3.) Contract Law Flashcards
What is a contract?
An agreement, made between two or more persons, giving rise to obligations on the part of both parties, which are usually enforceable or recognised by law
It’s not merely an exchange of promises, both having given something, and having promised to give something in the future
The persons referred to in the above definition are usually called parties to the contract and are identified by the terms offeror and offeree. The offeror (the person wanting the goods) makes an offer to the offeree (the person who owns the goods)
The important thing to remember is that the basis of contract law is what the parties have themselves agreed. To a degree, the parties make the rules of the contract themselves, and providing they don’t infringe the law itself, they can make any terms or conditions they wish
A contract is an agreement, made between two or more persons, giving rise to obligations on the part of both parties, which are usually enforceable or recognised by law - Define the persons referred to
The persons referred to in the above definition are usually called parties to the contract and are identified by the terms offeror and offeree. The offeror (the person wanting the goods) makes an offer to the offeree (the person who owns the goods)
Define the offeror in an agreement
The person who WANTS the goods
Regarding ACCEPTANCE of a contract, acceptance must be communicated back to the OFFEROR
Define the offeree in an agreement
The person who OWNS the goods
What are the essential elements to form a valid and enforceable contract?
REMEMBER - OFFER AND ACCEPTANCE, INTENTION TO CREATE RELATIONS, CONTRACTUAL, CONSIDERATION, CERTAINTY and NOT CONTRARY
There must be an offer and acceptance (which is an agreement)
There must be an intention to create legal relations (the contract will bind the parties, who will then be able to sue and be sued)
The parties must have contractual capacity (that is, legal capacity)
There must be consideration (unless under seal)
There must be certainty (the parties must know exactly what they have agreed)
The contract must not be contrary to public policy
In the absence of some or all of these requirements, the contract may be void, voidable or unenforceable
What if a contract lacks some or all of the essential elements to make it valid and enforceable?
In the absence of some or all of the requirements, the contract may be void, voidable or unenforceable (depending on the materiality of the missing requirements):
X A void contract has no binding effect
X A voidable contract is binding, but one party, usually the innocent one, has the right to set it aside
X An unenforceable contract is valid, but cannot be enforced by one party against the other
What are the two types of terms (either express or implied) that make up a contract?
Conditions
Warranties
Describe conditions, one of the two types of terms (either express or implied) that make up a contract
Important terms that form the basis of the whole contract
Upon a breach of CONDITIONS, the innocent party can either:
repudiate the whole contract
Affirm the contract
Describe warranties, one of the two types of terms (either express or implied) that make up a contract, and the options available to an innocent party in a contract upon a breach of warranty
Less important terms that are incidental to the main purpose of the contract
Upon a breach of WARRANTY, an innocent party must treat the contract as continuing, but can claim damages
What are the two clauses that make up a contract?
Express terms, aka express conditions and warranties
Implied terms, aka implied conditions and warranties
Describe an offer, in relation to offer and acceptance
An offer is a proposition put by one person(s) to another with an intention that if accepted, it will be legally binding.
An offer must be sufficiently definite in order for it to be capable of being accepted by the offeree
An offer must be carefully distinguished from an invitation to treat (or invitations to other persons to make an offer)
An offer can be made to an individual (a bilateral contract) or the world at large (a unilateral contract)
Regarding a famous example of the law’s ruling in relation to rules relating to an offer, note the case Carlill vs carbolic smoke ball company (1892)
Note that rewards are often offers, e.g. a poster for a lost cat
Describe the case Carlill vs carbolic smoke ball company (1892)
This case provides an example of rules relating to an offer, specifically newspaper adverts
In the case Carlill vs carbolic smoke ball company (1892), it was argued that an effective offer could not be made to the public at large
The company were the proprietors of a medical preparation called the carbolic smoke ball, and they issued an advert in which they offered to pay £100 to anyone that caught flu after using the product correctly
The plaintiff, Mrs Carlill bought the smoke ball and used it as prescribed, but still caught the flu.
