Chapter 3: Law of Contracts

Question 1

What is a contract?

Answer 1

A contract is a legally binding agreement that the courts will recognise and enforce.

Question 2

What are the four types of contracts? Think SSUB.

Answer 2

Seal: formal contract which is in writing and witnessed.
Simple: all other types of informal contracts.
Unilateral: where only one party is legally bound by their promise.
Bilateral: where each party makes a promise to the other party and both are bound.

Question 3

What is an example of a Unilateral Contract?

Answer 3

Missing Pet Reward. The owner is offering money to whomever finds the pet.

Question 4

What is an example of a Bilateral Contract?

Answer 4

An insurance policy. The policyholder promises to pay the premium and the insurer promises to pay the claim.

Question 5

What is the difference between a void and a voidable contract?

Answer 5

Void: a void contract means there is no longer a binding effect on either party
Voidable: contract still binding

Question 6

What are the 5 elements to forming a contract?

Answer 6

1. Agreement (offer and acceptance)
2. Intention to create legal relations (i.e. it’s not just a passing comment)
3. Consideration (of the agreement)
4. Agreement in the form as required by law (i.e. in writing)
5. Parties are able to contact (i.e. not minors or drunk)

Question 7

How is Agreement established?

Answer 7

Established through offer and acceptance.

Question 8

When does an “Offer” end?

Answer 8

If the time limit imposed has elapsed.

Death of either contracting party.

Acceptance of the offer (becomes a contract not just an offer).

Revocation of the offer.

Rejection or counter offer.

Question 9

How does a contract come into being?

Answer 9

It comes into being via contract acceptance, assuming all terms have been adhered to.

Has to be positive acceptance (i.e. not just no response / silence).

Question 10

What is the Posting Rule?

Answer 10

Acceptance is effective from the moment it is posted, not only when it is received.

However, only where it was reasonable for them to use post and not another form of communication.

Question 11

What is Contract Consideration?

Answer 11

This is the price which supports the promise. Each party gains a benefit and suffers a detriment.

The consideration must be real and genuine, however the compensation doesn’t have to be adequate (tough shit if you just made a crap deal).

Question 12

What happens if a promise is made without consideration?

Answer 12

Promissory Estoppel. It cannot be enforced by the courts but can be used as a legal defence.

Question 13

What is “Form” in relation to the formation of a contract?

Answer 13

Form is how the law demands a contract be written.

EG: Contracts Under Seal must be signed and witnessed.
Contracts in Writing are for all land sales post 1989.

Question 14

What Act set the age of a minor at 18?

Answer 14

The 1969 Family Law Reform Act.

Question 15

What is “Restitution”?

Answer 15

Situations where a person is liable to restore property to another.

This is difficult in the case of minors who can’t be made to pay for some things.

Question 16

What did the 1987 Minor’s Contract Act enforce?

Answer 16

The court may require minors to transfer any property they have acquired if equitable and reasonable to do so.

Question 17

Are contracts made by those with Mental Health Conditions valid?

Answer 17

Yes. Unless the patient was unable to fully understand the agreement, and the other contracting party was aware of this.

Question 18

Define Ultra Vires?

Answer 18

Beyond the powers of.

Used when talking about statutory corporations and registered companies invalidating contracts if beyond the powers of the corporation.

Question 19

What are the two types of Contract Terms?

Answer 19

Express (based on the words spoken / written)

Implied

Question 20

What are the three types of Implied Terms?

Answer 20

In Fact: not stated but presumed to be intended.

By Custom: based on the market or customs of a country.

In Law: based on which law is applicable to the contract.

Question 21

What are some things that the 2015 Consumer Rights Act imply?

Answer 21

Implies that the goods sold are fit for purpose.

Implies that the goods sold match their product description.

Question 22

What does the 1906 Marine Insurance Act imply?

Answer 22

That every vessel must be sea-worthy.

Question 23

What are Standard Terms?

Answer 23

When contracts are drawn up with the intention to be used for a lot of people (i.e. standard motor insurance), terms are standardised to save time and simplify dealings.

Question 24

How can T&C’s be incorporated into a contract?

Answer 24

By signing documents that include a “small print”.

By displaying a notice or on a ticket / receipt.

You need to prove that you tried to make the other party aware of the t&c’s.

Question 25

What was the 1949 Olley v Marlborough Court Ltd case? Think hotel.

