Lecture 2 - Formation of a Contract

Question 1

What is a contract?

Answer 1

Legally binding agreement between two or more parties which is enforceable through the courts. Can be written or oral.

Question 2

Who decides terms of contract?

Answer 2

Parties involved

Question 3

Main underlying principles of a contract (3)

Answer 3

• Freedom for individual to decide whatever terms they see fit
• Contractual obligations are enforced based on the concept of a ‘reasonable person’
• Court traditionally acts as an umpire, provides forum for disputes

Question 4

Tort =

Answer 4

Obligation to do something/ not do something imposed by law

Question 5

Who is at fault in a contract?

Answer 5

Party is legally liable for the performance of the contract whether or not they are at fault

Question 6

Damages in a contract

Answer 6

Put the innocent party back in the same position they would have been in had the contract been performed correctly

Question 7

Offer =

Answer 7

Agreement between parties to bind contract is tracked by offer to perform something, and acceptance of precise original offer by other party.

Question 8

If offer and acceptance..

Answer 8

Legally binding contract

Question 9

Legal offers must be distinguished from…

Answer 9

Invitations to treat (eg putting food in your trolley not legally binding)

Question 10

If offer is rejected

Answer 10

Ceases to exist

Question 11

Lapse of time

Answer 11

After reasonable time offer can be terminated

Question 12

Offer can be withdrawn

Answer 12

Before any time limit has expired, provided withdrawal is communicated to other party

Question 13

Counter offer

Answer 13

Destroys original offer, which is then no longer available to be accepted

Question 14

Revocation

Answer 14

Offeror can withdraw offer at any time before acceptance as long as it is communicated to the other party before acceptance occurs. BUT if offeree already taken steps to perform contract, can only withdraw if gave other party reasonable chance to complete acceptance

Question 15

Death (offer)

Answer 15

Death of offeror destroys offer once offeree knows of it

Question 16

Acceptance =

Answer 16

Unconditional acceptance of all terms of the offer creates binding contract. Must be communicated to offeror and doesn’t take effect until they know about it

Question 17

Silence in acceptance

Answer 17

Cannot amount to acceptance

Question 18

Communication of acceptance by performing contract

Answer 18

Yes eg telephone order of goods, acceptance is sending goods. Don’t even have to say yes

Question 19

Acceptance must (3)

Answer 19

Match original offer, must not be a counter-offer and must not amount to an acceptance subject to any conditions

Question 20

If offer states acceptance must be made in a certain way..

Answer 20

Not valid if made by any other means

Question 21

Postal rule

Answer 21

Letter of acceptance effective from when it is posted, NOT when received. Only post, not fax, telephone etc

Question 22

Posting offers/ withdrawals

Answer 22

Only effective once received

Question 23

Consideration agreement =

Answer 23

Agreement between two parties not usually legally binding unless supported by consideration (usually price). Without consideration, contract does not exist

Question 24

Consideration =

Answer 24

Giving something in return for what is gained from another party

Question 25

Gratuitous promise

Answer 25

To do/ not do something NOT legally binding. Apart from deeds (formal doc signed before witnesses)

Question 26

Past consideration

Answer 26

Something done before promise made cannot be consideration for that promise eg give lift, promise to pay fuel afterwards

Question 27

Rules on consideration (6)

Answer 27

• Must be legal
• Must be possible
• Consideration must come from promisee
• Must be sufficient (not adequate)
• Performing existing legal/ public duty or contractual duty not consideration
• Past payment debt doesn’t count

Question 28

Intention to create legal relations

Answer 28

Court will only enforce agreements that the parties involved intend to have legal effect

Question 29

Social and domestic agreements > intention to create legal relations

Answer 29

No intention presumed

Question 30

Commerical agreements > intention to create legal relations

Answer 30

Intention presumed

Question 31

Capacity to contract

Answer 31

Only adults. Minors/ those suffering from mental incapacity not

Question 32

Minors

Answer 32

Contracts only enforceable against minors if for ‘necessaries’ eg food, housing, education etc, or if contract is for employment for the minor’s benefit

Question 33

Mental incapacity/ intoxication

Answer 33

In order to avoid a contract, must be shown that person was incapable of understanding nature and consequences of actions, and the other party knew of their disability

Question 34

Privity of contract

Answer 34

Only people who are parties to a contract can take the benefit/ burden of contract. Otherwise cannot sue/ be sued.