Contract 1 - Existence/Formation of contract Flashcards
What are the components that constitute a binding contract?
Offer and Acceptance + Intention to create legal relations + Consideration
These components must all be present for a contract to be valid.
What is required for a valid offer?
A clear and certain offer with intention to be bound and unequivocal acceptance from the offeree
The court assesses the intention of the parties based on what a reasonable person would conclude.
Define a unilateral contract.
One party makes a promise; the other party does not make any promises
Example: ‘If you deliver a watch to me in the next 10 days, I will immediately pay you £100’.
Define a bilateral contract.
Each party assumes an obligation to the other party; both parties promise to do something
Example: ‘In 10 days’ time, you will deliver a watch to me and I will pay you £100’.
What is an invitation to treat?
The first step in negotiations that may or may not lead to a firm offer; cannot be accepted to form a binding contract
Examples include advertisements and displays of goods for sale.
What is the significance of the case Carlill v Carbolic Smoke Ball regarding invitations to treat?
The advertisement was deemed a unilateral offer because it included a clear prescribed act and intention to be bound
The company deposited £1,000 as evidence of sincerity.
What is the effect of an auctioneer’s request for bids?
An invitation to treat until the hammer falls; the highest bidder is not entitled to the goods until the auctioneer accepts the bid
At auctions ‘without reserve’, the seller must sell to the highest bidder.
What is the mirror image rule in acceptance?
Acceptance must correspond exactly with the terms of the offer
Any variation in terms constitutes a counter-offer.
What is the postal rule in contract acceptance?
Acceptance takes effect from the moment the letter of acceptance is properly posted
This applies even if the letter is delayed or lost.
True or False: Acceptance must be communicated for it to be valid.
True
Mental consent alone is insufficient; acceptance must be effectively communicated.
What are the requirements for consideration in a contract?
Must not be past, must move from the promisee, need not be adequate, and must be sufficient
Consideration is the exchange of value in a contract.
What is executory consideration?
Consideration where parties promise to perform something in the future after the contract is formed
Example: A contract for the sale of goods where the seller promises future delivery.
What is executed consideration?
Consideration that has already been performed at the time of contract formation
Example: A unilateral contract where the act of acceptance is the performance itself.
What is the doctrine of privity of contract?
Only parties to a contract can sue or be sued on that contract
This differs from consideration, which states that only those who provide consideration can enforce a contract.
What happens if a party is already under an obligation to do something?
Agreeing to do it again usually isn’t good consideration for a new contract
Example: In Stilk v Myrick, sailors were already obligated to complete the voyage.
What is economic duress?
A situation where a party’s consent to a contract is obtained through coercive pressure, making the contract potentially unenforceable
Modern courts may rule on this basis rather than lack of consideration.
What constitutes sufficient consideration?
Consideration must have some value in the eyes of the law, regardless of how small
Example: A promise to transfer a house for a nominal fee can still be valid consideration.
What is the significance of Williams v Roffey Bros in contract law?
The court found valid consideration in the form of ‘practical benefit’ to the contractor, such as avoiding penalties and improving efficiency.
Lord Justice Glidewell established six conditions for ‘factual consideration,’ focusing on the benefit gained and absence of duress.
What are the six conditions for ‘factual consideration’ established in Williams v Roffey Bros?
- A has entered into a contract with B to do work in return for payment
- B has reason to doubt A’s ability to complete the contract
- B promises A an additional payment for timely performance
- B obtains a practical benefit from this promise
- B’s promise is not a result of economic duress or fraud
- The benefit to B is capable of being consideration for B’s promise.
What does the principle regarding obligations under a public duty state?
Merely carrying out a public duty imposed by law will not amount to sufficient consideration.
Example: In England v Davidson, a police officer went beyond his public duty in providing information for a reward.
In New Zealand Shipping v AM Satterthwaite, what was the key ruling regarding existing obligations to a third party?
Fulfilling an existing obligation to a third party can still amount to valid consideration in a new contract.
The claimant gained a direct obligation from the defendant to unload the goods, which provided legal recourse.
What is the significance of Foakes v Beer regarding part payment of a debt?
Simply offering to pay a lesser sum than owed is not good consideration; the debtor remains liable for the full amount.
The court held that the agreement was unsupported by consideration.
What are the exceptions to the rule established in Foakes v Beer?
- Introducing a new element (e.g., early payment)
- Payment by a third party
- Practical benefit in a variation of contract.
What does promissory estoppel allow in contract law?
It allows a promise to be enforced even without consideration, provided the promisee relied on the promise.
It stops the promisor from going back on their word.
What case is considered the origin of the modern doctrine of promissory estoppel?
Hughes v Metropolitan Railway Co. (1877).
The case involved a tenant relying on an implied promise by the landlord.
What was the key ruling in Central London Property Trust v High Trees House?
The landlord could claim arrears from 1945 but not from 1940-1945 due to promissory estoppel.
Denning J stated that a promise relied upon becomes binding even without consideration.
What is the difference between how promissory estoppel can be used?