She successfully sued for the £100, after the judge ruled that such a contract was valid
Describe an invitation to treat, in relation to offer and acceptance
A statement inviting offers/an invitation to enter negotiations (an offer to make an offer) - its objective is if the party accepts a proposition, there will be no contract at this stage. As such, the acceptance of an invitation to treat doesn’t create an agreement
Regarding a famous case relating to an invitation to treat, note the case of the pharmaceutical society of Great Britain vs Boots cash chemists (southern) limited 1953
Describe the case pharmaceutical society of Great Britain vs Boots cash chemists (southern) limited 1953
An example of a case relating to an invitation to treat
Boots adapted on of its shops into a self service system
The case came to court to determine at which point a sale is made (offer and acceptance), as in this case the sale of the poison strychnine was only permitted under the safe supervision of a qualified pharmacist
The plaintiffs submitted that as soon as the item was in the basket, then the offer had been accepted, and this was therefore done before the pharmacist could intervene
The court held that by merely picking up the item didn’t make the sale, the contract was made at the till when the buyer offers to buy, and the acceptance to sell is the process of taking the money. The pharmacist had undertaken the transaction at this stage
Describe advertisements, in relation to offer and acceptance
Adverts are usually construed as an invite to treat, as no obligations are agreed at that time. This allows the seller advertising his goods the ability to withdraw them or to change them without giving notice to potential buyers
The only contradiction to this ruling was in the case of Carlill vs carbolic smoke ball (1892), in which the defendants had deposited £1,000 to deal with responses to their advert, which evidenced their intention to be legally bound
Describe goods in shop windows, in relation to offer and acceptance
These goods are on display to invite offers to buy, but the shopkeeper has no obligation to accept the offer, and to sell the goods at the price stipulated
Most adverts are designed to encourage people to buy particular products, and/or services. However, bear in mind that any claims made may create legally binding promises, as in the case of Carlill vs carbolic smoke ball case (1892)
Describe auctions, in relation to offer and acceptance
In Payne vs cave (1789), the bids are merely offers made by the bidders, and it’s only when the hammer comes down that the winning offer will be deemed to have been accepted by the auctioneer
When can silence amount to acceptance?
Silence cannot amount to acceptance, except by express prior consent, e.g. If I haven’t heard back from you within seven days
Describe the case Adams vs Lindsell 1818
This case provides an example of the postal rule
The case involved two parties in the sale of wool
On 2 September, the defendants wrote to the plaintiffs offering to sell them certain fleeces of wool, and requiring an answer by post. The defendants misdirected the letter so that the plaintiffs didn’t receive it until 5 September
The plaintiffs posted their acceptance on the same day, but it wasn’t received until 9 September. Meanwhile, on 8 September, the defendants, not having received an answer by 7 September as expected, sold the wool to someone else
The defendants argued that there couldn’t be a binding contract until the answer was actually received, and until then they were free to sell the wool to other buyers
The judge said that if true, it would be impossible to complete any contract through the post: if the defendants weren’t bound by their offer until the answer was received, then the plaintiffs wouldn’t be bound until they’d received word that the defendants had received their acceptance, and this could go on forever.
