Contents and terms of a contract

Question 1

Formation - what does a contract consist of?

Answer 1

• agreement between 2 or more parties which is binding in law, the agreement
• creates rights and obligations which the court may enforce
  Components
  Agreement - offer and acceptance
  Offer - offeror, make clear and certain offer, with intention to be bound
  Acceptance - offeree, accepts offer clearly and unequivocally, on exactly same terms as given by offeror.
  Intention to create legal relations - capacity and consideration and legal

Question 2

What are the 2 different classification of contracts?

Answer 2

Deeds
- need special rules in order to be valid, must be signed dated and delivered as a deed
- used when no consideration is being exchanged or in certain scenarios
- do not require exchange of consideration

Simple Contracts-
- every other contract that isn’t a deed.
- orally, by conduct or in writing
- does require exchange of consideration

Question 3

What are the two types of contract?

Answer 3

1) Bi-lateral - executory consideration
- 2 or more parties exchanging promises to do something in the future
- promise to do - executory
- consideration is the promise
2) Unilateral - executed consideration
- promise by one party to do something (pay) in return for act performed by another party
- acceptance when act performed
- only party who makes promise to give something is bounds
- Exchange of consideration is promise to pay given for the act.
- past consideration, executed consideration
- payment when act done - executed.

OFFEROR - person who makes offer, once accepted they are bound by this
OFFEREE - is person to whom offer is made.

Question 4

Offer =

Invitation to treat =

Answer 4

• Clear and certain offer - NOT MAY or MIGHT
• intention to be bound
• if clear and certain offeror bound
• use “reasonable man” test, would reasonable man seeing the offeror give their offer, judge that the offeror intended to be bound by it
• Must distinguish between an offer and intention to treat
  INVITATION TO TREAT=1st step in negotiations=
• advert, display goods, auctions, invitation to tender, statements of price
• ITTT language “would you be interested”, “I may sell for”
• advert can become unilateral offer, if it crosses threshold and becomes clear and certain, with intention to be bound
• Auctions
• in an auction auctioneer is inviting people to make offers. Once made accepted by hitting down hammer
• auction where item to be sold to highest bidder = a unilateral contract to accept the highest bid. If offer made auctioneer accepts and goods can’t be removed from auction
• display in window - ITT until offer made when customer takes item to cash desk
• invitation to tender- seller invites bidders to submit offers and can accept or reject them, CAN become unilateral offer in 2 ways
  1) - Where tender has undertaking to accept the highest bidder - highest bid must be accepted
  2) - The tender made to specific number of parties, contains clear conditions setting when and how bids should be submitted = unilateral offer to consider the bid (not accept) if submitted in way stated. Seller MUST consider bid and not ignore it
• Statements of price - a party stating the lowest price they will accept is inviting a further offer of price, the buyer must give a price which the seller can accept

Question 5

Offer Terminated

Answer 5

• Acceptance = contract formed
• Rejection - outright, says don’t want it
• battle of forms = 1 party offer other party counter offer, terminates 1st offer so on and so on. Most current offer is the binding one
• LAPSE
• reasonable time
• death of offeror
• offeree dies
• condition of acceptance not satisfied - offereor makes offer subject to condition which is accepted, offeree then fails to fulfil condition, offer will then lapse. Can be express or implied, normally known as condition precedent
• REVOCATION
  Bilateral offer =
• offeror revokes offer before acceptance. If accepted the offeror is bound. If revoke successful before acceptance, then will be revoked, then terminated.
• must be communicated to offeror
• if send by post only effective at time reaches offeree NOT when posted.
  EXCEPTION - offeree pays offeror to keep offer open separate contract is made known as - and option
• can be given by reliable 3rd party

Unilateral offer =
-If revoke successful before acceptance, then will be revoked, then terminated.
- EXCEPTION - can’t revoke where offeree has partly performed prescribed act and is willing and able to complete it
- offer to world can be revoked prior to completing by taking reasonable steps to notify, ie in same way as made offer
BUT - if people have started to carry out act - then to late to revoke.
-, if offeree accepted by phone - offeror bound

Question 6

Acceptance =

Answer 6

• accepts unequivocally and clearly on terms as stated
• 3rd part can accept but must be authorised to do so
• if offer not terminated, counter offer terminates contract. Has to be on exact terms
• must be in response to offer
• unqualified - same terms
• communicated to offeror
• silence does not amount to acceptance
• must say “I accept” - exception to this is -
  -Postal rule, can validly take place if a letter validly posted (at time of posting)
• Can’t use postal rule if parties exclude it or unreasonable ie email correspondence prior to posting.

