3.) Contract Law Flashcards
1
Q
What is a contract?
A
An agreement, made between two or more persons, giving rise to obligations on the part of both parties, which are usually enforceable or recognised by law
It’s not merely an exchange of promises, both having given something, and having promised to give something in the future
The persons referred to in the above definition are usually called parties to the contract and are identified by the terms offeror and offeree. The offeror (the person wanting the goods) makes an offer to the offeree (the person who owns the goods)
The important thing to remember is that the basis of contract law is what the parties have themselves agreed. To a degree, the parties make the rules of the contract themselves, and providing they don’t infringe the law itself, they can make any terms or conditions they wish
2
Q
A contract is an agreement, made between two or more persons, giving rise to obligations on the part of both parties, which are usually enforceable or recognised by law - Define the persons referred to
A
The persons referred to in the above definition are usually called parties to the contract and are identified by the terms offeror and offeree. The offeror (the person wanting the goods) makes an offer to the offeree (the person who owns the goods)
3
Q
Define the offeror in an agreement
A
The person who WANTS the goods
Regarding ACCEPTANCE of a contract, acceptance must be communicated back to the OFFEROR
4
Q
Define the offeree in an agreement
A
The person who OWNS the goods
5
Q
What are the essential elements to form a valid and enforceable contract?
A
REMEMBER - OFFER AND ACCEPTANCE, INTENTION TO CREATE RELATIONS, CONTRACTUAL, CONSIDERATION, CERTAINTY and NOT CONTRARY
There must be an offer and acceptance (which is an agreement)
There must be an intention to create legal relations (the contract will bind the parties, who will then be able to sue and be sued)
The parties must have contractual capacity (that is, legal capacity)
There must be consideration (unless under seal)
There must be certainty (the parties must know exactly what they have agreed)
The contract must not be contrary to public policy
In the absence of some or all of these requirements, the contract may be void, voidable or unenforceable
6
Q
What if a contract lacks some or all of the essential elements to make it valid and enforceable?
A
In the absence of some or all of the requirements, the contract may be void, voidable or unenforceable (depending on the materiality of the missing requirements):
X A void contract has no binding effect
X A voidable contract is binding, but one party, usually the innocent one, has the right to set it aside
X An unenforceable contract is valid, but cannot be enforced by one party against the other
7
Q
What are the two types of terms (either express or implied) that make up a contract?
A
Conditions
Warranties
8
Q
Describe conditions, one of the two types of terms (either express or implied) that make up a contract
A
Important terms that form the basis of the whole contract
Upon a breach of CONDITIONS, the innocent party can either:
repudiate the whole contract
Affirm the contract
9
Q
Describe warranties, one of the two types of terms (either express or implied) that make up a contract, and the options available to an innocent party in a contract upon a breach of warranty
A
Less important terms that are incidental to the main purpose of the contract
Upon a breach of WARRANTY, an innocent party must treat the contract as continuing, but can claim damages
10
Q
What are the two clauses that make up a contract?
A
Express terms, aka express conditions and warranties
Implied terms, aka implied conditions and warranties
11
Q
Describe an offer, in relation to offer and acceptance
A
An offer is a proposition put by one person(s) to another with an intention that if accepted, it will be legally binding.
An offer must be sufficiently definite in order for it to be capable of being accepted by the offeree
An offer must be carefully distinguished from an invitation to treat (or invitations to other persons to make an offer)
An offer can be made to an individual (a bilateral contract) or the world at large (a unilateral contract)
Regarding a famous example of the law’s ruling in relation to rules relating to an offer, note the case Carlill vs carbolic smoke ball company (1892)
Note that rewards are often offers, e.g. a poster for a lost cat
12
Q
Describe the case Carlill vs carbolic smoke ball company (1892)
A
This case provides an example of rules relating to an offer, specifically newspaper adverts
In the case Carlill vs carbolic smoke ball company (1892), it was argued that an effective offer could not be made to the public at large
The company were the proprietors of a medical preparation called the carbolic smoke ball, and they issued an advert in which they offered to pay £100 to anyone that caught flu after using the product correctly
The plaintiff, Mrs Carlill bought the smoke ball and used it as prescribed, but still caught the flu.
She successfully sued for the £100, after the judge ruled that such a contract was valid
13
Q
Describe an invitation to treat, in relation to offer and acceptance
A
A statement inviting offers/an invitation to enter negotiations (an offer to make an offer) - its objective is if the party accepts a proposition, there will be no contract at this stage. As such, the acceptance of an invitation to treat doesn’t create an agreement
Regarding a famous case relating to an invitation to treat, note the case of the pharmaceutical society of Great Britain vs Boots cash chemists (southern) limited 1953
14
Q
Describe the case pharmaceutical society of Great Britain vs Boots cash chemists (southern) limited 1953
A
An example of a case relating to an invitation to treat
Boots adapted on of its shops into a self service system
The case came to court to determine at which point a sale is made (offer and acceptance), as in this case the sale of the poison strychnine was only permitted under the safe supervision of a qualified pharmacist
The plaintiffs submitted that as soon as the item was in the basket, then the offer had been accepted, and this was therefore done before the pharmacist could intervene
The court held that by merely picking up the item didn’t make the sale, the contract was made at the till when the buyer offers to buy, and the acceptance to sell is the process of taking the money. The pharmacist had undertaken the transaction at this stage
15
Q
Describe advertisements, in relation to offer and acceptance
A
Adverts are usually construed as an invite to treat, as no obligations are agreed at that time. This allows the seller advertising his goods the ability to withdraw them or to change them without giving notice to potential buyers
The only contradiction to this ruling was in the case of Carlill vs carbolic smoke ball (1892), in which the defendants had deposited £1,000 to deal with responses to their advert, which evidenced their intention to be legally bound
16
Q
Describe goods in shop windows, in relation to offer and acceptance
A
These goods are on display to invite offers to buy, but the shopkeeper has no obligation to accept the offer, and to sell the goods at the price stipulated
Most adverts are designed to encourage people to buy particular products, and/or services. However, bear in mind that any claims made may create legally binding promises, as in the case of Carlill vs carbolic smoke ball case (1892)
17
Q
Describe auctions, in relation to offer and acceptance
A
In Payne vs cave (1789), the bids are merely offers made by the bidders, and it’s only when the hammer comes down that the winning offer will be deemed to have been accepted by the auctioneer
18
Q
When can silence amount to acceptance?
