Offer, acceptance, ICLR (1+2)

Question 1

What are the 3 elements required for a binding contract?

Answer 1

Offer and acceptance
Intention to create legal relations
Consideration

Question 2

What is the difference between a bilateral and unilateral contract?

Answer 2

Bilateral - both parties assume an obligation to each other by making a promise to do something in exchange for something else

Unilateral - Only the party making the offer assumes an obligation, and only actual performance of the required act will constitute acceptance i.e. the offer is accepted only AFTER performance of the required act.

Question 3

What are the requirements of a valid offer?

Answer 3

1. Clear and certain
2. Display an intention to be bound (contrasts with terminology like “may be prepared to sell” - Gibson v MCC)

Question 4

How is an offer distinguished from an invitation to treat?

Answer 4

ITT = first step in negotiations which may or may not lead to a firm offer by one of the parties, and usually takes the form of an INVITATION to make an offer

ITT cannot be accepted to form a binding contract

Question 5

What are 4 examples of an Invitation to Treat?

Answer 5

1. Advertisement
   EXCEPTION: when an advertisement is a unilateral offer; twin requirements of a unilateral offer is prescribed act and clear intention to be bound
2. Display of goods
3. Invitations to tender
   EXCEPTION: where the invitation expressly contains an undertaking to accept the highest or lowest bid - this is now a form of unilateral contract
4. Auction sales
   - offers made by bidders and accepted by the use of the auctioneer’s hammer, items can be withdrawn at the auctioneer’s or bidder’s discretion at any time before the hammer falls, after which there is a bilateral contract.
   EXCEPTION: AUCTIONS WITHOUT RESERVE
   - the auctioneer promises to sell to the highest bidder and the auctioneer CANNOT withdraw the item after bidding starts.
   - if a reserve is not applied and goods are withdrawn = breach of unilateral contract, therefore highest bidder is entitled to damages (NOT the goods themselves)

Question 6

What are the 3 ways that an offer can be terminated?

Answer 6

1. REJECTION
   - does not take effect until it is communicated with the offeror
   - counter-offer extinguishes original offer, contrasts with a request for further information
2. LAPSE OF OFFER
   - by time (within the prescribed period OR within a reasonable time)
   - by death of a party (if offeree knows the offeror has died, offer will lapse. death of offeree will cause offer to lapse and so the offer CANNOT be accepted by the deceased offeree’s representatives)
3. REVOCATION
   - offeror may revoke their offer at any time BEFORE ACCEPTANCE
   - if revocation is via post, it takes effect from the moment it is RECEIVED by the offeree
   - revocation is effective even if communicated by a third party

Question 7

Revocation of a unilateral offer

Answer 7

Possible to revoke a unilateral offer at any time prior to the completion of the required act

EXCEPTION: where the offeree has party performed the obligation and is willing and able to complete - cannot withdraw offer at that point

For unilateral offers made to the whole world: revocation will be effective if offeror takes reasonable steps to bring the revocation to the attention of all of those who may have read the offer

Question 8

What are the 4 requirements for valid acceptance of an offer?

Answer 8

1. Acceptance must be in response to the offer
   - only person to whom the offer is made can accept the offer
2. Acceptance must be unqualified
   - mirror image rule
3. Prescribed mode of acceptance
4. Acceptance must be communicated
   - a third party can inform the offeror of acceptance, but no contract will arise without the authority of the offeree
   - offeror can NOT stipulate that they will take silence to be acceptance

Question 9

What is the general rule of the Postal Rule?

Answer 9

Where post is deemed to be a proper means of communication, the acceptance takes effect from the moment the letter of acceptance is properly posted

APPLIES EVEN WHERE THE ACCEPTANCE IS DELAYED OR LOST IN THE POST

Question 10

When does the postal rule NOT apply?

Answer 10

1. if not contemplated post would. be used - unreasonable to use post when there is an implied condition that prompt acceptance is required
2. does not apply to letters revoking offers
3. if incorrectly addressed
4. if postal rule is ousted by the offeror - in this case, a letter of acceptance is only effective of and when it is received

Question 11

Communication by instantaneous means - when is the contract created?

Answer 11

when notice of acceptance is received by the offeror

Question 12

What if the acceptance by instantaneous means is not received?

Answer 12

Offeree at fault - no contract

Offeror at fault - contract

Nobody at fault - No contract

Question 13

What if, in a business context, the acceptance is sent outside office hours?

