Contract 1 - Existence/Formation of contract

Question 1

What are the components that constitute a binding contract?

Answer 1

Offer and Acceptance + Intention to create legal relations + Consideration

These components must all be present for a contract to be valid.

Question 2

What is required for a valid offer?

Answer 2

A clear and certain offer with intention to be bound and unequivocal acceptance from the offeree

The court assesses the intention of the parties based on what a reasonable person would conclude.

Question 3

Define a unilateral contract.

Answer 3

One party makes a promise; the other party does not make any promises

Example: ‘If you deliver a watch to me in the next 10 days, I will immediately pay you £100’.

Question 4

Define a bilateral contract.

Answer 4

Each party assumes an obligation to the other party; both parties promise to do something

Example: ‘In 10 days’ time, you will deliver a watch to me and I will pay you £100’.

Question 5

What is an invitation to treat?

Answer 5

The first step in negotiations that may or may not lead to a firm offer; cannot be accepted to form a binding contract

Examples include advertisements and displays of goods for sale.

Question 6

What is the significance of the case Carlill v Carbolic Smoke Ball regarding invitations to treat?

Answer 6

The advertisement was deemed a unilateral offer because it included a clear prescribed act and intention to be bound

The company deposited £1,000 as evidence of sincerity.

Question 7

What is the effect of an auctioneer’s request for bids?

Answer 7

An invitation to treat until the hammer falls; the highest bidder is not entitled to the goods until the auctioneer accepts the bid

At auctions ‘without reserve’, the seller must sell to the highest bidder.

Question 8

What is the mirror image rule in acceptance?

Answer 8

Acceptance must correspond exactly with the terms of the offer

Any variation in terms constitutes a counter-offer.

Question 9

What is the postal rule in contract acceptance?

Answer 9

Acceptance takes effect from the moment the letter of acceptance is properly posted

This applies even if the letter is delayed or lost.

Question 10

True or False: Acceptance must be communicated for it to be valid.

Answer 10

True

Mental consent alone is insufficient; acceptance must be effectively communicated.

Question 11

What are the requirements for consideration in a contract?

Answer 11

Must not be past, must move from the promisee, need not be adequate, and must be sufficient

Consideration is the exchange of value in a contract.

Question 12

What is executory consideration?

Answer 12

Consideration where parties promise to perform something in the future after the contract is formed

Example: A contract for the sale of goods where the seller promises future delivery.

Question 13

What is executed consideration?

Answer 13

Consideration that has already been performed at the time of contract formation

Example: A unilateral contract where the act of acceptance is the performance itself.

Question 14

What is the doctrine of privity of contract?

Answer 14

Only parties to a contract can sue or be sued on that contract

This differs from consideration, which states that only those who provide consideration can enforce a contract.

Question 15

What happens if a party is already under an obligation to do something?

Answer 15

Agreeing to do it again usually isn’t good consideration for a new contract

Example: In Stilk v Myrick, sailors were already obligated to complete the voyage.

Question 16

What is economic duress?

Answer 16

A situation where a party’s consent to a contract is obtained through coercive pressure, making the contract potentially unenforceable

Modern courts may rule on this basis rather than lack of consideration.

Question 17

What constitutes sufficient consideration?

Answer 17

Consideration must have some value in the eyes of the law, regardless of how small

Example: A promise to transfer a house for a nominal fee can still be valid consideration.

Question 18

What is the significance of Williams v Roffey Bros in contract law?

Answer 18

The court found valid consideration in the form of ‘practical benefit’ to the contractor, such as avoiding penalties and improving efficiency.

Lord Justice Glidewell established six conditions for ‘factual consideration,’ focusing on the benefit gained and absence of duress.

Question 19

What are the six conditions for ‘factual consideration’ established in Williams v Roffey Bros?

Answer 19

• A has entered into a contract with B to do work in return for payment
• B has reason to doubt A’s ability to complete the contract
• B promises A an additional payment for timely performance
• B obtains a practical benefit from this promise
• B’s promise is not a result of economic duress or fraud
• The benefit to B is capable of being consideration for B’s promise.