A
Silence cannot amount to acceptance, except by express prior consent, e.g. If I haven’t heard back from you within seven days
19
Q
Describe the case Adams vs Lindsell 1818
A
This case provides an example of the postal rule
The case involved two parties in the sale of wool
On 2 September, the defendants wrote to the plaintiffs offering to sell them certain fleeces of wool, and requiring an answer by post. The defendants misdirected the letter so that the plaintiffs didn’t receive it until 5 September
The plaintiffs posted their acceptance on the same day, but it wasn’t received until 9 September. Meanwhile, on 8 September, the defendants, not having received an answer by 7 September as expected, sold the wool to someone else
The defendants argued that there couldn’t be a binding contract until the answer was actually received, and until then they were free to sell the wool to other buyers
The judge said that if true, it would be impossible to complete any contract through the post: if the defendants weren’t bound by their offer until the answer was received, then the plaintiffs wouldn’t be bound until they’d received word that the defendants had received their acceptance, and this could go on forever.
Instead, it was considered that the offeree was making the offer to the plaintiffs during every moment that the letter was in the post
The postal rule won’t apply if the letter wasn’t properly delivered, or handed to a postman only authorised to deliver, and therefore not authorised to accept letters
Where the offer excluded the postal rule, I.e. notice in writing means that the acceptance must reach the offeror
20
Q
Describe conditional assent and counter offer, an example of acceptance
A
Acceptance must be unconditional and absolute, excepting when the acceptance is subject to contract
A counter offer is a rejection of the original offer, and in some cases where the counter offer introduces a new term, the original offer is cancelled
An example of conditional assent and counter offer is the case Hyde vs wrench 1840
21
Q
Describe the case Hyde vs wrench 1840
A
This case is an example of the law’s ruling in relation to conditional assent and counter offer, an example of acceptance
In Hyde vs wrench 1840, the defendant offered to sell an estate to the plaintiff for £1,000
The plaintiff made an offer of £950, but was rejected by the defendant. The plaintiff then wrote to say that he was prepared to pay the full £1,000
It was held that no such contract existed - the offer was no longer open because the counter offer had destroyed it
22
Q
Describe request for information, an example of acceptance
A
This doesn’t destroy the offer, but attempts to clarify matters. It can be difficult to determine whether a statement from the offeree to the offeror regarding the offeree’s offer is simply a request for information, or whether the offeree’s statement is a counter offer
In the end, the test being applied will be the intention of the offeree
Request for evidence, in relation to acceptance, is evidenced in the case Harvey vs facey (1893)
23
Q
Describe the case Harvey vs facey (1893)
A
This case provides an example of request for information, an example of acceptance
The plaintiff telegraphed the defendant asking what the lowest price would be for bumper hall pen, and the defendant telegraphed back the lowest price. The plaintiff telegraphed back that he would buy for that agreed price
It was held that the second telegraph was only information, not an offer to sell, only an indication of the price
24
Q
Describe revocations of offer, an example of acceptance
A
The general rule is that an offer may be revoked at any time before it has been accepted, as per the case of Payne vs cave
25
Describe effect of death of a party, an example of acceptance
The effect of death would appear to vary, according to the type of contract in question, whether the death is that of the offeror or the offeree, and whether death takes place before or after acceptance:
Death of offeror before acceptance, if a man who makes an offer dies: the offer cannot be completed after he is dead
Death or the offeree before acceptance: once the offeree is dead, there's no offer to be accepted. His executors cannot accept the offer in his stead
Death of parties after acceptance: death after acceptance usually has no effect, unless the contract was for personal services, when the liability under the contract ceases
26
Define consideration
Consideration is essential to the formation of any contract not made under seal, and was defined by Currie vs misa (1875) as:
Some right, interest, profit or benefit accruing to the party, or some forebearance, detriment, loss or responsibility give, suffered or undertaken by the other
Paying, or promising to pay, money in return for the supply of goods or services constitutes the most common form of consideration
27
Describe the rule that 'consideration must move from the promise (privity of contract)', one of the rules the courts have developed regarding consideration
Only a person who's provided consideration in return for a promise may sue on that promise.
In tweddle vs Atkinson (1861), a man agreed with tweddle that each of them would pay tweddle's son, who was the man's prospective son in law. When the son in law sued for nonfulfillment of the promise, it failed because no consideration had moved from him, the contract being between the man and tweddle
28
Describe the case tweddle vs Atkinson (1861)
This case helps outline the rule 'consideration must move from the promise (privity of contract)', a rule the courts have developed regarding consideration
In tweddle vs Atkinson (1861), a man agreed with tweddle that each of them would pay tweddle's son, who was the man's prospective son in law.
When the son in law sued for nonfulfillment of the promise, it failed because no consideration had moved from him, the contract being between the man and tweddle
Therefore, only the people making the contract can enforce it - it was the son in law who brought to the case to court, and couldn't enforce it, as only the original men had the power to do so (I.e. one of the original men would have been able to successfully take the other to court for non-payment)
29
Describe the rule that 'consideration need not be adequate', one of the rules the courts have developed regarding consideration
Consideration need not be adequate, but must have some value, however slight.
