Contract law Flashcards
What happens when an offeree makes a counter-offer?
When an offeree makes a counter-offer, the original offer is deemed to have been rejected and cannot be subsequently accepted.
What is the difference between a bilateral contract and a unilateral contract?
A bilateral contract is characterized by both parties assuming an obligation to each other, usually by making a promise to do something. In contrast, a unilateral contract involves one party making an offer or proposal that calls for an act to be performed by one or more parties. Only the person making the offer assumes an obligation in a unilateral contract.
What are the different contexts in which invitations to treat can occur?
Invitations to treat can occur in the following contexts: a) Advertisements, b) Display of goods for sale, c) Invitations to tender, and d) Auction sales.
What is the significance of accepting an offer by email?
Accepting an offer by email is significant because it binds the offeror.
What are the consequences when a counter-offer is accepted?
When a counter-offer is accepted, its terms become the terms of the contract instead of the terms of the original offer.
How are advertisements generally regarded in relation to invitations to treat?
Advertisements are generally regarded as statements inviting further negotiations or invitations to treat. This is because they are seen as inviting interested parties to make offers rather than constituting an offer themselves.
Can you provide an example of a unilateral contract?
A common example of a unilateral contract is when a person puts up a notice offering a reward for the safe return of their lost pet. The person putting up the notice has assumed an obligation to pay a reward to the person who returns their pet. Anyone can accept the offer by performing the required act of returning the pet to the person who put up the notice.
What are the requirements for a valid acceptance of an offer?
To form a contract, acceptance must be communicated to the offeror. Acceptance is effective from the moment it is communicated. Silence does not constitute acceptance, and the offeror cannot stipulate that silence will be acceptance.
What difficulties can arise when an offer is made on the standard terms of the offeror and the purported acceptance is made on the standard terms of the offeree?
If the terms of the offer and the purported acceptance are different in any way, the offeree has actually made a counter-offer. This can lead to complications in forming a contract.
What are the requirements for a valid offer?
In relation to offers, the requirements for a valid offer include: a) The offer must be clear and certain, and b) Invitations to treat are not considered offers.
What is the exception to the general rule regarding advertisements as invitations to treat?
The exception to the general rule is when the advertisement amounts to a unilateral offer. An example of this is the case of Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, where the advertisement was held to be a unilateral offer because it prescribed a clear act (using the smoke balls in a specified manner for a specified period but nevertheless contracting influenza) that constituted acceptance.
What is the postal rule and when does it apply?
The postal rule states that acceptance takes effect from the moment the letter of acceptance is properly posted, not from the moment it is received by the offeror. The rule applies when it is contemplated that the post would be used as a means of communication.
What are the steps involved in determining whether an acceptance is valid?
The steps involved in determining whether an acceptance is valid include: identifying whether the communication is an offer or an invitation to treat, considering whether there is further communication between the parties that constitutes a counter-offer or a request for further information, assessing whether the acceptance is in response to the offer and unqualified, checking if the acceptance was made using a valid mode of communication, and verifying if the offer was still open at the time of acceptance.
What are the requirements for a valid acceptance?
In relation to acceptance, the requirements for a valid acceptance include: a) Acceptance must be in response to the offer, unqualified, and compliant with any required mode, and b) Acceptance must be communicated.
What is the general rule regarding price-marked goods displayed in a shop window?
The general rule is that price-marked goods displayed in a shop window are not an offer for sale but an invitation to treat. This means that they are an invitation for interested parties to make offers rather than constituting an offer themselves.
How can a counter-offer be distinguished from a request for information?
If an offeree makes a counter-offer, it amounts to a rejection of the original offer. However, if the offeree responds seeking clarification or to ascertain if the offeror would consent to changing certain aspects of the offer, it may be construed as a request for further information. In this case, the original offer remains open for acceptance.
Are there exceptions to the postal rule?
Yes, there are exceptions to the postal rule. It does not apply if it is not contemplated that the post would be used, if the letter is incorrectly addressed, or if the offeror has disallowed the postal rule. Additionally, the rule does not apply to letters revoking offers.
What is the postal rule and when does it apply?
The postal rule states that when an acceptance is made by post, it takes effect from the moment the letter of acceptance is properly posted. This rule applies even if the letter is delayed or lost in the post. However, there are exceptions to the postal rule, such as when the letter was not properly posted, when it is not contemplated that the post would be used, when the letter is incorrectly addressed, or when the offeror has specifically excluded the postal rule.
What is the purpose of invitations to tender?
Invitations to tender are used when a party wishes to purchase a major item or service. The requestor invites interested parties to make offers (tenders) to be considered.
What are the requirements for a valid offer?
A valid offer must be clear and certain and display an intention to be bound. It must be distinguished from an invitation to treat, which is a first step in negotiations and cannot be accepted to form a binding contract. An offer may come to an end through rejection, lapse, or revocation.
How does acceptance by instantaneous communication differ from acceptance by post?
Acceptance by instantaneous communication, such as by telephone or email, is effective when the communication is received by the offeror. However, the offeror may be estopped from denying receipt of a communication if they are at fault for the non-receipt. Acceptance by post, on the other hand, is effective from the moment the letter of acceptance is properly posted.
What is the general rule regarding invitations to tender?
As a general rule, invitations to tender are deemed invitations to treat. This means that they are an invitation for interested parties to make offers to be considered by the requestor, who can accept or reject any tender, even if it is the most competitive.
What are the circumstances under which an offer may lapse?
An offer may lapse and become incapable of acceptance in two main circumstances: 1) when acceptance is not made within the period prescribed by the offeror, or 2) when no period is prescribed and acceptance is not made within a reasonable time. The reasonableness of the time period depends on the circumstances of the case.
What is the significance of a clear and certain offer displaying an intention to be bound?
A clear and certain offer displaying an intention to be bound is essential for the formation of a valid contract. An offer must be clear and certain in its terms, and the offeror must show an intention to be legally bound. The case of Gibson v Manchester City Council illustrates the importance of clarity and certainty in an offer.
What is the exception to the general rule regarding invitations to tender?
The exception to the general rule is when the invitation to tender expressly contains an undertaking to accept the highest or lowest bid. In such cases, the party requesting tenders has made an offer to enter into a contract with the party submitting the highest/lowest bid.
What are the four rules for a valid acceptance?
The four rules for a valid acceptance are: only the person to whom the offer is made can accept it, the acceptance must be unqualified and correspond exactly with the terms of the offer, the acceptance must be communicated to the offeror using a valid mode of communication, and the offer must still be open at the time of acceptance.
What are the four aspects to identifying an unequivocal acceptance needed to form a contract?
The four aspects to identifying an unequivocal acceptance needed to form a contract are: 1) Acceptance must be communicated to the offeror, 2) Acceptance applies from the moment it is communicated, 3) Silence does not constitute acceptance, and 4) A third party with authority can effectively communicate acceptance on behalf of the offeree.
What was the outcome of the case Gibson v Manchester City Council?
In the case of Gibson v Manchester City Council, the House of Lords held that there was no binding contract because there was never an offer made by the Council. The Council’s letter stating that it ‘may be prepared to sell’ lacked the requisite clarity and certainty to be considered an offer. It was deemed to be the first step in negotiations, lacking the intention to be legally bound.
How does the death of a party affect the lapse of an offer?
In relation to the death of the offeror, if the offeree knows about the offeror’s death, the offer will lapse. However, if the offeree is unaware of the offeror’s death, the offer may not lapse. In the case of the death of the offeree, the offer will lapse and cannot be accepted by the offeree’s representatives.
What is the general rule regarding auction sales?
The general rule is that the auctioneer’s request for bids is an invitation to treat. The bidder makes an offer, and the auctioneer is free to accept or reject it. Acceptance is indicated by the fall of the auctioneer’s hammer.
What is the significance of an auction without reserve?
In an auction without reserve, the seller promises to sell to the highest bidder, regardless of the bid amount. If an auction without reserve is expressed, the auctioneer may be sued for breach of contract if they refuse to sell to the highest bona fide bidder.
What is the importance of an intention to be legally bound in contract formation?
An offeror must show an intention to be legally bound for a contract to be formed. The case of Gibson v Manchester City Council demonstrates the significance of an intention to be legally bound. The wording ‘may be prepared to sell’ used by the City Treasurer in Gibson lacked the requisite intention to be legally bound, while the similar case of Storer v Manchester City Council demonstrated an intention to be bound
What is revocation in contract law?
Revocation refers to the act of the offeror withdrawing or revoking their offer at any time before acceptance. Once a valid acceptance has been made, the offeror is bound by the terms of their offer and cannot revoke it.
What happens if the offeree posts their acceptance?
