topic 1

Question 1

requirements for a contract

Answer 1

Offer + Acceptance + Intention to create legal relations + Consideration

Question 2

The objective approach to contracts

Answer 2

When determining whether an agreement exists between the offeror and the offeree, the court is not concerned with the inward mental intent of the parties but rather with what a reasonable person would say was the intention of the parties, having regard to all the circumstances.

Question 3

Requirements for a valid offer

Answer 3

Valid offer = Clear and certain offer displaying intention to be bound + unequivocal acceptance

Question 4

Intention to be bound

Answer 4

An offeror must also show an intention to be legally bound.

The court takes an objective approach to ascertaining whether there was an intention to be bound, in Gibson and Storer intended this would be on the basis of their letters rather than what’s in the minds of the people who wrote the letters.

Question 5

two types of contract

Answer 5

Bilateral contract: The most common type of contract. Each party assumes an obligation to the other party by making a promise to do something, such as to sell an item to the other party in exchange for a payment.

Unilateral contract: One party makes an offer or proposal in terms which call for an act to be performed by one or more other parties. Only actual performance of the required act will constitute acceptance.

Question 6

Invitation to treat

Answer 6

An offer must be distinguished from a mere invitation to treat.

An invitation to treat is a first step in negotiations which may or may not lead to a firm offer by one of the parties. It usually takes the form of an invitation to make an offer.

Question 7

Examples of an invitation to treat

Answer 7

Adverts

Display of goods for sale

Invitations to tender

Auction sales (Auctions ‘without reserve’ require special consideration - Many auction sales have a ‘reserve’ price: if no bid above this price is received, the seller keeps the goods. However, in an auction without reserve the seller promises to sell to the highest bidder whatever that bid turns out to be)

Question 8

Termination of an offer

Answer 8

An offer can come to an end by rejection, lapse or revocation. In each case, the offer loses its legal effect and becomes incapable of acceptance.

Rejection = - Once an offer is rejected, it cannot then be accepted (unless the offeror makes the same offer again). A rejection does not take effect until it is actually communicated to the offeror as only then will the offeror know that they are free from the offer.

Where an offeree makes a counter-offer, the original offer is deemed to have been rejected and cannot be subsequently accepted (Hyde v Wrench (1840) 3 Beav 334).

It is crucial to distinguish between a counter-offer and a request for information, as the difference can be subtle.

Lapse of an offer = by passage of time or by death of one of the parties

Revocation = The offeror may withdraw (i.e. revoke) their offer at any time before acceptance (Payne v Cave (1789) 3 Durn & E 148). However, once a valid acceptance has been made, the offeror is bound by the terms of their offer. An offer cannot be revoked after acceptance.

In relation to a unilateral contract, there is an implied obligation on the part of the offeror not to prevent the offeree from competing the required act, once the offeree starts to perform that act.

Question 9

Four rules in relation to acceptance

Answer 9

(a) Acceptance must be in response to the offer.
(b) Acceptance must be unqualified.
(c) It may be necessary to follow a prescribed mode of acceptance.
(d) Acceptance must be communicated

Question 10

Acceptance must be communicated

Answer 10

Acceptance can be communicated by a third party as long as they have permission from the offeree

The postal rule is an exception to the rule that acceptance must be communicated: acceptance takes effect from the moment the letter of acceptance is properly posted.

There are exceptions to the postal rule if it is not contemplated that the post would be used, if the letter is incorrectly addressed or if the offeror disapplied the postal rule. The rule does not apply to letters revoking offers.

Where acceptance is made by instantaneous communications (such as by telephone) it is effective when the communication is received by the offeror, but the offeror may be prevented from denying receipt of a communication if they are at fault for the non-receipt. Depending on the facts, such a communication might not be deemed received until the start of office hours after receipt.

Question 11

Certainty

Answer 11

A binding contract requires all material terms to be certain and complete. Only an agreement which is sufficiently certain can be enforced by a court.
To determine whether the parties have reached an agreement on all material terms the court applies an objective test, asking whether, in all the circumstances of the case, the parties have agreed all the terms they considered to be a precondition to creating legal relations (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Company KG (UK Production [2010] UKSC 14).

Question 12

consideration definition

Answer 12

Consideration is something of value exchanged between parties, which is a requirement for a contract to be enforceable.