For example, a house could be transferred from me person to another for a peppercorn
There's no requirement that the bargain must be balanced, if it's freely entered into.
In Chappell vs nestle co ltd (1960), the House of Lords held that used chocolate wrappers were part of the consideration for the purchase of a gramophone record
Note that, in this context, 'adequate' means that the consideration is viable, but that 'sufficient' implies that the consideration is real, and not an illusion, e.g. a handful of air for a car
30
Describe the case Chappell vs nestle co ltd (1960)
This case helps outline the rule 'consideration need not be adequate', a rule the courts have developed regarding consideration
In Chappell vs nestle co ltd (1960), Nestle had an offer whereby if you sent in three chocolate wrappers, and some money, they'd send you a gramophone record.
Chappel took Nestle to court, claiming that they should accept offers which were JUST money, as well
Nestle won the case, as the House of Lords held that used chocolate wrappers were part of the consideration for the purchase of a gramophone record
31
Describe the rule that 'past consideration is no consideration in law', one of the rules the courts have developed regarding consideration
The promises between parties must be promises to do something immediately or in the future. A promise regarding something done in the past is not good for consideration. In other words, you can't make contracts relying on information that's given AFTER the deal/work has been completed
In Re McArdle (1951), a woman carried out work on a house jointly owned by several family members. After the work had been completed, her relatives signed a document promising to pay her for the work. It was held that she couldn't recover the money as her consideration was past, unless this was part of the terms set down in the contract, e.g. in consideration of you having...
Another aspect of this rule is that new terms can't be added to a contract after it's been concluded. In Roscorla vs Thomas (1842), P purchase a horse from D. After the sale was complete, D gave an understanding that the horse wasn't vicious, which proved to be wrong. P sued on this undertaking. He failed since his consideration was in the past. The act put forward as consideration, I.e. the payment of the pricd, was complete before the undertaking was given. P therefore gave nothing new in return for the undertaking. It's impossible to sue in a 'something for nothing' situation
32
Describe the case Re McArdle (1951)
This case outlines the rule 'past consideration is no consideration in law', a rule the courts have developed regarding consideration
In Re McArdle (1951), a woman carried out work on a house jointly owned by several family members. After the work had been completed, her relatives signed a document promising to pay her for the work. It was held that she couldn't recover the money as her consideration was past, unless this was part of the terms set down in the contract, e.g.vin consideration of you having...
33
Describe the case Roscorla vs Thomas (1842) and its significance
This case relates to the rule 'past consideration is no consideration in law', one of the rules the courts have developed regarding consideration
New terms can't be added to a contract after it's been concluded
In Roscorla vs Thomas (1842), P purchase a horse from D. After the sale was complete, D gave an understanding that the horse wasn't vicious, which proved to be wrong. P sued on this undertaking. He failed since his consideration was in the past. The act put forward as consideration, I.e. the payment of the pricd, was complete before the undertaking was given. P therefore gave nothing new in return for the undertaking. It's impossible to sue in a 'something for nothing' situation
34
Describe the rule that ' consideration must be legal', one of the rules the courts have developed regarding consideration
The agreement between parties must be within both civil and criminal law
35
Describe the rule that ' consideration must not be something which one party is already bound to do as a matter of duty or contract', one of the rules the courts have developed regarding consideration
If an organisation such as a fiduciary (trustee) has a duty to do something, that duty can't be raised as consideration.
Consideration will only arise if the organisation exceeds their duties
36
Describe the rule over 'whether part payment of debts is an adequate consideration ', one of the rules the courts have developed regarding consideration
The general rule is that the creditor isn't obliged to accept it
Poems else case explains this as:
"Payment of a lesser sum on the day it's due in satisfaction of a greater sum cannot be any satisfaction for the whole"
The exception to this rule is promissory estoppel, which makes a promise binding in the absence of consideration. Where the promise is made to another that he will accept less than full performance of the contract, he will not be allowed to go back on this promise by suing later on, and that he will be estopped (prevented) from doing so
An example of this is the high trees case (1947) - the landlords of a block of flats in London agreed to pay half rent from the tenants due to wartime conditions. After the war, full rent was payable again but the landlords were estopped from demanding the balance of the reduced rent
37
Define and describe promissory estoppel
A creditor isn't obliged to accept part payment payment of a debt, instead of the full amount
Pemsels case describes this as "payment of a lesser sum on the day it's due in satisfaction of a greater sum cannot be any satisfaction for the whole
The exception to this rule is promissory estoppel, which makes a promise binding in the absence of consideration. Where the promise is made to another that he will accept less than full performance of the contract, he will not be allowed to go back on this promise by suing later on, and that he will be estopped (prevented) from doing so
An example of this is the high trees case (1947) - the landlords of a block of flats in London agreed to pay half rent from the tenants due to wartime conditions. After the war, full rent was payable again but the landlords were estopped from demanding the balance of the reduced rent
38
Describe the rule regarding 'executed and executory consideration', one of the rules the courts have developed regarding consideration
A contract is said to be executed when one or both parties have done all that the contract requires
For example:
If A and B agree to exchange A's car for B's motorbike, and it's done straight away, this is executed
A contract is said to be executory when the obligations of one or both parties have yet to be completed
For example:
Alternatively, if A and B agree to do the exchange next week, then it is executory
39
Describe intention to create legal relations, including the two general rules
If the parties didn't intend the agreement to be legally binding, then there will be no contract although there may be an offer, acceptance and consideration.
