Contract

Question 1

What three elements must be present for their to be an enforceable contract?

Answer 1

1. The parties must be in agreement
2. Have intended to be legally bound.
3. The agreement must be supported by consideration.

Question 2

What is consideration?

Answer 2

Something of value must have been given by each party to support their agreement.

Question 3

Can a simple contract be made in any form?

Answer 3

Yes, a simple contact can be made in any form; written, oral, or through the conduct of the parties.

Question 4

What types of contract are required to be in writing?

Answer 4

1. Guarantees - where A (the guarantor) promises that B will perform their obligations, for example, to pay a debt.
2. A contract for the sale or other disposition of an interest in land
3. Consumer credit agreement.

Question 5

What is contract by deed?

Answer 5

A deed is a document which makes clear on its face that it is intended to be a deed. It must be executed by the parties to it in the presence of a witness and delivered. Delivered in this context means that the parties to the deed must have shown their intention to be bound by it. Typically this is done by including words such as “delivered as a deed on X date”.

Question 6

What types of contract must be made in a deed to be enforceable?

Answer 6

1. Promises where nothing is received in return e.g. to make a gift.
2. Conveyance of land

Question 7

What is an agreement in a contract?

Answer 7

This is where one party accepts the other’s offer. This is made up of an offer (promise, undertaking, or commitment with definite and certain terms communicated to offeree), and acceptance before termination by revocation, rejection, or operation of law.

Question 8

What is an offer in a contract?

Answer 8

An offer creates a power of acceptance in the offeree and a corresponding liability on the part of the offeror. For a communication to be an offer, it must create a reasonable expectation in the offeree that the offeror is willing to enter into a contract on the basis of all material terms contained in the offer.

For a communication to be an offer, it must contain an expression of a promise, undertaking, or commitment to enter into a contract rather than a mere invitation to begin preliminary negotiations - an invitation to treat. In other words there must be an intent to enter into a contract.

Question 9

What is an offeror?

Answer 9

The person, company, or organisation that makes an offer to buy something from another party. The offeror is legally bound to the offer once it is accepted by the offeree.

Question 10

What is an offeree?

Answer 10

Refers to the party in a contract negotiation that receives an offer and has the power to accept the offer, creating a binding contract.

Question 11

What is an invitation to treat?

Answer 11

An invitation to treat can be described as the first step in the negotiations for a contract, but it falls short of actually being an offer. An invitation to treat is often an invitation to the other party to make an offer.

E.g. advertisements, shop sales, price lists, auctions, price quotations.

Question 12

What is a unilateral contract?

Answer 12

It is the exception to the invitation to treat, in these cases, an advertisement does constitute an offer. A unilateral contract arises when the person making the offer promises to do something if the person receiving the offer does something in return and the offeree actually does what the offeror has asked.

Question 13

Can an offer be accepted after it is terminated?

Answer 13

No, an offer cannot be accepted after it has been terminated. An offer may be terminated by an act of either party or by operation of law.

Question 14

What is revocation?

Answer 14

Where an offeror may terminate an offer. It is the retraction of an offer by the offeror. An offeror may revoke by directly communicating the revocation to the offeree at any time before acceptance. An offeror may also be revoked indirectly if the offeree receives (1) correct information, (2) from a reliable source (3) of acts of the offeror which would indicate to a reasonable person that the offeror no longer wishes to make the offer.

For revocation to be effective it must be received by the offeree. It does not need to be made directly to the offeror, it can be done by a reliable third party.

Offers can also be revoked at will by the offeror at any time up until acceptance.

Question 15

What is a collateral contract?

Answer 15

A distance contract in which the offeree gives consideration for a promise by the offeror, for example, not to revoke an outstanding offer. An offer in a unilateral contract becomes irrevocable once performance has begun. There is still no contract until the offeree has completed performance, so the offeree may withdraw at any time until then.

Question 16

What is a bilateral contract?

Answer 16

Arises from an offer that can be accepted by a promise or by performance. Once performance begins, it is too late to terminate the offer. Beginning performance does not simply make the offer irrevocable, rather beginning performance constitutes an acceptance and a contract has been formed.

Question 17

How can an offeree terminate an offer?

Answer 17

By rejection. Either expressly or impliedly, such as through a counteroffer, or a lapse of time.

Question 18

What is express rejection?

Answer 18

A statement by the offeree that they do not intend to accept the offer. Such a rejection will terminate the offer, the offeree cannot accept the offer in the future if the offeree changes their mind. A rejection is effective when received by the offeror.

Question 19

What is a counteroffer as rejection?

Answer 19

An offer made by the offeree to the offeror which relates to the same subject matter as the original offer but differs in its terms. A counteroffer is both a rejection of the original offer and a new offer. It terminates the original offer and reverses the roles of the parties.

Question 20

What is rejection by lapse of time?

Answer 20

An offer may be terminated by the offeree’s failure to accept within the time specified in the offer or if no deadline was specified, within a reasonable period. What constitutes a reasonable period will be determined by the courts, taking into account the subject matter of the contract.

Question 21

What is termination by operation of law?

Answer 21

An offer may be terminated by operation of law through any of the following events:

1. Death of the offeror or the offeree.
2. Destruction of the proposed contracts subject matter.
3. Supervening illegality.
4. Failure of any condition contained in the offer.

Question 22

What is acceptance?

