Contract Law: Formation Of A Contract Flashcards
What are the key elements for forming a contract?
- Offer
- Acceptance
- Consideration
- Intention to create legal relations
- Certainty of terms
If any element is missing there is no legally binding contract
What is a valid offer?
An offer is a clear and definite promise to be bound by specific terms once accepted.
Example of offer: carlill v carbolic smoke ball company promised to pay £100 to anyone who used the smoke ball
Example of what is not an offer: goods on a shelf in a supermarket does not constitute an offer - this is simply an invitation to treat which does not create any legal obligation
What is acceptance?
- acceptance is the unconditional agreement to all the terms of the offer
What are the key elements for acceptance to be valid?
- acceptance must mirror the terms of offer meaning if the offer was £500 it must be accepted at £500 not £520 (mirror image rule)
- must be communicated to the silence is not acceptance (felthouse v bindly)
- Method of acceptance must be followed if specified
If a counter offer is made does this mean the offer is still valid?
- no a counter offer destroys the original offer
What is the postal rule
Of acceptance?
- the postal rule means acceptance is complete once posted regardless if there is delays to delivering the letter
Case: Adam’s v lindsdell
What is consideration?
- consideration is providing something of value in exchange between parties to make the contract binding
What are the key principles of consideration?
- consideration should be sufficient but need not be adequate (Thomas v Thomas £1 rent was sufficient consideration)
- past consideration is not valid (meaning consideration can not be promised after the act or item has been provided)
- performance of an existing duty is not sufficient consideration ( foaks v beer)
When can past consideration be considered sufficient?
- when the act was carried out as a result of a request made by the other party and there was an implied expectation of payment and the sum is reasonable
What constitutes the intention to create legal relations?
- when both parties enter into an agreement intended to be legally binding
What is the previous request rule?
-previous request” rule states that past consideration can be valid if the act was performed at the request of the promisor, with an understanding that payment or compensation would be given later.
What is the presumption regarding legal intent in business agreements?
- there is a general presumption that the parties had the intent to create legal relations
What is the presumption regarding legal intent in social and domestic agreements?
- general presumption of no legal intent
How can the presumption of no legal intent in domestic agreements be rebutted?
- if the agreement is written
- if the conduct of parties suggest that the contract was intended to be legallly binding
What does certainty of terms mean?
A contract must be clear definite and enforceable terms
What is revocation of an offer in contract law?
- Revocation is the withdrawal of an offer by the offeror before it is accepted. It must be communicated to the offeree (Byrne v Van Tienhoven [1880]) and can be done by a third party (Dickinson v Dodds [1876]).
does the postal rule apply when retracting a offer?
- no postal does not apply the party in which the offer has been made to must receive the offer
What are the conditions to the postal rule?
- that it reasonable to use post
- the letter was properly addressed stamped and posted
- and the postal rule had not been excluded as part of the offer
difference between an unilateral and bilateral contract?
- a bilateral contract is where both parties promise to perform certain obligations
- where as a unilateral contract is a promise that only one party makes but dos not have to perform
example: I promise to sell my bike to my friend for £50 they agree once payment is made I then deliver the bike this is a bilateral contract a promise in return for a promise
Example 2: I lose my cat and make a poster saying anyone who find my cat gets £100 this is only binding on me on the basis someone find my cat but there is no other party promising to complete the act
Can an offer be terminated?
Yes
What methods can me use to terminate an offer?
(A) rejection by the offeree
(B) revocation
( c) laps of time
who can a offer be addressed to?
- An individual or the whole world
what is required for a offer to be certain and complete?
- judged objectively:
- the offer must include all the material terms eg price etc
- if parties are within the same trade this information may be used to fill any gaps
example terms that are too vague for example on a Hire purchase can render the offer void making the contract unenforceable
What is an Arbitration Clause?
An arbitration clause is a provision in a contract that requires any disputes between the parties to be resolved through arbitration rather than going to court.
note: this may be to settle any disputes on certainty of price or parts of the contract that need clarification
What is Executed vs. Executory Consideration?
- Executed consideration = Performance is completed (the act has already been carried out).
-Executory consideration = Promise to act in the future (the act or performance is yet to happen).
what must be done if two parties which to vary a contract?
- agreement
- consideration
- and intention to create legal relations
What does “variation cannot be one-sided; consideration must vary” mean in contract law?
- Essentially, both parties must benefit from varying the terms of the contract. If one party benefits from the variation but the other does not receive any additional benefit (consideration), the variation may be considered void because the consideration is insufficient.
what does it mean to ‘confer a practical benefit?
