Contract (+ )

Question 1

In order to form a valid contract the following elements must be present

Answer 1

offer + acceptance + consideration + ICLR + capacity + certainty

agreement comprising a:
- valid offer
- acceptance,
- consideration: something of value in the eyes of the law must be exchange between the parties
- both parties must have capacity to contract
- intent that their agreement be legally binding.

Question 2

Formation of a Bilateral Contract – structure

Answer 2

1. Is the advert/notice/letter/statement an offer or an invitation to treat
2. If an offer, is there a counter offer or a request for further information. Is the acceptance a mirror image (unqualified)?
3. Is acceptance in response to the offer?
4. Is acceptance made using a valid mode?
5. Is acceptance communicated?

Question 3

1. Is the advert/notice/letter/statement an offer or an invitation to treat

Answer 3

invitation x5 (but exceptions!): ads, display, tender, website, auctions

Firstly, can you identify a clear and certain offer displaying an intention to be bound. The 5 items listed – advertisements, display of goods, invitations to tender, auctions and websites are generally ‘invitations to treat’ rather than offers – so they can’t be ‘accepted’ to form a binding contract. But there are exceptions, so read this element carefully.

Question 4

2. If an offer, is there a counter offer or a request for further information. Is the acceptance a mirror image (unqualified)?

Answer 4

mirror + not (further info/ counter)

Assuming you have identified the offer, you need to look at the second part – has it been accepted. Acceptance must be a mirror image – if something that looks like an acceptance is actually asking for something different to that which is offered, it is not an acceptance. And you need to be alert to two possibilities – that the communication is a request for information, which would leave the offer open for later acceptance. Or that the communication is a counter-offer, which extinguishes the original offer.

Question 5

3. Is acceptance in response to the offer?

Answer 5

response to + no ignorance (world possible)

Acceptance must be in response to the offer. This means, firstly, that an offer can’t be accepted in ignorance of the offer. Secondly, An offer can only be accepted by the person to whom it was made. Note it is possible to make an offer to the whole world, in which case anyone with notice of the offer can accept it.

Question 6

4. Is acceptance made using a valid mode?

Answer 6

any mode no less advantageous unless explicitly x2: specified (‘must’) + exclusion

Valid mode is relevant if the offeror specifies a particular method of acceptance. Now to make a mode compulsory the offeror needs to be explicit. They need to use mandatory language, for example‘must’ and furthermore they must explicitly exclude other modes – that is, state that no other mode will do. If the offeror does this then only an acceptance in the prescribed mode will be binding. The authority for this principle is Manchester Diocesan v CGI. If the offeror fails to use mandatory language and exclude other modes explicitly then they will find themselves bound by any mode that is no less advantageous. Tinn v Hoffman is the authority on this second point.

Question 7

5. Is acceptance communicated?

Answer 7

postal rule: upon posting (not receipt/not read) unless ousted: receipt required or fault of offeree

instant means: upon receipt in office hours/next working day: context! (not read) unless fault by offeree but not offeror (broken offeror fax machine)

OK, so we have examined the first stages of acceptance – if all of these steps have been satisfied so far, so the acceptance is in response to the offer, it is unqualified and is through a valid mode, the next issue to consider is at what point in time the acceptance will be deemed communicated. Now this depends on the method of acceptance used. Let’s examine acceptance via post first. The postal rule set out by Adams v Lindsell tells us that an acceptance by post is binding upon posting, not when it is received. Now there are circumstances when the postal rule will not apply, perhaps the most important of which is when the postal rule is ousted by the offeror. If the offeror states that acceptance is only effective on receipt then this will have the effect of setting aside the postal rule and acceptance will take place when it reaches the offeror.

What about when acceptance is not by post, but is by instantaneous means? A key authority here is Entores v Miles. Instantaneous communications are binding upon receipt, that is when it is accessible to the offeror within office hours, not at the point the offeror reads the acceptance. It is the offeree’s job to ensure acceptance has got home. If there is an error at the offeree’s end meaning acceptance was not properly communicated, then there will be no contract. However if the fault rests with the offeror – it is their fax machine that is out of ink to use one of Denning’s examples from Entores – then there will be a contract – the offeror will be estopped from denying acceptance.

If an instantaneous communication is sent outside of office hours then it will be effective first thing the next working day. The courts have shown a willingness to look at the context and the parties past dealings to determine the meaning of office hours – see Thomas v BPE Solicitors on this point.

Question 8

6. At the point of acceptance is the offer still open?

Answer 8

closed
- counter
- lapsed x3: express or reasonable time or death (offeree or if offeror and offeree knows
- revoke if communicated (no postal rule)

Finally, it is necessary to check that at the time of acceptance, the offer is still open. An offer will cease to be open if it is rejected. As already mentioned, a counter-offer has the same effect as a rejection – it leads the offer no longer being open for acceptance.

Secondly, an offer will lapse if it is not accepted in the period prescribed by the offer, or if there is no such period expressed, if it is not accepted within a reasonable time. It will also lapse on the death of a party if the offeror dies and the offeree knows this, or if the offeree dies.

Thirdly, an offer can be revoked an any time before acceptance, but the revocation must be communicated – the postal rule does not apply.

One thing that should have become clear from your study of contract law is that a party can, in theory, become bound into a contract with two other parties, if it is not careful – even to the extent of agreeing to sell the same thing twice to two different people, which obviously sets the party on a path towards breach of contract.

Question 9

Intention to Create Legal Relations

Answer 9

presumptions!
commercial = yes
domestic/social = no

The main thing to note about ICLR are the presumptions applied by the court – and these presumptions are rarely rebutted. In a business context ICLR is presumed. In a domestic or social agreement, the reverse is true, it is assumed that you don’t want enter into a legally binding contract when you make agreements with friends or family.

Question 10

Capacity to Contract – minors

Answer 10

no unless x4 necessaries, employment, education, apprentice

Capacity too is a relatively straightforward principle. Minors lack capacity to contract. There are limited instances when a minor will be bound by a contract they have entered into including contracts for necessaries and contracts of employment, apprenticeship or education.

