Validity Of Contract Between John And Fred For The Sale Of A PC
Essential Elements of a Valid Contract
Whether there is a valid contract between John and Fred for the sale of the PC.
Contract is an agreement, which has legal enforceability. It is an agreement that has been instituted by an offer made by one party, which has been accepted by another party. A valid contract must contain certain elements that will render it to be valid and it will gain the status of a legally enforceable agreement. The following paragraph will strive to discuss the four elements that an agreement needs to posses in order to gain the status of a valid contract.
The first element that a valid contract must contain is the existence of an agreement that has been achieved by an offer. An offer is a communication of the inclination made by the promisor to enter into a contract on certain conditions with an intention to enter into a legal relationship with the promise. The terms of the offer must be clear and unambiguous. It must contain any illegal or wrongful terms. The person making the offer have the intention to create legal relationship. The same can be explained with the case of Smith v. Hughes (1871) LR 6 QB 597. The offer needs to be accepted for the purpose of creating a valid contract. An acceptance implies a conduct of the promisor that indicates the willingness of the promisee to be bound by the terms of the offer.
The second element that a valid contract must have is the acceptance of an offer, which results into an agreement. The acceptance needs to be valid to create a legal relationship. The acceptance to be a valid one needs to be communicated either expressly or by conduct. Mere silence cannot be treated as a valid acceptance. The same can be illustrated with the case of Felthouse v Bindley [1862] EWHC J35. However, in case of unilateral contracts, the acceptance can be effected without any express communication of the same. Acting upon such an offer can be treated as a valid acceptance. The same can be illustrated by the case of Carlill v. Carbolic Smoke Ball Co. [1893] 2 Q.B. 484. The acceptance needs to be effected by the offeree himself and must effected within a reasonable time. In case a particular method has been specified for the acceptance, the same needs to be effected in accordance with the same. The same can be illustrated with the case of Yates Building Co. Ltd v. R.J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370. Acceptance needs to be unconditional, the alteration of a terms of the offer while accepting it is not a valid acceptance as the same will amount to a counter offer and not a valid acceptance. The offer and acceptance, which has been effected in a lawful manner creates a valid contract.
Offer and Acceptance
The third element of a valid contract is the consideration involved in the contract. In the case of Currie v Misa (1875) LR 10 Ex 893, the court has declared consideration to be an essential element for the formation of a valid contract. Consideration implies a value or benefit that a person must obtain form the performance of the contract. Each of the party to a contract must obtain a benefit from the contract to make the contract a valid one. The same can be illustrated with the case of Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] AC 847. Consideration needs to be present in the contract, the adequacy of the same is irrelevant. The same has been explained in the case of Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701.
The fourth element of a valid contract is the intention of the parties to the contract to create legal relationship. This can be illustrated with the case of Daniel John Brader v Commerzbank AG [2013] SGHC 284. The mere achieving of an agreement without the intention of creating a legal relationship does not amount to a valid contract. The same can be illustrated with the case of Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2.
An offer, which has not been accepted can be revoked at any time before the acceptance has been effected. The revocation needs to be communicated to the offeree. However, the revocation of an offer can be communicated either by the offeror himself or any other person in his behalf. The same can be illustrated with the case of Dickinson v. Dodds (1876) 2 Ch.D. 463. In the case of Byrne & Co v Leon Van Tienhoven & Co [1880] 5 CPD 344, the offeror posted the offer on 1st of October, which has been revoked by post on 8th October. On 11th October the offer was accepted via telegram but the letter of revocation has been received by the offeree on 20th October. Therefore the revocation is effective on 20th of October and the contract was rendered to be accepted on 11th October. Therefore, the revocation was not effective.
The Electronic Transactions Act 2010 (Cap. 88) renders the formation of a contract via electronic mode to be valid under section 11. Section 2 of the Act defines communication to be any declaration, statement, demand, request, offer, notice or acceptance, which the parties to the contract effects in connection to the contract. Section 13 of the Act provides for the time of receipt and dispatch of the communication via electronic device. The section renders the communication to be received by the addressee when it enters the system of the addressee.
Consideration
In the present situation, John has made an offer to Fred asking him to buy a computer for a price of $2500 dollar via email. This is a valid offer both under the contract law and the Electronic Transactions Act 2010 (Cap. 88). Fred has made an offer to keep the former offer open till 15th of May for a price of $50 dollars for it. This can also be considered to be a valid offer. Therefore, the first essential element of a valid contract is apparently present in both the cases.
