Contract Law: Refusing to Honor a Promise

[1]A contract is a formal accord between two or more parties with a promise to perform or not to perform particular tasks or acts. The agreement creates a legal duty for each party involved in the contract and maintains a right to seek remedy in case of any form of breach of such an agreement¹. A contract falls in the category of English common law although the state may intervene to settle conflicts between the parties to a contract. Alex and George got a contract immediately Alex made the promise to pay house rent and accepted by George. There was also another contract between the parties agreed on the sale of the Lucian Freud print with the promise of selling other of George’s prints to Alex. Therefore, Alex should be aware that a contract existed between the parties. Alex and George are in a bilateral agreement because they both have an obligation in the contracts formed. George has the responsibility of hosting Alex while Alex is obliged to pay monthly rent for staying in the house. The agreement on the sale of the Print is also bilateral because, Alex is paying and George is giving the prints to her[2].

There are elements that require to be satisfied so as the parties involved can form a legally binding contract. Therefore, for a contract that is binding to exist between Alex and George, there is a need to confirm whether all the terms elements existed between the parties during the agreement. These are:

1.      Capacity

For any contract to be valid, all the parties involved must have the ability to understand and appreciate the agreed terms. Legal incapacity to get into a contract may arise from infancy, insanity, drunkenness, and incorporations.

If an individual is an infant that is less than eighteen years of age, then such a contract is not binding. The infant can avoid the obligations of such a contract by just not doing anything about it. They, however, can ratify the contract upon reaching majority age. However, if the infant had taken any action on the contract, they must take affirmative action whereby the contract is rescinded[3]. The parties must, however, return any consideration received because of the contract.

If a person is legally declared insane before getting into a contract, then the contract is void. However, if the person was yet to be declared insane before the contract, then the contract is not voidable.

Any contract made a person when they are drunk such that they are incapable of making sound judgments or understand the obligations of a contract are voidable. However, the person can ratify the agreement upon sobering[4].

The agreement between Alex and George allowing her to stay at George’s house as long as she pays a monthly rent of £1,000 was made between two sane parties. Both Alex and George have the capacity to get into a binding contract. None of them was declared insane or drunk during the making of the contract, and hence, the agreement was binding. Alex should, therefore; stay assured that a contract existed between them on tenancy and to sell the prints to her in future.

2.      Offer and acceptance

The most fundamental element of a contract is that one party makes an offer and then they bargain come to a common ground where there is acceptance of the offer. An offer is a promise to act or refrain from acting in a given way[5]. The offeror makes an offer so that the other party can either reject or accept. In the case, George made an offer of £1000 Monthly rent for Alex his estranged wife to stay at their house. He also accepts that he would sell all or the chosen prints to Alex in the future following his first sale of Lucian Freud print for £10,000. It was George that made the offer to Alex to make the sale of the print.

Acceptance came from Alex and hence marked the contract. The acceptance is at a point where there is a meeting of the minds or mutual assent. The two parties should fully be aware of their obligations and consequences and then accept the terms at their free will. The offer and acceptance of an offer do not necessarily have to be expressed orally or in writing.

Alex has a binding contract with George since she made the acceptance to George’s offers. She accepted to pay the house rent and to purchase the Prints as George had made the offer. It was the information and the offer that George made that made her accept paying the quoted amounts and hence that makes the contract binding. Alex, therefore, holds the power to enforce the contract on staying in the house and of buying the prints since the circumstances affecting their relationship came later. Arising circumstances do not change what was already agreed.

George had a chance to withdraw the offers to Alex before she made the acceptance and hence cannot revoke it later. The circumstances surrounding his failure to follow through his promise are baseless and not covered for in the contract. There were no such terms as that the offer would be withdrawn in case their relationship got worse and hence the contract has to be enforced. George has no ground to breach the contract that he has with Alex since the circumstances that are making him consider withdrawing from the contract are not fundamental parts of the agreement. Hence, there was no form of breach from Alex’s end.

3.      Consideration

Contracts are based on bargain and exchange. Each party to a contract has to receive something of value and gives the other party something of value. Consideration is the name that brands the value given by every party. Consideration may take the form of a significant expenditure of money or effort, a promise to execute some service, or agreement to avoid doing something that has value. It is the presence of consideration that separates a contract from a gift. A gift is a voluntary transfer of property of something of value to another party without a promise of receiving anything of value in return[6].

There are three major rules of consideration:

·         Consideration has to be sufficient but is not needed to be adequate. The size of consideration does not matter as long as it has value in the eyes of the law. For example buying a house for a penny is sufficient to constitute a legally binding contract. There are cases where a collateral contract exists whereby the existence of one consideration provides for another.

·         It must not be from the past. A promise to repay some consideration made in the past does not qualify as consideration.

