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FORMATION OF A CONTRACT, PRIVITY OF CONTRACT AND RIGHTS OF THIRD PARTIES -…
FORMATION OF A CONTRACT
1. OFFER
Agreement needs one party (offeror) to make an offer to another (offeree) who accepts it unequivocallyMust be
- Clean and certian= 'may' not suffficient
- Show intention to be bound = objective test: what reasonable man would say Parties intended ('will' good indication)
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Termination
1. Rejection
- . Once rejected, CANNOT be accepted + takes effect once communicated to the offeror
Counter offer = accepting offer on new terms
- Rejecting 1st offer and making counter offer on different terms
Request for info = offeree can seek term clarification + see if offeror would change term > offer remains valid
2. Lapsea. By passage of time
- IF acceptance is not made within prescribed period OR
- IF no prescribed period > w/in reasonable time
b. Death of one of the parties
- Offeror dies = offeree knows > offer lapse / not know > valid
- Offeree dies = offer lapse
3. Revocation
- Offeror may withdraw offer at any time before acceptance but once accepted = offer is BOUND
a. Communication essential = revocation effective upon actual notice reaching offeree (if by post > effective once received)b. Indirect communication = if offeror has shown by words or conduct a clear intention to revoke their offer + notice has reached the offeree > effectivec. Revocation of unilateral offer = revocation is possible prior to completion of required act BUT if offeree has partly performed + is able to complete > offeror has implied obligation not to revoke offer once performance has commencedd. Revocation of unilateral offer to whole world = no requirement on those performing to communicate to offeror BUT offeror can revoke by taking reasonable steps to ensure those who read offer know about revocation
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Types of contract
Bilateral contract = both parties assume an obligation to each otherUnilateral contract = one party makes an offer or requiring act to be performed by another.
- NO mutual promises – only the person making an offer assumes an obligation and other party accepts it by performing act
2. ACCEPTANCE
1. Must be in response to an offer
- Only offeree can accept offer
- If made to world > acceptable by anyone with notice of offer
2. Must be unqualified
- Must corresond with offer term (mirror image rule)
- Communication is examined to see if offeree assented to terms
IF qualified = decided if counter offer / info request
3. Prescribed mode of acceptance
- Can be communicated in any manner BUT offer can ask for one + clearly state they will not be bound by any other methods
4. Must be communicated
- Acceptance applies from the moment it is communicated to offeror
- Silence CANNOT = acceptance
- 3P can communicate acceptance to offer if it has offeree's authority
- Unilateral contracts = performance is acceptance
EXCEPTION:
POSTAL RULE = acceptance is effective when posted (putting in post box / given to post office) NOT received
- Applies even where the acceptance is delayed or lost in the post
Not apply:
- If not contemplated that post will be used
- To letters revoking offers (only acceptance letters)
- If incorrectly addressed
- If disapplied by offeror (offeror sets aside postal rule)
Communication by instantaneous means = takes place when received
- If offeror's fault caused delay in receiving it = will not be able to rely on this rule
- Acceptance via emaail = effective when received (late on Friday > received money morning)
CERTAINTY
All material terms must be certain and complete for agreement to be enforced by court.To determine if the parties have reached an agreement: OBJECTIVE TEST =
- in all circumstances of the case, the parties have agreed all the terms they considered to be a precondition to creating legal relations
IF agreement is incomplete / uncertain > court may not be able to enforce it = e,g, hire purchase agreementHOWEVER courts try to enforce the agreement where possible
3. CONSIDERATION
Requires an exchange between the parties, can be:
Executory = parties make promises to each other to perform something in the future after the contract has been formed
Executed = at the time of formation of contract, the consideration has already been performed (e.g. unilateral tract)
1. Must not be past
Act that occurred prior to the promise to pay > cannot be consideration as it is not in exchange for that promise
EXCEPTION: prior act / service was provided by the promisee at promisor's request + always understood that payment would be made for that act or service.
a. Act must have been done at the promisor's request
b. Parties must have understood the act was to be rewarded by payment /conferment of benefit
c. Payment / benefits must have been legally enforceable if promised in advance
2. Must move from the promisee
Party who has not provided consideration may not bring an action to enforce a contract
3. Need not be adequate
Freedom of contract = courts will not interfere with a bargain freely reached by the parties.
NOT court's duty to assess the relative value of each party's contributions
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CAPACITY
If a person does not have capacity to enter into a contract > contract is unlikely to bind them.
Rules on capacity apply to:
1. Minors
Not bound even if the other party contracting does not know of this fact / the minor has lied about their age.
EXCEPTIONS binding minors:
a. Necessaries = minor bound by a contract to supply necessaries (goods suitable to their life / requirements) to them if contract is for their benefit + minor must pay reasonable price NOT actual
b. Contracts of employment, apprenticeship or education = minor bound if contract is for their benefit
UNLESS one exception applies > contract CANNOT be enforced against the minor BUT minor can enforce it against the other party.
IF minor ratifies a contract once they are 18 > contract will be binding
2. Mental incapacity and intoxicationPerson lacks capacity if he is unable to make a decision for himself in relation to the matter at time contract is made > whether impairment is permanent or temporary
- Impairment = unable to understand / retain / use relevant info + communicate decision
- Consequence = deciding one way / failure to make decision
Capacity must be checked for particular decisionEffect of entering into contract with a person lacking capacityPerson without capacity = liable to pay reasonable price for 'necessariesIn any other case = contract is binding unless the person claiming incapacity can establish:
a. they did not understand what they were doing
b. the other party knew that to be the case:Drunk person = liable to pay reasonable price for necessaries but NOT bound by any other contract they make
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