Chapter 2 - Contract formation Flashcards
Three essential elements of contract
agreement, intention to create legal relations, consideration
Void / Voidable - lack of capacity
Individual must be of sound mind and aged 18 or over
If not followed - voidable at option of person without capacity
Void/Voidable = absence of free will
a party should not be made to enter into a contract other than by their own free will (not duress, undue influence)
Voidable
void/voidable = illegality
contract should not be illegal or offend public policy
Void
Void/Voidable
Mistake
If one or both parties allies they were mistaken, may affect validity, but complex
Void/Voidable
Misrepresentation
If A makes pre-contractual statement of fact that is intended to and does cause B to enter into a contract that terns out to be untrue,e the other party may choose to avoid the contract
Voidable
Void contract definition
A void contract is not a contract at all. Parties not bound by it and if they transfer property under it can generally recover goods even from third party
Voidable contract definition
Contract which one party may set aside property transferred before avoidance is usually irrecoverable from a third party
When will a contract be unenforceable
where it is not in the correct form
When is oral contract not sufficient
Agreement for transfer of land and consumer credit agreements - must be in writing
Guarantee - does this need to be in writing
No - but terms must be evidenced in writing before any action is bought
Golden Ocean Group Ltd v Salgaocar Mining Industries PVT 2011
Decision - Court of Appeal recognised contracts often negotiated informally by email and held single document was not necessary, not material that no documents were traditionally signed, and typed name in email clearly signified agreement and constituted validsignature
Offer
defined promise to be bound on specific terms and is made by offeror
Is a vague statement an offer
No - unless can be rendered certain by reference to previous dealings or cusom
Is a statement which sets out possible terms of a contract an offer
No - unless offer is clearly indicated
In the course of negotiations when a vendor states price they will sell at is this an offer
Yes
Is advertising an auction will take place an offer?
No - statement of intention
What is an invitation to treat
where party is initiating negotiations, it cannot be accepted to form binding contract
An advertisement is
an invitation to treat
Goods displayed for sale in shop window/self service shelves is
an invitation to treat (if accepted by removing, couldn’t put back and would be breach)
Circulation of a price list is
an invitation to treat
Who does an offer have to be made to
class of persons or to the world at large
arils v Carbolic Smoke Ball Co 1893
Advertisement for 100 reward to anyone contracting influenzaa
valid offer capable of acceptance as not vague, and offer can be made to the workd at large
Termination of offer
Rejection
rejection by offeree terminates the offer
Termination of offer
counter offer
offeree proposes new/amended terms, terminating the original offer. this is then open to be accepted or rejected
Hyde v Wrench 1840
Counter offer - accept original offer - original offer terminated by counter offer
Stevenson v McLean 1880
Offer to sell iron Stevenson enquired whether agree to delivery spread over 2m, no reply, Stevenson accepted original, McLean had sold to third party
Held there was a contract Stevenson had enquired variation of terms, not rejected/counter offer
Termination of offer
Lapse of time
Offer may be expressed to last for a specified time, if there is no express time limit set, expires after reasonable time
Ransgate Victoria Hotel Co v Montefiore 1866
Montefiore applied for shares and paid deposit in June, in November acceptance and requested payment, Montefiore contended offer expired
Offer was for reasonable time only, five months more than that offer had therefore lapsed
Termination of offer
Revocation of offer
Offeror may revoke anytime before acceptance either expressly or implication
When does revocation initially take effect
When it is communicated to or received by the offeree (postal rule only acceptance, not revocation of offer)
Termination of offer
Failure of pre-condition
Offer may be conditional (dependent on some event occurring or change in circumstance) if that event doesn’t occur, offer can’t be accepted
Acceptance must be
unqualified agreement to all the terms of the offer. Acceptance may be made by express words to that effect by the offeree or their authorised agent or can be inferred from conduct
Brogden v Met Railway 1877
C supplied coal to D for years, D’s agent sent draft agreement for consideration and applied terms of draft to dealings, didn’t sign, C denied agreement
Held the conduct was only explicable on assumption they both agreed to terms
Felthouse v Bindley 1862
C wrote to nephew offering to buy horse, adding if I hear no more, I consider the horse mine, nephew intended to accept, did not reply
held C had no title to horse as silence is not acceptance
Acceptance made by post, communication is effective
the moment the acceptance is posted, even if delayed or lost all together
Postal rule - subject to:
