3 - Law of Contract Flashcards
What is the difference between a contract under seal and a simple contract?
Also called a deed, a contract under seal is a formal contract in writing, which has been witnessed, and originally had to be sealed and delivered. It must be clearly stated to be a deed. Some contracts must be in this form to be valid.
All other contracts are simple contracts (or informal contracts)
What is the difference between a unilateral and bilateral contract?
A unilateral contract is only binding upon one party, a bilateral is binding upon two.
Give an example of a unilateral contract
An offer of a reward for finding a lost pet. The owner is legally bound to pay if someone does find the pet, but nobody is legally bound to find it
Give an example of a bilateral contract
Insurance!
The insured is legally bound to pay the premium, the insurer is legally bound to pay valid claims
What is a void contract?
A contract which is not binding because either it is not held to be a contact or neither party can fully enforce it
What is a voidable contract?
A binding contract where one or both parties have the option to set it aside if they wish (usually subject to certain conditions)
What are the 5 essentials for the formation of a valid contract?
- Agreement (offer and acceptance)
- Intention to create legal relations
- Capacity to contract
- Consideration (for simple contracts)
- In the form required by law (if applicable)
How may an offer be made?
In writing, orally, or by conduct to a single person, group of people, or publicly
How long is an offer open for?
The offeror can state a time limit. If they do not then the offer is open for a “reasonable time”
How can an offer be accepted?
In writing, orally, or implied through conduct. However if the offeror states that it must be accepted in a particular way then the oferee must generally accept in that method or in a method that is just as effective (eg a request for acceptance by post could be satisfied if accepted by email)
When does acceptance take effect?
Generally when it is communicated except for two notable circumstances:
- Where the offer states it can be accepted just be carrying out their part of the agreement
- The posting rule - where post is the method of communication, acceptance occurs the moment it is posted not when it is delivered
What is meant by the term “intention to create legal relations”?
The parties must intend for their arrangement to be legally binding
Generally speaking, how does intention to create legal relations apply to:
a) business arrangements?
b) social or domestic arrangements?
a) It is assumed that contractual intention exists in business arrangements except where there is strong evidence to the contrary (eg it is expressly stated in the agreement not to be binding)
b) Social and domestic arrangements are assumed not to be legally binding unless there is strong evidence to the contrary (eg a formal agreement)
How can consideration be described?
The price which supports the promise - either a promise or benefit to the promsior or a detriment to the promisee (or both)
What are the five main rules of consideration?
- Must be real or genuine (not a vague promise or no real benefit/detriment)
- It does not need to be adequate (eg you could sell your house for £1)
- Must not be in the past
- Consideration must move from the promisee (a person cannot enforce a promise if the consideration for it is wholly supplied by a third party)
- Cannot be based on a pre-existing duty or something which the promisee is already bound to do. It must impose an extra duty
What is promissory estoppel?
An exception to the rule that a promise without consideration is not binding
If person A makes a promise to person B, who acts upon it, person A may be prevented (“estopped”) from going back on it
What is a bare or gratuitous promise? Is it binding?
A promise made without the support of consideration. Generally it is not enforceable unless it is made under seal
What are the four examples of forms that a contract may have to be in for it to be binding?
- Under seal
- In writing
- Evidenced in writing by a note or memorandum
- One party must give certain particular to the other
What is the main example of a contract that must be made under seal?
Leases for longer than 3 years
What are some examples of contracts that must be in writing?
Marine Insurance
Cheques and promissory notes
Bills of exchange
Transfer of shares in a registered company
What are the main categories of people with restricted contractual capacity?
Minors, mentally ill, drunk, and corporations
How is a minor defined in English law under the Family Law Reform Act 1969?
A person below the age of 18
Is a contract binding on a minor?
Some contracts are binding, including payment for “necessaries” (food, clothing, education) and contracts for employment and apprenticeship provided it is for their benefit. Some types of contracts such as leases, partnerships and shareholder agreements are binding however the minor can repudiate the contract to avoid liability. All other contracts are not binding upon the minor (but are on the other party)
What is the law of restitution? What is an example of when this applies?
When a person is liable to return property to another. Used when a minor “buys” property in a contract which the other party cannot enforce. The minor cannot be made to pay which is not fair, therefore the remedy is restitution
Is a contract binding on a patient with a mental health condition?
Generally yes, but it may be avoided if they were unable to understand the agreement and the other party was aware of this
Is a drunk person bound by a contract?
Yes unless they can show they did not understand what they were doing and the other party knew this
A chartered corporation makes a contract which is not authorised or is prohibited by its’ charter. Is it valid?
Yes the contract remains valid but the charter may be revoked
When may a contract made by a statutory or registered company be invalid? What is this doctrine?
When it is “beyond the powers of” the corporation. This is called “ultra vires”
What is meant by “certainty of terms”?
No contract is formed if a vital term is missing or if the meaning is uncertain. This does not apply if it is a very minor term or if there are past agreements which imply a term
What are the two classifications of contract terms?
- Express
2. Implied
What is an express term?
A term that is expressly used in the contract via the words used (this can be in writing or orally)
What are the three ways contract terms may be implied?
- In fact
- By custom or usage
- In law
What is a term implied in fact?
A term which is not expressly stated but is presumed to be intended by both parties
What is a term implied by custom or usage?
A term which is not expressly stated but is customary in the market, locality, or trade
What is a term implied in law?
A right or duty of the parties which comes from law
What must an exclusion clause be in order for a party to rely on it?
It must be incorporated in the contract
What does incorporation of an exclusion clause mean?
It can be shown that the other party agreed to it either before or at the time the contract was made
What happened in the cases of Olley v Marlborough Court Ltd (1949) and Thornton v Shoe Lane Parking (1971)?
It was ruled that an exclusion clause did not apply because it was only brought to the claimant’s attention after the contract was made
(In Olley’s case this was a notice in a hotel room exempting liability only seen after she had paid for the room and in Thornton’s case this was a sign in a car park that he had to pay to enter)
How can incorporation of an exclusion course be achieved?
Either by signing of a written document, or if there is no signed contract by a notice/document displayed at the premises the contract is made or is brought to both parties attention before/at the time the contract is made
In rare cases the court may allow an exclusion clause if it has been regularly used in past dealings between the two parties