GDL recap > Contract Formation > Flashcards

Contract Formation Flashcards

(72 cards)

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1
Q

What approach does the court take when determining whether an agreement exists between the offeror and offeree?

A

An objective approach - they consider what the reasonable person would say was the intention of the parties having regard to all the circumstances

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2
Q

Who lacks capacity to contract?

A
  • Minors
  • Lack of mental capacity
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3
Q

Consideration rules (3)

A
  • Must not be past
  • Must move from the promisee
  • Must be sufficient but need not be adequate
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4
Q

Consideration must be sufficient but need not be

A

adequate (ie the law is not concerned about the ‘value’ of the consideration)

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5
Q

What does ‘consideration does not have to be adequate’ mean?

A

It is not the court’s duty to assess the relative value of each party’s contribution

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6
Q

A promise to accept less than your legal rights is

A

unenforceable

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7
Q

Why was valid consideration to accept less payment found in MWB v Rock?

A

because the landlord obtained a practical benefit and was not under economic duress

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8
Q

Executory consideration

A

where contracting parties make promises to each other to perform something in the future after the contract has been formed

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9
Q

Executed consideration

A

at the time of the formation of the contract, the consideration has already been performed

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10
Q

Valuable consideration may be something

A

promised or something done

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11
Q

the moral obligation to fulfil a promise is insufficient to

A

create a legally binding contract

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12
Q

Exception to the past consideration rule

A

where a prior service was provided by the promisee at the promisor’s request and it was ALWAYS agreed that payment would be made for that act or service

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13
Q

3 conditions for the exception to the past consideration rule to apply

A

(1) The act must have been done at the promisor’s request.
(2) The parties must have understood that the act was to be rewarded either by a payment or some other benefit.
(3) The payment, or conferment of other benefits, must have been legally enforceable had it been promised in advance.

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14
Q

Consideration must move from the promisee

A

A person who receives the promise can only enforce it if they have provided consideration for the promise.

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15
Q

What does “consideration must be sufficient” mean?

A

it must have some value in the eyes of the law

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16
Q

Factual consideration

A

nothing new is promised but the party in receipt of the promise still gets something out of the reshaped deal

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17
Q

Examples of factual consideration

A
  • avoidance of late completion payment in another contract
  • a more efficient working arrangement and
  • avoiding the need to find an alternative contractor to do the work.
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18
Q

Hartley v Ponsonby - existing obligations in a contract can justify additional payment if

A

fresh legal consideration is provided to exceed the existing contractual obligation

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19
Q

Examples of fresh legal consideration

A

payment at a different place;
payment at a different time;
providing a different thing as a substitute for money

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20
Q

Carrying out a public duty imposed by the law will not amount to

A

sufficient consideration

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21
Q

Why is it acceptable to enter into multiple contracts to perform the same task?

A

because you are taking on more liability and all of the promisees are receiving the direct benefit

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22
Q

Part payment of a debt is not

A

good consideration: the debtor remains liable even where the creditor has agreed to release them from further liability. They must provide fresh consideration.

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23
Q

The rule in Foakes v Beer re. existing obligations is only applicable if

A

the promise of the creditor to accept a lesser sum is unsupported by fresh consideration from the promisee

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24
Q

Consideration - payment of a lesser sum by a third party

A

Where a third party enters into an agreement with a creditor, by which the creditor accepts payment by the third party of a lesser sum than the debt in full satisfaction of the debtor’s obligation, the creditor cannot sue the debtor for the difference.

