Contract Law PDF

There are five requirements to make a contract: I. An Agreement Between Parties - offer made by one party (the offeror) which the other party has accepted (the offeree); II. Consideration - there must be an act or promise given in exchange for the promise; III. An Intention To Create Legal Relations...

There are five requirements to make a contract: I. An Agreement Between Parties - offer made by one party (the offeror) which the other party has accepted (the offeree); II. Consideration - there must be an act or promise given in exchange for the promise; III. An Intention To Create Legal Relations - this is an intention to be legally bound by the agreement; IV. Certainty - there must be certainty as to the terms of the agreement; and V. Capacity - there must be capacity to contract. Offer And Acceptance (i.e. an Agreement) Offer: An offer is a promise to be bound if the offeree agrees to the terms. An offer needs to be distinguished from an invitation to treat, which is an invitation to negotiate or make offers. An offer can be addressed to the general public and is accepted when the offer is acted upon by a member of the general public. The display of goods in a shop is an invitation to treat (not an offer). Therefore, if a price is incorrectly displayed, the shop is not obliged to sell at the mistaken price. The customer makes an offer to buy when he presents the goods at the checkout till. Advertisements are an invitation to treat (not an offer). However, adverts of reward are offers that are accepted when the specified condition is met. Auctions are invitations to bid (make offers). The acceptance of the last bid is the acceptance of the offer. An offer cannot be accepted once it has been terminated. Termination may happen by: I. Rejection - an outright rejection of the offer or by a counteroffer being made since it extinguishes the original offer; II. Withdrawal - an offer may be revoked at any time before acceptance. Revocation of the offer must be communicated to the offeree by the offeror or another reliable source; Ill. Lapse of Time - an offer will lapse after a specified time or reasonable period of time (if not time specified). Acceptance: Acceptance is the final and unqualified agreement to all the terms contained in the offer. Adding or amending an offer amounts to a counteroffer and is not acceptance. In doing so, it cancels the original offer. Acceptance must therefore be unconditional (i.e. unqualified) and communicated (i.e. by words or conduct) by the offeree. Silence is not acceptance (unless accompanied by conduct which indicates acceptance). Acceptance must follow a specified method if it is stipulated. PostaL Rule: an acceptance by post takes effect when it is posted, rather than when it is communicated unless it is clear that the acceptance will only take effect when it is communicated to them. Agreements to agree, letters of intent and agreements subject to contract' are not legally binding. They are essentially agreements to agree at a future date and are not binding. Consideration Consideration means each party must give something in return for what is gained from the other party. Consideration is either a benefit to the person making the promise or a detriment to the person whom the promise is made (or both The following principles have been established about consideration: I. It Need Not Benefit The Promisor - e.g. the promise of giving up a II. job; It Must Not Be Past - past consideration is not good consideration unless the past act or promise was done at the promisor's request, there was a mutual understanding the promise would be compensated and had the promise been made in advance it would be legally enforceable; III. It Must Be Sufficient - consideration must be sufficient but need not be adequate; IV. It Must Be Of Economic Value - emotional or sentimental exchanges do not qualify; V. It Can Be A Promise Not To Sue; and VI. It Can OccasionaLLy Exist Through The Performance Of An Existing Duty - the performance of an existing public duty is not consideration but exceeding a public duty is consideration. Exceeding a contractual duty owed to the other party is consideration. A contract can be binding without consideration in the following situations: I. Waiver - where one party promises not to enforce their rights under the contract even without consideration; II. Promissory Estoppel - where a contracting party promises not to enforce a contractual right, they will not be able to enforce that right later on if to do so would be inequitable and the promise has been relied upon by the other party; or III. Agreement By Deed - a contract formally executed as a deed, does not require consideration. Intention To Create Legal Relations An agreement will only be legally binding if the parties intend it to be binding. The law makes the following presumptions: 1. social and domestic agreements are NOT intended to be legally binding (this presumption can be rebutted); ii. commercial agreements are INTENDED to be legally binding (clear words needed to rebut this presumption e.g. this agreement is not meant to be legally binding). Certainty In order to be a binding contract an agreement must be certain. If an agreement is vague or incomplete, it will not be binding. To establish certainty, a court will look at: I. Any Provisions For Clarification - where a mechanism has been provided to finalise the details of the contract; II. Terms To Be Implied By Statute - e.g. Sale of Goods Act 1979; III. The Parties Previous Course Of DeaLing - previous agreements/dealings may be used to clarify uncertain terms; IV. Reasonableness - the court may imply the principle of reasonableness; V. Custom - industry custom may be taken into account by a court; VI. The 'Officious By-Stander Test' - the court may imply a term by asking, 'if someone observing the contract would have believed that particular term was part of the contract'; VII. Whether A Term Is Sufficiently Unimportant To Be Removed - minor terms that are vague or meaningless may be struck out by a court. Capacity Capacity is the legal ability to make a binding contract. Some categories of peoples' ability to make contract is limited by law for their own protection. Minors: Minors are people under the age of 18. They are not usually bound by the contracts they make. Exceptions to this are where the contract is for: i. necessaries such as goods and services; or ii. the minor's benefit such as training and experience. Mental Incapacity: Contracts with people who have mental incapacity are voidable if: 1. the person did not have mental capacity at the time he entered into ii. agreement; and the other party to the contract knew, or should have known, that this was the case. Intoxication: A contract with a person who is intoxicated will be invalid if at the time he was incapable of understanding the nature of the transaction AND the other party knew that it is the case. Corporations: I. Registered Companies - should only make contracts within their stated activities (as set out in the memorandum of association and/or articles of association) but can be bound nevertheless if the other party acted in good faith; II. Statutory Corporations - can only make contracts for the purposes stated in the statute that created them and any contracts outside of the stated powers will be void; III. Limited Liability Partnerships - unlimited capacity to contract. Parties Privity of Contract As a general rule, the common law doctrine of privity of contract states that a person who is not a party to a contract (a 'third party') cannot enforce the provisions of that contract or rely on its protections even if the provisions were intended to benefit that third party. This meant that third parties could neither sue nor be sued under a contract. This doctrine is subject to certain exceptions (see later - Rights of Third Parties). Rights of Third Parties Contracts (Rights of Third Parties) Act 1999: A third party who is not a party to a contract can sue on it if: i. ii. the contract expressly provides that they may do so; or the contract purports to confer a benefit upon them, unless the parties do not intend it to be enforceable. Agency: An authorised agent may bind a principal to a contract with a third party where the agent has actual authority (express or implied). If the agent does not have actual authority, they may still have apparent authority which will bind the principal if: the principal represented that the agent had authority (whether by words or conduct; ii. the third party relied on that representation; and iii. the third party entered into the contract.