The law won't recognise the existence of a contract simply because of the presence of mutual promises
Some agreements aren't meant to be legally binding, such as:
To offer a friend a meal is not to invite litigation
There are two general rules:
X Social/domestic agreements AREN'T intended to be legally binding
X Commercial agreements ARE presumed to be
For example, where a husband arranges for his wife to have a monthly allowance for her personal enjoyment, this will not usually be taken to contemplate legal relations
Balfour vs Balfour (1919) is the authority for this. D was a civil servant stationed abroad. His wife said that while they were both on leave in England, and because she was ill and couldn't accompany him, he had promised to pay her a monthly allowance as maintenance while they were apart, she sued for breach of this agreement, but her action failed. This relied on lack of intention
Mr B promised to pay his wife £30 per month.
Mr B had to return to Ceylon, but his wife remained in England for medical reasons
The couple later separated
Mrs B claimed £30 per month, pursuant to Mr B's promise
Mrs B could have been successful in her claim, had the agreement been made outside marriage (because they were married when the agreement was made, it was seen as a domestic agreement)
Decision -
An agreement to pay £30 existed
The parties hadn't intended it to be legally binding
There's a presumption that domestic arrangements aren't intended to finish up in court
Another example of a case where the parties expressly deny any intention to be legally bound was evidenced in Jones vs Vernon's pools ltd (1938). The judges appear to recognise that pool companies are particularly susceptible to fraud by those who would conceal late entries
Vernon ran a football pools (like combination betting slips, pick the winners and post in the coupon) company in the UK
During a dispute, the court had to decide whether a contractual relationship existed between Vernon's pools and each entrant
There was a clause on the back of the betting slip that said the contract wasn't legally binding. As a result, the court ruled in favour of the company
Reasoning for the decision:
Because the relationship was clearly commercial, there was a presumption that the relationship was
binding
However, the court held that the clause in the coupon was sufficient to rebut the presumption, meaning that there was no contract between Vernon's pools and the entrants
40
Describe the case of Balfour vs Balfour (1919)
Demonstrates one of the two rules of intention to create legal relations (that social/domestic agreements aren't intended to be legally binding)
D was a civil servant stationed abroad. His wife said that while they were both on leave in England, and because she was ill and couldn't accompany him, he had promised to pay her a monthly allowance as maintenance while they were apart, she sued for breach of this agreement, but her action failed. This relied on lack of intention
Mr B promised to pay his wife £30 per month
Mr B had to return to Ceylon, but his wife remained in England for medical reasons
The couple later separated
Mrs B claimed £30 per month, pursuant to Mr B's promise
Mrs B could have been successful in her claim, had the agreement been made outside marriage (because they were married when the agreement was made, it was seen as a domestic agreement)
Decision -
An agreement to pay £30 existed
The parties hadn't intended it to be legally binding
There's a presumption that domestic arrangements aren't intended to finish up in court
41
Describe the significance of the case Jones vs Vernon's pools ltd (1938)
A case relating to intention to create legal relations, in this instance via commercial agreements
An example of a case where the parties expressly deny any intention to be legally bound was evidenced in Jones vs Vernon's pools ltd (1938).
The judges appear to recognise that pool companies are particularly susceptible to fraud by those who would conceal late entries
Vernon ran a football pools (like combination betting slips, pick the winners and post in the coupon) company in the UK
During a dispute, the court had to decide whether a contractual relationship existed between Vernon's pools and each entrant
There was a clause on the back of the betting slip that said the contract wasn't legally binding. As a result, the court ruled in favour of the company
Reasoning for the decision:
Because the relationship was clearly commercial, there was a presumption that the relationship was
binding
However, the court held that the clause in the coupon was sufficient to rebut the presumption, meaning that there was no contract between Vernon's pools and the entrants
42
Describe a minor's capacity to enter into a contract
Persons under the age of majority (usually 18) have restricted capacity. They will be bound for purchases of goods, which are classed as necessities or for contract's for the minor's benefit, such as contracts of employment or apprenticeship
Food, clothes and lodging are regarded as necessities, but educational books, medical attention, burial of a minor's wife, legal advice and even some luxury articles may be considered necessities
For example, Nash vs Inman (1908), or the waistcoats case. The plaintiff was a Savile row tailor and the defendant was an infant undergraduate at trinity college Cambridge. The plaintiff sent his agent to sell items of clothes including eleven waistcoats, hence its common name. Payment wasn't forthcoming, so the tailor sued for repayment of the monies due. The court held that such waistcoats would indeed constitute necessities when considered in line with the defendant's station in life. However, the claim failed, as the tailor hadn't established that the defendant needed the waistcoats, as his father adequately maintained him.
Waistcoats WERE part of the uniform at Trinity College, Cambridge but the plaintiff hadn't made sure that the defendant actually needed the items
43
Describe the case Nash vs Inman (1908), or the waistcoat case
An example of a case involving a minor's capacity to enter into a contract
The plaintiff was a Savile row tailor and the defendant was an infant undergraduate at trinity college Cambridge.
The plaintiff sent his agent to sell items of clothes including eleven waistcoats, hence its common name. Payment wasn't forthcoming, so the tailor sued for repayment of the monies due.
The court held that such waistcoats would indeed constitute necessities when considered in line with the defendant's station in life. However, the claim failed, as the tailor hadn't established that the defendant needed the waistcoats, as his father adequately maintained him.