If the offeree posts their acceptance, it is unlikely to be deemed an equally advantageous mode of acceptance to the offeror, as post is slower than email. However, a response by an alternative instantaneous communication would likely suffice.
What happens if the offeree communicates acceptance in a different mode than prescribed by the offeror?
If the offeror prescribes a mode of acceptance and the offeree communicates acceptance in a different mode, the question arises whether the communication of acceptance in the other manner will suffice. If the offeror makes it clear that only acceptance by the prescribed mode will suffice, then acceptance by that mode is required. However, if the prescribed mode is not made mandatory and the alternative mode does not disadvantage the offeror, the acceptance using the alternative mode will bind the offeror.
Can a third party communicate acceptance on behalf of the offeree?
Yes, a third party with authority can effectively communicate acceptance on behalf of the offeree.
When does revocation of an offer become effective?
Revocation of an offer is effective only upon actual notice of it reaching the offeree. If revocation is communicated by post, it takes effect from the moment it is received by the offeree and not from the time of posting. Indirect communication of revocation is also effective if the offeror has shown a clear intention to revoke and notice has reached the offeree.
What are the twin requirements of a unilateral offer in the Carlill case?
The twin requirements of a unilateral offer in the Carlill case were a prescribed act (using the smoke balls in a specified manner for a specified period but nevertheless contracting influenza) and a clear intention to be bound. The defendants’ deposit of £1,000 and the certainty of the language used in the advertisement demonstrated their intention to be bound.
What is the effect of termination on an offer?
An offer may come to an end through rejection, lapse, or revocation. Once terminated, the offer loses its legal effect and becomes incapable of acceptance. It is important to check whether the offer had been terminated before accepting it.
Can an offer be revoked after acceptance?
No, once a valid acceptance has been made, the offeror is bound by the terms of their offer and cannot revoke it. An offer cannot be revoked after acceptance.
Under what circumstances does the postal rule not apply?
The postal rule does not apply if it is not contemplated that the post would be used, to letters revoking offers, if the letter is incorrectly addressed, or if the offeror has disallowed the postal rule.
What is the objective approach to agreement?
The objective approach to agreement focuses on determining the intention of the parties based on what a reasonable person would say was their intention, considering all the circumstances. It is not concerned with the inward mental intent of the parties but rather with the outward manifestations of their intent.
What is the objective approach taken by the court in determining intention to be bound?
The court takes an objective approach in determining intention to be bound. It focuses on what a reasonable person would say the parties intended based on their letters or communications. The actual intent of the parties is not relevant; what matters is the objective interpretation of their words and actions.
What are the elements needed for a valid contract?
In order for there to be a binding contract, three elements must be present: offer and acceptance, intention to create legal relations, and consideration. Offer and acceptance involve one party making a clear and certain offer displaying an intention to be bound, and the other party communicating an unequivocal acceptance.
What happens if the acceptance is incorrectly addressed?
If the acceptance is incorrectly addressed, the postal rule may be displaced. The offeree’s own carelessness in addressing the acceptance may result in the loss of the benefit of the postal rule.
What are the exceptions to the postal rule?
Exceptions to the postal rule include situations where the letter of acceptance was not properly posted, where it is not contemplated that the post would be used, where the letter is incorrectly addressed, or where the offeror has specifically excluded the postal rule. Note that the postal rule does not apply to letters revoking offers.
Can the offeror stipulate that silence will be acceptance?
No, the offeror cannot stipulate that they will take silence to be acceptance and thus bind the offeree. The rule that silence cannot amount to acceptance is a sensible one as it clarifies when the parties are bound.
hat was the decision in the case of Brimnes [1975] QB 929?
The Court of Appeal concluded that a message sent during ordinary office hours but not seen by office staff until the following Monday was effective when received. The decision recognized the possible negligence of the office staff in failing to note the message, allowing the offeree to reasonably assume effective communication.
What is the significance of complete performance in relation to unilateral contracts?
In relation to unilateral contracts, acceptance is perceived as the complete performance of the act(s) required by the terms of the unilateral offer. However, if the offeree has partly performed the obligation and is willing and able to complete it, the offeror may be under an implied obligation not to revoke the offer.
In what situations is communication waived for unilateral contracts?
In a unilateral contract, the communication of acceptance is waived. This means that acceptance can be made through performance of the acts required in the offer. The case of Carlill v Carbolic Smoke Ball Co (1893) is authority for this principle.
What are the three aspects of acceptance needed to form a contract?
The three aspects of acceptance needed to form a contract are: 1) acceptance must be in response to the offer, 2) acceptance must be unqualified and correspond exactly with the terms of the offer, and 3) if a mode of acceptance is prescribed, the offeree can use any alternative mode that is no less advantageous to the offeror.
How does the context and past dealings influence the meaning of office hours in legal cases?
The courts have shown a willingness to look at the context and the parties’ past dealings to determine the meaning of office hours. This was established in the case of Thomas v BPE Solicitors
What is the significance of the auctioneer’s hammer falling in the context of a contract for sale at an auction?
The auctioneer’s hammer falling constitutes acceptance of the antique collector’s offer, resulting in the conclusion of a contract for sale. If the hammer does not fall, no contract is concluded.
When does an offer cease to be open
An offer ceases to be open if it is rejected, if a counter-offer is made, or if it is not accepted within the prescribed period or within a reasonable time. It can also lapse on the death of a party if the offeror or offeree dies.
What are the presumptions applied by the court regarding Intention to Create Legal Relations (ICLR)?
In a business context, ICLR is presumed. In a domestic or social agreement, it is assumed that the parties do not intend to enter into a legally binding contract. These presumptions are rarely rebutted.
What is the legal significance of a request for bids at an auction?
A request for bids at an auction is usually no more than an invitation to treat, and does not constitute a unilateral offer
When will the courts enforce an agreement that is uncertain or incomplete?
The courts will look to enforce an agreement, reflecting the intentions of the parties, where possible. However, if an agreement is too vague or ambiguous, the courts may not be able to enforce it. The case of Hillas v Arcos (1932) 147 LT 503 demonstrates the court’s willingness to enforce an agreement if the words can be given a reasonable meaning.
What are the instances when a minor can be bound by a contract?
Minors lack capacity to contract, but there are limited instances when they can be bound by a contract. These include contracts for necessaries and contracts of employment, apprenticeship, or education.
What is the principle of consideration in contract law?
Consideration is the act or forbearance of one party, or the promise thereof, which is the price for which the promise of the other party is bought. Each party must give consideration for a contract to be binding.
What is the difference between a unilateral offer and an invitation to treat in the context of an auction?
A unilateral offer is a statement that an item will be auctioned without reserve, which can be accepted by the act of a bona fide bidder making the highest bid. An invitation to treat, on the other hand, is a request for bids at an auction, which is usually not considered a unilateral offer.
What is the significance of mutual exchange of something of value in a contract?
The mutual exchange of something of value, known as consideration, is vital for a contract to be binding. Without this exchange, a contract becomes unenforceable and is considered a gratuitous promise.
What are the key principles regarding consideration in contract law?
First, consideration must not be past. Second, consideration must move from the promisee. Third, consideration need not be adequate but must be sufficient. If valid consideration, along with agreement, ICLR, and capacity, is present, a binding contract is formed.
What is the requirement for acceptance to be binding
Acceptance must be a mirror image of the offer, unqualified, and made in response to the offer. If acceptance asks for something different or is a counter-offer, it is not binding. Acceptance must also be communicated to the offeror.
What is the legal concept of acceptance in the context of a contract for sale at an auction?
In the context of a contract for sale at an auction, acceptance occurs when the auctioneer’s hammer falls, signifying the conclusion of the contract.
When is acceptance by instantaneous means binding?
Acceptance by instantaneous means, such as fax or email, is binding upon receipt. It is the offeree’s responsibility to ensure that acceptance has been properly communicated. If there is an error at the offeree’s end, there will be no contract. However, if the fault lies with the offeror, they will be estopped from denying acceptance.
What happens if an offer specifies a particular method of acceptance?
If the offeror specifies a particular method of acceptance, the mode becomes relevant. If the offeror uses mandatory language and explicitly excludes other modes, only acceptance in the prescribed mode will be binding. Failure to use mandatory language and exclude other modes will leave the offeror bound by any mode that is no less advantageous.
What is the legal position when an auction is stated to be without reserve?
When an auction is stated to be without reserve, it means that there is no minimum price set for the item being auctioned. The highest bidder, even if it is the only bid, is entitled to purchase the item.
What are the requirements of a binding contract?
Offer, acceptance, consideration and intention to create legal relations
What approach does the court take when determining whether an agreement exists between the offeror and offeree?
