B The Law of Obligations Flashcards
Simple contracts meaning
A contract can be in any form - simple contract
It may be written or oral or inferred from the conduct of the parties, most contracts are simple contracts
What elements are needed to form a contract
The following elements are needed to form a valid contract:
Agreement e.g. offer and acceptance
Consideration
Intention to create legal relations
Capacity - each party must have the legal power to bind itself contractually
Legality - the courts will not enforce a contract which is deemed to be illegal
Offers - procedure and termination
What is an offer:
A definite and unequivocal statement of willingness to be bound on terms without further negotiation
An offer can be in any oral, written or by conduct form, but is not effective until communicated to the offeree
An offer can be made to a person, class of persons or even the whole world
What is not an offer:
An invitation to treat is not an offer, which means an invitation to the other party to make an offer
Termination of an offer:
Once an offer has been terminated it cannot be accepted, an offer can be terminated by -
Revocation - can be made at any time before acceptance
Rejection - may be outright or by means of a counter offer
Lapse - an offer will lapse based on a death, the failure of a condition, or after expiry of fixed time
Meaning and consequence of acceptance
Acceptance is the unqualified and unconditional assent to all the terms of the offer which can be oral, written or by conduct
The offerer can stipulate a certain mode of acceptance however if they request a mode the offeree is not limited to that
Acceptance is not effective until it is communicated to the offeror
Postal rule is an exception to the rule that acceptance must be communicated, stating that acceptance is complete as soon as the letter is posted
What is the need for consideration and the basic rule
The basic rule:
Every simple contract must be supported by consideration from each party, contracts made by deed (specialty contracts) do not require consideration unless terms of agreement require it
Types of consideration:
Executory consideration is given where there is an exchange of promises to do something in the future
What is adequacy and sufficiency of consideration
Sufficient consideration:
Consideration must be sufficient but need not be adequate
Means that there must be monetary value to the consideration
Must be capable in law of amounting to consideration
Need not be adequate means that there is no need for each partys consideration to be equal in value
Past consideration:
Is insufficient and therefore not valid
Consideration is past if its an act which has been wholly performed before the other party gives his or her promise
Performance of an existing duty:
As a general rule performance of an existing statutory duty is not sufficient consideration
The part payment problem:
The general rule states that payment of a smaller sum does not discharge a debt of a greater amount
Exceptions include where part payment is made by a third party
Promissory estoppel:
The doctrine of promissory estoppel is based on principles of fairness and justice, preventing a person going back on his or her promise to accept a lesser amount
What is the doctrine of privity
Privity of contract - General rule:
Only the parties to a contract acquire rights and obligations under it, and can sue or be sued on it
Exceptions include The contracts act 1999 allows a person who is not a party to a contract to enforce it so long as the contract was for their benefit and they were identified
Agreement types relating to intentions to create legal relations
Creating legal relations:
In order to create a contract, both parties must intend to enter into a legal relationship and if this is not clear from the contract, the law presumes the intention of the parties based on the agreement type
Agreement types:
Domestic or social agreements
Its presumed that there is no intention to be legally bound unless it can be shown otherwise
Commercial agreements
Its presumed there is an intention to be legally bound, unless it can be shown otherwise - this is a strong presumption that can only be rebutted by clear evidence to the contrary
Letter of comfort
In international contracts a letter of comfort is used to assure that a parent company will provide its subsidiary with the necessary resources to fulfil the contract, it does not have a legal effect though
Terms versus representations
Terms versus representations:
A statement, written or oral made during negotiations may be a term of the contract or just a representation inducing the contract
A representation is something said by the offeror to induce the offeree to enter into the contract and may not become a term of that contract
If the representation become a term of the contract, the innocent party has remedies for breach of the term and misrepresentation
If the representation does not become a term of the contract, the innocent part will have remedies only for misrepresentation which are based on equitable remedies
Define contractual terms
Terms may be express or implied:
Express terms are specifically inserted into the contract by one or both of the parties and clear so that they are enforceable
Implied by statute, consumer rights act 2015 implies terms into all b2c contracts with regards to goods being of satisfactory quality, covering what should happen when goods or content are faulty
Types of terms:
Conditions
Root of the contract as a breach can result in damages or discharge or both
Warranties
Incidental to the main purpose of the contract and results in damages only
Innominate terms
Innominate or indeterminate term is neither a condition nor a warranty, if trivial it will be damages only same as a warranty, if serious damages discharge or both same as if it were a condition
What is an exclusion clause and the common law/statutory rules
Exclusion clause is a term that seeks to exclude or limit a partys liability for breach of contract
Common law rules:
In order to be valid an exclusion clause must be both incorporated into the contract, and its wording must cover the loss
An exclusion clause can be incorporated into a contract by signature/notice/previous dealings
Statutory rules:
Even if a clause passes the common law test, it must also satisfy the statutory rules contained in ‘unfair contract terms act 1977’ and ‘consumer rights act 2015’
Unfair contract terms act 1977:
Applies to exclusion clauses in b2b contracts, states that a clause excluding liability for death or injury, and other loss due to negligence is void unless reasonable
Consumer rights act 2015:
Consolidates and combines previous legislation contained in unfair contract terms act 1977 in respect of consumer contracts
2 ways in which a contract may be discharged
Performance:
Most common and both parties perform their obligations under the contract
Frustration:
Where after the contract is made, it becomes impossible to perform
The meaning and types of breach of contract
Breach of contract occurs where one of the parties to the agreement fails to comply either completely or satisfactorily with their obligations under it
Types of breach:
Actual breach is where it occurs on the due date for performance
Anticipatory breach occurs before due date, where a party shows an intention not to perform their obligations - may be express or implied
Express anticipatory breach occurs where one of the parties declares that they have no intention to carry out obligations before the due date
The effects of anticipatory breach:
Does not automatically bring the contract to an end, the innocent party has 2 options
Treat the contract as discharged and bring an action for damages immediately without waiting for due date of performance
Elect to treat the contract as still valid, complete their side of the bargain and sue for payment by the other side
Rules relating to the award of damages as a result of breach of contract
Damages are a common law remedy available as of right for breach of contract, intended to be compensatory not punitive
Liquidated damages and penalty clauses:
Where a contract provides for the payment of a fixed sum on breach, it may either be a liquidated damages clause or a penalty clause
Liquidated damages are a genuine pre estimate of the expected loss, amount stated is the amount of damages claimable enforceable
Unliquidated damages:
Where the contract does not make provision for damages the court will determine the damages payable known as unliquidated damages
2 factors to consider
Remoteness of loss - what can be claimed for, if it naturally arises from the breach then it is not too remote e.g. general damages and normal loss
Measure of damages - how much are losses worth
Common law and equitable remedies for breach of contract
Common law remedies:
Action for the price
If the breach of contract arises out of one partys failure to pay the agreed price, then the creditor should bring an action to recover that sum
If the contract is for sale of goods, action may only be brought if the property has passed to the buyer unless the price is payable at a specific date
Quantum meruit
Under this remedy the value of the contractual work which has been performed already is measured
This is sought where one party has already performed part of their obligations and the other party then repudiates the contract
Equitable remedies:
Specific performance
Requires someone to perform their obligations, not available for personal service contracts
Injunction
Orders someone to do something or not, it enforces negative covenants within the contract
Rescission
Restores the parties to their exact pre contractual position
Only available if
Damages are an adequate remedy, claimant has acted unfairly, order would cause undue hardship or would require supervision of the court, or if there is undue delay in seeking the remedy
