The Key Elements of a Valid Contract
When two or more parties wanted to ensure that each of the party performs or not perform certain activities, then they decide to form a contract with each other. It enables them to form a legal relationship with each other which is enforceable by the court if any party did not fulfil its terms. Presence of certain factors or elements is mandatory for forming a valid contract. The format of a contract can either be written or oral since in both cases parties have equal rights and liabilities.
One of the key elements is that an offer should be made to a party which has the ability to bind the offeror. The offer which did not have the power to bind the offeror into the terms is not considered as a valid offer as provided by the court in the case of Harvey v Facey (1893) UKPC 1. The offer once made by a party can be terminated on the grounds of death of either party, not accepted within time, revoked by the offeror and counter offer (Lindgren, 2011). The person who is making an offer has the right to revoke it anytime to avoid enforcing the terms of the offer upon himself, however, it must be cancelled before the acceptance is given by the offeree as given in the case of Errington v Errington Wood (1952) 1 KB 290.
Another way of terminating it is by making a counter proposal or offer due to which the first offer is cancelled and cannot be accepted until revived by the offeror as provided in the judgement of Hyde v Wrench (1840) 49 ER 132 case. Another key element is the acceptance of the offeree. Right after giving the acceptance, the contract is formed; however, the acceptance must match the terms of the offer. It is necessary that it must be certain and it is communicated by the offeree.
In case the offer is made through the post, then the postal rule applies to the acceptance of the party. Based on this rule, a valid acceptance is considered when the letter of acceptance which is sealed and addressed is put in the post box as given in the case of Adams v Lindsell (1818) 106 ER 250 (Lindgren, 2011). This rule is applied only in the case when the offer is made through a post, and the acceptance is requested by the post as well. However, if the offeror clearly specifies that he/she wanted the acceptance in a specific format or way, then the postal rule is not applied to the particular situation as given in the case of Holwell Securities v Hughes (1974) 1 WLR 155.
The Role of Exclusion Clauses in Mitigating Liability
Based on this rule, a contract formed between two or more parties right at the time when the letter is put in the post box. Another key element of a contract is that a valid consideration must be present. Each party of the contract promise something which is referred as the consideration for such contract. Generally, the benefit and detriment suffered by a party in a legal relationship are referred to the consideration. Anything cannot be considered as a consideration, and it is necessary that it must be certain value as per the law to considered as valid consideration as given by the court in the judgement of Thomas v Thomas (1842) 2 QB 851 case.
It is necessary that certain factors are present in the consideration to constitute as valid such as it must be sufficient, it must not be past, and past payment must not be foregone for consideration (Lindgren, 2011). In the case of Chappell v Nestle (1960) AC 87, the court provides that it is necessary that the consideration in a contract is sufficient; however, it is not necessary that it must be adequate. Another key element is related to the intention of the parties who decided to create a legal relationship.
It means that each of the party must understand the terms of their legal relationship, and they must want to bind themselves to such terms. A statement made by the parties during social gatherings regarding doing or not doing a certain act is not considered as a valid offer since parties did not have the intention to form legal relationship as given by the court in the case of Jones v Padavatton (1969) 1 WLR 328. Based on this rule, an acceptance which is taken by external force or any other unfair or illegal means is not constituted as valid based on which a legal relationship is not created between parties. Lastly, the parties who have decided to form a contract must have the capacity to create a legal relationship (Lindgren, 2011).
Not all parties are able to construct a contract since it is legally binding, and they must have the capacity to bind themselves into the contract. Parties who are insolvent, unsound mind or minor are not able to make decisions about themselves based on which they cannot form a valid contract.
A: Application
In the given case study, an offer to form a contract was made by Ann. The object of this offer was to sell her for a price of $12,000. Ann communicated this offer through a letter. Ann was determined to sell her car based on which the offer was valid since after its acceptance as valid contract would form between the parties (Harvey v Facey). She sent this letter on 1st March and on 2nd March she sent another letter in which she revoked her original offer.
Fulfilling Requirements for an Exclusion Clause to be Valid and Enforceable
The revocation made by Ann is valid since the offeror can cancel the order any time before it is accepted by the offeree (Errington v Errington Wood). Right after receiving the letter, Jack decided to purchase the car. He did not receive the letter for revocation of the offer till 5th March and based on the postal rule, the acceptance will be constituted at the time Jack put the stamped and addressed letter in the post box.