Question 20

What does the principle regarding obligations under a public duty state?

Answer 20

Merely carrying out a public duty imposed by law will not amount to sufficient consideration.

Example: In England v Davidson, a police officer went beyond his public duty in providing information for a reward.

Question 21

In New Zealand Shipping v AM Satterthwaite, what was the key ruling regarding existing obligations to a third party?

Answer 21

Fulfilling an existing obligation to a third party can still amount to valid consideration in a new contract.

The claimant gained a direct obligation from the defendant to unload the goods, which provided legal recourse.

Question 22

What is the significance of Foakes v Beer regarding part payment of a debt?

Answer 22

Simply offering to pay a lesser sum than owed is not good consideration; the debtor remains liable for the full amount.

The court held that the agreement was unsupported by consideration.

Question 23

What are the exceptions to the rule established in Foakes v Beer?

Answer 23

• Introducing a new element (e.g., early payment)
• Payment by a third party
• Practical benefit in a variation of contract.

Question 24

What does promissory estoppel allow in contract law?

Answer 24

It allows a promise to be enforced even without consideration, provided the promisee relied on the promise.

It stops the promisor from going back on their word.

Question 25

What case is considered the origin of the modern doctrine of promissory estoppel?

Answer 25

Hughes v Metropolitan Railway Co. (1877). ## Footnote The case involved a tenant relying on an implied promise by the landlord.

Question 26

What was the key ruling in Central London Property Trust v High Trees House?

Answer 26

The landlord could claim arrears from 1945 but not from 1940-1945 due to promissory estoppel. ## Footnote Denning J stated that a promise relied upon becomes binding even without consideration.

Question 27

What is the difference between how promissory estoppel can be used?

Answer 27

Promissory estoppel can only be used as a defense (a 'shield') and not as a basis for suing (a 'sword'). ## Footnote In Combe v Combe, the court clarified that it cannot create new legal rights.

Question 28

What are the requirements for a clear and unequivocal promise in promissory estoppel?

Answer 28

The promise must be intended to affect legal relations and must not be a gratuitous privilege. ## Footnote The promise can be express or implied.

Question 29

What is required for a change of position in reliance on a promise in promissory estoppel?

Answer 29

The promisee must rely on the promise and act on it, which influences their conduct. ## Footnote Detrimental reliance strengthens the argument but is not always required.

Question 30

What does it mean for it to be inequitable for the promisor to go back on their promise?

Answer 30

The court decides whether it would be unfair for the promisor to withdraw their promise based on the conduct of both parties. ## Footnote Example: In D & C Builders v Rees, the defendants acted unfairly, leading to the refusal of promissory estoppel.

Question 31

Does promissory estoppel suspend or extinguish legal rights?

Answer 31

Typically, it suspends strict legal rights, but in rare cases, rights may be extinguished if enforcing them would be inequitable. ## Footnote Example: In High Trees, the landlord could not claim full rent from 1940-1945.

Question 32

What are the three ways an offer can end?

Answer 32

* Rejection and counter-offers * Lapse * Revocation.

Question 33

What occurs during rejection and counter-offers?

Answer 33

Once an offer is rejected, it cannot be accepted unless the offeror makes the same offer again. ## Footnote A counter-offer is deemed as a rejection of the original offer.

Question 34

What does lapse refer to in contract law?

Answer 34

Lapse can occur by passage of time or the death of a party. ## Footnote If the offeree is unaware of the offeror's death, the offer may still be valid.

Question 35

What is the rule regarding revocation of an offer?

Answer 35

An offeror may revoke their offer at any time before acceptance, and communication of revocation is essential. ## Footnote Revocation is effective upon actual notice reaching the offeree.

Question 36

What is the objective test for intention to create legal relations (ICLR)?

Answer 36

The test is based on what the parties' actions suggest about their intentions, not their subjective beliefs. ## Footnote Commercial agreements are generally presumed to have ICLR.