Question 11

Capacity to Contract – Mental incapacity

Answer 11

incapacity = unable to understand
incapacity does not mean not binding!
necessaries: reasonable sum binding
other: binding unless C shows incapacity + D knew

Someone lacks mental capacity if they are unable to understand the relevant information, retain it, use it, and communicate a decision. However, lack of capacity does not mean a contract is not binding.

In relation to contracts of necessaries, the person without capacity remains liable to pay a reasonable sum.

In relation to other contracts, the contract is binding unless the person claiming incapacity can establish that they did not understand what they were doing, and that the other party knew that to be the case.

Question 12

Consideration

Answer 12

w/o = gratuitous promise
x4: past, move, sufficient not adequate

So consideration is doing or agreeing to do something, or not doing or agreeing not to do something. Each party must give consideration for a contract to be binding. This mutual exchange of something of value is vital. Without exchange you have a unenforceable gratuitous promise. I promise to give you my car. There is nothing you can do if a renege on my promise. If, however, you promise me something of value in return for my car we have the basis of an enforceable contract.

x4

First, consideration must not be past - It is not generally possible to use as consideration some act or forbearance which has taken place prior to the promise to pay, although there an exception to this rule, set out in the element. If consideration is past that exchange is missing.

Consideration must move from the promisee – so a party who has not provided consideration may not bring an action to enforce a contract. If you want to bring a claim, you have to have provided consideration, you can’t point to someone else having provided it.

Consideration need not be adequate – the court will not look at whether the price is ‘fair’.

Consideration must be sufficient – so it must have some value in the eyes of the law.

Question 13

Is it possible to vary a contract –ie to change some of its terms?

Answer 13

yes

Question 14

variation

Answer 14

like new but consideration key
promise to pay more or accept less?

Varying a contract is, in most regards like forming a new contract: the usual principles of contract formation that we looked at in the first consolidation lecture apply, including that there must be consideration provided in relation to the new contract.

Example
Consider this example. On 1 January Party A agrees to pay Party B £5,000 on 30 January. In return, Party B agrees to deliver a particular van to Party A on 30 January. On 15 January Party A agrees to pay party B £10,000 on 30 January. A relevant question is whether the agreement on 15 January is supported by consideration, in order to form a binding contract. It isn’t, because on 15 January, Party B does not agree to do anything beyond that which they have already agreed to do – they offer nothing new. Stilk v Myrick is precedent for this.

So, my parting words on the issue of contract variation would be to look clearly at the facts to ascertain if you are faced with a promise to accept less or a promise to pay more, and don’t confuse the two, because they take you to different legal principles.

Question 15

Variation Promises to Pay More

Answer 15

beyond existing duty (no fair/substantial)
or factual consideration! x5
1 – existing contract ie only variations not new contracts
2 – reason to doubt other willing/capable
3 – extra pay ensures existing obligations
4 – payee gains practical benefit/avoid disbenefits
5 – no (economic) duress

If Party B exceeds their contractual duty then the promise is enforceable – so in our example, if on 15 January (the time of the second agreement), Party B agreed to deliver the van earlier, or in a better condition, or to a different place – that would be good consideration, because it would be something beyond the existing duty (and as long as there is consideration with some value in the eyes of the law, the court will not look into whether the value is ‘fair’ or ‘substantial’).

Williams v Roffey established the concept of ‘factual consideration’ that is a variation of contract where there doesn’t appear to be new legal consideration but the promisor does appear to be benefitting from the new promise to pay more. Note that all 5 of Glidewell LJ’s criteria need to be satisfied.

1, the parties must have an existing contract for goods or services. So factual consideration does not apply to a new contract but only to variations of existing contracts.

2, the paying party must have reason to doubt the performing party is willing to or has the capacity to complete their existing obligations.

3, an extra payment is promised to ensure the existing obligations are completed.

4, the paying party gains a practical benefit or avoids a disbenefit.

5, the extra payment is made in the absence of duress.

Note that Glidwell LJ’s final criterion is that the promise must not be given as a result of duress, so where there is an issue as to whether A’s promise was freely given, economic duress should be explored.

Question 16

Variation Promises to Accept Less

Answer 16

x5 + promissory estoppel
- different time, place, thing
- third party
- practical benefit

As I mentioned, Williams v Roffey is about promises to pay more. What about a situation where the change is that Party B agrees to accept less? Again, in this situation, one party has failed to provide consideration for the new agreement.

On 1 January Party A agrees to pay Party B £5,000 on 30 January. In return, Party B agrees to deliver a particular van to Party A on 30 January. On 15 January. {arty B agrees to accept £3,000 instead of £5,000 on 30 January. In this example, Party A is not bringing anything to the table – they are agreeing to pay £3,000 but they were already obliged to pay £5,000. Foakes v Beer is authority for the proposition that there is no consideration in this situation.

Is there any way to make an agreement to accept less enforceable? Well, first you should consider if a relevant common law exception applies. To consider the exception from Pinnel’s case – payment of a different place, time or thing. An example would be, if the £3,000 was paid earlier than the £5,000 was going to be paid, that would be good consideration – Party B has gained something (earlier payment, albeit of a lesser sum). The exceptions of payment by a third party and practical benefit under MWB v Rock should also be considered.

In this case a landlord agreed orally to reschedule rental payments under a licence agreement to give a tenant longer to pay, thereby varying the licence. The Court of Appeal considered whether there had been valid consideration for the variation. The court acknowledged that part payment of a sum already due is not normally good consideration. However, the judges agreed that there was sufficient consideration. Their justification was that the landlord obtained a practical benefit by keeping the tenant in the property (compared to leaving the property vacant). This benefit went beyond the advantage of receiving prompt payment of a part of the arrears and a promise that it would be paid the balance over the coming months

+ promissory estoppel

Question 17

Variation Promises to Accept Less + promissory estoppel

Answer 17

x4: defence, clear/unequivocal, reliance, unfair

And finally in this area, let’s turn to promissory estoppel. Promissory estoppel isn’t so much a rule of consideration. It is, instead, a defence – it can be used to stop a promisor from going back on their promise to accept less when the promisee has given no consideration in return for that promise – so pretty radical stuff.

Returning to our example, so promissory estoppel doesn’t change the fact that no new / varied contract has been formed on 15 January.

But what promissory estoppel does is to potentially allow Party A to defend itself, when Party B comes demanding the £5,000, on the basis the events that did take place on 15 January.

