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SQE Master Set > Contract: Formation > Flashcards

Contract: Formation Flashcards

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1
Q

What three elements are required for a binding contract?

A

Offer, acceptance, and intention to create legal relations (plus consideration)

Consideration is something of value exchanged between parties.

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2
Q

What test does the court use to determine if there was agreement?

A

An objective test: what a reasonable person would say the parties intended, based on their words and conduct

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3
Q

How is an offer defined?

A

A clear and certain expression of willingness to be bound on specific terms, capable of acceptance to form a contract

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4
Q

What must an offeror demonstrate to make a valid offer?

A

Certainty of terms and an intention to be legally bound (words like ‘may be prepared’ lack this intention)

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5
Q

What distinguishes a unilateral contract from a bilateral contract?

A

Unilateral: offer accepted by performance of a requested act; Bilateral: mutual promises exchanged, accepted by communicative assent

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6
Q

In a unilateral offer, when does acceptance occur?

A

Upon complete performance of the required act, without need for separate notification

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7
Q

What case illustrates a valid unilateral offer by advertisement?

A

Carlill v Carbolic Smoke Ball Co: clear prescribed act and intention shown by deposit of money

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8
Q

How do courts treat advertisements and displays of goods in shops?

A

Generally as invitations to treat, not offers, to avoid obliging the advertiser or seller to unlimited acceptances

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9
Q

What exception applies to advertisements that promise a reward?

A

Such advertisements can be unilateral offers if they prescribe a clear act (e.g., return of lost goods) and show intention to be bound

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10
Q

What is an invitation to tender, and when can it become a unilateral offer?

A

A request to submit offers; if it promises to accept the highest or lowest bid unconditionally, it becomes a unilateral offer

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11
Q

What case held that an invitation to tender could create an obligation to consider compliant tenders?

A

Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council: contractual duty to consider specified compliant tenders

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12
Q

In an auction sale, when does a contract form?

A

When the auctioneer accepts a bidder’s offer, signaled by the fall of the hammer

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13
Q

What is the default rule for auctions without reserve?

A

The seller promises to sell to the highest genuine bidder; refusing to do so constitutes breach of a unilateral contract

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14
Q

How can an offer be terminated by rejection?

A

By communicating a rejection or making a counter-offer, which destroys the original offer

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15
Q

How is a request for information distinguished from a counter-offer?

A

A request for clarification does not reject the original offer; a counter-offer changes the terms and terminates the original

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16
Q

What must happen for an offer to lapse by passage of time?

A

Either acceptance is not made within a time the offeror prescribes, or if none prescribed, within a reasonable time under the circumstances

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17
Q

What effect does the death of the offeror have on an offer?

A

If the offeree knows of the offeror’s death, the offer lapses; if unaware, it may remain open until notice is received

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18
Q

When can an offeror revoke an offer, and when is revocation effective?

A

At any time before acceptance; revocation is effective only when actual notice of it reaches the offeree

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19
Q

What exception prevents revocation of a unilateral offer after performance has begun?

A

Once the offeree has commenced performance, the offeror is under an implied obligation not to revoke until performance is complete

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20
Q

What rule requires acceptance to be an exact mirror of the offer?

A

The mirror-image rule: acceptance must be unqualified and correspond exactly to the terms of the offer

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21
Q

How can an offeror prescribe a mode of acceptance, and when is it mandatory?

A

The offeror may stipulate a specific method of acceptance; if clearly stated to be the only binding method, it is mandatory; otherwise, any equally advantageous mode suffices

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22
Q

What is the general rule for communication of acceptance?

A

Acceptance is effective only when communicated to the offeror; silence cannot amount to acceptance unless clearly waived

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23
Q

When does the postal rule apply to acceptance?

A

When post is a contemplated method, acceptance takes effect upon proper posting, even if delayed or lost, unless the rule is excluded

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24
Q

In which cases does the postal rule not apply?

A

If post was not contemplated, if the letter is incorrectly addressed, if the offeror expressly requires receipt, or to revocations of offers

