Chapter 2 - Contract Formation

Question 1

What are the steps to create a valid contract

Answer 1

Offer
Acceptance
Consideration
Intention
Capacity and Form

Question 2

What is a void contract?

Answer 2

There is no contract and goods should be returned (even from a third party)

Question 3

What is a voidable contract?

Answer 3

The contract can be set aside by the “injured” party

Question 4

What 4 factors can make a contract either void or voidable?

Answer 4

Lack of capacity
Absence of free will
Illegality
Misrepresentation

Question 5

What is the rule and effect of lack of capacity?

Answer 5

Rule - An individual should be of sound mind and aged 18 or over

Effect - Voidable

Question 6

What is the rule and effect of absence of free will?

Answer 6

Rule - There should not be duress or undue influence

Effect - Voidable

Question 7

What is the rule and effect of illegality?

Answer 7

Rule - Contract must not be illegal or against public policy

Effect - Void

Question 8

What is the rule and effect of misrepresentation?

Answer 8

Rule - An incorrect statement of fact made pre contract which is intended to and does cause the party to enter into the contract

Effect - Voidable

Question 9

What contracts must be in writing?

Answer 9

Transfer of land
Consumer credit agreements

Question 10

What contracts must be evidenced in wirting?

Answer 10

Guarantees

Question 11

Does the court accept email exchanges as evidence?

Answer 11

Yes

Question 12

What is an offer?

Answer 12

An offer is a definite promise made by an offeror to be bound on specific terms.

Question 13

Is an invitation to treat the same as an offer?

Answer 13

No
An invitation to treat is not an offer but a statement of willingness to enter into negotiations. An invitation to treat cannot be accepted but is an invitation to other parties to make an offer.

Question 14

Examples of an invitation to treat

Answer 14

Advertisement
Goods displayed for sale

Question 15

Does an offer have to be to a specific person?

Answer 15

No an offer can be made to the world at large

Question 16

How can an offer be terminated?

Answer 16

Rejection
Counter-offer
Lapse of time
Revocation by the offeror
Failure of a pre-condition

Question 17

How is an offer terminated by rejection?

Answer 17

Rejection by the offeree terminates the offer

Question 18

How is an offer terminated by counter-offer?

Answer 18

When the offeree proposes new or amended terms, thereby terminating the original offer

Question 19

How is an offer terminated by lapse of time?

Answer 19

Can be expressed in the offer or after a reasonable period of time

Question 20

How is an offer terminated by revocation by the offeror?

Answer 20

The offeror may revoke his offer at any time before acceptance either expressly or by implication. This is effective only when it is communicated to the offeree.

Question 21

How is an offer terminated by failure of pre-condition?

Answer 21

An offer will automatically lapse if pre-condition is not satisfied

Question 22

What is acceptance?

Answer 22

An unqualified agreement to all the terms of the offer.

Question 23

Is silence enough to be an acceptance?

Answer 23

No

Question 24

Acceptance - Postal rule

Answer 24

Acceptance by post is valid from the moment the letter is posted regardless or whether it is actually received.

Question 25

What is the presumption on the intention to create legal obligations through social and domestic?

Answer 25

No intention to crate legal obligations

Question 26

When can a social and domestic legal obligation be rebutted?

Answer 26

If husband and wife are separated when the agreement was made.

Question 27

What is the presumption on the intention to create legal obligations through commercial?

Answer 27

Intention to create a legally bindining contract

Question 28

What is consideration?

Answer 28

Each party must provide some form of consideration under the contract

Question 29

What is invalid consideration?

Answer 29

Past consideration cannot form the basis of a legally binding contract

Question 30

Where is consideration not required?

Answer 30

When a contract is made by deed e.g. Leases and conveyancing

Question 31

Does consideration need to be adequate?

Answer 31

No, a bad bargain is still a contract adequate is when the it equals in value to the consideration received in return

Question 32

Does a contract have to be sufficient?

Answer 32

Yes, consideration must be sufficient Sufficient is when it has some identifiable value in order to be capable in law of being regarded as valid consideration

Question 33

What consideration would be seen as insufficient?

Answer 33

Performance of existing statutory duty - unless it can be shown that some extra service over the scope is also being offered

Question 34

What is the rule of the privity of contract?

Answer 34

Only a person who is a party to a contract has enforceable rights under the contract