CONTRACT FORMATION

Question 1

Valid contract - meaning and timeline

Answer 1

Legally binding agreement between two parties in word, writing, action.

1. Offer
2. Acceptance (1 & 2 create and agreement)
3. Consideration - value
4. Intention
5. Capacity & form

Question 2

Void & voidable

Answer 2

Void - NO contract, return goods
Voidable - can be set aside ‘by the injured party’ e.g. factors

Question 3

Factors to be void or voidable

Answer 3

1. Lack of capacity - sound mind, over 18 - VOIDABLE
2. Absence of free will - duress, undue influence - VOIDABLE
3. Illegal - VOID
4. Misrepresentation - incorrect statement of fact with intent to get other party to agree to contract - VOIDABLE

Question 4

Form

Answer 4

1. Contracts may be VALID but UNENFORCEABLE, contracts may be oral.

Question 5

Form exceptions

Answer 5

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.

Question 6

‘Battle of the forms’

Answer 6

When both parties have standard forms and it is not clear which should be used, neither will take effect.

Question 7

Invitation to treat

Answer 7

e.g. an advertisement, tickets on goods, auction - not necessarily an offer

Question 8

Invitation to treat case - Carlill

Answer 8

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.

Question 9

Termination of offer

Answer 9

Rejection

Lapse of time - can be expressed or ‘reasonable time’

Revocation of offer - only when this has been communicated

Failure of a pre-condition

Question 10

Acceptance

Answer 10

Unqualified agreement to all terms of the offer.

Question 11

Acceptance terms

Answer 11

Must know of an offer to accept.

Express by a positive act.

Silence is not enough.

Question 12

Communication

Answer 12

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.

Question 13

Exceptions to communication

Answer 13

1. Waived - unilateral contracts:
   - Reward type contract, offeror can impliedly or expressly waved the means for communication e.g. reward (Carlill)
2. 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)

Question 14

Intention to create legal obligations

Answer 14

No contract if no intent to create ‘legally binding’.

Question 15

Intention to create legal obligations (rebuttable presumptions) - rebuttable means considered true until disproved by evidence.

Answer 15

1. 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.
2. 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.

Question 16

Consideration

Answer 16

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.

Question 17

3 types of consideration

Answer 17

1. Executed consideration (valid from now) - Act performed in return for a promise (at the time)
2. Executory (valid from now) - Promise given for a promise (future)
3. Past consideration (usually invalid - can’t form a legally binding agreement) - Promise was made even after act was done, even if in writing (past)

Question 18

Invalid consideration

Answer 18

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)

Question 19

Exceptions to consideration

Answer 19

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

Question 20

INSUFFICENT consideration

Answer 20

1. Performance of a statutory duty (required by law) e.g. turning up for court.
2. 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)
3. Performance of contractual duty owed to a third party e.g. C contracted B to deliver goods.
4. Delaying existing rights IF it has some value or giving up some value.

Question 21

(William v Roffey Bros & Nicholls) -INSUFFICENT consideration

Answer 21

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.

Question 22

Waiver of existing debt - Foakes v Beer

Answer 22

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

Question 23

Exceptions - Foakes V Beer

Answer 23

Wavier will be binding

1. Alternative consideration e.g. goods (doesn’t have to be as much as original value of debt)
2. Bargain between creditors e.g. CVA pg 114
3. Third party payment - parents agree to pay less in full settlement (can sue for remainder).
4. Early payment

Question 24

Terms of a contract - express terms

Answer 24

1. Oral - may be evidence issues (will not vary contract terms unless states that in contract)
2. Written - even if parties have not read them.

Question 25

Terms of a contract - statement of FACT BEFORE contract was entered into.

Answer 25

1. Breach of contract - if terms were in contract
2. Misrepresentation - if terms were not in contract

Whether terms should be in a contract: court will consider….
- Specialist knowledge
- Time passed between statement made and contract
- Why statement not included in contract
- Importance attached to statement

Question 26

Implied terms

Answer 26

Implied by law - statutory rights - can override terms in contract
Court
Reference to custom if not inconsistent with terms in contract e.g. customary law

Question 27

Privity of contract

Answer 27

Only a person who ‘is party’ to a contract (has provided consideration) has enforceable rights and is bound by.

Question 28

Exceptions to the privity rules

Answer 28

Road traffic act e.g. car insurance
Agency agreements
Executors if a will
Rights of third parts:
- Contract expressly identifies them
- Confers benefit on him e.g. extension