Answer 13

Acceptance is deemed received first thing the next working day

Office hours depends on context

Question 14

Is communication waived for unilateral contracts?

Answer 14

Yes - performance of the act amounts to acceptance

Question 15

What is consideration?

Answer 15

Anything of value which each party gives as quid pro quo to support their side of the bargain

Question 16

What is a gratuitous promise, and are these enforceable in contract law?

Answer 16

Gratuitous promise: if I promise you my car and you promise me nothing in return – UNENFORCEABLE because the law requires reciprocity to make the contract enforceable

Question 17

What is executory consideration and which contracts involve them?

Answer 17

Where contracting parties promise to perform something in the future after the contract has been formed e.g. sale of goods contract

Usually in bilateral contracts

Question 18

What is executed consideration and which contracts involve them?

Answer 18

Where at the time of the formation of the contract, the consideration has already been performed

In unilateral contracts - the required act is both the acceptance of the offer (and thus the time when the contract is formed) and the executed consideration

Question 19

What are the 4 rules governing consideration?

Answer 19

1. Consideration must not be past - if the act/forbearance has taken place prior to the promise, then it cannot be in exchange for that promise
2. Consideration must move from the promisee - the doctrine of privity of contract, a party who has not provided consideration may not bring an action to enforce a contract
3. Consideration need not be adequate - doctrine of freedom of contract, the courts will not interfere with a bargain freely reached by the parties
4. Consideration must be sufficient - consideration must have some value in the eyes of the law. The law requires consideration to be something of sufficient value, but not necessarily the full or adequate market value

Question 20

What is an exception to the rule that consideration must not be past?

Answer 20

Where some prior act or service was provided by the promisee at the promisor’s request and it was always understood that payment would be made for that act or service

Question 21

What are the necessary 3 conditions outlined by Lord Scarman in
Pao on v Lau Yiu Long for the exception to the past consideration rule to apply?

Answer 21

1. the act must have been done at the promisor’s request
2. the parties must have understood that the act was to be rewarded either by a payment or the conferment of some benefit
3. the payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance

Question 22

If a party offers as consideration something they are already obliged to do, will this be deemed good consideration?

Answer 22

No, if the consideration is performance of an existing contractual obligation (Stilk v Myrick)

Yes, if fresh legal consideration is provided by a party exceeding their existing contractual obligation (Hartley v Ponsonby)

Yes, if party B will receive a practical benefit, even though party A do not exceed their existing contractual obligation (e.g. Williams v Roffey - avoidance of a late completion fee = tangible practical benefit)

Question 23

How is factual consideration distinguished from legal consideration?

Answer 23

Factual consideration = nothing new is being promised by the party in receipt of the promise is still getting something of benefit out of the reshaped deal

Question 24

What necessary conditions did Lord Justice Glidewell set out in Williams v Roffey to establish factual consideration?

Answer 24

i. existing contract between the parties

ii. the paying party has reason to doubt whether the performing party will be able/willing to complete

iii. the paying party promises an extra payment to ensure completion

iv. paying party gains a practical benefit OR obviation of a disbenefit

v. promise to pay extra is not given as a result of duress

Question 25

Why is the following considered good consideration:

Promising to do something that you are already obliged to do under a contract with a third party

Answer 25

This is good consideration because the new party acquires the direct right to sue

Lord Wilberforce: a party offering this sort of consideration is offering to put itself at risk of double liability - if it fails to meet its obligations, it will face action from two parties

Question 26

Does part payment of a debt amount to valid consideration?

Answer 26

No as it’s merely fulfilling an existing obligation, so not enforceable.

Even where the other party promises to waive that obligation, they can still claim the debt back at any later point

Question 27

What are the 3 exceptions to the rule that part payment of a debt does not amount to valid consideration?

Answer 27

1. Introducing a new element into payment e.g. a debt can be part paid with a different thing, in a different place, or earlier
2. Payment by a lesser sum by a third party - creditor cannot sue the debtor for the difference
3. Promissory estoppel

Question 28

What is promissory estoppel?

Answer 28

An equitable doctrine that allows a contract to be enforced despite not being supported by consideration - most commonly relied on to create an exception to the rule of part-payment of debt

Its use is SOLELY at the discretion of the courts

Question 29

What was the ratio in the case of Central London Property Trust v High Trees House in relation to promissory estoppel?

Answer 29

Court held that where a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by a person to whom it was made and which was in fact so acted on, then the promise would be binding

Question 30

What are the 4 parameters of promissory estoppel?