Again, the offer of keeping the former offer open till 15th of May has been agreed by John, which amounts to the acceptance of the offer. Fred has mailed his acceptance of the former offer for buying the computer on 12th of May, which has entered the system of John, although he has not read the same. This can be referred to as a valid acceptance forming an agreement between the parties. However, John did not read the email that communicated the acceptance. This makes the acceptance to be questionable, but applying the law relating to communication via electronic mode the acceptance is valid as the same has entered the system of the offeror within the time that has been allotted by the offer. Therefore, the second essential element of a valid contract is also present in this situation.
The offer to buy the computer has been made for a consideration of $2500. In this case the consideration for John is $2500 and for Fred is the computer. Again in the latter contract the consideration for John was $50 and the consideration for Fred was the extension of the period for accepting the offer. In this context, it can be stated that both the contract has the third element of a valid contract that is the consideration.
The fourth essential element that needs to be present in a contract that is the intention to create legal relationship is also present in the situation. Although John and Fred are friends and this requirement excludes friends and family from its purview, but in this case the contract is a commercial one, which will bring the contract to have entered into for creating legal relationship.
Conclusion
There is a valid contract between John and Fred for the sale of the PC.
An appropriate alternative dispute resolution that, he may undertake with John.
There are certain disputes that can be solved by way of negotiations between the parties to the contract. However, there certain disputes that lacks the scope of being solved by way of negotiations. The parties to such disputes might resort to the different methods of dispute resolution. They can either opt for a litigation or the alternative dispute resolution techniques for the resolution of the dispute.
Intention to Create Legal Relationship
Litigation implies a formal form of a dispute resolution technique. It involves disputing parties to appear before the court and present their sides in the court. It provides the parties to the dispute to contest in the court in order to present their sides. The court may take notice of the sides presented by the parties and gather evidence regarding the same. The decision, in this approach of dispute resolution is taken by the judge and is binding upon the parties to the resolution. The parties do not have the authority to disobey the same. However, an appeal can be preferred from such a decision. In litigation, the decision is always delivered in favour of one of the disputing parties.
Other than this formal form of dispute resolution, there are certain alternative dispute resolution approaches that the disputing parties may avail. One of such alternative dispute resolution is the process of mediation. In this process, a neutral third party intervenes in the dispute and arrive at a resolution that will bring the parties to an agreement regarding the dispute. In this process, the mediator will not impose a formal order upon the parties. It will rather make recommendation for a solution and for arriving at such a solution, the mediator will take notice of both the sides of the dispute. The resolution arrived at by the process of mediation is more of a recommendation, which the parties are not bound by. However, in this approach the chance of compliance is high as the parties jointly come to an agreement regarding the solution and is not imposed with the same. This process , being an informal one, ensures confidentiality of the disputing situation. this strives to keep the reputation of the disputing parties intact. No appeal can be preferred from the same (Blake, Browne & Sime, 2016).
Another process of dispute resolution is the arbitration, which involves the a neutral third party to act as a judge and exercise the duty of resolving the dispute. This process is similar to litigation but is less formal than the litigation. In this process an arbitrator is appointed before entering into the contract contending the fact that in case dispute arises, it will be addressed with the process of arbitration.
In the present case, the dispute has arisen in the contract between Fred and John for the purchase of the computer. The dispute is a trivial one as the same involves a little amount of money. In case, the parties opt for litigation for the dispute resolution, the same will be considerably expensive and time consuming. Again, as the contract is not a big one, arbitration will also be a hassle. Therefore, in the present case mediation will be appropriate for the dispute resolution as the same will be less expensive and time saving.
Revocation of an Offer
Conclusion
An appropriate alternative dispute resolution that, he may undertake with John is mediation.
Distinction between implied terms and express terms in a contract.
Contracts are formed by the compilation of several terms that the parties to the contract has agreed upon to perform by virtue of the contract. These terms forms the part of the contract and are referred to as contractual terms. These terms creates the contractual obligation that the parties to the contract are bound by. In case a party contravenes these terms, the same might lead to the breach of the contract and will result in the dispute being created between the parties.
A contractual term may be either expressly mentioned in the contract or may be implied by the circumstances under which the contract has been entered into. Express terms implies the terms that are explicitly mentioned in the contract and have been expressly discussed between the parties at the time of entering into the contract. In case of these terms, the intention relating to the parties are clear and these terms requires no further discussion.
