Contract Law

Essay by anna_horiUniversity, Bachelor'sA, March 2009

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Content pageAbstract3Introduction3Objective4Scope and limitation4Definition of contract5Formation of contract5The acceptance6Avoidance of contract10Legality12Discharge of contract12Remedies for breach of contract14Case 116Case 217Conclusion18Reference19AbstractThis report is based on the research of contract that is implied in Singapore and also international law. And also this report explain what is contract, the definition and what are the element that inside it. And also what are the elements that can be ended the contract. The most importance on the contract is the formation that we should create on the contract. Now contract is used as commercial transaction, and law of the contract affects one's everyday lifeintroductionContract can be defined as a legally bidding or a promise or set promises which is enforceable by law. And the contract usually made between two parties or more. To enter the contract there must be an offer an acceptance that made by two parties or more, both parties to a contract must first reach an agreement.

Inside an agreement which create rights and obligation that may enforced in the court.

Agreement can be formal, informal, oral, written, but some contract must be in writing in order to be enforced. In contract there are express and implied. Express is the one that happened where the term of agreement are directly uttered and avowed at the time of making, and during that time occur pay a stated price for something.

In implied contract is more formal rather than express, it happen such as man employ another to do job to perform any work, the law implies that the former contracted has to pay the value as much as labor work.

ObjectivesThis essay made to develop understanding of contract as it applies to the practice of architecture. And also to develop what are required to enter a legal contract and how to avoid mistake.

Scope and LimitationBasically, the essay only explains about the breach of contract, the case in this essay taken from the book of contract law.

Definition of ContractA contract is an agreement which binds the parties concerned. In other words, a contract is an agreement which is enforceable by law. To have an agreement, there must be an offer and an acceptance to that offer.

Offer + Acceptance = AgreementFormation of ContractThe essence of contract is that there should be an agreement. Parties to a contract must first reach an agreement. To have an agreement, there should be an offer by one party which is accepted by the other party.

For an agreement to be legally enforceable, certain necessary factors must be present. Firstly, there should be an agreement made between the parties that is, and offer and an acceptance of the offer. Secondly, there is an intention to create legal relations. Thirdly is consideration and lastly is the capacity of both parties.

The contract must not be affected by circumstances which tender the contract voidable or illegal.

Therefore,Agreement + Consideration + Intention to create legal relations + Capacity = ContractAgreementThe most important ingredient of contract is that there should be an agreement. Parties to a contract must first reach an agreement. To have an agreement, there must be an offer by one party which is accepted by the other party.

OfferAn offer should be distinguished from an invitation to treat which an invitation o make an offer. An invitation to treat is not an offer which is capable of being turned into a contract by acceptance. An invitation to treat is a mere invitation by one party to the other party to make an offer.

Communication of offerAn offer must be communicated to the offer before it can be accepted. The offer cannot accept an offer unless he knows of it. In other words, the offer cannot intend to accept an offer of which he is ignorant.

Revocation of offerAn offer may be revoked or withdraw at any time before the acceptance. An offer is irrevocable after an acceptance has been made. Revocation of an offer is however, not effective until it is actually communicated to the offer. Communication means that the revocation must have actually reach the offer.

Rejection of offerAn offer is rejected if firstly, the offer communicates his rejection to the offeror and secondly, the agreement of the offer is qualified or is subject to conditions imposed by him.

Lapse of OfferAn offer lapses on three terms. Firstly, is on death either of the offer or the offeror before an acceptance. Secondly, by non-acceptance within the time specified for the acceptance by the offeror. Lastly, by non-acceptance within a reasonable time when no time for acceptance is specified. What a reasonable time is depending on the circumstance of the case.

The AcceptanceAn agreement comes into existence when a n offer is accepted. The acceptance must be made while the offer is still in force that is before it has lapsed, been revoked or rejected. Acceptance is thus only possible if the offer is still in force. Once the acceptance is completed, the offer becomes irrevocable.

Communication of acceptanceThe important rule is that the acceptance must be communicated to the offeror. There are two ways of communication. Firstly, is by instantaneous contracts and secondly is, contracts by post.

