Contract

1
Contract

• Dr. Mitja Kovac, LL.M.
• 19.11.2009

2
Structure and content

• Offer and acceptance
• Intention to create legal relations
• Contractual capacity
• Mistake
• Misrepresentation
• Duress
• Unforeseen contingencies
• Vis major
• Breach of contract
• Remedies
• Termination

3
Offer

• Offer is an agreement to a set of terms under
  which the offeror is willing to be bound.
• This offer is made to the offeree, who may be
  individual, company group of people, or even the
  entire world.
• An offer indentifies and potentially binds the
  offeror to the terms outlined to the offeree.
• The LEGAL CONSEQUENCES ARE SIGNIFICANT and it is
  important to indentify whether an offer has been
  made or whehther the seller wishes to invite
  negotiations (an invitation to treat)!

4
The invitation to treat

• The inviation to treat is the term used when
  party invites offers an invitation to negotiate
  for a good or service.
• Examples advertisements, auctions, and
  negotiations.
• For business it may be wise to sell goods under
  invitation to treat rather than under offers
  provides with flexibility in your sales
  strategy.
• Advertisements an invitation to treat.
• Yet, an exemption an advertisement may be an
  offer if the offer is clear, definite, and
  explicit, and if leaves nothing open for
  negotiation.

5
Termination of an offer

• Offers can be terminated in a numerous ways.
  Offers will not exist indefinitely enabling the
  offeree to accept at any time.
• The main termination ways are
• The death of the offeror
• Expiry of a fixed time limit
• Acceptance must be within a reasonable time
• If the offer is rejected
• If counter offer is made

6
Revocation of an offer

• The offeror has the right to revoke his/her offer
  at any time until acceptance has taken place.
• When communicating through the post, revocation
  is not effective until it has been communicated
  and hence received by the offeree.
• Acceptance mail box rule! Acceptance takes
  effect on posting, whether this is received or
  not.

7
Acceptance

• When offeree accepts the offer a valid contract
  is concluded.
• The acceptance must in time limits, full and
  unconditional and must be communicated.
• Communication written reply, oral statement, or
  implied through conduct. What about silence?
• Via post. Acceptance is valid on posting and not
  upon the receipt of the acceptance

8
Intention to create legal relations -
consideration

• Consideration in contract law is merely something
  of value that is provided and which acts as the
  inducement to enter into the agreement.
• Consideration ia a sense of law may consist
  either in some right, interest, profit, or
  benefit accruing to the other party or some
  forbearance, detriment, loss or responsibility
  given, suffered, or undertaken by the other.

9
The doctrine of privity of contract

• This doctrine arose through the common law as a
  means of regulating the relationships between
  parties to a contract.
• Only parties to a contract may be sued or be sued
  on it, and consequently provides rights and
  imposes obligations on those parties alone.
• Exceptions agency, insurance contract

10
Intention to create legal relations

• For the parties to be able to sue and sued on a
  contract, they must intend to create legal
  relations. Legal relations means that the
  parties view the agreement as a legally
  enforceable contract and a breach of contract
  could result in a remedy being sought. The
  criteri or reasonable persons.
• Certainty of terms!
• Contracts must be correctly drafted and
  sufficiently detailed in order for the
  responsibilities of the parties to be
  indentified.
• Ex post verifiability! If the courts cannot ex
  post deduce from the contract the necessary and
  important aspects, it may fail due to this lack
  of certainty, and consequently no contract will
  be in existence.

11
Contractual capacity

• For an enforceable agreement to be created the
  parties involved must have the capacity to create
  a contract.
• Minors, are persons under 18 years of age and
  have capacity to establish most of the contracts
  yet there are instances where such contracts
  may be voidable (sale of shares, the leasing of
  property)
• Mental incapacity - contracts void even if other
  party was not aware of the patient incapacity!
• What about intoxicated persons?
• Illegality

12
Mistake

• The parties did not have true agreement. Mistake
  must be fundamental and and operational
• Mutual mistake both parties are at cross
  purposes as to the nature of the contract or its
  subject.
• Unilateral mistake one party is mistaken as to
  the terms of the contract of the indentity of the
  other party.
• Concept of least cost mistake preventer.

13
Misrepresentation

• Misrepresentation makes contract voidable.
  Contract becomes voidable if a false statement of
  fact (not opinion) is made that induces the other
  party to enter the contract.
• To determine the misrepresentation the following
  must be fullfiled
• A statement of material fact (not opinion) that
  induces the other party into the contract,
• A representation must be false
• The innocent part believed the statement to be
  true, and
• The representation induced the party into the
  contract.

14
Duress and undue influence

• If a contract is established on the basis of
  violence (or a threat) or unlawful economic
  pressure, this may be considered to be a case of
  duress, whereas if a party has unfairly exploited
  its relationship with the other party undue
  influence. In both instances the contract will be
  hel voidable.
• Duress physical and economic.
• Undue influence. Party must demonstrate that
  he/she would not have entered into the contract
  but for the influence.

15
Vis major and unforeseen contingencies

• Acts of god, warsect. Are ground for declaring
  contract voidable!
• But what is then a difference between the vis
  major and unforeseen contingencies?

16
Discharge of a contract

• Party is discharged from a contract when he/she
  completed her obligations.
• Discharge through performance.
• Discharge through agreement (unilateral and
  bilateral)
• Discharge through the breach of contract

17
Remedies for breach of contract

• In the event that a contract is not performed, or
  obligations under the contract are not fulfilled,
  then the innocent party may be entitled to
  compensation.
• Specific performance, injuctions, rectifications
  and damages.

18
Termination unilateral termination

• Open ended, continuous contracts may be
  unilateraly terminated upon a reasonable notice.
• In case of fixed-term contracts no such option is
  available, merely breach/expectation damages
  remedy!