·         Mutuality of obligation. The contract must bind all the parties and if not so none of them is bound. Therefore, when one party does not make a sufficient consideration, then the other party is not obligated to complete their end of the bargain.

The consideration given by Alex of £1000 per month for staying in the house with George and £10000 for the print is sufficient. It is sufficient in the sense that it is what George asked for to get the contract, and Alex is honoring the consideration fully. By paying her rent every month, she is honoring her party of the contract. On the part of the print, she agreed to pay the sum for the print following the offer that she can buy any or all of the other prints that George had which meant that it influenced her decision when accepting the contract and also setting the consideration. The two parties also had a mutual obligation in that George gave the rent to Alex meaning that he had accepted the contract as he also received the money. There was a mutual exchange of value and hence the consideration was within the rules[7].

4.      Certainty and Intention to Create Legal Relations

Every contract is presumed that the parties have the full intention to be bound by law unless they state otherwise. Therefore, whether parties to a contract do not need to explicitly express the intent to make the contract legal since it is deemed enforceable by law by its existence. However, the parties to a contract may state that law should not enforce their contract. Such as the Rose & Frank Co v JR Crompton & Bros Ltd, that was an agreement between two businesses. The contract was not enforced because it contained an ‘honor clause’ that stated that the parties wished not to allow any review or enforcements by a court of law[8]. 

Domestic and the social agreements are also not enforceable in the legal terms. For example, agreements between parents and children or between couples. An example of such a case is the Balfour v. Balfour case where the husband had agreed to be paying some money on a monthly basis to the wife. When the husband stopped paying, the court refused to enforce the agreement.

Alex has an enforceable case because they are estranged with the husband. Alex has a chance to win the case and have the court enforce the contract just as the case with Merritt v Merritt. In the case, Mr. Merritt and his wife jointly owned a house. However, Mr. Merritt left to stay with another woman, and the Mr. and Mrs. Merritt made a written agreement that Mrs. Merritt would be paying a monthly sum of £40. The agreement was that Mr. Merritt would ultimately transfer the house to her once she completed paying her mortgage to him. Unfortunately, Mr. Merritt changed his mind and refused to transfer the house after his wife finished making the payment. The Court of Appeal decided that the nature of the dealings and that the couple was estranged during the making of the agreement made the court assume that the contract was more than just a domestic arrangement. During the making of the agreement between George and Alex, the couple was already estranged, and so the contract may fall in the same ruling as the Merritt case[9].

5.      Lawful purpose

The purpose to which the agreement made must be within the law. It must not conflict with the applicable rules that may result to restrictions by law enforcers. For example, making a contract to engage in illegal activity is not binding. The agreement between Alex and George are all legal in that they do not conflict with any laws. It is lawful to contract on a house and on purchasing a print[10].

6.      Firmness and certainty of terms

The terms of every agreement need to be sure and not vague at all. The terms of every contract must be clear enough to all the parties and can be ascertained in a court of law if the contract is to be perceived as enforceable. The terms also need to be complete and clear to all the parties. The terms or the issues not noted in the terms of the agreement are perceived not to be fundamental to the enforceability of the contract[11]. Alex should push George to follow the contract through because; he did not bring up the issue on their relationship in the terms of the agreement. Worsening of their relationship is, therefore, not defense for George to avoid his obligation to the contract since they were not part of the terms of the contract that they formed.

The proof of some or all of the elements of a contract can be done in the form of writing, orally or just by conduct. The remedies for any form of breach of contract can damage that may take the form of compensation in monetary terms or of specific performance. The performance of a party is enforced through a court injunction thus offering the aggrieved party the benefit of the bargain. Alex should, therefore, anticipate receiving the significant damages should she seek a court redress to the breach of contract by George[12].

George has engaged in breach of contract, and so Alex should seek legal action against him. It is because, George is not performing according to the contract that they had with Alex by removing from the house and also failing to agree to sell her the other prints as per the agreement. The court is bound to offer her damages. Several types of damages may be issued to her by the court. Such as the compensatory damages for the breach of contract disadvantaged her by George. George may also be issued an injunction to allow Alex stay in the house and to sell the prints to her as agreed on the contract.

In conclusion, Alex and George had valid contracts that are enforceable by law. Therefore, Alex can sue George for breach of contract. It is because, George made an offer that Alex accepted to, and they agreed to an amount set as the consideration for the contract. The fact that all the parties are of a capacity to get a contract and that there was a mutual deal between the parties made the contract binding. The contract is also actionable under the law because they were already separated when making the contract and so the restraint of the court from taking action on domestic agreements does not apply in their case. With all the elements of a binding contract present in the contract made between Alex and George, then Alex stands a chance to get an injunction against George’s defaulting from the agreement or also to seek for any damages that she may have accrued due to his breach of contract.