However, in his letter, he made a counter offer by stating that he wanted to pay the amount in instalments by paying $1000 per month. Since the acceptance did not match the terms of the offer and the counter offer was made by Jack, the original offer is cancelled (Hyde v Wrench). Later, an unexpected cheque was received by Jack for $16,000 after which he decided that he will purchase the car of Ann as per her original offer. However, once an offer is rejected based on a counter offer, then it cannot be accepted again by the party (Hyde v Wrench).
Thus, the original offer cannot be accepted by Jack until it is revived by Ann again based on which a contract has not been formed. Ann has mentioned that she did not want to sell her car in the second letter sent by her on 2nd March. Therefore, a valid contract has not formed between the parties since the offer was revoked by Ann and the counter offer of Jack was also cancelled the original offer of Ann.
C: Conclusion
Based on the above observations, a valid contract has not formed between the parties. Firstly, the original offer made by Ann was revoked by her after sending another letter. Secondly, Jack did not agree to the original terms of the contract, and he made a counter offer which rejected the original offer. Thus, a contract has not been formed between the parties.
Answer 2
Key issues in the case:
- What legal rights do Batty has against Qualal Motors?
- Whether he can claim for compensation for the damage to his car and the injury suffered by him?
It is a general rule that once two or more parties have formed a legal relationship by signing a contract then they have to comply with its terms. Each party has the right to enforce another party to comply with the terms which he/she accepted by signing the contract. Another key factor is that if any party suffers an injury or economic loss due to the failure of another party to comply with the contractual terms, then the innocent party has the right to file a suit for claiming compensation for the loss suffered by him.
Breaching a contractual term leads to legal consequences based on which parties can claim for damages for the loss suffered by them. Thus, parties to a contract are liable towards each other to ensure that they comply with its terms to avoid legal consequences (Lindgren, 2011). However, parties can terminate this liability by including an exclusion clause in the contract. The purpose of this clause is to cancel the liability of one contractual party towards another to pay off any damages for the loss suffered by him due to breach of their duty or negligence.
The liability of a party to pay the compensation for the loss suffered by another party due to the breach of a contractual term or negligence is eliminated after including the exclusion clause in the contract. The clause also terminates the right of the innocent party to claim for compensation for the loss suffered by him after he/she gives his/her acceptance to the exclusion clause. Thus, a party can protect himself from legal liabilities based on relying on the exclusion clause. Generally, certain elements must be fulfilled by the parties in order to include the exclusion clause in the contract and rely on its defence to prevent their liability.
Olley v Marlborough Court (1949) 1 KB 532 case is relevant in order to understand the role of exclusion clause and its impact. The facts of this case include that a customer check-in into a hotel and a contract was signed by her at the reception desk (Lindgren, 2011). After entering her room, she noticed that at the back of the door a notice is written. The notice reads that the hotel or its employees will not be held liable for any stolen, lost or damaged property or belongings of the guests living in the hotel room.
During her stay, the claimant found that her fur coat has been stolen from her hotel room. She complained to the hotel staff and claimed for compensation, however, they rejected her claim by stating that based on the notice they are not liable for her loss. The claimant filed a suit against the hotel. The court evaluated the facts of the case and provided that the hotel wanted to eliminate their liability based on the exclusion clause. However, the general rule of exclusion clause is necessary to be fulfilled by the parties.
The rule provides that the clause must bring to the attention of the contracting party in order to rely on its defence. It must bring to the notice before the formation of the contract or during its signing. In the given case, the court held that the contract between the parties was formed at the reception desk, whereas, the exclusion clause was brought into the attention when the claimant entered her hotel room (Lindgren, 2011). Thus, it was not a valid exclusion clause based on which the party cannot rely on its defence. In case of negligence, the liability of a party can be eliminated based on inclusion of the exclusion clause.
