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SQE1 > Contract > Flashcards

Contract Flashcards

1
Q

Contracts that require writing

A

Guarantees (ie guarantor promises another party will perform their obligations)

Contracts for sale of/interests in land

Consumer credit agreements

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2
Q

Contracts that require a deed

A

Promises where nothing is offered in return (eg promise to make a gift)

Conveyance (ie transfer) of land

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3
Q

Valid contract requires

A

For the contract to be valid there must be an agreement (made up of offer and acceptance), intention to create legal relations and consideration.

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4
Q

Offer

A

=> two requirements are:
1. A willingness to be bound by the proposal if it is agreed to
2. Sufficient certainty in terms of the proposal

Offer must be communicated to offeree: orally, in writing or by conduct

Offer remains open until it is terminated or accepted

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5
Q

Offer v invitation to treat

A

ITT = made without intention to be bound by specific terms (ie just a preliminary statement)

eg

  1. Adverts
  2. Shop lists
  3. Shop sales
  4. Tenders
    = invitation to companies to bid for a contract (Submissions are offers)
  5. Auctions
    - Bids= offers that can be withdrawn at any time before acceptance (hammer falling)
    - Call for bids = inviting offers => ITT
    - Hammer falls => accepts highest bidder (as long as reserve price is met)
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6
Q

Unilateral contract

A

Ie when person making offeror promises to do something if the offeree does something in return and the offeree actually does what the offeror has asked

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7
Q

Terminating offer through revocation

A

By offeror, before acceptance

Revocation effective when RECEIVED

Revocation can be indirect ie done by third party if offeree receives:
- Correct information
- From a reliable source
- Of acts of the offeror which would indicate to a reasonable person that the offeror no longer wishes to make the offer

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8
Q

When can the offer be revoked?

A

General rule = an offer can be revoked at any time before acceptance even if the offeror has agreed to leave it open for a specific time

Exceptions -
1. Collateral contract ie offeree has given any consideration for the offeror keeping the offer open
2. Unilateral contract => once acceptance begun (ie by carrying out promise)
- But since still no contract until offeree has completed performance, offeree may withdraw at any time until then

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9
Q

Terminating offer through rejection (by offeree)

A

Can be express or implied (eg by counteroffer)

Effective when RECEIVED

Acceptance must match exactly the terms of the offer, otherwise there will be no contract

Imp to distinguish counteroffer with mere enquiry (which doesn’t amount to rejection)

Collateral contract – agreement to keep original offer open often collateral contracts => rejection of that does not terminate original offer too

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10
Q

Lapse of offer

A

Offer will lapse if there is an EXPRESS condition (=> any acceptance received outside that time limit cannot create a contract)

OR in all other cases, the offer will lapse after a REASONABLE time period – what is reasonable depends on the facts (ie how offer was made and subject matter)

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11
Q

Termination of offer through operation of law

A

eg through:

  1. Death of either party
  2. Destruction of the proposed contract’s subject matter
  3. Superveneing illegality
  4. Failure of any condition contained in the offer
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12
Q

Acceptance (general)

A

= ‘a final and unqualified expression of asset to the terms of an offer’

Generally only person to whom offer is addressed has power of acceptance

Offeree must know of offer

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13
Q

Methods of acceptance

A

Unless method stipulated by offeror, construed as inviting acceptance in any reasonable manner and by any medium reasonable under the circs

Method stipulated – can still be considered acceptance if method is different but no less advantageous to offeror

Silence does not constitute acceptance

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14
Q

Acceptance for unilateral contracts

A

Only performance of the act is necessary (completed)

But offeree does not have obligation to complete performance once started

Required to notify offeror within reasonable time after performance has completed

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15
Q

When is an acceptance effective?

