Elements of Contract Formation

Question 1

What are the 5 elements of formation?

Answer 1

1) Offer
2) Acceptance
3) Consideration
4) Certainty
5) Intention

Question 2

What is an offer? (3 Points)

Answer 2

An offer is an expression of willingness to contract on specified terms, made with the intention that it is to be binding once accepted.

Question 3

What is acceptance? (4 Points)

Answer 3

An acceptance is a final and unqualified expression of assent to the terms of an offer with intention to be bound by the agreement.

Question 4

What is consideration? (3 Points)

Answer 4

Consideration is “something of value” which is given for a promise and is required in order to make the promise enforceable as a contract.

Question 5

What is certainty?

Answer 5

A contract is certain when the provisions are properly described and explained. If a contract is incomplete or uncertain, then it may be found to be unenforceable.

Question 6

What is intention?

Answer 6

The parties must intend their agreement to be legally binding.

Question 7

What are the 3 matters affecting the formation?

Answer 7

1) Privity
2) Formalities
3) Capacity

Question 8

What is privity in terms of contract formation?

Answer 8

Privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract.

Question 9

What are formalities?

Answer 9

There are two types of contract, informal and formal. An informal contract doesn’t require a written contract etc. A formal contract requires formalities such as written paperwork and undersigning.

Question 10

What is capacity?

Answer 10

All parties must have a capacity to enter a contract; this means that they must be a legal entity recognised by law, such as a company, or must be a person at least 18 years of age and of sound mind.

Question 11

What are express terms?

Answer 11

Express terms are ones that the parties have set out in their agreement.

Question 12

What are implied terms?

Answer 12

A contract may contain terms which are not expressly stated but which are implied, either because the parties intended this or by operation of law.

Question 13

What does vitiation mean?

Answer 13

To make faulty or defective.

Question 14

What are the 5 reasons for vitiation of contracts?

Answer 14

1) Misrepresentation.
2) Mistake.
3) Illegality.
4) Undue influence.
5) Duress.

Question 15

What happens to a contract that is vitiated?

Answer 15

The contract becomes void or voidable.

Question 16

What are the 2 remedies for a void or voidable contract?

Answer 16

1) Rescission - the revocation or cancellation of the agreement.
2) Rectification - correcting mistakes in recording arrangements

Question 17

What are the 3 reasons for discharge of contracts?

Answer 17

1) Frustration.
2) Breach.
3) By agreement.

Question 18

What is frustration?

Answer 18

Where an unforeseen event either renders contractual obligations impossible, or radically changes the party’s principal purpose for entering into the contract.

Question 19

What is a breach of contract?

Answer 19

A breach of contract is a violation of any of the agreed terms. eg. late payment or failure to deliver a promise.

Question 20

What is the remedy for termination of a contract?

Answer 20

Damages. Damages in contract law are a legal remedy available for breach of contract. Damages are an award of money to compensate the innocent party. The primary purpose of damages in contract law is to place the injured party in the position they would have been in had the contract been performed.