Contract Flashcards
What does a contract consist of?
An agreement with an intention to be legally bound supported by consideration.
What elements must a contract by deed have?
It must be clear that it is a deed and it must be executed by the parties to it in the presence of a witness.
What contracts must be made in a Deed to be enforceable?
Promises where there is no consideration
Conveyance of land
What is the claim period for a normal contract?
Any claim must be brought within 6 years of the breach.
What standard must communication of the offer to the offeree be in order to be valid?
It must create a reasonable expectation for the offeree that the offeror is willing to enter into a contract on the basis of all material items contained in the offer.
What are the 3 elements to an offer?
- Promise, Undertaking or Commitment
- Definite and Certain Terms
- Communication to the Offeree
What is the offer element of Promise, Undertaking or Commitment?
The offer must contain an expression of a promise, undertaking or commitment to enter into a contract, rather than a mere invitation to begin negotiations.
What is the offer element of Definite and Certain Terms?
Have enough of the essential terms so that a contract including them would be capable of being enforced.
What is the offer element of Communication to the Offeree?
The offeree must have knowledge of the offer and therefore the proposal must be communicated to them. An offer an be made a specified individual or the world at large.
Would a response to requests for information be an offer?
No, a statement made in response to a request for information will not be sufficient to constitute an offer.
Would an invitation to treat constitute an offer?
No, this is usually an invitation to the other party to make an offer.
What is an example of an invitation to treat?
An advertisement or displaying goods in a shop window.
Would an advertisement constitute an offer? Why?
No, these are invitations to treat. On offer is made when anyone contacts the seller in response to the advert, the seller is then free to accept the offer.
Would shop window display constitute an offer? Why?
No, goods displayed in shop windows are invitations to treat. The offer is made when the customer takes the goods to the till point. Acceptance is when the shop keeper rings up the sale.
Would a price list constitute an offer? Why?
No, generally treated the same as advertisements.
Would tenders constitute an offer? Why?
No, this is an invitation to interested parties to submit bids setting out the terms on which they are prepared to carry out a piece of work. The submissions are classed as offers and the requesting party will then choose one to accept.
Would an auction constitute an offer? Why?
No, this is an invitation to treat. When the hammer falls, the auctioneer accepts the final bid as long as any reserve price is met.
Are price quotations an offer? Why?
Sometimes, whether a price quotation constitutes an offer or merely an invitation to treat is a question of fact based on the intention of the parties.
What is a unilateral contract?
A contract made between one party and an unknown third party. Arises when the person making the offer promises to do something if the person receiving the offer does something in return.
What is an example of a unilateral contract?
A poster to find a lost dog with a reward for the person who finds him.
What are the effects of the termination of an offer?
An offer cannot be accepted after it has been terminated.
What are the 3 ways to terminate an offer?
- Termination by Offeror - revocation
- Termination by Offeree
- Termination by Operation of Law
What is revocation of an offer?
This is the retraction of the offer by the offeror. This may be done by directly communicating the revocation to the offeree any time before acceptance.
Can an offer be revoked by the offeror indirectly?
Yes, if the offeree receives correct information from a reliable source of acts of the offeror which would indicate to a reasonable person that the offeror no longer wishes to make the offer.
What are the limitations to the revocation of an offer by offeror?
Once the offer is accepted, it can no longer be revoked.
When can an offer not be revoked even though the offer has not been accepted?
Collateral contracts - where the offeree gives consideration for a promise
Beginning performance under a Unilateral contract - an offer on a unilateral contract becomes irrevocable once performance has begun. There is still no contract until offeree has completed performance so the offeree can withdraw at any time.
What are the 4 ways an offer can be terminated by the offeree?
- Express Rejection
- Counteroffer as Rejection
- Rejection of a Collateral Contract
- Lapse of Time
What is the process of termination by an offeree through express rejection?
A statement made by the offeree that they do not intend to accept the offer. This is effective when received by the offeror.
What is the process of termination by an offeree through counteroffer as rejection?
An offer made by the offeree to the offeror which relates to the same subject matter as the original offer by differs its terms. A counter offer is both a rejection and an offer.
What is the process of termination by an offeree through rejection of a collateral contract?
Because an agreement to keep the original offer open is often a collateral contract, a rejection or, or counter offer does not terminate the original offer.