Thornton v Shoe Lane Parking (1971) 2 WLR 585 is a relevant case in this matter in which the court provided provision regarding elimination of liability for negligence by based on relying on the exclusion clause. The facts of this case included that a person parked in his car in a paid parking lot. Due to the negligence of the defendant, the claimant suffered an injury. He demanded compensation from the defendant due to his negligence. The defendant rejected his claim for compensation by providing that the ticket purchased by the claimant to park his car was subject to certain terms (Lindgren, 2011).
These terms were not written on the ticket itself, however, it was mentioned on the ticket that it is subject to terms and conditions which are displayed inside the parking. One of the terms was included an exclusion clause based on which the defendant terminated his liability towards negligence which results in causing damage to another party. The claimant filed a suit in the court to recover the compensation. The court provided a judgement in favour of the claimant and held that the defendant could not rely on the exclusion clause.
The court provided the reason for it that the general rule of exclusion clause clearly specifies that it must bring into the attention of the party. Furthermore, it should not be brought into the attention after formation of the contract. It can either bring before the forming of the contract or during its formation. Based on this clause, the court provided that the contract between the claimant and the defendant formed when the ticket was issued to the claimant by the machine.
Moreover, the terms in which the exclusion clause was displayed after the claimant entered the parking lot. Based on this rule, the defendant cannot eliminate his liability towards the customers, and it also did not terminate the right of the claimant to file to damages (Lindgren, 2011). There is an exception to the general rule of exclusion clause which provides that if the contract is in written format, then the party who is relying on the exclusion clause did not have to bring it to the attention. Based on this exception, the general rule did not apply to parties to a contract.
L’Estrange v Graucob (1934) 2 KB 394 is a relevant case in this matter. In this case, a contract was formed between the claimant and the defendant based on which the claimant purchased a cigarette vending machine. After purchasing the machine and installing it in the store, the claimant found that it did not work properly. He wanted to return the machine based on the provision of the Sales of Goods Act by providing that it is not in the merchantable quality.
The defendant rejected his claim by providing that an exclusion clause was included in the contract signed by the claimant which provided that the defendant will not be liable for any warranty in case the machine did not work properly (Lindgren, 2011). The claimant argued in the court that the clause was not brought into his attention by the defendant. The court provided that in case of a written contract, it is expected that the parties read all its terms based on which the exclusion clause is valid, and the defendant can rely on its defence.
A: Application
In the given case study, Batty called Qualal Motors through his phone to send a mechanic since his car broke down on the road. After checking the car, the mechanic told Batty that it could not fix on the road, and they have to bring it to the garage. Batty gave his permission to send the car to the garage. While the car was towed by the mechanic, a worn clip was opened due to which the car fall, and it damaged its body. Batty suffered a personal injury as well since several of his toes were broken by the car’s fall. Qualal Motors rejected the claim by stating that an exclusion clause was written in the back of the truck and the garage. As per the general rule, the exclusion clause must bring into the attention before the contract is formed or during its formation (Olley v Marlborough Court).
The contract was formed between Batty and Qualal Motors during the call when Qualal Motors agreed to send mechanic to repair the car of Batty. The contract was oral not written based on which Qualal Motors cannot rely on the exception of the exclusion clause (L’Estrange v Graucob). Thus, the inserting of the exclusion clause is not valid, and Qualal Motors cannot rely on its defence. Batty has the legal right to claim compensation from Qualal Motors for the damages of his car and personal injury suffered by him.
C: Conclusion
Based on the above observation, Batty has legal rights against Qualal Motors to claim for damages for his car and injury suffered by him. The exclusion clause is not valid based on which he can claim for damages for the loss suffered by him.
References
Adams v Lindsell (1818) 106 ER 250
Chappell v Nestle (1960) AC 87
Errington v Errington Wood (1952) 1 KB 290
Harvey v Facey (1893) UKPC 1
Holwell Securities v Hughes (1974) 1 WLR 155
Hyde v Wrench (1840) 49 ER 132
Jones v Padavatton (1969) 1 WLR 328
L’Estrange v Graucob (1934) 2 KB 394
Lindgren, K.E. (2011) Vermeesch and Lindgren’s Business Law of Australia. 12th ed. London: LexisNexis Butterworths.
Olley v Marlborough Court (1949) 1 KB 532
Thomas v Thomas (1842) 2 QB 851
Thornton v Shoe Lane Parking (1971) 2 WLR 585
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