A contract is basically an agreement that binds the parties legally, to do particular activities.

There are six essentials to the formation of a valid contract (The formation of a valid contract, http://highered.mcgrawhill.com/sites/dl/free/0070961379/580512/Willes_2Ce_03.pdf , March 2012) . They are: 1. 2. 3. 4. 5. 6. Intention to create legal assistance Offer and Acceptance Consideration Legal Capacity Consent Mutuality of Obligation

INTENTION TO CREATE LEGAL RELATIONS There can be no contract unless the parties intend to create a legal relation. Domestic arrangements, such as who will do the chores i.e. washing-up etc, are excluded because the parties have no intention of creating legal relations OFFER AND ACCEPTANCE Agreement is determined specific terms. Something is considered as an offer if it is reasonably defined and made to a class of persons or to the world at large: Carlil v Carbolic Smoke Balls Co (1893). Supply of information and invitation to do business or to treat, such as brochures, advertisement, auction, and exhibition, are not considered as offer. Acceptance is when a part agrees to the terms offered by the other party without modifying the terms by any condition. Acceptance of an offer may be stated or implied , and it has to be communicated to be effective: Brodgen v Metropolitan Railway Co (1877). A request for information and silence cannot be considered as acceptance. CONSIDERATION Consideration is value given to right, interest, benefit, or loss and responsibilities, in response to an offer: Currie v Misa (1875). Consideration is not required in specialty contract where only one side of the parties provide consideration, such as in granting a deed. A court's analysis as to whether a contract is supported by sufficient consideration typically focuses more on the promise or performance of the offeree than the promise or performance of the offeror. Courts often say that no consideration will be found unless the offeree suffers a "legal detriment" in making the return promise or in performing the act requested by the offeror. As a general rule, legal detriment is found if the offeree relinquishes a LEGAL RIGHT in fulfilling his or her contractual duties. Thus, promises to give love and affection or make a gift or donation are not sufficient consideration to support a contract because no one is under a legal duty to give or refrain from giving these things to others. Similarly a promise to perform an act that has already been completed in the past fails to offer consideration to support a new agreement. LEGAL CAPACITY A person who enters a contract possesses complete legal capacity to be held liable for the duties he or she agrees to undertake, unless the person is a minor, mentally incapacitated, or intoxicated. A minor is defined as a person under the age of 18. A contract made by a minor is voidable at the minor's discretion, which mean that the contract is valid and enforceable until the minor takes some affirmative act to disavow the contract. Minors who choose to disavow their contracts entered may not be held liable for breach. The law assumes that minors are too

immature, nave, or inexperienced to negotiate on equal terms with adults, and thus courts protect them from being held accountable for unwisely entering contracts of any kind. When a party does not understand the nature and consequences of an agreement that he or she has entered, the law treats that the party as lacking mental capacity to form a binding contract. However, a party will not be relieved from any contractual duties until a court has formally adjudicated the issue after taking EVIDENCE concerning the party's mental capacity, unless there is an existing court order declaring the party to be incompetent or insane. For example : agreements with minors, agreements with mentally incapacitated persons are voidable at that person's discretion. However, a GUARDIAN or personal representative may ratify an agreement for an incapacitated person and thereby convert the agreement into a legally binding contract. Contracts entered into by persons under the influence of alcohol and drugs are also voidable at that person's discretion, but only if the other party knew or had reason to know the degree of impairment. The courts rarely show sympathy for defendants who try to avoid contractual duties on grounds that they were intoxicated. However, if the evidence shows that the sober party was trying to take advantage of the intoxicated party, courts will typically intervene to void the contract. Persons who are intoxicated from prescription medication are treated the same as persons who are mentally incompetent or insane and are generally relieved from their contractual responsibilities more readily than are persons intoxicated from non-prescription drugs or alcohol. CONSENT Not all contract require be in writing to be valid and binding both parties. But the state legislature has enacted a body of law that identifies certain types of contracts that must be in writing to be enforceable. In legal parlance is called the STATUTE of frauds. The statute of frauds is designed to prevent a plaintiff from bringing an action for breach of contract based on a nonexistent agreement for which the only proof of the agreement is the plaintiff's perjured TESTIMONY. The statute of frauds attempts to accomplish this objective by prohibiting the enforcement of particular contracts, unless the terms of the contract are expressly reflected by written note, memorandum, or agreement that is signed by the parties or their personal representatives. As originally conceived, the statute of frauds applied to four types of contracts: (1) promises to pay a debt owed by another person; (2) promises to marry; (3) promises to perform an act that cannot possibly be performed within a year from the date of the promise; and (4) agreements involving real estate. However, most states have since expanded the class of contracts that must be in writing to be enforceable. For example, in many jurisdictions long term leases, insurance contracts, agreements for the sale of SECURITIES, and contracts for the sale of goods over $500 will all be deemed unenforceable unless the terms of the parties' agreement are memorialized in writing. MUTUALITY OF OBLIGATION The concept of consideration is the mutuality of obligation. Both parties must be bound to perform their obligations or the law will treat the agreement as if neither party is bound to perform. When an offeree and offeror exchange promises to perform, one party may not be given the absolute and unlimited right to cancel the contract. Such arrangements attempt to allow one party to perform at her leisure, while ostensibly not relieving the other party of his obligations to perform. Most courts declare these one sided arrangements null for lack of mutuality of obligation. Some courts simply invalidate such contracts for lack of consideration, reasoning that a party who is given absolute power to cancel a contract suffers no legal detriment. To avoid having a contract subsequently invalidated by a court, the parties must be careful to limit their discretion to cancel the contract or otherwise not perform. As long as the right to avoid performance is dependent on some condition or event out- side the control of the party seeking to cancel the contract, courts will find that mutuality

