Contract Flashcards
What must be shown for a contract to be binding?
- Offer
- Acceptance
- Intention to create legal relations
- Consideration
Which contracts must be in writing?
- sale of land
- share transfers
- consumer credit agreements
Contracts of guarantee must be evidenced in writing
Which contracts must be made by deed?
- Where there is a promise, and nothing is to be given / received in return
- Conveyances / transfers of land
For a communication to be an offer, what must it be?
- specific (clear + outline specific timings)
- comprehensive (contain enough essential terms for it to be understood)
- capable of acceptance
What is the effect of a counteroffer?
Destroys the original offer
What is unilateral contract?
Where offeror promises to do something in the offeree does something in return
What is the risk of a unlilateral contract?
Offeree can withdraw at any time
Cannot be revoked when offeree has started performance
What is a collateral contract?
A separate contract which is collateral to an offer where offeror promises (supported by consideration from the offeree) not to revoke an offer within an agreed time period
What is a bilateral offer?
Where beginning performance accepts the offer and the contract is formed
What is the mirror image rule for acceptance?
Must match the offer exactly
Does silence constitute acceptance?
Offer can be accepted by conduct (e.g., nodding)
But where notice in writing is required, silence will not constitute acceptance
What is the postal rule for acceptance?
Acceptance takes place on posting (if letter s properly addressed and stamped), even if letter does not arrive
When does the postal rule does not apply?
Where the offer stipulates, expressly or impliedly, that acceptance is not effective until received
When is the postal rule displaced?
If the letter goes astray as a result of the sender/offeree’s carelessness
When is acceptance effective?
When it is communicated, not just received
What is direct revocation?
Directly communicating revocation to the offeree before acceptance
What is indirect revocation?
Where offeree receives correct information from a reliable source of acts of the offeror that signal that they no longer wish to uphold the offer
When is revocation effective?
Revocation must be communicated, but will be effective from the time that it is received (even if not read)
Offer can be revoked by the offeror at at time until it is accepted
If an offeror dies and offeree is ignorant of their death, what is the consequence?
The offer can still be accepted and carried out by the estate
When is revocation effective?
Revocation must be communicated, but will be effective from the time that it is received (even if not read)
How long does an offeror have to revoke an offer?
Offer can be revoked by the offeror at at time until it is accepted
What is executed consideration?
Act in return for a promise
What is executory consideration?
Promise in return for a promise
Who can provide consideration in an offer?
Only parties to it
When is past consideration good consideration?
- Act was done at the request of the promisor
- Parties understood that it was to be remunerated
- Payment / benefit must have been legally enforceable had it been promised in advance
When is performance of an existing obligation good consideration?
- Where promise goes beyond the original contractual obligation
- Where performance conveys a practical benefit on the third party (e.g., avoiding a monetary fine)
- Where performance of an obligation is owed to a third party
When is fresh consideration required?
When there are any variations
When is part payment taken to be satisfaction of a whole debt?
- Where creditor asks for chattels instead of money
- Where creditor states that they will accept a smaller payment at an earlier date
- Where creditor accepts a smaller amount at a different location
remaining amount carries interest
What is promissory estoppel?
A promise not to enforce a contract right, made without consideration
What must be present for promissory estoppel?
- Clear promise that rights would not be fully enforced
- Promise intended to be binding
- Reliance on that promise
- Party making the promise must act equitably
Is it possible to go back on promissory estoppel?
Yes, by giving notice that they want to return to the status quo
What is the consequence of a contract entered into by a minor?
Voidable by the minor, but minor will be bound if the contract is for their benefit
What are contracts that are for a minor’s benefit?
- employment contracts
- contracts for necessities (food / clothing / education)
- contracts for a permanent interest in land
How can contracts be voided by a minor?
Repudiated by them before they reach majority
If voided, minor must transfer any property acquired by them by the benefit of that contract
What is the consequence of a contract entered into by a mentally incapacitated person?
Voidable if the person they are entering into a contract with knows that they do not have capacity
When is a person mentally incapacitated?
If they are unable to make a decision for themselves / understand the significant of what they are doing
What happens if a mentally incapacitated person enter into a contract for necessities?
They must pay a reasonable price for them
What must necessities be for a mentally incapacitated person?
Suitable to their condition of life
Suitable to their actual requirements at the time of sale
What is privity of contract?
