Law of Contract Practice Flashcards

Introduction to the Law of Contract

Definition: A contract is defined as a legally binding agreement between two or more parties.
Legal Standing: It is important to note that not all agreements are legally binding. For an agreement to ascend to the status of a legally bound contract, certain specific elements must be present.
Essential Elements of a Valid Contract: - Offer: A proposal by one party to another. - Acceptance: Approval of the proposal. - Justa Causa: A justifiable cause or consideration. - Intention to Create Legal Relations: The mutual intent to be bound by law. - Form of Contract: The legal requirements regarding how the contract is presented or documented.

Offer

Definition: An offer is a definite proposal made by one party to another, or a definite promise to be bound by specific and certain terms.
The Requirement of Definiteness: For an offer to be valid, it cannot be vague. - Example of a Vague (Invalid) Offer: "A" says to "B", "If your horse is lucky to win the race, I will pay you more." This proposal is invalid because the horse may be unable to win, making the terms indefinite and vague.
Key Terminology: - Offeror: The person who makes the offer (e.g., "A"). - Offeree: The person to whom the offer is directed (e.g., "B").

Rules Concerning Offers

Specific Person: An offer can be made to a specific individual. If "A" makes an offer specifically to "B", only "B" can accept it. A third party, "C", cannot accept the offer.
Specific Group: An offer can be directed at a specific group of persons. If "A" offers something to "B", "C", or "D", only members of that specific group can accept. A non-member, "E", cannot accept.
World at Large: An offer can be made to the general public. - Case Study: Carlill vs. Carbolic Smoke Balls Company Ltd.: - Facts: A company manufactured a new influenza medicine and advertised a $100\,\text{pounds}$ reward to anyone who contracted influenza after using the medicine as directed. The plaintiff, Carlill, used the medicine but still contracted influenza. She claimed the reward, but the company refused, claiming no valid contract existed because the offer was made to the world at large. - Court Ruling: The court held that an offer can be made to the world at large and does not need to be restricted to a specific person or group.
Communication of the Offer: An offer is only valid once it is communicated to the offeree and the offeree receives that information. - Rule of Precedence: If an offeree performs the requested act (acceptance) before the offer is communicated to them, no valid contract is formed because no valid offer existed before the offeree at the time of acceptance. - Example: "A" advertises a $Rs. 10,000/$ reward for finding a lost dog. "B" finds the dog and returns it to "A" without knowing about the advertisement. "B" later learns of the reward. In this case, "B" is not entitled to the reward because the offer was unknown to him at the time of his action.

Termination of an Offer

An offer can be terminated through several mechanisms:

Revocation: - Standard Rule: The offeror may revoke the offer at any time before it is accepted. Once accepted, the offer is irrevocable. - Revocation during "Open" Periods: An offeror can revoke an offer even if they previously agreed to keep it open for a specific duration, unless specific exceptions apply. - Exceptions to Revocation: - Consideration: If the promise to keep the offer open is supported by consideration (e.g., "B" gives "A" $Rs. 1,000/$ to keep an offer open for $7$ days). - Deed: If the promise is made via a Deed (a document attested by a notary public). Example: "A" offers to sell land to "B" and promises to keep the offer open for $02$ years under a deed. - Communication of Revocation: Revocation is only valid when communicated to and received by the offeree. - Timeline Example: "A" offers to "B" on $1/1/2015$ . "A" sends a revocation letter on $2/1/2015$ , which "B" receives on $5/1/2015$ . Meanwhile, on $4/1/2015$ , "B" accepts the offer without knowledge of the revocation. The revocation is invalid, and a contract is formed on $4/1/2015$ .
Rejection: - Express Rejection: The offeree rejects the offer in writing or orally. - Counteroffer (Indirect Rejection): Under the Mirror Image Rule, the offeree must accept the offer without any modifications. Any fresh offer or conditional acceptance is a counteroffer that terminates the original offer. - Case Study: Hyde vs. Wrench: "A" offered a property for $₤1000$ . "B" offered $₤950$ . "A" refused. "B" then tried to accept the original $₤1000$ . The court held that the offer of $₤950$ was a counteroffer that terminated the original $₤1000$ offer; "B"'s second attempt was a new offer which "A" could reject. - Conditional Acceptance: Accepting subject to conditions (e.g., Neal vs. Merrit, where an offer of $₤1000$ was met with an $₤80$ cheque and a promise of installments; the court ruled this was a counteroffer).
Lapse of Time: - An offer terminates at the end of a stated period (e.g., if kept open for $7$ days, acceptance on the $8\text{th}$ day is invalid). - If no period is stated, the offer terminates after a reasonable period. - Case Study: Ramsgate Victoria Hotel vs. Montifiore: "A" applied for shares. The company accepted after $05$ months. The court held that $5$ months exceeded a reasonable time, meaning the offer had terminated by lapse of time.

