Introduction: The Law of Contract.

The Law of Contract.                                    25/02/2017.

Introduction:

Modern society is unthinkable without the possibility to conclude binding contracts .Not only contracts allow business to trade goods and offer services, but contracts are also used by citizens to pursue the things they are after, even if they do not always realize it.

A contract is an agreement that binds the parties who enter into it and it can be enforced against one another .For example, it can be a contract to sell and purchase land, a contract of leasing, an insurance contract etc. However, not all agreements are contracts; for example a social agreement or agreements between family members .This is also known as domestic agreement. Such agreements are    not considered contracts because they are not intended to bind the parties in law.

Most contracts take the form of simple contracts whereby there are no specific formalities involved in the contract formation. The contracts are made orally or through implied actions of the parties and these types of contracts are called :’consumer contract’,forexample ,selling and buying goods at the grocery shop or the market .thus people conclude contracts when they buy products in a supermarket ,rent a house ,take out insurance ,open a bank account ,take up new job ,are treated by their doctor or go to the hairdresser and take a lunch in a restaurant etc .The set of rules and principles that govern these transactions is the law of contracts. It governs not only so-called consumer contracts like those just mentioned aboe but also commercial contracts .They range from contracts for the sale of goods to franchising and distribution contracts, joint venture, take over company ,building of airport or invest  in a foreign country . The core of a typical contract is exchange: One party gives something to another party and receives something in return.

Definition of contracts law:

Most definitions of contract law usually refer to four elements:

1.      An agreement

2.      By two or more parties containing

3.      Promises by each party

4.      Which are intended to be enforceable at law?

4.2. Sources of contract law.

Contract law in the sense mentioned above (as a set of rules and principles that governs transactions among parties thereby setting the right and obligations of these parties) is made up of large members of different rules. In this section, distinction is made on the basis of the origins of the rules .Such categorization on the basis of sources allows us to distinguish between three types of rules relevant to contract law: rules that are made by the contracting parties themselves, rules that emerge from the official, European and supranational sources and informal rules that are made by other none-state organizations and academics.

4.3. Formation of a binding contract:

As long as economic activity consists of exchange of goods on the spot, there is no need to answer this question as to when a contract is binding?

This becomes different from the moment a party promises to do or to give something to the other party in future .The law should give then an answer to the question whether this promise is enforceable or not (meaning that the promise can go to court and force the promisor to deliver the good or pay the price).This section considers when there is a basis for such an enforceable; promise.

In the Somali civil code, the sources of the contract is indicated by Article1 which says:

1. The civil law will regulate and determine all the relevant cases that under come its dispositions literally and conceptually.

2. If there is not a written rule that is applicable, the judge can decide the case, on the basis of the Islamic religious principles. When it is feasible in the Islamic religious principles, then the judge should apply adjudication based on the principles of social equity.

Other sources that are generally accepted are: Official, national, transnational and international rules   

Laissez faire principle.  

The economic philosophy of ‘laissez faire ‘, with its strong emphasis on individualism and enterprise had a profound influence on the law contract.

1. The courts consider that the parties to a contract had complete freedom to lay down their own terms.

2. Once formal, the contract in the eyes of the law, was sacred and should be upheld at all cost. 

4.3.1 from a promise to a binding contract:

No legal system allows all promises to be enforceable .If I promise my fiancée to take her to dinner tomorrow evening, no sensible person would claim that she can go to court and force me to feed her. Of the vast majority of promises that we make in our life, we can say at best that it would be morally wrong not to keep them. Breaking a promise may also have many negative consequences for the friends that we keep and for the reputation we have ___but none of this is the law’s business.

This makes it Important to ask what the criterion is for the legal enforceability of promises?

The answer would be: The legal enforceability should be corresponding the intention of the parties to be legally bound at the time of entering into the contract with free will. All modern jurisdictions accept that the main criterion for the enforceability of a promise is the intention of the parties to enter into a legal relationship. Actually, the law decides when such an intention exists which is when there is a reciprocal will between the offer or and the offeree. In other word, the intention to be legally bound can be reflected by the conclusion of the contract through the proposal of the offer or (the seller) and the acceptance of the offered (the buyer).

It is usually not a problem to find this intention in cases where the respective promises of the parties are more or less of the same value or if the parties are sophisticated businesspeople who can take care their own interests.

However, the law of contracts is much more reluctant to enforce gratuitous promises (gifts) or promises among family members or friends as it finds it much less likely that someone would wish to be legally bound in these situations. The law suspicious as it is of altruism presumes that a party will only bind itself if it is to gain from the transaction.

4.3.2 Offer and Acceptance:

Since the consent of the parties is a necessary requirement for a binding contract, lawyers tend to split this consent into two different elements as follows:

A.     An offer by the offeror (proposal)            B.  The acceptance by the offeree. (accepter)

Article 2:201 s.1 of the principles of European contracts law (PECL) is a good reflection of the world’s legal system on this point; which says:

A proposal amounts to an offer it if (a) it is intended to result in a contract when the other party accepts it . (b) It contains sufficiently definite terms to form a contract.

Lawyers usually ask three different questions regarding offer and acceptance:

1.      When can a proposal be qualified as an offer?

2.      Can the offer or go back on its offer before acceptance by the offeree (revocation)?

3.      A t what moment in time does the acceptance of the offer lead to la binding contract?

4.3.2.1 Offer.

The importance of  the first question is immediately clear : If a proposal can be qualified as an offer, it means that a binding contract comes into being upon the mere acceptance of the offer by the offeree.This is exactly the reason why ,an offer can only exist if it reflects the intention to be legally bound and is sufficiently clear about the contents of the resulting contract .Not all jurisdictions make the distinction between offers and mere invitation s to enter into negotiations in the same way .

Some examples of offers include: Advertisement or display of goods are considered as an offer which means that the seller cannot go back on her intention. This is clearly in the interest of the prospective buyer who may have been tempted to respond to the advertisement or enter the seller’s shop because of the attractiveness of the product being offered.

4.3.2.2. Revocation.

Once it is established that the proposal amounts to an offer, a second question can arise: Can the offer or revoke its offer before acceptance by the offeree? If Fatima offers her car to Ali, it would be in her interest to be able to change her mind at any time and sell it to a higher bidder instead. It would, on the other hand create hardship for Ali if he did not have at least some time to think about Fatima’s offer and perhaps try to borrow money from a relative or a friend to buy the car .It is by balancing these two interests that each jurisdiction adopts its own solution .For example the German civil code protects the offeree making an offer irrevocable for the period that is fixed or for reasonable period if there is no fixed period. While French law adopts an intermediate position by allowing the offer or to revoke, but by holding her liable in tort if the offeree has acted in justified reliance on the offer.

However, in the majority of jurisdiction adopts that the offeror can revoke its offer before acceptance by the offeree .So the answer to the question is yes he revoke she revoke the offer before acceptance by the offeree.

4.3.2.3 Acceptance.

The third and final question is when the acceptance of an offer leads to a binding contract?

This is a very relevant question in commercial practice: parties need to know at what moment they are bound to a contract because all kinds of rights and obligations may follow from this .Article 2; 205 s.1 PECL reflects the rule that many jurisdictions accept: “If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror.” This rule also applies to electronic communication, which case the acceptance is supposed to have reached the offeror if the message has entered his electronic mailbox.

Prepared by lecturer Kassim Mohamed jama .