Elements Of Contract In Business And Transport Law

Body of opinion

Describe about the Essay for Business and Transport Law/Commercial and Transport Law.

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A contract can be defined as a promise between two or more parties, to do a particular thing or a set of thing, in exchange of a consideration (Treitel, and Peel, 2015). A contract, when formed, is a lawfully enforceable document. The consideration involved in a contract needs to have certain economic value. Another condition for formation of a contract is that the parties to the contract should be of sound mental capacity. Such parties need to form the contract out of free will and there should be a clear absence of any undue influence. Another condition necessary to create legally binding contract is the intent. (Clarke and Clarke, 2016).

A contract can be in two forms, written or oral. In a written contract, all the terms and conditions relating to the transaction are stated down on a document (Bonell, 2009). This document is then signed by the parties to the contract. To create verbal contract, an offer is given in a vocal manner and the acceptance is achieved in vocal manner. It is generally advised to form a written contract instead of a verbal contract (Department of State Development, 2016). Verbal contracts have an ease of formation but in case of disagreements, a written contract can clarify the matter of such disagreements.

The elements of a contract can be broadly classified as, offer, acceptance, consideration, intent and certainty (The Law Handbook, 2015). To create a contract an offer has to be made by the party. Then the given offer has to be accepted by the party to whom the offer was made. Such offer has to contain a consideration which has a certain economic value. Further, the contracting parties should have a clear intention of forming a contract. Lastly, a certainty is essential about the terms of the contract (Carter, 2007).


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The facts are as explained in the assignment task.

In the given case, the main issue is whether or not a valid contract was made between Joshua and Ernest in relation to the sale and purchase of the unit. There is another issue in this case which relates to the validity of contract between Joshua and Bridget.

This case revolves around the elements of a contract. To clarify each point of this matter, the issues have been broken down as per the elements of a contract.

Overview of a Valid Contract

A contract is a legally enforceable agreement. If a contract contains the elements of a contract, in a lawful manner, then such a contract is considered as valid (Ayres and Klass, 2012). If any party of the contract does not follow the terms of the contract, they are held liable for a breach of a contract. In such circumstances, various remedies are available for the aggrieved party in the form of monetary damages and equitable damages [specific performance and injunction] (Elliot, 2011).

To judge the validity of the contract between Joshua and Ernest, and the other contract between Joshua and Bridget, the facts of the case have been reviewed with the elements of the contract. A study of these elements with the case fact would establish whether these contracts were valid or invalid (Paterson, Robertson and Duke, 2012).

In the case of contract between Joshua and Ernest, there was a clear intention to create a legal relationship. Upon the offer of Joshua, negotiations took place and an acceptance was also attained. Joshua had the clear intention to sell the house. This was evident from the advertisement in the newspaper and TV. There was an intention on part of Ernest as he negotiated the deal. Further, he sent his confirmation through both the mediums specified by Joshua in the advertisement in the newspaper.

In the case of contract between Joshua and Bridget, there was a presence of intent on part of Joshua as he offered to pay the advertisement fee in exchange of the TV commercial. But, on part of Bridget, there was no intention to form a legal relationship. This can be clarified from his statements where he clearly refused to accept any payment from Joshua for the TV advertisement. Further, Bridget claimed that the advertisement was done as they were good friends. This confirms the absence of intent on part of Bridget.

In the case of contract between Joshua and Ernest, an offer was made on September 08, 2016 by Joshua for sale of his Unit in form of an advertisement in the newspaper and TV. In the advertisement, the mode of acceptance was stated as a telephone number and a fax. On this offer, a counter offer was made by Ernest on September 09, 2016. A counter offer is not considered as an acceptance as was held by the Court in the matter of Stevenson, Jacques & Co v McLean [1880] 5 QBD 346 (Thomson Reuters, 2004). Upon further negotiation, Joshua told Ernest that he would not sell the unit for any amount which is less than AU $180,000 and that he would not sell the house to anyone before September 12, 2016.

Intention to create a legal relationship

In the afternoon of September, 2016, Ernest called Joshua to convey his acceptance to the offer. When Joshua failed to pick up the phone, he left a voice message which identified him and conveyed his acceptance in this matter. Further, to ensure his acceptance is conveyed, Ernest sent Joshua a fax on that very instance. However this fax was thrown away by Joshua’s 3 year old son. The voice message was accidently deleted by Joshua.

In this case, an acceptance was clearly made by Ernest. The reason behind this is that Ernest followed the methods provided by Joshua to convey his acceptance. The acceptance was not received by Joshua due to errors on his part. Ernest had fulfilled the conditions of a valid acceptance and hence, the offer of Joshua was considered as accepted by Ernest. Further a reference should be made to the case of Lucy v. Zehmer, 196 Va. 493; 84 S.E.2d 516 (1954) as per which Ernest was not required to confirm if the acceptance was heard or read by Joshua (WashULaw, 2013).

In the case of contract between Joshua and Bridget, Joshua had requested Bridget to produce a TV commercial. This was an offer on part of Joshua. This offer was accepted by Bridget as he agreed to produce a commercial for the sale of unit by Joshua. So, in this case an offer was made and acceptance was attained.

In the case of contract between Joshua and Ernest, the offer was made for a consideration of AU $200,000. But during negotiations, the consideration for the unit was finalized at AU $180,000. A consideration can be any amount which is fixed by the parties to a contract, as long as such amount has an economical value. In the case of Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87, it was held by the Court that consideration could be anything which is fixed between the parties (Australian Contract Law, 2010). In this case, the consideration of AU $180,000 has economical value and hence, a valid consideration was made in this contract.

