General Principles in Formation of a Contract

Introduction

Intro to law is a kind of business law. It teaches consumer how to use consumer’s right. We can know about different between contract and agreement from this subject. Furthermore, we also know what is offer, acceptance, intention to create legal relations, and consideration.

Apart from that, there are so many cases we have to see, and know more about different kind of cases. It also teaches us to help protect ourselves from such liability, and you can choose to organize your business as a corporation or a limited liability company, which offer some protection to business owners. Business law is to protect business or organization, which is using contract to protect organization.

Therefore, we can learn essential different ways to tackling all the problems such as sued by other parties, which is also based on law.

Question 1

The orthodox view is that, performance of an existing duty should not constitute consideration. Discuss.

Learning outcomes:

To show an understanding of what constitute a consideration.

To be able to identify the factors affecting the court’s decision in the finding of consideration in relation to performance of existing duty.

Be able to give reasons for your approach.

Answer of question 1

The definition of the consideration is an essential element for the formation of contract or contract enforcement. It also consists of promise to perform desired act or a promise to refrain from doing an act. It also can be said that it is an act or promise to do something or not to do something in return for value, and the value given is enforceable. Apart from that, there are having two types of consideration, it may be executory where a promise is given for a promise, which means that in which a party has not performed obligation yet. For example, if the customer pays the contract price at a later date agreed by both parties, it is called executory consideration. It may be executed where an act or forbearance is given for a promise, which means that both parties have been fully performed the obligation. For example, if customer pays upon booking or ordering, it is called executed consideration. Furthermore, there are three principles that given the application of consideration to contract. The First principle is consideration must be sufficient, but need not be adequate, which means that is of a good enough value to be meaningful in light of the performance or promise that it is exchanged for. The Second principle is British law states that past consideration, it is not good consideration where else Malaysia law states that past consideration is good consideration, which means that it is consisting of an act performed or promise give in the past, or it can be said that the original performance was done or the original promise was made for some reason in order to exchange it for the current performance or promise of the promisor. The third principle is consideration must be provided by the offeree, but need not more to the promisor, which means that a party wish to enforceable, contract must be able to show that he himself has furnish consideration for the promise of the other party. However, necessary that it should have been to the benefit of the other party.

There is also having existing duty. The definition of existing duty is a person may be under a duty to perform an act or it can be said that a person who is performed or obligated to do what is his/her occupation, position or duty. Existing duty as consideration are having two types of existing duty, these are domestic or social, and commercial or public. The domestic or social of existing duty are having several case, let’s see the case of Thomas v Thomas (1842) 114 ER 330, QB. “Plaintiff was the Widow of John Thomas, who before his death had instructed his executors to covey to her a cottage for the rest of her life in return for a payment $1 a year. The deceased’s will appointed Samuel Thomas and Benjamin Thomas as executors and residuary legatees. The Plaintiff was entitled to leasehold property if (a) she paid 1 pound per annum in rest, (b) she kept the premises in good repair, and (c) she did not remarry. This was a very small sum even in those days, and the executors’ motive in agreeing was no doubt respect for John Thomas.” The court found there was an enforceable contract. The 1 pound a year was valuable consideration, and it was enough to complete the contract. As such it could not constitute good consideration, but the court suggests that the promise to keep the premises in good repair might represent good consideration. Furthermore, see the case of Balfour v Balfour (1919) 2 KB 571, CA. “A civil servant Defendant was about to return to his work in Ceylon, leaving his wife Plaintiff in England. Defendant promised to pay $30 a month until he returned, in exchange for her agreement to support herself without calling on him for any other maintenance. They subsequently divorced, and Plaintiff sought to enforce Defendant’s promise.” In this case, the court of Appeal said that although there was consideration in Plaintiff’s promise, there was no contract. There are many agreements, and including most agreement between husband and wife, which parties never intended they might be sued upon. Agreements such as these are outside the realm of contracts altogether. In this case, the agreement was held to be unenforceable on the ground that agreements between spouses are presumed to not have been intended to create legal relations. So, there can not constitute good consideration. Therefore, for the case of Thomas v Thomas, although there is not constitute good consideration, which is tasks within existing duty, but it can be fulfill. The case of Balfour v Balfour, although which is constitute consideration and beyond existing duty, but these are outside the realm of contracts, and it is allowed to appeal.