Instead, it was considered that the offeree was making the offer to the plaintiffs during every moment that the letter was in the post
The postal rule won’t apply if the letter wasn’t properly delivered, or handed to a postman only authorised to deliver, and therefore not authorised to accept letters
Where the offer excluded the postal rule, I.e. notice in writing means that the acceptance must reach the offeror
Describe conditional assent and counter offer, an example of acceptance
Acceptance must be unconditional and absolute, excepting when the acceptance is subject to contract
A counter offer is a rejection of the original offer, and in some cases where the counter offer introduces a new term, the original offer is cancelled
An example of conditional assent and counter offer is the case Hyde vs wrench 1840
Describe the case Hyde vs wrench 1840
This case is an example of the law’s ruling in relation to conditional assent and counter offer, an example of acceptance
In Hyde vs wrench 1840, the defendant offered to sell an estate to the plaintiff for £1,000
The plaintiff made an offer of £950, but was rejected by the defendant. The plaintiff then wrote to say that he was prepared to pay the full £1,000
It was held that no such contract existed - the offer was no longer open because the counter offer had destroyed it
Describe request for information, an example of acceptance
This doesn’t destroy the offer, but attempts to clarify matters. It can be difficult to determine whether a statement from the offeree to the offeror regarding the offeree’s offer is simply a request for information, or whether the offeree’s statement is a counter offer
In the end, the test being applied will be the intention of the offeree
Request for evidence, in relation to acceptance, is evidenced in the case Harvey vs facey (1893)
Describe the case Harvey vs facey (1893)
This case provides an example of request for information, an example of acceptance
The plaintiff telegraphed the defendant asking what the lowest price would be for bumper hall pen, and the defendant telegraphed back the lowest price. The plaintiff telegraphed back that he would buy for that agreed price
It was held that the second telegraph was only information, not an offer to sell, only an indication of the price
Describe revocations of offer, an example of acceptance
The general rule is that an offer may be revoked at any time before it has been accepted, as per the case of Payne vs cave
Describe effect of death of a party, an example of acceptance
The effect of death would appear to vary, according to the type of contract in question, whether the death is that of the offeror or the offeree, and whether death takes place before or after acceptance:
Death of offeror before acceptance, if a man who makes an offer dies: the offer cannot be completed after he is dead
Death or the offeree before acceptance: once the offeree is dead, there’s no offer to be accepted. His executors cannot accept the offer in his stead
Death of parties after acceptance: death after acceptance usually has no effect, unless the contract was for personal services, when the liability under the contract ceases
Define consideration
Consideration is essential to the formation of any contract not made under seal, and was defined by Currie vs misa (1875) as:
Some right, interest, profit or benefit accruing to the party, or some forebearance, detriment, loss or responsibility give, suffered or undertaken by the other
Paying, or promising to pay, money in return for the supply of goods or services constitutes the most common form of consideration
Describe the rule that ‘consideration must move from the promise (privity of contract)’, one of the rules the courts have developed regarding consideration
Only a person who’s provided consideration in return for a promise may sue on that promise.
In tweddle vs Atkinson (1861), a man agreed with tweddle that each of them would pay tweddle’s son, who was the man’s prospective son in law. When the son in law sued for nonfulfillment of the promise, it failed because no consideration had moved from him, the contract being between the man and tweddle
Describe the case tweddle vs Atkinson (1861)
This case helps outline the rule ‘consideration must move from the promise (privity of contract)’, a rule the courts have developed regarding consideration
In tweddle vs Atkinson (1861), a man agreed with tweddle that each of them would pay tweddle’s son, who was the man’s prospective son in law.
When the son in law sued for nonfulfillment of the promise, it failed because no consideration had moved from him, the contract being between the man and tweddle
Therefore, only the people making the contract can enforce it - it was the son in law who brought to the case to court, and couldn’t enforce it, as only the original men had the power to do so (I.e. one of the original men would have been able to successfully take the other to court for non-payment)
Describe the rule that ‘consideration need not be adequate’, one of the rules the courts have developed regarding consideration
Consideration need not be adequate, but must have some value, however slight.
For example, a house could be transferred from me person to another for a peppercorn
There’s no requirement that the bargain must be balanced, if it’s freely entered into.
In Chappell vs nestle co ltd (1960), the House of Lords held that used chocolate wrappers were part of the consideration for the purchase of a gramophone record
Note that, in this context, ‘adequate’ means that the consideration is viable, but that ‘sufficient’ implies that the consideration is real, and not an illusion, e.g. a handful of air for a car
Describe the case Chappell vs nestle co ltd (1960)
This case helps outline the rule ‘consideration need not be adequate’, a rule the courts have developed regarding consideration
In Chappell vs nestle co ltd (1960), Nestle had an offer whereby if you sent in three chocolate wrappers, and some money, they’d send you a gramophone record.
