Contract Law: Intention to Create Legal Relations

Legal Obligations

• Legal obligations are created by a person (legal entity) towards another person.
• Legal entities can be a corporation, a legal person, a company, association, society.
• A legal entity is anything that can sue or be sued.
• A dog is not a legal entity, a tree is not, but a company or government is.

Law of Obligations

• The law of obligations deals with legal obligations of entities.
• The module is divided into 2 parts: contract law and tort law.

Part 1: Contract Law

• Contract law involves obligations created by a contract.
• This includes what obligations are placed on the parties, and what happens if a party breaches the contract.
• Principles of contract termination.
• Principles of remedies in contract law

Part 2: Tort/Tort Law

• Tort law involves obligations created by law that are imposed by a particular entity.
• This includes duty of care and torts such as trespassing.

Exam Format

• Exam is split in two parts.
• Solve only one part per exam.
• Read questions carefully, and answer only short-answer problems/ no essays.
• Exam problems can be 100% contract law or 100% tort law.
• Questions may be mixed, containing contract and tort law principles.

Contract Definition

• A contract is an agreement between two or more people that is legally obligated.
• It involves terms that are agreed upon by the entities.
• Agreements create obligations, recognized by law.
• Required elements of contract: Formal legally binding agreement with terms and conditions agreed by all involved entities.

Founding Principles of Contract Law

The Form of a Contract

• Many assume contracts must be written, but they can be written, oral, or partly written and partly oral.

Freedom of Contract

• Parties are free to make their own contract terms.
• Unfair terms are not universally applicable.

Binding Terms of a Contract

• All parties acknowledge that the contract obligates them and are legally bound by those terms.
• Parties must honor the contractual terms or they may be liable for damages.

Meeting of the Minds

• All parties should agree on the terms and be legally bound by the contract.

Formation of a Contract

• There are five elements required for contract formation: offer, acceptance, consideration, intention to be legally bound, and capacity.

Offer

• An offer is the initial proposal made by one party (offeror) to another party (offeree).
• The offer can be made to a specific person or to the world at large.
• Clear, precise, and capable of acceptance.

Offers in Unilateral Contracts

• A unilateral contract is an offer made to the world at large.
• Acceptance occurs only through performance, not by a promise.

The Case of Carlill v Carbolic Smoke Ball Co Ltd

• An advertisement can constitute an offer in a unilateral contract, if it contains sufficiently clear terms and intent to be legally bound.

Distinguishing Between Offer and Invitation to Treat

• Invitation to treat: Shows willingness to negotiate or receive offers. Examples are displays of goods in a shop window.
• Offer: A definite proposal to be bound. Examples involve customer presenting the item at the checkout in a self-service store.

Fisher v Bell (1961)

• Display of goods in a shop window is an invitation to treat.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953)

• Display of goods in a self-service store is an invitation to treat. The offer is made by the customer at the checkout.

When is an offer valid?

• An offer is valid when brought to the attention of the offeree (the one receiving it), and has to take effect in the way it was set by the offeror.

Termination of an Offer

• Possible ways to end an offer (3 possible outcomes): acceptance, rejection, counter-offer, lapse of time, death of the offeror, revocation, and the condition becoming impossible.

Counteroffer

• Counteroffers reject original offers and are a new offer in themselves.

Lapse of time

• Unspecified offers have a reasonable time limit.

Conditional Offers

• Offers that are dependent on some event.

Death of the Offeror

• The offer terminates when the offeror dies.

Revocation

• An offeror can revoke an offer anytime up until acceptance.
• The revocation must be communicated effectively to the offeree.

Acceptance

• The acceptance must match the offer unconditionally.
• It must be unequivocal (clear and unambiguous).

Postal Rule on Acceptance

• Acceptance is valid when the letter is properly posted, not when it is received.

Consideration

• Consideration is something of value exchanged between the parties within a valid contract.
• Must be sufficient but not necessarily of equivalent value.

Requirements of Consideration (6)

• Sufficient but doesn't have to be of equal value.
• Must not be passed. Consideration must follow the contract, not precede it.
• Doing an existing duty cannot constitute consideration for a contract.
• Partial payment of debt doesn't extinguish full debt obligation.
• Performance of the existing contractual duty.
• Performing or offering to perform an existing contractual obligation is not normally sufficient consideration.

Exception to the rule on part payment of debt

• Accord and satisfaction. This is when a different consideration is introduced to discharge the contract from original obligation.

Intention to Create Legal Relations (Social/Domestic)

• There's a presumption that social and domestic agreements aren't legally binding unless clear evidence exists to the contrary.
• Family or friendship agreements are not contracts, unless it can be objectively reasoned as legally binding agreements.

Intention to Create Legal Relations (Commercial)

• There's a strong presumption that commercial agreements are legally binding.

Capacity

• Parties must have legal capacity to enter into contracts.
• Protected groups include minors, people with mental difficulties, and intoxicated individuals.

Contracts with Minors

• Valid contracts: contracts for essential goods and services in line with minor's station and needs
• Voidable contracts: contracts a minor can be freed from
• Unenforceable contracts: contracts that are not necessary for the minor's station

People with Mental Difficulties

• Contracts lacking capacity due to mental impairment.
• Agreements can be voidable if a party wasn't of sound mind at the time of entering into the contract, and the other party was aware.
• Contract can be voided if mental incapacity was present when the contract was made.

Terms of a Contract

• Contract terms that are expressly stated.
• Terms that are implied by law due to customs, by the court, or by statutes.

Types of Terms (2)

• Conditions: Critical terms, breach of which results in the whole contract being void.
• Warranties: Less significant terms, breach of which only entitles damages, and not termination of the contract.

Exemption Clauses

• Clauses that limit or exclude liability.
• Courts must determine whether the clause is a binding contractual term.

Rules of Incorporation (3)

• How exemption clauses become part of a contract.
• Signature: Party signing a document is bound by its terms, regardless of whether they read them.
• Notice: Adequate notice must be given before or at the time the contract is formed.
• Previous course of dealings: Parties previously contracted on similar terms, with similar clauses.

Vitiating Factors

• Factors that make a contract void or voidable (3)
• Misrepresentation: false statement, inducing the other party.
• Mistake: misunderstanding about fundamental facts.
• Duress: coercion or threats.
• Undue influence: improper pressure, exploiting trust.

Elements of Negligence in Misrepresentation

• Knowledge of falsity.
• Proximity of parties.
• Reliance on the statement.
• Responsibility/Duty to advise

Remedies for Misrepresentation

• Recession: contract is terminated.
• Damages: compensate for loss.

This quiz explores key principles of contract law, particularly focusing on cases like Balfour v Balfour and the basic presumption surrounding agreements made in social contexts. Test your knowledge of legal relations and the court’s interpretation of social and domestic agreements through various critical questions.