Promissory estoppel is an equitable doctrine and the court will weigh up various considerations in whether to use its discretion to allow the defence of promissory estoppel to operate. Those considerations are:

1, promissory estoppel is a shield not a sword, so it can only be used as defence not as a cause of action.

2, was there a “clear & unequivocal promise (by words/conduct) that strict legal rights will not be fully enforced” – so, how clear and unequivocal was Party B, on 15 January, that it would accept £3,000 instead of £5,000.

3, Has there been a change of position in reliance on this promise? So, has Party A done something different as a result of Party B saying they would accept £3,000 instead of £5,000?

4, finally, would it be inequitable to let Party B go back on the promise – is it unfair? Here you can draw on all relevant facts, and again, use your common sense.

If party A can establish all of these, then they may convince the court to use its discretion and allow the shield of promissory estoppel to defeat Party B’s claim for £5,000, or to delay it – the court has some flexibility as to remedy, as further explained in the element.

Question 18

Duress

Answer 18

x3

Duress to the person

Duress to property

Economic duress is a more complex idea

Question 19

Economic duress

Answer 19

1 – lack of practical choice
2 – illegitimate pressure (threat: bad faith + active victim protest)
3 – causation: but for duress V not agreed

The current leading test for economic duress comes from Dyson J in DSND Subsea v Petroleum Geo Services.

1 – The first element of the test is whether the victim had a lack of practical choice – so no viable alternative but to acquiesce to the duressor’s demand. The pressure must be illegitimate. A threat made in bad faith in breach of contract which the victim protested at at the time and then took steps to set aside as so as the pressure lifted, rather than affirm, would be illegitimate.

2– The final part of Dyson J’s test relates to causation – the victim would need to show that but for the duress they would not have entered into the agreement. If you apply Dyson J’s considerations one by one, drawing on case law, drawing analogies and distinctions to the facts presented you will find a path through the law in this area.

Question 20

Undue Influence

Answer 20

There are two types

1 – overt acts of improper pressure or coercion (eg unlawful threats), has a clear overlap with duress

2 – relationship of influence/ ascendency … of which unfair advantage is taken

Question 21

Undue Influence
2 – relationship of influence/ ascendency … of which unfair advantage is taken

Answer 21

1–relationship of trust and confidence, presumed: child/parent; patient/doctor
2–unfair advantage: transaction requires explanation eg not for benefit

1 – The element provides further explanation in relation to undue influence. So first you need to look for a relationship of influence / ascendancy, which will often be where the parties are in a relationship where one trusts and has confidence in the other – the other thereby has influence and ascendancy. And if you are struggling to understand what that means, look at the examples of when it is ‘irrebuttably presumed’. You can understand how a child trusts their parents, or how a patient has to trust their doctor, and how this gives the parent / doctor power.

2 – And the second element is that unfair advantage is taken of that relationship of influence / ascendancy. It is for the claimant to prove this. The claimant can do this by showing the transaction requires explanation, most likely because it does not appear to be in the interests of the person entering into it, or it doesn’t fit with what would usually be expect in the relationship concerned. A client agreeing to enter into a partnership with his solicitor might be a contract that requires explanation – it would not be normal for a solicitor and client to do this, and you would be concerned that the client might come out of that worse than the solicitor.

The contract may therefore be tainted by undue influence (there would of course be potential ethical and disciplinary consequences for the solicitor as well). A client agreeing to pay a solicitor for services provided would not ordinarily be a contract that requires explanation – that is perfectly normal in a solicitor / client relationship.

Question 22

Pre Contractual Statements

Answer 22

x3

representation: possible action in misrepresentation

express term: assess whether term is breached

mere puff: no legal effect

We’ve got this search for terms, both express terms (distinguishing them from representations) and implied terms, including (but not limited to) those implied by statute.

Question 23

a representation OR a term of the contract?

Answer 23

intend to be bound: yes = term (= express) ; no = representation/mere puff
factors x5: importance, timing, writing, special, responsibility

The central question you need to ask yourself is ‘Did the parties intend the statement to binding?’ If yes, then the statement is a term of the contract. If no, then it is either a representation or mere puff (and you can put off deciding which of these it is until you have studied the topic of misrepresentation).

factors
- importance of statement
- timing of statement
- the reduction of the contract into writing
- special knowledge or skill of the person making the statement
- assumption of responsibility

If your conclusion is that the statement is a term of the contract, then it will be an express term.

Question 24

Implied Terms

Answer 24

fact (custom, efficacy, course) or law (common, statute x3)
SGA x4: description, quality, purpose, sample
SGSA: reasonable care and skill
CRA: similar

The terms of a contract are comprised of express terms but also implied terms. Implied terms can be implied by fact and implied by law.

fact
- trade or professional customs
- business efficacy
- a course of dealing between the parties

law
- at common law
- by statute

3 statutes – the Sale of Goods Act 1979, The Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015.

SGA 1979:
s13(1) – description
s14(2) – satisfactory quality
s14(3) – fit for particular purpose
s15 – correspond with the sample

SGSA 1982: services provided with reasonable care and skill

CRA 2015: similar provisions

Question 25

breach of a contractual term

Answer 25

categorise term breached
- warranty (D) vs innominate (deprive?) vs condition (E/T + D)

• warranty: damages only
• innominate term: do the consequences of the breach deprive the party not in default of substantially the whole benefit of the contract: yes = below / no = above
• condition: right of election = affirm & damages OR terminate & damages

Question 26

express terms

Answer 26

x1/3: signed, notice, course

signed written contract

incorporation by notice

incorporation by a course of dealing

other ways of agreeing express terms: being careful to distinguish them from representations

Question 27

terms of a contract

Answer 27

implied or express

Question 28

how we know if a term is a warranty, an innominate term, or a condition

Answer 28

root of contract: breach = terminate
important but root?
yes = condition; no = warranty
leftover: innominate breach = minor effect

A condition is an important term ‘going to the root of the contract’.

A warranty is a less important term not going to the root of the contract.

How do you decide if a term goes to the root of the contract? You should consider this question – did the parties intend, at the time of contracting, that any breach of the relevant term could result in the innocent party terminating.

Only if the answer to this question is clearly ‘yes’ would you conclude that the term goes to the root of the contract and that it should be categorized as a condition from the outset.