Promissory estoppel can only be used as a defense (a ‘shield’) and not as a basis for suing (a ‘sword’).
In Combe v Combe, the court clarified that it cannot create new legal rights.
What are the requirements for a clear and unequivocal promise in promissory estoppel?
The promise must be intended to affect legal relations and must not be a gratuitous privilege.
The promise can be express or implied.
What is required for a change of position in reliance on a promise in promissory estoppel?
The promisee must rely on the promise and act on it, which influences their conduct.
Detrimental reliance strengthens the argument but is not always required.
What does it mean for it to be inequitable for the promisor to go back on their promise?
The court decides whether it would be unfair for the promisor to withdraw their promise based on the conduct of both parties.
Example: In D & C Builders v Rees, the defendants acted unfairly, leading to the refusal of promissory estoppel.
Does promissory estoppel suspend or extinguish legal rights?
Typically, it suspends strict legal rights, but in rare cases, rights may be extinguished if enforcing them would be inequitable.
Example: In High Trees, the landlord could not claim full rent from 1940-1945.
What are the three ways an offer can end?
- Rejection and counter-offers
- Lapse
- Revocation.
What occurs during rejection and counter-offers?
Once an offer is rejected, it cannot be accepted unless the offeror makes the same offer again.
A counter-offer is deemed as a rejection of the original offer.
What does lapse refer to in contract law?
Lapse can occur by passage of time or the death of a party.
If the offeree is unaware of the offeror’s death, the offer may still be valid.
What is the rule regarding revocation of an offer?
An offeror may revoke their offer at any time before acceptance, and communication of revocation is essential.
Revocation is effective upon actual notice reaching the offeree.
What is the objective test for intention to create legal relations (ICLR)?
The test is based on what the parties’ actions suggest about their intentions, not their subjective beliefs.
Commercial agreements are generally presumed to have ICLR.
What is the necessary requirement of a binding contract?
An agreement that has legal ramifications.
What does the test of intention in contract law focus on?
Objective test of what the parties’ actions suggest regarding the agreement being binding.
What is the usual presumption regarding intention to create legal relations in a commercial agreement?
There is always an assumption that the parties intended for a commercial agreement to be legally binding.
What must be proven to rebut the presumption of intention to create legal relations?
Clear words must be used in the contract to evidence no intention to create legal relations.
What is the significance of the case Carlill v Carbolic Smoke Ball?
ILCR present because the company deposited £1,000 in bank to pay offerees.
What does the expression ‘subject to contract’ imply?
Strong inference that the parties do not intend to be bound until the formal execution of a contract.
What is the usual presumption regarding intention to create legal relations in domestic/social agreements?
There is usually no intention to create legal relations.
What are the requirements for parties to have capacity to enter into a contract?
Parties must have the legal ability to enter into a contract.
What exceptions exist for minors entering into contracts?
- Necessaries
- Employment, apprenticeship, or education.
What is the definition of necessaries in contract law?
Goods suitable to the condition in life of the minor and their requirements at the time of sale and delivery.
What happens if a minor ratifies a contract upon reaching the age of 18?
The contract becomes binding on them.
What are the criteria for someone lacking mental capacity to enter into a contract?
- Unable to make a decision for themselves
- Must understand, retain, use, and communicate relevant information.
What is the role of the Court of Protection?
To make declarations as to a person’s capacity and ability to contract.
What must be established to void a contract for a person without capacity?
- They did not understand what they were doing
- The other party knew that to be the case.
What is true about intoxicated individuals in relation to contracts?
They must pay a reasonable price for necessaries but are not bound by other contracts they make.
What is the doctrine of privity in contract law?
A person cannot be sued on a contract unless they are a party to it and have provided consideration.
What is agency in the context of circumventing the doctrine of privity?
An agent enters into a contract on behalf of the principal.
What is required for an agency relationship?
- Agents must be authorized by the principal
- Agents act within their authority.
- Principal should be named.
- Consideration must move from the principal.
What is assignment in contract law?
One party can pass its rights under a contract to another party.
What does the case Donoghue v Stevenson illustrate regarding actions in tort?
A third party can claim against a party in relation to breach of contract due to duty of care.
What is a collateral contract?
A separate agreement that supports or is related to the main contract.
What does the Albazero principle state?
A party can sue to recover the loss of a third party resulting from non-completion of the original contract.
What does the Contracts (Rights of Third Parties) Act 1999 allow?
Third parties can enforce a term of a contract which they are not a party to under limited circumstances.
What conditions must be met for a third party to enforce a contract under the 1999 Act?
- The contract must specifically provide for this
- The agreement must confer a benefit on the third party.
What happens if a third party has rights under the 1999 Act?
The rights cannot be varied or rescinded without the third party’s consent under certain conditions.
What is an exclusion of third-party rights clause?
A clause to avoid an agreement conferring a benefit on third parties.
What is the presumption regarding identity in contracts?
If face-to-face, the promisor intended to contract with the promisee as they truly are; otherwise, it is a mistake in identity.