Question 13

Executory and executed consideration

Answer 13

• Executory consideration: Where contracting parties make promises to each other to perform something in the future after the contract has been formed.
• Executed consideration: Where, at the time of the formation of the contract, the consideration has already been performed.

Question 14

Rules governing consideration

Answer 14

Consideration must not be past = Consideration must be given in exchange for the promise of the other party. If the act/forbearance has taken place prior to the promise, then it cannot be in exchange for that promise.

Consideration must move from the promisee = only the person who has provided consideration can enforce the contract.

Need Not Be Adequate, But Must Be Sufficient = The value doesn’t need to be equal, but it must be something of legal value.

Consideration must be sufficient = Consideration must have some value ‘in the eyes of the law’. It matters not how small that value is, so long as it is worth something. If a thing of value can be identified, then there will be sufficiency of consideration and, as seen above, the court will not enquire as to its adequacy.

Question 15

Rules governing consideration: - Exception to the past consideration rule

Answer 15

An exception to the past consideration rule exists 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.

The leading case on the exception was heard by the Privy Council in Pao On v Lau Yiu Long [1980] AC 614. Lord Scarman outlined the necessary three conditions for the exception to apply:

(a) The act must have been done at the promisor’s request.
(b) The parties must have understood that the act was to be rewarded either by a payment or the conferment of some other benefit. These could be because it was expressly agreed that there would be a reward/benefit, or because such an understanding can be implied. The latter is more likely in a commercial context.
(c) The payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance.

Question 16

what is an obligation?

Answer 16

An obligation in an existing contract between the parties.

If a party is already contractually bound to Party A to do something, then agreeing with Party A again to do that thing is not generally good consideration for a new contract.

Question 17

What is a Contractual Duty to Promisor

Answer 17

Contractual Duty to Promisor: Performing an existing contractual duty owed to the promisor is not valid consideration unless it confers an additional benefit or avoids a disbenefit.

Exception - Williams v Roffey Bros & Nicholls (Contractors) Ltd (1990): If the performance of an existing contractual duty confers a practical benefit, it can be good consideration.

Question 18

Obligations under a Public Duty

Answer 18

Performing a duty already imposed by law is not valid consideration

Question 19

Existing obligations to a third party

Answer 19

In contrast to the previous category, it is clear that the performance of the pre-existing duty owed to a third party will be regarded as sufficient consideration for a promise given by the promisor. New Zealand Shipping Co v AM Satterthwaite & Co (The Eurymedon) [1975] AC 154

Question 20

Promissory Estoppel

Answer 20

Promissory estoppel is an equitable doctrine that effectively allows a promise to be enforced despite not being supported by consideration. In essence, promissory estoppel aims to protect a party who has relied on such a promise. Equity prevents, or ‘estops’, the promisor from going back on their promise in situations where the promisee has relied on it. Many of the instances in which promissory estoppel is invoked involve part payment of a debt.

Question 21

Parameters of estoppel

Answer 21

1. It acts as a shield and not a sword
2. A clear and unequivocal promise that strict legal rights will not be fully enforced
3. A change of position in reliance on the promise
4. Inequitable to allow the promisor to go back on their promise

Question 22

Does promissory estoppel suspend or extinguish legal rights?

Answer 22

It seems that the promisor’s right to resume their strict legal rights may arise in one of two ways.

Firstly, the right to periodic payments may resume once the period over which the promissory estoppel operates ceases, as Denning envisaged in High Trees. Alternatively, the promisor may resume their full legal rights after giving reasonable notice of their intention to do so (Tool Metal v Tungsten [1955] 1 WLR 761).

This reflects that the effect of promissory estoppel is generally to suspend the rights concerned, but not to extinguish them. The key principle is that the court will order an outcome which is just and equitable, and in some cases, this might mean a past right is extinguished.

Question 23

Intention to create legal relations

Answer 23

Is an intention to enter into an agreement that has legal ramifications. It is one of the necessary requirements of a binding contract.

