CONTRACTS

A contract is a legal binding agreement between two or more parties enforceable by law.
This means that if a party to a contract fails to carry out his side of the agreement the
injured party may take the matter to court for it to be settled.
Difference between Formal Contract and Informal Contract
Formal contract is one in which the parties to the contract have signed under seal while
an informal contract is one that is not under seal.
Formation of a contract
To establish that a contract exist you must first establish if there is an agreement between
the parties. A contract is an agreement and comes into existence when one party makes
an offer and another party or offered accepts
TYPES OF CONTRACTS
 Simple contract
 Specialty contract
 Contract of record

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 SIMPLE CONTRACT
These are contract that we enter on a day to day basis, they can be oral written or implied.
These contracts are made by two or more persons who must have consideration as an
important feature of it. An example of a simple contract is Mary agreeing to pay john
$200 to cut her yard and an agreement is made between John and Mary. John’s part of the
agreement or consideration is to cut the yard while Mary’s consideration is to pay
him$200 for his service. A simple contract has seven basic elements. All the elements are
vital for a simple contract to succeed in a court of law. If any of the elements are missing,
it is a mere agreement and not a simple contract.
SEVEN OF ELEMENTS OF SIMPLE CONTRACT
(1) Offer and Acceptance of that offer
(2) Consideration
(3) Capacity of the parties entering into the contract
(4) Legality of the subject matter
(5) Possibility
(6) Good faith
(7) Genuineness of the parties entering the contract

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 OFFER
To enter into a legally binding agreement there must be an offer made by one party which
is accepted by the other party. The parties involved in the contract must be competent,
that is in a position to make the offer. This means that he or she must be of legal age, in
his or her right mind and must not be an illegal alien. An offer is a proposal or bid made
by a person or his\her agent to another person or his\her agent. The person making the
offer is called the offeror and the person accepting the offer is called an offeree. In a
valid contract only the offeror can make an offer.
INVITATION TO TREAT
This is a situation where the offeror invites the other parties to make him or her an offer
which he\she is free to accept or reject. This is not an offer, because accepting an
invitation to treat is actually making an offer. For example, auction sales, an
advertisement inviting tenders for goods, goods displayed in a shop or store with a price
tag, property advertised for sale.
COUNTER OFFER
This is the rejection of the original offer and is not a legal acceptance. It is up to the
offeror if he or she will accept the new terms presented by the offeree. For example,

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Merle Port offered to sell Julie Meek a dress for $400. Julie told her she is willing to
purchase it for $350 because it is soiled. The fact that Julie changed the terms of the
agreement and made own her offer to Merle amounted to a counter offer. A counter offer
is not a genuine acceptance and makes a contract invalid.
ACCEPTANCE
This is where the offeree accepts all the terms and conditions of the offer. Note that ALL
terms must be accepted. For example, Lukie Paul offers to sell Mali Bu his black and
white racing car for $10 000 as is where is. The racing car is known to be very fast,
going over 150 km/h. However after Mali Bu closed the deal and drove home, he realized
it could not go beyond 120 km/h. The fact the he bought the car ‘as is’ meant that he had
to accept the speed of the car.
Rules of Acceptance
 An acceptance must be made in the manner stated by the offeror. If there is no
specific manner stated, then he or she may use the quickest means possible.

 An offer must be accepted within a stipulated period of time. If no time period is

stipulated, it must be done within a reasonable time.

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  An acceptance made through the post office is effective once the letter is posted. It
does not matter if the letter was delayed or lost in the post. Please note that this is
not the same for offers made by the post. An offer must be communicated before it
is considered as legal.

 An acceptance made through the telephone, fax machine or any of these modern
instantaneous means of communication is complete only when received and not
when transmitted.

2. CONSIDERATION
This is a promise or action made by one party for the promise or action made by another
party. Consideration may be executed or executory.
 Executed this is the price paid by one party in return for the act or promise of the
other party.
 Executory this is the price promised by one party for the act or promise of another
party.