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25
Why is there sufficient consideration if a landlord varies a licence agreement to give a tenant longer to pay?
because the landlord obtains a practical benefit by keeping the tenant in the property
26
Practical benefit only applies to promises to pay
MORE not LESS
27
What is promissory estoppel?
an equitable doctrine (awarded at the court’s discretion) that effectively allows a contract to be enforced despite not being supported by consideration
28
When does promissory estoppel apply?
When it would be inequitable for the promisor to go back on their promise
29
How can promissory estoppel be terminated?
Delivery of notice can terminate promissory estoppel: the promisor may resume their full legal rights after giving reasonable notice of their intention to do so
30
What is not required for promissory estoppel?
detrimental reliance
31
(promissory estoppel) Following Central London Property Trust v High Trees, it is sufficient if the promisee has made a change
of position in reliance on the promise so that it would be inequitable to allow the promisor to go back on their promise
32
For promissory estoppel to apply, you have to prove that you gave consideration in exchange for
the promise
33
For promissory estoppel to apply, there must be a clear and
unequivocal promise or representation that existing legal rights will not be fully enforced
34
those who seek equity must
do equity
35
Although it is not necessary for the promisee to show that they relied on the promise to their detriment, if detrimental reliance is present, it will be a factor
weighed in favour of granting promissory estoppel
36
Does promissory estoppel extinguish legal rights?
No, promissory estoppel generally suspends rather than extinguishes
37
When might promissory estoppel extinguish legal rights?
Exceptionally, rights might be extinguished where it has become impossible for the other party to meet the obligation concerned or it would be clearly inequitable to require them to do so.
38
Why is part payment of a debt not good consideration to discharge the whole debt?
because the creditor receives nothing in exchange for accepting less than their full legal rights
39
Promissory estoppel provides an exception to the rule that
part payment of a debt without fresh consideration does not discharge the debt obligation
40
The test of intention
Objective - the court looks at the situation in which the parties were placed and asks itself: would reasonable people regard the agreement as intended to be binding?
41
Ordinary presumption is that a commercial agreement is intended to be
legally binding
42
Why was ICLR found in Carlill v Carbolic Smoke Ball Co.?
the assurance that the company had deposited £1,000 in a named bank was a demonstration of its intention to be bound and would be understood by a reasonable person to have that effect
43
Is an agreement 'subject to contract' binding?
No, it implies that the parties do not intend to be bound until the formal execution of a contract
44
Presumption for ICLR in social, family or other domestic agreements
usual presumption is that there is no intention to create legal relations
45
If the parties reach the agreement before any breakdown in the relationship occurs, the courts...
will not find ICLR
46
Presumption that there is no ICLR in social/domestic agreements can be rebutted by examining
the circumstances of each case and the language used by the parties
47
Merritt v Merritt - ICLR between couples going through a separation
ICLR can be found between spouses who were in the process of separating or are separated at the time that the agreement was reached
48
A person is not bound by a contract entered into under the age of 18 even if
the other party contracting does not know of this fact or the minor has lied about their age
49
2 main exceptions to rule that minors are not legally bound
'Necessaries' and contracts of employment, apprenticeship or education
50
What price must a minor pay for necessaries?
a 'reasonable price' rather than the actual cost of the 'necessaries' supplied
51
A minor is only bound by a contract of employment, apprenticeship or education if it is
for their benefit
52
A person lacks capacity under s 2 Mental Capacity Act 2005 if ‘he is
unable to make a decision for himself in relation to the matter' at the time the contract is made
53
a person without capacity still remains liable to pay what price for necessaries?
a reasonable price
54
2-stage test for proving incapacity
1) they did not understand what they were doing and 2) the other party knew that to be the case
55
If incapacity can be established, the contract will be
Mental incapacity renders a contract VOIDABLE
56
Matthews v Baxter rule for intoxicated people entering contracts
The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make
57
What does capacity to contract mean?
The ability of a person to enter a binding contract.
58
burden of proof for mental incapacity
rests with the party raising it - they must also show that the other party knew or ought reasonably to have known about the incapacity
59
Collateral contract
an additional contract between the third party and the promisor
60
How does a collateral contract operate?
A collateral contract is an exception to the doctrine of privity of contract - it gives the party under the other contract direct contractual rights against the promisor under a separate contract
61
Factors that increase likelihood of a collateral contract being found
if the promisor and the third party have communicated with each other and/or provided consideration
62
Where acceptance is communicated by post, the contract is formed as soon as the letter of acceptance is
properly posted (not read/received)
63
Important elements of a breach of contract claim
- Formation: offer and acceptance, consideration, ICLR - Contract terms: express terms, terms implied by common law and statute. - Termination: breach. - Remedies: damages, duty to mitigate. - Causation and remoteness.
64
Exceptions to the rule that ‘past consideration is not good consideration’
65
Rule in Pinnel's Case: an agreement between a creditor and a debtor that the creditor will simply accept part payment in full and final settlement of the full amount is
not binding on the creditor
66
If a creditor agrees to part-payment, what should the debtor do to ensure that the promise to pay less is BINDING?
they should give something in return (consideration) eg agree to pay a lesser amount in advance of the due date. This act amounts to fresh consideration and will bind the creditor. They cannot renege on their promise.
67
When does promissory estoppel apply?
promissory estoppel is an equitable, DISCRETIONARY, remedy that may apply to prevent the enforcement of strict legal rights in circumstances where it would be unfair (inequitable) for the promisor to renege on their promise
68
To use any equitable doctrine a party must have
‘clean hands'
69
With ongoing payments such as rent, the doctrine of promissory estoppel operates to suspend the strict legal right, which means the creditor can resume their right to full payment going forward by giving
reasonable notice. Note they cannot claim any back payments for the concessionary period.
70
What should you consider when faced with a scenario involving promises to pay less?
- Part payment of a debt is not consideration for a promise to accept less. - A common law exception? eg they provided practical benefit or did more. If so, the agreed variation is binding. - If not, can promissory estoppel be raised as a defence?
71
The presumption that there is no ICLR in social/domestic arrangements is
rebuttable
72
When could past consideration be binding?
if there was an implied promise to pay when contracting and that the promisee must always have assumed that they would be rewarded in some way for what they had done (eg employees being paid overtime)
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