Question 37

What is the necessary requirement of a binding contract?

Answer 37

An agreement that has legal ramifications.

Question 38

What does the test of intention in contract law focus on?

Answer 38

Objective test of what the parties’ actions suggest regarding the agreement being binding.

Question 39

What is the usual presumption regarding intention to create legal relations in a commercial agreement?

Answer 39

There is always an assumption that the parties intended for a commercial agreement to be legally binding.

Question 40

What must be proven to rebut the presumption of intention to create legal relations?

Answer 40

Clear words must be used in the contract to evidence no intention to create legal relations.

Question 41

What is the significance of the case Carlill v Carbolic Smoke Ball?

Answer 41

ILCR present because the company deposited £1,000 in bank to pay offerees.

Question 42

What does the expression 'subject to contract' imply?

Answer 42

Strong inference that the parties do not intend to be bound until the formal execution of a contract.

Question 43

What is the usual presumption regarding intention to create legal relations in domestic/social agreements?

Answer 43

There is usually no intention to create legal relations.

Question 44

What are the requirements for parties to have capacity to enter into a contract?

Answer 44

Parties must have the legal ability to enter into a contract.

Question 45

What exceptions exist for minors entering into contracts?

Answer 45

* Necessaries * Employment, apprenticeship, or education.

Question 46

What is the definition of necessaries in contract law?

Answer 46

Goods suitable to the condition in life of the minor and their requirements at the time of sale and delivery.

Question 47

What happens if a minor ratifies a contract upon reaching the age of 18?

Answer 47

The contract becomes binding on them.

Question 48

What are the criteria for someone lacking mental capacity to enter into a contract?

Answer 48

* Unable to make a decision for themselves * Must understand, retain, use, and communicate relevant information.

Question 49

What is the role of the Court of Protection?

Answer 49

To make declarations as to a person’s capacity and ability to contract.

Question 50

What must be established to void a contract for a person without capacity?

Answer 50

* They did not understand what they were doing * The other party knew that to be the case.

Question 51

What is true about intoxicated individuals in relation to contracts?

Answer 51

They must pay a reasonable price for necessaries but are not bound by other contracts they make.

Question 52

What is the doctrine of privity in contract law?

Answer 52

A person cannot be sued on a contract unless they are a party to it and have provided consideration.

Question 53

What is agency in the context of circumventing the doctrine of privity?

Answer 53

An agent enters into a contract on behalf of the principal.

Question 54

What is required for an agency relationship?

Answer 54

* Agents must be authorized by the principal * Agents act within their authority. * Principal should be named. * Consideration must move from the principal.

Question 55

What is assignment in contract law?

Answer 55

One party can pass its rights under a contract to another party.

Question 56

What does the case Donoghue v Stevenson illustrate regarding actions in tort?

Answer 56

A third party can claim against a party in relation to breach of contract due to duty of care.

Question 57

What is a collateral contract?

Answer 57

A separate agreement that supports or is related to the main contract.

Question 58

What does the Albazero principle state?

Answer 58

A party can sue to recover the loss of a third party resulting from non-completion of the original contract.

Question 59

What does the Contracts (Rights of Third Parties) Act 1999 allow?

Answer 59

Third parties can enforce a term of a contract which they are not a party to under limited circumstances.

Question 60

What conditions must be met for a third party to enforce a contract under the 1999 Act?

Answer 60

* The contract must specifically provide for this * The agreement must confer a benefit on the third party.

Question 61

What happens if a third party has rights under the 1999 Act?

Answer 61

The rights cannot be varied or rescinded without the third party’s consent under certain conditions.

Question 62

What is an exclusion of third-party rights clause?

Answer 62

A clause to avoid an agreement conferring a benefit on third parties.

Question 63

What is the presumption regarding identity in contracts?

Answer 63

If face-to-face, the promisor intended to contract with the promisee as they truly are; otherwise, it is a mistake in identity.