Formation: Agreement, Intention & Consideration Flashcards
what elements must be present for a contract?
agreement
intention to create legal relations
consideration
what is agreement?
Agreement is an offer that has been accepted
what are type of contract?
There are unilateral and bilateral contracts
what is a unilateral contract?
o Unilateral = a promise in return for an act (i.e. there is only one promise made. The offeror is not expecting a promise back, otherwise this would be a bilateral contract)
what is a bilateral contract?
o Bilateral = a promise in return for a promise (i.e. there will be at least 2 promises)
what is it important to distinguish between and why?
An offer needs to be distinguished because an invitation to treat cannot be accepted
what is the definition of an offer?
‘an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed’ (Treitel, The Law of Contract, 14th edn (2015), p 10).
in simple terms = an offer is a definite promise to be bound by specific terms
what are the key elements to the definition of an offer?
o Expression
o Intention
o It was accepted by the person to whom it is addressed
re: definition of offer
what form can the expression take?
this can take many forms i.e. letter, newspaper advertisement, email, text message or conduct.
re: definition of offer
how will the courts consider intention?
the courts adopt an objective approach to establish whether the offeror intended to make an offer i.e. they will look at what was said and done between the parties from the point of view of a ‘reasonable person’
re: definition of offer
re - ‘it is accepted by the person to whom it was addressed’, who cann the offer be made to?
an offer can be made to one person, a class of people or the whole world but the key is someone can only accept an offer addressed to them
what is an invitation to treat?
An ITT is an invitation for negotiation
give an example of an invitation to treat and an offer
ITT: ‘I am thinking of selling my car. I have been told that £7,000 would be a realistic asking price. Would you be interested in buying it?’
o This would not amount to an offer as they have only said that they are ‘thinking’ of selling the car, and the price is only a potential asking price. They have not committed to selling the car at a specific price.
Offer: ‘I will sell you my car for £7,000’.
what are categories of invitations to treat?
o goods on display
o advertisements for goods / services (with some exceptions)
o Auctions
o Tenders (with some exceptions)
why are goods on display and invitation to treat?
Goods on display are an invitation to treat i.e. an invitation to select the goods and put them in your trolley. If you no longer want the goods, you can put it back without obligation.
The contract is concluded at the checkout - you offer to buy the goods and the cashier decides whether to accept the offer or not
what is the exception to the general position that advertisements for goods / services will amount to an offer? Give an example and explain why.
An advert that amounts to a unilateral contract will also be an offer.
An advertisement of a reward is an offer because it amounts to a unilateral contract i.e. one person is promising to pay a reward but the offerees are not obliged to take any action / accept the offer
why are advertisements invitations to treat?
because if they were offers it would mean that anyone could accept and this would lead to stock / work capacity issues
why are advertisements of rewards offers?
This is for policy reasons i.e. advertisements for rewards standing as offers should encourage people with information to come forward. This is because once the offeree accepts the offer (i.e. by supplying the information), the offeror must pay them the money. There is no negotiation involved.
what type of form do most contracts take?
Bilateral
give an example of a bilateral contract
Patty makes a promise to David that she will pay him £100. In return for this promise, she wants David to make a promise to paint her fence. David promises to make the fence. A bilateral contract is formed.
give an example of a unilateral contract
Patty says, if you paint my fence, I promise to pay £100. Patty has made a promise to pay, David has promised nothing. Patty doesn’t even want a promise from David. David accepts the offer by performing (i.e. by painting the fence). David is entitled to his money once he performs.
in practice, what is the key practical difference between a bilateral and unilateral contract?
with a unilateral contract, the offeree, is not obliged to complete the task or action whereas he would be if it was a bilateral contract and he had promised to paint the fence.
give an example of a reward as a unilateral contract
Patty puts up a sign saying ‘lost dog, £500 reward’. David sees the sign, he does not promise to Patty that he will find her dog (this would be a bilateral contract). He sees the sign, performs and finds the dog, now Patty must keep her promise and give David the money.
In relation to auctions, when does the invitation to treat become acceptance of an offer?
