Contract Law Basics Lecture

These question-and-answer flashcards cover the key concepts, rules, and terminology from the lecture on contract law, including formation, interpretation, validity, breach, and remedies.

What is the legal definition of a contract?

An agreement between two or more persons that creates a legal obligation to do or not to do something.

Under the objective test, how do courts determine whether an agreement exists?

They look at the external appearance of agreement—what reasonable people would think was agreed—rather than the parties’ undisclosed intentions.

Why are contracts described as voluntary transactions?

Because parties of full capacity are generally free to decide the terms they wish, unless limited by factors such as duress or statutory requirements.

Give two examples of limits on contractual freedom.

1) Situations where entering a contract is mandatory. 2) Statutes that prescribe or prohibit specific terms.

List three things a contract does for the parties.

Creates legally enforceable rights, imposes legally enforceable obligations, and provides transferable property-type rights.

What are the two main categories of contracts based on formality?

Formal contracts (single document, multiple documents, or electronic formats) and simple contracts (no formal requirements, may even be oral).

Name the typical lifecycle stages of a contract (first four).

1) Negotiations, 2) Drafting, 3) Signing, 4) Performance/changes/claims.

What three elements are required for contract formation in common-law systems?

Intention to create legal relations, agreement (offer plus acceptance), and consideration.

How can intention to create legal relations be demonstrated?

By any clear means—verbal, written, or conduct—unless a specific mode of communication is required.

Define an offer in contract law.

A statement by one party expressing willingness to enter a contract on stated terms, made to a definite offeree or the public.

Must an offeree know about an offer to accept it?

Yes. No party can be bound by an offer of which they were unaware.

Give four ways an offer can terminate.

Expiry of specified time, lapse after reasonable time, failure of stated conditions, or rejection/counteroffer (others: death, withdrawal).

What is a counter-offer’s effect on the original offer?

It rejects the original offer, terminating it.

Define acceptance.

A final, unqualified assent by the offeree to all the terms of the offer, communicated or clearly indicated by conduct.

Why is silence generally not acceptance?

Because acceptance must normally be communicated to the offeror unless conduct clearly indicates assent or a postal rule applies.

What is the postal rule?

Acceptance by post is effective once properly posted, even if it never reaches the offeror, contrary to the usual requirement of receipt.

Explain ‘consideration’.

Something of value given or promised in exchange for a promise, making it enforceable; need not be money and must be sufficient but not necessarily adequate.

List four things that can serve as consideration.

Money, services, personal property, real property, or promises to act or refrain from acting.

Give two scenarios where a promise lacks consideration.

Promises of a gift (gratuitous), and promises based on past consideration or a pre-existing legal duty.

What factors affect the validity of consent?

Age (minor status) and mental capacity (legal incapacity, mental illness, intoxication).

How does mental incapacity usually affect contracts?

Contracts are void unless for the person’s benefit; guardians may bind or the contract may be ratified after capacity is regained.

State two key rules about contracts with minors.

Financial transactions are generally void, but contracts beneficial to a minor aged 16–17 can be binding; at 18 the minor may affirm or reject.

What is privity of contract?

Only parties to a contract can enforce its rights or be bound by its obligations; third parties cannot sue or be sued under it.

Distinguish contractual terms from pre-contractual statements.

Terms form part of the contract and create obligations; other statements (representations, opinions) may not carry contractual liability.

Why is ‘agreement to agree’ not a contract?

Because consensus requires sufficiently specific and ascertainable terms; an open promise to agree later lacks certainty.

What presumption applies to intention in business contracts?

Business agreements are presumed to create legal relations unless expressly stated otherwise (e.g., a non-binding MoU).

What are express terms?

Contract terms specifically stated by the parties, possibly spread over multiple documents and incorporated by reference.

Name two tests courts use to imply terms.

The officious bystander test (obvious term) and business efficacy test (necessary to make the contract workable).

Provide three common ways a contract ends by normal operation.

Expiration at fixed date, right to terminate exercised, or force majeure causing total impossibility.

Define termination for breach.

A party’s failure, refusal, or self-incapacitation to perform a significant contractual promise, giving the innocent party rights to end the contract.

What is the legal effect of a fundamental mistake?

It makes the contract voidable at the option of the mistaken party; trivial obvious errors can be mutually corrected.

When does fraud render a contract void?

When deceit by the other party (or their agent) was the main reason for entering the contract; third-party fraud voids the contract if the benefited party knew or should have known.

How is coercion treated in contract law?

Threat-induced contracts are voidable by the coerced party; courts consider factors like age and knowledge.

What is exploitation (undue influence)?

Unlawful influence exerted by a stronger party over a weaker one to secure a contract not in the weaker party’s best interest.

Explain the special ‘injustice’ rule for certain protected parties.

For the State, state agencies, minors, and mentally impaired persons, a deviation exceeding 20% from an estimated contract price can be deemed unjust if claimed within one year.

When is a contract’s subject matter void?

If performance is impossible, immoral, illegal, uncertain, or constitutes gambling; illegal provisions may be severed if the rest is lawful.

Differentiate between void and voidable contracts.

Void contracts never existed and cannot be affirmed; voidable contracts are valid until rescinded and may continue if the injured party chooses.

List four ways a contract can be dissolved.

Performance, mutual agreement, breach of an essential term, or force majeure causing full impossibility.

Identify the three dispute forums listed in the notes.

Domestic courts, regional bodies applying EU law, and international cross-border forums.

What three elements must the injured party prove to receive damages?

Actual loss caused by breach, legally recognizable type of loss, and loss not too remote from the breach.

On what principle are contract damages calculated?

Putting the claimant as nearly as possible in the financial position they would have occupied had the promise been fulfilled.

What is the purpose of an exclusion or limitation of liability clause?

To exclude or cap one party’s liability to a specified amount, provided the clause is part of a clear voluntary agreement.