Delay not attributable to offerees negligence (address incorrect);
Use of post must have been within contemplation of parties
Does postal rule apply when offeror requires acceptance ‘by notice in writing’
No - means notice actually received by offeror
Does the offeree have to be aware of the offer for acceptance to be effective
Yes
Clarke v Dunraven 1897
Both entered regatta, and undertook to obey club rules including obligation to pay for all damages caused by fouling. Dunraven’s yacht fouled Clarkes which sank and they sued for damages. Dun argued liability under merchant shipping act
Held contract created when entered yachts and accepted rules
Is intention to create legal relation required for contract
Yes
What is presumption for social, domestic and family relations
Presumed not intended to be legally binding unless clear evidence to the contrary
What is presumption about commercial relationship
Presumed there is an intention to enter into legal relations unless expressly disclaimed/circumstances give clear contrary indication
Use of words subject to contract gives strong presumption of
no immediately binding contract being intended
RTS Flexible Systems ltd v Molkerei Alois Muller GmHB 2010
Letter of intent set out draft contract did not become effective until signed/executed by both. not signed but proceeded with project
Supreme Court held unrealistic to conclude major works carried out in absence of contract, evidence of agreement and intent, made clear not always the case.
True/False
In circumstances where works commence before contract is finalised, the contract exists between parties contained the same terms as those negotiated in the contract
True
Consideration (Currie and Misa 1875)
A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accusing to one party or some forbearance, detriment loss or responsibility given suffered or undertaken by the other
Consideration (Dunlop v Selfridge 1915)
Act or forbearance of one party or promise thereof is the price for which the promise of the other is bought and the promise thus given for value is enforceable
Three types of consideration
Executed (valid)
Executory (valid)
Past (usually invalid)
Executed consideration
Performed or executed act in return for a promise (payment for goods when delivered)
Executory consideration
Promise given for a promise - promise to pay for goods which are to be delivered and paid for at later date
Past consideration
something that has already been done when the promise is made - work carried out then promise to pay made
generally invalid
Re McArdle 1951
Facts - under will testators children entitled to house after mothers death. During lifetime, one lived with mother and wife made improvements, children agreed in writing to repay wife but refused to do so
work had been completed before promise was made - improvements were past consideration and promise not binding
Where is consideration not required
where contract is in the form of a deed
A deed is
a formal promise between parties which must be in writing and signed
Does the following require a deed
Conveyances
Yes
Where property is transferred between parties
Does the following require a deed
Leases lasting over three years
Yes
Does the following require a deed
Promises unsupported by consideration
yes
promise to pay regular amount to other party with nothing expected in return
Does consideration need to be adequate
No - no remedy for poor bargin
does consideration need to be sufficient
Yes - must have some identifiable value to be capable of being regarded as valid consideration
Thomas v Thomas 1842
Widow use of house after death, executors (defendants) allowed for rent £1pa, later said not supported by consideration
Held compliance with wishes is not valid consideration, but nominal rent sufficient (though hardly adequate)
Is performing existing statutory duty consideration
no not unless can be shown extra service offered
Is performance of existing contractors duty owed to promisor consideration
No unless shown that doing something over and above
Williams v Roffey Bros & Nicholls 1990
D subcontracted work to Williams for 20k, Williams found self in financial difficulties and was promised extra 10.3k to finish quickly, later refused to pay
Held that promise was not duress or fraud, got added benefit not finding someone else and avoid penalty for late performance
Is performance of existing contractual duty owed to third party consideration
Yes
Is forbearance or waver of existing rights consideration
Yes if it has some value/amounts to giving up something of value
Foakes v Beer 1884
B obtained judgement against F, judgement debts bear interest. By written agreement, B agreed to pay in instalments, no mention of interest. F paid in full, B claimed interest, claiming agreement not supported by consideration
B entitled to debt with interest - no consideration to waive part of the rights
Is waiver binding for alternative consideration
Yes - goods instead of cash/payment in advance of due
Is waiver binding for bargain between creditors
Yes
Is waiver binding for third party part payment
Yes
T/F
Terms must be substantially complete or be capable of being clarified
True
T/F
Statement of fact made before the contract that induces a party to enter into the contract may become a term of the contract
