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CIMA BA4 > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

Define a contract

A

Contract:
1) an agreement supported by consideration from both parties,
2) and made with the intention to be legally binding,
3) by parties who have the legal capacity to make such an agreement

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2
Q

What is a void contract?

A

Void = destitute of legal effect, which means no contract exists e.g. contracts in restraint of trade

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3
Q

What is a voidable contract?

A

Voidable = one party can avoid the contract

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4
Q

What form do contracts typically take?

A

Most contracts have to be made in writing, however most contracts could be valid even if made orally

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5
Q

What is an unenforceable contract

A

valid contract but one party cannot force the other to compete the agreement.

E.g. because of lack of written evidence

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6
Q

What is a gratuitous promise

A

*Gratuitous promises are enforceable if they are executed via a deed
* (a formal document that states it is a deed and where signatures are witnessed by a third party).
*Otherwise promises are only enforceable if supported by consideration from both parties

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7
Q

What is the agreement ‘formula’

A

Agreement = offer + acceptance

The agreement necessary for a contract to exist is normally evidenced by offer and acceptance

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8
Q

Define Offer

A

An expression of willingness to be bound on certain terms

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9
Q

What may an offer be?

A

-An offer CAN be made to one person or a group of people
An offer MUST be certain (ill buy the horse if its luck = too vague)
An offer MAY be conditional (even if conditions are difficult to acheive)
An offer CAN include a time limit for acceptance

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10
Q

How are offers terminated?

A

Rejection
Conditional Acceptance
Lapse of time (express or implied)
* Counter offer ( a counter offer invalidates the initial offer)
* Death of offeror or offeree, unless offeree accepts in ignorance of death AND the contract is not for personal services
* Offeree failing to comply with all the terms of the offer , e.g. conditional acceptance

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11
Q

What is the difference between a counter offer and a request for further information?

A

A counter offer invalidates the offer
A request for further information does not invalidate the off

M offered blah
S asked if M would accept Blah

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12
Q

What is revocation

A

Withdrawal of an offer
An offer may be withdrawn unless it indicates by its terms that it is irrevocable

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13
Q

What is an example of an irrevocable offer?

A

this offer is open until friday

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14
Q

When is a revocation effective

A

-Only if communicated by offeror or a RELIABLE third party before acceptance

eg

day 1 - S offer sent
day 2 - s revoking offer sent
day 3 - b telegraphed acceptance
day 4 - b confirmed acceptance by letter
day 5 - s letter reaches b

= contract made on day 3

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15
Q

What is ‘subject to contract’?

A

-means that negotiation is continuing

-Terms have not been finally agreed and either parted to the agreement may withdraw without liability

  • as they are not bound until the contract has been executed
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16
Q

Define - invitation to treat

A

Inviting another to make an offer

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17
Q

Examples of invitation to treat

A

-goods on supermarket shelves and shop windows
adverts in newspapers
auction notices an auctions
prospectus ( doc issued when a company wants to raise share capital)

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18
Q

Define - Acceptance

A

Unconditional assent to all the terms of the offer

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19
Q

Rules of Acceptance-

A

1) Can only be made by AUTHORISED person
2) Must be communicated by positive words or actions
3) Cannot be imposed by silence
4) must be made while offer is still open
-before revocation, before the expiry of a specified or reasonable time and before death
5) may be inferred by conduct (e.g. eating a meal at a restaurant)
6) If method of communication is manadatory, then no other method will suffice - but offer has to be very precisely worded to reject on these grounds

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20
Q

Explain ‘cannot be imposed by silence’

A

If i hear nothing further, I will assume the hose is mine for BLAH money

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21
Q

What is the postal rule

A

Unless otherwise specified by the offeror, and if practical and in the reasonable contremplation of both parties:
Contracts can be deemed accepted from moment of posting by the offeree

  • the is an exception to the communication rule

-this contrasts revocation, where the revocation must be actually communicated to the offeree

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22
Q

Postal rule: When instataneous methods of communication is used

A

e.g. email - communication must be received for the contract to be formed

where a contract is formed by faxing letters of offer and acceptance, the contract is formed when and where the fax of acceptance is received

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23
Q

What is the communication rule in acceptance

A
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24
Q

What is a unilateral contract

A

-exception to the communication rule
-where the need for communication is expressly or impliedly waiver

e.g. where action consitutes acceptance in unilateral or ‘reward’ type contracts
offered 100 reword
blah complied with conditions and claimed her £100

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25
Q

What is consideration?