Apart from that, commercial or public of existing duty are having several cases. See the case of Hartley v Ponsonby (1857) 119 ER 1471, QB. “A ship left England with a crew of 36, but as a result of desertions these were reduced to only 19, including just five able seamen, who were promised extra pay if they would help to sail the ship back to England.” .” In this case, the court said this promise was enforceable and found that it was unreasonable for ship to proceed with just 19 of the crew, it is because it was dangerous for ship to proceed with as few hand, and then Plaintiff could not have been required to perform the work. Furthermore, Defendant had undertaken in writing to pay Plaintiff $40 to assist in sailing the vessel to Bombay with a crew of 19, but the extra payment was refused after arrived Bombay. It was establish that Defendant entered the agreement voluntarily. So, it should constitute good consideration because it tasks beyond existing duty. Furthermore, see the case of Collins v Godefroy (1831)109 ER 1040, KB. “Defendant promised to pay Plaintiff if Plaintiff would attend court and give evidence for Defendant. Plaintiff had been served with a subpoena, but Defendant did not do so and Plaintiff sued for payment.” In this case, the Lord Tenterden CJ said that since the subpoena imposed a legal duty on Plaintiff to appear the court, his action therefore failed. So, a witness has a legal duty when called upon to testify. Police has a legal duty to keep law and order and may employ more man power to assist.

In my opinion, I agree with the performance of an existing duty should not constitute consideration. It is because people who should perform within their existing duty, no matter one or both sides has/have given a promise in return for something valuable, and it is within their responsibility, unless the promisor goes beyond their duty.

Question 2

What are the general principles in the formation of a contract? What are the various forms of remedies available for breach of contract? Give example with cases.

Answer of question 2

I.T.L.R

OFFER + ACCEPTANCE

CONSIDERATION

The general principles in the formation of a contract are Offer, I.T.L.R (Intention To create Legal Relations), Consideration, and Acceptance. A simple contract, that is a contract made not under seal, it requires an offer made by one party and accepted by other party, the valuable consideration given by either side, and a common intention that the agreement should be legally binding as well. An offer is expression or willingness to be bound of a term contract, it can be make one person (bilateral) or to a group of person or to the whole world at large (unilateral). A bilateral offer can take a form of a promise to do something in return for the promise of the offeree to do something. A unilateral offer is a one sided promise or reward someone for performing and act. It is one sided promise because it is made without the offeror knowing who the offeree is. Apart from that, an acceptance of an offer is the final and the unqualified assent to the term of the offer. An acceptance whether oral or return must be communicated to the offeror before they can be a contract or can be enforced. One acceptance has been communicated, it cannot be withdrawal, but an offer can be revoked anytime before it is accepted. Moreover, consideration is an act of forbearance of one party or the promise thereof, it is the price for which the promise of the other is bought and the promise thus given for value is enforceable (usually cash, but also property, and a promise to do something or not to do something). Furthermore, contractual intention is normally going to be presume in cases involving commercial agreement, and in cases are involving social and domestic situation, this is a presumption that the parties do not intend to have legal relations.

For example, see the case of Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, CA. “The makers Defendant of a health product published newspaper advertisements promising to pay 100 pound to any person who bought and used their smoke ball as directed and who subsequently contracted influenza or cold. Plaintiff sued for the 100 pound promised.” In this case, the court said the advertisement was an offer, and held that Plaintiff was entitled to 100 pounds. The advertisement was clearly showed an intention to be bound to anyone accepting. This case is including offer, acceptance of an offer of a unilateral contract and consideration. There is an offer to be acted upon in the advertisement, the conditions of performing is sufficient for acceptance. The consideration in the advantage to the defendant from the sales of the smoke ball and the detriment to the plaintiff in the convenience of using the smoke ball. Carbolic was refusing to pay the 100 pounds, the defendant breach the contract.

Apart from that, generally advertisement there is plays into newspapers are not offer, but invitation to treat or it can be displayed on somewhere. For example, see the case of Pharmaceutical society v Boots Cash Chemists (1953) 1 ALL ER 482, CA. “Boots Cash Chemists is the defendant, there was operated a self-serve pharmacy where customers selected the articles from the shelf and then took them to the cashier to pay for them. Among the article for sale were pharmaceutical products, which according to the pharmacy and poisons act. They were required to be sold only under the supervision or authorization by a pharmacist.” In this case, the court of appeal said they had no case. The Lord Chief Justice found that the sales in question were affected in accordance with the act. So, a display of item in a store is an invitation to treat, and that is non-binding invitation to receive offers. The cashier is acceptance and the customer is offer, and the contract is completed. Therefore, the sales in question were completed under the pharmacist’s supervision. So, there is appeal dismissed.

Moreover, counter-offer is an alternate offer with different term made in response to an offer that has been rejected. For example, see the case of Hyde v Wrench (1840) 49 ER 132, Lord Langdale MR. “Defendant (Wrench) wrote to Plaintiff (Hyde) offering to sell his farm for 1000 pounds, Plaintiff immediately responded with an offer of 950 pounds on 6 of June. Defendant took time to consider. After that, defendant rejected plaintiff’s offer on 27 of June. On 29 of June, plaintiff was accepted defendant’s original offer, but defendant refused to sell and plaintiff sued for breach of contract.” In this case, Lord Langdale MR held that there would have been a binding contract if the defendant’s offer to sell his farm for 1000 pounds had been unconditionally accepted. Furthermore, the plaintiff made an own offer for 950 pounds, and indicated reject the offer previously made by defendant. Therefore, there was existed no obligation of any sort between both parties.