A

ie postal rule exemption (does not apply to email which is accepted when received)

Letter of acceptance will become binding when POSTED if (ONLY applies to acceptances):

  1. It was reasonable to use post as method of communication
  2. It was properly stamped, addressed and posted
  3. Offeror did not exclude the postal rule impliedly/expressly
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16
Q

Acceptance in battle of the forms scenarios

A

Last shot wins (ie party who fired last short before performance began wins)

=> taken as implied acceptance

Prevail clause rarely effective

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17
Q

Intention to create legal relations

A

Commercial agreements (between businesses or inds and businesses)
=>Strong presumption of intention to create legal relations/be bound at law
- (Rebuttable – if there is specific wording to that effect)

Domestic agreements
=> Presumption of no intention to create legal relations
- Rebuttable – relevant factors incl:
a) Consideration involved (greater value => more likely that the parties intended legal relations)
b) Parties to agreement are not on good terms (eg couple separated)
c) If it is a formal agreement in writing
d) Parties would have intended the agreement to have legal effect

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18
Q

Capacity in contracts

A
  1. Minors
    - General rule = voidable by the minor (ie Can enforce contracts but not bound by them unless they ratify when they turn 18)
    - Exceptions = employment contracts and contract for necessary goods or services (at a reasonable price)
  2. Lack of mental capacity
    - Voidable by the ind, but only if the other party knew they lacked capacity
    - Can ratify upon recovery
    -Exception = necessary goods or services at a reasonable price
  3. Intoxication
    - As for mental capacity
  4. Companies have capacity
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19
Q

Consideration (general)

A

= price you pay for another’s promise

Must be sufficient but need not be adequate

Can either be a benefit to the person receiving it or a detriment to the person giving it

Consideration must move from the promisee

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20
Q

Consideration in circs where performance of an existing duty

A

General rule = not good consideration

Exceptions:
- if A exceeds his duties in some way (and => confers extra practical benefit on B)
- if duty is already owed to a third party

Performance of public/legal duties? Not good consideration (unless exceeds public duty)

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21
Q

Past consideration

A

General rule – no

Exception if:

  1. Act was carried out at the promisor’s request; and
  2. The parties understood from the beginning that the act was to be rewarded in some way (more likely in a commercial context); and
  3. Payment/conferment of other benefit must have been legally enforceable had it been promised in advance ie All other requirements for a valid, binding contract exist
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22
Q

Consideration re part payment of a debt

A

(ie promises to accept less)

General = no

Exceptions:

  1. Debt disputed in good faith
  2. Unliquidated claims (ie amount owed is uncertain)
  3. Payment at different place, or earlier payment
  4. 3rd party makes payment
  5. Payment is by different means at the request of the party accepting the lesser amount
  6. Composition with creditors
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23
Q

Promissory estoppel

A

Applies where:
1. Promise not to rely on existing legal rights
2. promisee detrimentally relied on the promise by altering their position
3. would be inequitable (unfair) for the promisor to go back on their promise

NOTE: shield not a sword (ie only a defence not a cause of action)

Applies =>operates to suspend promisor’s legal rights

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24
Q

Privity of contract (general)

A

Ie third party cannot enforce, acquire rights under, be liable for; a contract to which he is not a party

BUT exceptions:
1. Contracts (rights of third parties) Act
2. Variation and recission of contract
3. Agency
4. Assignment
5. Subrogation
6. Collateral contracts
7. Trusts

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25
Q

Contracts (rights of third parties) Act 1999

A

Third party may enforce a contract term if either:

  1. The contract expressly provides that he may
  2. The term purports to confer a benefit on him AND the terms of the contract make clear the parties intended the term to be enforceable by the third party
    - only allows third parties to obtain benefit (not impose obligations on them)
    - does not apply to enployment contracts or articles of ass for a company
    - third party can be specifically named OR within a described group
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26
Q

Variation/recission of a contract re 3rd party rights

A

If 3rd party has rights under a contract, the parties may NOT agree to change the contract to the detriment of the third party without the consent of the third party if:

  1. 3rd party has agreed to term benefitting him
  2. 3rd party has relied on the term and the promisor is aware of that reliance; OR
  3. Promisor should have foreseen that the 3rd party would rely on the term, and the third party has in fact relied upon it
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27
Q

Role of agency in privity of contract

A

ie where one person (agent) acts on behalf of another (principal) and has the power to affect the principal’s legal position with regards to a third party

Agent has authoirty to act => contract formed with principle

Agent does not have authoirty to act (/goes beyond authoirty) => not a valid contract

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28
Q

Assigment of rights in a contract

A

Ie contractual right conferred to a third person

Notice of assignment must be given to the party liable to perform the obligation

Only benefit of contract can be assigned, not the burden
=> if want to transfer both => old and new parties need to enter into novation agreement

