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Business Law > Module 2: Formation of Contracts > Flashcards

Module 2: Formation of Contracts Flashcards

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1
Q

What is a contract?

A

An agreement that gives rise to obligations which the law will enforce

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2
Q

Why may contractual terms be regulated by state?

A

Unequal bargaining power

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3
Q

What is a standard form contract?

A

Prepared by a large organisation
Sets out terms in which they contract
Accept or reject
Can’t negotiate

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4
Q

What is a void contract?

A

No contract
Never existed
No rights/obligations
E.g. illegal

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5
Q

What is a voidable contract?

A 
Flawed to a less serious degree
Valid and binding
Rights and obligations
Flaw may be grounds for court 
May ask to set aside
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6
Q

What are the 6 essential elements of a valid contract?

A 
Offer plus acceptance
Consideration
Consent
Capacity
Formality
No legal prohibition
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7
Q

What is offer plus acceptance?

A

full agreement is required on all material aspects

Consensus in idem

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8
Q

What is consensus in idem?

A

Full agreement required on all material aspects of a contract

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9
Q

What is consideration?

A

Applied to England only

Each party must provide something of value

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10
Q

What is consent?

A

Parties must intend to be legally bound

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11
Q

What is capacity?

A

Parties must be legally able to enter into a contract

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12
Q

What is formality?

A

Contract must conform to any requirements regarding its form

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13
Q

What is no legal prohibition?

A

Agreement must not be prohibited by law

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14
Q

What are the features of an offer?

A

Definite
Capable of being accepted
Person making intends to be bound by consequences of acceptance

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15
Q

How is the intention of contracting parties judged?

A

Objective standard

What the person appears to intend rather than secret intention

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16
Q

What is a statement of intention not?

A

Does not constitute an offer

Not capable of acceptance

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17
Q

What is a supply of information?

A

In response to a request is not an offer

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18
Q

Henry v Facey 1983 case?

A

Request for information is not a contract
Supply of information
H asked lowest price, F responded and H said that was a contract
IT IS NOT

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19
Q

What is an invitation to treat?

A

An indication that a person is willing to enter negotiations/do business
e.g. exhibition of goods, ads, auctions

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20
Q

Distinction between an offer and an invitation to treat?

A

Accepted offer constitutes a binding contract

Invitation to treat cannot be accepted to form a contract

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21
Q

Pharmaceutical Society of GB v Boots 1952

A

Good on shelves merely invitations to treat so no contract until the customers offer was accepted at the till

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22
Q

What is the general rule of ads for sale in a newspaper, circular or catalogue?

A

Is an invitation to treat and not capable of acceptance to form a contract
Customer makes offer to buy goods
Exceptions?

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23
Q

What are exceptions to ads being invitation to treat?

A

Displays intention to be legally bound to anyone who complies with conditions of ad
This then constitutes an offer
Carlil v Carbolic Smoke Ball 1893

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24
Q

Carlil v Carbolic Smoke Ball 1893?

A

Confident of properties so anyone who used it and caught flu got £100
Mrs C saw, used and got flu
Was entitled to £100 as wording amounted to offer
Mrs C accepted by purchasing and using

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25
Q

What is the contractual position of auction sales?

A

Reserve price: bidder makes offer to buy
Without reserve: seller becomes offeror and bidders the offerees
Once bid made can’t be withdrawn

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26
Q

What are invitations to tender?

A

Normally invitations to treat
No legal obligations to accept
Offer accepted or rejected

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27
Q

When does an offer come to an end?

A

Offeror can withdraw his offer at any time before the offer is accepted
Scotland exception: offeror promises to keep offer open for a specific period can’t withdraw until end of it (not in England they can withdraw)

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28
Q

What is express revocation?

A

When offeror expressly lets other party know that its being withdrawn
Must be communicated by offeror or reliable third party

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29
Q

What is implied revocation?

A

Offer lapses without any need for communication of the fact to the offeree

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30
Q

How may implied revocation occur?

A

Rejection
Counter offer
Death, insanity, bankruptcy
Time limits

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31
Q

Wolf and Wolf v Forfar Potato Company 1984

A

Time limit for acceptance of offer
Acceptance with new conditions
Rejected new conditions
Tried to accepted original offer in time limit
Not supplied
No contract formed as original offer falls once counter offer made

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32
Q

If no specific time limit has been set when does an offer lapse?

A

Within a reasonable time

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33
Q

Wylie and Lochhead v McElroy and Sons 1973

A

Offer not accepted for 5 weeks during which price increased
No acceptance within reasonable time so no contract
Fluctuating commodity; hours must suffice for a decision

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34
Q

What is the meaning of acceptance?

A

Contract is formed when offer is accepted
Acceptance must match the offer in every respect
Must not contradict terms of the offer or introduce new terms

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35
Q

What are the three things essential to show communication?

