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Contract Law Week 3: Consideration and Terms
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Contract Law Week 3: Consideration and Terms

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Questions and Answers

Why couldn't B sue A for failing to replace the screen cover of the mobile phone?

  • The promise was not part of the original contract. (correct)
  • The replacement of the screen cover was unnecessary.
  • A had a valid legal defense.
  • B did not provide any consideration.

    • In the case of Roscorla v Thomas, what was the main reason R's lawsuit for breach of contract was unsuccessful?

  • R failed to pay the full amount for the horse.
  • R did not have sufficient evidence to prove his case.
  • The horse was not legally sold.
  • The claim about the horse being 'free from vice' was not part of the contract terms. (correct)

    • Which of the following is an exception that would allow B to sue A on the promise to replace the screen cover?

  • Universal acceptance of A's promises in previous agreements.
  • B's reliance on A's promise.
  • If the promise was made in a formal deed. (correct)
  • If A expressed regret for not fulfilling the promise.

    • What legal principle can be drawn from the outcomes of the cases mentioned?

    <p>Contracts must have terms explicitly agreed upon to be enforceable.</p> Signup and view all the answers

    What does the property of 'consideration' refer to in the context of contract law?

    <p>Something of value exchanged in a contract.</p> Signup and view all the answers

    Does B have the right to sue after accepting 700 from A?

    <p>No, because early payment is considered valuable.</p> Signup and view all the answers

    What is required for an agreement to accept a lesser amount to be binding?

    <p>There must be fresh consideration involved.</p> Signup and view all the answers

    In which scenario is the presumption of a binding contract not applicable?

    <p>When the agreement includes a 'subject to [contract]' clause.</p> Signup and view all the answers

    What does the phrase 'subject to [contract]' imply?

    <p>Further negotiations are required before legal binding.</p> Signup and view all the answers

    How are commercial agreements generally treated concerning legal binding intention?

    <p>They are presumed to be legally binding.</p> Signup and view all the answers

    Which category does not automatically presume a legal binding contract?

    <p>Social agreements.</p> Signup and view all the answers

    What happens if parties act inconsistently with their 'subject to [contract]' agreement?

    <p>They may lose the right to withdraw from the agreement.</p> Signup and view all the answers

    What constitutes fresh consideration in a contract?

    <p>Any new benefit or detriment agreed upon by parties.</p> Signup and view all the answers

    Why might B not have the right to sue A after receiving 700?

    <p>The early payment is valuable and allows B further actions.</p> Signup and view all the answers

    What is the main factor determining the intention to create a legally binding contract?

    <p>The nature of the agreement concerning its context.</p> Signup and view all the answers

    What is required for an offer to result in a legally binding contract?

    <p>The agreement must consist of mutual benefits for both parties.</p> Signup and view all the answers

    Which of the following best describes 'executed consideration'?

    <p>Both parties have completed their promises to each other.</p> Signup and view all the answers

    Which statement about past consideration is true?

    <p>An act done voluntarily cannot be used as consideration for a later promise.</p> Signup and view all the answers

    What distinguishes a deed from other contracts?

    <p>A deed does not require consideration to be legally binding.</p> Signup and view all the answers

    Which condition must be met for consideration in a contract?

    <p>Consideration must be something of legal value.</p> Signup and view all the answers

    What happens when one party tries to change a previously agreed contract?

    <p>The original contract remains binding.</p> Signup and view all the answers

    In the context of consideration, what does 'sufficient but need not be adequate' mean?

    <p>The value of consideration does not matter as long as it is agreed on.</p> Signup and view all the answers

    Which of the following is an example of executory consideration?

    <p>A promises to paint B's house next week in exchange for $200 upon completion.</p> Signup and view all the answers

    What is a primary characteristic of consideration in contract law?

    <p>It cannot consist of past actions.</p> Signup and view all the answers

    What is the term used for the concept where each party must promise some benefit to each other?

    <p>Bargain.</p> Signup and view all the answers

    What is required for a contract to have legal effect concerning the promisee?

    <p>The promisee must provide some form of consideration.</p> Signup and view all the answers

    What is the privity contract rule about?

    <p>Only the parties privy to a contract can sue or be sued.</p> Signup and view all the answers

    Why might a third party not enforce a contract?

    <p>If they give no consideration to the contract.</p> Signup and view all the answers

    In the case of Foakes v Beer, why could B still claim interest from F?

    <p>F provided no additional consideration for the agreement.</p> Signup and view all the answers

    What happens when a promise is made that involves illegal consideration?