An objective approach, by considering what the reasonable person would say was the intention of the parties having regard to all the circumstances
Which of the following best describes an ‘offeree’?
The person who breaches a contract
The person who makes an offer
The person to whom an offer is made
The reasonable person
The person to whom an offer is made
What are the requirements of a valid offer?
The offer must be clear, certain and show an intention to be bound.
Which of the following is not an example of how an offer can come to an end?
Following the death of the offeree
By making a counter-offer
Following revocation by the offeror
A request for further information
A request for further information
A woman offers by email to sell her snooker table to a man for £3,500. The man replies that he is happy to pay £3,500 for the snooker table but wants the cues, balls and framed O’Sullivan picture included for that price. The woman is happy to go ahead with that suggestion. What is the effect of the man’s reply?
It amounts to a counter offer.
What is the meaning of the rule that acceptance must be unqualified?
The acceptance must correspond with the offer.
A farmer telephones his neighbour on Monday and offers to sell him three ducks for £50. The neighbour responds that he will pay £40 for the ducks. Later that evening, the neighbour informs his brother of the farmer’s offer. The brother immediately telephones the farmer and informs him that he accepts the farmer’s offer. On Tuesday morning, the neighbour telephones the farmer and says he has changed his mind and he accepts the offer of £50. Is there a contract formed?
No, there is no contract between the farmer and the brother because the farmer did not accept the brother’s offer.
What is the postal rule?
Where acceptance is communicated by post, the contract is formed as soon as the letter of acceptance is properly posted.
The courts will readily strike down an agreement if it lacks certainty.
False
What is the significance of existing obligations in relation to consideration?
Existing obligations generally cannot be considered as good consideration for a new contract between parties. However, there are exceptions where an existing obligation can be good consideration, such as when the new contract provides a practical benefit and certain criteria are satisfied.
What are the three elements required for a binding contract?
The three elements required for a binding contract are offer and acceptance, intention to create legal relations, and consideration.
What are the requirements for promissory estoppel to operate?
For promissory estoppel to operate, there must be a clear and unequivocal promise or representation that is intended to affect legal relations. The promisee must have relied upon that promise or representation, and the reliance must put the promisee in a worse position than if the promise had never been made. Detrimental reliance is not always required for promissory estoppel to apply.
Under what circumstances can an existing obligation be considered as good consideration for a new contract
An existing obligation can be considered as good consideration for a new contract if it constitutes a practical benefit and certain criteria are satisfied. This was established in the case of Williams v Roffey, where the defendants promised additional payment to the plaintiff to ensure timely completion of the work, which provided a practical benefit to the defendants.
What is the difference between executory and executed consideration?
Executory consideration refers to promises made by contracting parties to perform something in the future after the contract has been formed. Executed consideration, on the other hand, is where the consideration has already been performed at the time of contract formation.
What are the exceptions to the rule that existing obligations cannot be good consideration?
There are various exceptions to the rule that existing obligations cannot be good consideration. For example, a promise to do something that a party is already obliged to do pursuant to an obligation owed to a third party can be good consideration. Additionally, carrying out a public duty imposed by the law will generally not amount to sufficient consideration.
Can past consideration be valid in a contract?
In general, consideration must not be past. It cannot have taken place prior to the promise to pay. However, there is an exception to this rule when some prior act or service was provided by the promisee at the promisor’s request and it was always understood that payment would be made for that act or service.
What factors do the courts consider when deciding whether to grant the defense of promissory estoppel?
In exercising their discretion, the courts will look at the conduct of both parties to determine whether it would be just and equitable to grant the defense of promissory estoppel.
What is the rule in Foakes v Beer and when does it apply?
The rule in Foakes v Beer states that if a promise of the creditor to accept a lesser sum is unsupported by fresh consideration from the promisee, the agreement is unsupported by consideration. However, if a new element is introduced at the creditor’s request, such as payment at a different place or time, or by providing a different thing in place of money, it will amount to good consideration.
What is the legal position when a promisor resumes their full legal rights after giving reasonable notice?
When a promisor resumes their full legal rights after giving reasonable notice, the right to full payment is brought back to life. Promissory estoppel suspends the right to full payment, but it can be revived by reasonable notice.
What are the conditions for the exception to the rule of past consideration?
The three conditions for the exception to the rule of past consideration are: (a) the act must have been done at the promisor’s request, (b) the parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit, and (c) the payment or conferment of other benefits must have been legally enforceable had it been promised in advance.
What is promissory estoppel and how does it relate to the rule of part payment of a debt?
Promissory estoppel is commonly relied upon to create an exception to the rule that part payment of a debt without fresh consideration does not discharge the debt obligation. It allows for the enforcement of a promise made by one party to another, even if there is no consideration, if the promisee has relied on the promise to their detriment.
What is the practical benefit in the context of consideration?
The practical benefit refers to the advantage or benefit that one party obtains from the performance of an existing obligation by the other party. In the case of Williams v Roffey, the defendants obtained a practical benefit by avoiding late completion penalties and maintaining an efficient working arrangement.
What is the legal position when a client requests work to be carried out without discussing payment beforehand?
If the client requested the work to be carried out and both parties understood that the act was to be rewarded, the gardener is entitled to payment. The exception to the past consideration under Pao On v Lau Yiu Long [1979] UKPC 17 is particularly relevant in this scenario.
Why does consideration not need to be adequate in a contract?
According to the doctrine of freedom of contract, the courts will not interfere with a bargain freely reached by the parties. It is not the court’s duty to assess the relative value of each party’s contribution to the bargain. Therefore, consideration does not need to be adequate as long as there is something of value exchanged.
What is the significance of factual consideration in the context of contracts?
Factual consideration refers to a consideration that acknowledges that nothing new is being promised, but the party in receipt of the promise is still getting something out of the reshaped deal. It is distinguished from legal consideration and recognizes that a party may receive a practical benefit from the agreement, even if there is no new promise or consideration.
What is the effect of promissory estoppel on the right to periodic payments?
The right to periodic payments may resume once the period over which promissory estoppel operates ceases. Alternatively, the promisor may resume their full legal rights after giving reasonable notice of their intention to do so.
What is the role of economic duress in the enforceability of promises?
Economic duress is a concept that can render a promise unenforceable if it is obtained by economic force or pressure. In cases where economic duress is present, the court may find that the promise lacks the necessary consent and therefore cannot be enforced.
What is the significance of detrimental reliance in promissory estoppel?
Detrimental reliance is not always required for promissory estoppel to apply. It is sufficient if the promisee has made a change of position in reliance on the promise so that it would be inequitable to allow the promisor to go back on their promise.
What is the exception to the rule of past consideration?
The exception to the rule of past consideration exists when some prior act or service was provided by the promisee at the promisor’s request, and it was always understood that payment would be made for that act or service. This exception was established in the case of Pao On v Lau Yiu Long [1980] AC 614.
What is the significance of consideration needing to move from the promisee?
Consideration must move from the promisee, which means that a party who has not provided consideration may not bring an action to enforce a contract. This rule is related to, but distinct from, the doctrine of privity of contract.
How does promissory estoppel affect the legal position of a tenant who is struggling to pay rent?
If a landlord informs a struggling tenant that they are willing to accept reduced rent until the tenant finds a new job, the landlord can demand full rent after the expiry of reasonable notice. Promissory estoppel suspends the right to full payment, but it can be revived by reasonable notice.
What is the doctrine of economic duress and how does it relate to the case of Stilk v Myrick?
The doctrine of economic duress provides that a promise to pay in certain circumstances might be unenforceable if the consent to the contract was effectively obtained by economic force. While economic duress was not directly addressed in the case of Stilk v Myrick, it is a concept that has developed in more recent times and may have influenced the court’s decision.
What is the significance of the practical benefit in the case of Williams v Roffey?
In the case of Williams v Roffey, the practical benefit obtained by Roffey Bros was the avoidance of late completion penalties in the main contract, a more efficient working arrangement, and the avoidance of the need to find an alternative contractor. This practical benefit was considered as part of the consideration for the promise of additional payment.
What are the conditions necessary to establish factual consideration according to Williams v Roffey
According to Williams v Roffey, the conditions necessary to establish factual consideration are: (i) the party has entered into a contract with another party to do work or supply goods/services in return for payment; (ii) before the party has completed their obligations under the contract, there is reason to doubt whether they will be able to complete their side of the bargain; (iii) the other party promises an additional payment in return for the party’s promise to perform their contractual obligations on time; (iv) as a result of giving the promise, the other party obtains a practical benefit or avoids a disbenefit; (v) the promise is not given as a result of economic duress or fraud; and (vi) the benefit to the other party is capable of being consideration for their promise, making the promise legally binding.
