Requirements and Contents of a Legally Binding Agreement

Acceptance is seen to validate a contract, and as explained by Duhamie “it gives it life” [3] . Under the rules of acceptance, the offeree unconditionally agrees to bind by all the terms of the contract. The acceptance must ‘mirror’ the original offer made, so no new terms can be introduced as this will render a counter offer which will automatically reject the original offer. In Jones v Daniel (1894) the offeree responded to an original offer by submitting a new contract with fresh terms. This response was held to be a counter offer, the “mirror image rule states” that an offer and acceptance must be based on the same conditions. In addition, it is important to note that a request for information is not a counter offer. Furthermore, in Hyde v Wrench (1840) by the claimant refusing the defendant’s first offer to sell the land at £1000, and stipulating a lower price of £950 was seen as a counter offer. The courts held that the claimant could not change his mind and force the buyer to sell at the original price given, as the lower price revoked such an offer. For instance, resting on the fact that Simon doesn’t change his mind in regards to the negotiations made and, if Davina asks Simon for clarification of the offer, it still leaves the original offer intact. There are no rules that an acceptance must be made by words, as ones conduct can render an offer to be accepted, as seen in Carlill v Carbolic Smoke Ball Co (1893). In this case the claimant successfully won their dispute, as by carrying out the terms of the advertisement, and unfortunately contracting the illness was seen as a valid acceptance. As a result, they were entitled to the £100 as specified on the advertisement.

There is a general rule that communication of acceptance is only effective when it reaches the offeree’s place of business. However, there is one exception to this rule. The offeree may mail an acceptance to the offeror and under English law this will be accepted once the letter is posted. This is known as the “postal rule”. If the postal offices loses or delays the acceptance letter, there is still a binding contract. This was clarified by the case of Household Insurance v Grant (1879).

Nevertheless, such can be easily avoided by expressly stating that “they would not be bound until receipt of an acceptance letter” [4] . For example, Holwell Securities v Hughes (197, CA) it was held that no contract resulted from the postal acceptance. So the postal rule was excluded as the offeror had expressly stated that for communication to be effective, they must physically receive the letter of acceptance.

An agreement alone between parties does not make a contract. As both parties must provide consideration; where “each party to the contract must receive something of value” [5] . This means that both parties must promise to give or do something for the other. Take for example, if Davina promises to Simon that she will become the new presenter for his TV show, but Simon doesn’t give anything in return; Simon can’t take Davina to court. This is because the contract is not legally binding: he didn’t provide any consideration towards her promise.

The key case that gave consideration its definition was Currie v Misa (1875) where it was referred to as being a benefit to one party or a detriment to the other. For consideration to be acknowledged by the courts it must meet the five rules that apply. Firstly, consideration “must not be past”, this means that consideration must be given at the time the agreement was firstly made. In the case of Re Mcardle (1951), it was held that that no valid contract had existed as the home improvements were not seen as consideration, as the promise to pay was made after the work had been carried out. However if something is done in a business context were an act was carried out in reaction to a specific request and it was clearly understood by both sides that it will paid for, consideration would be seen as valid. This was evident in RE Steward v Casey (Casey’s Patents) (1892) where the employers were bound by their promise to pay the employee for the work he carried out at their request, and “the nature of their relationship implied that future payment would be made” [6] .

Secondly, “consideration must be sufficient”. , this is in regards to the monetary value of the consideration which allows it to be assessed in financial terms. However, the courts will not investigate its adequacy, so consideration does not need to be adequate. An illustration of this is in the case of Thomas v Thomas (1842) where the decision was made that a yearly rent of £1 was sufficient consideration. “Sufficiency usually involves taking on some new obligation in return of the other party’s promise of payment” [7] .

Yet, if someone is under existing legal duty to do a particular task, then agreeing to do this task does not amount to sufficient consideration. Therefore, “consideration must not be something that promisee is already bound to”. For instance, in the case of Stilk v Myrick (1809), a crew of sailors had a duty to sail the ship despite being short-handed, when they promised their captain they would do this, the court held that there was insufficient consideration because it was already their duty to perform such a task. Moreover, if someone “exceeds their public duty”, then this may be valid consideration. In Hartley v Ponsonby (1857) despite the specifics of this case being very similar to Stilk v Myrick the courts held that there was sufficient consideration since the crew took on a new set of duties. Lastly, “consideration in a contract must be legal”; immoral contracts are not enforceable.