An offer is accepted when the gavel goes down (s57(2) Sale of Goods Act 1979) (unless a unilateral contract is created)
what is a reserve price?
the owner and the auctioneer have agreed a minimum price for which the asset must sell. If the reserve price is not met, the assets is withdrawn from the sale. Bidders are told that there is a reserve price in place but not the amount.
what is the effect an auction if something is advertised as ‘without reserve’?
the auctioneer must sell the item to the person who makes the highest bid, regardless as to whether or not they know they can fetch a higher price.
This is a unilateral contract because only one party makes a promise i.e. the auctioneer promises to sell the item to whoever might make the highest bid.
if an item is sold without reserve and the item is withdrawn / not given to the purchaser, who should they sue and why?
the purchaser should sue the auctioneer for breach of unilateral contract. It would be pointless to sell the owner of the item because the auctioneer had not accepted his bid and so there was no contract of sale with the owner.
At an auction, when will a unilateral contract be created?
o if the item is sold without a reserve place
o if words to the effect of ‘..be sold that day whatever price they fetch’
if someone sues an auctioneer for breach of unilateral contract, what damages would the defendant be liable to pay?
the difference between the value of the item and the amount of the claimant’s bid
what is a tender?
Tendering is a formal process where businesses are invited to bid for contracts
when will a tender be an offer rather than an invitation to treat?
tenders are an ITT unless it amounts to a unilateral contract i.e. if the company specifically promises to accept the lowest tender or if they will consider all confirming tenders. If the company didn’t comply with its promise it would be liable for breach of contract.
what is the effect of a counter-offer? Give an example of a counter-offer.
A counter-offer effectively destroys the original offer and represents a new offer which the other party can accept or reject
Example - I agree to buy your car, but can only afford to pay you half the price now and the rest next week’
what is the definition of acceptance?
Acceptance has been defined as an unqualified expression of assent to the terms of an offer.
re: definition of acceptance
what is meant by ‘expression of assent’?
This means that acceptance must be communicated and must be communicated by the offeree or their authorised agent
how can acceptance be communicated?
o by words or conduct (i.e. possibly a nod or wink)
o re - unilateral contracts: acceptance will always be conduct of some sort (i.e. an advertisement of reward, the acceptance by the offeree would be the supply of the information sought after)
o silence can amount to acceptance if coupled with conduct that objectively signifies acceptance
re: definition of acceptance
what is meant by ‘unqualified’?
if there are any conditions attached to the response then this will not amount to acceptance (and therefore a contract hasn’t / can’t be created). This is known as a counter offer.
what is the effect of terms and conditions on acceptance of a contract?
When one party submits a document (i.e. a quote / form) to the other party they will attach their T&Cs. The other party might send back the document with their own T&Cs. This is a counter-offer after counter-offer, the ‘last shot’ wins.
What may happen if there are incompatible T&Cs?
if the contract is performed, this might be regarded as acceptance by conduct of the last set of standard terms to be proffered.
what is the postal rule?
This involves acceptance of an offer by post. The letter of acceptance will be effective (i.e. create a binding contract) when posted even if the letter is lost in the post.
what conditions are attached to the postal rule?
o it was reasonable in all the circumstances to use the post (i.e. this can mean many things but one thing to consider is if the situation is urgent);
o the letter was properly addressed, stamped and posted; and
o the postal rule had not been excluded by the offeror.
does the offeror have any control over the postal rule?
A offeror may specifically say that the postal rule is excluded or this can be implied
how can exclusion of the postal rule be implied?
if the offeror uses wording such as ‘need to know by [DATE], ‘notice’, ‘in writing’ or ‘told’ of the acceptance then the letter of acceptance only becomes effective when it is received i.e. if the letter never arrives then the offer is not deemed to be accepted
re: postal rule
what is an example of it being unreasonable to accept by post?
a offeror states the offer needs to be accepted by Friday 19 April and the offeree sends the letter in the post just a few days before
can an offer be accepted once it has been terminated?
No
how can an offer be terminated?
o Rejection by the offeree
o Revocation (withdrawal) by the offeror
o Lapse of time
how can the offer be rejected by the offeree?
