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Level 4 Law for Accounting and Finance > Formation of a Contract > Flashcards

Formation of a Contract Flashcards

1
Q

What is a contract

A

A contract is a legally binding agreement between two or more parties involving goods or services

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2
Q

How can contracts be presented

A

Contracts can be oral or written

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3
Q

Which contracts are easier to enforce

A

Written contracts are easier to enforce

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4
Q

Can a contract be established based on behaviour

A

A contract may be established by the behaviour of the parties

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5
Q

What must a contract contain to be legally enforceable

A

For a contract to be legally enforceable a contract must contain:
- Offer and acceptance
- Consideration
- Intention to create legal relations
- Compliance
- Capacity

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6
Q

What is an offer

A

An offer is a clear proposal made by one party (offeror) to another (offeree)

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7
Q

What is acceptance

A

Acceptance is unqualified agreement to the terms of the offer

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8
Q

What does consideration mean each party needs to provide

A

Consideration means each party must provide something of value in exchange for the other’s promise

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9
Q

Are social/domestic agreements legally binding

A

Social/domestic agreements are presumed not to be legally binding unless proven otherwise (Balfour v Balfour, 1919)

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10
Q

Are commercial agreements usually binding

A

Commercial agreements are presumed to be legally binding unless explicitly stated otherwise

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11
Q

What individuals or entities may lack legal capacity to enter a contract

A

Certain individuals or entities may lack legal capacity to enter a contract like:
- Minors
- Intoxicated individuals
- Mental incapacity
- Corporations

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12
Q

What can a contract with a mental incapacity person be void under

A

If a person lacks the mental ability to understand the contract, it may be void under the Mental Capacity Act 2005

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13
Q

What does the companies act 2006 limit for companies entering contracts

A

The Companies Act 2006 limits the effect of ultra vires to protect third parties acting in good faith

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14
Q

How are void contracts treated

A

Void contracts have no legal effect and are treated as if they never existed

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15
Q

What are voidable contracts like

A

Voidable contracts are initially valid but can be set aside by one party

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16
Q

What are unenforceable contracts like

A

Unenforceable contracts are legally valid but cannot be enforced in court if one party refuses to perform

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17
Q

What is an offer

A

An offer is a definite promise to be legally bound if accepted

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18
Q

What is an invitation to treat

A

An invitation to treat is an indication that a party is willing to negotiate but not bound yet

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19
Q

What happened in Partridge v Crittenden (1968)

A

Partridge v Crittenden (1968):
- An advert for birds was deemed an invitation to treat rather than an offer
- General rule: Advertisements are not offers unless they are unilateral contracts

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20
Q

What do unilateral contracts involve

A

Unilateral contracts involve a promise by one party in exchange for an act by another

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21
Q

Do unilateral contracts require prior notification of acceptance

A

Unilateral contracts do not require prior notification of acceptance

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22
Q

What happened in Bowerman v Association of British Travel Agents Ltd (1995)

A

Bowerman v Association of British Travel Agents Ltd (1995): A travel association’s promise to compensate customers was held as a unilateral contract, meaning customers did not need to notify them before claiming compensation

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23
Q

What implied terms did the Consumer Rights Act 2015 state

A

Consumer Rights Act 2015 stated goods must be of satisfactory quality, fit for purpose, and as described

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24
Q

What implied terms did the Unfair Contract Terms Act 1977 state

A

Unfair Contract Terms Act 1977 stated businesses cannot exclude liability for death or personal injury due to negligence