Answer 30

1. It acts as a shield and not as a sword
2. A clear and unequivocal promise that strict legal rights will not be fully enforced
3. A change of position by the promisee in reliance on the promise - ESSENTIAL. i.e it must have influenced the conduct of the party to whom the promise was made
4. Inequitable for the promisor to go back on their promise

Question 31

What are the specific requirements necessary to establish that the promisee has relied upon the promise?

Answer 31

1. An act which takes place before the promise cannot be in reliance on the promise;
2. Although the promise need not be the only reason for the promisee’s change in position, it must have influenced their conduct in some way
3. Where the promisee has, after the promise, conducted himself in the way intended by the promisor, it will be up to the promisor to establish that the conduct was not induced by the promise

Question 32

For promissory estoppel to apply, is it necessary that the promisee has acted to their detriment?

Answer 32

No requirement for detrimental reliance, but it will make it easier to establish that it is inequitable for the promisor to go back on their word.

Question 33

What was the judgment in D&C Builders v Rees that indicated an instance where it was inequitable for the debtor to rely on promissory estoppel, even though all of the conditions were met?

Answer 33

Lord Denning - because this promise had been extracted from the plaintiff creditors by intimidation on the part of the debtor, the debtor could not rely on the doctrine of promissory estoppel because he who seeks equity must do equity

Question 34

Does promissory estoppel suspend or extinguish legal rights?

Answer 34

It suspends the rights concerned, but does not extinguish them

Question 35

The promisor’s right to resume their strict legal rights may arise in which two ways?

Answer 35

1. The right to periodic payments may resume once the period over which the promissory estoppel operates ceases
2. The promisor may resume their full legal rights after giving reasonable notice of their intention to do so

Question 36

What is the key principle regarding what the court will order in promissory estoppel cases?

Answer 36

Court will order an outcome which is just and equitable.

Rights might also be extinguished where it has become impossible for the other party to meet the obligation concerned or it would be clearly inequitable to require them to do so

Question 37

Define: Intention to create legal relations

Answer 37

An intention to enter into a contract with legal ramifications

Essential element in the formation of a contract

Question 38

What is the test of intention?

Answer 38

Objective - ‘would reasonable people regard the agreement as intended to be legally binding?’

Question 39

What is the ICLR presumption for commercial agreements?

Answer 39

The parties intend that the agreement should be legally binding.

It is open to the parties to include wording within the agreement that indicates that they do not intend to create legal relations

Question 40

What is the ICLR presumption for social/domestic agreements?

Answer 40

No intention to create legal relations - but this is a rebuttable presumption

Question 41

In which case might a domestic agreement be seen to have an ICLR?

Answer 41

Merritt v Merritt - court decided that the presumption against ICLR between a husband and wife was rebutted; where a husband and wife are separated or about to separate, they may be presumed to intend to create legal relations

Question 42

What is the fundamental capacity rule that must apply for a contract to be binding?

Answer 42

Persons over 18 have full contactual capacity if they are of sound mind and not suffering from a factor ruling out capacity e.g. drunkenness or mental incapacity

Question 43

What is the general rule regarding capacity for minors?

Answer 43

A minor is not bound by a contract even if the other party contracting does not know or if the minor has lied about their age

Question 44

What are two exceptions to the rule that minors are not bound by a contract?

Answer 44

1. Necessaries - minors are legally bound by contracts supplying goods/services which are deemed necessary or beneficial to them, and must pay a reasonable price for them.
2. Contracts of employment, apprenticeship, or education - only bound if for their benefit

Question 45

What is the effect of entering into a contract with a minor?

Answer 45

Contract cannot be enforced against the minor, but minor can enforce it

Question 46

What are the 4 requirements to indicate that a person lacks mental capacity and therefore is not bound by a contract?

Answer 46

If a person is unable:

1. To understand the information relevant to the decision
2. To retain the information
3. To use or weigh that information as part of the process of making the decision, or
4. To communicate his decision

The Mental Capacity Act 2015 gives the Court of Protection the power to make declarations as to a person’s capacity and ability to contract in specified situations (section 15)

Question 47

What is the effect of entering into a contract with a person lacking capacity?

Answer 47

section 7 - a person without capacity still remains liable to pay a reasonable price for necessaries

Contract is binding unless the person claiming incapacity can establish that they did not understand what they were doing, and that the other party knew that to be the case

For drunken persons - have to pay a reasonable price for necessaries but will not be bound by any other contract they make - Matthews v Baxter