Contract Flashcards
What is a contract?
Promise to do something with something given in return
When looking at a contract what are the stages?
- Agreement
- Validity of the agreement
- Terms of the contract
- Discharge of contract
- Remedies
What is privity of contract?
Only those who are parties to a contract are bound by it and can benefit from it
Where is the rule of privity set?
- Can be seen in Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd (1915) but rule modified by the Contracts Act 1999
What does the Contracts (Rights of Third Parties) Act 1999 allow with the rule of privity?
- Act allows that someone who is not a party to a contract (a ‘third party’) may enforce the contract against either or both of the actual parties to the contract if:
- The third party is expressly identified by name, or as a member of a class or as answering a particular description, and
- The contract expressly provides the third party may enforce the contract, or
- The contract term is an attempt to confer the benefit of the term on the third party
What is privity?
A contract is only valid if it’s between the two parties or the parties negotiating the contract
What is the relationship between privity and consideration?
- The rule of privity can be seen as based on the rule that consideration must move from the promise e.g. Tweddle v Atkinson (1861)
- This rule is seen as causing injustice and the courts have tried to find ways of avoiding the rule
- In Jackson v Horizon Holidays Ltd (1975), the rule would prevent all members of a family party as he had made the booking for everyone
What are the exceptions when the rule of privity doesn’t apply?
- Agency - an agent, who makes a contract on behalf of another, the principal, therefore it is the principal that is party to the contract.
- Collateral contracts - if there is a second contract alongside the main agreement, this can count - Shanklin Pier Ltd v Detel Products Ltd (1951)
- Restrictive covenants - in land law, if a purchaser of land promises to the seller that they will not do something on that land then that promise ‘runs with the land’ and will therefore bind future purchasers also - Tulk v Moxhay (1848)
What is intention to create legal relations?
The parties to a contract expressly agree that the contract is legally binding and therefore enforceable in court
What intention must be present for there to be a valid contract?
An intention to create legal relations
Where is an intention to create legal relations presumed?
- This is presumed in a business agreement and is presumed not to exist where the agreement is purely of a social and domestic nature
How does intention to create legal relations work relating to business agreements?
- There is a presumption in business agreements that a contract will be legally binding. This is not necessarily the case in a domestic agreement.
- ‘Gentlemen’s agreements’ are binding in honour only - Jones v Vernons Pools (1938)
- In Edwards v Skyways Ltd (1969), Skyways tried to argue that their agreement to make an ‘ex gratia’ (moral obligation/goodwill) payment in a redundancy was not legally binding because the payment was voluntary. This failed however because they had previously agreed to make the payment, which was binding.
- The Offer of a free gift also creates problems. Where this is to promote a business it can still be held to be legally binding - Esso Petroleum Co. Ltd v Commissioners of Customs and Excise (1976)
- Competition prizes. Just as the free gift is designed to promote the company offering it - McGowan v Radio Buxton (2001)
- ‘Letter of comfort’ - Kleinwort Benson Ltd v Malaysian Mining Corporation (1989)
What is a letter of comfort?
- A written assurance usually provided by a parent company in respect of its subsidiary’s financial obligations to a bank
- It is usually where the parent company wishes to give some assurance to the lender in respect of the subsidiary’s ability to repay the loan but has no obligation to pay on its behalf
Can cases fall in between business and domestic agreement?
Sometimes there are cases that fall between business and domestic agreement - Sadler v Reynolds (2005)
How does social and domestic arrangements work in intention to create legal relations?
- Social and domestic arrangements are not regarded as legally binding, but this presumption can be rebutted - Balfour v Balfour (1919), not legally binding. Merritt v Merritt (1970), legally binding - reached an agreement when splitting up so you still have to honour it (still double check this case)
- Jones v Padavatton (1969) - the court had to decide whether a domestic agreement had legal intent.
- Simpkins v Pays (1955) - if money changes hands, it is more likely to be a business arrangement.
- Parker v Clarke (1960) - if parties put their financial security at risk for sake of the agreement, then it is also judged to be more legally binding.
