Lecture 2 - Formation of a Contract Flashcards
What is a contract?
Legally binding agreement between two or more parties which is enforceable through the courts. Can be written or oral.
Who decides terms of contract?
Parties involved
Main underlying principles of a contract (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
Tort =
Obligation to do something/ not do something imposed by law
Who is at fault in a contract?
Party is legally liable for the performance of the contract whether or not they are at fault
Damages in a contract
Put the innocent party back in the same position they would have been in had the contract been performed correctly
Offer =
Agreement between parties to bind contract is tracked by offer to perform something, and acceptance of precise original offer by other party.
If offer and acceptance..
Legally binding contract
Legal offers must be distinguished from…
Invitations to treat (eg putting food in your trolley not legally binding)
If offer is rejected
Ceases to exist
Lapse of time
After reasonable time offer can be terminated
Offer can be withdrawn
Before any time limit has expired, provided withdrawal is communicated to other party
Counter offer
Destroys original offer, which is then no longer available to be accepted
Revocation
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
Death (offer)
Death of offeror destroys offer once offeree knows of it
Acceptance =
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
Silence in acceptance
Cannot amount to acceptance
Communication of acceptance by performing contract
Yes eg telephone order of goods, acceptance is sending goods. Don’t even have to say yes
Acceptance must (3)
Match original offer, must not be a counter-offer and must not amount to an acceptance subject to any conditions
If offer states acceptance must be made in a certain way..
Not valid if made by any other means
Postal rule
Letter of acceptance effective from when it is posted, NOT when received. Only post, not fax, telephone etc
Posting offers/ withdrawals
Only effective once received
Consideration agreement =
Agreement between two parties not usually legally binding unless supported by consideration (usually price). Without consideration, contract does not exist
Consideration =
Giving something in return for what is gained from another party
Gratuitous promise
To do/ not do something NOT legally binding. Apart from deeds (formal doc signed before witnesses)
Past consideration
Something done before promise made cannot be consideration for that promise eg give lift, promise to pay fuel afterwards
Rules on consideration (6)
- 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
Intention to create legal relations
Court will only enforce agreements that the parties involved intend to have legal effect
Social and domestic agreements > intention to create legal relations
No intention presumed
Commerical agreements > intention to create legal relations
Intention presumed
Capacity to contract
Only adults. Minors/ those suffering from mental incapacity not
Minors
Contracts only enforceable against minors if for ‘necessaries’ eg food, housing, education etc, or if contract is for employment for the minor’s benefit
Mental incapacity/ intoxication
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
Privity of contract
Only people who are parties to a contract can take the benefit/ burden of contract. Otherwise cannot sue/ be sued.