Waistcoats WERE part of the uniform at Trinity College, Cambridge but the plaintiff hadn't made sure that the defendant actually needed the items
44
Describe the capacity of corporate bodies to enter into a contract
In theory, a company can only make contracts, which are within their object clause, as stated within its memorandum of association
45
Describe an alien's capacity to enter into a contract
Aliens usually have full capacity, but cannot acquire ownership of a British ship, unless as a member of a corporate body
However, contracts with enemy aliens during the period of hostilities are considered illegal and void. This would also encompass British citizens voluntarily resident or carrying on a business in the enemy country. The test isn't nationality, but the place where the person resides and carries on business
Contracts which are agreed prior to war are cancelled, with some contracts being enforced after hostilities have ceased. Therefore, a debt due under a contract before the outbreak of war would survive the hostilities, and be enforceable on the return of peace
46
Describe the capacity of persons suffering from mental disorders to enter into a contract
Contracts made by a person of unsound mind are valid, but if the other party knew he was contracting with a person who, due to the unsoundness of his mind, couldn't understand the nature of the contract, then the contract is voidable at the option of the insane party
The person of unsound mind must prove:
X The unsoundness of mind at the time of the contract, and
X The other party knew of it
Further, a contract made during a period of unsound mind can be ratified during a lucid interval
For example, if the person was drunk at the time the contract was made, it is voidable if it can prove that the two rules above apply, but the contract can also be ratified
Persons committed under the mental health act cannot personally make a valid contract, though the court can make a contract on their behalf
47
Describe utmost good faith (uberrimae fidei), in relation to making two parties making a contract
There's no obligation on a contracting party to enlighten the other party, even when he knows or suspects there's a misapprehension. For example, X offers to sell a watch to Y, and Y, thinking it is gold, offers £100. X, knowing the watch is only worth £10, accepts Y's offer without enlightening him of the true value of the watch
The essential maxim (principle) in these cases is caveat emptor (let the buyer beware). This is a harsh rule that's been modified in certain circumstances by the supply of goods (implied terms act) 1973 and other statutes such as the consumer credit act 1974
However, there are certain contracts in which disclosure of material facts is required by law. Contracts of insurance and/or assurance are examples where the details need to be disclosed in order to obtain appropriate cover and failure to disclose places the other party under a misrepresentation of the true risk and therefore the premium (or consideration) is inadequate and the contract is voidable at the option of the insurer
48
Define vitiating factors
Vitiating factors have an impact on the effect of the contract, and may render it void, voidable, or valid but unenforceable.
Vitiating factors are:
Mistake
Misrepresentation
Duress and undue influence
Illegality and contrary to public policy
49
Describe the case Lloyds vs Bundy (1975)
An example of a party using duress and undue influence, a vitiating factor, to pressure another party to complete a contract
Lloyds vs Bundy (1975) is an example of a case in which a bank has been shown to exert pressure on a customer to sign documents, which would place them in a financially worse situation:
The plaintiff was an elderly farmer who'd guaranteed his son's account and supported this guarantee with the deeds of his farm. It was held that the bank had failed in its fiduciary duty by not allowing the farmer the opportunity to obtain independent legal advice. The bank manager by visiting the farm had used undue pressure to obtain the deeds and the signature. An additional problem in this particular case was the conflict of interest, as the bank knowingly induced the signature when they had little prospect of being repaid. Both the father and the son banked with Lloyds, and the bank owed a duty of care to each of them separately
Barclays vs o'brien updated the Bundy case and procedures so that all financial service providers are now obliged to ensure that clients seek independent advice prior to entering into any contract, and provide proof that they've done so
50
Describe a contract being illegal and contrary to public policy, a vitiating factor, I.e. factors that have an impact on the effect of the contract, and may render it void, voidable, or valid but unenforceable
Illegality - The courts won't enforce contacts which are prohibited by statute, or contracts to commit crimes or civil wrongs
Contracts contrary to public policy - these contracts aren't prohibited by statute nor are they illegal, but they cannot be enforced because they're contrary to public policy
The most important of these are contracts in restraint of trade, which is a contract, which restricts anyone freely exercising their trade or profession. These contracts are prima facie void and will only be binding if reasonable
When examining such contracts, the court attempts to balance two conflicting interests:
The interest of the parties to be able to make such a contract
Any restraint of trade is likely to be against the public interest, since it will give them less choice or bargaining power
51
What are the four methods for discharging a contract, I.e. Ways by which rights and obligations existing under a contract may come to an end
Performance
Agreement
Frustration
Breach
52
Describe the case of Taylor vs Caldwell (1863)
An example of frustration, one of the four methods for discharging a contract
Caldwell agreed to let out a music hall to Taylor for four days. However, the music hall accidentally burnt down before the first date.
Taylor claimed damages, alleging that Caldwell had broken the contract. However, it was held that Caldwell was discharged from his obligation when the hall burnt down, the contract being discharged by frustration.
53
Describe breach, one of the four methods for discharging a contract
If a person fails to perform one of their contractual obligations, for example they don't perform on the agreed date, or deliver goods of inferior quality, or they refuse to pay the agreed price
If a person, before the date fixed, indicates that they won't complete the contract, then this is known as anticipatory breach
Note that breach WON'T automatically end the contract
54
Define a breach
A civil wrong that will entitle the innocent party to refuse further performance of the contract and seek a remedy (compensation)
The possible remedies are:
1) Common law remedies - that the innocent party can enforce against the whole world. In such cases, the judge has no discretion and must award the remedy:
X Damages and monetary compensation, and...
X Repudiation
2) Equitable remedies - personal rights that the judge can exercise discretion, guided by the rules and circumstances of each case:
X To make a quantum meriut or claim for work done
X Specific performance, that is a claim for the actual performance of the other person's promise
X Injunction that is an order from the court preventing a person from doing something
X Rescission for misrepresentation
55
Describe the possible remedies for a breach
The possible remedies are:
1) Common law remedies - that the innocent party can enforce against the whole world. In such cases, the judge has no discretion and must award the remedy:
X Damages and monetary compensation, and...