Exceptions to rule that acceptance must be communicated to the offeror:
- unilateral act - when performed that = acceptance
- offer and party deliver = acceptance = course of dealing and will be accepted.
- -Postal rule, can validly take place if a letter validly posted (at time of posting) - even if post destroyed or lost after posting
- Can’t use postal rule if parties exclude it or unreasonable ie email correspondence prior to posting.

Question 7

Method of how accepted=

Answer 7

• can accept by phone, voicemail - when received - by email but must reach offerors server.
• phone must speak to offeror, crackly line no acceptance
  -post - when posted
• email - when sent, if outside office hours and communications in office hours deemed to arrive 9am next morning

Question 8

Intention to create legal relations (ICLR)

Answer 8

= be legally bound
- COMMERCIAL AGREEMENTS
- presumption ICLR, legally bound
- rebutted by explicitly clear dealing or terms that no ICLR
- “subject to contract - means not binding until contract concluded
- DOMESTIC AGREEMENTS
- presumption no ICLR
- rebutted by evidence of formalities, legal document, money changing hands, solicitor involved, formally written down
ADVERTS
- Presumption no ICLR
- usually Invitation to treat, statements “mere puff”
- rebutted if advert is in fact unilateral contract
-Presumptions therefore evidence otherwise will rebut
- if advert has enough detail, money set aside can form unilateral contract.

Question 9

Capacity =

Answer 9

• usual rules adults ,over 18 and of sound mind deemed capable entering into contract
• minors, intoxicated or mentally incapacitated cannot be contract - void
• minor - void
• intoxicated - voidable
• Minor - if necessaries = contract. Necessaries = something necessary don’t already have, must pay reasonable price eg is minor can be bound - minor went into shop and ordered expensive suit and then left.
• minors must then pay reasonable price
• If drunk or high not bound if other party knows this. If other party doesn’t know under influence drink/drugs will be bound
• necessaries applies intoxicated
  -necessaries applies where mentally incapacitated as does if doesn’t know

Question 10

Illegality =

Answer 10

= breach parliamentary law, or against public policy morals
- courts have wide discretion re approach
- if contract based on illegality then contract will be void if court agrees
- Ct may render valid, if legal when formed but when performed illegal, courts discretion - partner returned to position prior to contract
- CT won’t let anyone profit from illegal contract ie award damages
- CT won’t enforce where purpose contrary to law
- Otherwise it is up to the courts, their discretion
- CT address severity and knowledge of parties
- CT may sever legal part from rest of contract, if does not feel radically different from contract parties agreed on and intended

Restraint of trade clauses
- eg in employment contracts - clauses which prevent employee from getting another job after leave previous job ARE illegal UNLESS
- legitimate business interest to protect trade secrets
- restraint reasonable in respect of geographical area, duration and scope

Question 11

Certainty terms =

Answer 11

• certain, complete
• not vague
• if vague/incomplete - not enforceable- using reasonable person test
• the court will try to enforce and interpret terms, by severing different terms
• CT use terms adopting reasonable person test - reluctant to render contract unenforceable for vague terms

Question 12

Consideration =

Answer 12

• bilateral -stuff exchanged in contract - promises - money, service, something exchanged - executory consideration
• unilateral contract exchange promise for act - executed consideration - act done in past. - must make a bargain
• consideration need only be sufficient not adequate
• must be person that made promise that enforces
• CT happy to see some consideration, not necessarily of value - peppercorn rent
  Past consideration is not good consideration:
• can’t do something then say have to pay, if haven’t said would prior to this.
• must be promise to pay in exchange for the promise to give a benefit, before the benefit is actually given
  Exceptions all 3 must apply:
  1) act must be done at request of party
  2) Parties must have understood throughout that act was to be rewarded by payment
  3) Promise to pay made, was legally enforceable, therefore would have been intention to create legal relations

Question 13

Pre- existing obligations =
-if you go beyond pre existing obligations can you enforce against the offeror.

Answer 13

• Potentially Yes - if do only what said can’t get anything more if do more
• Unless provide fresh consideration, but other party must agree to pay past consideration.
• to third party - can make valid contract ie can get paid for doing something for someone for which you were going to get paid for anyway by someone else.
  eg =

Question 14

Practical Benefit Rule =

Difference between practical benefit and duress?

What is the practical benefit?