However, implied terms of a contract implies the contractual terms that are not expressly mentioned in the contract but are present by virtue of the circumstances under which the contract has been entered into. In case of implied terms, the parties to the contract do not discuss these terms but these terms forms part of the contract because of the situation in which the contract has been entered into. There are certain ways in which the implied terms of a contract arises, namely by custom, law and fact. There are certain terms in the contract that are not expressly mentioned in the contract but forms the part of the contract because of the customs of the trade prevalent in relation to the such contracts and are referred to as the terms implied by customs. Certain terms of the contract arises owing to some legal obligations on the part of the parties to the contract that has been mandated by a statute. These are called terms implied by law. The same can be illustrated with the case of Liverpool City council v Irwin [1977] AC 239. There are certain implied terms of the contract that has been implied owing to the facts of the case. These are referred to as the terms implied by facts. The same can be illustrated with the case of SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC).
Electronic Transactions Act 2010
In the present situation, the express terms in the contract between GCC and Ah Seng are the clause 12 of the contract and the supply of vegetables on a weekly basis for twelve months. These are considered to be expressed terms, as the same are expressly discussed and agreed upon by the parties to the contract and are expressly provided in the contract.
The implied term in the contract is that the supplier is required to have the authority to make the supply and the supply needs to be of acceptable quality.
Conclusion
Whether GCC would be entitled to terminate the contract with Ah Seng, on the basis of a breach of Clause 12.
The terms of a contract can either be conditions or warranties. The identification of a contractual term as a condition or warranty needs to be effected while analysing its enforceability under the contract.
A condition implies a term of the contract, which is fundamental to the contract and forms an essential part of the contract. The breach of a condition of a contract will be rendered as the breach of the whole contract, as the contract will lose its purpose in case such a term of the contract has been breached. In case one of the parties to the breach a condition of the contract, the party aggrieved by the same has the option of both repudiating the contract and claim damages for such a breach of the condition. In case one of the parties to the contract fails to perform a condition relating to the contract, the other party is automatically discharged from the duty of performing his part of the contract. The same can be illustrated with the case of Poussard v Spiers and Pond [1876] 1 QBD 410.
There are certain terms of the contract, which are supplementary to the contract and does not form an essential part of the contract. The contract will not lose its essence if such a term has been breached. These terms are referred to as warranties. In case of breach of a warranty by a party to the contract, the other party has the option of claiming damages. A breach of a warranty does not confer the aggrieved party with the right to repudiate the contract. It can only create a right for damages. The same can be illustrated with the case of Bettini v Gye [1876] 1 QB 183.
A condition is a term of the contract, which has induced the consent of the parties to enter into the contract. In the absence of that condition, the parties would not have entered into the contract in the first place. The whole existence of the contract is depending upon that particular term of the contract. The same has been explained in the case of Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235. However, the term of a contract that is subsidiary to the contract and the consent of the parties to the contract is not depended upon the same, the term is said to be a warranty. The breach of the same will not severe the contract from its essence. The same can be illustrated with the case of Wills v Amber [1954] 1 Lloyd’s Rep 253.
In the present situation, the clause 12 of the contract between GCC and Ah Seng expressly identifies the clause to be a warranty. Moreover, the contract has been entered upon for the purpose of supply of vegetables. The contract would not have been entered upon if the supply of vegetables are not in the contract. Therefore, the supply of the organically procured vegetables is a condition. But in case of the clause 12, first of all it has been clearly stated that the clause is a warranty. The vegetables to be procured from the Singapore and organically procured is a secondary term of the contract. The clause does not form the main subject of the contract. Moreover, this term does not render the contract to be impossible to operate in the event of the breach of such a term. The contract will still stand good in the event of failure to comply with the term. Therefore, the term is considered to be a warranty and not a condition. In such a case, as the clause was not a condition but a warranty the breach of the same would incur the aggrieved party with a right to repudiate the contract. It will however, provide the GCC with a chance of claiming damages from Ah Seng. Therefore, as the clause is a warranty and not a condition to the contract, the same cannot confer upon GCC a right to repudiate the contract.
Conclusion
GCC would not be entitled to terminate the contract with Ah Seng, on the basis of a breach of Clause 12, but he may claim damages for the same.
SSPL is able to enforce Clause 15 against GCC, if GCC decides to start selling its own soy-based chicken burgers.