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25
How is acceptance by instantaneous communication (e.g., email) treated?
Effective when received by the offeror; if sent outside office hours, it is received at the next start of business on an office day
26
What case established that email acceptance is effective on arrival at the offeror’s server?
Thomas v BPE Solicitors: email acceptance is not effective when sent but when it arrives on the offeror’s email server
27
When must acceptance be communicated in a unilateral contract?
Performance of the requested act suffices; no separate communication is required (Carlill v Carbolic Smoke Ball Co)
28
What is required for an agreement to be sufficiently certain to be enforceable?
All material terms must be definite and complete; courts will fill gaps only if parties’ intentions are clear
29
Which case held that a vague agreement on 'hire-purchase terms' was unenforceable?
Scammell v Ouston: terms were too vague and uncertain to enforce
30
Which case held that an agreement to buy 'timber of fair specification' was enforceable?
Hillas v Arcos: terms could be given reasonable meaning in context, so agreement was binding
31
What three elements are required for a binding contract?
Offer, acceptance, and intention to create legal relations (plus consideration)
32
What test determines if there was agreement between parties?
An objective test: would a reasonable person believe the parties intended to be bound based on their words and conduct
33
How is an offer defined?
A clear and certain expression of willingness to be bound on specific terms, capable of acceptance to form a contract
34
What must an offeror demonstrate to make a valid offer?
Certainty of terms and an intention to be legally bound
35
What distinguishes a unilateral contract from a bilateral contract?
Unilateral: accepted by performance of a requested act; Bilateral: accepted by communication of mutual promises
36
In a unilateral offer, when does acceptance occur?
Upon complete performance of the required act without need for separate notification
37
What is an invitation to treat and why is it not an offer?
An invitation to treat invites offers rather than committing to be bound; examples include shop displays and advertisements for sale
38
When can an advertisement be a unilateral offer rather than an invitation to treat?
If it promises a reward or prescribes a clear act and demonstrates an intention to be bound (e.g., reward posters for lost items)
39
What case illustrates a valid unilateral offer by advertisement?
Carlill v Carbolic Smoke Ball Co: clear prescribed act and deposit of money showed intent to be bound
40
In an auction sale, when does a contract form?
When the auctioneer accepts a bidder’s offer, signaled by the fall of the hammer
41
What is the default rule for auctions without reserve?
The seller promises to sell to the highest genuine bidder; refusing to do so is a breach of contract
42
How can an offer be terminated by rejection?
By communicating a rejection or making a counter-offer, which destroys the original offer
43
What distinguishes a request for information from a counter-offer?
A request for information seeks clarification without rejecting the original offer; a counter-offer changes terms and terminates the original
44
When does an offer lapse by passage of time?
Either upon expiry of the time prescribed by the offeror or, if none, within a reasonable time under the circumstances
45
What effect does the death of the offeror have on an offer?
The offer lapses if the offeree knows of the offeror’s death; if ignorant, it remains open until notice is received
46
When can an offeror revoke an offer, and when is revocation effective?
At any time before acceptance; effective only when actual notice of revocation reaches the offeree
47
What exception prevents revocation of a unilateral offer after performance begins?
Once the offeree commences performance, the offeror must allow reasonable time to complete and cannot revoke
48
What rule requires acceptance to mirror the offer?
The mirror-image rule: acceptance must be unqualified and correspond exactly to the offer’s terms
49
How can an offeror prescribe a mode of acceptance, and when is it mandatory?
By stipulating a specific method; if clearly stated as the only binding method, it is mandatory; otherwise, any equally advantageous mode suffices
50
What is the general rule for communication of acceptance?
Acceptance is effective only when communicated to the offeror; silence cannot amount to acceptance unless clearly waived
51
When does the postal rule apply to acceptance?
When post is contemplated as a proper method of acceptance; acceptance takes effect upon proper posting unless excluded
52
In which cases does the postal rule not apply?
If post was not contemplated, if the letter is incorrectly addressed, if the offeror expressly requires receipt, or to apply to revocations
53
How is acceptance by instantaneous communication (e.g., email) treated?
Effective when received by the offeror; if received outside office hours, it takes effect at the next start of business
54
What case established that email acceptance is effective on arrival at the offeror’s server?
Thomas v BPE Solicitors: email acceptance takes effect when it arrives on the offeror’s server
55
When must acceptance be communicated in a unilateral contract?
Performance of the requested act suffices without separate communication
56
What is required for an agreement to be sufficiently certain to be enforceable?
All material terms must be definite and complete; courts will not enforce if key terms are vague or uncertain
57
Which case held that an agreement on 'hire-purchase terms' was too vague to enforce?
Scammell v Ouston: terms were too uncertain to form a binding contract
58
Which case held that an agreement on 'timber of fair specification' was enforceable?
Hillas v Arcos: terms could be reasonably interpreted, so agreement was binding
59
What is consideration in contract law?
An act or forbearance of one party or the promise thereof, serving as the price for which the other party’s promise is bought
60
How does the law distinguish executory from executed consideration?
Executory: mutual promises to perform in the future; Executed: performance already completed at the moment the contract is formed
61
What are the four key rules governing consideration?
It must not be past, must move from the promisee, need not be adequate, but must be sufficient
62
Why is past consideration not good consideration?
Because it was not given in exchange for the promise; it occurred before the promise was made
