Contract Flashcards
What is a contract?
A legally binding agreement which imposes duties on the parties
What contracts require writings?
- Guarantee: party a promises party B will perform their obligations
- Contract for sale/ other disposition of an interest in land
What is a deed?
- document which makes clear it is a deed
- executed by parties to it in presence of a witness
- Delivered (parties show intention to be bound) e.g. Delivered as a deed on [date]
Examples:
1. Promise where nothing is received in return
2. conveyance (transfer) of land
Difference between Contracts by Deed and contracts not by deed
Time limit in which a claim of breach can be made
Deed: 12 years from the date of breach
Without Deed: 6 years from date of breach
What are the Elements of a contract?
- Agreement
- Offer: promise, undertaking, commitment
- Acceptance - Consideration
- bargained for exchange of something of legal value
-substitute for consideration (promissory estoppel) - Intent
- presumption of intent in commercial arrangements
What are the requirements of an offer?
- Must be definite and certain
- e.g. ‘‘I WILL’ sell you my car for £5000’ not ‘‘I might’ sell you a car for around £5000 - Communicated to the Offeree
- response for info not sufficient to be offer
What is an invitation to treat?
First step in negotiations BUT NOT an offer
Examples:
1. Advertisements
2. Shop sales (goods displayed)
3. Price Lists
4. Tenders (invitation to submit bid, and submissions are offers)
4. Auctions (makes offers by placing bids)
5. Price Quotations - difficult to ascertain, is a question of fact based on intention of parties
What is the Exception of Unilateral Contracts?
When an advertisment does constitute an offer
Arises when person making offer promises to do something if the person receiving offer does something in return and then the offeree actually does it
- completed performace is required
- cannot claim promise after performance if you did not know of the promise
- beginning performance makes offer irrevocable once performance has begun
- however no contract until offeree completes performance and can withdraw before then
What is a Collateral Contract?
Distinct contract in which the offeree gives consideration for a promise by the offeror
e.g to keep an offer open for offeree for a certain period if offeree pays 500
How can an OFFER be Terminated
- Revocation by Offeror
- Effective when received
- Can be expressed or implied
Limit: Collateral Contracts, Beginning Performance of Unilateral Contract - Rejection by Offeree
- Effective when received
- Express rejection, counteroffer, lapse of reasonable time
Limit: generally cannot reject if accepted, a mere enquiry is not termination, rejection/counter offer of collateral contract does not terminate original offer - Termination by Operation of Law
- Effective when
death, insanity of either party
destruction of subject matter,
supervening illegality,
failure of any condition contained in offer
What is the requirement for Acceptance
- Only person whom offer addressed can accept
- Cannot be assigned (unless there is an agent acting on behalf)
- Offeree must KNOW of the offer
- Acceptance will be by any method reasonable under the circumstances (e.g. promise to perform or through performance)
- Unless a particular method of acceptance is required by the offeror
- Exception to rule: when method is different but no less advantageous - General rule that silence is not acceptance
- offeree can accept offer by conduct
- Acceptance must be communicated
- this can be waived (seller packs goods and delivers them - acceptance of offer) - Postal Rule
What is the Postal Rule?
- Acceptance is effective when posted
UNLESS:
a, letter not properly addressed or stamped
b, not reasonable for acceptance to be communicated by post
c, offer stipulates that acceptance is not effective until received
d, does not apply to instant methods such as email
BUT
2. Rejection is effective on receipt
3. Revocation effective on receipt
What happens if there is a ‘Battle of Forms’?
In commercial situations, both parties may wish to conclude the contract on their own standard terms.
The last party to make an offer on their own terms is likely to win the battle
Offeror might include a Prevail Clause: that their term will prevail over all, in order to win battle of forms
BUT - a counteroffer rejects these clauses.
What presumptions and rebuttals are there to an intention to create legal relations?
Domestic situations
- parties don’t intend to be legally bound
Social Situations
- no intention UNLESS their dealings are within a commercial context
Commercial Situations
- strong presumptions that parties intend to be legally bound
BUT - if agreemnt states:
‘binding in honour’, ‘subject to contract’ - NO INTENTION
Rule on Capacity for Minors
Minors - aged under 18
- contract entered into by minor is voidable by minor
- minors can enforce contracts but not bound until they ratify when 18
EXCEPTION:
- contract for necessary goods or services at a reasonable price
- employment contracts
- contract for the acquisition of a permanent interest in property binding on minors unless they repudiate contract
- Minors Contracts Act 1987: court may require minor to transfer property back to them if its just and equitable to do so
Rule on Lack of Mental Capacity and Companies
contract voidable by person who lacks mental capacity if the other party knew they lacked capacity
- can ratify upon recovery
- intoxication: not bound by other contracts if other party aware of intoxication
-exception of necessaries
Companies:
- separate legal entity
- has capacity in its own name
What is consideration?
The price for which the promise or action of the other party is bought
Must be provided by the parties themselves
If party to contract does not provide consideration, contract is unenforceable - unless it was a deed
What is considered ‘good consideration?’
Consideration that is sufficient but it need not be adequate.
Court not concerned with whether it was a good deal/had economic value
HOWEVER, court will still require the consideration to have some value in the eyes of the law and not be wholly illusory
Q: What is bad consideration?
A: Consideration that includes
1. Performance of an existing contractual duty owed to the person making the promise (unless it confers a practical benefit),
2. Performance of an existing statutory duty,
3. Illusory consideration
4. Past consideration.
5. Part Payment of Debt (with exceptions)
What is the exception to the rule that performance of any existing obligation, owed under contract to person making promise, is not good consideration?
Exception: Practical Benefit
If performance of an existing contractual duty confers a practical benefit on party offering additional consideration.
