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Business Law: Essential Elements

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A contract refers to an agreement between two or more parties enforceable by law. There are five classifications of contracts on the basis of validity, nature of consideration, formation, obligation and execution. On the basis of validity, there are five types of contracts namely valid, void, illegal, voidable and unenforceable contracts.
Valid Contract
Valid contracts are an expressed or written agreement between parties to provide a product or service. Contracts are considered valid when it contains essential elements like offer and acceptance, lawful consideration, intention to create legal relationship, genuine and free consent, competency of parties and agreement not declared void. For example, Beauty offers to sell a property to Stylish and after negotiations; Stylish accepted the offer and signed the contract. This is a valid contract. Void contracts are originally enforceable by law but due to uncertain happenings, it ceases to be enforceable (Beatson et. al, 2011). For example, if Beauty enters into an agreement with Stylish who is presumably a minor, then the contract is deemed void because Stylish does not have capacity to contract. Circumstances like destruction of subject matter, death of parties and contract becoming unlawful etc makes the contract void. Voidable contracts refer to an agreement that is enforceable by law at the choice of one or more parties but not at others choice (Ewan, 2005). For example, Beauty sells the house stating the house value inclusive of window coverings, curtain and blinds which induced Stylish to purchase the house. When Stylish finds that the prices were excluded from the contract, it become voidable at his option. Illegal contracts are those which accommodate unlawful objects. For example, if Beauty does not have a legal capacity to contract or the contract is against public interest, then the contract is illegal. An unenforceable contract is good in substance but becomes unenforceable due to some technical defects. For example, if the legal formalities of agreement between Beauty and Stylish are not properly addressed, then it cannot be enforced by law. Unilateral and Bilateral contracts are considered the two major categories of a contract. The contract entered into by Beauty and Stylish can be considered a unilateral contract that is on the basis of obligation on the part of a single party only (Robertson et. al, 2011). Stylish did not make promises for the future and hence, it cannot be considered as bilateral contract where both parties have an obligation to perform. Contracts can also be classified as implied or expressed (on the basis of creation). In an expressed contract, both parties explicitly mention their terms for bargain at the time of contract formation (Ewan, 2005). For example, both Beauty and Stylish negotiate about the terms and conditions related to the sale and purchase of property. Implied contracts result from surrounding circumstances and facts that suggests an agreement. For example, Beauty expects Stylish to pay for his services although no formal agreement is created.
Signed contract
Signed contracts imply that the person signing is agreeing to the terms and conditions mentioned in the contract including what end of the bargain he or she is holding up. Verbal contracts do not require signatures while written contracts cannot be regarded valid until the sign of the person with whom the contract is entered into, is not present (Beatson et. al, 2011). For example, Stylish signed the written contract for the purchase of a new house in the eastern sector of Singapore. This implies that Stylish has accepted the terms and conditions mentioned in the contract and he is bound by it whether he has read it or not. Sometimes a person can even be bound by a written agreement even if he or she has not signed it. For instance, car parking tickets having terms and conditions printed on their back makes a person bound to them. Contracts like void contracts, illegal and unenforceable contracts can be disregarded even if it is a signed contract because if other elements of the contract are not fulfilled, then signing of such contracts does not make anyone bound by it. Thus, when Stylish discovered that he was misstated by Beauty in respect to inclusion of window coverings, blinds and curtains, he can get out of such contracts even if it is a valid contract. It is on the court to take into account various factors to determine whether the misrepresentation was a material one or was just a mere puff. Contracts are even signed digitally these days where both parties to an agreement can have legal copies of the contract without any hassle of copying, faxing or shipping. In the absence of any misrepresentation or duress, mistakes as to the contract terms cannot enable the signor to get rid of the contract where it is not significantly different from what the signor was agreeing to (Peel & Treitel, 2011).
Pre-contractual statements
Pre-contractual statements are made prior to the formation of a contract. These statements (oral or written) made before entering into a contract is very difficult to be classified because there does not exist any legal proof that can succumb to the validity of these statements. It is well-known that parties (Beauty and Stylish) say various things while negotiating a contract and where sophisticated parties are involved, various pre-contractual statements will be made that will be carefully considered and deemed accurate. These statements are made in order to induce an individual to contract with the representor. For example, Beauty made a pre-contractual statement to Stylish that the value of house included window coverings, blinds and curtains. The word ‘pre’ clearly suggests that it has been made prior to the validation of contract. However, it must not be assumed that every pre-contractual statement are made with a guilty mind, it can be genuine too. The most important element in a pre-contractual statement is the persuasion that makes people enters into the contract. Categorization of these statements is important as it can impact upon the available remedies. These are classified as mere representation, collateral contract, term of a contract and sales puff (Robertson et. al, 2011). Hence, the pre-contractual statement provided by Beauty to Stylish comes under the category mere representation as it urged Stylish to purchase the house. However, onus is on Beauty to prove that the statement was made with an honest intention and he had reasonable grounds of doing so. But, if the pre-contractual statements are made with a fraudulent motive, counter parties can unwind the contract or even claim for damages or both. In extremes cases, criminal liabilities can be initiated for fraud. After taking into account several considerations, it is the court who will decide whether pre-contractual statements really played a role in the formation of a contract or not.