Chappel took Nestle to court, claiming that they should accept offers which were JUST money, as well
Nestle won the case, as the House of Lords held that used chocolate wrappers were part of the consideration for the purchase of a gramophone record
Describe the rule that ‘past consideration is no consideration in law’, one of the rules the courts have developed regarding consideration
The promises between parties must be promises to do something immediately or in the future. A promise regarding something done in the past is not good for consideration. In other words, you can’t make contracts relying on information that’s given AFTER the deal/work has been completed
In Re McArdle (1951), a woman carried out work on a house jointly owned by several family members. After the work had been completed, her relatives signed a document promising to pay her for the work. It was held that she couldn’t recover the money as her consideration was past, unless this was part of the terms set down in the contract, e.g. in consideration of you having…
Another aspect of this rule is that new terms can’t be added to a contract after it’s been concluded. In Roscorla vs Thomas (1842), P purchase a horse from D. After the sale was complete, D gave an understanding that the horse wasn’t vicious, which proved to be wrong. P sued on this undertaking. He failed since his consideration was in the past. The act put forward as consideration, I.e. the payment of the pricd, was complete before the undertaking was given. P therefore gave nothing new in return for the undertaking. It’s impossible to sue in a ‘something for nothing’ situation
Describe the case Re McArdle (1951)
This case outlines the rule ‘past consideration is no consideration in law’, a rule the courts have developed regarding consideration
In Re McArdle (1951), a woman carried out work on a house jointly owned by several family members. After the work had been completed, her relatives signed a document promising to pay her for the work. It was held that she couldn’t recover the money as her consideration was past, unless this was part of the terms set down in the contract, e.g.vin consideration of you having…
Describe the case Roscorla vs Thomas (1842) and its significance
This case relates to the rule ‘past consideration is no consideration in law’, one of the rules the courts have developed regarding consideration
New terms can’t be added to a contract after it’s been concluded
In Roscorla vs Thomas (1842), P purchase a horse from D. After the sale was complete, D gave an understanding that the horse wasn’t vicious, which proved to be wrong. P sued on this undertaking. He failed since his consideration was in the past. The act put forward as consideration, I.e. the payment of the pricd, was complete before the undertaking was given. P therefore gave nothing new in return for the undertaking. It’s impossible to sue in a ‘something for nothing’ situation
Describe the rule that ‘ consideration must be legal’, one of the rules the courts have developed regarding consideration
The agreement between parties must be within both civil and criminal law
Describe the rule that ‘ consideration must not be something which one party is already bound to do as a matter of duty or contract’, one of the rules the courts have developed regarding consideration
If an organisation such as a fiduciary (trustee) has a duty to do something, that duty can’t be raised as consideration.
Consideration will only arise if the organisation exceeds their duties
Describe the rule over ‘whether part payment of debts is an adequate consideration ‘, one of the rules the courts have developed regarding consideration
The general rule is that the creditor isn’t obliged to accept it
Poems else case explains this as:
“Payment of a lesser sum on the day it’s due in satisfaction of a greater sum cannot be any satisfaction for the whole”
The exception to this rule is promissory estoppel, which makes a promise binding in the absence of consideration. Where the promise is made to another that he will accept less than full performance of the contract, he will not be allowed to go back on this promise by suing later on, and that he will be estopped (prevented) from doing so
An example of this is the high trees case (1947) - the landlords of a block of flats in London agreed to pay half rent from the tenants due to wartime conditions. After the war, full rent was payable again but the landlords were estopped from demanding the balance of the reduced rent
Define and describe promissory estoppel
A creditor isn’t obliged to accept part payment payment of a debt, instead of the full amount
Pemsels case describes this as “payment of a lesser sum on the day it’s due in satisfaction of a greater sum cannot be any satisfaction for the whole
The exception to this rule is promissory estoppel, which makes a promise binding in the absence of consideration. Where the promise is made to another that he will accept less than full performance of the contract, he will not be allowed to go back on this promise by suing later on, and that he will be estopped (prevented) from doing so
An example of this is the high trees case (1947) - the landlords of a block of flats in London agreed to pay half rent from the tenants due to wartime conditions. After the war, full rent was payable again but the landlords were estopped from demanding the balance of the reduced rent
Describe the rule regarding ‘executed and executory consideration’, one of the rules the courts have developed regarding consideration
A contract is said to be executed when one or both parties have done all that the contract requires
For example:
If A and B agree to exchange A’s car for B’s motorbike, and it’s done straight away, this is executed
A contract is said to be executory when the obligations of one or both parties have yet to be completed
For example:
Alternatively, if A and B agree to do the exchange next week, then it is executory
Describe intention to create legal relations, including the two general rules
If the parties didn’t intend the agreement to be legally binding, then there will be no contract although there may be an offer, acceptance and consideration.