- Only parties to a contract can sue and be sued
- A third party cannot generally acquire rights under a contract
- A third party cannot be burdened by a contract (unless there has been a novation)
What is the effect of Contract (Rights of Third Parties) Act 1999?
Means that third parties can enforce a term of a contract where:
- They have been expressly identified as a third party / the term purports to confer a benefit on the third party
AND
- It appears that the parties intended the term to be enforceable
act does not allow contracts to be enforced against third parties
Where an agent, on behalf of a principal, enters info a contract with a third party, who can sue and be sued?
Usually, only principal and third party can sue and be sued
However, if third party does not know that agent is acting as an agent, both principal and agent can sue and be sued
What are terms?
- Binding
- Intended to form part of the contract
- Remedies available for breach of contract
When do pre-contractual statements become terms?
- Statement made was reason for parties to enter into contract
- Statement was made close in time to when contract was made
- Statement maker has relevant expertise
- Statement is a verification of truth
What is the parole evidence rule?
That external evidence should not be used to determine the terms of the contract if the parties have entered into an entire agreement clause
What are representations?
Oral statements / written statements that induce a person to enter into a contract
Remedies under misrepresentation
What are conditions?
A major term of the contract, breach of which is so fundamental that the contract will come to an end.
Performance must go to the root of the contract
Performance of the term is industry standard
What is a condition precedent?
That contractual obligations will not come into existence until a specified event has taken place
When will a statement made by a person form part of the contract?
Where the maker of the statement has specialist skills and they understood that any factual statement made should be within the scope of their knowledge, intending that the other party would act on the statement
When can time be made of the essence?
If the innocent party:
- Serves notice, and
- They are
- ready
- willing to complete
- other party has been guilty of unreasonable delay
- there has been a reasonable period in which completion must take place
When is time presumed to be of the essence?
Commercial contracts where delivery time has been agreed
When dealing with perishable goods
What is a warranty?
Less serious clause
Breach does not give right to repudiate
Innocent party can claim damages for breach
When do you know if an Innominate term is a condition or a warranty?
If the substantial benefit is lost by the breach = condition
If the substantial benefit still stands after breach = warranty
For notice to form part of a contract, what must be shown?
That the party has reasonable and sufficient notice of it
How can terms be applied by fact?
If they are necessary
What is the business efficacy test?
Whether term is needed to make the contract work
What is the officious bystander test?
Term may be imposed where it is so obvious that it goes without saying
When can terms be implied by custom?
If they are:
- certain
- notorious (well known in the industry)
- reasonable
What must be shown to rely on an exclusion clause at common law?
Must show that:
- Clause is incorporated
- Clause is clear
- No reason in law why clause cannot be applied
What does it mean for a term to be incorporated?
- integral part of the contract
- signed
- can’t be added in after
- other contracting party aware of it
- onerous terms must be highlighted
What does incorporation (of an exclusion clause) by signature?
If a document containing the exclusion clause is signed, a party will be bound, even if it was not read.
When does incorporation by signature not apply?
When the party putting it forward given a misleading explanation
What is non-est factum in relation to incorporation by signature?
Party is deemed to have no understanding of the document they have signed because of a fundamental difference between what they signed and what they thought they were signing
What are the main elements of acceptance in contract law?
- mirror image rule (must match offer exactly)
- must be communicated to the offeror
- must be given through a prescribed method of acceptance
- postal rule (acceptance takes place on posting)
What is incorporation by notice?
If wanting to rely on an exclusion clause at common law, recipient party must have had adequate notice
If a recipient party did not know there were onerous terms in the document when they signed, what is the consequence?
They will not be bound
If the notice was in writing, and the recipient party believed that the document contained conditions, what is the consequence?
They will be bound
If the recipient party knew there was writing on the notice, and delivery of that notice was in reasonable time, what is the consequence?
They will be bound, even if they did not know they were conditions
If an exclusion clause is contained in a separate document, what must be shown?
That the document in which it is contained in was intended to have contractual effect
What is incorporation by course of dealings?
Parties having consistent dealings in similar terms
What must be said for onerous terms in incorporation by course of dealings?
Onerous terms must always be highlighted
Onerous terms must be sufficiently clear to the reasonable person
What is the contra proferentem rule?
Exclusion clauses must be clear and unequivocal - e.g., if attempting to exclude liability for negligence, must use the word negligence
If there is any ambiguity, it will be interpreted against the party seeking to rely on it
What does the Unfair Contract Terms Act 1997 apply to?