What is the process of termination by an offeree through lapse of time?
An offer may be terminated by the offeree’s failure to accept within the time specified within the offer, or if no time specified within a reasonable period. What constitutes a reasonable period will be determined by the courts, taking into account the subject matter of the contracts.
What is termination of an offer by operation of law?
This can be through:
- Death of offeree or offeror
- Destruction of subject matter
- Supervening illegality
- Failure of any condition contained in the offer
What is an acceptance?
The unqualified acceptance of the previous offer. This must be unqualified otherwise this would be a counteroffer.
Who can accept an offer?
Only the person to who the offer was addressed. However sometimes it will be accepted for an agent to accept on the offerees behalf.
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What is the method of acceptance stipulated by the offeror?
If a particular method of acceptance is required by the offeror and the offeree does not use that method then there has been no valid acceptance.
What is an exception to the method of acceptance as stipulated by the offeror?
Where the method of acceptance used is different but no less advantageous to the offeror.
Can silence be seen as acceptance to an offer?
An offeree cannot be forced to speak or have silence treated as acceptance. The law requires positive steps to be taken before they can be bound by the contract.
How is a unilateral contract accepted?
Once performance is completed by the offeree.
Does the offeree have an obligation to complete performance under a unilateral contract?
No. An offeree is not required to complete performance even if this might have begun.
Is the offeree required to give notice the he has begun the requested performance?
No, but they are required to notify the offeror within a reasonable time after performance has been completed.
Does an acceptance need to be communicated?
Yes, unless the offer provides that acceptance need not be communicated.
Can an offer be accepted through conduct?
Yes, the offeror must aware of the offeree’s conduct so as to satisfy the requirement of communication.
What is the postal rule regarding acceptance?
Acceptance creates a contract at the time of posting. This only applies to acceptance and not rejection or revocation.
When would the postal rule not lead to acceptance?
- If the letter was not properly stamped
- It was not reasonable for the acceptance to be communicated in the post
- The offer stipulates, expressly or by implication that acceptance is not effective until received.
Are emails and other instantaneous communication subject to the postal rule?
No, a contract accepted by one of these methods will be formed at the time the offeror receives the acceptance.
What is the ‘Battle of the Forms’?
Difficulties arise if parties wish to conclude the contract on their own standard form terms, which are likely to differ. The courts have confirmed the battle is won by the party who makes the last shot.
What is a ‘prevail clause’?
It is common for the offeror to include a term in their draft contract stating their terms will prevail over any terms which the offeree seeks to introduce.
Are ‘prevail clauses’ usually successful?
No.
Would an intention to create legal relationships be found in domestic situations?
No, the presumption is not. If either party has knowledge that the other does not intend to be bound by the agreement it will not be legally binding even if objective evidence is produced to the contrary.
Can the presumption regarding the intention to create legal relations in domestic situations be rebutted?
Yes, by providing objective evidence to the contrary.
Would an intention to create legal creations be presumed in a social situation?
The courts would presume there was no intention unless there is evidence to find to the contrary.
Would the intention to create legal relations be presumed in a commercial situation?
Yes.
Can the presumption regarding intention to create legal relations in a commercial setting be rebutted?
Yes but it is not easy. To do this, the parties may state in their agreement that it is binding in honour only or subject to contract.
If a person enters into a contract with lack of capacity, what effect does this have on the contract?
It will become unenforceable - VOID
What are minors?
Individuals aged less than 18 years old.
If a minor enters into the contract, what effect does this have on the contract?
The contract becomes voidable.
Can a minor be bound by a contract after they turn 18?
The terms are not binding whilst they are under 18 however when they turn 18 they are able to ‘ratify’ the terms.
What are the exceptions as to when a minor will be bound by a contract?
- Contract for necessary goods or services at a reasonable price
- Contracts of employment provided the terms benefit them
- Acquisition of property, e.g. shares, unless the minor expressly repudiates them
What does the Minor’s Contract Act 1987 do?
The fact minors are not bound by the terms of the contract can be unfair to the other party. This Act provides if the other arty transferred property to the minor, they will require them to transfer it back if it is equitable to do so.
What is the effect if someone who lacks mental capacity enters into a contract?
The contract is voidable.
What does the Mental Capacity Act 2005 do?
Individuals who lack mental capacity cannot enter into a contract if they are unable to make a decision for themselves on the subject matter.
