Saturday, 29 August 2009

WHAT IS A CONTRACT? (and being buried above Marilyn Monroe)

  • My last post was about the Marx Brothers and their entanglements with contracts both on and off screen. It occurred to me could I do a more serious short post about what is a contract. The purpose of this blog is to reach curious non -lawyers not so much to engage will fellow legal professionals who I tend to engage with anyway. If asked could I accept a challenge to explain to the uninitiated what contracts are all about, but not in the way we learn at Law School?. After all, along with negligence, it is probably the cornerstone of common law. In almost every first interview the word crops up and perhaps I don't always take the time to explain the principles. I am going to do this on the radio show next week as well.

    So here goes.

    A contract is no more or less than an agreement. For there to be an agreement there has to be two or more people (a lot of people agree with themselves but they should not really). The key ingredients are:

  • Offer and acceptance. One party has to offer some terms and the other party has to accept those terms. Silence is not acceptance but conduct can be examined to see whether the contract has been formed. In practice this area rarely troubles us because even if we can't find a formal 'I accept', the parties act on the terms. But it means you cannot accept by sliding in different terms (that is usually termed a counteroffer), and an offer can be withdrawn any time before acceptance. Also some contracts have formal requirements for formation (see below)

  • 'Privity of contract'. Generally, only the parties to the contract are bound by it or can benefit from it. However there are some technical but not insignificant exceptions, particularly relating to land law (e.g. in the area of restrictive covenants) which I won't go into now. Also a significant blow was dealt to privity at the end of the last century by the Contracts (Rights of Third Parties) Act 1999 which allows persons who are not privy to the contract to enforce it if it was contemplated that they would benefit from it, unless such right is expressly excluded in the contract (which to be honest it often is, by astute lawyers)

  • 'Consideration'. Generally for a promise to be enforceable the other person must not only accept but provide what is known as consideration i.e. some value back which is regarded as such by the promising party. This is usually money or property but it does not have to be. There is a principle that although consideration has to be have 'value in the eyes of the law' it does not have to be adequate: one penny will do if that's what the other party is happy with. A bid has been accepted for $4.6 million for the burial plot above Marilyn Monroe promising ' the chance to spend eternity above her'. People are entitled to have more money than sense in law. However there have been some cases over whether consideration has actually been deemed valueless. An example is White v Bluett (1853) in which it was held that a son had not provided consideration for his father's promise not to enforce an extant promissory note by promising in return not to bore his father with his complaints. However contrast Ward v Byham (1956) in which a promise by a mother to make an illegitimate child 'happy' was regarded as part of the consideration for enforcing the father's promise to make an allowance. Actually I think most of us can see the common sense of the distinction between the two cases - sons shouldn't really be moaning at their fathers anyway, should they?

  • Intention to create legal relations. Some would-be contracts are not because they are deemed not to be seriously intended. Promises made in jest and anger can come under this. It does of course depend on the context and facts. A pay rise sought and promised in the jollity of the office party might not be a contract when if it talked about in the office it would be. I once got my daughter to sign a homework contract supported by the valuable consideration of certain privileges. Apart from the fact that contracts with minors are generally not enforceable anyway this would probably also fail the intention to create legal relations test, although she didn't know and I didn't tell her of course on either count.

  • Finally in these key principles, some contracts have formalities that have to be abided by to make them enforceable. The most common one is to be in writing. It is always best to have a contract in writing anyway, as a matter of evidence.

Here endeth the lesson on contracts for the uninitiated. I hope you found it useful.