A

Sufficiency
Appropriate mode
While offer subsists

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36
Q

What is meant by sufficiency of communication?

A

Contract concluded when acceptance is received by offeror

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37
Q

Entores v Miles Far East Corporation 1955

A

Offer sent by telex
Acceptance by telex
Contract made in London or abroad?
Acceptance took effect when acceptance was printed out on claimants terminal in London

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38
Q

Communication in appropriate mode means?

A

Comply with requirements

If no specification then same form as offer

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39
Q

Communication while the offer subsists means?

A

Must accept while offer still subsists Acceptance only made by person authorised to do so

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40
Q

What is the postal rule?

A

Contract is formed when acceptance is POSTED not when it arrives

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41
Q

Adams v Lindsell 1818

A

Sold wool to someone else in time acceptance was in the post

Contract came into existence when claimants posted their acceptance

42
Q

How to dis-apply the postal rule?

A

Providing in his offer that acceptance must reach him by a particular date

43
Q

How can offeror revoke his offer under the postal rule?

A

Revocation is only effective if it reaches the offeree before the acceptance is POSTED

44
Q

Thomson v James 1855

A

Was a contract as acceptance was effective when it was posted
Revocation could only take effect when reached
Acceptance happened first

45
Q

Exception for revocation of an acceptance?

A

Effective if it reaches the offeror before or at the same time as the original letter of acceptance reaches the offeror

46
Q

The Countess of Dunmore v Alexander 1830

A

Acceptance and withdrawal of acceptance received and the same time so no contract

47
Q

What is consideration?

A

Each party must bring something of value to the bargain

In order to be legally binding

48
Q

What are the two types of valid consideration?

A

Executed

Executory

49
Q

What is executed consideration?

A

Act in return for a promise
Consideration for the promise is a performed, executed, act
e.g. Carlil

50
Q

What is executory consideration?

A

Promise given in return for a promise
Consideration in support of each promise is the other promise
e.g. shopkeeper promises to supply and customer promises to accept

51
Q

What is past consideration?

A

No consideration

Already done before a promise in return; nor sufficient to be binding

52
Q

Re McArdle 1951

A

Work on house completed before docs signed

Past consideration so not binding

53
Q

What is the rule of consideration?

A

Need not be adequate but must be sufficient

54
Q

Chappell v Nestle 1960

A

Dispute over wrappers royalties

Wrappers were part of consideration as they had commercial value to the defendants

55
Q

What are the two categories that are considered to be insufficient consideration?

A

Performance of an existing legal obligation

Part payment of a debt in full settlement

56
Q

What is performance of an existing legal obligation in terms of consideration?

A

Insufficient to support the promise of additional reward

Recently modified to allow promises provided both parties benefit and no fraud/duress

57
Q

What is part payment of a debt in full settlement in relation to consideration?

A

Insufficient consideration to support the promise that rights to the unpaid part of the debt have been waived

58
Q

Consent must be?

A

Full, free and voluntary

Intend to be legally bound

59
Q

Earl of Orkney v Vinfra 1606

A

The earl threatened to stab V is did not sign

Not consented voluntarily so no valid contract

60
Q

What presumption is there in social or domestic situations?

A

That no such intention to be legally bound is
present
Can be rebutted

61
Q

Merritt v Merritt 1971

A

Husband left wife signed note stating would transfer house when mortgage paid- refused.
Inferred that they intended their agreement to be legally binding so wife could sue for breach

62
Q

In England contracts between adults and minors?

A

Adult can’t enforce against a minor

Minor can enforce against adult

63
Q

Exception in which adults can enforce against a minor?

A

If it is for the supply of necessaries

64
Q

What is a minor in English law?

A

Under 18 years

65
Q

Minors in Scotland?

A

Lack the capacity to contract

66
Q

What is a minor in Scottish law?

A

Under age of 16

67
Q

Exceptions to contracts with minors?

A

Young people, age 16 and 17, have full capacity
Age of Legal Capacity Act 1991 had certain protective provisions
May apply for it to be set aside
Establish that it was a ‘prejudicial transaction’

68
Q

What is a prejudicial transaction? Age 16/17 apply to set aside

A

An adult would not have entered into had he been in same situation
Has caused or is likely to cause substantial prejudice to them

69
Q

Capacity in terms of intoxication?

A

Absolute drunkenness incapacitates- can’t consent

Lesser forms do not result in incapacity

70
Q

Capacity in terms of mentally incapacity?

A

Powers of attorney may be granted to 3rd party to act on behalf
Special protection

71
Q

What is pacta ilicita?

A

Contracts prohibited by law
Not enforced by the court
E.g. contracts to commit crimes, contrary to public`

72
Q

What is misrepresentation?

