Chapter 1 - Contract Formation

Question 1

Process of a contract

Answer 1

Offer&raquo_space; Acceptance&raquo_space; Consideration&raquo_space; Intention&raquo_space; Capacity & Form

Question 2

Contract has been rendered “void”

Answer 2

If a contract is void, there is no contract and the goods should be returned. There never was a contract.

Question 3

Contract has been rendered “voidable”

Answer 3

The contract can be set aside by the ‘injured’ party, e.g. a minor. Until then, it is a valid contract.

Question 4

Are the following voidable or void?

• Lack of capacity
• Absence of free will
• Illegality
• Misrepresentation

Answer 4

• Lack of capacity = voidable
• Absence of free will = voidable
• Illegality = void
• Misrepresentation = voidable

Question 5

Impact of a form of a contract

Answer 5

Some contracts may be valid, but unenforceable due to the form of the contract. Therefore, cannot take court action if parties don’t meet their terms.

Question 6

Exceptions to ‘oral contracts’

Answer 6

Those that MUST be in writing (transfer of land, consumer credit agreements).
Those that MUST be evidenced in writing (guarantees of debt).

Question 7

Key characteristics of an offer

Answer 7

1. Terms must certain & specific
2. It must be made by an offeror
3. It can be made to the world at large

Question 8

Offer Case Study: Carlill & Carbolic Smoke Ball Co

Answer 8

Offered a reward to anyone who contracts influenza after using their product. Carlill saw advert and was able to get the reward after meeting the criteria.

Question 9

Examples of an invitation to offer

Answer 9

• Advertisement online
• Goods displayed for sale in a shop window
• Circulation of a price list
• Auction

Question 10

Termination of a contract: Methods to terminate (5)

Answer 10

1. Rejection
2. Counter-offer
3. Lapse of time
4. Revocation by the offeror
5. Failure of a pre-condition

Question 11

Counter-offer: Key characteristics

Answer 11

• OfferEE proposes new or amended terms

- MUST be distinguished from a request for information

Question 12

Lapse of time

Answer 12

This can be expressed in the offer
Or
After a reasonable period of time

Question 13

Revocation

Answer 13

Is done by the offerOR
Can revoke their offer any time before acceptance
Effective ONLY when communicated with offeree

(if sent by post, it is effective on receipt)

Question 14

Failure of pre-condition

Answer 14

Automatically terminate/ lapse if the pre-conditions are not met
e.g. I will buy your horse if it wins the 12pm race at Ascot

Question 15

Acceptance of an offer: Characteristics

Answer 15

Unqualified agreement to ALL terms
Done by the offeree
Requires action - say, do, write
Silence is not acceptance

Question 16

Means of communication of acceptance

Answer 16

1. If a method is prescribed, it must be done this way (or a way that is not less speedy).
2. If not prescribed, any reasonable means.

Question 17

Acceptance & the Postal Rule

Answer 17

Acceptance by post is valid from the moment it is posted.
(however, if negotiations have been done via phone/ face-to-face, the acceptance may not be valid, as not a reasonable method)

Question 18

Definition of intention

Answer 18

There can be no contract if the parties did not intend to create a legally binding agreement.
If the intention is not expressed, then it is implied.

Question 19

Type of implied contracts (2)

Answer 19

1. Social & domestic - No intention to create legal obligations (e.g. as they are husband and wife)
2. Commercial - Intention to create a legally binding contract (e.g. a supermarket and a customer)

Question 20

Consideration - Definition

Answer 20

An act or forbearance of one party is the price for which the other is bought.
Both parties must provide some form of consideration under the contract.

Question 21

Definitions of & if they are valid/ invalid:

1. Executed consideration
2. Executory consideration
3. Past consideration

Answer 21

1. An act performed at the time in return for a promise [VALID]
2. A promise given for the future in return for a promise [VALID]
3. An act which has already been done when the promise is made [INVALID]

Question 22

Invalid Consideration Case Study: McArdle

Answer 22

Work had already been completed when the promise to pay was made .: the consideration is all PAST and there is no legally binding contract

Question 23

Past consideration vs Promise to pay

Answer 23

Implied promise to pay - where a promise is made before consideration is provided and both parties expect there to be a payment i.e. hairdresser, restaurants
Actual terms can be decided after the event.

Question 24

Consideration:Adequacy vs Sufficient

Answer 24

Need NOT be adequate/ equal

NEED be sufficient/ have identifiable value

Question 25

Waivers of existing debt -
What is it?
Examples of how to waiver debt (4)

Answer 25

Where one party accepts part payment of a debt in FULL satisfaction of the debt.

1. Alternative consideration i.e. non cash settlement
2. Bargain between creditors i.e. voluntary arrangement
3. Third party payment - agree to someone else paying less than original debt
4. Early payment

Question 26

Terms of a contract - way to express

Answer 26

1. Oral contract - all terms are incorporated. Could be some issues with evidence.
2. Written contract - all terms are incorporated, even if the parties have not read them all.

Question 27

Statements of facts - Terms

Answer 27

i.e. representations
Must be made before the contract is entered into.
If in contract, can be breached.

If it is NOT in the contract, the claimant may have a claim for misrepresentations

Question 28

Implied terms (4 ways)

Answer 28

Terms can be implied by law. Can be implied by:

• By reference to custom (provided it is not inconsistent with the express terms) canNOT override written terms
• By statue (statutory rights) CAN override written terms
• By the court
• The term is implicitly requited for the contract to be effective (access to flats not given, don’t pay rent until sorted)

Question 29

Privity of contract - Rule

Answer 29

Only a party to a contract has enforceable rights under the contract and can be bound by the contract (those that give consideration)

Question 30

Exception to the privity of contract rule

Answer 30

The Contracts (Right of Third Parties) Act.
A third party may enforce a term of contract provided:
- the contract expressly provides that they may
- The term confers a benefit on them