Answer 22

It is a manifestation of unqualified assent to the terms of an offer. The acceptance must be unqualified because any attempt to vary the terms of the offer would constitute a counteroffer, which ends the original offer and therefore makes it incapable of acceptance.

The offeree must know of the offer in order to validly accept it.

Question 23

What are the methods of acceptance for a bilateral contract?

Answer 23

Unless a method is stipulated by the offeror, an offer will be construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circumstances.

1. Method of acceptance stipulated by offeror - if a particular method is required by the offeror and the offeree does not use that method, then there has been no valid acceptance.
2. Silence as acceptance - an offeree cannot be forced to speak or have silence treated as acceptance. The law requires positive steps to be taken by the offeree before they can be bound by a contract. Silence is not a positive step.

Question 24

What are the methods of acceptance for a unilateral contract?

Answer 24

The offeror promises to perform on complete by the offeree of a requested act. Once the act is completed, a contract is formed.

1. Offeree has no obligation to complete performance - it is generally accepted that an offer to form a unilateral contract is not accepted until performance is completed. The offeree, however, is not obliged to complete performance merely because performance has begun, as only complete performance constitutes as an acceptance of a unilateral offer.
2. Notice - the offeree is not required to give the offeror notice that he has begun the requested performance but is required to notify the offeror within a reasonable time after performance has been completed.

Question 25

What is acceptance by conduct?

Answer 25

An offeree can accept an offer by conduct but the offeror must be aware of the offerees conduct so as to satisfy the requirement of communication. E.g. in a sale of goods context, it is common for acceptance to take place by the seller delivering the goods or by the buyer accepting delivery of the goods.

Question 26

What is a bilateral contract?

Answer 26

A legally binding agreement between two or more parties where each party promises to perform a specific action in exchange for the other party’s action.

Question 27

What is a unilateral contract?

Answer 27

A legally binding agreement where one party makes a promise in exchange for the other party performing a specific act. The party making g the promise is the offeror and the party performing is the offeree.

Question 28

What is the postal rule?

Answer 28

Acceptance by post creates a contract at the moment of posting, even if the letter gets lost in the post, unless (1) the letter is not properly addressed and stamped, (2) it was not reasonable for the acceptance to be communicated by post, or (3) the offer stipulates, expressly or by implication, that acceptance is not effective until received, that is, the parties have effectively contracted out of the postal rule. The postal rule only applies to acceptance. It does not apply to other events in the contract such as rejection or revocation. It also does not apply to instantaneous methods of communication such as email.

Question 29

Is a contract legally binding if the parties did not intend to be legally bound by it?

Answer 29

No, for a contract to be binding, the parties need to have intended to be legally bound by it. This intent must have been mutually communicated either expressly or impliedly.

Question 30

What are the rebuttals presumptions based on the relationship of the parties?

Answer 30

1. Domestic situations - there is a presumption in domestic arrangements that the parties do not intent to be legally bound by their agreements. This can be rebutted by objective evidence to the contrary. However, if either party has actual knowledge that the other does not intent to be legally bound, the agreement will not be legally binding. 2. Social situations - the courts will presume there was no intention to be legally bound unless there is evidence to the contrary to rebut this presumption. The courts have tended to find that the presumption is rebutted in cases where friends or family members club together to enter a race or a competition, even though otherwise the relationship would be classed as social. 3. Commercial situations - strong presumption that the parties to a commercial agreement intend to be legally bound. The presumption in this case is not easy to rebut and there must be a clear and unambiguous evidence before a court will do so, taking an objective view of the evidence. To rebut the presumption, parties may state in their agreement that it is binding in honour only or subject to contract.

Question 31

What is capacity to enter into a contract?

Answer 31

A party to a contract must have capacity to enter into it. The law protects certain vulnerable groups such as minors or the mentally incapacitated, from being legally bound by contracts that they either do not understand or did not intend to make. Lack of capacity will result in the contract being unenforceable.

Question 32

What are the exceptions to the capacity rule regarding minors?

Answer 32

Minors - any contract entered into by a minor for necessary goods or services at a reasonable price will be binding. Necessaries are defined by Sale of Goods Act 1979 as goods suitable to the condition in life of the person concerned and to their actual requirements at the time of the sale and delivery. They can also enter into contracts of employment provided the terms of the contract are of benefit to them.

Question 33

What is the rule in relation to intoxication and capacity?

Answer 33

If someone becomes so intoxicated that they are unable to understand what they are doing, in the same way as those with a mental incapacity, they will have to pay a reasonable price for necessaries, but they are not bound by other contracts if the other party was aware of their incapacity. There is no authority on the position as regards drugs or other similar substances, but it can be presumed that the position would be held to be the same.

Question 34

What is the difference between executed and executory consideration?

Answer 34

If the act or forbearance is promised in the future, it is called executory consideration. When the act or forbearance is performed, the consideration becomes executed. Sometimes the same act can constitute both acceptance of the other party’s offer and performance of consideration - mostly in unilateral contracts.

Question 35

What does consideration need to have in the eyes of the law to be sufficient?

Answer 35

Consideration needs to have some value, even if very small. Consideration is simply about ensuring that the parties have agreed on an exchange of promises. The courts will not be concerned as to whether that bargain represents a good deal for either or both of the parties. Inadequacy of consideration may be evidence of a vitiating factor that could render a contract void or voidable because of mistake or duress.