In the case of contract between Joshua and Bridget, Joshua had asked about the advertisement fee. Bridget had waived off this fee on basis of being good friends. Here, no consideration was involved. And a good friendship does not have any economic value. Later on, Joshua himself offered to pay AS $10,000 to Bridget. This would not be considered as a valid consideration as the terms of a contract have to be fixed at the time of the contract and not afterwards.  So, an absence of consideration invalidates this important element of contract.

Offer and acceptance

In the case of contract between Joshua and Ernest, both parties were free from any duress or mental pressures (Frey and Frey, 2005). None of the parties were a minor or intoxicated. In short, the parties to this contract did have the contractual capacity.

In the case of contract between Joshua and Bridget, the parties had contract capability based on the same reasons which have given in the case of Joshua and Ernest.

The parties to a contract have to mutually agree to the proposed objectives and terms of the contract. When one party secretly has a different agenda and still gives consent to the contract, there is no reality in such consent. There is no binding contract without the presence of real consent of the parties (Andrews, 2015).

In the case of contract between Joshua and Ernest, the consent was real in all aspects. None of the parties had any hidden agenda nor had they provided a partial or half hearted consent.

In the case of contract between Joshua and Bridget, the consent to produce the TV commercial was real. And hence, in this case also a presence of reality of consent would be found.

In the case of contract between Joshua and Ernest, the sale of a unit was the main object of the contract. And this is a totally legal object. Moreover, no other condition or term gave rise to any illegality.

In the case of contract between Joshua and Bridget, even though no consideration was fixed for producing the TV commercial but that does not mean that there was some illegality in the objects of the contract. Lack of consideration makes a contract invalid, not illegal or unlawful.

So, in both these cases, the objects were completely legal.

From the writer’s point of view in the case of contract between Joshua and Ernest, a valid contract was formed. There was a presence of all the elements which makes a contract valid and enforceable (McKendrick and Liu, 2015). In this case, an offer was made by Joshua. Ernest took the stated method for accepting and ensured his acceptance was conveyed by following both the stated mediums stated in the advertisement. The presence of consideration, certainty and intent further make this contract a valid contract.

Since a valid contract was formed, the sale of Unit by Joshua to another buyer for a price of AU $190,000 holds Joshua in a breach of contract. And so, Ernest can sue Joshua for a breach of contract. The Court in this case would award the necessary relief to Ernest. This relief is awarded upon discretion of the Court and can be in the form monetary damages or equitable damages.

In the writer’s opinion, the contract between Joshua and Bridget was invalid. This contract lacked the essential element of consideration. Also, there was a lack of intent on the part of Bridget as he was doing the TV commercial out of friendship and not as a commercial dealing. This is confirmed as Bridget waived off the production fees of the TV advertisement.

Since in this case, there was no valid contract, Bridget cannot sue Joshua for nonpayment of the TV advertisement fees which was decided by them later on. In the absence of a valid contract, no party has a right to seek redressal.


Andrews, N. (2015) Contract Law.2nd ed. UK: Cambridge University Press

Ayres, I. and Klass, G. (2012) Studies in Contract Law. 8th ed. New York: Foundation Press.

Bonell, M.J. (2009) An International Restatement of Contract Law: The Unidroit Principles of International Commercial Contracts. 3rd ed. New York: Transnational Publishers, Inc.

Carter, J W. (2007) Contract law in Australia. 5th ed. Sydney: LexisNexis Butterworths.

Clarke, P. and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed, South Melbourne: Oxford University Press.

Department of State Development (2016) Contract Law. [Online] Government of South Australia. Available from: https://www.sa.gov.au/topics/crime-justice-and-the-law/contract-law [Accessed on 09/09/16]

Elliot, C. (2011) Contract Law. 8th ed. London: Pearson.

Frey, H P. and Frey, M A. (2005) Essentials of Contract Law. 3rd ed, Portland: Delmar Cengage Learning.

McKendrick, E. and Liu, Q. (2015) Contract Law: Australian Edition. London: Palgrave Macmillan

Paterson, J.M., Robertson, A., and Duke, A. (2012) Principles of Contract Law. 4th ed. Rozelle, NSW: Thomson Reuters (Professional) Australia.

The Law Handbook (2015) Elements of a Contract. [Online] The Law Handbook. Available from: https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/ [Accessed on 09/09/16]

Treitel, G H. and Peel, E. (2015) The Law of Contract.14th ed, London: Sweet & Maxwell.

Australian Contract Law (2010) Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87. [Online] Australian Contract Law. Available from: https://www.australiancontractlaw.com/cases/chappell.html [Accessed on 09/09/16]

Thomson Reuters (2004) Stevenson, Jacques & Co v McLean [1880] 5 QBD 346. [Online]  Thomson Reuters. Available from: https://legal.thomsonreuters.com.au/product/AU/files/720502512/contract_p4_stevenson_v_mclean.pdf [Accessed on 09/09/16]

WashULaw (2013) Case Study: Lucy v. Zehmer. [Online] Washington University in St.Louis: School of Law. Available from: https://onlinelaw.wustl.edu/blog/case-study-lucy-v-zehmer/ [Accessed on 09/09/16]