E.g. avoidance of a monetary sanction by virtue of a time penalty clause in a construction contract
Q: What are the exceptions to past consideration being considered bad?
A: Implied understanding of payment for an act or promise given at the promisor’s request, where the act was done at the promisor’s request, parties understood it was to be remunerated, and it would be legally enforceable if made in advance.
Q: When is the performance of an existing contractual duty owed to a third party considered sufficient consideration?
If duty already owed to a third party, promise to perform the same duty to someone else is valid consideration
Q: List the exceptions to part payment of a debt being bad consideration.
A: Exceptions include:
- Debt disputed in good faith,
- Unliquidated claims,
- Payment at a different place, time or means
- Third party makes payment,
- Payment made by different means,
- A composition with creditors. (agreement by creditors to accept lesser amount)
Q: What is promissory estoppel?
- Equitable principle that gives legal effect to an agreement unsupported by consideration
- Prevents party from going back on their promise to do something on basis they are ‘estopped’
- Shield not sword
- For continuing obligations (e.g. rent): suspensory effect only
What are the conditions for promissory estoppel to apply?
Conditions:
a) Clear and unequivocal promise (express/implied) by the promisor not to rely on existing legal rights
b) Promise must have altered their position in reliance on the promise
c) Must be inequitable for the promisor to go back on their promise
Q: What is the basic principle of privity of contract?
A: Only parties to a contract can sue and be sued under it.
Q: What is the key statute that provides exceptions to the privity of contract rule?
A: The Contracts (Rights of Third Parties) Act 1999 (CRTPA).
Q: Under CRTPA, when can a third party enforce a term in the contract?
1.) The contract expressly provides the third party may enforce the term
2.) A term of the contract purports to confer a benefit on the third party
3.) It appears from terms of the contract that parties intended the term to be enforceable by third party
4.) Person must be expressly named in contract or be a member of a benefiting class of people described in the contract
Q: Who must be expressly named or described in the contract for a third party to enforce a term?
A: The third party must be expressly named in the contract or be a member of a benefiting class of people described in the contract.
Q: Can CRTPA impose obligations on third parties?
A: No, it only allows third parties to benefit from a contract but does not impose obligations on them.
Q: Does CRTPA apply to employment contracts or articles of association?
A: No, it does not apply to employment contracts, articles of association, or if the contract explicitly states that CRTPA will not apply.
Q: Under what conditions can parties not vary or rescind a contract to the detriment of a third party?
A: If the third party has communicated their agreement to the term, relied on the term and the promisor is aware, or if the promisor should have foreseen the reliance and the third party has in fact relied on it.
What are the Common Law Exceptions to privity of contract
- Agency
- Assignment
- Subrogation
- Collateral Contract
- Trusts
Q: What is the common law exception to the privity rule involving agency?
A: An agent negotiates and enters into a contract on behalf of a principal with third parties. The agent is not a party to the contract, but the principal is privy to it.
Q: Can an undisclosed principal and an agent sue or be sued under a contract?
A: Yes, if the third party is unaware of the principal and deals with the agent, both the agent and the undisclosed principal can sue or be sued.
Q: What is assignment in the context of contracts?
A: The transfer of a contractual right to a third party outside the terms of the original contract. Only the benefit can be assigned, not the burden.
Q: What must happen for obligations to be transferred along with benefits in a contract?
A: The old and new parties must enter into a novation agreement, releasing the former parties and making the new parties a part of the contract.
Q: What is subrogation in the context of insurance?
if insurer has to pay a claim to the policyholder, insurer is ‘subrogated’ to the rights of the policy holder.
Insurer stands in the shoes of the policyholder and has all rights that policyholder would have against person responsible for loss.
Q: How does subrogation apply to guarantor-guarantee relationships?
if guarantee is called upon and the guarantor is required to pay a creditor, guarantor is subrogated to the rights of the creditor – so can sue the debtor in creditors place. [see 316 for examples]
Q: How do trusts create an exception to privity of contract?
A: If A makes a promise to B for the benefit of C, the courts may say B holds A’s promise on trust for C, allowing C to enforce the promise directly against A.
(trust can be implied but will not be implied if there is no indication of it being parties intention).
Q: What are terms in a contract?
Terms: the contents of a contract as agreed by parties. They can be expressly agreed or implied by statute, custom, and usage.
Types of terms: conditions, warranties. Innominate terms
Q: What are conditions in a contract?
a.) Fundamental term that goes to the root of the contract;
b.) breach of condition is a repudiatory breach – innocent party can terminate contract and claim damages.
c.) If they affirm this breach they lose the right to terminate but can sue for damages
Q: What happens if a party affirms a breach of condition?
A: They lose the right to terminate but can still sue for damages.
Q: What are warranties in a contract?
A: Terms that are incidental or collateral to the main terms; breach does not allow termination of the contract.
Q: What are innominate terms?
A: Terms where it is unclear at the outset if they are conditions or warranties; courts determine the remedy based on the effect of the breach.
Q: What happens if the breach of an innominate term causes substantial loss of contract benefit?
A: It is treated as a condition.
Q: What is the significance of “Time is of the Essence” in a contract?
A: If time is of the essence, it is a condition; otherwise, it is a warranty.
Q: What are representations in contract negotiations?
A: Statements of fact or law intended to induce a party to enter the contract but are not incorporated as terms.
Q: How do courts determine if a statement is a term or representation?
A: By considering the importance of the statement, stage of negotiations, and special knowledge or expertise of the party.
Q: What is the Parol Evidence Rule?
A: External evidence cannot add, subtract from, contradict, or vary the terms of a written contract, with some exceptions (such as incorporated terms or implied terms)