To confer a practical benefit” means providing something of real value or advantage to the other party, which makes the contract change beneficial and enforceable. This could include saving time, money, or effort for one party.
- note this is relevant in identifying if consideration is sufficient when a contract is varied
what is promissory estoppel?
-Promissory estoppel prevents a party from going back on a promise, even if there was no formal contract
What is the difference between an agent with actual authority and an agent with apparent authority?
Actual Authority: The agent has been expressly or impliedly granted authority by the principal to act on their behalf.
• Apparent Authority: The agent appears to have authority due to the principal’s representations to a third party, even if no actual authority was given.
What is an agent?
- An agent is a person or entity authorized to act on behalf of another (the principal) to create legal relations with third parties
This authority can be actual or apparent
When an agent acts on behalf of the principle to whom does the contract bind to?
- the principle no contract exists with the third party
what is privity of contract ?
- only contracting parties can sue for breach of contract
example: if A breaches contract to B then Bs friend can not bring forward a claim for privity of contract as they are not an intended benefiting party to that contract
Exceptions apply under: contracts (rights of third parties) act 1999
What are the exceptions to the privity of contract rule?
A third party can enforce a contract if:
a) The contract expressly states they can.
b) The contract benefits them, and the parties intended for them to enforce it.
what is an agent?
- this is a party acting based on implied or apparent authority for the principle example below
example: supermarket (principle) employs a store manager (agent) the principle can be held liable for actions of the agent
when may the postal rule be invalid?
- if the letter is not properly addressed and posted
- if the offer had specific instructions on how to accept and it did not include post
- if it is not reasonable to post
if a contract is frustrated what damages is available?
-if a contract is frustrated the contract automatically comes to an end so no damages for breach are available
what remedies are available for a frustrated contract?
Under the Law Reform (Frustrated Contracts) Act 1943 – Money paid can be recovered, expenses may be compensated, and benefits must be paid for.
who are the main categories of people whose power, or capacity, to enter contracts is limited by law?
- children under the age of 18 (unless it is a contract for necessary goods)
- people with mental incapacity due to mental breakdown or drunkness
what is meant by necessary goods in reference to a contract being binding on a person under the age of 18?
- cloths food, mobile phone etc (this is also dependant on their social status and the requirement at the time)
- contracts of service if they were to benefit the minor
what are the general rules when establishing if a contract is binding on someone who has impaired mental capacity?
- the contract will be valid unless at the time of creating the contract the individual was incapable of understanding the terms and the contract and the other party was aware of this (making the contract voidable)
what are express terms?
- the terms of a contract agreed upon by both parties can be written or spoken
how can terms be incorporated into a contract?
three ways:
-by signature (even they did not read it)
- reasonable notice ( if a party gives notice of a term before or when the contract is made)
- by previous consistent course of dealing ( if both parties have dealt with each other on those same terms in the past)
what are the three classification of terms?
- Conditions (Major terms)
- warranties (minor terms)
- Innominate Terms ( depends on the breach)
what remedies are available for breach of major terms?
1.If there is a breach of major terms the innocent party can terminate the contract
-2.or/and claim damages
example of a major term: A concert performer signs a contract to perform at a music festival. If they fail to show up, this breaches a condition, allowing the festival organizer to cancel the contract and sue for damages.
what remedies are available for breach of warranties?
- innocent party can only claim damages
example of a warranty: A company orders branded uniforms for its staff, and the supplier delivers them a day late. The delay is inconvenient but not crucial, so the company cannot cancel the whole contract but can claim compensation for any extra costs.
what are the remedies available for breach of Innominate Terms?
- depends on the nature of the breach as they can either fall into warranty or condition
- if the breach is considered a condition then party is able to terminate contract and claim damages
- if the breach is considered warranty then only damages can be claimed
Example: A software company provides a cloud service with a 99% uptime guarantee. If the system goes down for a few minutes, it’s a minor issue (warranty). But if it crashes for weeks, preventing customers from running their business, it becomes a serious breach (condition).
what are implied terms?
Implied terms are contract terms that are not explicitly stated but are still legally binding because they are assumed to be part of the agreement.
what are the four main categories of implied terms?
- terms implied by statute ( example sales of goods act) 1979
- term implied by custom or trade usage ( it is a common practice for that trade)
- by fact ( the term is needed in order for the contract to work)
- terms implied by law (Terms that the courts impose on all contracts of a certain type to ensure fairness example: based on common law rather than legaslitvie law)