However, there are also many terms which, at the outset, are neither conditions nor warranties but are of an ‘innominate’ or intermediate nature. A breach of such a term, if it has a minor effect, will allow the innocent party to claim damages only. A breach with more serious consequences will allow the innocent party to treat the contract as repudiated and claim damages. So this allows a more flexible approach.

Question 29

Exemption Clauses

Answer 29

x3: incorporation (x3); construction; statute (CRA or UCTA –b2b)

So what happens if you come across a clause limiting or excluding the liability of a party in the event of breach?

You then need the following 3 issues – i) incorporation ii) construction iii) statutory controls

1 – incorporation – has the exemption clause become part of the contract through signature, notice or course of dealing

2, construction – does the clause, as drafted, cover the alleged breaches and resulting loss?

3, statutory controls UCTA 1977 is relevant in relation to contracts between two businesses and the CRA governs consumer contracts.

Question 30

incorporation – of exemption clauses

Answer 30

signed: default binding
notice: reasonable steps re attention
course of dealing: regular + consistent

In almost all cases, the terms of a signed contract will be binding.

Terms can also be incorporated by reasonable notice, that is reasonable steps have been taken to draw the terms to the claimant’s attention.

In the case that the contract in question is one of a number of contracts entered into by the parties, it is relevant consider whether a clause has been incorporated by a course of dealing. This is relevant, where a clause has been brought to the notice of the other party in previous dealings but on the occasion in question it was omitted. In order for a clause to be incorporated through a course of dealing it must be shown that the course of dealing was both regular and consistent.

Question 31

construction – exemption clauses

Answer 31

ambiguity against claimant ie narrower

does the clause, as drafted, cover the alleged breaches and resulting loss? If there is any doubt as to the meaning and scope of the exemption clause, the ambiguity will be resolved against the party seeking to rely upon it. To put this another, albeit slightly simplified way, if there is doubt about what an exclusion clause means, it will be construed to be of a narrower rather than broader effect.

Question 32

statute – exemption clauses

Answer 32

If an exemption clause has been incorporated and it will be construed to cover the breach / loss concerned, then the remaining question is whether there are statutes that effectively prohibit such an exclusion / limitation. Thirdly and finally in our structure then, statutory controls need to be considered. UCTA 1977 is relevant in relation to contracts between two businesses and the CRA 2015 governs consumer contracts. You need to get into the detail of those two statutes, and note in particular the way they link with the terms implied by the Sale of Goods Act, Supply of Goods and Services Act and Consumer Rights Act.

Question 33

Misrepresentation

Answer 33

actionable? fraud/negligent/innocent? remedy?

• Whether there is an actionable misrepresentation at all
• If so, whether it is fraudulent, negligent or innocent
• What remedy might be available.

Question 34

Is there an actionable misrepresentation at all?

Answer 34

x5: unambiguous + false + statement of fact + to claimant + induces

excludes (but) x3: opinion + intention + silence
includes x6
- some conduct
- statements of law
- superior opinion but no grounds + opinions not held
- intention when no actual intention
- half-truths
- continuing representations

And when you are considering whether there is an actionable misrepresentation at all, you are looking at whether there is an 1) unambiguous 2) false 3) statement of fact 4) addressed to the claimant 5) which induces the claimant to enter into the contract with the statement maker.

includes
1
- statement of fact
- some conduct
- statements of law
2
- statements of opinion which lack ground from people with superior knowledge / experience
- opinions not actually held
3
- statements of intention by people with no such intention
4
- half-truths
- continuing representations
- contracts / relationships of good faith

does not include
- 2: statements of opinion
- 3: statements of intention
- 4: silence

Question 35

misrepresentation – Statement of fact

Answer 35

fact
not opinion, intention or silence (exceptions!)

There are various rules about what will and what will not amount to a statement of fact. Most cases on misrepresentation are concerned with whether the statement is a statement of fact. An example of a statement of fact might be ‘this machine can print 5000 leaflets an hour’.

Generally, you can’t base a claim in relation to misrepresentation on a statement of opinion, like ‘I think this is the best machine I’ve had in the shop’, a statement of intention like ‘I am going to service this machine every day until the day I sell it’, or silence. But if you do detect a statement of opinion, or intention or silence, you need to double check the situation, because there are exceptions to the general rule that you can’t base on a claim in misrepresentation on these.

Question 36

Inducement

Answer 36

2 options: obj vs subj test
objective test (+ lack of rebuttal); or
subjective test

Broadly speaking, what this is concerned with is that a contracting party cannot complain about a false statement of fact if, in fact, that statement didn’t make any difference to them entering into the contract. It has to be a statement that made a difference – that induced them to enter into the contract with the statement maker.

two options: objective test (+ lack of rebuttal) OR subjective test

EITHER
two part test

1 – You show that the statement was material, that it would have influenced a reasonable person. This is an objective test. This materiality test: the representee shows that the statement would have influenced a reasonable person.

2 – IF the claimant can show this, then inducement is established unless the party making the statement can show the statement did not influence this particular claimant. So the representor is saying ‘it might have influenced most people, but it didn’t influence you.

OR
it is open to the claimant to say ‘ok, it would not influenced most people, but it did influence me’, and of course the claimant would need to prove that

Question 37

misrepresentation + own investigations

Answer 37

remember but for
what if no statement had been made
NOT what if the truth had been told!

One thing that can confuse people is what the effect is of the party alleging misrepresentation having made their own investigations.

what would the situation have been like if the false statement had not been made (ie no statement at all had been made. This question IS NOT what would the situation have been like if the truth had been told)? If the answer is that the party alleging misrepresentation would still have entered the contract, then it is likely there is no inducement

Question 38

Categorisation – misrepresentation

Answer 38

innocent, fraudulent, negligent (switch)

innocent: (believe) reasonable grounds
fraudulent: no belief true (or reckless)
negligent: switch burden of proof: D to prove not negligent but rather innocent once fraudulent has been raised

Contributory negligence is available as a defence to a claim for negligent misrepresentation only.

can restrict liability if clause satisfies the requirement of reasonableness as stated in s. 11(1) of the Unfair Contract Terms Act 1977

The categorisation comes down to what the person making the statement did or didn’t know, or should or shouldn’t have known.

innocent, fraudulent, negligent (switch burden of proof)

Note, first, that a claim in misrepresentation can succeed even where the representor believed and had reasonable grounds to believe what they said – so where there is, you might say, relatively little ‘fault’ on the part of the representor. That is still an actionable misrepresentation, and gives rise to remedies, as we will see.