X Repudiation
2) Equitable remedies - personal rights that the judge can exercise discretion, guided by the rules and circumstances of each case:
X To make a quantum meriut or claim for work done
X Specific performance, that is a claim for the actual performance of the other person's promise
X Injunction that is an order from the court preventing a person from doing something
X Rescission for misrepresentation
56
Describe damages, a common law remedy for breach of contract
The usual remedy for breach of contract is damages (compensation). This is payment of money by the party in breach, to the innocent party. The objective of this payment is to place the innocent party back into the same financial position as he was before the breach took place. It isn't intended to be used to punish the other party, as this would be the role of a criminal case
There are two main types of damages:
Liquidated damages - the potential financial loss HAVE been agreed and set out in the contract by the parties themselves
Unliquidated damages - in which the damages HAVEN'T been agreed in the contract
The court will apply common law rules of assessment
When the damages to be paid are assessed by the courts, for example where the innocent party's reputation or financial standing has been proved to be damaged by the breach
The court will decide whether or not the damages should be:
Ordinary
Special
Exemplary
Nominal
Contemptuous
57
Define and describe the different types of damages a court can decide to hand down (or not)
REMEMBER AS SENCO
Special damages - the parties to the contract knew the particular loss was likely to occur following the breach
Exemplary damages - designed to punish the defendant. Unlikely to be awarded today
Nominal damages - where a breach has occurred, but the financial loss is inconsequential
Contemptuous damages - where the court feels that a plaintiff has brought a frivolous action, they will award damages of halfpenny to show their contempt for the plaintiff, in that the case should never have been brought before them
Ordinary damages - where ordinary persons would expect such a loss to occur following a breach
Another aspect the court will ensure is that the damages aren't too remote
58
Describe repudiation and affirmation, a common law remedy for breach of contract
Repudiation is simply when the parties revoke or end the contract, so that neither is bound and claiming damages. This remedy should go through the court, as wrongful repudiation can result in action against that party.
Affirmation means choosing to let the contract stand despite the breach, damages may be payable in some circumstances, but the right to repudiate the contract is lost after a party has affirmed it
59
Describe common law remedies, one of the two types of remedy for a breach of contract
Common law remedies - that the innocent party can enforce against the whole world. In such cases, the judge has no discretion and must award the remedy:
X Damages and monetary compensation, and...
X Repudiation
60
Describe equitable remedies, one of the two types of remedy for a breach of contract
Equitable remedies - personal rights that the judge can exercise discretion, guided by the rules and circumstances of each case:
X To make a quantum meriut or claim for work done
X Specific performance, that is a claim for the actual performance of the other person's promise
X Injunction that is an order from the court preventing a person from doing something
X Rescission for misrepresentation
61
Describe quantum meruit, an equitable remedy for breach of contract
Where there is a breach of contract, the innocent party may claim payment for what's been done, rather than sue for damages
For example, if a director employed a legal advisor, when not authorised to do so, the legal advisor may claim payment for services rendered and loss of remuneration under the contract, rather than sue for damages
62
Describe specific performance, an equitable remedy for breach of contract
This is a court order which orders the party in breach to complete the contract under the terms and conditions set down in the original agreement
This equitable remedy will only be granted if certain conditions apply:
Consideration must exist
The court must be able to supervise the performance
It must be just and equitable that the remedy be granted
Both parties must be able to obtain the remedy equally
The plaintiff must show that he was in a position to complete his part of the bargain at the time, fixed for performance
The plaintiff must come with clean hands, and therefore be beyond reproach
63
Describe the circumstances in which specific performance, an equitable remedy for breach of contract, will be granted by the court (ordering the party in breach to complete the contract under the terms and conditions set down in the original agreement)
This equitable remedy will only be granted if certain conditions apply:
Consideration must exist
The court must be able to supervise the performance
It must be just and equitable that the remedy be granted
Both parties must be able to obtain the remedy equally
The plaintiff must show that he was in a position to complete his part of the bargain at the time, fixed for performance
The plaintiff must come with clean hands, and therefore be beyond reproach
64
Describe injunction, an equitable remedy for breach of contract
This is a court order whereby an individual must refrain from continuing with the performance of the contract, and is usually used to prevent torts (wrongful acts) being committed by one person against another
The two main types of injunction are:
Mandatory injunction - orders a person to take action to undo a breach of contract. For example, to take down his fence, which was erected without planning permission
Prohibitory injunction - a court order, prohibiting a person from doing something
65
What are the two main types of injunction, an equitable remedy for breach of contract
The two main types of injunction are:
Mandatory injunction - orders a person to take action to undo a breach of contract. For example, to take down his fence, which was erected without planning permission
Prohibitory injunction - a court order, prohibiting a person from doing something
66
Describe rescission, an equitable remedy for breach of contract
This is an equitable remedy for breach of contract.
The innocent party must rescind (revoke) the whole of the contract, or not at all. It must be possible to restore the status quo.