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Consideration must follow these rules:
 It must be real
 It must be possible
 Is must move from the promise
 It need not to be adequate
 It must not be past
3.CAPACITY
This refers to whether a person is eligible to enter into a contract. The law sees all
persons as eligible to enter into a contract. However there is one major exception states
that all parties to a contract must be able to act responsibly and not to be exploited on the
basis of knowledge, maturity or temporary lack of consciousness. Therefore the
following groups do not have full capacity to enter into a contract
 Minor - those less than 18 yrs. old
 Drunks
 Insane person
 Aliens (foreign born residents in a country who have not been naturalized or whose
country is at war with yours)
 Prisoners
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However a minor may have full capacity for
 Necessities
 Contract of an educational nature
Necessaries are the articles which are reasonably necessary to the minor having regard
for his “station in life”. The statement ‘having regard for his station in life’ is very
important as this allows for items of apparent luxury which are important to a minor if he
or she is of wealthy background.
 The goods must be necessary to his or her requirements at ‘the time of sales’ and
‘the time of delivery’ and must be of reasonable price.
 Drunk or insane person have full capacity in periods when they are sober or sane.
However, they must be in a position to prove their soberness or lucidity.
 An enemy alien has full capacity in time of peace.

4.LEGALITY

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The subject matter of the contract must conform to the laws of the country. If Joe Blue
pays Jolly Bus $500 000 to deliver a ton of cocaine and Jolly fails to carry out his side of
the contract then Joe cannot get the courts to force Jolly to carry out his side of the
agreement or to get compensation. The trading and use of cocaine is illegal in the
CARICOM region.
5.POSSIBILITY
Parties offering consideration must be in a position to be able to carry out their sides of
the contract. If one party is unable to carry out his\her side out due to impossibility and
can use another means, then he or she should carry out his\her side of the contract using
that method. For example, if fire burnt down a concert hall that Benjamin Nurse had
rented to Patrick Sarwan, within a day of his performance, it would be impossible for Mr.
Nurse to carry out his side of the contract. However if he had another suitable building he
provide this as an alternative to the first.

GOOD FAITH

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A party to a contract expects that the other party will honestly and fairly carry out his or
her duties in the manner acceptable. This means that both parties should trust each other
and neither should influence the other unduly.
GENUINENESS OF THE CONSENT OF THE PARTIES
There must be mutual agreement between both parties each party entering into the
contract must do so with a free will and should not be under any duress. Duress occurs
when a party is forced to enter into a contract because of fear due to threats. At times
however, there may be a mistake or a misrepresentation.

Other Features about Contracts

Misrepresentation
A misrepresentation is a statement that is not true. If this is made with a genuine belief
that it is true, then it an innocent misrepresentation. If a genuine mistake is made, the
law would support this. If however, a statement is made with the knowledge that it is
untrue or misleading, then that is a fraudulent misrepresentation. Another type of
misrepresentation is negligence misrepresentation. Negligent misrepresentation is a
statement untrue but is made from a belief that is true and the person making it can show
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reasonable proof for thinking so. A contract can become voidable on these bases.
However, if fraud or exploitation is detected then the guilty party will suffer the penalty.
Unfortunately, parties who are victims because of negligence may have to suffer losses.

MISTAKES IN A CONTRACT
Certain types of mistakes in a contract will render it void. The following are some of the
types of mistakes.
Common Mistake - This is where all parties to a contract are agreeing but are equally
mistaken regarding some element in the contract. For example, Mr. Sign sold a car to
Mrs. Whiteman. Unknown to both of them, the car was stolen property.
Mutual Mistake - This is where the parties to a contract are agreeing but do not realize
that each are agreeing to something different from what the other party understands. The
parties are at cross purposes and the mistake is on both sides. Mrs. James has two Nissan
cars – a grey and a white. Misha agreed to purchase one of the cars and was most upset
when she discovered that she was being sold the white car instead of the fully-loaded
grey car. At no time did Mrs. James intend to the grey car.

