Chapter 3 - Law of contract

Question 1

What is a contract under seal?

Answer 1

A contract under seal (also known as a special contract or a contract by deed) is a formal contract that is signed, has the (wax) seal of the signer attached, and is witnessed.

Question 2

What form can a contract be in?

Answer 2

Contracts can generally be in any form (including that of an oral agreement) although sometimes they must be in writing or be evidenced in writing

Question 3

Whats the main problem with a verbal contract?

Answer 3

that there is no written evidence that it was formed between
the parties or the terms of the agreement.

it is very difficult to enforce the contract. It is often the word of one person versus the word of another as to whether a verbal
agreement was formed, and the terms thereof.

Question 4

What is a unilateral contract?

Answer 4

is primarily a one-sided, legally binding agreement where one party
agrees to pay for a specified act.

Question 5

What is a bilateral contract?

Answer 5

Is legally binding between two or more parties, where the offer by the
the promisor is accepted by the promisee.

Under a bilateral contract each party makes a promise to the other and both are legally bound.

Question 6

Whats the difference when enforcing a contract between unilateral and bilateral?

Answer 6

a unilateral contract is enforceable when someone chooses to begin fulfilling the act demanded by the offeror, a bilateral contract is enforceable from the time when the contract is signed.

Question 7

What is a void contract?

Answer 7

A void contract is a formal agreement that is unenforceable

For example, an agreement between a drug dealer and a buyer is void because the terms of the contract are illegal.

Question 8

What is a voidable contract?

Answer 8

A voidable contract is a formal agreement between two parties that, though valid when made, is liable to be subsequently set aside on a number of different grounds.

Question 9

What are the 5 essential elements for the formation of a valid contract under english law?

Answer 9

1. there must be an agreement,
2. there must be the intention to create legal relations;
3. there must be consideration e.g. a promise to pay the agreed premium;
4. the agreement must be in the form required by law (if any);
5. the parties must have capacity to contract.

Question 10

How is an agreement established in English law?

Answer 10

agreement is usually established by a process of offer and acceptance:
* The party who makes the offer is the offeror.
* The party who receives it is the offeree.

Question 11

How may an offer be made?

Answer 11

An offer may be made:
* in writing;
* orally;
* by conduct;
* to one person;
* to a group of people; or
* to the public as a whole.

Question 12

What is an invitation to treat?

Answer 12

An invitation to treat is a statement made when negotiations are still in progress, and not an offer. It is, effectively, an invitation to make an offer.

Question 13

When an offer is made does this remain open indefinitely?

Answer 13

no

Question 14

How can an offer end?

Answer 14

A time limit or a ‘reasonable time’
Death
Acceptance
Revocation
Rejection/counter offer

Question 15

What is acceptance?

Answer 15

If an offer has been made, a contract will come into existence when the offer is accepted, provided all the essential terms of the contract are agreed.

Question 16

What is the manner of acceptance?

Answer 16

An acceptance, like an offer, can generally be made in any form. It may be through words, either written or spoken, or may be implied by conduct.

Question 17

What is the posting rule?

Answer 17

The posting rule applies only to acceptance: a letter containing an offer, revocation or rejection will only take effect when it is received.

Question 18

What is consideration?

Answer 18

‘the price which supports the promise’

Question 19

What are the rules of consideration?

Answer 19

Consideration must be real or genuine.
Consideration need not be adequate.
Consideration must not be past.
Consideration must move from the promisee.

Question 20

What is promissory estoppel?

Answer 20

is to hold a party who makes a promise to another accountable for the detriment suffered by the counter party who relied on that
promise.

Question 21

What are the 4 categories for a contract to take form?

Answer 21

• contracts which must be under seal;
• contracts which must be in writing;
• contracts which must be evidenced in writing by a ‘note or memorandum’; and
• contracts where one party must give certain written particulars to the other.

Question 22

What contracts must be in writing?

Answer 22

• bills of exchange;
• cheques and promissory notes;
• the transfer of shares in a registered company;
• some consumer credit (‘hire-purchase’) transactions; and
• contracts of marine insurance

Question 23

WHAT IS MEANT BY CONTRACTUAL CAPACITY?

Answer 23

Some people and bodies are subject to special rules which restrict their contractual capacity.
The main categories are minors, people who are mentally ill or drunk, and corporations.

Question 24

what ARE THE THREE CATEGORIES CONTRACTS BY MINORS FALL IN to?

Answer 24

Contracts which are binding
Contracts which are binding unless they are repudiated
Contracts which are not binding on the minor

Question 25

What is restitution?

Answer 25

The law of restitution is concerned with those situations where a person is liable to restore property to another.

Question 26

If a contract is made by someone with a mental health condition are these valid?

Answer 26

Contracts made by persons with a mental health condition are generally valid, although the contract can be avoided by such a person if they were unable to understand the nature of
the agreement and the other party was aware of this inability

Question 27

What is meant by certainty of terms?

Answer 27

The terms of a contract must be certain and no contract is formed if a vital term is missing or if the meaning of an essential term is uncertain.

Question 28

What are the two classifications of terms?

Answer 28

express terms and implied terms

Question 29

What is an express terms?

Answer 29

Express terms of a contract are based on the words spoken by the parties or written down by them.

Question 30

What is implied terms?

Answer 30

Terms may be implied in one of three ways:
* in fact;
* by custom or usage; or
* by law

Question 31

What are terms implied in fact?

Answer 31

A term implied in fact is implied into a particular contract. The term implied is one which is not actually stated but is presumed to be intended by the parties.

implied because it relates to something which is
so obvious that ‘it goes without saying’.

Question 32

What are terms implied by custom or usage?

Answer 32

Terms can be implied by the custom of the market in which the parties to the contract operate or the usages of a particular locality or trade

Question 33

What are terms implied in law?

Answer 33

There are terms which are implied into a class of contractual relationship. The rights and duties of the parties may be based on terms which the law automatically applies to the agreement.

Question 34

Where the court implies a term in law two conditions need to be satisfied:

Answer 34

• the contract has to be of a sufficiently common type (e.g. landlord/tenant, owner/hirer) that is possible to identify the typical obligations of such a contract; and
• the matter to which the implied term relates must be one which the parties have not in any way addressed in their contract.

Question 35

What is a warranty? (Not in insurance)

Answer 35

a warranty is a term which affects only a minor aspect of
the agreement. If it is broken, the injured party has a right to claim damages but not, in general, to terminate the contract.

Question 36

What is a condition?

Answer 36

A condition is a term which relates to an important aspect
of the agreement: it ‘goes to the root’ and if it is broken the victim has a right not only to claim damages but also to terminate the agreement.

Question 37

What are the 5 areas defective contracts may result from?

Answer 37

• illegality;
• improper pressure;
• mistake;
• misrepresentation; or
• non-disclosure (this concept needs care as it has only very limited exceptional application
  in general contract law and in the insurance context only in business insurance).

Question 38

What is novation?

Answer 38

One debt is cancelled by agreement and a new debt is created in its place.

Question 39

A contract between two parties cannot generally confer rights or impose obligations arising under it on any third parties. In common law, what is this known as?

Answer 39

Privity of contract.

Question 40

Under the Limitation Act 1980, what is the limitation period for personal injury claims and when does this start?

Answer 40

Three years from the date of the injury.

Question 41

For a statutory assignment to take place under the Policies of Assurance Act 1867, what must occur for there to be a legal assignment?

Answer 41

A written notice of assignment must be given to the insurer at its principal place of business.