The law won’t recognise the existence of a contract simply because of the presence of mutual promises
Some agreements aren’t meant to be legally binding, such as:
To offer a friend a meal is not to invite litigation
There are two general rules:
X Social/domestic agreements AREN’T intended to be legally binding
X Commercial agreements ARE presumed to be
For example, where a husband arranges for his wife to have a monthly allowance for her personal enjoyment, this will not usually be taken to contemplate legal relations
Balfour vs Balfour (1919) is the authority for this. D was a civil servant stationed abroad. His wife said that while they were both on leave in England, and because she was ill and couldn’t accompany him, he had promised to pay her a monthly allowance as maintenance while they were apart, she sued for breach of this agreement, but her action failed. This relied on lack of intention
Mr B promised to pay his wife £30 per month.
Mr B had to return to Ceylon, but his wife remained in England for medical reasons
The couple later separated
Mrs B claimed £30 per month, pursuant to Mr B’s promise
Mrs B could have been successful in her claim, had the agreement been made outside marriage (because they were married when the agreement was made, it was seen as a domestic agreement)
Decision -
An agreement to pay £30 existed
The parties hadn’t intended it to be legally binding
There’s a presumption that domestic arrangements aren’t intended to finish up in court
Another example of a case where the parties expressly deny any intention to be legally bound was evidenced in Jones vs Vernon’s pools ltd (1938). The judges appear to recognise that pool companies are particularly susceptible to fraud by those who would conceal late entries
Vernon ran a football pools (like combination betting slips, pick the winners and post in the coupon) company in the UK
During a dispute, the court had to decide whether a contractual relationship existed between Vernon’s pools and each entrant
There was a clause on the back of the betting slip that said the contract wasn’t legally binding. As a result, the court ruled in favour of the company
Reasoning for the decision:
Because the relationship was clearly commercial, there was a presumption that the relationship was
binding
However, the court held that the clause in the coupon was sufficient to rebut the presumption, meaning that there was no contract between Vernon’s pools and the entrants
Describe the case of Balfour vs Balfour (1919)
Demonstrates one of the two rules of intention to create legal relations (that social/domestic agreements aren’t intended to be legally binding)
D was a civil servant stationed abroad. His wife said that while they were both on leave in England, and because she was ill and couldn’t accompany him, he had promised to pay her a monthly allowance as maintenance while they were apart, she sued for breach of this agreement, but her action failed. This relied on lack of intention
Mr B promised to pay his wife £30 per month
Mr B had to return to Ceylon, but his wife remained in England for medical reasons
The couple later separated
Mrs B claimed £30 per month, pursuant to Mr B’s promise
Mrs B could have been successful in her claim, had the agreement been made outside marriage (because they were married when the agreement was made, it was seen as a domestic agreement)
Decision -
An agreement to pay £30 existed
The parties hadn’t intended it to be legally binding
There’s a presumption that domestic arrangements aren’t intended to finish up in court
Describe the significance of the case Jones vs Vernon’s pools ltd (1938)
A case relating to intention to create legal relations, in this instance via commercial agreements
An example of a case where the parties expressly deny any intention to be legally bound was evidenced in Jones vs Vernon’s pools ltd (1938).