Acceptance in Instantaneous contractsThe meaning to instantaneous contracts is, contracts made between persons present or by the telephone. The contract is complete only when the acceptance is received by the offeror and not when transmitted. Acceptance takes place when is is actually brought to notice of the offeror.

IllustrationSuppose Jane shouts an offer to Bill across the river. Jane does not hear Bill's reply because of the passing plane. Therefore, there is no effective acceptance.

Acceptance by PostAcceptance by post is made by letter, telegram or cable. However, the rule of acceptance by post is that, it takes effect as soon as it is posted. If the parties agreed to an acceptance by posting, it is complete as soon as it is posted and properly addressed whether it reaches the offerer or not. If the letter is lost or delayed by post, the contract is nevertheless made even though the offeror is ignorant of the fact.

Acceptance subject to ContractAcceptance subject to contract is not acceptance nor rejection counter-offer. It means that the parties do not intend to be bound until a formal contract is signed by them. Unless bound until a formal contract is made when a formal contract is signed by both parties.

The AgreementWhen and offer and acceptance correspond, the parties have reached an agreement. A valid contract has come into existence provided the other requirements such as consideration and intention to create legal relations are met.

Intention to create legal relationsIntention to create legal relations is an element necessary for the formation of a contract. An agreement is not a binding contract unless the parties intend to create legal relations. In other words, an agreement is not a contract if the parties did not intend that it should be legally binding or that it should have legal consequences. The intention to create legal relations means the readiness of each party to accept the legal consequences if he does not perform his contract.

ConsiderationConsideration is some benefit received by a party who gives a promise or performs an act or some detriment suffered by a party who receives a promise. The benefit accruing is in return for a promise given or received.

Type of ConsiderationThere are three types of consideration which is Past Consideration, Executed Consideration and Executory Consideration.

Past consideration is a consideration is past if a promise is made in return for an act that has already been performed. A past consideration is not a good consideration in law.

Executed Consideration is an act done by one party in exchange for a promise made or an act done by the other. When the act constituting the consideration is completely performed, the consideration is said to be executed.

Executory Consideration is a promise made by one party in exchange for a promise made or an act done by the other. Where the consideration is a promise to be performed in the future, it is executory. A promise is an executory consideration is that something will be done in future which is perfectly valid.

Legal CapacityGenerally, all persons have full legal power to enter into any contract and bind themselves. But a few categories of persons do not have this power in full. They are said to be under incapacity. These persons are minors, corporations, mentally disordered persons and drunkards.

MinorsIncapacity is imposed by law upon a minor, not a punishment, but to protect him from the consequences of his experience. In Singapore, a minor is a person below the age of 21 years old. In Australia, legislation provides for full contractual capacity at the ageof 18.

CorporationsA corporation or a company is an artificial legal person. It does not have the capacity to enter into a contract. It is distinct from the individual persons who are shareholders of the corporation. It has legal existence separate and distinct from the shareholders.

Mentally disordered and drunkard personsIf a person at the time of contracting is suffering from mental disability and is incapable of understanding the nature of the contract, the contract is voidable at his instance if he can prove that his disability was known to the other party.

Avoidance of ContractMisrepresentationIn the negotiations leading up to a contract, many statements are made. Some statements become a term in the main contract and if untrue, there will be a breach of contract.

However, some statements do not become the terms of any contract and such statements are called `misrepresentations' an if untrue, do not result in breach of contract but a misrepresentation. In other words, a non-contractual representation which is untrue is a misrepresentation.

A misrepresentation is simply, a false statement, of a material fact, made by one party to another or which induces the other party to enter into a contract.

Duress and Undue influenceA person who has been induced to enter into a contract by duress or undue influence is entitled to avoid it, ie, the contract is voidable at his option because he has not given his genuine consent to the contract.

DuressDuress is the use or threat of force or unlawful imprisonment to induce a person to enter into a contract. Duress means actual violence or threats of violence to a person. The person who is threatened need not be the contracting party, they may be related.

Duress is exercise against persons only and not their goods. Threat to the goods is not known as duress. Where there is duress, the consent is not freely given and the contract is voidable and may be set aside by the Court.

Undue InfluenceUndue influence occurs when a person enters into a contract under any kind of influence which prevents him from exercising a free and independent judgment that is influencing the mind of the other party so that he cannot arrive at an independent decision. It renders the contract voidable.