of obligation exists. Thus, a farmer might lawfully be given the right to cancel a crop-watering service if the right to cancel were conditioned upon the amount of rain that fell during a given season, something outside the farmer's control. But a court would find mutuality lacking if the farmer were given the right to terminate the service short of full performance simply by giving notice of his or her intention to cancel. Thus, in Daves case, it is consider as a unilateral contract. The case is generally seen to demonstrate a requirement to offer, acceptance, consideration which leads to the intention to create a legal relation. Dave gave the information to the custom officer who did not inform him beforehand that the government has stop paying since last month. Since Dave has commenced the performance and it cannot be revoke thus, Dave definitely has the upper hand on this case. An advertisement is a UNILATERAL CONTRACT involves a promise made by only one party in exchange for the performance or non- performance of an act by the other party. Stated differently, acceptance of an offer to form a unilateral contract cannot be achieved by making a return promise, but only by performance or non- performance of some particular act. Accordingly, acceptance of an offer to enter a unilateral contract can be revoked until performance is complete or until the date has passed for non-performance. In the case study of Gibbons v Proctor (1891), is a case that deals with an offer, via advertisement, and whether or not a person who doesn't know of the offer can accept the offer if he completes the conditions of the offer. This case held that the advertisements of rewards for information leading to the arrest or conviction of the perpetrator of a crime, is treated as an offer, as the intention to be bound is inferred from the fact that no further bargaining is expected to result from them. A closer inspection of the facts of the case reveals that the party claiming the reward possessed full knowledge of the offer at the time when he gave the information.

EXCLUSION CLAUSES An exclusion clauses (or exemption clause) is a term seeks to exclude a partys liability for breach of contract. In order for a contract to be valid an exclusion must satisfy two conditions: It must incorporated into the contract and; Its wording must cover the loss.

This might be a problem if one party is, for example, a big company, and the other is an ordinary customer: the parties have unequal bargaining power, so the stronger party might be able to take advantage of the weaker party. The ordinary customer is in no position to start negotiating with the sales assistant. If a party is trying to rely on an exemption clause, they have to show that the other party specifically agreed to it at the time the agreement was reached. In the Unfair Contract Terms Act 1977, the main provisions of which are: We cant exclude liability for personal injury or death which results from our negligence. Exemption clauses have to be reasonable. If the court thinks the term in question is unreasonable, that term will be void. We cant exclude liability for defective goods supplied to a consumer (that is, a non-business user). Contracts cant be altered unilaterally, i.e. without the agreement of the other party.

