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CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law > Chapter 5 The Law of Contract > Flashcards

Chapter 5 The Law of Contract Flashcards

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1
Q

What is a contract?

A

This is an agreement supported by consideration from both parties, and made with intention that it is legally binding, by parties who have legal capacity

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2
Q

What does it mean if a contract is void or voidable?

A

Void means destitute of legal effect - no contract existst e.g. in restraint of trade

Voidable means one party can avoid contract e.g. contracts with minors for supply of non-necessaries

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3
Q

What does it mean if a contract is unenforceable or gratuitous promises?

A
  • An unenforceable contract is a valid contract but one party cannot force the other to complete the agreement e.g. lack of written evidence
  • Gratuitous promises are enforceable if they are executed via a deed => otherwise promises are only enforceable if supported by consideration from both parties.
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4
Q

What is the equation for an offer?

A

Agreement = Offer + Acceptance

An expression of willingness to be bound on certain terms

  • can be made by one person
  • must be certain
  • can’t be too vague Gunthing v Lynn
  • May be conditional
  • time limit for acceptance, even a short period
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5
Q

How can offers be terminated?

A
  1. Rejection
  2. Conditional acceptance
  3. Lapse of time
  4. Death of offeror or offeree
  5. Offeree failing to comply with all terms of the offer
  6. Counter offer

HYDE vs WRENCH - Offers terminated

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6
Q

What does a request for further information do to an offer?

A

It does not invalidate the offer as shown in Stevenson vs Mclean

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7
Q

What does revocation mean?

A

This is the withdrawal of an offer. This may be withdrawn unless it indicates by its terms that it is irrevocable.

  • Effective if communicated by offeror or reliable 3rd party BEFORE acceptance
  • BYRNE vs VAN TIENHOVEN
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8
Q

What does ‘subject to contract’ stand for?

A

This means that negociation is continuing. Terms haven’t been finally agreed.

Either party may withdraw without liability as they are not bound until the contract has been executed

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9
Q

What is an invitation to treat?

A

Inviting another to make an offer

e. g.
- goods on shelves in supermarket
- goods in shop window
- adverts in newspapers and shop windows
- auction notices
- prospectus

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10
Q

What is the definition of acceptance?

A

This is unconditional assent to all the terms of the offer

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11
Q

What are the rules of acceptance?

A
  1. Can be made by authorised person only
  2. Must be made while the offer is still open, therefore before revocation
  3. Must be communicated by positive words
  4. Cannot be imposed by silence (Felthouse vs Bindley)
  5. May be inferred by conduct
  6. If method of communication is mandatory, then no other method will suffice, precisely worded. Yates Building Co vs Pulleyn
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12
Q

What is the postal rule?

A

= exception to the communication rule. Unless otherwise specified by offeror contracts can be deemed accepted from moment of posting by offeree.

  • Revocation must actually be communicated to the offeree.
  • If instantaneous methods of communication used - it is when and where fax of acceptance is received.
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13
Q

What is a unilateral contract?

A

This is another exception to the communication rule. Where need for communication is expressly or impliedly waived e.g. where action constitutes action.

CARLILL v CARBOLIC SMOKE BALL COMPANY

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14
Q

What are the 3 types of consideration?

A
  1. Present = consideration may be executed
  2. Future = Executory, promise in return for a promise
  3. Past = This is NOT VALID consideration
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15
Q

What is Past Consideration?

A

This is something that has already been done at the time a promise is made

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16
Q

What is the implied promise to pay?

A

The rule of Past Consideration does not apply if there is an implied promise to pay, e.g. if hairdressers or taxi or restaurant

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17
Q

What is the value of consideration?

A

This is where consideration need NOT be adequate but must be sufficient. Consideration is sufficient if it has some value, it does not form part of a fair deal.

  • Chappell v Nestle Chocolate Company
  • Thomas v Thomas
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18
Q

What are existing contractual obligations?

A

This is the performance of existing contractual obligations and is not generally sufficient consideration for further reward.

  • Collins vs Godefroy
  • Stilk vs Myrick

In comparison to:
Hartley v Ponsonby

If both parties derive a practical benefit then a promise for additional consideration may be enforceable, even if legally one part receives no more than he is originally entitled.

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19
Q

What is partial performance?

A
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20
Q

What are the exceptions to the rule in Pinnel’s case, provided it is accepted by the creditor?

A

> Alternative consideration e.g. goods instead of cash
Early payment
Payment by a third party
Payment at an alternative location
Equitable doctrine of promissory estoppel

21
Q

What is a promissory estoppel?

A
  • If a creditor makes a gratuitous promise to his debtor, he will not insist on full payment of a debt. and promise is made with intention that debtor will rely on it AND does so => credit prevented from denying genuineness of his promise
  • Principles of morality and fairness apply, used as a shield and not a sword
22
Q

What is the intention in legal relations?