Answer 14

• obligation under contract performed but because 1 party performed practical benefit to other, and other party agreed to pay
• Williams v Roffey =
• party offered to finish contract on time and to pay more to be done, and in turn received practical benefit. Therefore performed no more than contract, BUT received practical benefit therefore enforceable.
• Promise to pay more than offeror and accompanied by practical benefit, or have in mind.
• if comes from other side and threat to breach contract more a kin to duress - threatening to breach or not perform

What is the practical benefit? =
- no fixed rule:
- commission
- avoiding penalty, fine
- another contract, another party

OBLIGATIONS UNDER A PUBLIC DUTY
- merely carrying out your duty under public law will not amount to consideration, therefore will NOT entitle extra payment
- rule applies when public servant like PC says should be paid more for going above and beyond day to day job. Only do job no extra money

Question 15

Terms of a contract - 2 types =

Answer 15

• Define rights and obligations of the parties

Varying terms of contract 2 options
- exchange fresh consideration eg money in exchange for extending delivery times
- sign deed which amends terms of contract ( no consideration needed for a deed)

1) Express - statements made by which they intentionally agreed by parties
2) Implied - by fact or law

Question 16

Express Terms =

Answer 16

• have to check if they are incorporated - in written contract validly executed
  -Rules which allow terms to be incorporated even though both parties haven’t written down in agreement. Rules are quite restrictive
  1) reasonable notice - is method used to try to incorporate document outside of contractual agreement, method =
• document outside of agreement can be a sign or T & C’s stapled to agreement.
• can be either contained or referred to in contractual documents, for instance as T & C’s
• reasonable notice must be given in a sperate document at time of contracting. Will then be incorporated in contract
• example = sign in hotel behind desk, referred to in contract = reasonable notice
  Other situations considered=
  2) ex- parties dealing with each other for some time, on well established terms, previous and consistent dealing. inconsistent or different terms don’t count
  3) oral statements prior to contract
• negotiations then enter into a written agreement, or oral statements prior to contract (which aren’t incorporated)
• oral statements can be express terms or representation
  -Entire agreement clause as would exclude such previous oral statements, such states could be representations and not terms.

Will be terms if using objective test, reasonable person, following factors used:

1) how important - did it cause other side to enter into a contract
2) made at time, just before contract, next or subsequent to contract
3) written down
4) giving statement benefit special knowledge/skill
*-parties can use entire agreement clause as would exclude such previous oral statements, such states could be representations and not terms.

In summary 3 ways can incorporate express terms into written agreement is by
1) Reasonable notice - referred to in document at time of contract
2) Pre existing dealings
3) Oral Statement

Question 17

IMPLIED TERMS

• how to incorporate?

Answer 17

• these are in a contract regardless of the intention of parties
• parties can chose to remove if they wish
  Incorporation of implied terms
• 3 ways:
  1) facts based on business efficiency
  2) custom: or
  3) Law

1) Facts based on business efficiency
- what should intention of parties been
- CT therefore adding terms on imputed intention of parties - reasonable man would have concluded should have been added to contract in first place.
2) Custom -
- CT may imply if longstanding custom of the industry, and just haven’t bothered to write down
- dealing with each other for consistent and regular pattern may imply a term - BUT only if followed it precisely and for long time
3) Law -
- common law - implied by courts discretion in contracts of public interest, where other side weal or vulnerable eg landlord- tenant
- statute - terms implied automatically- no court discretion - 3 key acts:
* Sale of goods act 1979 - business buying items from another business
Sale of goods contract=
- 9 - satisfactory quality
- 10 - fitness for a particular purpose
- 11 - correspondence with description
* Supply of goods act 1982 - business buying service from another business
- 34 - digital content to be of a satisfactory quality
- 35 - digital content to be fit for a particular purpose
- 36 - digital content to be as described
* Consumer Rights act 2015 - consumer buying either items or services from a business
- 49 - care and skill
51 - consideration
52 - time of performance

How to id question
1) ID if BSB or B2C
2) ID type of contract goods or services
3) what act applies
4) ID if implied terms been breached