Which statement correctly describes executory consideration?
Executory consideration is consideration that has already been provided.
Executory consideration is consideration that is adequate.
Executory consideration is consideration that is clear and certain.
Executory consideration is consideration that has been promised but not yet provided
Executory consideration is consideration that has been promised but not yet provided.
Executory consideration is where contracting parties make promises to each other to perform something in the future after the contract has been formed.
Which of the following is a rule governing consideration?
Consideration need not be sufficient.
Consideration must move from the promisor.
Consideration must be adequate.
Consideration must move from the promisee.
Consideration must move from the promisee.
What does the rule that consideration must move from the promisee mean?
A party who has not provided consideration may not bring an action to enforce the contract.
A woman pays a cat sitter £70 to feed her cat while she and her flatmate are on holiday. Unknown to the woman, her flatmate had already paid the cat sitter £100 to feed the same cat. The woman is demanding that the cat sitter returns the £70 she paid him, but the cat sitter is refusing to return the money. Which of the following statements is most accurate?
The cat sitter is not obliged to return the money to the woman as performance of an existing obligation owed to a third party is good consideration.
The cat sitter is not obliged to return the money to the woman as past consideration is not good consideration.
The cat sitter is obliged to return the money to the woman as performance of an existing contractual obligation is not good consideration.
The cat sitter is obliged to return the money to the woman as consideration must be sufficient.
The cat sitter is not obliged to return the money to the woman as performance of an existing obligation owed to a third party is good consideration.
Performance of the existing duty owed to Jack is good consideration for the promise by Polly.
Which of the following is an example of good consideration?
Performance of an existing obligation in a contract between the parties.
Part payment of a debt.
Performance of an existing duty owed to a third party.
Performance of an existing duty owed to a third party.
Which rule of consideration does promissory estoppel provide an exception to?
Consideration must be sufficient but need not be adequate
Part payment of a debt without fresh consideration does not discharge the debt obligation.
Consideration must move from the promisee.
Consideration must not be past.
Part payment of a debt without fresh consideration does not discharge the debt obligation.
A tenant has lost his job and he is struggling to pay his rent. Keen to help, the landlord informs the tenant that she is willing to accept half the rent due each month until he finds a new job. The tenant pays half rent for two months and uses some of the money he saved to buy new shoes to wear at interviews. The landlord is now having second thoughts. Under what circumstances can the landlord demand full rent?
The landlord cannot demand full rent as the tenant has accepted her offer therefore she is bound.
The landlord cannot demand full rent before the tenant has found a new job.
The landlord can demand full rent after the expiry of reasonable notice.
The landlord can demand that full rent is paid immediately.
The landlord can demand full rent after the expiry of reasonable notice.
A promisor may resume his full legal rights after giving reasonable notice - Tool Metal v Tungsten.
part payment of a debt?
Where a debtor pays a lesser sum to his creditor than that which was due, the general rule is that the debtor is not discharged from his obligation to pay the balance.
This can be discharged via promissory estoppel
Rule in Pinnel’s Case - Provided a
debtor gives the creditor something (other than just part payment) in return for the creditor’s
promise to forgo the balance of the debt then that something different will be consideration.
Exceptions to past consideration not being good consideration?
(a) the past act/ promise was done at the promisor’s request;
(b) there was a mutual understanding between the parties that the act/ promise would be
compensated for in some way; and
(c) had the promise been made in advance it would have been legally enforceable. This last
condition often hinges on whether, or not, there would have been the necessary intention
to create legal relations
What does the expression ‘subject to contract’ imply in contract negotiations?
The use of the expression ‘subject to contract’ during contract negotiations creates a strong inference that the parties do not intend to be bound until the formal execution of a contract.
What is the significance of the intention to create legal relations in contract formation?
The intention to create legal relations is an essential element in the formation of a contract. Without the intention to be bound, there is no contract. In commercial agreements, it is presumed that there is an intention to create legal relations, while in social/domestic agreements, it is presumed that there is not an intention to create legal relations. However, these presumptions can be rebutted
How do courts determine the intention of the parties in a contract?
The test of intention in contract law is objective, meaning that the intention of the parties is determined by their actions and the particular circumstances rather than their subjective thoughts. The courts seek to give effect to the intentions of the parties, whether expressed or presumed.
What is the legal position when a friend accepts an offer before the parties are no longer friends?
As the friend accepted the man’s offer when they were friends, there is a presumption that the parties did not intend to create legal relations. However, this presumption can be rebutted by the parties’ conduct.
Under what circumstances can a contract with a minor be enforceable?
A contract with a minor is generally not enforceable unless it relates to ‘necessaries’ or to a contract of employment, apprenticeship, or education. In these specific cases, the contract can be binding on the minor.
What are ‘necessaries’ in relation to contracts with minors?
‘Necessaries’ refer to goods or services that are suitable to a person’s condition of life and their actual requirements at the time of the sale and delivery. A minor must pay a reasonable price for necessaries rather than the actual cost.
What is the general rule regarding contracts with persons lacking mental capacity?
A person lacking mental capacity is not bound by a contract unless they did not understand what they were doing, and the other party knew that to be the case. However, a person without capacity remains liable to pay a reasonable price for ‘necessaries’.
What is the effect of entering into a contract with a person lacking capacity?
If a person lacks capacity, the contract cannot be enforced against them unless it relates to ‘necessaries’. In any other case, the contract is binding unless the person claiming incapacity can establish that they did not understand what they were doing and that the other party knew that to be the case.
What is the legal position when a minor repudiates a contract after reaching the age of 18?
If a minor ratifies a contract once they reach the age of 18, then the contract will be binding on them. However, there are exceptions to this general rule, and certain contracts of exceptional types may be enforceable against the minor unless the minor specifically repudiates them.
What is the legal position when a person lacks mental capacity or is intoxicated?
A person lacking mental capacity or who is intoxicated remains liable to pay a reasonable price for ‘necessaries’. In other cases, the contract is binding unless the person claiming incapacity can establish that they did not understand what they were doing, and the other party knew that to be the case. Similar rules apply to contracts entered into by drunken persons.
What is the effect of intoxication on the enforceability of a contract?
If an individual becomes so intoxicated that they do not understand what they are doing, they will have to pay a reasonable price for necessaries but will not be bound by any other contract they make. This position should logically extend to those incapacitated by other intoxicating substances.
What is the legal position when a 16-year-old girl hires gardening equipment but refuses to pay for it?
The supplier of the equipment cannot enforce the contract against the girl as she is a minor, and none of the exceptions to the general rule apply.
What are the rules regarding capacity to contract for individuals who are weak or less capable of looking after themselves?
There are rules on capacity to contract for individuals who are weak or less capable of looking after themselves, such as children, those who are mentally ill, and others temporarily lacking mental capacity. Persons over the age of 18 have full contractual capacity if they are of sound mind and not suffering from a factor ruling out capacity, such as drunkenness.
Which of the following statements is correct in relation to intention to create legal relations (ICLR)?
ICLR is presumed to exist in commercial situations and it is impossible to rebut that presumption.
ICLR is presumed to exist in all situations unless one of the parties can show that there was no intention to be bound.
ICLR is presumed to exist in commercial situations but presumed not to exist in domestic or social situations.
ICLR is determined by taking evidence from the parties as to what was in their minds when entering the contract.
ICLR is presumed to exist in commercial situations but presumed not to exist in domestic or social situations.
Two companies agree the sale of a house ‘subject to contract’. What does the phrase ‘subject to contract’ imply?
The companies do not intend to be bound until they sign a formal contract.
The phrase creates a strong inference that the companies do not intend to be bound until the execution of a formal contract.
Which statute defines what necessaries are?
The Sale of Goods Act 1979.
The definition is found in section 3(3) of that Act
What does capacity to contract mean?
The ability of a person to enter a binding contract.
Adults of sound mind have full contractual capacity. However, minors, the mentally incapacitated and those intoxicated have limited contractual capacity.
Which of the following statements is correct regarding the contractual capacity of a minor?
A minor can enter into a contract for necessaries and they must pay the actual cost of the necessaries supplied.
A minor is bound by a contract of employment but only if it is for their benefit.
A minor who lies about their age is bound by a contract they entered into.
A minor is not bound by a contract which he enters into during their minority.
A minor is bound by a contract of employment but only if it is for their benefit.
A 16 year old boy cycles to and from school every day. He no longer likes his bicycle as he thinks it is old. He tells his neighbour he is 19 years old and agrees to buy the neighbour’s motorbike for £199. After taking delivery of the motorbike, the boy refuses to pay for it. Which of the following statements is correct?