Many contracts will not be suitable for this remedy as the job may be part completed. All part payments must be returned on rescission, and the plaintiff cannot combine rescission with a claim for damages
67
Describe the unfair contracts act 1977
This act seeks to control the inclusion of exemption clauses, which may be considered ineffective, or are subject to the test of reasonableness
Two examples of a case involving an unreasonable exemption clause are:
Smith vs Eric Bush (1989)
The commercial bank of Sydney vs RH brown (1972)
68
Describe the main provisions of the unfair contracts act 1977
Exclusion of negligence liability
A person cannot, by reference to any contract term, restrict their liability for death or personal injury caused by their negligence
In other cases, a person cannot restrict liability unless the term is reasonable
The requirements of reasonableness
The test will be applied to individual situations and decisions made, but the following guidelines are also provided by the act:
X The strength of the bargaining positions relative to one another, for example, is one party more dominant or stronger than the other
X Whether the customer received a discounted price by agreeing to the term would indicate its reasonableness
X Whether the customer knew or ought to have known of the existence and extent of the clause, for example had made similar contracts, or the clauses was common practice
X Where the term excludes liability if a condition isn't complied with, for example a life assurance contract
X If the goods had been made as a special order, then the terms would likely be considered reasonable
69
Describe the case Smith vs Eric Bush (1989)
An example of a case involving an unreasonable exemption clause
Smith wished to buy a house, and used the building society's surveyor,case required by the terms of the mortgage
The surveyor and the building society included a clause within the survey report, which disclaimed accuracy of the survey, or any liabilities for omissions.
A few months later, the chimney collapsed as the supporting wall had been removed, causing considerable damage.
The House of Lords held that the disclaimer of responsibility was unreasonable in circumstances as the borrower would have had sight of the report, and was relying on it
70
Describe the case commercial bank of Sydney vs RH brown (1972)
An example of a case involving an unreasonable exemption clause
In the case of the commercial bank of Sydney vs RH brown (1972), it was held that a bank, which had provided an inaccurate reference for a customer, couldn't rely on the disclaimer set down as part of its standard letter of response, unless it could prove that the answer was:
X Reasonable
X Current
X Honest
X On the facts available
X In general terms only
The standard disclaimer stated that the reference was given "without responsibility on behalf of the bank or its officers"
71
What is the difference between executed and executory, in terms of consideration
Executed means that one or both parties have done all that the contract requires
Executory means that obligations of one or both parties in a contract have yet to be completed
72
What are the three states a contract with a minor can take
Contracts with a minor can be:
Valid
Void
Voidable
73
What kinds of contract can be enforced against a minor
The following kinds of contracts can be enforced against a minor as they're valid contracts:
Contracts for necessities
Beneficial contracts of service
74
Define necessaries, in relation to minors
Necessaries are things necessary to maintain a minor
The sale of goods act 1979 defines these as 'goods suitable to the condition of life of the minor and their actual requirements at the time or sale and delivery'
Necessaries are things like food or clothes, not jewellery or DVD players
Minors are only required to pay reasonable prices for necessaries
75
Describe void contracts, in relation to minors
Under the terms of the minors contract act 1987, certain contracts are void (I.e. Invalid) unless they're ratified, in that the minor confirms they contract is valid when they reach 18
This applies to loans and contracts for non-necessary goods
76
What case provides an example of:
Offers (and acceptance) via newspaper ads
Carlill vs carbolic smoke ball company (1892)
This case demonstrated that an effective offer cannot be made to the public at large
77
What rules does the case Carlill vs carbolic smoke ball company (1892) provide examples of?
Offers (and acceptance) via newspaper adverts
AND
That an effective offer cannot be made to the public at large
78
What case provides an example of an invitation to treat
The pharmaceutical society of Great Britain vs. Boots cash chemists (southern) limited (1953)
79
What rules does the case The pharmaceutical society of Great Britain vs. Boots cash chemists (southern) limited (1953) provide examples of?
Invitation to treat
80
What case provides an example of offers at auction
Payne vs cave (1789)
Auctions - The bids at auctions are merely offers. It's only when the hammer comes down that it's been accepted
Note that the above case also provides an example of revocation of offer - an offer may be revoked at any time before its been accepted
81
What rules does the case Payne vs cave (1789) provide examples of?
Offers at auction - The bids at auctions are merely offers. It's only when the hammer comes down that it's been accepted
ALSO, is usable for conditional assent and counter offer, like Hyde vs wrench (1840)
82
What case provides an example of postal rules
Adams vs lindsell (1818)
83
What rule does the case Harvey vs facey (1893) provide an example of?
I.e. Lowest accepted pride for bumper hall pen
Request for information - this doesn't destroy the offer, but is an attempt to clarify matters. It can be hard to determine whether such a statement from the offeree (the person wanting to buy the goods) is a request for info, or counter offer on the price of the purchase. In the end, the test being applied will be the intention of the offeree
84
What case provides an example of conditional assent and counter offer
Hyde vs wrench (1840) - I.e. £1,000 estate with the offer of £950
ALSO USABLE - Payne vs cave (1789) - auctions
85
What rules does the case Hyde vs wrench (1840) provide an example of?
Conditional assent and counter offer
86
What case provides an example of:
Request for information - this doesn't destroy the offer, but is an attempt to clarify matters. It can be hard to determine whether such a statement from the offeree (the person wanting to buy the goods) is a request for info, or counter offer on the price of the purchase. In the end, the test being applied will be the intention of the offeree
Harvey vs facey (1893) - I.e. Lowest price for bumper hall pen
87
What case provides an example of consideration, as defined by the case in question as:
"Some right, interest, profit or benefit accruing to the party, or some forebearance, detriment, loss or responsibility give, suffered or undertaken by the other"
I.e. Paying, or promising to pay, money in return for the supply of goods or services constitutes the most common form of consideration
Currie vs Misa (1875)
88
What rules does the case Currie vs Misa (1875) provide an example of?
Consideration, as defined by Currie vs Misa (1875) as:
"Some right, interest, profit or benefit accruing to the party, or some forebearance, detriment, loss or responsibility give, suffered or undertaken by the other"
I.e. Paying, or promising to pay, money in return for the supply of goods or services constitutes the most common form of consideration
89
What case provides an example of the rule that:
Consideration must move from the promisee (privity of contract) - I.e. Only a person who's provided consideration in return for a promise may sue on that promise
Tweddle vs Atkinson (1861) - man's father in law and another man
90
What rule does the case Tweddle vs Atkinson (1861) provide an example of?
