formation.html>.
ACL, Agreement< https://www.australiancontractlaw.com/law/formation-agreement.html>.
Carlill v Carbolic Smoke Ball Co Court of Appeal [1893] 1 QB 256; [1892] EWCA Civ 1.
Crown v Clarke (1927) 40 CLR 227.
ACL, Consideration <https://www.australiancontractlaw.com/law/formation-consideration.html>
ACL, Intention to create legal relations <https://www.australiancontractlaw.com/law/formation-intention.html>.
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd.
Pharmaceutical Society of Great Britain v Boots Court of Appeal [1953] 1 QB 401; [1953] EWCA Civ 6; [1953] 1 All ER 482, [1953] 2 WLR 427.
Hill, Email contracts –When is the contract formed< https://www.austlii.edu.au/au/journals/JlLawInfoSci/2001/4.html>
Law Teacher, Difference Between Offer And Invitation<https://www.lawteacher.net/free-law-essays/contract-law/difference-between-offer-and-invitation-contract-law-essay.php>.
Bressan v Squires Supreme Court of New South Wales [1974] 2 NSWLR 460.
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