The neighbour can enforce the contract against the boy as the boy lied about his age.
The boy is bound by the contract as it is for necessaries and for his benefit.
The contract is voidable because the boy lied about his age.
The neighbour cannot enforce the contract against the boy as he is a minor.
The neighbour cannot enforce the contract against the boy as he is a minor.
Correct. The neighbour cannot enforce the contract against the boy as he is a minor and the motorbike is unlikely to fall under the exception of necessaries.
Corporation capacity?
Corporations have different levels of contracting ability, eg a statutory corporation will
not be bound by contracts that are outside its statutory powers whilst limited liability
partnerships have unlimited capacity.
With registered companies check whether the company has capacity - but most of the time director’s powers should make capacity free of any limitation under the company’s constitution
What approach does a court now adopt when dealing with contracts involving illegality?
Following the decision in Patel v Mirza, a court now adopts a discretionary approach, applying principles of public policy and proportionality.
What was the general rule in English law regarding contracts for illegal acts prior to the decision in Patel v Mirza?
The general rule in English law prior to the decision in Patel v Mirza was that a contract to perform an illegal act or a contract contrary to public policy would be declared void and unenforceable.
What was the nature of the contract between Mr. Patel and Mr. Mirza in the case of Patel v Mirza?
In the case of Patel v Mirza, Mr. Patel paid a large sum of money to Mr. Mirza for betting on changes in share prices. Mr. Mirza expected to receive ‘inside information’ about the shares, making the agreement between them illegal as they were pursuing ‘insider dealing’.
What was the outcome of the case of Patel v Mirza in relation to the defense of illegality?
All nine Supreme Court judges agreed that the defense of illegality should not apply to defeat Mr. Patel’s claim for the return of his money.
What trio of necessary conditions did the Supreme Court identify when determining whether illegality should apply to deny a claim?
A
The Supreme Court identified the following trio of necessary conditions: a) considering the underlying purpose of the prohibition and whether denying the claim would enhance that purpose, b) considering any other relevant public policy impacted by the denial of the claim, and c) considering whether denial of the claim would be a proportionate response to the illegality, with punishment being a matter for the criminal courts.
What is an ‘operative mistake’ in contract law?
An ‘operative mistake’ in contract law refers to a mistake that affects a contract and renders it void, meaning it has no legal effect from its outset.
What are the three categories of mistakes that can amount to operative mistakes in contract law?
The three categories of mistakes that can amount to operative mistakes in contract law are common mistake, mutual mistake, and unilateral mistake.
Common mistake
This is sometimes known as ‘identical mistake’ or ‘shared mistake’ because both parties have
made the same fundamental mistake.
As with frustration (which is a supervening rather than a preceding impossibility there are strict limitations on the operation of common mistake:
*It will not operate if one party is at fault.
*The contract must not make express provision on the matter.
*The mistake must be fundamental, ie it must render performance of the contract
impossible or radically different from what the parties anticipated.
One instance where the courts will find a fundamental mistake is where both parties are
mistaken as to the very existence of the subject matter of the contract.
Cross- purpose mistake
In the case of cross- purpose mistakes, the problem is that although one or other party may
assert that a contract exists, each on terms favourable to that party, objectively it is impossible
to resolve the ambiguity over what was agreed. That being the case, the only possible
conclusion is that there was no contract.
Unilateral mistake
Unilateral mistake (ie where only one party is mistaken) is often relied on where there has
been a mistake as to the identity of the other contracting party. However, only a genuine
mistake of this nature where the identity of the other party is of vital importance will render
the contract void. If the mistake is as to anything less (eg a mistake simply as to the other
party’s attributes such as creditworthiness) then it will not generally affect the validity of the
contract.
What is the difference between common mistake, mutual mistake, and unilateral mistake in contract law?
Common mistake refers to a mistake as to the existence of the subject matter or a fact/quality fundamental to the agreement. Mutual mistake refers to a mistake as to the identity of the subject matter. Unilateral mistake refers to a mistake as to the identity of the person contracted with.
What is unilateral mistake of identity in contract law?
Unilateral mistake of identity occurs when one party mistakenly believes they are contracting with a person that the other party is pretending to be. Whether or not such a contract is void depends on the precise circumstances.
What is a mutual mistake in contract law?
A mutual mistake occurs when both parties are mistaken, but they are mistaken about different things. In other words, they have negotiated at cross-purposes, resulting in a lack of genuine mutual consent and rendering the contract void.
What is the difference between misrepresentation and mistake in terms of contract validity?
A contract tainted by mistake is void from the outset and has no legal effect. In contrast, a contract affected by misrepresentation is voidable, meaning it may be set aside. This distinction is important when considering the remedies available.
What are the consequences of a unilateral mistake as to the expression of intention?
If the offeror makes a material mistake in expressing their intention, and the other party knows or is deemed to know about the error, the contract is likely to be void.
What is the exception to the general rule that a person is bound by the terms of any instrument they sign or seal?
The exception arises when a person signs or seals a document under a mistaken belief as to its nature. In such cases, the person may raise the defense of non est factum (‘it is not my deed’).
What is the objective test used in determining whether there has been a mutual mistake?
The objective test is used to determine whether a reasonable third party would infer the existence of a contract in a given sense, based on the words and conduct of the parties themselves. If a reasonable person would infer such an agreement, the court will hold that a contract in that sense is binding, even if there was a material mistake.
What is the key distinction between face-to-face dealings and those at a distance in relation to unilateral mistake?
In face-to-face dealings, where one party makes a false statement about their attributes, the contract may not be void if the other party intended to contract with the person in front of them. However, in distance dealings, it is easier to establish that the confusion is about identity rather than attributes, resulting in the contract being void.
What is the presumption in a face-to-face transaction regarding the seller’s intention to deal with the person in front of them?
In a face-to-face transaction, the court will presume that the seller intended to deal with the person in front of them. This presumption can be difficult to rebut and requires the seller to show that identity, not attributes, was of vital importance.
What is the practical implication for a seller when a contract is void for mistake or voidable for misrepresentation?
In practical terms, if a contract is void for mistake or voidable for misrepresentation, the seller may be left without a remedy. They may not be able to recover the goods or the agreed-upon payment if the fraudulent buyer has sold the goods to a third party in good faith.
What happens if the original owner sells goods to a fraudster?
If the original owner sells goods to a fraudster, and the fraudster sells them to an ultimate purchaser, title will have passed to the ultimate purchaser.
A contract which is void (in contrast to voidable) is….
…of no legal effect from the outset.
What is the legal status of the contract where there is a unilateral mistake as to identity in a face to face setting?
The contract will be void if the seller can persuade the court that the identity of the buyer and not their attributes was of vital importance to the contract.
In which of the following situations will title to the goods pass to an innocent third party?
In a face-to-face transaction where there is a fraudulent misrepresentation as to the attributes of the buyer.
In a distance selling transaction where there is a unilateral mistake as to the identity of the buyer.
In a face-to-face transaction where there is a fraudulent misrepresentation as to the attributes of the buyer.
Correct, the contract between the fraudster and the seller is voidable. Title will pass to the innocent third party.
What the general rule for privity of contract?
A person who is not a party to a contract cannot acquire any rights under that contract or be subject to any of its obligations.
Various common law and statutory devices were used to circumvent the rules on privity?
Contract (Rights of Third Parties) Act 1999. This allows a third party, who is neither a party to the contract, nor has provided consideration, to enforce a term of the contract in certain circumstances (see s 1).
Common law methods of circumventing the doctrine.
Common law methods of circumventing the
doctrine of privity?
Agency
* Assignment
* Collateral contract
* Actions in tort
* Other judicial attempts to avoid the doctrine
Agency?
The basic requirements necessary to establish an agency
relationship are as follows: (a) The principal should be named (usually by the agent) and it should be clear that the
agent is contracting on the principal’s behalf; (b) The agent should be authorised to act as agent. In the vast majority of cases, the agent’s authority will be limited by the principal - eg the agent may be authorised to sell certain of the principal’s goods within a certain range of prices. The agent does not have freedom to enter into any contract it wishes to on behalf of the principal. The principal is only bound by acts of the agent which are within the agent’s authority (or,
in certain circumstances, by acts which appear to be in the agent’s authority); and
(c) Consideration has moved from the principal
Assignment?
Where A is under a contractual obligation to B and B assigns their contractual rights to C, it may be possible for C to sue A on their promise to B. Crucially, because B is simply
passing their rights to C, the extent of C’s rights can never exceed the rights of B.
Can there be prohibition of assignment?