At the other end of the spectrum are fraudulent misrepresentations, those where the person making the statement knows it is untrue, or doesn’t believe it is true, or is reckless as to truth.

In the middle, you have representations where the person making the statements did not do so fraudulent, but they either didn’t believe, or did not have reasonable grounds to believe, that the statement was true. And because of the way the relevant statute is worded, there is a little twist to the burden of proof here. Essentially, if it is a situation where the representee is not arguing or cannot establish that a statement was ‘fraudulent’, so fraudulent misrep is off the table, so to speak, then it is for the representor, not the representee, to show the misrepresentation was innocent, rather than negligent.

Question 39

Remedies for misrepresentation

Answer 39

rescission: voidable (not void: mistake)
+
damages for fraudulent/negligent (or innocent if not rescinded)
(+ indemnity?)

The first remedy for misrepresentation is rescission – the contract is set aside, with the idea being that the parties return to the position as if there had been no contract. Note that a contract is ‘voidable’ for misrepresentation, meaning it may be possible to set it aside. The contract is not ‘void from the outset’ – it is not automatically of no effect. This is important when it comes to contrasting misrepresentation and mistake, so remember this.

Damages are generally only available in the case of fraudulent or negligent misrepresentation, but can also be available when there is an innocent misrepresentation and the contract is not rescinded. In addition, in the case of rescission, it may be possible to obtain an indemnity in relation to obligations arising from the transaction. This is explained further in the element, but a key point is that scope of this indemnity is more limited than the damages that might be available if a misrepresentation can be shown to be fraudulent or negligent.

Question 40

misrepresentation structure

Answer 40

actionable? x5 unambiguous false statement of fact to claimant that induces
categorise x3: innocent, negligent, fraudulent
remedy: rescision / damages / indemnity?

So this structure to adopt – first identify if you have an actionable misrepresentation. This requires a rigorous approach to the 5 aspects of identifying an actionable misrepresentation. 1 unambiguous. 2 false 3.statement of fact 4. addressed to the claimant 5. induced the contract.

If you do have an actionable misrepresentation, categorise the misrepresentation – is it fraudulent, negligent or innocent. This will then lead into your discussion of the available remedies.

Question 41

Mistake – common point

Answer 41

void

The point common to them all is that a contract tainted by mistake is void from the outset – the contract is a nullity from the outset, meaning it cannot have any legal effect.

Question 42

mistakes – types

Answer 42

common: both and same

mutual: both but different

unilateral: only one but other (knows)

Question 43

common mistakes

Answer 43

both parties made same msitake
- existence: void unless risk
- owned: void
- fundamental quality: void if severe

as to the existence of subject matter: void unless contract impliedly/ expressly allocated this risk

as to the subject being owned by the buyer: void

as to a fact or quality fundamental to the agreement: void only if the most severe of instances of mistake

common mistakes are where the parties have both made the same mistake. Whether or not this leads to the contract being void depends on the precise nature of the mistake

Question 44

Mutual mistake

Answer 44

both made mistake but about different things eg negotiated at cross purposes so no real agreement = void!

• identity of subject matter: void
• intention: void

as to the identity of the subject matter: void

as to the expression of intention: void

Mutual mistake occurs where both parties are mistaken but they are mistaken about different things. In other words, they have negotiated at cross purposes. The example given in your material is where A and B have negotiated completely at cross purposes, whereby A is offering one thing whilst B is accepting another. There is no real agreement here because the parties are not agreeing on the same thing, and the contract will be void.

Question 45

unilateral mistake

Answer 45

only one makes mistake but other is (deemed) to know
- intention: void
- nature of doc: void IF x4 blind, illiterate, senile, fraud
- identity of person: void BUT hard face to face

as to the expression of intention: void

as to the nature of the document signed: void if the mistake is due to blindness, illiteracy, senility or fraud

as to the identity of the person contracted with: void, but very hard to show in face to face transactions

unilateral mistake - occurs where only one party is mistaken and the other party knows, or is deemed to know, of the mistake.

The example most prominent in this module in relation to unilateral mistake is of unilateral mistake as to the identity of the person contracted with. So where one party thinks he is contacting with X, but in fact he is contracting with Y, and Y knows or is deemed to know of this mistake.

Here an important distinction needs to be made between face to face dealings and those at a distance.

Where the parties are not dealing face to face, it will be much easier to establish that the confusion is about identity rather than attributes, and the contract will be void as a result.

Question 46

title passing – unilateral mistake

Answer 46

voidable vs void
void: title never passed to fraudster

Note that in the example I have just given of Y saying she is a celebrity, when she is not, Y has probably made a misrepresentation – Y has made an unambiguous, false, statement of fact, addressed to the claimant, and let’s assume that that has induced the claimant to enter into the contract with statement maker. If this is established, the contract would be voidable for misrepresentation. But this might not give the original owner the protection the owner needs. If the original owners has sold goods to the fraudster, and the fraudsters sells them to an ultimate purchaser, title will have passed to the ultimate purchaser.

If, on the other hand, the contract is simply void for mistake, title in the goods never passed to the ultimate purchaser. It will be much easier to get the goods back – they simply don’t belong to anyone other than the original owner.

Question 47

the rule of privity is

Answer 47

at common law, a contract creates rights and obligations only between the parties to it. A contract does not confer enforceable rights on a third party to the contract, nor does it impose obligations on a third party.

But there are exceptions to this rule eg collateral contract

Question 48

Privity of contract – Common law exceptions

Answer 48

x4

agency

assignment

actions in tort

other judicial attempts to avoid the doctrine

Question 49

Privity of contract – Common law exceptions – agency

Answer 49

x3: behalf, authorised, consideration

three things must be present:
1. it should be clear that the agent is contracting on the principal’s behalf. So if the director telephones the publisher to buy some advertising space but never mentions her company, then the company isn’t going to end up a party to the contract;

2. The agent should be authorised to act as agent in relation to the contract concerned. Again, quite obvious. I can’t telephone the publisher to buy advertising space and bind the company, because I’m not a director of it – I don’t’ have the authority (note, to be clear, you don’t’ have to be a director to be an agent. Anyone with authority can be an agent. Directors are likely to have quite broad / general authority, a junior employee, for example, might have authority only to enter into very minor contracts).
3. Consideration must move from the principal –so, ultimately it is the company that is promising to pay for the advertising space, not the director.