Answer 25

Hotel had a note in the room relinquishing liability for damage or loss to property. Not enforceable as the contract between the hotel and guest is made at the front desk, so the patron can't have known all conditions at the point / time when they signed the contract. Context is the patron had stuff stolen.

Question 26

What was the case involving the hotel liability waiver in the bedroom?

Answer 26

Olley v Marlborough Court Ltd

Question 27

What does the 1977 Unfair Contracts Terms Act restrict?

Answer 27

It restricts the effectiveness of the reliance on exemption clauses.

Question 28

What are excluded from the 1977 UCT Act?

Answer 28

Insurance Contacts.

Question 29

What does Section 2 of the 1977 UCT Act state? Think liability.

Answer 29

You can't exclude liability for death or bodily injury due to negligence, even if you have a little sign saying otherwise.

Question 30

What is an "Unfair Terms"

Answer 30

Defined by the 2015 Consumer Rights Act. An unfair term is something which causes a significant imbalance in the rights and duties to the detriment of the consumer.

Question 31

Does the UCTA or CRA deal with business contracts?

Answer 31

It's the 1977 Unfair Contracts Terms Act.

Question 32

What is the difference between a Condition and a Warranty?

Answer 32

Condition: important aspect of the agreement. Warranty: minor aspect of the agreement. In insurance, a warranty is a major term.

Question 33

How can a contract become defective?

Answer 33

1. Illegality 2. Improper Pressure 3. Mistake 4. Misrepresentation 5. Non Disclosure

Question 34

When is a contract illegal?

Answer 34

If it involves undertaking a legal wrong or by doing something that is harmful to public policy or society. Can be contrary to law (forging bank notes), public policy (prostitution or perverting the course of justice) or trade (restrictions on trade are unreasonable).

Question 35

What did the 1774 Life Assurance Act enforce?

Answer 35

No insurance should be made by a person with no insurable interest in the life in question.

Question 36

What is Prima Facie?

Answer 36

On the fact of it. If a contract is made, it will be treated as void unless reasonable, in the case of restraint of trade.

Question 37

What are the two examples of reasonable and unreasonable Restraint Contracts?

Answer 37

Reasonable: 1918 Forster and Sons v Suggett Unreasonable: 1920 Atwood v Lamont

Question 38

What was the 1920 Atwood v Lamont case?

Answer 38

Lamont was employed as a tailor. On leaving emolument, his contract stated he couldn't be a tailer within 10 miles of the old shop in Kidderminster. This is unreasonable because the contract was only there to stifle competition.

Question 39

What was the 1918 Forster and Sons v Suggett case?

Answer 39

Sugget was a manager at a glass making company. He had a 5 year non-compete agreement upon leaving. This was deemed reasonable because his management position meant he had a lot of trade secrets which could be used by a rival.

Question 40

Can the money or goods involved in an illegal contract be recovered?

Answer 40

No. Can't be recovered through court as the contract is generally void and cannot be enforced.

Question 41

What are 3 exceptions to recovery under an illegal contract?

Answer 41

1. Where parties are not equal in wrongdoing (i.e. fraud). 2. Where one party repents. 3. Where an illegal contract contradicts a statute passed to offer protection to a group of people.

Question 42

What is Severance?

Answer 42

Where the court enforces the valid party of a contract but refuses assistance to the illegal part.

Question 43

When may illegality arise in an insurance contract?

Answer 43

If there is no insurable interest. Purpose of the contract is illegal (i.e. insuring a car to use illegally). Unlawful use of insured property. Close connection with a crime (because the loss wouldn't be fortuitous if you're knowingly committing a crime).

Question 44

Define In Pari Delicto:

Answer 44

Equal in wrongdoing.

Question 45

Explain the Beresford v Royal Insurance Co Ltd (1938) case:

Answer 45

1. Insured had debts. 2. Committed suicide so life insurance could pay debts. 3. Life insurance would cover suicide. 4. Court said no as his estate would benefit from the criminal act of suicide.

Question 46

Explain the 1977 Geismar v Sun Alliance (1977) case:

Answer 46

1. Insured had smuggled goods into the UK so not to pay import tax. 2. Items were stolen. 3. Court said no claim as he would benefit from his criminal act of smuggling.

Question 47

Explain the 1971 Gray v Barr case:

Answer 47

1. Man took a loaded gun to confront his wife's lover. 2. Gun went off during altercation. 3. Man was acquitted of murder but sued for damages by the lover's wife. 4. Man claimed under his household personal liability policy but denied as the act was considered deliberate and dangerous as went against public policy.