If there is a prohibition against the assignment in the main contract, then any attempted
assignment is likely to be unsuccessful
This would be a ‘non-
assignment’ clause,
What is an n alternative to a total prohibition on assignment or sub-contracting?
As an alternative to a total prohibition on assignment or sub-contracting (as set out above), the parties may agree to allow limited assignment of the benefit of the contract or sub-contracting of the work, for example, within a group of companies or to a named
person or persons.
Collateral contract?
The court may find a collateral contract between the promisor and the third party to provide an exception to the doctrine of privity.
e.g. Shanklin Pier employed contractors to paint the pier. It was a term of the contract that Shanklin Pier was to specify the paint to be used. Detel informed Shanklin Pier that their paint would last for at least seven years. Shanklin Pier instructed the contractors to buy and use Detel’s paint. The paint lasted three months. Shanklin Pier sued for breach of contract. However, the contract was between Shanklin Pier and the contractors. Mr Justice McNair held that there was a collateral contract between Shanklin Pier and Detel, the consideration for which was, on the one hand, the warranty by Detel that the paint would last for seven years and on the other, the instruction by Shanklin Pier to the
contractors to buy the paint.
Actions in tort?
Where a ‘third party’ is prevented by the privity rule from bringing a claim under
the contract, you should consider whether a claim can be brought in tort instead.
Judicial attempts to avoid the doctrine?
In certain circumstances, the courts have taken a flexible approach to the doctrine of privity, allowing a contracting party to recover in relation to losses
suffered by a third party.
the Contracts (Rights of Third Parties) Act 1999?
Under this Act, a third party can acquire rights if:
*
the contract expressly provides that they may acquire a benefit (s 1(1)(a)); or
*
the term purports to confer a benefit on them (s 1(1)(b)).
Subsection (1)(b) does not apply, however, if on a true construction of the contract it was
not intended that the term be enforceable by a third party (s 1(2)). For a third party to
enforce a term of the contract in their own right, they must be expressly identified in the
contract by name or as a member of a class (eg ‘employees’) or answering a particular
description
When can a party enforce a term through the Contracts (Rights of Third Parties) Act 1999??
ss 1(1)(a) and s 1(1)(b) create alternative circumstances in which a third party
can enforce a term. Under s 1(1)(a), the contract must specifically provide that the third party can enforce a
term of the contract. For example, s 1(1)(a) would apply if the contract specifically stated:
‘X has the right to enforce this contract’ or ‘X has a right to sue on this contract’. Under s 1(1)(b) in conjunction with s 1(2), it need not be stated specifically that the third
party has the right to enforce a term. However, it must be established that:
(a) The agreement purported to confer a benefit on the third party; and
(b)It was not the case that the contracting parties ‘did not intend the term to be
enforceable by the third party’.
Identification of a third party under the Contracts (Rights of Third Parties) Act 1999??
The fact that there is no requirement that the third party be in existence at the date of the contract means that a right can be conferred on, for example, an unborn child, being expressly identified as a member of an identified class or answering a particular
description.
In what circumstances does s. 1(1)(b) not apply?
In essence, where a term ‘purports to confer a benefit’ on a third party, s 1(1)(b) creates a rebuttable presumption that the third party will be able to enforce the term. Section 1(2) provides that this presumption will be rebutted if ‘on a proper construction of the contract
it appears that the parties did not intend the term to be enforceable by the third party. The indications are that the courts will be slow to hold that, where the contract does purport to confer a benefit on a third party, there is no intention that the third party should have a right to enforce the term. In other words, once it is held that the contract purports to confer a benefit on a third party, there will be a rebuttable presumption in favour of the third party having a right to enforce the term and it will be difficult to rebut that
presumption.
‘exclusion of third party rights’ clause?
For the purpose of the Contracts (Rights of Third Parties) Act 1999, this Agreement does not and is not intended to give any rights, or any right to
enforce any of its provisions, to any person who is not a party to it.
Can third parties rely on exemption and limitation clauses?
Importantly, it should be noted that the Act also allows third parties to rely on exemption or limitation clauses in contracts to which they are not a party in the same way in which it allows third parties to enforce contractual terms (s1(6)).
What are the remedies available to the third party?What are the remedies available to the third party?
. Consequently, s 2(1) states:
“Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not, by agreement, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if:
a) the third party has communicated his assent to the term to the promisor,
b) the promisor is aware that the third party has relied on the term, or
c) the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.”
For the purposes of s 2(1)(a) the third party may communicate assent by ‘words or conduct’ (s 2(2)(a)) but, if the assent is sent by post, s 2(2)(b) stipulates that such communication will not be effective until received by the promisor.
If the contracting parties wish to allow variation or rescission without the consent of the third party or in circumstances not provided for in s 2(1), they can do so by including an express term in the contract (s 2(3)).
Section 2 also provides that the court can dispense with the third party’s consent where their whereabouts cannot reasonably be ascertained (s 2(4)(a)), where they are mentally incapable of giving their consent (s 2(4)(b)) or where their reliance on the term cannot be reasonably ascertained (s 2(5)). In such circumstances, where the court or arbitral tribunal sees fit to dispense with such consent, it may impose such conditions, for example a requirement to pay compensation, as may be thought fit (s 2(6)).
Defences against third party?
By virtue of s 3, the promisor’s defences against the third party are both the same as they would be against the promisee and anything specific that they may be able to claim against the third party.
How does s 1 affect the right of the promisee to enforce the contract?
As a breach of a relevant term could expose the promisor to actions by both the promisee and the third party, s 5 sets out to protect the promisor from double liability. It provides that any award to a third party may be reduced by the court or arbitral tribunal to such extent as is thought appropriate if the promisee has already recovered a sum in respect of the third party’s loss or the expense incurred by the promisee in making good to the third party the default of the promisor.
Requirements for The Contracts (Rights of Third Parties) Act 199?
The Act allows a third party, in limited circumstances, to enforce a term of a contract to which it is not a party.
* Broadly, a third party will have such a right:
a. Where the contract states it should; or
b. Where the contract purports to confer a benefit on it, unless it appears the parties did not intend the term to be enforceable by the third party.
* The third party must be expressly identified in the contract, but this can be by describing a class of people, and the third party does not need to exist at the time of the contract.
* Once a third party has a right under the Act, that right sometimes cannot be reduced / extinguished by the parties without the third party’s consent.
* The third party’s rights will never be greater than they would have been had the third party been a party to the contract.
Under what circumstances does the Contracts (Rights of Third Parties) Act 1999 enable a third party in their own right to enforce a term of a contract to which they are not a party?
Where the contract expressly provides that they may
How do the remedies available to third parties under the Contracts (Rights of Third Parties) Act 1999 compare to the remedies available to parties to a contract?
S1(5) of the 1999 Act makes available to a third party the same remedies for breach of contract which are available to a party to the contract
Contracts (Rights of Third Parties) Act 1999 requirements?
The Act allows a third party, in limited circumstances, to enforce a term of a contract to which they are not a party.
To be effective:
- the contract must specifically provide that the third party can enforce a term of the contract; or
- the agreement purports to confer a benefit on the third party, and it is not the case that the contracting parties ‘did not intend the term to be enforceable by the third party’.
The Act does not allow a contract to be enforced against a third party. The third party’s claim will be subject to limitation clauses /exclusions clauses in the contract
What are the three types of duress?
The three types of duress are duress to the person, duress to property, and economic duress.
What is the minimum basic test of subjective causation in economic duress?
The minimum basic test of subjective causation in economic duress is the ‘but for’ test. It must be shown that the agreement would not have been entered into if there had not been the duress.
What is economic duress?
Economic duress occurs when a party has no alternative but to accept revised terms that are detrimental to its interest. It involves exerting pressure on another party to enter into a contract or modify existing terms under circumstances that leave the victim with no practical choice.
What is the role of consideration in making a variation binding?
Consideration is crucial in making a variation binding. If a party does no more than it was already bound to do, there is no consideration to make the variation binding. However, if a party goes above and beyond its original contractual obligations, it may amount to good consideration and make the variation enforceable
Can economic duress invalidate a contract?
Yes, economic duress can invalidate a contract if it can be proven that one party exerted illegitimate pressure on the other party, leaving them with no practical choice but to accept the revised terms. The victim must demonstrate evidence of protest at the time the alleged duress was exerted.
How does the ‘causation’ aspect of economic duress differ from duress to the person?
In economic duress, the pressure must have actually caused the making of the agreement, in the sense that it would not otherwise have been made either at all or, at least, in the terms in which it was made. On the other hand, duress to the person can be established if the duress is one factor influencing the wronged party’s behavior, even if it is not a decisive factor.
What factors might prevent a contract from being formed?
Factors that might prevent a contract from being formed include duress and undue influence.