Question 50

Privity of contract – Common law exceptions – assignment

Answer 50

pass rights (if not prohibited) but not obligations

The idea with assignment is simple. A party can pass its rights under a contract to someone else, but it cannot pass the obligation. Again, this is probably common sense. Imagine you agree to pay me £500 to paint your house, because you’ve heard I’m good at that. My obligation is to paint the house. My right is to collect £500. I can assign that right to someone else – because why not, why would you care whether I collect the £500, or someone else does? – it doesn’t make any difference to you. But I can’t assign the obligation to paint your house to someone else, because then you wouldn’t be able to make me paint your house, and it was me you wanted to paint it, and I agreed to that.

Of course, although the default is that rights can be assigned, the parties can agree that this will be prohibited, in which case an assignment will not be possible.

Question 51

Privity of contract – Common law exceptions – Actions in tort

Answer 51

You will remember the facts of Donoghue v Stevenson from your study of tort law. In terms of the contracts involved – at the top of the chain we have a manufacturer, A, who supplies drinks to a retailer, B. The retailer sells a drink to a customer Y. The customer then gives the drink to her friend. C.
What has this go to do with privity of contract? Well, one way of looking at this is that C is not party to any contract. If C was party to the contract when A sold the beer to B, or B sold it to Y, then C might well have a remedy for breach of contract. But unfortunately, that’s not the case. So you could see this as a privity problem – a problem of C not being a party. But the law of tort gives C a remedy instead.

Question 52

Privity of contract –

Answer 52

statute: third party can if (1/2)
1 – contract specifically provides
2 – benefit of third party + contract not contrary

*cannot enforce third party
* third party subject to limitation/exclusion clauses

The Act allows a third party, in limited circumstances, to enforce a term of a contract to which they are not a party.

To be effective:
- the contract must specifically provide that the third party can enforce a term of the contract; or
- the agreement purports to confer a benefit on the third party, and it is not the case that the contracting parties ‘did not intend the term to be enforceable by the third party’.

Obviously, this is a major change.

Note, however, that:
1. The Act does not allow a contract to be enforced against a third party.

2. The third party’s claim will be subject to limitation clauses /exclusions clauses in the contract

Question 53

Discharge by performance

Answer 53

perform full = discharge
not perform full = no pay (“entire obligations”)
entire obligations exceptions x4
1 – accept partial
2 – substantial (pay less costs to finish)
3 – divisible obligations
4 – wrongful prevention (done or breach)

If you perform your obligations in full, you are discharged from further obligations.

But if I don’t provide the service in full, I never become entitled to any payment. This is the ‘entire obligations’ rule.

But it has 4 exceptions.

1- acceptance of partial performance

2 - substantial performance: might be entitled to payment less the cost of you getting it over the final line.

3 – divisible obligations: if our agreement was that the report was divisible into 10 parts and I would get paid £100 per part, then if I do 9 parts, I am entitled to £900

4- wrongful prevention of performance: if I am prevented from completing by fault on your part, I am entitled to payment for what I have done, or to claim damages for breach of contract.

Question 54

Discharge by agreement

Answer 54

1 – outset
2 – during: consideration (release/new terms) or deed

There are two key points.

1, the parties can agree when they enter into the agreement that the contract will only become binding if X happens, or will cease to be binding if Y happens. That is perfectly acceptable, and these can be considered examples of the parties agreeing how the contract will be discharged.

2, the parties can agree at any stage that one or both of them will be released from obligations in the contract. However, for such an agreement to be binding, consideration must be provided (or the agreement must be entered into by way of a deed). So if I agree to release you from your obligations under a contract, this agreement is not binding unless you offer consideration. Offering me a payment would be consideration, as would releasing me from my own obligations, or you agreeing to new terms.

Question 55

Repudiatory breach of contract at common law

Answer 55

breach of (innominate =) condition
- voidable (choice) not void
- election (affirm/terminate) + damages

A repudiatory breach is where one party has breached a term of the contract which is either a condition or an innominate term which is to be treated as a condition, then the innocent party may in certain circumstances, be entitled to terminate the contract for repudiatory breach of contract – this is a choice (an election) not something that the innocent party has to do nor something which happens automatically.

Note that when a contract is terminated in this way, this is not the same as it being void. The parties are released from future obligations, but the contract is not void from the outset – what has already happened under the contract is valid.

So, you begin by identifying and categorising the breach. A breach of warranty will give the innocent party the right to claim damages. A breach of condition, in addition to the right of damages, gives the innocent party the right of election – the choice between affirming and terminating the contract.

Question 56

The usual remedy for breach of contract is

Answer 56

an award of compensatory damages. Damages are available for any breach.

Question 57

Repudiatory breach of contract at common law – example

Answer 57

So let’s consider an example. A marketing company is obliged to provide a report to a food retailer each month for a year, reporting on competitors marketing activity, in return for a monthly fee. The food retailer fails to make the 3rd and 4th payments. Let’s assume that this payment obligation is a condition. A breach of condition gives the marketing company the right of election – they can choose to terminate or affirm the contract with the food retailer.

If the marketing company terminates, it can claim for the loss of the contract. The measures of damages is likely to be the sum needed to put the marketing company in the position as if the food retailer properly performed its obligations. So you would add up the payments to be made over the remaining part of the 12 month period, and then make a deduction for the fact that to earn those payments, the marketing company would have had to do some work which it does not now have to do.

This could be complicated. The marketing company could instead affirm the contract, and then there is no need for a damages calculation – it simply seeks payment of the monthly fee in each month – but it does have to provide the reports each month!

Question 58

Frustration approach

Answer 58

1 – frustrated?
2 – effects of frustration

First, you have to ascertain whether a contract has been frustrated. Then you need to consider the effects of any frustration.