A

Untrue statement of a fact made by one party to the other which induces him to enter into the contract

73
Q

What are essential elements of misrepresentation?

A

Must be a false statement of fact (not law as everyone presumed to know it)
Statement of opinion cannot amount to it
Must have been material in inducing the other party into contract

74
Q

What are the three kinds of misrepresentation?

A

Fraudulent
Negligent
Innocent

75
Q

What is Fraudulent misrepresentation?

A

False statement of material fact made:

  • knowing it to be false
  • believing it to be false
  • recklessly not caring whether true or false

Normally evidence of dishonesty or intention to deceive

76
Q

What is negligent representation?

A

False statement made by a person who had no reasonable grounds for believing the statement to be true
Liability only arises if owes a duty of care

77
Q

What is innocent misrepresentation?

A

False statement made by person who had reasonable grounds to believe it was true
Party induced as a result

78
Q

Typical remedy of misrepresentation?

A

Damages
May also include allowing to withdraw from contract
If so significant may be void

79
Q

What is the doctrine of privity of contract?

A

Legal relationships between parties
Only parties have rights and obligations under that contract
General principle is that a 3rd party has no title to sue

80
Q

Dunlop Pneumatic Tyre Co v Selfridge and Co 1915

A

Dunlop sells on terms that Mr X wouldn’t resell for less
X sold to S and S was to pay 5 if sold below retail price
Sold and D sued to recover 5 per tyre
Could not recover damages under contract between X and S to which he was not a party

81
Q

Scotland exceptions to the privity rule?

A

When third party has a jus quaesitum tertio (a right accruing to a third party) by the contract he can sue

82
Q

What is a jus quaesitum tertio?

A

A right accruing to a third party

83
Q

What are the two things essential to establish third party rights in Scotland?

A 
Contract must name or refer to the third party or class belongs to
Parties must have intended to benefit the 3rd party
84
Q

England exceptions to the privity rule?

A

Under statute
Contracts (Rights of 3rd Party) Act 1999)
3rd Party may enforce if contract expressly provides that he may if benefits
Must be expressly identifies in the contract by name

85
Q

What is delectus personae?

A

A personal element to the contract

Rights may not be assigned

86
Q

What do we mean by assignation/assignment?

A

3rd parties may have right to sue assigned to them by one party to the contract
Should be informed

87
Q

Transmission on death?

A

Rights and obligations pass to executors of the deceased

Unless there is a delectus personae present in which case it is terminated

88
Q

What are the Consumer Contracts Regulations 2013?

A

Legislation that applied to online contracts between the trader and consumer
Nature of online trading differs
General principles apply online

89
Q

When did the Consumer Contracts Regulations 2013 come into force and what do they implement?

A

13 June 2014

EU Consumer Rights Directive

90
Q

What do the Consumer Contracts Regulations 2013 apply to?

A

At a distance purchases
Off premises purchases
Purchases made on the traders premises

91
Q

What is a key requirement of the Consumer Contracts Regulations 2013?

A

Trader is required to give a consumer certain info

Varies depending on mode

92
Q

What key info must be provided to the customer in relation to contracts formed at a distance or face to face off premises?

A 
Description
Price
Delivery
Cancellation
Info about seller
93
Q

If a retailer fails to provide info what could be the result?

A

Consumer’s cancellation rights extended by up to a year

94
Q

Info required for on premises sales?

A

Not as much info
Goods
Price
Delivery

95
Q

What are the 5 existing consumer rights that the Regulations expand on?

A 
Cancelling goods
Refunds
Cancelling services
Delivery of goods
Excessive call charges
96
Q

What are the consumer rights for cancelling goods?

A 
Right to cancel
From moment places to 14 days from receiving
Multiple is from last day
14 days to decide
further 14 days to actually return
97
Q

What goods have no right to cancel?

A

Custom-made
Perishable
Sealed DVDs etc if seal broken

98
Q

What are the consumer rights for refunds to customers?

A

Traders have 30 days to provide a refund
Consumer entitled to a refund within the earlier of 14 days of trader getting goods back or consumer providing evidence of having returned them
Must include basic delivery costs

99
Q

What are the consumer rights for cancelling services?

A

14 days from entering to cancel
Trader shouldn’t start providing within 14 days period unless requested
If requested to start early and cancels got to pay up to point of cancellation
If service provided in full right to cancel is lost

100
Q

What are the consumer rights of delivery of goods?

A

Trader responsible for the condition until received by the customer
Must be within 30 days unless longer agreed
If later and needed consumer has right to terminate and refund
if not essential but can’t agree with alternative date can cancel and refund

101
Q

What are the consumer rights of excessive call charges?

A

Prohibit helpline phone charges in excess of basic rate for calls by customer
If forced to call for more the consumer can claim back surcharge

Business Law (17 decks)

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