The word reasonable means, the term must be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. Standard form contracts It is a contract between two parties where the terms and conditions of the contract are set by one of the parties, and the other party is placed in a "take it or leave it" position with little or no ability to negotiate terms more favorable to it. Examples of standard form contracts are insurance policies (where the insurer decides what it will and will not insure, and the language of the contract) and contracts with government agencies (where certain clauses must be included by law or regulation). Businesses often use pre-printed contracts that specify the terms of the business issuing it. For example, order forms might have the standard contract terms printed on the back. If we buy a book from Amazon, the companys terms are available for us to read, but theyre not open to negotiation. This does make commercial sense: a business cant be expected to conduct negotiations with each of its customers and draw up a special contract for each of them. Yes, standard form contract need to be regulated as we have the Unfair Terms in Consumer Contracts Regulations 1999, which protect consumers from unfair standard terms in contracts. If the courts think a term is unfair, then its not binding on the consumer. In this context, an unfair term is essentially one that puts undue burdens on the consumer, or seeks to reduce his or her statutory rights. The Regulations put it like this: A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer. Thus, in this case the Sea Restaurant will not be able to rely on exclusion clause under the Unfair Terms in Consumer Contracts Regulations 1999 terms and conditions. NEGLIGENCE Negligence is a tort which targets a breach of duty by one person to another. The case of Donoghue v Stevenson (1932) AC 52, in which Mrs. Donoghue, the claimant, consumed part of a drink containing a decomposed snail while in a public house in Paisley, Scotland. The snail was not visible, as the bottle of ginger beer in which it was contained was opaque. Neither her friend, who bought it for her, nor the shopkeeper who sold it was aware of its presence. Donoghue sued the manufacturer, Mr. Stevenson for her consequent illness, using negligence as, not having purchased the drink herself, the little consumer protection legislation available in 1932 was inapplicable. The members of the House of Lords agreed that Mrs. Donoghue had a valid claim, but disagreed as to why such a claim should exist. Lord MacMillan, as above, thought this should be treated as a new product liability case. Lord Atkin argued that the law should recognize a unifying principle that we owe a duty of reasonable care to our neighbor. He quoted the Bible in support of his argument, specifically the general, biblical principle that "love thy neighbor." "The liability for negligence is based upon a general public sentiment of moral wrongdoing for which the offender must pay. The rule on you are to love your neighbor becomes a law, we must not injure your neighbor; We must take reasonable care to avoid acts or omissions which we can reasonably foresee would be likely to injure our neighbor."

Thus, in law, Lord Atkin created the doctrine that we should not harm our neighbors and the elements of negligence are: 1. 2. 3. A duty of care (Donoghue v Stevenson [1932] AC 52) Breach of that duty (Nettleship v Weston[1971] 2 QB 691) Breach causing harm in fact (Smith v Leech Brain & Co. [1962] 2 QB 405)

The difference between a Tort and Contract Law : Contract law is based on an enforceable written or verbal agreement. The elements of a breach contract claim are offer, acceptance and consideration. "Consideration" is value given or promised to support the undertakings of each party to the contract. It can consist of various things, such as money, services, or the mutual exchange of promises. Some contracts must be in writing in order to be enforceable. Contracts made for an illegal purpose, for example gambling or prostitution, are not enforceable at all (assuming the place where the contract is made does not permit the acitivity). Tort law is the law of "personal wrongs" and is different from contracts. An example of a tort is negligence. Negligence is the failure of a person to use that degree of care that a hypothetical "reasonable person" would use under similar circumstances. If someone is harmed or sustains damages as a result, the wrongdoer may be held liable. In general, the extent of damages recoverable are those which are reasonably foreseeable from the standpoint of the wrongdoer. As a practical matter, that measure of damages is fluid in that "reasonably foreseeable" is determined by the finder of fact (judge or jury). The term vicarious liability means that when one person takes the place of another as regards of liability. Although the matter also arises in relation to principal and agent partnership, the most important and commonest example of vicarious liability is that an employer is liable for the torts committed by an employee who is acting in the course of employment, but not for those of an independent contractor. To distinguish who is an employer and who is an employee, simply put it is the person who has the right to hire and fire is considered to be employer. The only difficulties that may arise are; a) Where an employee is loaned out by his original employer to a third party b) The onus lies on the original employer to rebut the presumption that he, and not the third party, remains the employer. c) By showing that the third party had, at the relevant moment, the right to control the way in which the work was done example: Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd. (1947).