If a person with mental incapacity enters into a contract, can they ever be bound by it?
Yes, if they later recover, they can ratify the agreement.
If someone becomes intoxicated and entered into a contract, what is the effect on the contract?
They are not bound so long as the other party was aware of their condition.
Is there an exception to an intoxicated person entering into a contract?
Yes, they will be bound by a contract for necessities.
Which side of the contract is required to give consideration?
Both.
What is consideration?
An act or forbearance of one party or the promise thereof. This is the price for which the promise or action of the other is bought. It can be either positive or negative obligation.
What is executed consideration?
When the act of forbearance is performed the act becomes executed.
What is executory consideration?
If the act or forbearance is promised in the future.
Where must consideration come from?
The parties themselves. This cannot come from a third party.
What are a parties rights if they provide no consideration?
They will be unable to enforce the contract.
When can a party enforce a contract without consideration?
When this is entered into by Deed.
What is the requirement of consideration?
It must be sufficient.
What would the courts consider ‘sufficient’ consideration?
It must have some value but it does not need to be adequate. The courts are not concerned whether this is a good deal for the parties.
What is illusory consideration?
The consideration must have some value and not be wholly illusionary.
Is performance of an existing duty sufficient consideration?
No. The performance must go beyond the original obligation and then the parties are effectively entering into a new contract.
When will a performance of an existing duty be sufficient consideration?
Promising to perform an existing contractual duty owed to a third party other than the promisor is sufficient consideration for a promise to be given.
Is performance of an existing statutory duty good consideration?
No. E.g. you cannot pay a police offer to protect the place you live.
When would performance of an existing statutory duty be classed as good consideration?
If you go above the statutory duty e.g. you can pay a police officer to police a football match or strike.
In general, can acts performed prior to the contract be classed as good consideration?
No.
When would an existing act form good consideration?
When there is an implied understanding of payment = if the earlier act or promise is given at the promisor’s request then there was an implied understanding that payment would follow.
What are the conditions for when an existing act can form good consideration?
- The act must have been done at the promisor’s request
- The parties must have understood that the act was to be enumerated either by payment or other form of benefit.
- The payment or benefit must be legally enforceable had the promise been made in advance.
Can part payment of debt be seen as good consideration?
No. If A owes B £500 but they agree he will only pay £450. B can enforce the remaining £50 as no further consideration was given by B for the new agreement.
What are the exceptions as to when the part payment of a debt will be classed as good consideration?
- Where the debt is disputed in good faith (debt was uncertain amount to start with)
- Unliquidated claims - amount uncertain
- Payment at a different place or earlier
- A third party makes a payment - on the basis it was made in good faith to discharge the debt
- Payment is made by different means at the request of the party accepting the lesser amount
- A composition with creditors
What is promissory estoppel?
An equitable principle that gives legal effect to an agreement unsupported by consideration. It stops a party going back on their promise to do something on the basis they are ‘estopped’ from doing so.
Can promissory estoppel be used in a claim?
No, only a defence.
What elements must be present for promissory estoppel?
- There must be a clear and unequivocal promise by the promisor not to rely on existing legal rights
- The promisee must have altered their position in reliance of the promise
- It must be inequitable for the promisor to go back on their promise.
What is privity of contract?
Only the parties to a contract can sue and be sued under it.
Can a third party acquire rights in a contract?
No.
What does the Contracts (Rights of Third Parties) Act 1999 allow?
Third parties to enforce the term of a contract subject to conditions.
What are the conditions noted within the Contract (Rights of Third Parties) Act which allow a third party to enforce a term of a contract?
- The contract must expressly provide that the third party may enforce
- A term of the contract purports to confer a benefit on the third party and it must appear the parties intended the term to be enforceable by the third party.
Can terms be imposed on third parties?
No, only enforce certain terms subject to conditions.
What are exclusions to when a third party can enforce a term of a contract under the Contract (Rights of Third Parties) Act?
Does not apply to employment contracts, articles of association or if it states in the contract it will not apply.
Can parties vary or rescind a contract to the detriment of a third party without their consent?
Yes if one of the following is true:
- Third party has communicated his agreement to the term benefitting him
- Third party has relied on the term in the contract and the promisor is aware of that reliance
- The promisor can reasonably be expected to have foreseen that the third party should rely on the term and they have in fact relied upon it
What are the 5 common law exceptions to privity of contract?