Business to business contracts
What liability cannot be excluded by the UCTA?
Liability for death
Liability for personal injury
Possible to exclude liability for property damage from negligence, as long as term is reasonable
What is a key point as to reasonableness of an exclusion clause under the UCTA?
Inducements (like discount) is valid consideration on the reasonableness of an exclusion clause
What will the courts look at when deciding if a term is unfair?
- Bargaining positions of the parties
- Whether any inducements were accepted
- Whether innocent party knew / ought to have known about the existence and extent of the term
- Whether compliance with the term was reasonable
- Whether the goods were being made pursuant to a special order
What contracts does the Consumer Rights Act apply to?
Business to consumer contracts
What does s.65 of the CRA state?
That a business is unable to exclude liability for:
- negligence
- death
- personal injury
What does s.31 of the CRA state?
Lists terms that can never be excluded from consumer contracts
E.g.,
- satisfactory quality
- fit for purpose
- as described
- match a sample
What terms are excluded by the CRA?
Any unfair terms that cause a significant imbalance in the parties rights and obligations, to the detriment of the consumer
When can core terms be excluded from the requirement of good faith (and rules of exclusion) under the CRA?
Core terms = defining fundamental nature of good services (e.g., iPhone 16 pro max, 196gb, silver) or setting out the price that must be paid (e.g., £50 per day and an additional £20 per driver).
Can be excluded if they are:
- Transparent = in plain and intelligible language.
AND
- Prominent = brought to consumer’s attention in a way that an average consumer would be aware.
If a contract is made in contravention of any exclusion rules, what is the consequence?
The entire contract is VOID for uncertainty
If a party wants to rely on an exclusion clause at common law, what must they show?
That:
- Clause was incorporated as part of the contract
AND
- On strict interpretation, it covered the breach complained of
What is the difference between a void and voidable contract?
Void = unenforceable in any situation, title cannot be passed on
Voidable = valid until a party elects to affirm or rescind, title can be passed on to a bona fide purchaser for value
What renders a contract void vs voidable?
Void = mistake, illegality
Voidable = duress, undue influence, misrepresentation
When does mistake render a contract void?
Where:
- Mistake is so fundamental that it prevents the formation of a contract (mistake as to existence of subject matter)
or
- Mistake is so fundamental that it makes what has been agreed by the parties fundamentally different to what was intended
What is common mistake?
Where both parties make the same mistake as to:
- existence of subject matter
- title
- quality of subject matter
When is the consequence of mistake as to existence of subject matter?
- renders a contract void
- will not render a contract void if there has been an explicit warranty or misrepresentation on part of the seller, and they voluntarily assumed the risk
- mistake as to the quality of subject matter can never render a contract void
What is mutual mistake?
Where both parties are mistaken, but about different things
When will mutual mistake under a contract not render it void?
If the contract can still be understood and enforced - whether reasonable person would interpret the agreement to mean what each party did
Damages can usually be claimed
However, if uncertain terms cannot be severed, entire contract will be void for uncertainty
What is a unilateral mistake?
Where one party is mistaken as to the terms of the contract, and other party is aware or should have been
When does unilateral mistake render a contract void vs voidable?
Rogue is purporting to be somebody else, and innocent party believes that they are contracting with the person the rogue is pretending to be = void
Rogue is resent, and innocent party intended to contract with the person in front of them (the rogue) = voidable
What must be shown for a contract to be void under non est factum?
- There was a fundamental difference between what the person thought they were signing and what they actually signed
- The person was not careless in signing
What is the consequence of a restraint of trade clause?
They are void unless it can be shown that they are a legitimate way of achieving a reasonable aim
What will the court consider when deciding if a restraint of trade clause should be void?
- Type of competition restricted
- Length of time governing the agreement
- Within what geographical area it applies to
What is looked at when determining whether there has been misrepresentation?
Whether the statement made is ‘substantially correct’
When will a clause not constitute a misrepresentation?
Where a claimant had actual knowledge of the statement, but did not put any reliance on it / did not have regard to it
What must be present to rely on negligent misrepresentation?
The common law Hedley Byrne principle:
- Special relationship
- Duty of care
- Breach
- Reasonably foreseeable that reliance would be place on representation
- Loss
What is the remedy for misrepresentation?
Contract is voidable, and innocent party can rescind
When is the right to rescind by virtue of misrepresentation lost?
