BLAW10001 Lecture Notes - Lecture 4: Exxon, Fax
Principles of Business Law
• Lecture 1
• Week 4
• Contract Information: Creating legally binding contracts
• The legal concept of a contract
• Contract is a legally enforceable agreement between two or more persons who are
alled the parties to the otrat
o Create legal obligations
▪ Consist of correlative rights and duties
o Can be discharged by voluntary performance
• If there is a failure to perform the contract, a breach of contract arises
o Provides the legal basis for bringing an action in court to enforce the
agreement
▪ →ko as a ause of atio
• Capacity to Contract
• A contract can only be made by persons with the capacity to acquire legal rights and
take on legal responsibilities
• Adult persons (over 18 y.o) who are sound of mind, and artificial persons such as
corporations, have full contractual capacity
• Minors may also be bound by to pay a reasonable price for goods acquired pursuant
o For eessities→food, shelter, transport to work
o For things that give a benefit
• Persons with a mental disability are bound by agreements reached in lucid periods,
but not otherwise
• The right to enforce contractual obligations
• Undischarged obligations provide the basis for a legal action to enforce the
agreement
o May only exist between those who have agreed to undertake them
o Only parties to the contract have the right to bring an action to enforce
it→called privity of contract
• Case study
• Price v Easton
• Facts
o Price was not a party to the agreement between E and the builder
▪ Therefore, Ps lai agaist E failed
▪ No prospect of recovery from Price as he had no financial backing
• Coulls Bagots Eeutor
• Indicators that she was a party to the contact
o She signed it
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• Indicators that she was not a party to the contract
o Judges agreed on this, as the title exclusively states an agreement between
her husad ad ONeil Costrutio
• How contracts are created
• Principles of contract formation have been determined by the courts (contract law is
common law)
• Not all agreements reached are (nor should) be enforceable by law
• Contracts come into existence when three elements are all present
o Intention to be legally bound
o Sufficiently clear agreement (consensus)
o Either (a) formal execution in a deed or (b) consideration
• When determining whether or not these elements have been met, courts adopt an
objective approach
o Have the parties reached an agreement→speculate about the clarity of an
agreement
• The element of intention to be bound
• An agreement is only typically enforceable if the parties intended to be legally bound
• Intention is to be judged objectively→ the court asks whether, in the circumstances,
a reasonable person would regard the agreement as intended to be binding
• Factors affecting intention
• Where family members have reached an agreement, the courts have inferred from
the nature of the relationship between the parties that no contractual intention was
intended
• There has been a recent shift in approach (which demonstrates the way in which the
High Court develops law)
• Balfour, Cohen and Merritt all rely heavily on the making of presumptions drawn
from the general circumstances of the parties
• Factors affecting intention: Commercial or Business Agreements
• Traditionally, the courts assumed that agreements reached in a business or
commercial context were intended to be binding
o This meant that a party claiming not to be bound by such an agreement had
to disprove intention
• Esso Petroleum v Commissioner of Customs and Excise
• In reaching the conclusion that E intended contractual relations, the court relied
heavily on inferences drawn from the commercial circumstances in which the
promise was made
• The eleet of agreeet
• Agreement means a meeting of the minds (consensus) on at least those essential
terms needed for a workable transaction
o Is ol oplete he hat has ee agreed is ertai
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