True
T/F if the person making statement (which induces party to enter) more likely to be treated as a term of the contract
Tue
Implied Terms
By reference to custom
but not if that would produce an inconsistency with express terms
Implied Terms
By statute
e.g. supply of goods and services act 1982 implies terms that work and materials should be of satisfactory quality
Implied Terms
By the courts
Necessary to give business efficacy and implicit in the nature of the contract itself
Necessary to give business efficacy
Terms may be implied if the court concludes the parties must have intend those terms to apply to the contract to give it business efficacy (the moorcock)
The Moorcock 1889
Owners of wharf agreed ship should be moored to deliver cargo, well known at low water the ship would ground. Ship settled on ridge beneath mud and suffered damage
Held implied term ground was safe at low tide
Implicit in nature of contract itself
court may imply a term not based on presumed intention, but as it is considered to be implicitly required by the nature of the contract
Liverpool City Council v Irwin 1977
Tenant with no formal agreement withheld rent, alleging owner breached implied terms as lifts didn’t work and stairs unlit
Held as tenants could only occupy building with access to stairs and/or lifts, the agreement between the parties required the owners to maintain common parts
GHSP v A B Electronics Ltd 2010
C purchased pedal sensors from D which were defective and caused substantial loss. Both parties argued their standard terms applied, D’s excluded liability for consequential loss or damage and limited liability to repair
Held the contract was not governed by either as neither had accepted the others terms, instead governed by sale of goods act
When may non-party to a contract claim under it
Where agent enters into contract with third party on behalf of contract, the contract is between principal and third party - agent cannot enforce
When covered by Contract rights of third parties act 1999
Contracts (rights of third parties act 1999) provides third party may enforce term of contract if
Contract expressly provides that they may or the term confers a benefit on them, unless it appears that the contracting parties did not intend them to have the right to enforce it
T/F
under Contracts rights of third parties act 1999 third party must be expressly identified in the contract by name class or description
True
What is the following situation
Advertisement
Invitation to Treat
What is the following situation
Exhibition of goods for sale
invitation to treat
What is the following situation
circulation of price list
invitation to treat
Postal rule states
where the use of post is within the contemplation of both parties, the acceptance is complete and effective as soon as the letter is posted, even though it may be delayed or lost in the psot
Executed consideration
Act in return for a promise
Executory consideration
promise given for a promise
Consideration need not be X but must be Y
Adequate
sufficient
Name of EU law adopted by UK dealing with situations where parties that are based in European countries have not agreed which countries law applies
Rome II
Must an agreement for transfer of land be evidenced in writing / in writing
Yes - must be inn writing and transfer itself must be by deed
T/F
Guarantee can be oral if it is evidenced in writing
True - must be signed or acknowledged in some way
What happens when a pre-condition is satisfied
The offer becomes unconditional
T/F
Acceptance must always be communicated to the offeror in order for it to be effective
False
T/F
When no mode of communication of acceptance is prescribed, the offeree should use the same mode as that used for the offer
False - can use any reasonable method
T/F
when acceptance is to be made by notice in writing, this means notice is required to be received by the offeror and the postal rule does not apply
True
T/F
A term implied by custom and practice and be overridden by a written term
Yes
T/F
there is an irrefutable presumption parties to a commercial agreement intend it to be legally binding
False - it is rebuttable
Does revocation of offer need to be in writing
No - may be express or implied
T/F
A statute cannot override terms of a contract that have been expressly agreed between the parties
False - legislation often implies terms to protect the weaker party
T/F
A court may imply terms into a contract to make it fairer to both parties
False - Courts will not imply terms into a contract just to make it fairer
Supply of goods and services act 1982 implies work and materials must be
of satisfactory quality
T/F
Statements made by one party before a contract is formed that induce the other party to enter the contract will become terms of the contract
false - only statements capable of being construed as terms will become a term of the contract, others will be considered representations
T/F
In the event of a contractual dispute, oral evidence cannot be submitted that contradict or vary the written terms
False - oral evidence may be submitted where it can be shown that the document containing the written terms was not intended to include all the agreed terms