- Rejection can be expressed or implied
- An offer will be rejected by implication if the offeree makes a counter offer
what is the general rule regarding revocation by the offeror?
The general rule is that an offer can be revoked any time before acceptance even if the offeror promised to keep the offer open for a certain period of time
what is the exception to the general rule regarding revocation by the offeror? Give an example.
If the offeree gave something in return for the promise to keep the offer open, then the offer cannot be revoked by the offeror in the agreed period of time i.e. the offeree paid the offeror £1 to keep the offer open for a period of time
what is the position in relation to revocation of a unilateral contract?
- Authority states that partial performance of a unilateral contract is sufficient to prevent revocation by the offeror
- It has been suggested that there are two offers in this situation, the express offer and an implied offer not to revoke if the specified act is started within a reasonable time (acceptance and consideration for the implied promise is the commencement of the act)
what is necessary for revocation by the offeror to be effective?
it must be communicated by the offeror or reliable third party
NB: the postal rule does not apply to revocation
when is revocation of an offer by electronic means to a business deemed effective? Give an example
There is no universal rule so a court would look at the circumstances and the intentions of the parties, however the court may follow the rational in Brimnes which provided that revocation would be effective when the message should have been read i.e. if an email was sent during business hours and the business failed to read the email and performed the act anyway then this is the offeree’s failure
what must the offeror do to revoke an offer if the offer is made to the public at large?
the offeror would need to publish a notice of revocation
when will revocation of an offer deemed to have been communicated by the offeror (non-business)? Give an example
when the offeree receives the communication i.e. if the offeror leaves a voicemail on Tuesday, but the recipient does not listen to this until Thursday, the revocation of the offer is deemed to take place when the voicemail is listened to.
what is the aim of contractual damages?
the aim of contractual damages is to compensate the innocent party for loss of bargain
when will an offer be terminated by lapse of time?
An offer will lapse after the specified time or otherwise a reasonable time. What is reasonable will depend on the circumstances.
In contract disputes, what approach does the judge take and what do they look at?
a judge will look objectively to determine whether a contract has been formed. They will look at the context i.e.:
* Trade usage
* Whether the arrangement has been acted on for any length of time
* If there is an objective mechanism for resolving such uncertainty i.e. an arbitration clause then this will be a binding contract
* A provisional agreement in operation until a contract is drawn up will be binding
* Whether parties are in the same trade - an agreement to buy ‘timber of fair specification’ was binding. The parties had worked together before, were both in the timber trade and the contract had been partly performed.
what is a example when a judge directed a contract had not been formed?
Scammell v Outson - you agree to buy a car on ‘hire purchase terms’ but there are no other details (i.e. duration, number) this is too vague to be a contract.
re: intention to create legal relations
what is the rebuttable presumption in relation to commercial agreements?
If the agreement was commercial, there will be a very strong presumption that parties intended their agreement to have legal consequences
re: intention to create legal relations
what is the rebuttable presumption in relation to domestic agreements?
(i.e. between friends and family) the presumption is that there was no intention to create legal relations
re: intention to create legal relations
what types of agreements are included within commercial agreements?
o Business to business
o Business to individual
o Individual to individual i.e. buying a second hand bike from an ad in a newspapers
what is meant by ‘consideration’?
the principle that contracts must involve an exchange of value. In other words, each party has to give something and get something in order for the contract to be legally binding
re: intention to create legal relations
does the subject matter affect whether there is likely to be intention to create legal relations in a commercial agreement? Give an example.
It doesn’t matter is the subject matter is trivial
i.e. Esso Petroleum v Commissioners of Customs and Excise [1976] 1 WLR 1 - there was a sales promotion offering a free world cup coin if 4 gallons of fuel was purchased. It was held there was intention to create legal relations.
re: intention to create legal relations
what evidence is needed to rebut the presumption in relation to commercial agreements?
