Contract Formation Flashcards
What is the Difference between a Unilateral and Bilateral Contract?
- In Unilateral Contracts, the Offeree’s Performance is Exchanged for the Offeror’s Promise; whereas
- In Bilateral Contracts, Promises for Performance are Exchanged by both Parties.
What are the Requirements of a Valid Offer?
Clarity and Certainty. An Offer must:
- Demonstrate ICLR.
- Be capable of Acceptance.
- Outline all material Terms.
- Be communicated to the Offeree.
What is an Invitation to Treat?
A first step in Negotiations. This often takes the form of:
- Displays.
- Auctions.
- Advertisements.
- Invitations to Tender.
When will an Advertisement constitute a Valid Offer?
It is Clear, Certain, and demonstrates ICLR.
When will an Invitation to Tender constitute a Valid Offer?
- It expressly undertakes to accept the highest or lowest bid.
- It implies that all properly submitted Tenders will be considered, which happens if:
- There is absolute deadline for submission.
- The Tenders are solicited from specified Parties known to the Requesting Party.
- The Requesting Party establishes absolute, non-negotiable conditions for submission.
In an Auction, what indicates Acceptance of the Bidder’s Offer?
The fall of the Auctioneer’s hammer.
What is the Difference between a Reserve and Without Reserve Auction?
- Reserve Auctions have minimum prices for Goods; if not met, the Auction House retains the Goods.
- Without Reserve Auctions expressly undertake to sell to the Highest Bidder, regardless of the sum.
Accordingly, in Without Reserve Auctions, there are in fact two contracts:
- A Bilateral Contract regarding the sale of Goods between the Bidder and Auctioneer; and
- A Unilateral Contract regarding the ‘Without Reserve’ status of the Auction.
What are the Methods of Terminating an Offer?
- Rejection.
- Revocation.
- Lapse of Time.
When is an Offer Rejected?
The Offeree:
- Presents a Counter-Offer.
- Expressly declines the Offer.
Request for Further Information ≠ Counter-Offer.
What constitutes a Request for Further Information?
- A request for elaboration or clarification regarding an Offer’s Terms; that
- Does not purport to reject or alter.
When is an Offer Revoked?
Timing of Revocation:
- When the Offeror expressly withdraws the Offer before Acceptance by posting Actual Notice to the Offeree.
- In Unilateral Contracts, Partial Performance and a willingness and ability to complete bar Revocation.
Communication of Revocation:
- Revocation is only effective once Notice reaches the Offeree, meaning the Postal Rule does not apply.
- In Unilateral Contracts, the Offeror must take reasonable steps to Notify anyone who may have read the Offer.
- The means of communication are irrelevant, so long as they are reasonably effective.
When is an Offer Lapsed?
- The Offeror dies.
- The Offeror dies and the Offeree is aware.
- The passage of Time, whether past a deadline or a reasonable amount.
What are the Requirements of Valid Acceptance?
- It is Unqualified.
- It is given by the Offeree.
- It is in response to the precise Offer.
- Communicated using the prescribed Mode of Acceptance.
Communication of Acceptance is wavied in Unilateral Contracts.
Can Silence amount to Acceptance?
No, unless:
- The Parties have a history of dealing.
- The Offeree’s conduct suggests otherwise.
Can Third Parties Communicate Acceptance?
No, unless they are so authorised by the Offeree, i.e. an Agent.
How does the Postal Rule apply to the Communication of Acceptance?
Acceptance by Post is effective when the Letter is properly Posted, meaning it is:
- Placed in an Official Letter Box; or
- Given to a Postal Operative who is authorised to receive Letters.
This is valid even if the Letter is lost or delayed.
When does the Postal Rule disapply?
- Revocation.
- The Offeree uses an incorrect address.
- The Offeror expressly Disapplies the Rule.
- It is unreasonable or inappropriate to expect Postage, e.g. when promptness is required.
What is the Position if an Instantaneous Mode is used to Communicate Acceptance?
General Rule:
- Acceptance is effective when it reaches the Offeror’s Server.
- The Offeree is responsible for verifying Receipt.
Contingencies:
- Receipt must be during Business Hours, otherwise it is effective from the start of the next Business Day.
- If the Offeror negligently impedes Receipt and does not seek clarification, they may be prevented from denying Receipt.
What is the Position if the Offer does not Prescribe a Mode of Acceptance?
Any Mode is applicable.
What is the Position if the Offer’s Prescribed Mode of Acceptance is not clearly Mandatory and Exclusive of all of other Modes?