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29
Q

Term of contract v representation

A

Reps = things not incorporated into the contract which were made to induce the other party to enter into the contract

Determined by:
- intentions of the parties, viewed objectively (ie from perspective of a reasonable person) having regard to the conduct of the parties
- Statement not incl in written contract – likley to be a rep
- fundamental importance to a party => likley to be a term
- statement made long before => likley to be a rep
- person making statement is an expert => likely to be a term

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30
Q

Types of terms

A

Imp as changes remedy available:

a) Condition (ie fundamental) => can terminate contract (or affirm) and due for damages

b) Warranty (ie incidental/collateral to main contract)
=> can sue for damages

c) Innominate term (is unclear at outset whether condition or warranty)
=> remedy depends on consequences of breach

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31
Q

What does it mean (+ effect of) time being ‘of the essence’

A

=> obligation is a condition and late performance entitles innocent party to terminate the contract

Not of essence => warranty and only remedy is damages

Contracts usually make it clear, but presumption in commercial contracts if a time for delivery has been agreed

32
Q

Express terms in contracts

A

Must be incorporated into contract (whether written or oral)

Will be incorporated if parties have reasonable notice of it

Parol evidence rule (in written contracts) - ie presumption that external evidence cannot add to, subtract from, contradict, or vary the terms of a written contract
BUT exception with implied terms and collateral/secondary contract (court may find two contracts - one written and one oral)

33
Q

Entire agreement clause

A

Provides that written doc constitutes the entire agreement between parties

Purpose is to uphold parol evidence rule by preventing any evidence forming part of the contract

34
Q

Implied terms (general)

A

By:

  1. Statute (ie SGA, SGSA, CRA)
  2. Court
    - ie if necessary to give business efficacy (ie work in a way that reflects parties intentions)
    - only implied if so obvious to a reasonable person that goes without saying (is officious bystander test)
  3. Custom/usage
    - ie prevalent in the trade, unless that is contrary to express term of the contract
  4. Based on previous course of dealings
    - must have been regular and consistent
35
Q

Terms implied by Sale of Goods Act

A

Only business – business transactions

Incl:
1. Seller has legal right to sell goods in question
2. Goods match any description by the seller
3. Goods be satisfactory quality (ie fit for purpose for which they are generally used, free from minor defects, and safe/durable)
4. Goods be fit for any particular purpose made known to the seller by the buyer

These implied terms are conditions (so can terminate contract) UNLESS breach is so slight that would be unreasonable for buyer to reject goods => breach of warranty

UCTA – cannot exclude implied term as to title, and other exclusions valid only if reasonable

36
Q

Terms implied by Sale of Goods and Services Act

A

Applies to contracts for services and hire of goods

Only business – business transactions

Same terms as SGA, and:

  1. Supplier will carry out service in reasonable time (if no time is agreed)
  2. And with reasonable care and skill

BUT service terms are innominate

37
Q

Terms implied by Consumer Rights Act

A

Applies to sales contracts made between trader and consumer, whether for goods or services

Implied terms same as SGA

BUT liability for breach of implied term cannot be excluded or limited at all

Services should be:
1. Carried out with reasonable care and skill
2. Reasonable price will be paid for service/work (if not fixed)
3. Performed in reasonable time
4. Completed in accordance with any information which the consumer relies on

38
Q

Exclusion clauses (general)

A

= clause which seeks to exclude liability completely or limit liability if a breach of contract occurs or a tort is committed

3 issues:

  1. Clause must be incorporated into contract
  2. Clause must be interpreted as excluding liability effectively (ie ‘construction’)
  3. Clause must not be prohibited by statute (UCTA or CRA)
39
Q

Incorporation of exclusion clasues (general)

A

By:

  1. Expressly by signature
  2. Notice
  3. Course of dealings (requires regular and consistent dealings)
40
Q

Incorporation by signature

A

If:
1. Clause is legible and signed by C; and
2. Document is a contractual document

Yes => will be binding regardless of whether C has read the contract (UNLESS oral misrep)

BUT does not apply where ‘non est factum’ - ie if party has no understanding of doc they have signed and fundamental difference between what they signed and what they thought they had signed (high burden)

41
Q

Incoporation by notice

A

Either:
- Actual notice ie the innocent party must know of the clause
- Constructive notice ie the party relying on the clause must have taken ‘reasonable steps’ to bring it to the other’s notice