There would need to be a clear, express statement that the agreement was not meant to be legally binding (i.e. binding in honour only)
Not many cases have successfully rebutted this presumption
re: intention to create legal relations
what evidence is needed to rebut the presumption in relation to domestic agreements?
this can be rebutted depending on the facts. A key factor will be whether there is a lot of money at stake, this suggests there was intention to create legal intentions
re: intention to create legal relations
give some examples of relationships and agreements which might rebut the presumption in a domestic agreement
- husband and wife - settling financial terms of divorce
- two friends - reaching an agreement on how they will contribute capital to a joint venture
- brother and sister - expressly agreeing the agreement will be legally binding
- two cousins - one sells their hose to the other
what are the general principles of consideration?
o Consideration may be a promise or an act given in return
o Detriment OR benefit
o Consideration must not be past
o Consideration need not be adequate
o Consideration must be sufficient
re: consideration
what is executory consideration?
this is a promise to do or not do something in the future in exchange for another promise that is also yet to be performed.
re: consideration
what consideration is given in bilateral contracts?
In bilateral contracts, there is an exchange of promises (i.e. executory consideration)
re: consideration
what is meant by ‘benefit or detriment’?
There must be benefit to the promisor or detriment to the promisee. There need not be both but often there will be both.
re: consideration
what is executed consideration?
when a party has already given or done something in exchange for a promise
re: consideration
what consideration is given in unilateral contracts?
Unilateral contracts require a promise in return for an act (i.e. executed consideration)
re: consideration
give and example of benefit or detriment
I agree to buy a laptop off you for £500. I can hold you to the deal because I have agreed to pay for it. I have ‘provided consideration’ for your promise to sell me the laptop. The consideration would be my promise to pay £500 for it: that is a benefit to you and a detriment to me.
Equally, you could hold me to the deal: you agreed to hand over the laptop in return for getting my £500.
re: consideration
what is the exception to the rule ‘consideration must not be past’
Past consideration will be good consideration if:
o The past act/promise was done at the promisor’s request
o There was a mutual understanding that the act/promise would be compensation for in some way; and
o Had the promise been made in advance it would have been legally enforceable
re: consideration
give an example demonstrating the exception to the rule ‘consideration must not be past’
Re Casey Patents:
o The owner of an invention asked a manager to promote the invention.
o Afterwards, the owner (the promisor) promised him a share in the patent rights for what he had done.
o The promisor later tried to argue that the promise was unenforceable as it was past consideration.
o The court held the promise was enforceable because there was an implied promise to pay and the manager must have assumed he would be rewarded.
re: consideration
what is meant by consideration must not be past?
a thing already done cannot form consideration for an agreement reached subsequently. Generally, past consideration is not good consideration, but there is an exception to this.
re: consideration
what is meant by consideration need not be adequate? Give an example.
the amount or value of the act or promise in return (i.e. the consideration) does not need to be of equal value to the initial object of the contract being exchanged i.e. if a seller offers to sell an Aston Martin for £1, the £1 is sufficient consideration.
re: consideration
what is meant by the consideration must be sufficient?
means that each party in a contract must provide something of value that the courts can see (albeit it does not need to be adequate).
This often involves consideration as to whether there has been a sufficient detriment/benefit.
re: consideration
give an example relating to ‘consideration must be sufficient’
you promise your uncle to give up your bad habits in exchange for money. However, the uncle doesn’t benefit at all from the promise.
The court found that there was consideration. If the promisor had never smoked etc, there would still be consideration because people have a right to smoke etc, by promising not to do these things you are promising to refrain from something you have the right to do. This would be a detriment so sufficient for consideration.
re: consideration
in relation to ‘consideration must be sufficient’, what is the position in relation to performance of public duty? Give an example.
performance of a public duty is not sufficient consideration but exceeding performance of a public duty would be
Example:
You are summoned to appear as a witness in a criminal trial. The defendant promises to pay you £50 for doing so but afterwards refuses to pay. You could not enforce the promise because you were legally obliged to give evidence and so had not given consideration.
If you had exceeded a legal (public) duty, though, that would have been different; that would have been consideration.
what is meant by contractual variations?
