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Legelata Law Firm's junior associate Viktorya Sargsyan describes the essential components of contracts from the perspective of common law compared to local (Armenian) regulations

CONTRACTS MADE ORALLY OR IN WRITING IN COMMON AND RA LAW.

The contract, its essentials, and types.

contract is an agreement establishing the obligations which are enforced or recognized by law.

In common law, there are three basic essentials to the creation of a contract: (i) agreement, (ii) contractual intention, and (iii) consideration. In RA law, we can notice some similar essentials as (i)agreement, (ii) sometimes the will of one side in unilateral agreements is accessible as well. Remarkably, the RA Civil Code states that the expression of concerted will by two parties (bilateral transaction) or by three or more parties (multilateral transaction) shall be required for entering into a contract[i].

Of course, it is not written in the law by itself, however, we can consider that the contractual intention and consideration to create a contract are a significant part of the contractual law, and without having the contractual intention, for instance, the created contract would be invalid. Although, as mentioned earlier, this is safe for the unilateral agreements.

Here is a more technical definition of different kinds of contracts: A contract is a private compact, voluntarily made, by which the parties agree to exchange valuable things with one another. A contract comes into existence when (1) one party makes an offer that the other party accepts, and (2) the parties thereby agree to exchange valuable benefits on specified terms and conditions, with reasonably specific agreement on the price, place, time, the goods or services to be delivered, and the other essential terms of the exchange[ii].

The first requisite of a contract is that the parties should have reached an agreement. Generally speaking, an agreement is reached when the offer made by one party is accepted by the other. An offer is an expression of will to contract on specified terms, made with the incentive that it is to be binding once accepted by the person to whom it is addressed. There must be an objective manifestation of intent by the offeror to be bound by the offer if accepted by the other party. Therefore, the offeror will be bound if his words or conduct are to induce a reasonable third party observer to believe that he intends to be bound, even if he has no such intention[iii]

An offer may be made expressly (by words) or by conduct. 

An offer must be distinguished from an invitation to treat, by which a person does not make an offer but invites another party to do so. Whether a statement is an offer or an invitation to treat depends primarily on the intention with which it is made. An invitation to treat is not made with the intention that it is to be binding as soon as the person to whom it is addressed communicates his assent to its terms.

Carlill v Carbolic Smoke Ball Company [1893] is an instructive case in this regard. A medical company claimed that their new medicine, a carbolic smoke ball, would cure flu and that consumers would receive £100 if it did not. When Carbolic was sued, he claimed that the advertisement was not a legally enforceable offer but an invitation to treat, a mere puff or gimmick. On the other hand, the Court of Appeal ruled that the advertisement was an offer. The assertion that the marketers had put £1,000 in their bank “to show our sincerity” implied an intention to be bound. This was an offer as the court stated, and if we take on the regulations from the statute of frauds, we can one more time assure that.

According to the statute of fraud, it is necessary to make the written contract only if it sells goods more expensive than 500 pounds. Nevertheless, this was an offer, even if it was not written. It had an essential element of a contract, which was the intention. This also shows that this was an offer and not the invitation to treat because, in our case, Carbolic did not intend to return £100 if the medicine did not work, so this is a clear intention to make a profit by an offer. 

 

 The comparison of RA and Common law

An oral contract is a spoken or verbally created agreement that can result in legally binding consequences (Also famous as a Gentlemen Agreement). For certain types of contracts, there is a prerequisite of a specific form to become binding for the counterparties. In particular, certain contracts shall be concluded in a written form.

As a general rule, written contracts are easier to enforce. In fact, courts prefer that agreements be put into writing. With a written contract, an actual document shows what the parties agreed to. There are some agreements that must be put in writing in order to be valid and enforceable contracts. The statute of fraud says that certain types of contracts must be in writing to be enforceable. In most states, the following types of contracts must be in writing[iv]

  • Contracts to transfer or sell land;
  • Contracts that relate to the subject of marriage;
  • Contracts to sell goods that are worth $500 or more;
  • Contracts that cannot be completed entirely during the one year after signing (based on the actual terms in the agreement);
  • Contracts involving promises to pay off another person’s debt. These are sometimes called “surety contracts”, and
  • Contracts where an estate executor states they will pay debts from their own personal funds. 

RA law, this is also important to follow certain principles for the contract would be valid. For example, a transaction for which a written (simple or notarial) form is not prescribed by law or by parties’ agreement may be entered into verbally. (RA Code on Civil law, Article 295). As prescribed by law, it is interesting that silence shall be deemed as an expression of a will to enter into a transaction. Of course, this concerns certain types of agreements.

Armenian law also defines specific types of contracts, which require to be in a written form. In particular, Article 297 states that “With the exception of transactions requiring notary certification, the following must be concluded in a simple written form:

 (1) transactions of legal persons among each other and with citizens;

(2) transactions among citizens in an amount exceeding the twenty-fold of the defined minimum salary, and in cases prescribed by law — transactions irrespective of the amount.

  1. Simple written form shall not be required for those transactions, which according to Article 295 of this Code, may be concluded verbally.

Existence of such provision allows to avoid certain kinds of arguments and makes it easier for the courts when an argument arises between the parties. If the agreement does not follow the contract writing requirements, it may be hard for the court to enforce it. In many cases, the court will decide that a contract does not exist. This means a court cannot resolve any disputes. If there is a disagreement, the parties may not be able to use the legal system to solve the problem. This could be crucial for the parties, especially if, for example, such an argument will be related to the financial means owed, etc. 

It may be an option in some states to ask the court to enforce an oral contract even though it should have been in writing under the statute of, i.e. frauds rules. A court will do this in only limited and specific situations, when a court might enforce an oral contract that does not comply with the statute of fraud, including:

  • Performance
  • Detrimental Reliance
  • Specially Manufactured Goods

Conclusion

Hence, that is obvious that certain types of contracts need to be written to be valid. Not obeying this regulation, in some cases, can result in voidness of the contract or agreement. In the meantime, some other contracts could be oral and still be enforceable. In any case, it is better to make sure that the contract is written, thereby avoiding complicated process of proving existence of a will and intention to enter into contract easing the process of enforcement with courts.


[i] RA code on Civil law, article 290

[ii] “An overview of Contract law” by William Markham, 2002 (https://www.markhamlawfirm.com/law-articles/contract-lawyer-san-diego/)

[iii] The basic principles of English contract law (http://www.a4id.org/wp-content/uploads/2016/10/A4ID-english-contract-law-at-a-glance.pdf)

[iv] Legal Information Institute. “Statute of frauds.(https://www.law.cornell.edu/wex/statute_of_frauds)

Author: Viktorya Sargsyan, Junior Associate

Contacts: Legelata LLC, Aram street 4/3, Yerevan 0010, Armenia

Phone: +374 11 520510

Email: info@legelata.am

Website: www.legelata.am

 

Disclaimer: This material is produced by Legelata LLC. The material contained in this newsletter is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this material.

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