Question 59

ways in which a contract can be discharged

Answer 59

x4

by performance

by agreement

by breach

by frustration

Question 60

Frustration

Answer 60

w/o fault of either + radically different (x3: impossible, illegal, common purpose frustrated)
NOT x4: more onerous, default, reasonably contemplated, provided for in contract

So frustration occurs where, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.

Three are examples of what might be ‘radically different’ – so if performance is x3
impossible/illegal or
the common purpose is frustrated.

Note that a frustrating event is not one that is x4
merely more onerous to perform,

or caused by default of a party, or one

which the parties could have reasonably contemplated or has been

provided for in the contract.

In relation to ‘which the parties could reasonably have contemplated it is important to realise that there will, no doubt, be many cases where something can be foreseen as a theoretical possibility, but where neither party can be criticised for failing to take it into account – so this should not be construed in the strictest terms.

Question 61

Consequence of frustration – common law

Answer 61

automatic discharge from date of frustrating event: no future obligations
past obligations: statute rules x2
1 – repay money 2 – no future payment
but
- court discretion keep money for expenses
- money retained cannot exceed expenses
- pay just sum if benefit

Turning now to the consequences of frustration. The effect of frustration is that the contract is terminated from the date of the frustrating event, automatically and the parties are discharged from all outstanding future obligations.

past obligations – The Law Reform (Frustrated Contracts) Act 1943

This statute changed the system significantly so that:

1. By default, money paid before the time of discharge should be repaid (no need to show a complete failure of consideration);
2. Money payable (ie which became due on a date prior to the frustrating event but was not in fact paid) ceases to be payable.

These two rules obviously help the paying party. But:
1. The court has a discretionary power to order such retention or recovery of money as it thinks just in all the circumstances to account for expenses incurred by the payee (normally the supplier).
2. The amount retained or recovered is capped and cannot exceed (i) the actual expenses incurred nor (ii) the amount paid or payable by the paying party
3. Where a party has gained a valuable benefit under the contract before the frustrating event, may be required to pay a just sum for it.

Question 62

Assessing damages for breach of contract – basic rule

Answer 62

expectation interest: same position post breach had contract been performed

The basic rule is that the innocent party should be put in the same position post-breach that they should have been in had the contract been performed.

= calculating the expectation interest

Question 63

calculating the expectation interest

Answer 63

x3: cure; value; amenity

There are three ways of calculating the expectation loss, all of which are examples of measuring what sum of money is needed to put the innocent party in the same position post-breach that they should have been in had the contract been performed.

cost of cure

difference in value

loss of amenity

Question 64

calculating the expectation interest – defective building works – default

Answer 64

cost of cure

The cost of cure represents the cost of substitute or remedial work required to put the claimant in the position he would have been in had the contract been properly performed.

So you are working out how much money you need to actually get the breach fixed – to put right the building.

where there is a genuine and reasonable intention to actually ‘cure’ the breach.

Question 65

calculating the expectation interest – alternative: difference in value

Answer 65

Alternatively, the claimant’s expectation interest may be calculated by reference to the difference in value between the performance received and that promised in the contract. Here, if you like, you are asking what sum of money balances out the loss in value of the goods or services resulting from the shortcoming in performance, not what some of money is needed to actually fix the shortcoming in performance.

Question 66

calculating the expectation interest – loss of amenity

Answer 66

Finally there is loss of amenity – how much money is needed to compensate a claimant for a lack of pleasure / happiness caused by the shortcoming in performance.

. The loss of amenity approach is likely to be useful in situations where a contract is concerned with something that might not have a clear financial value.

Question 67

alternative assessment of damages: reliance measure

Answer 67

default: expectation interest
reliance measure: puts C as if never contracted
used when expectation interest not appropriate: speculative loss

This measure allows the claimant to recover the expenses which have been incurred in preparing for, or in part performance of, the contract which have been rendered pointless by the breach.

The reliance measure is inherently more cautious in its approach. It is backward looking (unlike the expectation measure, which is forward looking) and aims to put the claimant in the position they would have been in had they never contracted.

The claimant generally has a choice as to whether damages should be measured on the expectation basis or the reliance basis. But because of it’s backwards looking nature, the reliance interest it is not the normal measure.

Reliance losses are most likely to become relevant because the courts will not award expectation damages if they are highly speculative – so, for example, if the expectation measure turns on a loss of profit, and it cannot be said with any confidence what profits would have been made, if any, the reliance measure may be used instead.

Question 68

alternative assessment of damages: restitution interest

Answer 68

focus on D gains at C’s expense (not C loss)
exception but where expectation interest and reliance interest inadequate + C has legitimate interest in depriving D of profit

The restitution interest is less common still. The restitution interest represents the interest a claimant has in the restoration to them of benefits which the defaulting party has acquired at their expense – so rather than being focused on the claimant’s losses, it is focused on what the defendant has gained at the claimant’s expense.

This is only likely to be an option where an award of the expectation interest or reliance interest would be inadequate and the claimant has a legitimate interest in depriving the defendant of profit.

The fact that the defendant might have made a cynical breach of contract in order to make more money elsewhere will not, alone, be sufficient to justify calculating damages based on the restitution interest – even in such circumstances, it is likely that the claimant can be adequately compensated by considering what damages are necessary to put the innocent party in the same position post-breach that they should have been in had the contract been performed (the expectation interest).

Awards on the basis of the restitution interest will be highly exceptional.

Question 69

Damages – Limiting factors

Answer 69

x3: causation, remoteness and mitigation.

Question 70

Damages – Limiting factors – Causation

Answer 70

This is in two parts:

i) Factual causation -C must prove D’s breach is the dominant or effective cause of the loss? ie BUT FOR

ii) Legal causation – is there a break in the chain of causation?

So you might be able to establish factual causation in the ‘but for’ sense, but a claimant could fail at the stage of ‘legal causation’, because something has happened in the chain of causation which is inherently unlikely.

Question 71

Damages – Limiting factors – Remoteness

Answer 71

two stage test
1 – loss naturally from breach? yes: recoverable
2 – no => loss contemplated by both at time of contract as probable result of breach? yes: recoverable

if causation is satisfied (or you think it might be), you need to consider remoteness.

So in relation to damages shown to be caused by the defendant’s breach, some (or possibly all!) of that figure might still be irrecoverable if it is too remote – so distant from the breach that it is not right to hold the defendant liable for it.

two stages come from Hadley v Baxendale.