The test of intention is objective, by which we mean that the intention of the parties is to be determined more by what the actions of the parties in the particular circumstances suggest, rather than by taking evidence from the parties of what was actually in their minds. - Merritt v Merritt [1970] 1 WLR 121

Question 24

Intention to create legal relations - commercial agreements

Answer 24

• Presumed to have legal intent unless expressly stated otherwise. Commercial agreements are not limited to agreements between two businesses.
• Commercial agreements would include agreements between individuals and businesses and agreements between individual.
• The expression ‘subject to contract’ creates a strong inference that the parties do not intend to be bound until the formal execution of a contract. An agreement ‘subject to contract’, prima facie, is not binding.

Question 25

Intention to create legal relations - Social and Domestic Agreements

Answer 25

• Presumed not to have legal intent unless proven otherwise.
• Such a conclusion is derived from the fact that none of the parties would reasonably envisage the right to sue the other for failure to honour the commitment.
• An example from the case law includes agreements made between spouses. If the parties reach the agreement before any breakdown in the relationship occurs, the courts have shown an unwillingness to find an intention to create legal relations (Balfour v Balfour [1919] 2 KB 571).

Exception - A written agreement between separated spouses was intended to create legal relations.

Question 26

Capacity defintion

Answer 26

Legal ability of parties to enter into a contract.

Question 27

Capacity - Minors

Answer 27

Generally, a person is not bound by a contract entered into under the age of 18 even if the other party contracting does not know of this fact or the minor has lied about their age.

There are two main exceptions, relating to ‘necessaries’ and to contracts of employment, apprenticeship or education.

Necessaries: Firstly, a minor is bound by a contract to supply necessaries to them if the contract is for their benefit. A minor must pay a ‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.

Contracts of employment, apprenticeship or education: Secondly, a minor is also bound by a contract of employment, apprenticeship or education (or analogous contract), but only if it is for their benefit. So, in Aylesbury Football Club v Watford Association Football Club (QB 12 June 2000) a young footballer’s contract with the club was not beneficial and could not be enforced because the player received no extra training or experience, the terms were onerous for him, they restricted his freedom to pursue a football career and the payment of wages depended on the will of his employer.

Question 28

Capacity - Mental incapacity and intoxication

Answer 28

A person lacks capacity under s 2 of The Mental Capacity Act 2005 if ‘he is unable to make a decision for himself in relation to the matter’ at the time the contract is made, whether the impairment is permanent or temporary.

s 3(1) The Mental Capacity Act 2005 describes impairment
Under s 7, a person without capacity still remains liable to pay a reasonable price for ‘necessaries. These are defined as goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied’ (s 7(2)).

Similar rules apply to contracts entered into by drunken persons. The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make: Matthews v Baxter (1873) LR 8 Ex 132. This position should logically extend to those incapacitated by other intoxicating substances.

Question 29

Duress definition

Answer 29

Involves threats or pressure to force someone into a contract.

Question 30

three types of duress

Answer 30

1. Duress to the person: The leading case on duress to the person is Barton v Armstrong [1976] AC 104. The Privy Council concluded in this case that once it is established that the physical threats contributed to the decision to enter into the contract, duress will be found, so long as the threats were one of the reasons for contracting. They further stated that the burden of proof was on the party who exerted the pressure to show the threats and unlawful pressure contributed nothing to the victim’s decision to contract. Consequently, it can be seen that the causation test for duress to the person is not a difficult one to overcome – the duress need be only one factor influencing the wronged party’s behaviour.
2. Duress to goods: A contract can also be avoided where there is a threat to seize the owner’s property or to damage it (Occidental Worldwide Investment v Skibs A/S Avanti (The Sibeon & The Sibotre)) [1976] 1 Lloyds Rep 293. To succeed in establishing duress to goods it seems likely that it must be shown that the agreement would not have been entered into if there had not been the duress.
3. Economic duress: Economic duress is a doctrine which has developed more recently than duress to the person or duress to property. It poses particular difficulties, and it appears to be less well settled than the other two doctrines. To succeed in establishing economic duress it must be shown that the agreement would not have been entered into if there had not been the duress. After reviewing the authorities, Mance J (as he then was) stated in the case of Huyton SA v Peter Cremer GmbH & Co [1999] 1

Question 31

What factors will the court consider when determining whether there has been illegitimate pressure?

Answer 31

• Whether there has been an actual or threatened breach of contract.
• Whether the party exerting pressure has done so in good or bad faith.
• Whether the victim protested at the time of the duress.
• Whether the victim affirmed the contract after the duress ceased.