Invitation to Offer (Invitation to Treat)

Distinction: An invitation is not an offer; accepting an invitation does not result in an agreement, but merely starts negotiations for a future contract.
Examples of Invitations: 1. Shop Window Displays: Goods displayed with a price tag are invitations. The customer making a demand is the offeror; the shopkeeper is free to accept or reject (Fisher vs. Bell). 2. Self-Service Shelves: Goods on shelves in a supermarket are invitations. The customer placing goods on the cashier’s desk is the offer. The cashier receiving money is the acceptance (Pharmaceutical Society of Great Britain vs. Boots Cash Chemist). 3. Advertisements for Sale: Generally treated as invitations (Partridge vs. Crittenden). 4. Auction Advertisements: An advertisement for an auction is an invitation. Bids are offers, and the auctioneer accepts by the fall of the hammer (Harris vs. Nickerson).
Exceptions: Advertisements regarding rewards for performing activities are treated as offers (e.g., Carlill vs. Carbolic Smoke Balls Company Ltd.).

Acceptance

Definition: The unconditional approval of the offer by the offeree. Once accepted, it is irrevocable.
Non-Acceptance: Varying terms or conditional acceptance are treated as counteroffers, not acceptances.
Rules of Acceptance: 1. Silence: Silence cannot be treated as acceptance. - Case Study: Felthouse vs. Bindley: "A" wrote to "B" saying, "If I hear no more… I consider the horse is mine." "B" remained silent. The court held that acceptance requires a positive act. 2. Communication: Acceptance is valid only when communicated to and received by the offeror.
Exceptions to Communication Rules: - Postal Rule: If the offeror implies or expresses that acceptance should be by post, the acceptance is effective the moment the letter is posted, even if it is delayed or lost. (Example: Letter posted on day $3$ but received on day $6$ ; contract formed on day $3$ ). - Unilateral Contracts: Performance of the requested activity constitutes acceptance. Communication is not compulsory; acceptance is effective once the activity is performed.

Justa Causa (Value / Consideration)

English Law: Requires Valuable Consideration, which is something of value in the eyes of the law (a benefit to the defendant or detriment to the plaintiff).
Roman-Dutch Law: Requires Justa Causa, which consists of either (1) valuable consideration or (2) Moral Obligation.
Moral Obligation: Sufficient to create a valid contract in Roman-Dutch law (e.g., a gift from parents to a child based on affection).

Intention to Create Legal Relations

Core Requirement: Parties must intend to create a legally binding agreement that allows for legal action if breached.
Domestic Contracts: There is a presumption that no such intention exists. - **Case Study: *Balfour vs. Balfour: A husband promised his wife $30\,\text{pounds}$ per month. When he defaulted, the court ruled there was no valid contract as they did not intend to create legal relations. - **Case Study: *Merritt vs. Merritt: A separated husband agreed in writing to pay his wife and transfer home ownership after mortgage completion. The court held the presumption was rebutted due to the circumstances and the written promise.
Commercial Contracts: There is a presumption that an intention to create legal relations exists.

Form of Contract

General Rule: No specific form is compulsory. Contracts can be written, oral, via deed, or implied.
Statutory Exceptions: Some laws require specific forms. - Example: Under Section $18$ of the Prevention of Fraud Ordinance, if a partnership's opening capital exceeds $Rs. 1,000/$ , the agreement must be in writing. If the capital is less, any form is acceptable.

Terms of the Contract

Definition: Promises or understandings within the contract.
Express Terms: Agreed upon orally or in writing.
Implied Terms: Terms attributed to the contract to give effect to the parties' intentions. - Implied by Court: Based on the nature of the contract (e.g., a contract for a car implies the car has an engine). - Implied by Trade Customs: (e.g., returning a glass bottle to a seller after consuming the beverage). - Implied by Statute: (e.g., terms in the Sale of Goods Ordinance for buyer protection).

Conditions and Warranties

Conditions: Vital terms going to the root of the contract. - Remedies for Breach: (1) Terminate the contract and (2) claim damages. - Case Study: Pousard vs. Spiers: A singer missed the opening night and follows. This was held to be a breach of condition.
Warranties: Minor or less important terms. - Remedies for Breach: Only claiming damages. - Case Study: Bettine vs. Guye: A singer arrived three days late for rehearsals (but early for the show). This was held to be a breach of warranty.

Void, Voidable, and Unenforceable Contracts

Void Contracts: Completely null from the beginning (e.g., contracts for illegal purposes).
Voidable Contracts: Valid until declared invalid by a court at the option of a party. Causes include: - Party is a minor, intoxicated, or insane. - Duress, undue influence, mistake, or misrepresentation.
Unenforceable Contracts: Valid agreements that the court will not enforce due to a technical error or lack of statutory formalities (e.g., a partnership agreement that fails to follow Section $18$ of the Prevention of Frauds Ordinance).

Termination of a Contract

By Agreement: Both parties agree to end the contract regardless of performance.
By Performance: Both parties fulfill their duties.
By Breach: If a condition is breached, the innocent party may terminate.
By Frustration: Duties cannot be performed due to events beyond the parties' control (e.g., natural disasters, "Acts of God").

Remedies for Breach

Claiming Damages: Available for breach of conditions or warranties.
Discharge the Contract: Available only for breach of a condition.
Specific Performance: A court order forcing the party to fulfill their obligation. Exceptions: - When damages are sufficient. - If a minor is involved. - If the contract spans a long period. - Contracts for lending money.
Injunction: A court order preventing a party from performing a specific act.
Payment for Work Done (Quantum Meruit): Claiming based on the worth of the quantity of work completed. This is an alternative to claiming damages, applicable when one party has performed partially before termination.