63
What exception allows what appears to be past consideration to be good?
If the act was done at the promisor’s request, with an understanding of payment or benefit, and that payment or benefit would be enforceable if promised in advance (Pao On v Lau Yiu Long)
64
What does it mean that consideration must move from the promisee?
Only the person who provided consideration can enforce the promise; a third party cannot sue on a contract to which they did not provide consideration
65
What case illustrates that a person cannot enforce a promise if they provided no consideration?
Tweddle v Atkinson: the groom could not enforce his father-in-law’s promise because he provided no consideration himself
66
Why does consideration need not be adequate?
Courts will not assess the relative value of exchanged promises; even a peppercorn can suffice if freely agreed
67
What case held that chocolate wrappers formed consideration despite their negligible value?
Chappell & Co v Nestlé Co Ltd: wrappers counted as sufficient consideration despite being worthless afterward
68
What does it mean that consideration must be sufficient?
It must have some value in law, however small; courts only require that something of legal value be identifiable
69
What case held that a nominal payment and agreement to keep a house in repair constituted sufficient consideration?
Thomas v Thomas: £1 per year and repair obligation constituted legal value despite disparity
70
When can a variation of contract be binding without new consideration from both parties?
If the promisee obtains a practical benefit or obviates a disbenefit, and there is no economic duress (Williams v Roffey Bros)
71
What conditions did Williams v Roffey Bros establish for 'practical benefit' to be adequate consideration?
(i) Original contract exists; (ii) Before complete performance, promisor doubts completion; (iii) Promisor promises extra payment to ensure timely performance; (iv) Promisor obtains practical benefit or avoids disbenefit; (v) No economic duress or fraud
72
Why is performing an existing contractual duty owed to a third party good consideration for a new promise?
Because the promisee undertakes a direct obligation enforceable by the promisor, putting themselves at risk of double liability (The Eurymedon)
73
Why is a promise to pay a lesser sum than owed generally not binding?
Because the debtor offers no new consideration; paying less does not discharge the existing debt (Foakes v Beer)
74
What exception can make part-payment of a debt binding?
If the debtor adds a new element at the creditor’s request (e.g., different payment place or time) or a third party pays, providing fresh consideration
75
What equitable doctrine allows enforcement of a promise without consideration when the promisee has relied on it?
Promissory estoppel
76
What are the requirements for promissory estoppel to apply?
(i) Clear and unequivocal promise not to enforce strict legal rights; (ii) Promisee’s reliance on the promise; (iii) Change of position making it inequitable for the promisor to renege; (iv) Only acts as a defence, not a cause of action
77
Why can promissory estoppel only act as a 'shield' and not a 'sword'?
Because it prevents the promisor from enforcing rights but does not create a standalone cause of action to sue on the promise (Combe v Combe)
78
When will promissory estoppel suspend rather than extinguish legal rights?
When the suspension lasts until a reasonable notice of resumption or until the circumstances giving rise to the estoppel no longer apply
79
What presumption applies to commercial agreements regarding intention to create legal relations?
The presumption is that parties intend to create legal relations unless clear words rebut this
80
What presumption applies to social or domestic agreements?
The presumption is that parties do not intend to create legal relations unless the circumstances or language clearly indicate otherwise
81
How can parties rebut the commercial-agreement presumption?
By including clear, unambiguous wording (e.g., 'subject to contract' or 'honorary only') indicating no legal intent
82
What case illustrated that 'subject to contract' creates a strong inference of no binding agreement until formal execution?
Jenkins v Gordon: preliminary heads of agreement marked 'subject to contract' were not binding
83
What case held that spouses separated by agreement had a binding contract for maintenance?
Merritt v Merritt: clear writing and separation indicated intention to create legal relations
84
How is an agreement 'subject to contract' treated?
As a strong indication that parties do not intend to be bound until formal contract execution; interim negotiations are not binding
85
What categories of persons have limited capacity to contract?
Minors (under 18), those lacking mental capacity, and those incapacitated by intoxication
86
When is a contract with a minor enforceable against the minor?
If it concerns necessaries for the minor’s condition and actual requirements or is a contract of employment, apprenticeship, or education for their benefit
87
What are ‘necessaries’ for a minor under contract law?
Goods or services suitable to the minor’s condition and actual requirements at the time of supply (e.g., food, clothing, accommodation)
88
What case held that clothing beyond a minor’s real needs was not ‘necessary’?
Nash v Inman: 11 waistcoats were more than the minor’s necessary requirements
89
When is a minor bound by a contract of employment, apprenticeship, or education?
Only if the contract is for their benefit, conferring genuine advantage to the minor (Aylesbury FC v Watford AFC)
90
What happens to a contract entered into by a minor outside the exceptions?
It is voidable at the minor’s option, though the minor can enforce it against the other party; if ratified after reaching 18, it becomes binding
91
How is mental incapacity defined under the Mental Capacity Act 2005?
A person lacks capacity if at the time of contracting they cannot understand, retain, use or weigh relevant information, or communicate their decision
92
When is a contract with a mentally incapacitated person enforceable against them?
If they understood the transaction and the other party knew of their incapacity; otherwise the contract is voidable and reasonable payment for necessaries is still due
93
What similar rule applies to contracts made by intoxicated persons?
If incapable of understanding the nature of the contract, it is voidable except for contracts for necessaries, where a reasonable price must be paid

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