Question 48

What is Improper Pressure?

Answer 48

A contract is void is a person is pressured into agreeing under duress or undue influence.

Question 49

What is the difference between Duress and Undue Influence?

Answer 49

Duress is any threat made to commit a legal wrong against a person, so they are forced against their will to agree. Undue influence is where one party holds a dominant position over another and takes advantage of that relationship.

Question 50

What are the three types of Mistakes in contract?

Answer 50

1. Subject Matter Mistake: the wrong thing is agreed upon. 2. Identity Mistake: occurs in fraud when you think you're dealing with someone else. 3. Recording / Rectification Mistake: if there is an error when writing a contract the court can rectify it.

Question 51

What is Misrepresentation?

Answer 51

A false statement of fact. Can either be fraudulent, innocent or negligent.

Question 52

What are 4 Remedies for Misrepresentation? Think RRAD.

Answer 52

1. Rescission: an action can be brought to rescind a contract. 2. Refusal of Further Performance: chose not to carry out your part of the contract and use misrepresentation as a defence. 3. Affirmation: claimant can chose to treat the contract as binding and carry on. 4. Damages: can be awarded in addition to a rescission, or in lieu or a rescission in the case of honest misrepresentation.

Question 53

What did the 1967 Misrepresentation Act allow?

Answer 53

Allows the court to award damages in lieu of rescission if the misrepresentation was innocent and allows damages to be claimed for negligent misstatement.

Question 54

What did the 2012 Consumer Insurance (Disclosure and Representation) Act enforce?

Answer 54

Policyholders have to take reasonable care not to misrepresent the facts before going on risk with an insurer. Insurers can't sue the policyholder for innocent misrepresentation.

Question 55

What remedies can an insurer choose for negligent misstatement by a policyholder?

Answer 55

1. Contract Avoidance | 2. Settlement Reduction

Question 56

What is the Discharge of Contract and the four methods of discharging?

Answer 56

It's how a contract comes to an end. Can be via performance, breach of contract, frustration or discharge by agreement.

Question 57

How can a contract be discharged using Performance?

Answer 57

Failure to perform is a breach of contract. Failure to meet time sensitive deadline is also a breach. Under contract, each party agrees to carry out their side of the bargain. If performance of the contract becomes illegal then the contract is discharged.

Question 58

How can a contract be discharged using Breach of Contract?

Answer 58

Failure to perform is the most common breach. May be an anticipatory breach - one party may indicate that they can't meet their obligations. You can either sue during or after your contract has ended. A breach will always enable the victim to claim damages.

Question 59

What are the two types of contract breaches?

Answer 59

Condition: able to claim damages and contract termination. Warranty: claim for damages only.

Question 60

How can a contract be discharged using Frustration?

Answer 60

When a contract is impossible, illegal or futile to fulfil, it is "frustrated". it releases both parties from their obligations. Could be a change in law (i.e Russian Trade sanctions), death to a party or destruction of subject matter.

Question 61

How can a contract be discharged using Discharge by Agreement?

Answer 61

You can agree to end a contract, just as you agree to enter one. If one party has already done their part, you have to make a biding promise which enables you to end the contract. This is known as accord and satisfaction.

Question 62

What is the difference between Accord and Satisfaction?

Answer 62

A: agreement to discharge S: fresh consideration

Question 63

What can't be discharged by agreement?

Answer 63

Debt. It can't be discharged by paying a lower sum unless there is a change to the time in which to pay back the money or something else is given when payment is made the supplement the payment.

Question 64

What is Novation?

Answer 64

Discharged agreement that takes the form of a new contract.

Question 65

What are the 4 main remedies in contact?

Answer 65

1) Termination 2) Damages 3) Specific Performance 4) Injunction

Question 66

Explain Termination as a Remedy under Contact:

Answer 66

The victim is entitled to contract termination if a sufficient breach of contract has occurred by: - not carrying out their part of the contract - refusing performance by the other party - requesting the restoration of the situation before the contract (i.e. returning property and money)

Question 67

Explain Damages as a Remedy under Contract:

Answer 67

This is the main common-law remedy for breach of contract, so can be claimed as a right. The purpose of awarding damages is to put the claimant in the same financial position as they would have been in had the contract been completed. Damages in contract are intended to compensate the claimant not to punish the defendant.

Question 68

When are Nominal Damages awarded?