A contract that is persuaded by misrepresentation can be set aside and result in action for damages. Representations are made before a contract on some relevant matters associated with the contract. These are related to the contract but do not form a part of it, hence it comes under the classification of pre-contractual statements. A misrepresentation occurs when the pre-contractual statements turn out to be false, resulting into loss of the party (Mitchell & Mitchell, 2008). The contract between Beauty and Stylish was for Beauty to sell a property to Stylish. The prime point is that because representation does not form part of the contract, if it turns out to be untrue, there is no breach of contract. However, there are certain exceptions to this concept where the aggrieved party can claim for damages or unwind the contract or both. If any pre-contractual statements are made where one party (Beauty) has special knowledge, then it is likely to be assumed that the representation of inclusion of window coverings and blinds and curtains forms part of the contract. There are seven basic elements that satisfies a legally actionable misrepresentation which are that a statement must be made by conduct or word, statements must be factual, statements must be false, offeree (Stylish) must have relied on the statement, offeree must have been misled, statement must be material to the contract and it must be a factor that induced offeree into the contract. If these elements are satisfied, then it must be seen whether the misrepresentation is an innocent, negligent or fraudulent misrepresentation (Koffman & MacDonald, 2007). The onus is on the representor to prove if the statement was made unintentionally on honest grounds or if it was necessary. Negligent misrepresentation implies making false statements honestly but without appropriate grounds. In fraudulent misrepresentation, the intention is clearly to provide damage to the offeree. The intention of Beauty cannot be judged and it depends either on him to prove if he was innocent or on the court to arrive at a proper conclusion.
The basic effect of misrepresentation is that it makes the contract voidable and not void ab initio. Once an actionable misrepresentation is established, it becomes necessary to consider the available remedies available to the offeree or misrepresentee (in this case, Stylish). The first available remedy is rescission which purposes to put the parties back into their original position, as though the contract had not been entered into by anyone. The aggrieved party can present a notice to the representor and thereafter rescind the contract (Gibson & Douglas, 2013). Rescission can also be initiated by obtaining an order from the court. If the representee discovers the misrepresentation but still fails to avoid the contract, then he or she cannot rescind the contract. In case of a fraudulent misrepresentation, the time limit runs till the discovery of such misrepresentation by the representee or offeree whereas in an innocent misrepresentation, the right to rescind does not exist (Bernstein, 2008). In the given case, Stylish can obtain an order from the court or inform the representor (Beauty) about such misrepresentation and rescind the contract. The second remedy available is damages where the aggrieved party can claim damages for fraudulent misrepresentation in the tort of deceit. If it is a negligent one, then the aggrieved party can claim only for his or her actual losses. The purpose of such remedy is to restore the representee or aggrieved or offeree to the position he occupied prior to such contract. In the given case, Stylist can claim for damages by Beauty on account of such misrepresentation. However, the intention of such representation, that is whether innocent or negligent must be proved by Beauty. It can be concluded that this case was more likely a fraudulent misrepresentation and Stylish stands a good opportunity in court to sue Beauty. However, Stylish must have done his job perfectly before proceeding with the purchase. Although, very slight, but there can also be a chance that this was an innocent misrepresentation but on a whole, it depends on the court to decide whether Beauty was right or Stylish was wrong.
Beatson, J,  Burrows A and Cartwright, J. (2010). Anson’s Law of Contract: OUP.
Ewan, M (2005). Contract Law – Text, Cases and Materials. Oxford University Press
Gibson, A & Douglas, F (2013). Business law. Pearson.
Koffman L & MacDonald E. (2007). The Law of Contract. Oxford University Press.
Mitchell, C & Mitchell, P. (2008). Landmark Cases in the Law of Contract, Oxford University Press.
Peel, E & Treitel, GH. (2011). Treitel on the Law of Contract: Oxford press
Robertson, A, Paterson, J & Arlen, D. (2011). Principles of Contract Law, Penguin Press

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