CONTRACT FORMATION Flashcards
Valid contract - meaning and timeline
Legally binding agreement between two parties in word, writing, action.
- Offer
- Acceptance (1 & 2 create and agreement)
- Consideration - value
- Intention
- Capacity & form
Void & voidable
Void - NO contract, return goods
Voidable - can be set aside ‘by the injured party’ e.g. factors
Factors to be void or voidable
- Lack of capacity - sound mind, over 18 - VOIDABLE
- Absence of free will - duress, undue influence - VOIDABLE
- Illegal - VOID
- Misrepresentation - incorrect statement of fact with intent to get other party to agree to contract - VOIDABLE
Form
- Contracts may be VALID but UNENFORCEABLE, contracts may be oral.
Form exceptions
Must be in writing - transfer of land, consumer credit agreements.
Must be evidenced in writing (signature - can be an email with typed in name) - guarantees.
‘Battle of the forms’
When both parties have standard forms and it is not clear which should be used, neither will take effect.
Invitation to treat
e.g. an advertisement, tickets on goods, auction - not necessarily an offer
Invitation to treat case - Carlill
Advert with reward to anyone who contracts illness after using the product for 2 weeks.
Decision - offer has been made to world at large, but this is an offer than can be accepted e.g. through behaviour using the smokeball.
Termination of offer
Rejection
Lapse of time - can be expressed or ‘reasonable time’
Revocation of offer - only when this has been communicated
Failure of a pre-condition
Acceptance
Unqualified agreement to all terms of the offer.
Acceptance terms
Must know of an offer to accept.
Express by a positive act.
Silence is not enough.
Communication
Generally, acceptance is not effective until communicated to the offeror.
Any reasonable means.
Method prescribed in contract or in a way that is not slower.
Exceptions to communication
- Waived - unilateral contracts:
- Reward type contract, offeror can impliedly or expressly waved the means for communication e.g. reward (Carlill) - Postal rule:
- Acceptance is valid from date posted regardless of whether received.
- Conditions
Parties can decide whether this applies.
Letter must be correctly addressed and correct postage paid’
Applies to acceptance and not revocation
Notice in writing overrides postal rule (needs to be received and read)
Intention to create legal obligations
No contract if no intent to create ‘legally binding’.
Intention to create legal obligations (rebuttable presumptions) - rebuttable means considered true until disproved by evidence.
- Social and domestic e.g. husband and wife
Presumed - no intention for legally binding contract.
*Can be rebutted if husband and wife are separated when agreement was made. - Commercial e.g. buying from a shop, ex-gratia payments to employee
Presumed - intention for legally binding contract.
*Difficult to rebut (ex-gratia e.g. a morale obligation rather than a legal one) is not sufficient to rebut.
Consideration
Given value or promise of something in exchange for something else of value.
It DOES NOT have to be ADEQUATE (consideration equal in value from both parties)
It DOES have to be sufficient (some identifiable value in order to be valid) e.g. payment of rent for £1 is okay.
3 types of consideration
- Executed consideration (valid from now) - Act performed in return for a promise (at the time)
- Executory (valid from now) - Promise given for a promise (future)
- Past consideration (usually invalid - can’t form a legally binding agreement) - Promise was made even after act was done, even if in writing (past)
Invalid consideration
Past consideration - as above.
DISTINGUISH FROM
Implied promise to pay - promise is made BEFORE consideration is provided e.g. service industry overtime (assumed will get paid for it)
Exceptions to consideration
CONTRACTS MADE BY DEED (value is not passed between both parties) : e.g.
Conveyancing - transfer of property
Leases over three years
Promises unsupported by consideration e.g. charity donations over a number of years
INSUFFICENT consideration
- Performance of a statutory duty (required by law) e.g. turning up for court.
- Performance of existing contractual duty - would have to show going above and beyond usual duties and/or other party would received some practical benefit.
(William v Roffey Bros & Nicholls) - Performance of contractual duty owed to a third party e.g. C contracted B to deliver goods.
- Delaying existing rights IF it has some value or giving up some value.
(William v Roffey Bros & Nicholls) -INSUFFICENT consideration
Performance of existing contractual duty:
Case: D subcontracted C to refurbish a block of flats. C found himself in financial difficulties so D promised to pay extra £10,300. D later refused to pay full amount.
Decision: Sound commercial relations. D’s promise WAS NOT made as a result of C’s duress or fraud. D received the added practical benefit of not having to engage someone else to complete the work and avoiding a penalty clause.
CONSIDERATION WAS SUFFICIENT.
Waiver of existing debt - Foakes v Beer
Owen £10, given £5, entitled to due £5
If party accepts part payment of debt in full satisfaction, this wavier should be supported by consideration.
Foakes V Beer:
- D obtained judgement against C (assuming for lower debt than originally owed)
- Judgement debts bear interest from the day of the judgement.
- D accepted the payment terms by installments with no mention of interest.
- C paid loan in full but with no interest.
- D claimed interest as saying the terms he agreed to were not supported by consideration.
Decision: D is entitled to interest as no consideration has been given for the ‘wavier of rights against D’. Consideration had not been given by C
Exceptions - Foakes V Beer
Wavier will be binding
- Alternative consideration e.g. goods (doesn’t have to be as much as original value of debt)
- Bargain between creditors e.g. CVA pg 114
- Third party payment - parents agree to pay less in full settlement (can sue for remainder).
- Early payment
Terms of a contract - express terms
- Oral - may be evidence issues (will not vary contract terms unless states that in contract)
- Written - even if parties have not read them.