A

Consideration means both parties bring something of value to the contract

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26
Q

What are the types of consideration

A

-Present
-Future
-Past

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27
Q

What is present consideration

A

Consideration may be executED
i.e. an act in return for a promise

delivering a car as part of a sale

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28
Q

What is a future consideration

A

ExceuTORY, a promise in return for a promise

a promise to deliver goods in 7 days

Excecutory is as valid as executed

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29
Q

What is a past consideration

A

-Past consideration is NOT VALID consideration
-It is something that has already been done at the time a promise is made

e.g. do work, offer to pay once m dies, m dies and no reward

-H work had not provided consideration for the promised reward

hence, H work was in the past at the time the promise of the reward was made

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30
Q

What is the implied promise to pay?

A

-Past consideration does not apply if there is an implied promise to pay
e.g. where a service is provided before payment is demanded
-taxi, restaurant

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31
Q

What is the value of consideration

A

Consideration need not be adequate but must be sufficient

Consideration is sufficient if it has some value, it does not have to form part of a fair deal

e.g.
Rent of £1 per annum was held to be sufficient consideration for the occupation of a family house

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32
Q

What are existing contractual obligations?

A

Performance of existing contractual obligations is not generally sufficient consideration for further reward

however if both parties derive a practical benefit then a promise for additional consideration may be enforcable, even if legally one party receives no more than he was originally entitles to

e.g. half of a ships crew deserted making the journey much more difficulty
the crew were hence entitled to enforce a promise for additional pay

33
Q

Consideration: what is the basic position on partial performance?

A

Known as: The rule in pinnel’s case
-That part payment of a debt is insufficient consideration and the creditor will always be able to sue for the balance outstanding

e.g. if a owes b 10 and only pays back 5, b can sue for 5

34
Q

What are exceptions to the rule in pinnel’s case

A

Provided its accepted by the creditor

1) Alternative consideration - e.g. goods instead of cash
2) Early payment
3) Payment by a third party
4) Payment at an alternative location
5) The equitable doctrine of promissory estoppel

35
Q

What is Promissory Estoppel?

A

If a creditor makes a gratuitous promises to his debtor that he will not insist on full payment of a debt ,
AND the promise is made with the intention that the debtor will rely on it
AND the debtor does so

THEN the creditor is estopped (prevented) from denying the genuineness of his promise

36
Q

What type of remedy is promissory estoppel

A

It is an equitable remedy, so the principles of morality and fairness apply

The principle is to be used as a shield and not a sword

i.e. grounds for defence and not an action

37
Q

Legal relations: Intention

A

For a contract to be binding the parties must have that intention

38
Q

If there is not clear statement of intention, the courts use the following presumptions:

A

-social, domestic and family arrangements are presumed to be not legally binding
-commercial agreements are presumed to be legally binding

39
Q

Domestic agreements: Husband and wife

A

Presumption is that the agreements are not legally binding unless the parties specify either expressly or by implication that they intend the agreement to be legally binding

40
Q

Domestic agreements: Other domestic arrangements

A

The courts will look at the intentions of the parties

41
Q

Legal relations: Commercial arrangements

A

There is a presumption that these are intended to be legally binding unless there is clear evidence to the contrary

Any ambiguity will lead to the agreement remaining binding

42
Q

Legal relations: Exceptions: Comfort letters

A

Holding companies sometimes give letters of comfort to creditors of subsidiary companies. Such letters are not legally binding.

43
Q

Legal relations: Exceptions: Transactions binding in honour only

A

If an agreement is made ‘binding in honour only’ this constitutes an express denial of an intention to create legal realtions

44
Q

What are the exceptions in legal relations

A

1) Comfort letters
2) Transactions binding in honour only

45
Q

What is privity of contract?

A

As a general rule, only a party to the contract has enforceable rights or obligations under it. Third parties have no right of action except in certain exceptional circumstances

46
Q

What are the two implications of privity of contract?

A

1) Only a promisee can enforce a promise
2) Consideration must move from the promisee

47
Q

Privity of Contract: Only a promisee can enforce the promise

A

A promises B, in return for consideration from B

to do something for the benefit of C

C acquires no rights, as C is not the promisee, B is

48
Q

Privity of Contract: Consideration must move from the promisee

A

A promises B and C, in return from consideration from B, to do something for the benefit of C.

C acquires no rights as C has not provided consideration

49
Q

What are the exceptions to the basic rule?