- innocent party affirms the contract
- there has been a lapse of time
- parties cannot be restored to their original positions (e.g., subject matter demolished / sold to a third party)
What is the aim of damages in misrepresentation?
Putting the claimant in the position they would have been in had the misrepresentation not been made
Can also recover for all direct losses incurred as a result of misrepresentation
How are damage for misrepresentation calculated?
Difference between the contract price and the true open market value of the property at the date of purchase
What questions are asked when determine whether duress is present in a contract?
- Did party protest at the time?
- Did party have any alternative option at the time?
- Was party independently advised?
- Did party take steps to avoid the contract after it was made?
What is the doctrine of notice for duress?
- creditor is put on notice when one spouse offers to stand surety for their spouse’s debt.
- offering spouse must be told what the documents are / the consequence of signing / seriousness of risks.
- bank should ensure offering spouse takes independent legal advice and bank should obtain confirmation from a solicitor before proceeding.
- if bank goes ahead without above, contract will be voidable
How can a party be discharged from a contract?
By:
- performance
- agreement
- breach
- frustration
What is the meaning of performance?
Where one party completely and perfectly performs what they have promised to do, their obligations are at an end
What is substantial performance?
Performance is sufficient, but even where there is minimal deviation, innocent party can reject it
What is the consequence of substantial performance?
Innocent party must pay for what they have received, but has the right to claim for damages for breach of warranty?
What is partial performance?
Where a party’s efforts to perform their obligations under the contract are so poor that it cannot be taken to be substantial
What is the consequence of partial performance?
Performing party is not entitled to recover anything unless the innocent party has a genuine choice as to whether to accept or reject the partial performance.
What basis is payment made on if a party accepted partial performance?
On a quantum meruit bases - a reasonable sum in respect of the benefit conferred
If a party performs part of their work, but then is prevented from performing the remainder due to the fault of the other party, what is the consequence?
Performing party can claim:
- damages for breach of contract
or
- reasonable renumeration on a quantum meruit basis
What is bilateral agreement to discharge?
Where neither party completes their obligations, and they both agree to mutually release each other (no need for consideration)
What is unilateral agreement discharge?
Where one party performs their part of the contract, and the other party does not, the performing party can agree to release the non-performing party from their obligation.
Consideration (accord and satisfaction - agreement to discharge, and discharge happens immediately) must be provided, or agreement must be executed by deed.
What is anticipatory breach?
Breach before performance becomes due (party makes clear that they will not perform).
Innocent party can:
- Accept breach immediately and sue for BOC
- Wait until due date for performance
Can compensation be claimed for frustration under common law?
It is difficult to claim compensation
Any advance payments made may be recovered and returned back, but if there has been any benefit received under the transaction, this cannot be claimed back.
Can compensation be claimed for frustration under statute?
Under Law Reform (Frustrated Contracts) Act 1943:
- Reasonable expenses can be reimbursed at the discretion of the court.
- Court also has discretion to reimburse a party who has incurred expenses (for the purpose of performance) before the frustrating event.
What is abnormal loss, and can it be recovered?
Abnormal loss = losses supposed to be in contemplation of both parties at the time they made the contract as a probable result.
Recoverable only if special circumstances giving rise to the loss were known to both parties at the time of the contract.
What are the different types of losses?
- Normal loss
- Abnormal loss
- Expectation damages / loss of a bargain (putting in position they would have been in had the contract been properly performed)
- Cost of cure (not completely rebuilding)
- Reliance interest (position they would have been in had contract not been entered)
- Bad bargains (but caveat emptor)
- Loss of a chance (if loss is quantifiable in money terms and would have happened)
- Damages for disappointment
- Damages for loss caused to a third party
What is a liquidated damages clause?
A genuine pre-estimate of the losses that an innocent party will incur.
Detriment imposed by the clause must be proportionate to a legitimate interest that the innocent party is seeking to protect.
If not proportionate, it will be an unenforceable penalty clause (and void).
When can nominal damages be awarded?
Where there has been some breach, but the claimant has not actually suffered any loss
What is subrogation?
Where a party (e.g., by paying insurance / making a guarantee payment) stands in the shoes of the contract party and has all the rights the contract party would have against the other party
What are the equitable remedies that can be awarded at the discretion of the court?
- specific performance
- injunctions
- restitution (but any valuable benefits must be returned, and contract will be void)