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25
What implied terms did the Limitation Act 1980 state
Limitations Act 1980 stated legal action for breach of contract must be taken within six years
26
What are the key characteristics of an offer
Key characteristics of an offer are: - The terms must be clear, definite, and complete - The offeror must intend to be legally bound if the offer is accepted - The offer must be communicated to the offeree before it can be accepted - Offers differ from invitations to treat
27
When does acceptance occur
Acceptance occurs when the offeree agrees unconditionally to all terms of the offer
28
What are the exceptions to acceptance rules
Exceptions to acceptance rules are: - Postal rule - Unilateral contracts - Emails
29
When is an offer accepted with the postal rule
With the postal rule an offer is accepted when a letter is sent not when it is received
30
What is acceptance like in unilateral contracts
In unilateral contracts acceptance does not need to be communicated
31
Does the postal rule apply with emails
The postal rule does not apply with emails
32
What must a binding contract be supported by
A binding contract must be supported by consideration or be made by deed
33
What are the different types of consideration in contracts
The different types of consideration in contracts are: - Executed consideration - Executory consideration - Past consideration
34
What is executed consideration
Executed consideration is consideration that has already been performed
35
What is executory consideration
Executory consideration is a promise to do something in the future
36
Is past consideration valid for a binding contract
Past consideration is not valid for a binding contract
37
What are the key consideration rules
The key consideration rules are: - Request with an implied promise to pay - Consideration must move from the promise - Consideration must be sufficient but need not be adequate - Part Payment of a Debt - Promissory Estoppel
38
What does promissory estoppel mean
Promissory estoppel means if a debtor relies on a promise to pay less, a court may prevent the lender from enforcing full repayment
39
What does the privity rule state
The privity rule states that only the parties to a contract can enforce its terms
40
What are the exceptions to privity
Exceptions to Privity: - Contracts benefiting a group of persons - Trusts - Assignment of Contractual Rights - Agency Contracts - Collateral Contracts - Insurance Contracts - Contracts (Rights of Third Parties) Act 1999
41
What does the contracts act 1999 allow a third party to enforce
Contracts act 1999 allows a third party to enforce a contract if it was made for their benefit
42
How can an offer be terminated
An offer can be terminated in several ways: - Revocation - Lapse of Time - Death - Rejection and Counteroffer
43
What is revocation
Revocation is when the offeror withdraws the offer before acceptance
44
What must a contracts terms be like to be enforceable
For a contract to be enforceable, its terms must be clear and certain
45
What can ambiguous or vague terms do to a contract
Ambiguous or vague terms may make the contract void for uncertainty
46
What are express terms
Express terms are terms that are explicitly stated by one or both parties, either orally or in writing
47
What do express terms form
Express terms form the core obligations of the contract
48
What are implied terms
Implied terms are terms not expressly agreed upon but included by: - Statute - Trade Custom - Courts
49
What happened in The Moorcock (1889)
The Moorcock (1889) – The court implied a term that a shipowner had a right to expect a safe mooring
50
What are the different types of contract terms
Types of contract terms are: - Conditions - Warranties - Innominate (Intermediate) Terms
51
What are conditions
Conditions are fundamental terms that go to the root of the contract
52
What does a breach of conditions allow
Breach of conditions allows the injured party to terminate the contract and claim damages
53
What are warranties
Warranties are less important terms of the contract
54
What does a breach of a warranty allow for
A breach of a warranty allows the injured party to claim damages but not to terminate the contract
55
What are innominate terms
Innominate terms are terms that depend on the seriousness of the breach
56
What does an exemption clause attempt to limit
An exemption clause attempts to limit or exclude liability for breach of contract
57
Where are exception clauses common
Exception clauses are common in business contracts
58
What is the criteria for a valid exception clause
The criteria for a valid exception clause is: - Incorporation into the Contract - Clarity and Ambiguity
59
What happened in Olley v Marlborough Court Ltd (1949)
Olley v Marlborough Court Ltd (1949) – A notice in a hotel room was not valid as it was only seen after the contract was made
60
What does the unfair contracts terms act 1977 limit
Unfair Contract Terms Act 1977 limits the extent to which businesses can exclude liability for breaches in commercial contracts
61
What can't be excluded under the unfair contract terms act 1977
Under the unfair contract terms act 1977 contracts cannot exclude liability for death or personal injury caused by negligence
62
What does the Consumer Rights Act 2015 protect consumers from
Consumer Rights Act 2015 protects consumers from unfair contract terms, including exemption clauses
63
What does a restraint of trade clause attempt to restrict
Restraint of trade clauses attempts to restrict a party's freedom to carry out their trade, business, or profession
64
When isn't restraint of trade invalid
Restraint of trade is presumed invalid unless proven to be reasonable and justifiable
65
What is the criteria for reasonableness for restraint of trade
Criteria for Reasonableness, courts consider: - The clause must protect a genuine business interest - The restriction should not last longer than necessary - The clause should only apply to a reasonable area
66
When does a misrepresentation occur
A misrepresentation occurs when one party makes a false statement of fact that induces another party to enter into a contract
67
What criteria must a contract meet to constitute misrepresentation
A statement must meet the following criteria to constitute misrepresentation: - The statement must be untrue and relate to an existing fact, not an opinion - Made Before or at the Time of Contract Formation - The false statement must have influenced the other party’s decision to enter the contract - The statement must be important enough that a reasonable person would rely on it - The statement may be oral, written, or by conduct