Consideration must move from the promisee (privity of contract) - I.e. Only a person who's provided consideration in return for a promise may sue on that promise
91
What case provides an example of the rule that consideration need not be adequate
Chappell vs nestle (1960)
92
What rule does the case Chappell vs nestle (1960) provide an example of?
Consideration need not be adequate
93
What cases provide examples of the rule that past consideration is no consideration in law (I.e. The promises between parties must be promises to do something immediately or in the future. They can't be in relation to something done in the past)
Re McArdle (1951) - Work on relative's house
Roscorla vs Thomas (1842) - psychotic horse
94
What rule do the two below cases provide an example of:
Re McArdle (1951)
Roscorla vs Thomas (1842)
Past consideration is no consideration in law (I.e. The promises between parties must be promises to do something immediately or in the future. They can't be in relation to something done in the past)
95
What case provides an example of the rule regarding promissory estoppel
The high trees case (1947)
96
What rule do the two below cases provide an example of:
Balfour vs balfour (1919)
Jones vs Vernon's pools ltd (1938)
Intention to create legal relations
97
Which cases provide an example of the rule regarding intention to create legal relations
Balfour vs balfour (1919) - the husband having promised to pay his wife a monthly allowance
Jones vs Vernon's pools ltd (1938)
98
What rule does the case Nash vs Inman (1908), or the waistcoats case, provide an example of
The capacity of a minor to contract
99
What case provides an example of the rule regarding a minor's ability to contract
Nash vs Inman (1908), or the waistcoats case
100
What rule does the case Lloyds vs Bundy (1975) provide an example of
Duress and undue influence
An example of a case in which banks have been shown to pressure their customers to sign documents which would place them in a financially worse situation
Barclays vs O'Brien updated the Bundy case and procedures, so that all financial services providers are now obliged to ensure that clients seek independent advice prior to entering into any contract, and provide proof that they've done so
101
What case provides an example of the rule of duress and undue influence
Lloyds vs Bundy (1975) - elderly farmer who had guaranteed his son's account with the deeds to his farm
Also Barclays vs O'Brien, which updated the Bundy case and procedures, so that all financial services providers are now obliged to ensure that clients seek independent advice prior to entering into any contract, and provide proof that they've done so
102
What rule does the case Taylor vs Caldwell (1863) provide an example of
Methods of discharging a contract - via frustration
103
What case provides an example of methods of discharging a contract by frustration
Taylor vs Caldwell (1863) - the rental of a music hall, which burned down before the first date it was booked for
104
Define an acceptance
The second party in an offer's unqualified willingness to go along with the first party's proposal
105
Define an agreement
If a valid offer is met by a valid acceptance, a valid agreement exists
Offer + acceptance = agreement
106
What are the elements of a contract
Offer + acceptance = agreement
Intention to create legal relations
Consideration
Contractual capacity
Certainty
Legality
107
Describe the difference between a bilateral and unilateral contracts
Bilateral contracts contain two promises
Unilateral contracts contain a promise by only one person to do something, if and when the other party performs a specific act
108
Define an invitation to treat
An invitation to enter negotiations
The acceptance of an invitation to treat DOESN'T create an agreement
109
What rule does the case Smith vs Eric bush (1989) provide an example of
Unreasonable exemption clause
110
What cases provide an example of an unreasonable exemption clause
Smith vs Eric bush (1989) - there was a clause in the building society and surveyor's survey report (on the house the client wanted to buy) which disclaimed accuracy of the survey, or liabilities for omissions
Commercial bank of Sydney vs R H Brown (1972) - a bank had provided an inaccurate reference to a customer, and couldn't rely on the disclaimer set down in its standard response, unless it could prove the answer was reasonable/current/honest/on the facts available/in general terms only
111
What rule does the case commercial bank of Sydney vs R H Brown (1972) provide an example of
Unreasonable exemption clause
112
Describe the rule that a creditor isn't obliged to accept part payment of debts
Pemsels case describes this as "payment of a lesser sum on the day it's due in satisfaction of a greater sum cannot be any satisfaction for the whole
113
What is the power of a void/voidable/unenforceable contract?
A void contract has no binding effect
A voidable contract is binding, but one party, usually the innocent one, has the right to set it aside
An unenforceable contract is valid, but cannot be enforced by one party against the other
114
Describe "acceptance" in the context of contract law
Remember the DREDD 'clear and unqualified' story
Acceptance is the unconditional consent to the terms of an offer, and various rules are applied as follows:
Judge Dredd was cuffing a crook when he remembered "when I handcuff him, surrender must be CLEAR AND UNQUALIFIED". The crook then COMMUNICATED DIRECTLY BACK TO THE OFFEROR "fuck you". Dredd was relieved, as SILENCE CANNOT AMOUNT TO ACCEPTANCE. He'd head about this FROM THE PROPER AUTHORITY, the chief judge, who'd also told him "you can beat him up beforehand", as SUBSTANTIAL PERFORMANCE (COMPLETION) ALMOST AMOUNTS TO ACCEPTANCE. The big book of law added that surrender MUST BE BY THE MODE OR METHOD LAID DOWN BY THE OFFEROR. The crook realised he'd best accept fast, WHEN THE OFFER IS STILL OPEN. Trying to be smart, he asked "SUBJECT TO CONTRACT?" Dredd gave him a whack and replied "BY OPERATION OF THE LAW"
Judge Anderson's lesson of the day - "The general rule, as shown above, is that an acceptance has no legal effect until it's been communicated to the offeror"
115
Define acceptance
The unconditional consent to the terms of an offer
