Formation I Flashcards
What are the elements needed to form a contract?
Offer: One party proposes terms to another.
Acceptance: The other party agrees to those terms.
Consideration: Something of value exchanged between the parties.
Intention to Create Legal Relations: Parties must intend for the agreement to be legally binding.
How can you distinguish an offer from an invitation to treat? What happens with a counter offer?
Offer: A clear, definite proposal that can be accepted to form a contract (e.g., a price quote).
Invitation to Treat: An invitation for others to make offers (e.g., displaying goods for sale).
Counter Offer: This occurs when the offeree responds to the offer with terms different from the original offer. This effectively rejects the original offer and presents a new one.
Are advertisements offers or invitations to treat? What about shop displays? What about websites, or tenders?
Advertisements: Generally considered invitations to treat, as they invite customers to make offers.
Shop Displays: Also typically regarded as invitations to treat; the customer makes an offer to purchase at the displayed price.
Websites: Often treated like advertisements, depending on the context and wording.
Tenders: Can be considered offers or invitations to treat depending on the nature of the tender process.
What constitutes valid acceptance of an offer? Define acceptance and the means by which acceptance can occur. Consider when and why silence can, and cannot, be regarded as acceptance.
Acceptance: An unqualified agreement to the terms of an offer. It can occur through various means, including:
Verbal agreement
Written confirmation
Conduct that clearly indicates acceptance
Silence is usually/generally not considered acceptance. (Unless there is a prior agreement or established practice between the parties where silence has been treated as acceptance.)
What is consideration? How can it be defined?
It essentially means that something of value must be exchanged between the parties to form a binding agreement. This value can take many forms, but it must be sufficient to be considered ‘good’ consideration.
Consideration is the value exchanged in a contract. It can be defined as: A benefit to one party or a detriment to the other. It must be sufficient but need not be adequate (i.e., the value doesn’t have to match).
How might the relationship between the parties affect whether the courts presume an intention to create legal relations or not?
Commercial Agreements: Generally presumed to intend legal relations.
Social or Domestic Agreements: Typically presumed not to intend legal relations unless proven otherwise.
Carlill v Carbolic Smoke Ball Co [1893]
The company stated in an advertisement that it would pay £100 to anyone who used the smoke ball as directed and still contracted influenza.
To show their sincerity, the company claimed to have deposited £1,000 in a bank as proof of their intent.
Mrs. Carlill purchased and used the smoke ball as directed but still caught influenza. She then claimed the £100 reward.
KEY PRINCIPLES:
Unilateral contracts: An offer can be made to the entire world, and acceptance can be through conduct.
Intention to create legal relations: Demonstrated by the company’s deposit of money.
Consideration: A party’s action in reliance on an offer can constitute valid consideration.
Balfour v Balfour [1919]
Mr. Balfour promised to pay her £30 per month for her maintenance while they were apart.
Later, their relationship broke down, and Mr. Balfour stopped making payments.
Mrs. Balfour sued for the payments, claiming that there was a binding contract between them.
KEY PRINCIPLES:
Intention to create legal relations: This case established the principle that, in domestic or social arrangements, there is a presumption against legal enforceability unless clear evidence to the contrary exists.
Kleinwort Benson v Malaysia Mining [1989]
KB provided a loan to a subsidiary of MM. MMC, the parent company, issued a letter of comfort to KB, stating:
MM was aware of the loan agreement.
It was the company’s policy to ensure that its subsidiaries met their financial obligations.
The subsidiary later defaulted on the loan.
KB sought to recover the amount from MM, arguing that the letter of comfort created a legally binding obligation for MMC to ensure repayment.
KEY PRINCIPLES:
Letters of Comfort: The case illustrates that such letters are typically seen as non-binding unless there is explicit wording to suggest otherwise.
Intention to Create Legal Relations: The case reaffirms the importance of distinguishing between binding contractual promises and statements of intent or policy in commercial contexts.
Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990]
The council stipulated that tenders must be submitted in a specific format and before a stated deadline.
Blackpool & Fylde Aero Club submitted a tender correctly, but due to an administrative error by the council, the tender was not considered.
The concession was awarded to another bidder, and the Aero Club sued, claiming the council had breached an implied contractual duty to consider all valid tenders submitted on time.
KEY PRINCIPLES:
Process Contracts: This case established that invitations to tender can create a legally binding obligation to adhere to the tendering process’s terms.