Two parties are engaged in a contract. The contract needs to change for some reason i.e. increase in the value of raw materials.
when there is a contractual variation, what must happen?
In order for the variation to be binding and legally enforceable, there needs to be agreement, consideration and intention to create legal relations for the variation.
Consideration is often the stumbling block with contractual variations.
re: contractual variations
what is the general position in relation to consideration and contractual variations, specifically to pay more money?
performance of an existing contractual duty owed to another party is not good consideration for a promise to pay more money:
o this is the case even if the promisor offers less money and this is agreed by the promisee (Foakes v Bear)
o this is also the case even if the promisor offers more more money (Still v Myrick)
re: contractual variations
why will there not be sufficient consideration if the promisor is offering the promisee more money to undertake existing obligations? Give an example.
i.e. one party promises to pay the other party extra money to complete the job on time.
In order for there to be consideration, the promisor needs to benefit and the promisee needs to suffer detriment. The promisor would not be getting any benefit beyond what was already agreed. Likewise, the promisee is not suffering any detriment beyond what has been agreed.
Therefore, there has been no good consideration and a legally binding contract has not been created. If the promisor did not uphold their promise, the promisee would not be able to enforce this.
re: contractual variations
what are the exceptions to the general position in relation to consideration and contractual variations regarding more money?
1) If the promisor makes a promise of additional payment and the promisee goes beyond their contractual obligations, then this will be good consideration.
2) If the promisor acquires a practical benefit (or obviating a disbenefit) as a result of the promisee completing their pre-existing contractual obligation, then this will be sufficient consideration (Williams v Roffey Bros), unless this was made under duress
re: contractual variations
give an example in relation to ‘if the promisor makes a promise of additional payment and the promisee goes beyond their contractual obligations, then this will be good consideration’
o An employer and an employee have an employment contract.
o The employer asks the employee to work non-compulsory overtime in exchange for money
o Here, there is sufficient consideration.
o The employee (the promisee) is going beyond their contractual obligations (i.e. their normal working hours) by working non-compulsory overtime. Therefore, this is sufficient consideration.
o Whilst you don’t need to have benefit and detriment, the employer would also happen to benefit in this instance.
o The employer (the promisor) has promised to pay extra money to employee. The employer is benefitting for the employee doing extra work beyond what was agreed.
re: contractual variations
what is an example of the promisor receiving a practical benefit?
Roffey Bros - by the promisee completing the work on time, the promisor avoided needing the pay any penalty fees and this was a practical benefit.
Therefore, the promise to pay £10k was legally enforceable.
re: contractual variations
if a promise to make an extra payment was made under duress, what is the consequence of this?
The variation is voidable and the contract can be set aside
what is the rule in Pinnel’s case? What is the effect of this rule?
The rule states that an agreement between the debtor and creditor to pay part of a debt or the payment of part cannot be sufficient consideration for discharging the whole debt. Therefore, there is no binding agreement. This is the case even if this is expressly agreed between the debtor and creditor.
The effect is that even if an agreement is reached, the creditor can change their mind and demand payment
What is the rational behind Pinnel’s case?
This is because there is no new consideration provided for the second agreement, and therefore it is not binding on the parties, i.e.:
o The creditor promises to forgo the remaining balance of the debt, so the debtor does not need to repay the full amount
o The creditor is the promisor and the debtor is the promisee
o Good consideration requires either benefit to the promisor (the creditor) or detriment to be promisee (the debtor)
o In this scenario, the promisor has not received a benefit and the promisee has not suffered detriment. Therefore, there is no consideration or binding agreement.
what are the exceptions to Pinnel’s case?
part payment of a debt will be good consideration when:
* the debtor gives the creditor something in exchange for the promise to forgo the balance of the debt (aside from payment)
* part payment by the debtor on an earlier date at the creditor’s request
* part payment by the debtor at a different place at the creditor’s request
* when the debtor offers something other than money and the creditor accepts
* when a third party make payment for the debtor
re: Pinnel’s case
explain the ‘part payment by the debtor on an earlier date at the creditor’s request’ exception
i.e. the debtor is due to pay the creditor back £100 on 5 Jan 2023. The creditor calls the debtor and says ‘pay me back £50 on 4 Jan 2023 instead’.