Furthermore, the various forms of remedies available for a breach of contract are rescission, restitution, specific, injunction, and damages. The definition of remedy is the way a right is enforced or an injury is redressed. Rescission is the act of cancelling or ending the law, an agreement, or an order. The equitable remedy of rescission can be used to describe either of the two following. The first description is where a contract is set aside by or party on the ground that the vary formation of the contract has been – vary affected by misrepresentation, fraud, coercion or undue influence which induce the party to enter into the contract and the contract is treated as though it never existed by the restoration of the parties to their original positions. The second description is where the contract is set aside by one party, but it brings only future obligations to an end and allows the party to sue for damages for breach of contract. Furthermore, the definition of restitution is for some harm or wrong that somebody has suffered payment (usually money). The description of restitution is a party who has, entirely or on part, performed his side of the contract and not received the agreed counter-performance in full may sometimes be entitled to restitution in respect of his own performance. Where this consists of a payment of many, the payor (a person who make payment) will simply seek to get it back; where it consists of some other benefits he claim recompensed in respect of it.

Moreover, specific performance is an equitable remedy where the court direct that the contract be performed according to its terms. As it is an equitable remedy, it is given at the discretion of the court and is not available as of right. For example, see the case of Beswick v Beswick (1968) AC 58. “A nephew promised his uncle to pay an annuity to his aunty in consideration of the uncle, there was transferring the goodwill of the business to the nephew, but the aunty was not a party to the contract.” In this case, the court held that it could be specifically enforced by the uncle’s personal representative (the aunty) against the nephew. The nephew would have been unjustly enriched by being allowed to retain the entire benefit of the uncle’s performance without performing his own promise.

In the other hand, injunction is an order of the court whereby an individual is required to refrain from the further doing of the act complained. In the context of contract, the remedy will be granted to enforce a negative stipulation in a contract in a case where it would be unjust to confine the plaintiff to an action for damages. For example, see the case of Lumley v Wagner (1852). “The defendant was contracted to sing for the plaintiff in his theatre for three month and did not sing elsewhere during the time without the plaintiff’s consent. A third party, Gye, he offered the defendant a larger sum to sing for him. Plaintiff sued for breach of contract.” In this case, the court said that they had no power to make the defendant sing at the plaintiff’s theatre. The court could persuade defendant to do so by preventing her singing elsewhere by imposing an injunction.

In addition, damages are award to compensate the injured party for any consequences of the breach of contract. When the contract has been broken, the party who suffers by the breach is entitled to recover from the party who has broken the contract, a compensation for any loss or damages caused to him thereby, which naturally arose in the usual cause of dealing from the breach or which the parties knew when they made the contract to be likely to result from the breach of it. For example, see the case of Weld-Blundell v Stephens (1920). “The plaintiff employed an accountant who was the defendant, and to investigate the affairs of a company he had inverted in. The defendant’s partner negligently dropped a letter in the office of the company’s manager, which the company’s manager picked it up and showed to his directors. The director sued the plaintiff in libel and won while the plaintiff sued the defendant for breach of contract to recover the damages he paid out in the libel action.” In this case, the court said that the claim must be dismissed since the plaintiff’s liability for libel existed except the contract, and the loss was not caused by the breach of contract, but it was by the act of company’s manager showing the letter to the directors. However, this was an act the defendant could not have foreseen.

In my opinion, we have to think about what will be happed and think carefully before we sign the contract, especially the term and condition. Therefore, offer and acceptance are based on intention to create legal relations and consideration. So, the contract and an agreement cannot be signed without offer, intention to create legal relations, consideration, and acceptance.

Conclusion

The conclusion of the assignment, it is let us know more about the business law, and what is business law. There are two questions we have to answer. First question is talking about performance of an existing duty, which is showing us that what is your existing duty, which case is tasks beyond existing duty, which case is tasks within existing duty. What is your responsibility, and you have to performance your duty as well.

Apart from that, the second question is talking about the general principle in the formation of a contract and the various forms of remedies available for breach of contract. That means what are the solutions available for break the contract. We will know what breach of contract from second question is. In addition, we will also know that why people will break the contract, and will be happened on people who breach of contract.

Therefore, people should think carefully before you sign the contract or make an agreement and we have to see the term and condition properly. We have to remember that don’t simply sign the contract or make an agreement with the parties who you know, even the parties who you don’t know.