Contract Flashcards
If three essential elements are present, a binding agreement or valid contract will be created. These are:
Intention to create legal relations
Offer and acceptance
Consideration
A valid contract defined as…
An agreement between two parties which creates legal rights and obligations which are enforceable by law.
Social and private arrangements are not usually intended to carry…
Legal consequences (I.e. there is not intention to create legal relations)
An offer can be be made in three ways…
In writing
Orally
By conduct
Invitation to treat=
An invitation to others to make an offer to enter into a contract
Acceptance occurs when the party to whom the offer was made (offeree)…
Agrees to the proposal of the person making the offer (offeror).
The postal rule is that
Acceptance occurs when the letter is posted, and the contract commences from that time.
An electronic contract is formed at the time the acceptance…
Is received (I.e. when the acceptance enters the information system/server/email is sent etc.)
Consideration is defines as…
The price paid for the promise of another in a contract.
When is the representation a term of a contract?
Not every statement made in the calls of negotiations to enter contract is term of contract. some statements are merely sales talk. They are generally about insignificant things. To determine whether a representation is a term of the contract it is necessary to determine whether a representation is a term of the contract it is necessary to determine the intentions of the parties, having regard to all the circumstances of the case.
If a representation is a term of the contract, is it a contract, is it a condition or warranty? Explain how to tell the difference
More important terms are referred to as conditions and the less important terms are called warranties. The court applies certain testes to determine whether a term of the contract is a condition or a warranty. A term will be a condition if: the term is an essential part of the contract and if a failure to carry out the term would result in the basic nature of the contract being altered. A warranty is a less important term of the contract and is regarded as subsidiary to the main purpose of the contract.
What are implied terms?
Apart from the terms agreed by the parties and written into the contract, there are often terms implied into the contract by the court, custom or trade usage, and or statutes. A court will imply terms into the contract to make it capable of being put into operation.
The General Principles as to Consideration:
Must exist - Consideration must exist in every simple contract.
Must be adequate - As long as there is consideration, the court is not concerned as to it’s adequacy provided it is of some value.
Must not be unlawful/illegal - Consideration must not be illegal or unlawful.
Must be definite - Consideration must be definite.
Past performance - Consideration offered me in in return for past performance is not good consideration.
Possible to carry out - Consideration must be possible to carry out.
Provided person promise - The consideration must be provided to the person who has made the promise.
Already obliged - If someone promises to do something or does something which he or she is already obliged to do under a contract, then that promise is not further consideration.
Refrain legal action - A promise to refrain from legal action may be consideration.
Settle - Agreeing to compromise (settle) a claim against another party may be consideration.
If consideration cannot be shown then the agreement is not legally enforceable, unless in the form of a deed.
The General Principles as to Offer:
Made to - an offer may be made to a particular person, a class of persons, or to the world at large.
Communicated - the offer must be communicated to the person accepting the offer.
Terms communicated - all the terms of the offer must be communicated to the person accepting the offer (the offeree) and brought to his or her notice.
Specify conditions - the offer may specify conditions to be followed by the person accepting the offer.
Withdrawn - an offer can be withdrawn or revoked at any time prior to acceptance.
Lapse - an offer will lapse if not accepted within:
The time stated; or
A reasonable time, where no time for acceptance has been stated.
The General Principles as to Acceptance:
Communicated Act - Acceptance must be actually communicated inked stage offer requires an act to be done which does not have to be communicated to the person making the offer.
Wholly accepted - A qualified acceptance cannot be made. Any offer must be wholly accepted.
Conditions followed - Any conditions stated in the offer must be followed before an acceptance can be said to have taken place.
Only by parties - Acceptance can be made only by parties to whom the offer was made.
No withdrawal without consent - Once acceptance is communicated, the offer cannot be withdrawn expect with the consent of the person making the offer.
Within time - An acceptance must be made within the time prescribed, or if no time has been prescribed, within a reasonable time.
Known existence - The person accepting the offer must know that it exists, no one can accept an offer if she or he does not know that it exists.
What is an exemption clause?
A clause which attempts to limit or exclude altogether the liability of one party to another under a contract.
When will the court enforce an exemption clause?
The court will enforce an exemption clause where:
- The contract is entered into of both parties free will.
- the exemption clause must be shown to be a term of the contract.
- Reasonable notice of the exemption clause must be given before the contract has been formed.
- If the wording of the exemption clause is ambiguous or unclear, a court will interpret the clause against the party seeking to rely on it.
What is the parole evidence rule?
If a contract is wholly in writing, the general rule is that oral evidence is not allowed to vary, contradict, add to or subtract from the terms of the written document. There are some expeditions to this rule though (p.283 red book).
If a contract has been validily enetered into, name 3 well-established grounds on which it can be set aside.
- Lack of legal capacity.
- Lack of genuine consent.
- Legality of object.
If a contract is set aside, it may be found void (the contract never existed in the first place) or voidable (the injured party can decide is the contract is to continue).
What are examples of persons who are said to lack capacity to enter a contract?
Bankrupts, Criminals, person with mental illness and some intoxicated persons. This also relates to infants and in some instances, people who are not Australian citizens.
Generally an infant lacks capacity to enter into contracts. What are the 4 main exceptions to this rule.
- Contracts for necessaries (includes things to maintain the standard of living which he or she enjoys).
- Contracts for the benefits of infants (where an infant enters into a contract for his or her benefit he or she is usually found by the agreement)
- Long term contracts - binding unless repudiated within a reasonable time after turning 18)
- Where an infant needs to ratify a contract for it to be binding (on reaching 18 years, an infant may ratify or confirm an agreement made previously so that he or she may be legally bound by the terms of the contract. This known as ratification.)
In some instances, there may be a lack of genuine consent. The state of mind of each party at the moment the agreement is reached, may mean that there is no “meeting of the minds”. In what 6 instances may this occur?
- Mistake of law
- Mistake of fact
- Misrepresentation
- Duress
- Undue influence
- Unconscionability
What is unconscionability?
Normally a court wont interfere simply because a part of the contract operates harshly against a party to a contract. Sometimes, however, there is inequality of bargaining power. Where someone is placed at special advantage and unfair and unconscientious advantage is then taken of the opportunity, it could set aside the transaction. This could include poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.
What is an alternative word to describe the setting aside of a contract?
Rescission - the right to have a contract set aside if it has been entered into mistakenly, as a result of misrepresentation, undue influence etc.