The first question to ask is whether the loss arises naturally from the breach. If it does – the loss is an ordinary type of loss, it is naturally arising – then such losses are recoverable. But what if the loss is unusual, it is not in the usual course of things, you would then ask was this loss in the contemplation of both parties at the time of making the contract as the probable result of breach. Only if the answer to this question is yes, will this more far reaching loss be recoverable.

Question 72

Damages – Limiting factors – Mitigation

Answer 72

C reasonable steps to minimise loss?
- claimant friendly lense

The injured party should take reasonable steps to minimise the effect of breach – to mitigate the loss. Mitigation is looked at through a claimant friendly lens. It’s the defendant who is at fault overall, not the claimant – so the claimant’s actions won’t be ‘weighed in nice scales’ – a judge wont’ be scouring their conduct, looking for any tiny failure to mitigate. Provided their steps were reasonable no reduction will be made for a failure to mitigate.

Question 73

Liquidated damages

Answer 73

pre-assessed loss at time of contract

position where damages are liquidated, that is the parties have pre-assessed the loss at the time of contracting

Question 74

liquidated damages clauses and penalty clauses

Answer 74

either liquidated damages clause or penalty clause
2 steps
1 – primary or secondary obligation? secondary if obligation triggered by breach
2 –penalty? yes if it imposes a disproportionate detriment to any legitimate interest of innocent party re primary obligation.

a clause is either a valid liquidated damages clause, or it is a penalty – it’s one or the other

First, is the clause a primary or secondary obligation. The primary obligations are the performance obligations under the contract. The court has no role in regulating primary obligations, like the price that one party is paying another – there is no general jurisdiction to strike down unfair clauses. So before the court intervenes, it has to identify that the clause is a secondary obligation.

A clause will be secondary if it is an obligation triggered by breach of contract to compensate the innocent party. If the clause is a secondary obligation, then the court will apply the test at point 2. So, turning to point 2 - the clause will be a penalty if it imposes a detriment out of all proportion to any legitimate interest of the innocent party in the performance of the primary obligation.

Question 75

secondary obligation

Answer 75

A clause will be secondary if it is an obligation triggered by breach of contract to compensate the innocent party.

Question 76

liquidated damages example

Answer 76

And there is really no better illustration of the operation of this test than the ParkingEye case in your element. So ParkingEye managed a car park, with notices saying that a failure to comply with a two-hour time limit on length of stay would result in a parking charge of £85.

The obligation to pay the sum of £85 was a secondary obligation – it was triggered by breach of the contract ie staying more than the 2-hour limit. This meant that court had to consider whether the clause was penal. Now in obvious financial terms, ParkingEye was only out of pocket for a small amount – the amount another motorist might have paid to park. But, whilst this was a relevant consideration, it was not the sole relevant point. ParkingEye had a legitimate interest in charging motorists for any period they occupied the car park beyond the two hours because Parking Eye had a responsibility to manage the car park effectively and it was legitimate to use the charges as a means of influencing the conduct of motorists in order to ensure they did not overstay. In this context the £85 charge was proportionate to that interest.

Question 77

breach – Injunctions and specific performance

Answer 77

not granted if damages appropriate

We close by looking at two alternative remedies for breach of contract.

First, specific performance. This involves a court order requiring the defendant to carry out its obligations under a positive term of the contract. The second is a prohibitory injunction – this is a court order restraining a party from breaching a negative term.

The most important point is that an order for specific performance or a prohibitory injunction will not be granted if damages are an appropriate and adequate remedy

Question 78

CRA remedies

Answer 78

x2: 1) repeat perform –> 2) price reduction

The first is the right to repeat performance already stated, and the second remedy is the right to a price reduction.

Question 79

Remedy of rescission is not available for

Answer 79

breach of contract.

Question 80

repudiation vs rescission

Answer 80

repudiation: stops future obligations
rescission: contract is void from outset

Repudiation stops future performance of the contract. Be careful if you think that a contract has been repudiated because you must still do your duties until it is actually repudiated. In contrast, a rescission will cancel a contract before it was formed.

Question 81

The bars to rescission

Answer 81

x4
are lapse of time,
affirmation,
third party rights
and restitution is impossible

Question 82

The usual remedy for breach of contract is

Answer 82

an award of compensatory damages. However, where the breach is repudiatory in nature, the innocent party can treat the contract as terminated and sue for damages for the loss of the contract as a whole

Question 83

Damages will be awarded for loss of chance if

Answer 83

the lost chance is quantifiable in monetary terms and there was a real and substantial chance that the opportunity might have come to fruition

Question 84

primary remedy for misrepresentation

Answer 84

rescission

Question 85

A counter offer must

Answer 85

propose alternative terms for acceptance (see Hyde v Wrench 49 ER 132).

Question 86

There are several reasons why rescission will not be awarded (‘bars to rescission’) as follows:

Answer 86

affirmation; lapse of time; restitution is impossible; 3rd party rights

Affirmation: a contract is affirmed if the representee declares their intention to proceed with the contract or does some act from which such an intention may reasonably be inferred.

Lapse of time: an action for rescission must be brought promptly, for delay defeats the equities. Lapse of time without any attempt to effect rescission does not in itself constitute affirmation but it may be treated as evidence of such an intention.
Restitution is impossible: The right to rescind is lost if’restitutio in integrum’is no longer possible; that is, if it is no longer possible to restore the parties to their previous position before the contract was made. This will be the case where the nature of the subject matter has been changed or it has declined in value. For example, inClarke v Dickson(1858) EB & E 148: the representee was induced to take shares in a partnership which was later converted into a limited liability company and the company was in the process of being wound up. HELD: Rescission was impossible since the existing shares were wholly different in nature and status from those originally received. As rescission is essentially an equitable remedy, the court will not allow minor imperfections in the restoration of the original position to stand in the way of a remedy.

Third party rights accrue: the effect of a misrepresentation is to make the contract voidable, not immediately void, and so the contract remains valid up until the time notice is given of the intention to rescind. Consequently, at any time prior to rescission, a person acquiring goods under such a contract is able to pass good title to those goods to an innocent third party who purchases the goods without notice of the misrepresentation. This would prevent restitution