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Unilateral Mistake - In this case one party is mistaken and the other is aware of it but
does not reveal this knowledge. This is fraudulent misrepresentation. For example, Tanya
buys a pair of gold earrings from Akelia at a very high price. Akelia is aware that the
earrings are not of genuine gold but Tanya is ignorant of this fact.
2.SPECIALITY CONTRACT
A specialty contract is also called a deed or contract under seal. This is a formal
agreement that must be done in writing. These contracts are always written which must
be signed, sealed and delivered.
Signed - means that all the details that the parties have agreed on must be put in a
document to which must be signed by all the parties.
Sealed - means that a seal or design is put on the document. This can be an embossed
design like what is seen on insurance or hire purchase contract or a stationery seal that
can be bought and pasted on the document.
Delivered – means all parties to the contract must have a copy of the document with the
details which they have agreed on.
Some example of specialty contract is:

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  Sale of land
 Sale of goods
 Hire purchase agreement
 Insurance contract
 Share certificates
 Bond certificates
 Marriage contract
3.CONTRACT OF RECORD
This is a result of court order. For example, a man may be ordered by the court to pay
certain amount to maintain his child.
VALIDITY OF A CONTRACT
What makes a contract valid? First one must determine whether the contract is simple or
specialty and whether any necessary elements were violated. All simple contracts must
include all seven elements. In particular all simple contracts must have consideration. On
the other hand specialty contracts must be signed sealed and delivered. Contracts that are
not valid may fall into one of these categories.
Categories of contract that are not valid:

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Void Contracts
These are contract that cannot be enforced by law. This means that this type of agreement
is lacking in one or more of the basic elements. For example, if Mary’s uncle promises
her a cellular phone for passing her chemistry examinations, Mary cannot sue her uncle if
he changes his mind. There was no contract between them because there was no
consideration provided by Mary.
Voidable Contracts
A voidable contract is one that has legal effect and force initially but may be annulled or
set aside by the courts. The following situations make a contract voidable: mutual
mistake; lack of free will of parties to the contract, or undue influence of one party to the
contract upon another; failure to disclose one or more material facts; misrepresentation
and material breach of the terms of the contract.

DISCHARGE OR TERMINATION OF CONTRACT

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Discharge of a contract means that the contract has been brought to a successful end.
There are many reasons why a contract may be discharged. The following are some of the
reasons or ways a contract may be terminated.
 By performance: All parties to the contract execute their consideration or carry out
their part of the agreement.
 By breach – This is where one party breaks the contract by failing to carry out its
side of the agreement
 By agreement or mutual consent - This is where both parties decide to discontinue
the contract.
 By frustration - The subject matter of the contract may no longer exist, for example
the concert hall promised for a recital may be burnt down
 By lapse of time – This is the failure of a party to carry out its side of the contract
within a reasonable time
 By bankruptcy - This is where one of the parties to the contract become bankrupt
 By death - If a party to a contract dies this can cause termination. However, that
party’s agent or beneficiaries may be liable to continue the term of the contract.
 By merger – This is where one contract is substituted for a higher one
 By renunciation – This is where one party carries out a portion of the contract and
fails to go any further.
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 COMPENSATION FOR BREACH OF CONTRACT
Compensation for breach of contract may include:
 Compensatory Damages – This is to provide the plaintiff or victim payment for
actual losses, usually in the form of money. The innocent party may be paid for his
or her expenses that have been incurred as a result of the contract not being
performed.
 Consequential or Special Damages as a result of breaking an agreement - This is
where the damages that were foreseen when the contract was made and were
brought about has a result of the breach of the contract. This must be able to be
clearly proven.
 Liquidated Damages – This is a clause set out in the contract where both parties
agreed on the amount of damages that should be paid in the event of a breach. For
this to enforced, it has to be reasonable and not be such that the victim would be
enriched.
 Specific Performance – This is a remedy in a contract which is created to force the
breaching party to carry out the terms of the contract.
 Nominal Damages – This is usually a symbolic sum when there are no specific
damages but the victim intends to prove that an injustice was done. In such a case,

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the breaching party has been proven breach of the contract but has failed to prove
that he or she should be compensated.

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