A

Persons claiming under 3rd party insurance
A principal where his agent made the contract
An executor of a deceased person can enforce a contract on behalf of the deceased
Where the benefit of the contract has been assigned, with the agreement of the other party to the contract, to a third party

50
Q

Define Breach of contract

A

Breach of Contract: when a contract is not honoured by one or more of the parties to it

51
Q

What is a remedy for breach of contract

A

A fundamental breach of contract will entitle the other party to sue for damages

52
Q

Define damages

A

A compensatory financial reward

53
Q

Define ‘term’

A

any statement forming part of a contract

if a term of a contract is broken, the injured party can bring action for a breach of contract

54
Q

Define ‘representation’

A

a statement made by one party designed to induce the other party to enter into the contract

it does not form part of the contract, but if the representation subsequently proves to be untrue the injured party can bring an action for mispresentation

55
Q

Distinguishing terms from reprentations

A

Term is part of the contract, representation is not

56
Q

In determining if a statement is a representation or a term, the court will look at:

A

1) WHEN the statement was made. If a long time before the contract, the statement is less likely to be a term
2) the IMPORTANCE of the statement - more important = term

56
Q

Define: Condition

A

A major term of the contract which goes to the heart of the contract, the very essence of the contract

57
Q

What does breach of a condition allow?

A

Breach of a condition allows the injured party to repudiate (reject) the contract or continue with it and claim damages from the breach

58
Q

Define a warranty

A

Warranty: a less vital, although still important, term of contract

59
Q

What does a breach of warranty entitles?

A

A breach of warranty entitles injured party to damages but they can’t reject the contract completely

60
Q

What is an innominate term?

A

Term classified as warranties or conditions in a contract can be classified innominate if the consequences of the breach of the term were more or less serious than originally envisaged when the contract was made
Court will determine if a term is a condition or warranty, irrespective of what the contract says. Same applies if the contract does not specify that a term is a condition or a warranty.

61
Q

Define Express term

A

Those terms expressly stated in the contract

62
Q

Define Implied term

A

Defined as ‘a term deemed to form part of a contract, even though not expressly mentioned’

63
Q

How can terms be implied?

A

Statute
Custom
The courts

64
Q

How can terms be implied: Statute

A

e.g. sale of goods act 1979 imposes conditions relating to the seller’s right to sell

65
Q

How can terms be implied: Custom

A

Balh is entitled to blah if it is customary for the blah to be given

66
Q

How can terms be implied: The courts

A

Where necessary to imply a term to achieve the result the parties obviously intended when they made
the contract. Avoids gross unfairness.

Courts will not imply terms simply to make the contract fairer

67
Q

Exclusion clause: what are the three levels of protection

A

Common Law
Unfair Contract Terms Act 1977
Consumer rights Act 1977

Common law, applies to all contracts between any parties.

Unfair Contract Terms Act 1977 (UCTA), applies to contracts where both parties are in business.

 Consumer Rights Act 2015 (CRA) applies to contracts where one party is a human consumer and the other is a trader in business.

67
Q

Define ‘Exclusion clause’

A

A contract term that attempts to exclude or limit liability for breach of contract or negligence

68
Q

Define ‘Misrepresentation’

A

A false statement of fact or law (not just an opinion), made with the intention of inducing another party to make a contract

69
Q

Misrepresentation: statement and intention

A

The statement must have been intended:
1) to be acted upon
2) it must actually have deceived the other party and induced them to enter into the contract

This excludes anything that is clearly and advertising inducement or ‘puff’ that the courts could not expect people to take too seriously

70
Q

What is Rescission?

A

Rescission puts the parties back into their pre-contractual position
-It is an equitable remedy and it is only available at the court’s discretion

70
Q

What does misrepresentation do to a contract?

A

Misrepresenation makes a contract voidable. This means the injured party may take steps to rescind the contract

71
Q

What are the two types of misrepresentaion?

A

1) Fraudulent
2) Negligent

71
Q

When will rescission not be available?

A

 Third party rights have accrued
 The subject matter of the contract has altered
 Too much time has passed (delay defeats equity)
 Damages will provide an adequate remedy

72
Q

Misrepresentation: Fraudulent

A

Statement made knowing it was false OR made recklessly, careless as to truth or falsity.

Remedy

Rescission and/or damages. (Here, damages can be claimed under the tort of deceit.)

73
Q

Misrepresentation: Negligent

A

Statement made in belief of truth but with no reasonable grounds for holding that belief.

Remedy

Rescission and/or damages. (Here, damages can be claimed under the tort of negligence.)

74
Q

Silence does not generally constitute misrepresentation, unless:

A

1)Contract of goof faith (insurance)
2)Half-truth e.g. “company has always paid a dividend” implication that company was profitable was a misrepresentation
3) fiduciary relationship (doctor/patient)
4) previously true statement that subsequently

75
Q
A

CIMA BA4 (17 decks)

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