Question 18

Classification of Terms = Condition or Warranty

EXPRESS TERM =

INOMINATE TERM =

IMPLIED TERM =

Answer 18

• depending on kind of term, goes to route of contract, depends on remedy
• Terms = conditions (C) or warranties (W)
  EXPRESS TERMS
• test to say if condition or warranty
• goes to route of contract
• Warranty is anything NOT a condition, therefore less important
  INOMINATE TERM
• not clear if C or W
• test is to essentially ask, using Hong Kong Fit test, if this is breached, is it going to massively effect injured party, substantial effect
• if apply then will say if C or W and apply how important term is.
  IMPLIED TERM
• Sale of goods - all implied terms are conditions
• Supply of goods and services - are innominate terms - have to check how severe or serious is
  CRA - express terms - c or w consumer can still claim damages, but in reality is the breach of the implied terms as serious of remedies granted for breach of implied term, these are what consumer relies on
• bad standard product =- price reduction
  good faulty =- 30 days refund then repaid or replace.
  Business to business - contracts go through if C or W

Reason to do this is because of the remedy

Condition =
- goes to root of contract most important term
- can claim damages, also;
- right of election, can choose to either;
* repudiate, terminate contract
* affirm contract and carry on.
Warranty =
- less important than a condition
- can only claim damages
* in S of G A - buyer does also have right to reject goods.-

Question 19

Exemption clauses, what are they?

Answer 19

• excludes/limits liability of one of the parties for breach of contract of negligence/loss
• all exemption clauses must be valid to operate - 3 steps:
  1) Incorporated in contract -
  -notification
• timing
• contractual document
• to effect:
  1) Signature
  2) Course of dealing
  3) Reasonable notice

2) clear construction - clearly states what covering, CTS will not incorporate exemption clause if vague
- most commonly used to exclude or limit liability for negligence
- if for this must expressly state:
* excluding or limiting liability for negligence
* excluding or limiting for “lack of reasonable care and skill”- using exact wording - stating “ loss however caused” WILL not count
- if includes limitation clause with express wording will cover liability for negligence. Any doubt is resolved against party trying to rely on the clause

3) In statute or parliamentary law - Consumer rights acts - difficult to include exemption clause in consumer contract
- In consumer contract liability clauses or exemption clauses - not likely to be valid.
- In MCQ very likely won’t be valid if trying to exclude liability for breach of implied terms. For this it must be fair, limited, really obvious and capped to a low amount.

Question 20

UCTA - Unfair contract terms act 1997 =

Answer 20

• business to business contracts
• will render contract void or valid if reasonable.
• Steps are:
  1) Is contract incorporated
  2) Construction - are the words clear
  3) Consider UCTA
• what category it falls into depends on what exemption clause being used, and what liability trying to exclude:
  1) Negligence causing death or personal injury
  NEGOTIATED CONTRACTS - VOID
  T & C’s -VOID
  2) Any other loss arising from negligence
  NEGOTIATED CONTRACTS - valid if reasonable
  T & C’s - Valid if reasonable
  3) Breach of implied term as to title - S of G act 1979 -
  NEGOTIATED CONTRACTS - VOID
  T & C’s -VOID
  4) Breach of implied terms as to quality, fitness, purpose, description and sample (S of G act 1979)
  NEGOTIATED CONTRACTS - valid if reasonable
  T & C’s - Valid if reasonable
  5) Any other breach of contract - services in goods contract where not trying to exclude or limit liability breach of sale of goods act
  NEGOTIATED CONTRACTS - UCTA DOES NOT APPLY
  T & C’s - Valid if reasonable

Question 21

What is reasonable when considering UCTA?

Answer 21

• factors contained in UCTA list
• for instance quality bargaining powers between 2 parties, same equal site and standing
• brought to attention of other party
• condition which meant liability clause kicked
• person trying to benefit from exemption clause has the burden of proof to show it is reasonable
• Common sense

Question 22

MCQ question how to deal with when deciding whether advert is offer or invitation to treat

Answer 22

• advert is generally invitation to treat, but can be offer if sets out specific details and acceptance
  Formation unilateral act
• performance binds offeror
• executed acceptance
• doesn’t matter if do something subsequently

Question 23

Breach and remedy
CRA

Answer 23

Sale of goods contract=
- 9 - satisfactory quality
- 10 - fitness for a particular purpose -
- 11 - correspondence with description

Remedy
- reject goods and get full refund - within 30 days
- goods returned or replaced
- price reduction or partial refund
- Cascading order
- can also recover damages

supply of digital content
- 34 - digital content to be of a satisfactory quality
- 35 - digital content to be fit for a particular purpose
- 36 - digital content to be as described

Remedy
- repair or replacement, reasonable time then to price reduction
- right to refund
- can also recover damages

Supply of services
- 49 - care and skill
- 51 - consideration
- 52 - time of performance

Remedy
- right to repeat performance - reasonable time and must bear costs
- price reduction and refund if repeat performance not possible
- price reduction must be given within 14 days
- refund