What is the causation test for duress to the person?
The causation test for duress to the person is that once it is established that physical threats contributed to the decision to enter into the contract, duress will be found as long as the threats were one of the reasons for contracting. The burden of proof is on the party who exerted the pressure to show that the threats and unlawful pressure contributed nothing to the victim’s decision to contract.
How does practical benefit relate to the doctrine of consideration?
In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the Court of Appeal recognized practical benefit as good consideration to make a promise to pay more binding. However, if duress has been exercised to extract the promise to pay more, the promise will not be enforceable.
What factors are considered when assessing the legitimacy of pressure in economic duress?
When assessing the legitimacy of pressure in economic duress, factors such as an actual or threatened breach of contract, good or bad faith of the party exerting the pressure, whether the victim protested at the time, and whether the victim affirmed and sought to rely on the contract are taken into account.
What is the difference between duress and undue influence?
Duress involves one party coercing another party into a contract, where consent is not present or not given freely. Undue influence, on the other hand, is less about an act that amounts to improper pressure and more about a relationship where one party has influence over the other, which could be taken advantage of.
What are the factors considered by the court when determining whether there has been illegitimate pressure in economic duress?
When considering whether there has been illegitimate pressure in economic duress, the court will consider: whether there has been an actual or threatened breach of contract, whether the party exerting pressure has done so in good or bad faith, whether the victim protested at the time of the duress, and whether the victim affirmed the contract after the duress ceased.
What is duress to goods and how is it established?
Duress to goods refers to a threat to seize or damage the owner’s property. To establish duress to goods, it must be shown that the agreement would not have been entered into if there had not been the duress.
What is the significance of the ‘but for’ test in establishing economic duress?
To succeed in establishing economic duress, it must be shown that the agreement would not have been entered into but for the duress. This test demonstrates the causal link between the duress and the agreement.
What is the definition of undue influence?
Undue influence exists when a person’s consent to a transaction was produced in a way that it ought not fairly be treated as the expression of their free will. The court keeps its options open to find undue influence in any situation that falls within this test.
What are the three elements required to establish economic duress?
In order to establish economic duress, the three elements that must be present are compulsion/lack of practical choice for the victim, which is illegitimate, and which is a significant cause inducing the claimant to enter into a contract.
What is the significance of protest and affirmation in cases of economic duress?
Protest at the time of alleged duress and timely action to set aside the contract are important factors in cases of economic duress. Failure to protest or delayed action may be taken as acquiescence or affirmation of the revised terms, which can weaken the claim of economic duress.
What are the two types of undue influence?
The two types of undue influence are overt acts of improper pressure or coercion, which overlap with the idea of duress, and situations where one party has influence or ascendancy over the other and takes advantage of that influence. In the latter case, there may be no specific act of pressure or coercion, but the underlying relationship is sufficient for undue influence to be exercised.
What is the legal effect of duress on a contract?
A person who has entered into a contract under duress has not done so under their own free will. The contract is considered ‘voidable’, meaning that it remains in force unless some action is taken. The party subject to duress may choose to avoid the contract after the duress has ceased. The proper remedy for duress is rescission, which involves attempting to return the parties to the situation they were in prior to the contract being entered into.
How does the variation of a contract relate to economic duress?
Parties can vary a contract, effectively agreeing to replace the old set of terms with a new set. However, if the variation is the result of improper pressure, such as economic duress, it may not be binding. The material provided on economic duress will help you understand this concept.
How does a threat to breach a contract relate to economic duress?
A threat to breach a contract is an unlawful threat and usually amounts to illegitimate pressure in cases of economic duress. Breaching a contract by failing to comply with its terms is considered a breach and can give rise to a right of the innocent party to claim damages.
How does the court determine if undue influence exists?
The court determines if undue influence exists by considering whether a person’s consent to a transaction was produced in a way that it ought not fairly be treated as the expression of their free will. The court wants to keep its options open to find undue influence in any situation that falls within this test.
What happens if a contract is affirmed after duress has ceased?
If a contract is affirmed after duress has ceased, the remedy of rescission may be lost. Affirmation occurs when the innocent party fails to challenge the contract in a timely manner or acts in compliance with its terms. The court may conclude that the contract is affirmed, which operates as a bar to rescission.
What role does good or bad faith play in economic duress?
If an unlawful threat to breach a contract is made for illegitimate ends, it is considered bad faith and will almost inevitably lead to a finding of economic duress. However, if the pressure is exerted in good faith, it may be considered legitimate commercial pressure.
What are the three types of duress and their respective definitions?
The three types of duress are duress to the person, duress to property, and economic duress. Duress to the person refers to actual or threatened violence that influences the decision to enter into a contract. Duress to property involves a threat to seize or damage the owner’s property. Economic duress occurs when one party lacks practical choice due to illegitimate pressure, and the agreement would not have been entered into without the duress.
What is the effect of undue influence on a transaction?
If a person’s consent to a transaction was produced in a way that it ought not fairly be treated as the expression of their free will, the transaction will not be allowed to stand. Undue influence can invalidate a transaction if it is proven to have been exerted.
What are some relevant factors to consider when assessing the legitimacy of pressure in economic duress?
Relevant factors to consider when assessing the legitimacy of pressure in economic duress include an actual or threatened breach of contract, good or bad faith of the party exerting the pressure, whether the victim protested at the time, and whether the victim affirmed and sought to rely on the contract.
What are the key elements of undue influence?
The key elements of undue influence are a relationship of influence/ascendancy and taking unfair advantage.
What is the proper remedy for duress in a contract?
The proper remedy for duress in a contract is rescission. Rescission involves attempting to return the parties to the situation they were in prior to the contract being entered into. It is a remedy that voids the contract and allows the party subject to duress to avoid it.
What are some examples of relationships where undue influence may exist?
Relationships where one party has significant influence over the other, such as parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and doctor and patient, may give rise to a presumption of undue influence. However, there is no definitive list of relationships, and influence can also arise from trust and confidence placed in the other party.
How does the presence of a third party complicate the concept of undue influence?
In situations where a third party is involved, such as a bank, and encourages one party to enter into a transaction with another party, further complexities arise. It raises questions about whether the contract between the bank and the party influenced by the business owner should be binding, even though the undue influence did not come from the bank.
What is the significance of the burden of proof in cases of duress to the person?
In cases of duress to the person, the burden of proof is on the party who exerted the pressure to show that the threats and unlawful pressure contributed nothing to the victim’s decision to contract. This means that the party exerting the pressure must demonstrate that the threats did not influence the victim’s decision.
How does economic duress relate to the concept of consideration in contract law?
Economic duress and consideration are related in cases where an attempt has been made to vary a contract. If a party does no more than it was already bound to do, there is no consideration to make the variation binding. However, if a party does something above and beyond its original contractual obligations, it may amount to good consideration, making the variation enforceable.
How does the court determine if a transaction was produced under undue influence?
The court determines if a transaction was produced under undue influence by considering whether the consent to the transaction ought not fairly be treated as the expression of a person’s free will. The court keeps its options open to find undue influence in any situation that falls within this test.
What is the effect of duress on a contract?
A contract or variation of a contract that has been entered into under duress is voidable. This means that the wronged party may be able to take action to have it set aside and to have the parties returned to the position they were in before the contract was entered into.
What is the significance of the burden of proof in cases of economic duress?
In cases of economic duress, the burden of proof is on the party claiming duress to show that there was illegitimate pressure or a threat that resulted in a lack of practical choice. The party claiming duress must demonstrate that the pressure was a significant cause inducing them to enter into the contract.
What factors does the court consider when determining whether there has been illegitimate pressure in economic duress
When considering whether there has been illegitimate pressure in economic duress, the court will consider: whether there has been an actual or threatened breach of contract, whether the party exerting pressure has done so in good or bad faith, whether the victim protested at the time of the duress, and whether the victim affirmed the contract after the duress ceased.
What is the significance of affirmation in cases of economic duress?
Affirmation refers to the victim’s action of relying on the contract and not taking timely action to set it aside. Delayed action to set aside the contract can weaken the claim of economic duress as it may be seen as an affirmation or acceptance of the revised terms.
What is the test for economic duress and what are its ingredients?
The test for economic duress is that there must be pressure whose practical effect is that there is compulsion on, or a lack of practical choice for the victim. The pressure must be illegitimate and a significant cause inducing the claimant to enter into the contract. These are the ingredients of actionable economic duress.
How does economic duress impact the enforceability of a variation in a contract?
Economic duress can impact the enforceability of a variation in a contract. If duress has been exercised to extract a promise to pay more, even if there is practical benefit supporting the variation, the promise will not be enforceable.
