Module 2: Formation of Contracts Flashcards
What is a contract?
An agreement that gives rise to obligations which the law will enforce
Why may contractual terms be regulated by state?
Unequal bargaining power
What is a standard form contract?
Prepared by a large organisation
Sets out terms in which they contract
Accept or reject
Can’t negotiate
What is a void contract?
No contract
Never existed
No rights/obligations
E.g. illegal
What is a voidable contract?
Flawed to a less serious degree Valid and binding Rights and obligations Flaw may be grounds for court May ask to set aside
What are the 6 essential elements of a valid contract?
Offer plus acceptance Consideration Consent Capacity Formality No legal prohibition
What is offer plus acceptance?
full agreement is required on all material aspects
Consensus in idem
What is consensus in idem?
Full agreement required on all material aspects of a contract
What is consideration?
Applied to England only
Each party must provide something of value
What is consent?
Parties must intend to be legally bound
What is capacity?
Parties must be legally able to enter into a contract
What is formality?
Contract must conform to any requirements regarding its form
What is no legal prohibition?
Agreement must not be prohibited by law
What are the features of an offer?
Definite
Capable of being accepted
Person making intends to be bound by consequences of acceptance
How is the intention of contracting parties judged?
Objective standard
What the person appears to intend rather than secret intention
What is a statement of intention not?
Does not constitute an offer
Not capable of acceptance
What is a supply of information?
In response to a request is not an offer
Henry v Facey 1983 case?
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
What is an invitation to treat?
An indication that a person is willing to enter negotiations/do business
e.g. exhibition of goods, ads, auctions
Distinction between an offer and an invitation to treat?
Accepted offer constitutes a binding contract
Invitation to treat cannot be accepted to form a contract
Pharmaceutical Society of GB v Boots 1952
Good on shelves merely invitations to treat so no contract until the customers offer was accepted at the till
What is the general rule of ads for sale in a newspaper, circular or catalogue?
Is an invitation to treat and not capable of acceptance to form a contract
Customer makes offer to buy goods
Exceptions?
What are exceptions to ads being invitation to treat?
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
Carlil v Carbolic Smoke Ball 1893?
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
What is the contractual position of auction sales?
Reserve price: bidder makes offer to buy
Without reserve: seller becomes offeror and bidders the offerees
Once bid made can’t be withdrawn
What are invitations to tender?
Normally invitations to treat
No legal obligations to accept
Offer accepted or rejected
When does an offer come to an end?
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)
What is express revocation?
When offeror expressly lets other party know that its being withdrawn
Must be communicated by offeror or reliable third party
What is implied revocation?
Offer lapses without any need for communication of the fact to the offeree
How may implied revocation occur?
Rejection
Counter offer
Death, insanity, bankruptcy
Time limits
Wolf and Wolf v Forfar Potato Company 1984
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
If no specific time limit has been set when does an offer lapse?
Within a reasonable time
Wylie and Lochhead v McElroy and Sons 1973
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
What is the meaning of acceptance?
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
What are the three things essential to show communication?
Sufficiency
Appropriate mode
While offer subsists
What is meant by sufficiency of communication?
Contract concluded when acceptance is received by offeror
Entores v Miles Far East Corporation 1955
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
Communication in appropriate mode means?
Comply with requirements
If no specification then same form as offer
Communication while the offer subsists means?
Must accept while offer still subsists Acceptance only made by person authorised to do so
What is the postal rule?
Contract is formed when acceptance is POSTED not when it arrives
Adams v Lindsell 1818
Sold wool to someone else in time acceptance was in the post
Contract came into existence when claimants posted their acceptance
How to dis-apply the postal rule?
Providing in his offer that acceptance must reach him by a particular date
How can offeror revoke his offer under the postal rule?
Revocation is only effective if it reaches the offeree before the acceptance is POSTED
Thomson v James 1855
Was a contract as acceptance was effective when it was posted
Revocation could only take effect when reached
Acceptance happened first
Exception for revocation of an acceptance?
Effective if it reaches the offeror before or at the same time as the original letter of acceptance reaches the offeror
The Countess of Dunmore v Alexander 1830
Acceptance and withdrawal of acceptance received and the same time so no contract
What is consideration?
Each party must bring something of value to the bargain
In order to be legally binding
What are the two types of valid consideration?
Executed
Executory
What is executed consideration?
Act in return for a promise
Consideration for the promise is a performed, executed, act
e.g. Carlil
What is executory consideration?
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
What is past consideration?