A

For contract to be binding = need intention. If no clear statement of intention the courts use the following presumptions:
> Social, domestic and family agreements presumed not legally binding
> Commercial agreements are presumed to be legally binding

23
Q

What are the legal relations in respect to domestic arrangements including husband and wife?

A

Presumptions is agreements not legally binding unless parties specify expressly or by implication that they intend it to be legally binding

Balfour vs Balfour

24
Q

What are commercial arrangements in relation to legal relations?

A

Presumption these intended to be legally binding unless clear evidence to the contrary.

ANY AMBIGUITY WILL => AGREEMENT REMAINING BINDING

25
Q

What are comfort letters?

A

Holding companies sometimes give letters of comfort to creditors of subsidary companies.

These letters NOT legally binding

26
Q

What does it mean if transactions are binding in honour only?

A

This constitutes an express of denial of an intention to create legal relations

27
Q

What does privity of contract mean?

A

This is where only a part to the contract has enforceable rights or obligations under it.
3rd PARTIES HAVE NOT RIGHT OF ACTION, unless exceptional circumstnace

28
Q

What are the two aspects to consider in privity of contract?

A
  1. Only a promisee can enforce the promise
    - A promises B in return for consideration from B, to do something for the benefit of C. C has no rights, B = promisee
  2. Consideration must move from the promisee
29
Q

What are the exceptions to privity of contract basic rules?

A
  1. Persons claiming under 3rd party insurance
  2. A principal, where his agent made the contract
  3. An executor of a deceased person can enforce a contract on behalf of the deceased
  4. Where the benefit of contract has been assigned with the agreement of another party to the contract, to a third party.
30
Q

What is a breach of contract?

A

A contract is not honoured by one or more of the parties to it

31
Q

What is main remedy for breach of contract?

A

Entitles party to sue for damages

32
Q

What is the definition of damages?

A

A compensatory financial award

33
Q

What is the definition of a term?

A

Any statement forming part of a contract

  • If a term is broken, the injured party can bring in action for breach of contract
  • ‘Representation’ is not part of a contract
34
Q

What is the definition of a representation?

A

Statement made by one party designed to induce the other party to enter into the contract
- If representation is untrue the injured party can bring an action for misrepresentation

35
Q

What will the court look at to determine whether a statement is a term or representation?

A
  1. When statement made - if long ago before contract => less likely a term
  2. Importance of the statement

Bannerman v White

36
Q

What is the definition of a condition?

A

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

Breach => injured party to repudiate or reject contract or continue with it and claim damages from breach

37
Q

What is the definition of warranty?

A

A less vital, although still important, term of the contract

38
Q

What is an innominate term?

A

Terms classified as warranties or conditions in a contract can be classified as innominate if consequences of the breach of term are more or less serious than originally envisaged when contract made.

  • Court determines if term = warranty or condition, irrespective of contract.
39
Q

What is the definition of express terms?

A

Those terms expressly stated in the contract

40
Q

What is the definition of implied terms?

A

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

41
Q

How can terms be implied?

A

a) Statute - e.g. Sales of Goods Act 1979
b) Custom e.g. customary for farmers to pay allowance on seeds etc
c) The courts - imply term to achieve results the parties intended when contract made, don’t do it to make contract fairer

42
Q

What is an exclusion cause?

A

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

43
Q

What are the three levels of protection in an exclusion clause?

A
  1. Common law- applies to all contracts between any parties
  2. Unfair contract Terms Act 1977 - where both parties in business
  3. Consumer Rights Act 2015 (CRA) - applies to contracts where only one party is a human consumer and other is a trader in business
44
Q

What is the definition of misrepresentation?

A

A false statement of fact, made with intention of inducing another party to make a contract

45
Q

What do we need to consider about statement and intention in relation to misrepresentation?

A

Statement must have been intended to have been:

a) acted upon
b) have deceived the other party and induced them to enter into the contract

  • Exclude advertisement inducement or ‘puff’ that courts could not expect ppl to take srsly
46
Q

What does it mean when misrepresentation makes a contract voidable?

A

Injured party may take steps to rescind the contract

  • Rescission put parties back to their pre-contractual position
  • Rescission = equitable remedy and only available at courts discretion
47
Q

When will rescission not be available?

A
  1. 3rd party rights have accrued
  2. Subject matter of the contract has altered
  3. Too much time passed
  4. Damages provide adequate remedy
48
Q

What are the two types of misrepresentation?

A

FRAUDULENT
- Knowing statement is false or made recklessly, careless as to the truth
Remedy: Rescission /damages

NEGLIGENT
- Statement made in belief of truth but no reasonable grounds for holding that belief
Remedy: Rescission and/or damages

49
Q

What can silence mean in misrepresentation?

A

Does not generally constitute misrepresentation unless:

  1. Contract of good faith e.g. insurance
  2. Half-truth e.g. company always paid dividend implying profitable company
  3. Fiduciary relationship
  4. Previously true statement that subsequently becomes untrue

CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law (7 decks)

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