Chapter 3: Contract formation and content

Question 1

principle of good faith

Answer 1

negotiations and contractual relations should be characterised by honesty and fairness, with the intention to carry out obligations and without seeking an unfair detrimental advantage

Question 2

privity of a contract

Answer 2

only the parties that are involved in the contract are bound or entitled by its terms –> third parties have no rights or obligations

Question 3

Elements of a contract

Answer 3

1. presence of consideration
2. agreement consisting of offer and acceptance
3. intention to create a legally binding relationship

Question 4

invitation to treat

Answer 4

invitation to negotiate: an invitation for others to make offers

Question 5

invitation to tender

Answer 5

invites people to say how much they would like to charge to supply goods or services –> of someone responds by making a tender, this is an offer!

Question 6

how can an offer be terminated?

Answer 6

1. revoked: withdrawn by offerer
2. lapsed: automatically terminates after reasonable time interval
3. met with counter offer

Question 7

unconditional assent

Answer 7

mirror image rule –> offer must be accepted without further changes

Question 8

postal rule

Answer 8

acceptance via post becomes effective once the letter has been posted (common law), or when received (civil law)

Question 9

battle of the forms

Answer 9

parties send their own standard form of the contract

Question 10

last shot rule

Answer 10

the offer that has been last made counts

Question 11

consideration

Answer 11

parties show that they have accepted a promise by performing an act or offering a promise in return –> if there is a will or a gift, we must include a deed or a nominal consideration

Question 12

executory consideration

Answer 12

when sides exchange promises (Bilateral!)

Question 13

executed consideration

Answer 13

an act that is done in return for a promise (unilateral)

Question 14

parol evidence rule

Answer 14

if a contract is in a written form and can be treated as an entire contract, no external evidence will be considered in order to vary the terms of the contract

Question 15

representation

Answer 15

a statement that was made only as an inducement to enter the contract –> does not need to be specified as a term in the contract

Question 16

conditions

Answer 16

fundamental term –> innocent party has the right to to treat the contract as repudiated and claim damages

Question 17

warranty

Answer 17

minor term of the contract –> in case of breach, the innocent party does not have the right to treat the contract as terminated, but they do have the right to claim damages

Question 18

innominate term

Answer 18

intermediate term between warranty and condition –> parties cannot agree whether the term should be treated as a warranty or as a condition

Question 19

express terms

Answer 19

terms that have been specifically agreed upon –> court does not have to accept these terms as warranties or conditions

Question 20

implied terms

Answer 20

terms that are implied to the contract –> customs, statute or court

Question 21

exclusion clause

Answer 21

to exclude all liability for one party for breach of contract, misrepresentation, of negligence, or to limit such liability.

Question 22

how to validate an exclusion clause

Answer 22

1. by way of notice: e.g. a sign
2. as part of a signed document: do not set the sign (e.g.) after the contract has been signed!
3. by previous course of dealing: when it has been done before and the agreement has been made over the phone

Question 23

contra proferentem rule

Answer 23

exclusion clause must cover the exact circumstances in question. any ambiguity in the clause will be interpreted as a disadvantage of the party relying on the clause (guy that vomited in the bus)

Question 24

main purpose rule

Answer 24

the exclusion cause will fail if it would defeat the main purpose of the contract

Question 25

fundamental breach

Answer 25

can a party rely on an exclusion clause to exempt him from liability for fundamental breach of the contract because the wording of that exclusion clause clearly cover liability for fundamental breach