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Formation of a valid contract - Coggle Diagram
Formation of a valid contract
Nature of a contract
Formation of a valid contract
A contract needs
An offer
Acceptance
Consideration
Intention
Contractual capacity
You must view the circumstances as a whole to discover whether there was a contract.
All contracts are agreements but not all agreements are contracts
Agreement enforceable by law
3 Types
Bilateral
Both parties promise to perform an action.
e.g. a promise from one party to sell and the other to buy.
Collateral
Can be spoken or written down
Secondary to the main contract but stands independently and separate.
It can be made with a third party
Reasons
Some terms need to be added to the main contract
There are errors in the main contract
The contracting parties are different
Unilateral
One party pays another party to perform an action
e.g. as a result of a reward or through advertisements
Carlill v The Carbolic Smokeball Co. Ltd 1893
The request acts both as the acceptance and the consideration for the promise.
You can only accept a unilateral offer for reward if you know of the offer.
The performance of the required action acts as acceptance, but this may be a continuing act which allows the offer to be revoked at any time before the act is completed.
Although an advertisement is usually an invitation to treat, if it requests the performance of an act it becomes an offer. A binding contract is formed once the act is performed.
For other contracts, acceptance must be communicated to the offeror - in a unilateral case the offeror waives this.
Offer and Acceptance
Offer
Must be
Precise
Capable of acceptance as it stands
Clear
Usually a question requiring an answer of acceptance or rejection.
Made
In writing
By conduct
Orally
Possible to be withdrawn at any time before it is accepted.
Invitations to treat
Items on shop shelves or in shop windows
Invitations to other people (shoppers) to make offers that can then be accepted
To distinguish, we should consider whether there is an intention to be bound.
Commonly occurring situations
Display of goods for sale
Statement of price
Advertisements
Auction sales
Revocation
A promise to keep an offer open isn't binding unless supported by consideration
Key principles
Communication can be made by a reliable third party
Unilateral offer cannot be withdrawn while the offeree is performing
Must be communicated to the offeree
Lapse of time
Counter offers
When an offer is accepted unconditionally, the contract is formed.
Death of one of the parties
Failure of a condition prcedent
Acceptance
4 key points
Is it an acceptance or a counter offer?
Is it an acceptance rather than a response or request for further information?
Does it correspond exactly with the rules of acceptance?
Has it been communicated correctly?
Mirror image rule
Silence
Postal rule
Emails
Application of the rules
Auction sales
Tenders by contract
Standard form contracts
Intention to create legal relations
Reasons for requirements
Rebuttable presumptions
In commercial agreements, there is a strong presumption that there is an intention to create a legal relationship
In social and domestic arrangements, the parties do not intend the agreements to be legally binding.
This means an assumption of fact accepted by the court unless proven otherwise
Social and domestic agreements
The vast majority aren't intended to be legally binding
3 main areas where the agreements tend to arise
husband and wife
children and parents
other social arrangements
Balfour v Balfour 1919 and Merritt v Merritt 1970
When families make contracts the courts need to look at the real purpose of the agreement to determine whether or not the agreement is legally binding.
Jones v Padavatton
Commercial agreements
Often involve large sums of money
Must have consistency and certainty
Strong presumption of intention to create legal relations but this can be rebutted if there is strong evidence.
The presumption applies when it is gratuitous in character
Edwards v Skyways Ltd 1964
Engagement to be married is no longer deemed to be an agreement that can be enforced by law as found in the Law Reform Act 1970
Consideration
Nature and function
Currie v Misa 1875 - Lush J said a valuable consideration may be a benefit accruing to one party or a forbearance undertaken by the other.
Dunlop v Selfridge Ltd 1915
Valid consideration types
Executory
Executed
Must be sufficient but need not be adequate
Past consideration
All consideration must come after the agreement to be valid
Re McArdle 1951
If there is an implied or expressed request to carry out the act earlier then past consideration may be enforced.
The later express promise secures the reward in relation to the earlier promise.
Consideration mustn't move from the promisee
Tweddle v Atkinson 1861
Privity of contract rule - someone can't sue on a contract to which they are not a party
Performance of existing duties
The performance of existing public or contractual duties doesn't amount to valid consideration
Collins v Godefroy 1831
Glasbrook Bros v Glamorgan County Council 1925
Stilk v Myrick 1809
Hartley v Ponsonby 1857
Part payment of debt
Part payment of a debt isn't valid consideration for a promise to forego the balance
Foakes v Beer 1884
D and C Builder Ltd v Rees 1965
There two notable exceptions where a lesser sum may amount to good consideration and full payment of the debt are
Accord and satisfaction
Where a contract is discharged in return for a different consideration from the original obligation
Promissory estoppel
This is the defence to a claim by a creditor for the remainder of the debt where part payment has been accepted.
Essential elements
There must be an existing contractual relationship
The claimant must have waived some of their rights under the contract
The rights were waived knowing that the defendant would rely on the waiver
The defendant relied on the promise to forego some of the debt.
Central London Property Trust Ltd v High Trees House Ltd 1947
Combe v Combe 1951
Capacity - minors only
Reasons for limitation and possible reform
The Family Law Reform Act 1969 reduced the age of a minor from 21 to 18 and made other changes to the law relating to them.
The law seeks to protect them from unscrupulous business people and others who may take advantage of them.
Categories of minors contracts
necessaries
minors should be allowed to enter into contracts
minors should pay for the goods and services that are supplied to them.
This is subject to the person as what is necessary for a prince isn't necessarily necessary for another child.
Chapple v Cooper 1844
Nash v Inman 1908
beneficial contracts of service
Education, training and employment
Clements v London and North Western Railway Company 1894
De Francesco v Barnum 1890
Doyle v White City Stadium Ltd 1935
voidable
Some contracts minors can enter into but repudiate within a reasonable time of reaching the age of 18
They often have some permanency and are known as recurring obligations. The main classes are...
Leases of property
Buying shares
Partnerships
Marriage settlements
Edwards v Carter 1893
Steinberg v Scala Ltd 1923
Remedies against minors
The Minors' Contracts Act 1987
States that
A contract made by a minor is unenforceable
Even though they may not e bound by the contract, the other party will be
If the minor has paid money under the contract, that is recoverable if no consideration has been made to them
When the minor is 18 they can confirm the contract if they wish
Ratification can be implied just by the minor continuing with the contract
Guarantees
In equity
Limits
the definition of necessary is very wide
A minor is bound in contract of employment if the contract is generally for their benefit
Some contracts are binding until the minor repudiates
A contract with a minor is effective to pass property to a minor and from a minor.