This draws us with the last component of what comprises a legally binding contract, which is an intention to create legal relations. An agreement can exist between two parties, but this is not enough there must be an intention to enter into a binding contract. The law divides agreements into two categories business arrangements and social or domestic arrangements. The latter covers agreements between family members, friends and workmates. For this reason, the courts presume that these are not intended to be legally binding. Nevertheless, these presumptions can be disproved in court by producing evidence in the contrary. In the case of Simpkins v Pays (1955) the court held that due to the nature of the arrangement, it was referred to as a legal relation, so the claimant was entitled to share of the prize money.

Usually, the courts assume an intention to be legally bound in all business agreements. This is because it usually involves the exchange of money for a service. In the case of Edwards v Skyways the courts decided that there was legal intent and therefore, found in favour of the claimant. However, this can be disapproved by “a written clause in a contract with a rebuttal” [8] this is known as an honourable pledge clause. In the case of Rose & Frank Co v J.R Crompton & Bros (1925) it was held that the honours clause excluded the intention to be legally bound. Therefore the agreement was not binding.

We have looked at what makes a legally binding contract; this now leaves us with the question ‘what makes the contents of a contract?’ A contract is made up of terms, offered by one party and accepted by the other. This will serve as legal protection should a party breach the terms of the contract. These terms may be expressed, which are terms that have been communicated and agreed at the time the contract was made. On the other hand, the terms can be implied, such terms have not been communicated by either party, but are nevertheless included in the contract. The parties do not need to mention these terms for the very reason that it is so obvious that “it goes without saying” [9] . There are two main types of these: “terms implied by courts” and “terms implied by statue” For instance under s13 Supply of Goods and Services Act 1982, holds that in all contracts delivery shall be performed with reasonable care and skill. This term along with other key provisions of the act will be implied in all contracts involving the supply of goods and services.

The courts may imply a term to give ‘business efficacy’ to a contract, for instance, if Simon agrees to pay Davina £5,000 for her services. It is obvious he means five thousand pounds sterling and so wouldn’t need to write that down. This is an important point as the courts are not generally sympathetic to parties who assume that the contract would have been more reasonable if the added term was expressly agreed. However, at the same time any terms implied by the courts can be excluded with an express term. Therefore if a contract clearly states this term, the courts can not reject the express clause.

It is a general rule that all the terms in a contract must be performed, however not all promises in a contract have the same importance. Terms which are crucial to the existence of the contract are known as conditions. Therefore any breach of it will entitle the claimant to damages and to rescind the contract entirely, if successfully argued in court. On the other hand, a warranty is a minor term of the contract and is not treated with such severity; as a breach of warranty entitles the injured party to damages only. In Bettini v Gye (1876), the claimant was an opera singer who missed three days of rehearsals because of an illness; these absences were contrary to the contract. Despite the defendant wanting to terminate the contract the court held that Bettini late arrival was a breach of warranty as his late arrival did not prevent the contract from being carried out.

In the case of Poussard v Spiers and Pond (1876), where the facts of the case were similar to Bettini v Gye; the claimant due to serious illness was delayed from playing her role until a week after the opening night. It was held that the defendant was justified in terminating the contract since her presence on the opening night was crucial to the contract. Thus, Bettini was considered by the courts to have committed a breach of warranty and Poussard a breach of condition.

There is a third class of term known as innominate terms. These are terms that are “worded broadly to cover a variety of breaches, some more serious than others” [10] . A breach of this may or may not entitle the injured party to terminate the contract. In the case of Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha (1962) it was held that the breach of term relating to ship fitness was not sufficiently serious to permit the defendants to terminate the contract. However, in the case of Lombard North Central plc V Butterworth (1987) it was held that because the breach was a major term the supplier was entitled to repudiate the contract. Both cases show that innominate terms are may have only have a slight effect on the subsequent performance of the contract, whereas other breaches will render the contract substantially incapable of performance.

In regards to the negotiations entered into between Davina and Simon, it is evident that no contract has been made, thus Simon cannot sue Davina for any breaches. Nevertheless, the fact that both him and Davina have gone to the extent of making negotiations in regards to the TV show reflects Davina’s willingness to take part. Such can amount to an acceptance of the valid offer Simon has made to her. However, the biggest component missing is that of consideration; this means that Davina is not entitled to carry out the negotiations unless she is paid by Simon. Furthermore, the lack of a written contract or statement of the negotiations can also be a huge disadvantage for Simon if he wants to take action. This is because there is no evidence on what the parties have agreed upon, therefore mitigating the option for the courts to distinguish between conditions, warranties and innominate terms.