68
When does duty of disclosure apply
Generally, there is no obligation to disclose information unless: - There is a fiduciary relationship - The contract is one of utmost good faith
69
What is fraudulent misrepresentation
Fraudulent misrepresentation is a false statement made knowingly, without belief in its truth, or recklessly
70
What are the remedies for fraudulent misrepresentation
Remedies for fraudulent misrepresentation are: - Rescission (contract set aside) - Damages for all losses suffered under tort of deceit
71
What is negligent misrepresentation
Negligent misrepresentation is a false statement made without reasonable care in verifying its truth. Covered under s2(1) Misrepresentation Act 1967
72
What are the remedies for negligent misrepresentation
Remedies for negligent misrepresentation are: - Rescission - Damages
73
What is innocent misrepresentation
Innocent misrepresentation is a false statement made honestly and with reasonable belief that it was true
74
What are the remedies for innocent misrepresentation
Remedies for innocent misrepresentation are: - Rescission - Damages
75
When may negligent or innocent misrepresentation be excluded
Negligent or innocent misrepresentation may be excluded, but only if it is reasonable under the Misrepresentation Act 1967
76
When is a contract discharged
A contract is discharged when it comes to an end
77
What are the four main ways a contract can be discharged
There are four main ways a contract can be discharged: - Discharge by Agreement - Discharge by Performance - Discharge by Frustration - Discharge by Breach
78
What is discharge by agreement
Discharge by agreement is when both parties agree to terminate the contract
79
What is discharge by performance
Discharge by performance is when a contract ends when both parties perform their obligations as agreed
80
When is complete performance of a contract not required
Complete performance is required unless: - There is substantial performance (Hoenig v Isaacs (1952)) - Partial performance is accepted by the other party (Cutter v Powell (1795))
81
When is a contract automatically terminated
A contract is automatically terminated if: - An unforeseeable event occurs after formation - The event makes performance impossible, illegal, or radically different from what was agreed - Neither party is at fault for the frustrating event
82
What happened in Taylor v Caldwell (1863)
Taylor v Caldwell (1863) – A contract was frustrated when a music hall burned down before the event
83
When doesn't frustration apply
Frustration does not apply if: - The event was foreseeable - The contract allocated risk for such events - Performance is merely more difficult or expensive
84
What can the innocent party claim if a warranty was breached
If only a warranty is breached, the innocent party can claim damages but cannot terminate the contract
85
What are the different remedies for breach of contract
When a contract is breached, the innocent party may seek monetary or equitable remedies: - Damages (Financial Compensation) - Quantum Meruit ("As Much as He Has Earned") - Specific Performance (Equitable Remedy) - Injunction (Equitable Remedy) - Repudiation - Restitution
86
Who decides compensation if the damages are unliquidated
Unliquidated damages means the court decides the amount
87
Who decides compensation if the damages are liquidated
Liquidated damages means a fixed amount agreed upon in the contract
88
Where do damages aim to place the claimant
Damages aim to place the claimant in the position they would have been in if the contract was performed
89
When is Quantum Meruit used
Quantum Meruit is used when full performance was prevented by the other party
90
What is specific performance
Specific performance is when a court orders a party to fulfil their contractual obligations
91
What is repudation
Repudiation means the innocent party treats the contract as terminated and refuses further performance
92
What is a sales contract
A sales contract is where the seller transfers goods to the buyer for a price
93
What are the key elements of sales contracts
Key elements of sales contracts: - Goods must be tangible and moveable - If no price is stated, the buyer must pay a reasonable price
94
What are consumer contracts governed by
Consumer contracts are governed by the Consumer Rights Act 2015 (CRA 2015)
95
What do B-2-B contracts follow
Business-to-business (B2B) contracts follow the Sale of Goods Act 1979 (SGA 1979)
96
What are the implied terms in contracts under the consumer rights act 2015
Implied terms in consumer contracts: - Trader has the right to transfer ownership - Goods must be of satisfactory quality - Goods must match their description - Goods must be fit for purpose - Pre-contract information forms part of the contract - Service must be performed with reasonable skill and care - Price and time must be reasonable if not stated
97
What are remedies for Consumers Under the CRA 2015:
Remedies for Consumers Under the CRA 2015: - Reject goods (short term) – Usually within 30 days - Repair or replacement - Price reduction or final rejection - If a service does not conform, the consumer has a right to repeat performance or a price reduction
98
What are implied terms in B-2-B contracts under the Sales of Goods Act 1979
Implied Terms in B2B Contracts: - Section 12 – Seller has the right to sell goods (cannot be excluded). - Section 13 – Goods must match their description - Section 14(2) – Goods must be of satisfactory quality - Section 14(3) – Goods must be fit for purpose - Section 15 – Goods must match the sample provided
99
What are the buyers remedies under the sale of goods act 1979
Buyer’s Remedies: - Reject goods or repudiate the contract if goods do not conform - Claim damages or specific performance
100
What are the sellers remedies under the sale of goods act 1979
Seller’s Remedies: - Sue for contract price or damages for non-acceptance - Right of lien – Retain goods until payment is made - Stop goods in transit - Right to resell goods
101
What does the Supply of Goods and Services Act 1982 apply to
The Supply of Goods and Services Act 1982 applies to contracts for the transfer of goods, hire of goods, and provision of services
102
What are the applied terms in the Supply of Goods and Services Act 1982
Implied terms: - Services must be performed with reasonable skill and care - Time and price must be reasonable if not specified

Level 4 Law for Accounting and Finance (11 decks)

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