Reasonable steps must be taken to bring to party’s attention BEFORE OR WHILE contract is being made

42
Q

Construction of exclusion clauses

A

ie does the clause cover the breach and damages alleged

Wording must be clear and unambiguous and cover the loss suffered

Contra proferentem rule = Any ambiguity in the clause will be interpreted against the party relying on it

43
Q

Clause prohibited by statute? (UCTA)

A

In business - business transactions

Automatically void:
- exclusion of liability for death/PI
- exclusion of implied term as to title (in SGA/SGSA)

Void if unreasonable:
- exclusion for loss or damage to property caused by negligence
- exclusion for breach of express term (if dealing on standard etrsm of business)
- exclusion of other SGA/SGSA (ie re compliance with description/quality, fitness for purpose etc)

Reasonableness - consider circs known/ought to have been known to the parties, and e.g. strength of bargaining positions, any inducements whether goods specially manufactured

If limitation (rather than exclusion) more likley to be found to be reasonable

44
Q

Clause prohibited by statute? (CRA)

A

Applies in trader - consumer contracts

Automatically void (‘prohibited terms’):
- PI or death (incl as a result of negligence)
- As to title, compliance with description, quality, or fitness for purpose
- as to reasonable care/skill or provided in reasonable time

Also void if unfair
ie contrary to the requirements of good faith or causes a sig imbalabce in the parties and obligations under the contract to the detriment of the consumer

Terms must also be transparent (ie in plain English and legible)

45
Q

Vitiating factors that make a contract void

A
  1. Mistake (must be so fundamental as to prevent formation of the contract in the first place/make what was prev agreed between the parties fundamentally different from wat was intended)
  2. Illegality or contravention of public policy (eg cojtrary to morality or the institution of marriage, or damaging to gov, or if interferes with justice)
46
Q

Vitiating factors that make a contract voidable

A
  1. Duress
  2. Undue influence
  3. Misrep
  4. Most entered by minors
47
Q

Void v voidable

A

Void =>
- Ie totally without any legal effect from the beginning
- Cannot be enforced by either party so no remedy available for breach
- Also cannot transfer title to property

Voidable =>
1. Operates as valid contract until a party elects to avoid (/rescind) it
2. Innocent party can choose to rescind or affirm it
3. Rescission => parties put back in place they would have been in had contract not been entered into

48
Q

Mistake as a vitiating factor

A
  1. Common/identical mistake
    = both make same mistake (usually in rel to existence, not quality, of subject matter)
  2. Mutual mistake
    = mistaken as to different things ie contract was ambiguous
  3. Unilateral mistake
    = if non-mistaken party knew or should have been aware of mistake (eg as price seemed too good to be true)
  4. Mistake as to identity
    = if identity was essential to formation of contract
  5. Non est factum
    = no understanding of doc they signed(high burden)
49
Q

Duress

A

Ie illegitimate pressure, physical duress, duress of goods

Economic duress =
1. one party in stronger economic position
2. Ues that in illegitimate manner
3. That is a sig factor in the innocent party’s decision to enter the contract

Burden of proving duress is on party who alleges it

50
Q

Undue influence

A

ie where one party takes advantage of a relationship of trust and confidence (so concerns whether true consent was given)

ie conduct that doesn’t go far enough to amount to duress

Can be:

  1. Actual undeu influence
    - if blackmails other party into entering contract/puts excess pressure on
    - difficult to provie
  2. Presumed undue influence if:
    - fidciary rel (eg parent/child, sol/client, medical adviser/patient, guardian/ward); AND
    - contract calls for an explanantion (not readily explicable by teh rel between the parties)

Presumption rebutted (onus on D to show C exercised own free informed mind, eg if took independent advice or awae of what they were doing)

51
Q

Misrepresentation (general)

A

=

  1. False statement
    - by conduct or words
    - Not silence UNLESS:
    a) failing to disclose change in circs that renders prev statement false
    b) telling half-truth
    c) obligation to disclose facts (eg fiduciary rel or contracts of utmost good faith eg insurance)
  2. Of fact
    - not opinion
  3. Made at the time of/before the contract
  4. Made by one party to a contract to the other
  5. AN (not only) inducement to representee to enter the contract
    - ie must be reliance
    - reliance must be reasonable (ie not mere sales puff eg ‘the greatest’/’the fastest’)
52
Q

