L2: Formation of Contract
Thursday, 24 September 2020
13:42
A. DEFINITIONS (2.13-2.16)
Contract: Bilateral/ Multilateral Planned agreement on essentials of contract, in form demanded
by law, to perform on one/ both sides acts which are legal + possible, provided both parties
have capacity and intention to create legal obligations enforceable by courts.
Human beings / non-natural persons (companies) with ‘active’/ ‘transactional' capacity
may make/enter voluntary obligations
Contract/ unilateral obligation void if either party lacked capacity
Non-natural legal persons can only contract within powers given to entity by constituent
documents; otherwise ultra vires and void
Non-natural persons act through agency of natural person
1. Courts analyse actions to search for offer/contract proposal
2. Identify other parties acceptance
Unsatisfactory/ non-performance allows court claim (damages recoverable - determined
by courts dispute resolution function)
3 key things identify contract: B,C,D
B. OBJECTIVITY (2.17-2.21)
objective analysis of agreement/promise:
Law/ commercial contracts arranged by appearance of thinking/ actions (what would
reasonable person think ?)
In event no contract found + not able to sue but performance already conducted scots
law assumes contract formed + implied term individual would receive remuneration for
services
Offer + acceptance analysis is low value when acceptance and performance
simultaneous; purchasing newspaper, flagging down bus
can escape bad bargain consequences arguing not objectively agreed
consensus in idem: objectively test if ‘meeting of minds’ occurred
Analysis to see if party conduct manifests agreement which court can enforce
C. CERTAINTY (2.15-2.16)
agreement on all essential terms of contract otherwise unenforceable; lack of
certainty
Agreement to agree (head of negotiation/ memorandum of understanding); parties may
withdraw after negotiations; argued already reached sufficient clarity to be contract.
Essential terms to contract
1. Identification of parties
2. Subject matter of contract
3. Price for subject matter between parties
Sale of goods/ land (heritage):identify subject matter + price
Lease: parties, subjects, rents and duration
Words: certain not vague/ contradictory to be enforceable
No contract if essential term agreed but indivisible part of contract not agreed
Performance of contract paused if discrepancies until condition purified
D. INTENTION TO CREATE LEGAL RELATIONS (2.12)
No intention: not legally binding; Law sometimes assumes legal intent
Binding if intention in action not thought
Expressed exclusion of legal intent in clauses: 'no intent to create legal relations',
'binding in honour only', 'gentlemen's agreement': not contract
Where no binding intent until formal contract created: contracts no legal effect
social context/ between family or cohabitants: presumed no legal binding intent unless
expressed
Commercial context: intended to enter legal relations
Other context: court determines
Prolonged negotiations; expectation of eventual contract; not binding until signed
Binding obligation when unqualified acceptance received
Intention to enter binding legal relationship/bring about other legal effect determined
from party's statement/conduct as reasonably understood by other party
Thursday, 24 September 2020
13:42
A. DEFINITIONS (2.13-2.16)
Contract: Bilateral/ Multilateral Planned agreement on essentials of contract, in form demanded
by law, to perform on one/ both sides acts which are legal + possible, provided both parties
have capacity and intention to create legal obligations enforceable by courts.
Human beings / non-natural persons (companies) with ‘active’/ ‘transactional' capacity
may make/enter voluntary obligations
Contract/ unilateral obligation void if either party lacked capacity
Non-natural legal persons can only contract within powers given to entity by constituent
documents; otherwise ultra vires and void
Non-natural persons act through agency of natural person
1. Courts analyse actions to search for offer/contract proposal
2. Identify other parties acceptance
Unsatisfactory/ non-performance allows court claim (damages recoverable - determined
by courts dispute resolution function)
3 key things identify contract: B,C,D
B. OBJECTIVITY (2.17-2.21)
objective analysis of agreement/promise:
Law/ commercial contracts arranged by appearance of thinking/ actions (what would
reasonable person think ?)
In event no contract found + not able to sue but performance already conducted scots
law assumes contract formed + implied term individual would receive remuneration for
services
Offer + acceptance analysis is low value when acceptance and performance
simultaneous; purchasing newspaper, flagging down bus
can escape bad bargain consequences arguing not objectively agreed
consensus in idem: objectively test if ‘meeting of minds’ occurred
Analysis to see if party conduct manifests agreement which court can enforce
C. CERTAINTY (2.15-2.16)
agreement on all essential terms of contract otherwise unenforceable; lack of
certainty
Agreement to agree (head of negotiation/ memorandum of understanding); parties may
withdraw after negotiations; argued already reached sufficient clarity to be contract.
Essential terms to contract
1. Identification of parties
2. Subject matter of contract
3. Price for subject matter between parties
Sale of goods/ land (heritage):identify subject matter + price
Lease: parties, subjects, rents and duration
Words: certain not vague/ contradictory to be enforceable
No contract if essential term agreed but indivisible part of contract not agreed
Performance of contract paused if discrepancies until condition purified
D. INTENTION TO CREATE LEGAL RELATIONS (2.12)
No intention: not legally binding; Law sometimes assumes legal intent
Binding if intention in action not thought
Expressed exclusion of legal intent in clauses: 'no intent to create legal relations',
'binding in honour only', 'gentlemen's agreement': not contract
Where no binding intent until formal contract created: contracts no legal effect
social context/ between family or cohabitants: presumed no legal binding intent unless
expressed
Commercial context: intended to enter legal relations
Other context: court determines
Prolonged negotiations; expectation of eventual contract; not binding until signed
Binding obligation when unqualified acceptance received
Intention to enter binding legal relationship/bring about other legal effect determined
from party's statement/conduct as reasonably understood by other party