Question 32

Economic duress and consideration

Answer 32

The court is increasingly likely to find ‘consideration’ by way of practical benefit to support a variation. This means that more variations would appear (from the perspective of consideration) to be binding, and the doctrine of economic duress is therefore increasingly important in ensuring that a party can seek relief from such variations where the circumstances justify this.

Question 33

Undue influence

Answer 33

Undue Influence: Involves one party taking advantage of their influence over another to obtain an unfair contractual advantage.

This concept overlaps with that of duress. Ideally, the doctrines of duress and undue influence would have clear and distinct targets. However, the doctrine of duress is a common law doctrine, whereas undue influence was developed by the courts of equity. The two have not always developed with a clear view as to the role of the other. Where a contract appears to be the result of pressure/coercion, you should consider each doctrine in turn.

Question 34

Two types of undue influence

Answer 34

1. Overt acts of improper pressure or coercion: These cases are necessarily rare. Many cases which fall into this category would today probably be decided on the basis of duress. It is necessary only for the innocent party to establish that the undue influence is a factor in inducing the claimant to enter into the contract.
2. Taking advantage of influence or ascendancy in a relationship: This type is more common and the majority of recent authorities are concerned with this type. It is only where the relationship (spouse, child, trustee etc) is taken advantage of that there will be undue influence. If a party can show that there is a relationship of trust and confidence (or presumably one of the categories of irrebuttable presumption) and also a ‘transaction which requires explanation’, then this will be enough for the court to determine that the transaction is the product of undue influence, unless the alleged wrongdoer can produce evidence to convince the court that there was no such undue influence.

Question 35

Limits on equitable relief

Answer 35

Where undue influence is proven, a contract (or gift by deed) may be set aside. However, this relief is equitable and, therefore, discretionary. The court may not allow this relief where the innocent party has delayed making its claim because ‘delay defeats equity’.

Question 36

Post O’Brien developments in surety transactions

Answer 36

• Lord Nicholls extended the principles of constructive notice beyond cases of spouses when he stated that ‘the only practical way forward is to regard banks as put on inquiry in every case where the relationship between surety and debtor is non-commercial’. He clarified that a bank is put on inquiry whenever one party in a non-commercial setting is standing as surety for the other party.
• This confirmed the approach taken in CIBC Mortgages plc v Pitt [1994]
• The purpose here is to ensure that the innocent party is fully aware of the risks being taken and advise them to take independent advice.

Question 37

Undue influence and third parties

Answer 37

A common problem is when a ‘victim’ is persuaded to enter into a contract such as a contract giving security to a bank on the basis of undue influence not by the bank but by some third party.
This gives rise to whether the contract with the bank can be set aside, despite the fact that the bank exerted no undue influence. This depends on whether the bank had notice of the undue influence by the third party. Unless the bank had actual notice of the undue influence, the ‘victim’ will need to show that the bank had constructive notice of the undue influence.
A bank will be held to have constructive notice in every case where the relationship between party giving the guarantee and the borrower is non-commercial, unless the bank takes reasonable steps to warn the weaker party of the risks of the transaction or to ensure that it gets independent advice.
If the weaker party gets independent legal advice, the courts have given guidance as to what is expected from the solicitor giving such advice.

Question 38

Mere puff definition

Answer 38

Mere puff: Statements of no legal significance – no legal effect.

Question 39

Representations definition

Answer 39

Representations: Statements of fact or law which induce the making of the contract which the parties do not intend to be binding – can bring possible action in misrepresentation.

Question 40

Terms definition

Answer 40

Terms: Statements of fact which the parties intend to be binding – can bring action to assess whether term breached.
- The terms of a contract are its contents. They define the rights and obligations arising from the contract.
- Contractual terms may be express or implied.

Question 41

Express terms

Answer 41

Express terms are statements made by the parties, by which they intend to be bound. A contract can have terms agreed in writing, or agreed orally, or a mixture of the two.
- This can include: a signed written contract, agreement of terms in a conversation or verbal exchange, incorporation by notice (i.e. by one party notifying the other party of the terms), incorporation by a course of dealing (Where a clause has been brought to the notice of the other party during previous dealings, it may be implied into the current transaction to give effect to the presumed intentions of the parties, even though it has on this particular occasion been omitted. In order for this rule to operate, it must be shown that the course of dealing has been consistent over a period of time).
- For a clause to be incorporated into the contract, reasonable notice of it must be given before or at the time of contracting. It follows that any clause will not amount to a binding term if it is communicated only after the contract is made. In Thornton v Shoe Lane Parking [1971] 2 QB 163
- ‘Exemption clauses’ are often ‘onerous’ in the sense that they can leave one party with a dramatically reduced remedy than would otherwise be the case, in the event of breach.