Under the common law, individuals are free to pursue a trade and utilize their skill and no undue prohibition needs to be imposed upon them. In the like manner, businesses are required to be free to enter into competition with other businesses. The term restraint of trade clauses are the clauses included in a contract that prohibits one of the parties to the contract from entering into a trade practice that is similar to the business forming the subject of the contract.
Restraint of trade clauses implies contractual clauses of restrictive nature. Under common law, the clauses restraining the practice of a particular trade is void under common law in general. However, there are certain circumstances when such a clause can be enforced. Those circumstances are:
- In case, the clause has been imposed by the party in order to protect an interest, which is legitimate. The same can be illustrated with the case of Marion White Ltd v Francis [1972] 1 W LR 1423.
- In case, such a restriction has a reasonable connection with the protection of that legitimate interest. The same has been discussed in the case of Lucas (T) & Co Ltd v Mitchell[1974] Ch 129; [1972] 3 All ER 689.
- In case, such a restraint is not opposed to the public policy. The same can be illustrated with the case of Greig v Insole [1978] 3 All ER 449.
The reasonableness attached to the restraint clause is to be judged from certain perspective. The length of time for which such a restraint lasts is a valid ground for determining the reasonableness of the restraint clause. The area of that restriction and the scope of that restriction shall also be analysed while determining its reasonability.
In case of the contracts effecting the sale of a business, the buyer is justified to impose restrictive clauses in the contract, which prohibits the seller to establish a competing business to the same. In the case of Esso Petroleum Co Ltd v Harpers Garage (Stourport) Ltd [1968] AC 269, it was held that to be valid the restraint of trade clause needs to be reasonable.
In the instant situation, the contract between GCC and SSPL contains a clause 15, which is a restraint trade clause. This clause restricts the GCC form indulging in the manufacture, selling or distribution of any soy based product in Singapore or anywhere else in the world. The time for such a restriction has also been provided in the clause, which is for two years after the termination of the contract.
In general, restraint trade clause is not enforceable under common law, but there are certain circumstances that might render a restraint trade clause to be enforceable. In this present case, the circumstances of the case needs to be analysed for the purpose of determining the enforceability of the clause 15 by the SSPL.
In this situation, the GCC has entered into a contract with SSPL for the supply of soy based burger to GCC. Therefore, the protection of clause 15 can be availed by the SSPL as the same would be legitimate. The production of soy based product by the GCC would pose a serious threat to the supply of the same by SSPL, owing to which the supply of the same might be stopped by the GCC. However, another requirement that arises is whether the restraint is opposed to public policy or not. In this case, the same cannot be contended, as the restraint is not opposed to public policy. Moreover, the restraint is for two years and the same can be referred to as reasonable. Therefore, SSPL will be able to enforce clause 15.
Conclusion
SSPL is able to enforce Clause 15 against GCC, if GCC decides to start selling its own soy-based chicken burgers.
References
Bettini v Gye [1876] 1 QB 183
Blake, S. H., Browne, J., & Sime, S. (2016). A practical approach to alternative dispute resolution. Oxford University Press.
Byrne & Co v Leon Van Tienhoven & Co [1880] 5 CPD 344
Carlill v. Carbolic Smoke Ball Co. [1893] 2 Q.B. 484
Chappell & Co Ltd v. Nestle Co Ltd [1959] 2 All ER 701
Currie v Misa (1875) LR 10 Ex 893
Daniel John Brader v Commerzbank AG [2013] SGHC 284
Dickinson v. Dodds (1876) 2 Ch.D. 463
Dunlop Pneumatic Tyre Co Ltd v Selfridge Ltd [1915] AC 847
Esso Petroleum Co Ltd v Harpers Garage (Stourport) Ltd [1968] AC 269
Felthouse v Bindley [1862] EWHC J35
Greig v Insole [1978] 3 All ER 449
Liverpool City council v Irwin [1977] AC 239
Lucas (T) & Co Ltd v Mitchell[1974] Ch 129; [1972] 3 All ER 689
Marion White Ltd v Francis [1972] 1 W LR 1423
Poussard v Spiers and Pond [1876] 1 QBD 410
Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2
SABIC UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC)
Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235
Smith v. Hughes (1871) LR 6 QB 597
The Electronic Transactions Act 2010 (Cap. 88)
Wills v Amber [1954] 1 Lloyd’s Rep 253
Yates Building Co. Ltd v. R.J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370