MistakeThe general rule is that a party to a contract is not discharged from his obligations because he is mistaken as to the terms of the contract or the relevant circumstances. Not all mistakes will affect the validity of a contract. Mistakes are serious that it prevents the formation of any contract.

There are 3 types of mistakes and they are common mistake, mutual mistake and unilateral mistake.

Common MistakeCommon mistake is where there is complete agreement between the parties but both are equally mistaken as to some fundamental point.

If the parties make a contract relating to a subject-matter which is unknown to them both does not exist, there is no contract between them.

Mutual MistakeMutual mistake is where the parties are at cross-purposes but each believes that the other aggress with him and does not realize that there is a misunderstanding. The parties are not in agreement because they are not talking about the same thing. Such mistakes render the contract void.

Unilateral MistakeUnilateral mistake is where one party is mistaken and the other who may have induced the mistake is aware of it. Most of the case law on unilateral mistake is concerned with mistake of identity.

If one party knew of the other's mistake, he would know that the other party did not intend to make the apparent contract. Thus the apparent contract would be void.

IllegalityA contract is regarded as illegal if the law prohibits it. The prohibition may refer to the formation, performance or object of the contract or may even be in regard to the consideration given for the formation of the contract. Contracts may be unlawful according to Common Law or by statute. These include committing a crime or tort, tending to promote sexual immorality, prejudicial to public security, prejudicial to the administration of justice and tending to promote corruption in public life.

Discharge of ContractsA party may be discharged from his contractual obligations in any of the following ways which are by performance, agreement, frustration and breach.

Discharge by PerformanceThis is a normal method of discharge. Contractual obligations are discharged only by complete and exact performance. When both parties have performed their obligations, the contract is discharged that is the contract is at an end. The scope of the obligation as well as the standard to be achieved is often set out in terms of the contract itself.

Discharge by AgreementA contractual agreement may be discharged by agreement. An agreement like this must be under seal or supported by consideration. If the parties enter into a new contract to replace the unperformed contract, the new contract provides any necessary consideration.

Discharge by FrustrationUnder the discharge of frustration, the parties are excuse further performance of their obligations if some event occurs during the currency of the contract, without the fault of either party which makes further performance impossible or illegal or which it makes it something different from what was originally undertaken.

There is frustration when firstly; the whole basis of the contract is the continued existence of a specific thing which is destroyed. Secondly, there is a personal incapacity to perform a contract of personal service. For example when one party dies or fall ill. Thirdly, the whole basis of the contract is an even which does not occur. Lastly, there is a government intervention or illegality.

Discharge by BreachA contract may be discharged if there is a breach by one of the parties. A breach of contract will occur where a party fails to perform on the date fixed for the performance ( actual breach) or indicates an intention not to perform his obligation before the date fixed for performance ( anticipatory breach ).

Actual BreachA contract does not automatically terminate. The innocent party has the right to affirm the contract.

If there is a breach of condition that is a term that goes to the root of the contract, the injured party can treat the contract discharges and also sue for damages. The injured party may however prefer to treat the contract as still continuing despite a breach of condition and merely claim damages for his loss.

If there is a breach of warranty, the injured party cannot treat the contract as discharged. He can only sue for damages.

Anticipatory BreachAnticipatory breach which occurs before the date of performance laid down in the contract.

Remedies for Breach of ContractA breach of contract occurs where one party fails to perform the contract in accordance with the contractual terms at the time when performance is due.

Where a contract is broken, the injured party has several courses of action open to him. He can either firstly refuse further performance of contract. Secondly, bring an action for damages. Thirdly, sue on quantum meruit. Fourth, sue for specific performance and lastly sue for injunction.

Refusal of Further PerformanceIf there is a breach of contract, the injured party can treat the contract as discharged and refuse further performance.

DamagesWhere there is a breach of contract, the usual remedy is to sue for damages. The object of awarding damages for breach of contract is to put the injured party, in so far as money can do it, in the same position as if the contract had been performed.

Quantum MeruitWhere the contract makes no express provision for remuneration and there is a breach of contract, the injured party can claim on a quantum meruit that is, as much as he deserved or earned.