Question 42

Implied terms

Answer 42

Implied terms are not formed by statements made by the parties – they have not been agreed upon, orally or in writing. Nonetheless, the law deems that they exist.
- In order to discover the unexpressed intention of the parties, the courts may take notice of trade customs and the need to give ‘business efficacy’ to a contract. It must be emphasised that, where the parties have made an unambiguous express provision in their contract, the court will not imply a term to the contrary.
- Where a term is implied on the grounds of a custom, the implication is based on the assumption that it was the intention of the parties to be bound by well-known customs of a particular trade (British Crane Hire v Ipswich Plant [1975] QB 303).
- A term may be implied into an agreement on the basis that the parties have dealt with each other on many occasions over a long period of time. A term will only be implied in these circumstances where the dealings of the parties have followed a consistent and regular pattern (see McCutcheon v MacBrayne [1964]
- A term will not be implied merely on the grounds that such an implication will transform the agreement into a business-like arrangement.
- Terms can also be implied by the courts at common law in order to give effect to legal duties which arise, as a matter of policy, out of certain common types of contractual relationships.
- Statutory implied terms will also operate irrespective of the intention of the parties, unless there is a valid exemption clause. Examples of statutory implied terms are to be found, most notably, in the Sale of Goods Act 1979.

Question 43

How do I know if a statement was a representation or a term (or both)?

Answer 43

In seeking to discover whether the parties intended to be bound by a statement made by one of them, the court will apply an objective test based on the question: ‘what would a reasonable person understand to be the intention of the parties, having regard to all the circumstances?’

Where a statement is made during negotiations for the purpose of inducing the other party to enter into the contract, there is, prima facie, ground for inferring that the statement was intended to be a binding term of the contract. However, the inference can be rebutted if the party making the statement can show that it would not be reasonable to hold them bound by it.

A statement may be regarded as a term of the contract if it can be shown that the injured party considered it so important that it would not have entered into the contract but for that statement.

An example of the application of this guideline can be seen in the case of Bannerman v White (1861) 10 CB NS 844
If the statement was made at the time of contracting, it is more likely to be a term of the contract than if it was made at an early stage of the negotiations. If, on the other hand, there is a delay between the making of the statement and the parties entering into the contract, then it is less likely to be treated as a term.

Key case: Routledge v McKay [1954]
Where the party who made the statement had exclusive access to information or special knowledge as compared with the other party, this is likely to be taken into account in the latter’s favour.

Key case: Oscar Chess Ltd v Williams [1957]
A statement may become a term of the contract where the vendor expressly accepts the responsibility for the soundness of the sale item in question. This factor was taken into account in Schawel v Reade [1913] 2 IR 81 (HL)

Question 44

The Sale of Goods Act 1979

Answer 44

The Sale of Goods Act 1979 implies the following terms into contracts for the sale of goods:
* Broadly, the seller has the right to sell the goods (s 12);
* The goods will comply with their description (s 13);
* The goods will be of satisfactory quality (s 14(2);
* The goods will be suitable for any purpose made known to the seller (s 14(3); and
* The goods will comply with any sample (s 15).

Question 45

Supply of Goods and Services Act 1982

Answer 45

The Supply of Goods and Services Act 1982 (SGSA) provides for the implication of terms in:
1. (a) Certain contracts for the transfer of property in goods;
2. (b) Contracts for the hire of goods; and
3. (c) Contracts for the supply of services.

The SGSA 1982 also governs the exclusion of such implied terms.

It is important to note that the implied terms set out in this section do not apply to consumer contracts as defined in the Consumer Rights Act 2015.

Question 46

what is the causation test for duress?

Answer 46

the duress need be only one factor influencing the victims decision to enter the contract

Question 47

what is the causation test for economic duress?

Answer 47

the illegitimate pressure must have been decisive in the making of the agreement

Question 48

what relationship does the court claim to always have undue influence

Answer 48

parent and child