Types of misrep

A
  1. Fraudulent misrep
    - Ie statement was made: Knowingly, Recklessly (ie careless as to whether true or false); or Without belief in its truth
    - V difficult to prove
  2. Negligent misrep
    - false statement and person who made it can’t prove they had reasonable grounds for believing it when made
    - Burden of disproving neg on party making rep => easier claim for C to bring
    - cause of action for damages under MA
  3. Innocent misrep
    - ie Maker of statement had reasonable grounds for believing statement was true
53
Q

Remedies for misrep

A

Voidable => innocent party can rescind or seek damages

54
Q

Recission where misrep

A

Equitable remedy, available for all forms of misrep (ie whether fraudulent or non-fraudulent)

Effect = each party returns money/property to each other, and both are released from any future obligations (ie both returned as far as is possible to pre-contract positions)

Bars to recission=

  1. Innocent party affirms the contract (express or implied)
  2. Undue delay from teh point teh misrep is discovered
  3. Impossible to restore goods/property to the other (eg because subject matter has substantially changed)
  4. An innocent purchaser acquires an interest in the property
55
Q

Damages where misrep

A

May be claimed in addition to either affirming or rescinding a contract

Fraudulent misrep = can recover all losses incurred as a result of transaction

Neglient misrep = as for fraudulent

Innocent misrep = damages not avaible (UNLESS under misrep act, where court has discretion to award damages in lieu of recission if it would e equitable to do so)

56
Q

Damages in lieu of recisison

A

ie under MA

court has discretion to award for innocent misprep and negligent misrep

Usually only when false statement was abour minor matter and woudl be unjust to allow other party to rescind

Not available if recission utself has been barred

57
Q

Exclusion of misrep

A

Void unless reasonable

Exclusion of liability for fraudulent misrep unlikely to be reasonable

58
Q

Methods of discharging/varying a contract

A
  1. Agreement
  2. Performance
  3. Waiver
  4. Breach
  5. Frustration
59
Q

Discharging contract by agreement

A

Effectively forming a new contract to end the old one (or vary it)

So all parties must agree and must be consideration for new agreement

All parties still have unperformed obligations =>
- End party will be suffering detriment/gain benefit of being excused from their obligations => that is the consideration

One party has performed their obligations in full =>
- Agreement will need to be entered into by deed as it will be unsupported by consideration
- No deed => further consideration needed

60
Q

Waiving rights under a contract

A

= Poss way around consideration

If a party promises not to enforce another party’s obligations under the contract => courts may conclude that the first party has waived its rights in respect of non-performance

BUT party waiving rights can reinstate the original terms by giving reasonable notice

61
Q

Discharging contract by performance

A

‘entire obligations rule’ ie only full (exact and precise) performance will discharge the contract => Partial performanec not sufficient

EXCEPTIONS:

  1. Substantial performance (so that any minor breaches are breached of warranty)
  2. Divisible contracts
    => Court can subdivide the obligation into components
    - Eg contract to deliver goods by instalments
  3. Partial performance accepted by the other party
    - Variation => binding only if consideration
    -BUT if party has no choice but to accept partial performance, that will not be enough to constitute agreement on the new terms
  4. Performance is prevented
    - Party’s conduct preventing performance may be a breach of condition (=> innocent party can terminate and claim damages)
    - not capable of being performed => frustrated
62
Q

Discharge by breach

A

ie one of the parties doesn’t fulfil their obligations when they fall due

Breach of condition => right to terminate contract (vs of warranty => only damages available)

  1. Actual breach = non-performance or defective performance; vs
  2. Anticipatory breach = clear one party won’t perform obligation
    - condition => immediate right to sue for damages (don’t have to wait)
63
Q

Termination v recission

A

Termination for breach => rights/obligation accrued remain and innocent party may be able to claim damages for breach

Goods delivered under contract => buyer not obliged to pay for them, but must return them (and can also claim damages for failure to supply goods in conformity with the contract)

Recission of voidable contract => treated as never effective (so parties put back into prev positions)

64
Q

Frustration (general)