    <p>The courts will not support such an agreement.</p> Signup and view all the answers

    How can a third party enforce a term of a contract under the Contracts (Rights of Third Parties) Ordinance?

    <p>If the contract expressly grants them the right.</p> Signup and view all the answers

    What must consideration be in a valid contract?

    <p>Something of value, though quantification may vary.</p> Signup and view all the answers

    If A owes B $1000 and B accepts $700 as full payment, what is the outcome regarding B's right to sue?

    <p>B has no right to sue as he accepted lesser payment.</p> Signup and view all the answers

    Which of the following is NOT a valid form of consideration?

    <p>A promise to deliver services that one is already obligated to provide.</p> Signup and view all the answers

    What determines whether an offer or an invitation to treat has been made?

    <p>Circumstantial factors surrounding the proposal.</p> Signup and view all the answers

    In the example of NZSC vs Satterthwaite & Co, why was S able to rely on the waiver promise?

    <p>S fulfilled the unloading contract, creating a contract with NZSC.</p> Signup and view all the answers

    Which of the following statements is true regarding consideration?

    <p>Consideration can be anything of value, as decided by the parties.</p> Signup and view all the answers

    What is considered to be 'forbearance to sue'?

    <p>An agreement not to pursue legal action against someone.</p> Signup and view all the answers

    Under which circumstance may consideration not be enforceable?

    <p>If it is given freely as a gift.</p> Signup and view all the answers

    What does the term 'subject to contract' imply in a negotiation?

    <p>Parties are bound only upon signing a formal contract.</p> Signup and view all the answers

    Which of the following statements best describes social agreements?

    <p>They are presumed not to create legal obligations.</p> Signup and view all the answers

    In which situation can a minor's contract be legally enforceable?

    <p>For necessary goods suited to their condition.</p> Signup and view all the answers

    What is a common limitation on a minor's ability to enter contracts?

    <p>Adults cannot enforce contracts against minors.</p> Signup and view all the answers

    What happens if a person suffers from a mental disability at the time of signing a contract?

    <p>They must prove they understood the contract.</p> Signup and view all the answers

    In the case of sales puffs, how do courts typically view the statements made?

    <p>Their truth is evaluated through circumstances.</p> Signup and view all the answers

    In a property transaction, when is a provisional agreement considered a valid binding contract?

    <p>When it includes full agreed terms with a formal contract to follow.</p> Signup and view all the answers

    Which of the following correctly describes the effects of misrepresentation in a contract?

    <p>It may lead to compensation claims.</p> Signup and view all the answers

    What was the court's finding regarding the loan agreement in the case of Treasure Spot Finance Co Ltd v Li Chik Ming?

    <p>The agreement was illegal due to a violation of regulations.</p> Signup and view all the answers

    What does 'legal capacity' refer to in contract law?

    <p>Restriction on certain individuals from making contracts.</p> Signup and view all the answers

    Which of the following is true regarding agreements between family members?

    <p>They are presumed not to create legal obligations.</p> Signup and view all the answers

    When can a minor be sued for not paying for necessary goods?

    <p>If the goods qualify as necessaries for their condition.</p> Signup and view all the answers

    What is the significance of the phrase 'on or before a certain future date' in a preliminary agreement?

    <p>It indicates the timeframe for forming a formal contract.</p> Signup and view all the answers

    Study Notes

    Consideration

    • Consideration is essential for a legally binding contract, representing a "bargain" between parties.
    • Both parties must promise mutual benefits; without an exchange, promises are not enforceable.
    • Example: A sells B bottled water for $10, where A's benefit is money and B's benefit is water.

    Types of Consideration

    • Executed Consideration: Both parties fulfill their promises concurrently (e.g., A delivers water, B pays $10).
    • Executory Consideration: Promises are to be fulfilled in the future (e.g., A will deliver water in three days, B pays upon delivery).

    Key Rules About Consideration

    • Consideration can be present (executed) or future (executory) but never past.
    • It must originate from the promisor, be legal, and must hold value, though the exact value is not strictly evaluated by courts.
    • Past consideration is not valid; promises made after actions are not enforceable.

    Situations Lacking Consideration

    • An act performed voluntarily before a promise is made does not validate a contract.
    • Any modifications made to an existing contract require new consideration to be enforceable.

    Privity of Contract

    • Only parties involved (privy) in a contract can sue or be sued on it, preventing third parties from enforcing agreements.
    • Exceptions occur if a third party is specifically named or if a new promise contains consideration.