This part payment will then be considered to full payment because the debtor has furnished consideration in the form of paying earlier than agreed
re: Pinnel’s case
explain the ‘the debtor offers something other than money and the creditor accepts’ exception
i.e. the debtor is to pay £300. The debtor proposes to pay £100 and give them a phone. The value of the other thing is irrelevant.
re: Pinnel’s case
explain the ‘part payment by the debtor at a different place at the creditor’s request’ exception
i.e. we agree I will pay back £100 on Saturday in Essex. The creditor calls on Saturday and asks me to bring £90 to Thurrock
re: Pinnel’s case
explain the ‘when a third party make payment for the debtor’ exception
i.e. you owe a debt. Your parents say to the creditor ‘will you accept half?’, if the creditor accepts they cannot then pursue the debtor for the remaining money.
what is promissory estoppel?
This is an equitable doctrine.
Promissory estoppel is the principle that if you have made a promise not to enforce your legal rights and someone has relied on that promise (even if they didn’t provide consideration), then you may be estopped from enforcing your legal right (i.e. enforcing the promise) if it would be inequitable in all the circumstances to do so
how is promissory estoppel related to Pinnel’s case?
i.e. if a creditor promised a debtor to accept part payment and then sought full payment, the debtor might be able to rely on the doctrine of promissory estoppel to stop the creditor from going back on their promise
what are the limitations to the doctrine of promissory estoppel?
o It can only be used as a defence when a party bring an action at common law to enforce their rights
o There must have been a promise to waive strict legal rights
o The promisee (usually the debtor) must have acted on the promise, this doesn’t necessarily need to be to their detriment
o With ongoing payments (like rent), the doctrine operates to suspend the strict legal right (rather than cancelling it). This means that the creditor can resume their right to full payment by giving reasonable notice.
o To rely on any equitable doctrine, a party must have ‘clean hands’
re: promissory estoppel
how might the equitable maxim ‘a party must have clean hands’ be relevant to Pinnel’s case?
i.e. if a debtor sought to take advantage of a creditor in a poor financial state, they would be unable to use promissory estoppel as a defence
re: promissory estoppel
explain the position in relation to promissory estoppel and ongoing payments (i.e. rent)
The doctrine of promissory estoppel operates to temporarily suspend a creditor’s right to full payments but does not cancel that right entirely
- suspension of rights: when a creditor (like a landlord) makes a promise to reduce or waive payments temporarily, promissory estoppel can prevent them from later demanding full payments for that period. The landlord, in effect, suspends their right to full rent because the tenant relied on the promise (e.g., paying reduced rent) in good faith
- right to resume full payments with notice: the doctrine allows the creditor to resume their right to full payments going forward, but they must provide reasonable notice to the debtor. This means that while the concessionary period is protected by estoppel, it doesn’t grant the debtor a permanent reduction in obligations—just a temporary one that can end with notice.
3.no claim for back payments: the creditor cannot claim back payments or arrears for the period when the concession was in place. Promissory estoppel prevents them from demanding any additional amounts for that period because the debtor relied on the reduced amount as agreed.
re: promissory estoppel
what is meant by the concessionary period?
The concessionary period refers to the specific timeframe during which a creditor (such as a landlord) agrees to temporarily reduce or waive their rights to full payment, often due to difficult circumstances faced by the debtor. In this period, the debtor benefits from a concession—a form of relief or reduced obligation—that would not typically be available under the strict terms of the contract.
For example, in High Trees, the landlord allowed the tenant to pay a reduced rent during World War II, when many tenants struggled financially due to the war. This time period, during which the landlord accepted a lower rent, is the “concessionary period.”
what is the best way to approach an SBAQ regarding a contractual variation, specifically part payment?
- starting point - part payment is not sufficient consideration (Pinnel’s case)
- do any of the exceptions apply? (therefore meaning part payment would be sufficient consideration and there is a contract)
- if not, can promissory estoppel be relied upon?