A

Test=
1. Supervening act (ie event or change in circs between agreement and performance/after contract is made)
2. Which is unforeseen
3. Is outside the control of the parties
4. Renders the contract impossible to perform or radically different from what parties originally contemplated (does not apply if merely ore expensive)

Effect = from the date of the frustrating event, all future obligations are discharge by operation of law

Does not apply:
- where force majeure clause
- insurance contracts
- contracts for sale of goods where the goods have perished

65
Q

Statutory rules – Law Reform (Frustrated Contracts) Act 1943

A

Mitigates harshness of frustration (If not excluded by contract itself)

Contract frustrated =>

  1. Money paid before the frustrating event is recoverable
  2. Money that was payable before the frustrating event cease to be payable
  3. Expenses incurred before time of discharge => court may allow retention of sums paid to account for expenses incurred
  4. Party obtained valuable (non-monetary) benefit before time of discharge => party who benefitted may have to pay for it
66
Q

Purpose of damages in contract

A

Purpose = to put innocent party back in position they would have been in had the contract been performed properly

Compensatory (=> if no loss, party will receive nominal damages at most)

67
Q

Types of damages

A
  1. Expectation interest
    - basic measure
    - ie put party in position they would ahve been in if contract proprerly performed
  2. Reliance
    - where expectation too speculative
    - Puts parties in position had never entered the contract
    - Ie C is entitled to any expenses incurred in reliance upon the contract (look at wasted expenses)
  3. Non-monetary losses
    - Awarded for physical injury as long as not too remote
    - Damages for injury to feelings (eg mental distress) not usually be awarded (exception in consumer contracts where sole purpose was enjoyment eg holiday)
  4. Punitive damages
    - ie to punish party in breach
    - Not usually awarded (if misrep/other tort, may be recoverable in tort)
68
Q

Remoteness rules in contract damages

A

Party will not be able to recover loss which is too remote a consequence of the breach

Damages awarded should:

  • Fairly and reasonably be considered to arise naturally from the breach; or
  • Have been in the reasonable contemplation of both parties to the contract as a probable result of the breach
  • Remoteness considered when contract was entered into (not when breach occurred)
69
Q

General rules re damages in contract

A
  • Damages measured as at the date of breach
  • Must not be too remote
  • Causation (test = whether an ‘effective cause’ of the loss does not need to be only cause)
  • Contributory negligence may reduce damages
  • C must take reasonable steps to mitigate loss (not duty if for a debt owed)
70
Q

Liquidated damage clause v penalty clause

A

Liquidated damages if genuine attempt to pre-estimate the loss (=> binding)

If not = penalty clause and damages will be awarded in the usual way

71
Q

Indemnity vs guarantee

A

Indemnity = promise to accept responsiblity if someone else doesn;t perform an obligation or ake good losses arising from breach

Vs guarantee = promise to perform an obligation instead of the person in contract
- must be in writing to be enforceable
- cease to have effect if obligations under contract are varied/discharged
- guarantor can rely on all defences available to primary party

72
Q

Equitable remedies

A

1 Specific performance

  1. Injunction
  2. Recission

Defences to claim for equitable remedy if/:
- Unconscionable behaviour by C (ie C does not have clean hands)
- Waiver
- Unreasonable delay (‘laches’ doctrine)

73
Q

Specific performance

A

ie requires a party to perform his contractual obligations

Discretionary => will not be granted where:
- damages is an adequate remedy
- contracts involving continuous supervision by courts
- contracts involving personal services or where a rel of trust is paramount

Can be combined with damages (eg damages for past and SP for future)

74
Q

Injunction

A

Prohibitory (forbids a person doing a particular act) or mandatory (requires a person to put right a breach of contract) order

Discretionary

Injunction will not be granted if the effect would be to compel D to act in a way he could not be ordered to by an order for SP ie same restrictions regarding services contracts apply

75
Q

Restitutionary remedies

A

Goal = prevent the unjust enrichment of one party at the expense of the other

Eg where:
- money paid by mistake
- Transfer of property under threat of pressure
- undue influence
- Recission of a contract when there is an outstanding sum of money remaining with the wrong party
- Works/goods/services provided when there was no contract

Applies => can require payment of money or the turnover of property
- Services => quantum meruit (reasonable renumeration fo work undertaken)
- Goods => quantum valebat (reasonable payment for value of the goods)

76
Q
A

SQE1 (15 decks)

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