We all come into frequent contact with contracts in our daily lives.
Public transport, shopping, visiting your solicitor/doctor/physiotherapist, buying a second hand car, buying a sliced pan in Tesco or Supervalu-the instances of contract law being relevant in your day to day living are infinite.
Let’s take an overview of contract law in Ireland, shall we?
First, what is a contract?
A contract is, at its essence, an agreement between 2 or more parties. It has been defined as an agreement, enforceable at law between two or more parties whereby rights are acquired by one or more persons in return for certain acts or forbearances on the part of the other or others.
By and large, and subject to certain exceptions, the parties to the contract are free to agree their own terms and conditions.
The Components of a Contract
There are a number of essential ingredients to form a valid contract. There must be
- Agreement between the parties
- Consideration (something of value)
- Intention to create legal relations.
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Agreement
In order for agreement to be arrived at there must be an offer by one party and acceptance by the other party. The acceptance must be without qualification and the offer must be clear and unequivocal.
i) The Offer
The offer may be oral or in writing and made to one or more persons. An offer can be terminated in 3 ways:
- It is accepted
- It is rejected
- A counter-offer is made.
An offer can also be withdrawn before acceptance, provided this withdrawal is communicated to the other party. Offers do not last indefinitely and will lapse after a reasonable period of time.
What is considered ‘reasonable’ in any situation will depend on the circumstances. They can also lapse after passing a time limit.
An offer must be intended to become binding when accepted, and not just an invitation to treat or the provision of information or mere statements of intention. (An invitation to treat is where one party invites the other party to make an offer-for example, when a solicitor issues a contract for the sale of property-this is an invitation to treat, not an offer. Advertisements would also be considered invitations to treat.)
ii) Acceptance
Acceptance of the offer, if it is to be valid, must also be clear, unambiguous, and unconditional. Acceptance can be verbal, in writing, or clear from the conduct of the party who is accepting. If acceptance does not mirror the offer it may instead become a counter-offer with no agreement or contract in place.
2. Intention to create legal relations
An enforceable agreement only comes into being if the parties intended that they enter into legal relations. Business agreements are normally assumed to be legally binding whereas social agreements or contracts may not be.
If you promise to bring your child to GAA training but fail to do so he cannot sue you on foot of that failure.
Correspondence marked ‘without prejudice’ or ‘subject to contract’ is not intended to be legally binding until the parties have agreed all terms and conditions.
3. Consideration
Consideration-something of value-is a vital part of an enforceable, binding contract. An example of consideration is the price you might pay for goods or services.
Consideration can also be some forbearance or loss or detriment suffered by one of the parties. Both parties need to provide some consideration for the contract to be binding and the consideration must have legal value, even if this is only 1 euro or a peppercorn as the value of the consideration is irrelevant.
Past consideration-that is, consideration given before the parties entered into the agreement at hand-is not sufficient consideration to enforce the contract.
Oral and Written Contracts
It is not essential that a contract is committed to writing.
Clearly, it will be easier to ascertain what was agreed between the parties in the event of a dispute, however. A contract can also be inferred from the course of conduct between the parties.
When you go into a shop to buy milk or bread you are entering into a contract with the retailer, albeit the contract will not be in writing.
However, statute decrees that certain contracts must be in writing or must be evidenced by a memorandum in writing-for example, the sale of land. This memorandum must show the parties, the price, and the property.
Other Contractual Issues
The parties must agree freely to enter into a contract agreement. Undue influence and duress will make a contract voidable.
Courts will also refuse to enforce contracts which are contrary to public policy or which are made to pursue an illegal object.
Capacity-that is, legal capacity, is required to enter into contract.
Certain individuals such as minors, persons under the influence of drink or drugs, individuals suffering from mental illness are not deemed to have the capacity to enter into a legally binding contract and there are rules surrounding contracts for persons in these categories.
Limited companies can only enter into contracts permitted by their company memorandum of association.
Terms of the contract
What is contained in the contract-the meat and potatoes-are various terms and conditions. These terms can be express or implied.
Express terms are those set out in writing in the contract itself and are the nuts and bolts of the agreement struck between the parties.
Various terms can be implied into a contract, for example those implied by statute or common law or the constitution or custom and practice in the industry. Terms can also be implied to give the contract business efficacy-that is, make sense of it.
Conditions and warranties
The terms of the contract may be conditions or warranties. Conditions are fundamental to the contract and the breach of a condition will allow the other party to repudiate the contract.
Warranties, on the other hand, are not as fundamental and breach of a warranty may give rise to a claim for damages or compensation but will not necessarily give the right to repudiate the contract and call it at an end.
Non Binding Contracts-Void, Voidable, and Unenforceable
A void contract is an agreement without legal effect. This may be due to a fundamental mistake by both parties when arriving at the agreement, which mistake must go to the root of the agreement. A minor entering into a contract to buy property would also be void.
The usual remedy for a void contract is rescission which allows a party to set the agreement aside and be restored to his former position and both parties are released from the contract and its obligations.
A voidable contract is one which allows one of the parties to terminate the contract due to relying on misrepresentation of a material fact. However, that party can also affirm the contract. Certain statements, though, for example sales guff, are not intended to be relied upon.
The innocent party can treat the contract as being at an end and seek to recover damages.
An unenforceable contract is one which the Courts will not enforce as there is something missing-for example a written memorandum of the agreement/contract in a sale of land, which is required by statute. In this situation if one of the parties refuses to perform the contract he cannot be forced to do so.
Ending a contract
How is a contract brought to an end? In a number of ways.
- By performance
Both parties discharge their obligations under the contract. Performance must be complete, not partial. If the performance is prevented by one party the other party may sue on a quantum meruit basis to prevent unjust enrichment.
2. By agreement
The parties can agree not to pursue the contract and waive their rights under it.
3. Discharge by notice
An employment contract, for example, can be terminated by giving the required notice period. If there is no notice period provided in the contract reasonable notice must be given. What’s reasonable will depend on the circumstances.
4. Discharge by operation of law
5. Discharge by frustration
A contract can become frustrated when it becomes impossible to perform due to circumstances beyond the control of the parties-for example a sales representative or lorry driver losing his driving licence may be unable to fulfill the contract, no matter how willing he may be.
6. Discharge by breach
A contract can be discharged by breach of a condition of the contract. The wronged party can treat the contract as discharged or he can continue with the contract and sue for damages.
If the breach is breach of a warranty the wronged party can sue for damages only.
Remedies for breach of contract
- Damages-this is the payment of monetary compensation for breaches of the contract. The damages are intended to put him in the position he would have been in if the contract had been performed.
The damages awarded can range from nominal to exemplary. You can read more about damages in civil law here.
- Quantum meruit-read about quantum meruit here. Quantum meruit is the payment of a reasonable sum for the work done, as opposed to damages for breach of contract or compensatory damages.
- Specific performance-this is an equitable remedy which directs the party in breach to perform his part of the contract.
- An injunction-this is another equitable remedy which orders a party to do or refrain from doing an act in pursuance of the contract
Conclusion
The above is a 10,000 foot view of contract law in Ireland. There is statute law dealing with contract, too, such as the Sale of Goods and Supply of Services act, 1980 and the Consumer Protection Act, 2007 which deals with consumer contracts in Ireland while the Land and Conveyancing Law Reform Act 2009 deals with contracts for the sale of land. (Learn more about property law in Ireland here).