Specific PerformanceThe court may in its discretion order the defendant to perform his part of the contract instead of letting him buy himself out of it by paying damages for breach. Specific performance is an order of the Court ordering the defendant to perform a promise he has made.

Specific performance is an equitable remedy and is discretionary which means granted at the discretion of the court. It is not obtainable, as damages is, as of right. The court will not grant specific performance where it is just and equitable.

InjunctionInjunction is a decree of the court ordering a person not to do a certain act. It is an equitable remedy given at the discretion of the court. Injunction will not be granted unless it is just and equitable to do so.

The remedy is used to enforce a negative restriction of a contract. Thus, injunction can be used to restrain a party from committing a breach of a negative undertaking in personal service contract, if its effect is merely to encourage and not compel the defendant to perform a positive service.

Case 1Takuo Akino V. Machiko Fujimura (AIFULHOME Ins.Co.) 2004A house building contract was entered into between a consumer owner (hereinafter "consumer") and a house building company. The consumer, who ordered the house to be built, canceled the contract soon after the contract was signed. The house building company brought an action against the consumer claiming that the consumer should pay ¥4,000,000 and all expenses. The company insisted that there was a clause in the contract which stipulated that the consumer shall pay the amount of 20% of the total construction price as a penalty if the consumer canceled the contract and that 20% of the total construction price (which was ¥20,000,000) was ¥4,000,000. The house building company was a member (franchisee) of a big franchise group, AIFULHOME, and the contract in issue was made in accordance with the standard contract form drafted by the head office of AIFULHOME and used by all franchisees of AIFULHOME. This standard contract form included a penalty clause which said that a consumer shall pay the amount of 20% of the total contract price as a penalty where the consumer cancels the construction contract for reasons of his own.

Analysis:In my opinion in case above there is cancellation made by the owner after the contract was signed. And the builder take an action against the owner to pay the penalty 20% that is shown in contract.

In this case the project hasn't started yet. But the builder claim for penalty 20%. In my opinion the builder could not claim like that, the builder have to show the actual damages on this project.

If there any loss by the builder, the builder must establish that the actual damages they suffered was equivalent to 20%. The builder could not claim the penalty 20% without any reason or damages that equivalent 20%.

In my opinion the penalty clause in contract as this was not sufficient alone. The builder should revise penalty in the contract in order to follow the situation.

Case 2Faber v. Sweet Style Mfg. Corp., Supreme Court of New York, Trial Term, 1963, 40 Misc.2d 212, 242 N.Y.S.2d 763A manic-depressive plaintiff decided he was going to build a discount drug store and merchandise mart, so he quickly purchased land, secured an employee, hired an architect, hired laborers to begin digging, and secured State Department Labor approval. He went back to his psychiatrist saying his wife was keeping him from doing what he wanted to do. The contract for land was signed on 28 September, and the plaintiff was placed in a mental institution on 8 October. Later plaintiff wanted to rescind contract.

Analysis:In case above was happened the contract between the owner and the builder has been discharge. The owner wanted to rescind the contract before the work done.

During the project was being process the without anticipating the owner has mental disease or disorder, both party has been agree to enter the contract without any medical letter (mention that party was enter the contract is normal or in good condition) because the other party did not know the condition of the owner.

In this case the contract can be cancel because the owner was incompetent and during the contract signed the owner has mental disease. Actually event the party was not competent the contract may still exist, but in this case the owner has strong evidence that support him, that is from psychiatrists and behavior of the claimed incompetent in the testimony of others.

It supposed to be notice when make agreement with others, make sure that no such matter.

ConclusionIn contract there are some important things that we should know. The contract must consist of term and condition according of the agreement it self. If there any term and condition that are very important or required it should be expressly set out in the contract. Normally in general clauses there are insufficiencies; it may have some consideration on that. And the parties should be careful and pay attention to its implications.

Reference:-Catherine Tay Swee Kian, Tang See Chim,1987. Contract law, published by Times books international. Singapore-Wikipedia the free encyclopedia 2001, retrieved 2 December 2005 from federation of bar association 2002, retrieved 8 december 2005 Wilson 2003, retrieved 10 December 2005 from