The judges appear to recognise that pool companies are particularly susceptible to fraud by those who would conceal late entries
Vernon ran a football pools (like combination betting slips, pick the winners and post in the coupon) company in the UK
During a dispute, the court had to decide whether a contractual relationship existed between Vernon’s pools and each entrant
There was a clause on the back of the betting slip that said the contract wasn’t legally binding. As a result, the court ruled in favour of the company
Reasoning for the decision:
Because the relationship was clearly commercial, there was a presumption that the relationship was
binding
However, the court held that the clause in the coupon was sufficient to rebut the presumption, meaning that there was no contract between Vernon’s pools and the entrants
Describe a minor’s capacity to enter into a contract
Persons under the age of majority (usually 18) have restricted capacity. They will be bound for purchases of goods, which are classed as necessities or for contract’s for the minor’s benefit, such as contracts of employment or apprenticeship
Food, clothes and lodging are regarded as necessities, but educational books, medical attention, burial of a minor’s wife, legal advice and even some luxury articles may be considered necessities
For example, Nash vs Inman (1908), or the waistcoats case. The plaintiff was a Savile row tailor and the defendant was an infant undergraduate at trinity college Cambridge. The plaintiff sent his agent to sell items of clothes including eleven waistcoats, hence its common name. Payment wasn’t forthcoming, so the tailor sued for repayment of the monies due. The court held that such waistcoats would indeed constitute necessities when considered in line with the defendant’s station in life. However, the claim failed, as the tailor hadn’t established that the defendant needed the waistcoats, as his father adequately maintained him.
Waistcoats WERE part of the uniform at Trinity College, Cambridge but the plaintiff hadn’t made sure that the defendant actually needed the items
Describe the case Nash vs Inman (1908), or the waistcoat case
An example of a case involving a minor’s capacity to enter into a contract
The plaintiff was a Savile row tailor and the defendant was an infant undergraduate at trinity college Cambridge.
The plaintiff sent his agent to sell items of clothes including eleven waistcoats, hence its common name. Payment wasn’t forthcoming, so the tailor sued for repayment of the monies due.
The court held that such waistcoats would indeed constitute necessities when considered in line with the defendant’s station in life. However, the claim failed, as the tailor hadn’t established that the defendant needed the waistcoats, as his father adequately maintained him.
Waistcoats WERE part of the uniform at Trinity College, Cambridge but the plaintiff hadn’t made sure that the defendant actually needed the items
Describe the capacity of corporate bodies to enter into a contract
In theory, a company can only make contracts, which are within their object clause, as stated within its memorandum of association
Describe an alien’s capacity to enter into a contract
Aliens usually have full capacity, but cannot acquire ownership of a British ship, unless as a member of a corporate body
However, contracts with enemy aliens during the period of hostilities are considered illegal and void. This would also encompass British citizens voluntarily resident or carrying on a business in the enemy country. The test isn’t nationality, but the place where the person resides and carries on business
Contracts which are agreed prior to war are cancelled, with some contracts being enforced after hostilities have ceased. Therefore, a debt due under a contract before the outbreak of war would survive the hostilities, and be enforceable on the return of peace
Describe the capacity of persons suffering from mental disorders to enter into a contract
Contracts made by a person of unsound mind are valid, but if the other party knew he was contracting with a person who, due to the unsoundness of his mind, couldn’t understand the nature of the contract, then the contract is voidable at the option of the insane party
The person of unsound mind must prove:
X The unsoundness of mind at the time of the contract, and
X The other party knew of it
Further, a contract made during a period of unsound mind can be ratified during a lucid interval
For example, if the person was drunk at the time the contract was made, it is voidable if it can prove that the two rules above apply, but the contract can also be ratified
Persons committed under the mental health act cannot personally make a valid contract, though the court can make a contract on their behalf