Answer 68

If the claimant has suffered no loss at all.

Question 69

Can Damages be awarded for distress and injury to feelings?

Answer 69

Yes. If the purpose of the contract was to provide comfort and pleasure. Claims like these are usually denied under an insurance contract, as that's not the purpose of insurance.

Question 70

What is the difference between the "Liquidated Damages Clause" and the "Penalty Clause"?

Answer 70

Liquidated Damages: These are fixed reasonable sums payable in the event of a breached contract. Penalty Clause: These are fixed unreasonable and excessive costs payable in the event of a breach contract (a penalty for not doing something).

Question 71

When is a loss not remote?

Answer 71

When: - the loss is reasonably foreseeable - the defendant is aware of special circumstances that would made a loss likely (but only if informed about them at the outset of the contract)

Question 72

When will Specific Performance not be awarded?

Answer 72

As specific performance compiles the defendant to honour their promise to the claimant, SP will not be awarded if the claimant can be adequately compensated with damages instead.

Question 73

What are 3 other Remedies in Contract?

Answer 73

1. Action for an agreed sum of money 2. Action for restitution (return of money or goods) 3. Action Quantum Meruit (as much as they have earned or deserved)

Question 74

What does "Statute Barred" mean?

Answer 74

When a claim is made too late and is outside of the statute of limitations. The law/act blocks the claim from being brought forward.

Question 75

What is the Statute of Limitations for Specialty Contracts / Deeds

Answer 75

Under the 1980 Limitation Act, this is 12 years.

Question 76

What does Privity of Contract restrict?

Answer 76

It restricts the rights and duties created by a contract to those who originally made it. Only a person who is a party to a contract can sue upon it.

Question 77

What does the 1999 Contract (Rights of 3rd Parties) Act enforce?

Answer 77

Applies to contracts entered into after May 11 2000. A 3rd party can enforce a contract if: - the contract says they must do so - the contract appears to provide a benefit to the third party, unless genuinely not intentional The 3rd party must be expressly named or part of a group or class of persons named.

Question 78

What 3 things are excluded from the 1999 Contract (Rights of 3rd Parties) Act?

Answer 78

- Bills of Exchange - Terms in employment contract - Terms in contracts for the carriage of good by sea

Question 79

What is "Chose in Action"?

Answer 79

Contractual Rights over an intangible piece of property It cannot be physically seized but only enforced through a court action.

Question 80

What is a "Chose in Possession"?

Answer 80

Tangible property that can be seized and controlled.

Question 81

What are the 2 types of Assignment?

Answer 81

Statutory Assignment: Under the 1925 Law of Property Act the assignment of debt or "chose in action" transfers the legal rights. It must be absolute, and expressly made in writing Equitable Assignment: If it doesn't fit the bill above. It occurs when someone else makes the payment of debt.

Question 82

What type of contract can't you assign?

Answer 82

Personal contracts, like insurance. Because these are based on your personal characteristics and to assign them would change the underwriting basis of the contract.

Question 83

Explain the Transfer of Obligations in relation to the transfer of debt:

Answer 83

You have to have consent to assign rights - no one is obliged ti accept the liability of another.

Question 84

What are the 3 types of assignment under Insurance Contracts?

Answer 84

1. Assignment of Subject Matter (policy isn't automatically assigned to another upon transfer/sale of goods, because the original insurable interest is usually lost). 2. Assignment of the Benefit of the Contract (right to recover money under an insurance contract can be assigned to another - claim paid to another person i.e landlord). 3. Assignment of the Contract itself (personal contracts cannot be assigned, but marine insurance can be, as the ownership of cargo may change throughout the voyage).

Question 85

Is Life Insurance freely assignable?

Answer 85

Yes. Because there is no change in risk, it is still the same life - just the beneficiary changes.

Question 86

Explain the 1953 Pharmaceutical Society of GB v Boots Cash Chemist case:

Answer 86

Customer didn't accept an offer if goods were just on the shelf. They needed to take them to the cashier to complete the contact to buy. At the time, the law didn't allow self service of drugs - there needed to be advice given with the product.

Question 87

Explain the Central London Property Trust v High Trees House (1947) case:

Answer 87

Landlords reduced rent due to the war as no one was letting the flats. Post war, they tried to recuperate all the money that they reduced the rent by. They weren't successful and only the rent from post war (1945) could be taken at the full amount. This is because there was consideration and action by all to reduce the rent.