No consideration
Already done before a promise in return; nor sufficient to be binding
Re McArdle 1951
Work on house completed before docs signed
Past consideration so not binding
What is the rule of consideration?
Need not be adequate but must be sufficient
Chappell v Nestle 1960
Dispute over wrappers royalties
Wrappers were part of consideration as they had commercial value to the defendants
What are the two categories that are considered to be insufficient consideration?
Performance of an existing legal obligation
Part payment of a debt in full settlement
What is performance of an existing legal obligation in terms of consideration?
Insufficient to support the promise of additional reward
Recently modified to allow promises provided both parties benefit and no fraud/duress
What is part payment of a debt in full settlement in relation to consideration?
Insufficient consideration to support the promise that rights to the unpaid part of the debt have been waived
Consent must be?
Full, free and voluntary
Intend to be legally bound
Earl of Orkney v Vinfra 1606
The earl threatened to stab V is did not sign
Not consented voluntarily so no valid contract
What presumption is there in social or domestic situations?
That no such intention to be legally bound is
present
Can be rebutted
Merritt v Merritt 1971
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
In England contracts between adults and minors?
Adult can’t enforce against a minor
Minor can enforce against adult
Exception in which adults can enforce against a minor?
If it is for the supply of necessaries
What is a minor in English law?
Under 18 years
Minors in Scotland?
Lack the capacity to contract
What is a minor in Scottish law?
Under age of 16
Exceptions to contracts with minors?
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’
What is a prejudicial transaction? Age 16/17 apply to set aside
An adult would not have entered into had he been in same situation
Has caused or is likely to cause substantial prejudice to them
Capacity in terms of intoxication?
Absolute drunkenness incapacitates- can’t consent
Lesser forms do not result in incapacity
Capacity in terms of mentally incapacity?
Powers of attorney may be granted to 3rd party to act on behalf
Special protection
What is pacta ilicita?
Contracts prohibited by law
Not enforced by the court
E.g. contracts to commit crimes, contrary to public`
What is misrepresentation?
Untrue statement of a fact made by one party to the other which induces him to enter into the contract
What are essential elements of misrepresentation?
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
What are the three kinds of misrepresentation?
Fraudulent
Negligent
Innocent
What is Fraudulent misrepresentation?
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
What is negligent representation?
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
What is innocent misrepresentation?
False statement made by person who had reasonable grounds to believe it was true
Party induced as a result
Typical remedy of misrepresentation?
Damages
May also include allowing to withdraw from contract
If so significant may be void
What is the doctrine of privity of contract?
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
Dunlop Pneumatic Tyre Co v Selfridge and Co 1915
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
Scotland exceptions to the privity rule?
When third party has a jus quaesitum tertio (a right accruing to a third party) by the contract he can sue
What is a jus quaesitum tertio?
A right accruing to a third party
What are the two things essential to establish third party rights in Scotland?
Contract must name or refer to the third party or class belongs to Parties must have intended to benefit the 3rd party
England exceptions to the privity rule?
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
What is delectus personae?
A personal element to the contract
Rights may not be assigned
What do we mean by assignation/assignment?
3rd parties may have right to sue assigned to them by one party to the contract
Should be informed
Transmission on death?
Rights and obligations pass to executors of the deceased
Unless there is a delectus personae present in which case it is terminated
What are the Consumer Contracts Regulations 2013?
Legislation that applied to online contracts between the trader and consumer
Nature of online trading differs
General principles apply online
When did the Consumer Contracts Regulations 2013 come into force and what do they implement?
13 June 2014
EU Consumer Rights Directive
What do the Consumer Contracts Regulations 2013 apply to?
At a distance purchases
Off premises purchases
Purchases made on the traders premises
What is a key requirement of the Consumer Contracts Regulations 2013?
Trader is required to give a consumer certain info
Varies depending on mode
What key info must be provided to the customer in relation to contracts formed at a distance or face to face off premises?
Description Price Delivery Cancellation Info about seller
If a retailer fails to provide info what could be the result?
Consumer’s cancellation rights extended by up to a year
Info required for on premises sales?
Not as much info
Goods
Price
Delivery
What are the 5 existing consumer rights that the Regulations expand on?
Cancelling goods Refunds Cancelling services Delivery of goods Excessive call charges
What are the consumer rights for cancelling goods?
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
What goods have no right to cancel?
Custom-made
Perishable
Sealed DVDs etc if seal broken
What are the consumer rights for refunds to customers?
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
What are the consumer rights for cancelling services?
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
What are the consumer rights of delivery of goods?
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
What are the consumer rights of excessive call charges?
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