What are some practical considerations in cases of economic duress?
In cases of economic duress, contracting parties are expected to consider risks such as changes in the cost of materials or labor when entering into a contract. Parties may include clauses to address price escalation or negotiate shorter contracts to mitigate risks. Failure to consider and address these risks may impact the enforceability of the contract.
What is the effect of undue influence on a contract?
Undue influence can render a contract voidable, meaning the wronged party may be able to take action to have it set aside. Undue influence occurs when one party takes advantage of a relationship of influence or ascendancy over another party.
What is the remedy for duress in a contract and what does it involve?
The remedy for duress in a contract is rescission. Rescission involves attempting to return the parties to the situation they were in prior to the contract being entered into. It is a remedy that voids the contract and aims to restore the parties to their pre-contractual positions.
What is the significance of lack of practical choice in cases of economic duress?
In cases of economic duress, lack of practical choice is a key element. The pressure exerted on the victim must result in a lack of practical alternative or options. The victim must have no practical choice but to acquiesce to the demand.
What are the potential consequences of affirming a contract after duress has ceased
If a contract is affirmed after duress has ceased, the remedy of rescission may be lost. Affirmation occurs when the innocent party fails to challenge the contract in a timely manner or acts in compliance with its terms. The court may conclude that the contract is affirmed, which operates as a bar to rescission.
How can a party prove that they have been the victim of undue influence?
To prove that they have been the victim of undue influence, a party must show a relationship of trust and confidence (or one of the categories of irrebuttable presumption) and a transaction that requires explanation. If these elements are present, the court will determine that the transaction is the product of undue influence unless the alleged wrongdoer can provide evidence to convince the court otherwise.
What happens if a party alleges undue influence and shows a relationship of trust and confidence along with a transaction that requires explanation?
If a party alleges undue influence and shows a relationship of trust and confidence along with a transaction that requires explanation, the burden shifts to the defendant. The defendant must produce evidence to show that there was no undue influence. If they fail to do so, undue influence is established.
What are the limits on equitable relief in cases of undue influence?
Equitable relief, such as setting aside a contract or gift by deed, may be granted in cases of undue influence. However, the court has discretion in granting this relief. It may be refused if the innocent party has delayed making their claim or if their conduct has been underhand.
What are the criteria for factual consideration to apply in contract law?
According to Glidewell LJ, the criteria for factual consideration to apply are: (1) the parties must have an existing contract for goods or services, (2) the paying party must have reason to doubt the performing party’s willingness or capacity to complete their existing obligations, (3) an extra payment is promised to ensure the existing obligations are completed, (4) the paying party gains a practical benefit or avoids a disbenefit, and (5) the extra payment is made in the absence of duress.
Does factual consideration apply to new contracts or only to variations of existing contracts?
Factual consideration does not apply to new contracts, but only to variations of existing contracts.
When can a contract be affected by undue influence from a third party?
A contract can be affected by undue influence from a third party when the victim is persuaded to enter into a guarantee or surety contract with a bank or creditor based on undue influence, misrepresentation, or other legal wrong committed by the third party, not by the other party to the transaction.
What happens if a contracting party has actual notice of undue influence?
If a contracting party has actual notice of undue influence, the contract will be affected. However, it is highly unlikely that the party will have actual notice of undue influence. More commonly, there are circumstances that might lead the party to realize that a transaction carries a risk of undue influence.
What is the first question to consider when determining if there was undue influence?
The first question to consider when determining if there was undue influence is whether there was a relationship of trust and confidence. The party alleging undue influence must prove such a relationship, typically by showing that they placed trust and confidence in the other party.
What factors would put a creditor on notice in cases where a wife offers to stand surety for her husband’s debts?
A creditor would be put on notice when the transaction is not financially advantageous to the wife and there is a substantial risk in transactions of that kind that the husband has committed a legal or equitable wrong. In such cases, the creditor needs to take reasonable steps to satisfy itself that the wife’s agreement to stand surety has been properly obtained.
How can an agreement to accept less be enforceable in contract law?
An agreement to accept less can be enforceable if a relevant common law exception applies, such as payment of a different place, time, or thing. Additionally, the exceptions of payment by a third party and practical benefit should be considered. Promissory estoppel can also potentially allow a party to defend itself when the other party demands the original amount.
What is the test for economic duress in contract law?
The current leading test for economic duress comes from DSND Subsea v Petroleum Geo Services. The test includes three elements: (1) lack of practical choice for the victim, (2) illegitimate pressure, and (3) causation, where the victim must show that but for the duress, they would not have entered into the agreement.
What are the two specific points worth noting when considering if a spouse has exercised undue influence over the other spouse?
When considering if a spouse has exercised undue influence over the other spouse, it is important to note that a relationship between spouses does not have an irrebuttable presumption of a relationship of influence or ascendancy. The spouse alleging undue influence will need to prove such a relationship, most likely by showing that they placed trust and confidence in their spouse. Additionally, the court has indicated that a spouse offering their interest in the matrimonial home as security for a loan to their spouse’s business is not a transaction that requires explanation, so the spouse alleging undue influence would need to provide more explicit evidence of undue influence.
What happens if undue influence is established in a contract affected by a third party?
If undue influence is established in a contract affected by a third party, the contract may be set aside. However, this relief is discretionary and may be refused if the innocent party has delayed making their claim or if their conduct has been underhand.
What are the elements of undue influence in contract law?
The elements of undue influence include: (1) a relationship of influence or ascendancy, where one party trusts and has confidence in the other, (2) unfair advantage taken of that relationship, which can be shown if the transaction requires explanation or does not appear to be in the interests of the person entering into it.
What is required to establish undue influence in a contract resulting from a relationship of trust and confidence?
To establish undue influence in a contract resulting from a relationship of trust and confidence, the party alleging undue influence must show that there was a transaction that calls for an explanation. If these elements are present, undue influence is inferred unless the other party can provide evidence to the contrary.
What is the summary in relation to undue influence and third parties?
In cases where a ‘victim’ is persuaded to enter into a contract, such as giving security to a bank, based on undue influence by a third party, the contract with the bank can be set aside if the bank had notice of the undue influence. A bank will be held to have constructive notice in every case where the relationship between the party giving the guarantee and the borrower is non-commercial, unless the bank takes reasonable steps to warn the weaker party of the risks of the transaction or to ensure that they get independent advice.
What are the implications of delay or failure to come to court with ‘clean hands’ in cases of undue influence?
In cases of undue influence, delay or a failure to come to court with ‘clean hands’ may lead to the refusal of a remedy. Equitable relief may be disallowed if the innocent party has delayed making their claim or if their conduct has been underhand.
What is the principle regarding notice of undue influence in contracts affected by a third party?
In contracts affected by a third party, the principle is that if the contracting party has actual notice of undue influence, the contract will be affected. However, it is more likely that there are circumstances that might lead the party to realize that a transaction carries a risk of undue influence. The issue of notice is relevant when determining if the bank will be fixed with constructive notice of undue influence.
What is required to prove undue influence in a contract involving a third party and a victim who is persuaded to enter into a guarantee or surety contract?
To prove undue influence in a contract involving a third party and a victim who is persuaded to enter into a guarantee or surety contract, the victim must show that the contracting party (e.g., the bank) had actual notice of the undue influence. However, it is highly unlikely that the bank will have actual notice. Instead, the victim must demonstrate circumstances that might lead the bank to realize that the transaction carries a risk of undue influence.
What is the difference between overt acts of improper pressure and undue influence in contract law?
Overt acts of improper pressure and undue influence are two types of situations in contract law where one party takes advantage of the other. Overt acts of improper pressure involve unlawful threats or coercion, while undue influence is concerned with imbalanced relationships where one party has power and influence over the other.
What is the legal effect of duress on a contract?
The contract is voidable
What is the causation test for duress to the person?
The duress need be only one factor influencing the victim’s decision to enter the contract
What is the causation test for economic duress?
The illegitimate pressure must have been decisive in the making of the agreement
A and B have a contract. A offers B more money to perform an existing contractual obligation. When does B provide legal consideration in return for the promise of extra payment?
B exceeds their contractual obligation to A.
The modern trend is to take a more creative approach when assessing whether consideration for a variation is present and instead test the validity of the renegotiation through the doctrine of economic duress.
True
In which of these relationships does the law presume irrebuttably that one person had influence over the other?
A business and its customers
Husband and wife
Employer and employee
Guardian and ward
Guardian and ward
Correct. The law presumes irrebuttably that in a relationship between a guardian and his ward, one party had influence over the other. This is irrespective of the true facts. However, the presumption that the transaction was procured by that influence may be rebutted