- Agency
- Assignment
- Subrogation
- Collateral contracts
- Trusts
What is the common law exception of Agency to Privity of Contract?
Arises when a person authorises another person to negotiate and enter into a contract on their behalf with third parties.
When can an agent be sued under a contract?
If the agent acts for an undisclosed principle.
What is the common law exception of assignment of Privity of Contract?
A contractual right can be transferred to a third person outside the terms of the original contract.
What part of a contract can be assigned to third party?
Only the benefit of the contract and not the burden
What must happen for an assignment of contract to be fully effective?
Notice of the assignment must be given to the party liable to perform the obligation which has been transferred.
What is a novation agreement?
A new agreement where the former parties are released from the arrangement and the new parties become party to it.
What is the common law exception of subrogation in privity of contract?
In an insurance contract, the insurer has to pay a claim to the policyholder, the insurer is ‘surrogated’ to the rights of the policy holder. E.g. the insurer stands in the shoes of the policy holder and has all the same rights they would against the person for the loss.
What is the common law exception of collateral contracts to privity of contract?
Where there is a collateral contract running alongside the main contract. The contract purports to confer a benefit on a non-party.
What is the common law exception of trust to privity of contract?
If A makes a promise to B for the benefit of C, the courts might find the B holds A promise on trust for C. This allows C to enforce the promise directly against A.
What are the terms of the contract?
Its contents.
What are the types of terms of contract?
Conditions and warranties
What are conditions and warranties?
Both can either be expressly agreed or implied through statute, courts or custom and usage.
What is the difference between terms and representation?
Statements of facts made during the course of negotiations will either be incorporated into the contract itself as terms or not incorporated (these are representations)
What factors do the court take into account when deciding whether a statement is a term or representation?
- The importance of the statement
- At what stage in the negotiations the statement was made
- Whether the party making the statement had any special knowledge or information or particular skill.
How will it be determined whether a statement is a term or representation?
By the intention of the parties viewed from the perspective of a reasonable person having regarding to the conduct of the parties.
What if the importance of the distinction between a term and a representation?
If the statement turns out not to be true then it will depend on whether this was a term or a representation as to what remedy is available.
What are the classifications of a term?
Conditions or warranties
What is a condition?
A term that is so fundamental that it is said to be root of the contract.
What is the consequence of a breach of a condition?
The contract does not work without it and a breach of a condition is a repudiatory breach.
What is a repudiatory breach?
The contract is rejected altogether.
What are the remedies for a breach of condition?
The innocent party can either terminate the contract or affirm the contract. If they affirm the contract they lose their right to terminate but can still sue for damages.
What are warranties?
A term that is incidental or collateral to the contract
How will a breach of a warranty be viewed by the courts?
Because it does not form the root of the contract, any breach is regarded as less serious.
What are innominate terms?
A term which it is unclear at the outset whether it is a condition or a warranty and when the contract is concluded it is not clear how severe the consequence of a breach would be.
How would the court deal with a breach of innominate terms?
If the term is breached the courts would look at the effect of the breach of the term to determine what remedy would be appropriate.
What is the concept of ‘time of the essence’ regarding terms?
If time is of the essence in respect of an obligation, that obligation is a condition and late performance entitles the innocent party to terminate the contract.
If time is not of the essence, it is a warranty the innocent’s party only remedy is damages.
What is the general presumption of time of the essence in a commercial contract?
Time will be of the essence for delivery if a time for delivery has been agreed.
What are express terms?
Whether the contract is oral or written, a term will form part of the contract only if the party have reasonable notice of it.
How can terms be incorporated into a contract?
They can be oral or written.
What is the parol evidence rule?
If a contract is written, this rule exists to help deuce whether evidence of terms outside the contract can be taken into account.
What is the general presumption regarding the parol evidence rule?
That external evidence cannot add to, subtract from, contradict or vary the terms of a written contract.
What are the exceptions to the parol evidence rule?
Implied terms, a secondary (collateral) contract, or if the contract was always intended to be partly written and partly oral.
What is the entire agreement clause?
A common term in a written contract which provides that the written agreement constitutes the entire agreement between the parties.
What is the purpose of the entire agreement clause?
To prevent any further evidence being disputed as being a term into the contract.