    Contracts (Rights of Third Parties) Ordinance

    • Effective from January 1, 2016, allows third parties to enforce contract terms if identified and beneficial.
    • Third parties can obtain remedies like parties to the contract, even without direct consideration.
    • Consideration must be lawful; agreements for illegal actions, like robbery, are not upheld.

    Value of Consideration

    • The value of promises must exist, but disproportionate values do not affect their enforceability.
    • Example: Selling an item significantly below market value is permissible as long as value exists.

    Forbearance to Sue

    • Agreeing not to sue counts as sufficient consideration, even if difficult to quantify.
    • Signing an agreement to drop a lawsuit can legally bind the parties involved.

    General Rules on Lesser Amounts

    • Agreements to accept a reduced payment are generally not binding unless fresh consideration is provided.

    Intention to Create a Legally Binding Contract

    • The intent to form a binding agreement is assessed objectively, distinguishing between commercial and social/family agreements.
    • Commercial agreements typically assume intent unless explicitly stated otherwise (e.g., using the phrase "subject to contract").
    • Acting inconsistently with the agreement may negate withdrawal rights, even under non-binding clauses.### Inconsistent Behavior and Agreements
    • Parties may withdraw from agreements if their actions do not align with the agreement's terms, even if "subject to contract" is included.
    • In the case of Attorney-General (HK) v Humphrey's Estate (1987), negotiations occurred between the Hong Kong government and HKL for asset exchange, legally binding only upon formal contract signing.
    • The government’s actions—renovating apartments and permitting demolition—indicate belief in the contract’s effect.
    • HKL retained the right to withdraw until a formal contract was signed due to the agreement's "subject to contract" status, allowing HKL to terminate use of the apartments.
    • The court ruled that the government's actions did not negate HKL’s right to withdraw, emphasizing that "subject to contract" implies no legal responsibilities until a formal agreement.

    Provisional or Preliminary Agreement

    • "Subject to contract" differs from provisional or preliminary agreements, commonly used in property transactions.
    • If the full agreement terms are outlined, they constitute valid binding contracts.
    • These agreements typically mention a formal contract will be finalized by a specific date.
    • Formal contracts replace provisional agreements, and both are legally binding.

    Social Agreements

    • Agreements made socially (between friends or relatives) are generally not legally binding unless intent for legal obligation is clear.
    • Such arrangements are presumed non-binding, despite the intent to fulfill them.
    • This presumption can be rebutted if circumstances show a clear intention to establish a legal agreement.

    Case Study: Sun Er-jo v Lo Ching (1996)

    • In this case, Mrs. Sun’s arrangement with her son LK involved her life savings to manage and partially fund an apartment purchase.
    • After four years, Mrs. Sun requested repayment of her capital, which LK complied with, but she sought interest and compensation for expenses.
    • The court ruled that parental costs are not valid claims, and familial arrangements do not establish legal obligations unless explicitly intended.
    • LK acted honorably, leading to a dismissal of Mrs. Sun’s claim, signaling that familial arrangements typically lack legal enforceability.

    Capacity to Enter into a Contract

    • Legal capacity to contract may be restricted for certain groups, mainly minors and those mentally incapacitated.
    • Individuals under 18 (minors) can enter enforceable contracts regarding necessary goods, which are appropriate for their needs.
    • Adults cannot enforce contracts against minors, but minors may be held liable to pay a reasonable price for necessaries.
    • Contracts with minors are enforceable only for necessary items, delineated by their social and financial contexts.

    Mental Disability

    • Individuals suffering from mental disabilities have the right to void contracts if they can prove lack of understanding during agreement formation.
    • The other party must also have knowledge of the individual’s mental condition.

    Case Study: Treasure Spot Finance Co Ltd v Li Chik Ming (2007)

    • The case focused on whether Li Chik Ming had the mental capacity to understand a loan agreement.
    • Despite Li's claims of mental incapacity, the court found he was capable of understanding the documents, thereby validating his ability to consent.
    • However, the loan agreement was rendered illegal due to violations of the Moneylenders Ordinance, leading to its unenforceability.

    Terms of a Contract

    • Not all statements made during contract negotiations become terms of the contract.
    • Sales puffs are exaggerated claims in advertising not legally enforceable; courts assess context to determine their legal impact.
    • Representations are factual statements influencing contract decisions, and misrepresentations can affect validity if proven false.
    • Terms can be articulated in writing, spoken words, or inferred from actions and previous dealings.

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