The Offeree can use any Mode that is equally advantageous to the Offeror.
What is Consideration?
An Exchange of Value or Promises to provide Value.
What is the Difference between Executed and Executory Consideration?
- Executed Consideration is an immediate Exchange of Value.
- Executory Consideration is an Exchange of future Promises to provide Value.
What are the Positive and Negative Requirements for Valid Consideration?
Positive Requirements:
- It must be sufficient (of some value), but need not be adequate (of commensurate value).
- It must move from the Promisee.
Negative Requirements:
- It must not be past.
- It must not be a Public Duty.
- It must not be an Existing Obligation.
Under the Second Requirement, a Promisor can only enforce if they have provided Consideration.
When is Past Consideration Valid?
- An Act was done at the Promisor’s request.
- The Parties understood that Consideration would later follow.
- The Promise of Consideration was binding.
When is Performing a Public Duty Valid Consideration?
The Obligor increases its Obligation in some way.
When is Performing an Existing Obligation Valid Consideration?
- The Obligor increases its Obligation in some way; or
- The Obligee derives from continued Performance:
- A Practial Benefit that is specific, measurable, and considerable; which
- Exceeds what may be expected from mere Performance.
Classic examples of Practical Benefits include avoiding risk, loss, or penalty.
Can an Obligation to a Third-Party under one Contract be Valid Consideration in another, separate Contract?
Yes.
When is Partial Payment of a Debt Valid Considertion?
- It is paid by a Third Party, not the Debtor.
- It is accompanied by Fresh Consideration.
This applies even if the Creditor releases further liability.
What is the Difference between Legal and Factual Consideration?
- Legal Consideration is that which the Law recognises as sufficient to create a binding Contract.
- Factual Consideration is that which is actually Exchanged between the Parties, regardless of the Law’s view.
What is Promissory Estoppel?
An Equitable Doctrine that allows the Enforcement of Promises without Consideration.
What are the Requirements for Promissory Estoppel?
Use as a Defence:
- It is must be used as a Defence.
Clarity and Unequivocality:
- The Promisor must clearly and unequivocally pledge to not enforce its legal rights.
Effectual Reliance by the Promisee:
- The Promisee must rely on the Promisor’s pledge and resultantly change its position.
Inequitability of Reneging:
- It must be inequitable for the Promisor to reneg on its pledge given the Parties’ conduct.
What is the Effect of Promissory Estoppel?
- The Promisor’s Enforcement Rights are temporarily Suspended, and may be resumed with reasonable Notice.
- Exceptionally, they may be Extinguished if any Enforcement would be Inequitable.
When is the Intention to Create Legal Relations Presumed?
- When the Parties are entering into a Commercial Agreement.
- Conversely, if they are entering into a Non-Commercial Agreement, there is a Presumption against ICLR.
Both Presumptions are rebuttable, whether by drafting or conduct.
What is Capacity?
A Party’s ability to enter into legally-binding agreements.
Which Types of People lack Capacity?
- Minors.
- The Mentally Incapacble.
In which cases will Minors have Capacity?
Contracts for Necessaries:
- The Contract must be for the Minor’s benefit.
- The Contract must stipulate a reasonable price.
Contracts of Employment, Apprenticeship, or Education:
- The Contract must be for the Minor’s benefit, offering fair and tangible advantages.
‘Necessaries’ include goods or services essential to the Minor’s standard of living.
What is the effect of Entering into a Contract with a Minor?
- Unless an Exception applies, the Minor can Enforce against the Counterparty, but not vice versa.
- Once of Age, the Minor can Ratify the Contract.
When is a Person Mentally Incapable?
When at Formation:
- They are unable to make specific decisions regarding the Contract;
-
Because of an Impairment, which includes:
- Intoxication.
- Mental Illnesses.
- Cognitive Conditions.
Regarding the Mentally Incapacble, when is a Person considered Unable to Make a Decision?
They are unable to:
- Understand or retain relevant information;
- Process information to make decisions; or
- Communicate decisions.
The information must concern the foreseeable consequences of the Person’s choices under the Contract.
What is the effect of Entering into a Contract with a Mentally Incapable Person?
Contracts for Necessaries:
- The Contract must stipulate a reasonable price.
All Other Cases:
- The Contract is Binding by default unless the Person can show:
- They lacked Capacity; and
- Their Counterparty knew they lacked Capacity.
- In which case, the Contract is voidable.
‘Necessaries’ include goods or services suitable to the Person’s condition of life and actual requirements.
