Contract Law 1 Flashcards
Contract
An agreement giving rise to obligations which are enforced or recognised by law… based on the agreement of the contracting parties
Agreement
The meeting of minds between contracting parties
Obligations
Voluntarily assumed
Recognised and enforced by law
Reciprocal
What must there be for a valid contract
- An agreement
- Consideration
- Intention to create legal relations
- Certainty of terms
Common misconceptions abt contracts
- Do not always need to be written
- Can be oral
- Often do not always need to be signed
- Do not need to be fair, equal or reasonable
Why we need contracts
Enforcement reasons
Safeguarding of parties
Reliance
Allocate risks
Executory performances security
ITCLR
Intention to create legal relations (for a contract)
What is the rebuttal presumption for social and domestic arrangements
There is no intention to create legal relations in a domestic or social arrangement
Social and domestic arrangement case example
Balfour v Balfour [1919] 2 KB 571
Money £30 a month to wife
Stopped after divorce but had no limit
Contract or no contract?
Trial judge said was a contract
Court of Appeal said no
What is the presumption for commercial arrangements
There is a ITCLR
Can be rebutted by evidence
What is the objective approach
Focuses on the outward expressions and actions of the parties involved, rather than their internal intentions or beliefs
Grounded in the principle that contracts should be assessed based on what a reasonable person would understand from the words and conduct of the parties
Social and domestic arrangements: Rebutting the presumption that was no ITCLR
Where the parties separated prior to making the agreement
Where there is an element of commercial dealings between the parties
Where parties have acted to their detriment or where the agreement has been executed
Commercial arrangements: rebutting presumption that was an ITCLR
Expressing stipulation
What is the existence of an agreement is determined by
Ascertaining the objective intentions of the parties when looking at the words and conduct of the parties from the perspective of a ‘reasonable person’
Traditional approach to ascertaining whether parties have come to agreement
Offer and acceptance approach
Why is finding there is actual agreement important
- Required for a valid contract
- Point at which rights and obligations begin
- Basis for contractual obligations
- Tells us when (and where) a contract has been formed
Offer and acceptance approach
Offer?
- There must be sufficient certainty and intention to be bound
- Otherwise could be an invitation to treat
Acceptance?
- Must match the offer and (usually) be communicated
The agreement is made at the point of valid acceptance
Objective approach to intention
How a reasonable person would interpret a defendant’s actions, rather than the defendant’s subjective state of mind
Offer and acceptance approach structure
Invitation to treat (if applicable)
Offer
Counter-offer (if applicable)/Request for information
Acceptance
Revocation (if applicable)
Unilateral contract
Where one party makes a promise in exchange for an act by another party. In this arrangement, only one party is obligated to perform, while the other party is not required to do anything until they choose to act
Unilateral contract - offer
The offeror intends to be bound upon performance of a requested act or condition
Intention?
Certainty?
Unilateral contract - agreement
An acceptance of a unilateral offer is traditionally held to be on completion of the act requested
- Can be revoked any time before acceptance
Unilateral contract - revocation
The revocation of a unilateral offer will be effective if the offeror takes reasonable steps to bring the revocation to the attention of all those who may have read the offer
General rule of auctions
Auctioneer’s request for bids constitutes an invitation to treat
But auctioneer is free to accept or reject a bidder’s offer
However, where the auctions are ‘without reserve’, the auctioneer may be in breach of contract if he refuses to sell to the highest bidder
Without reserve meaning auctions
Promise to sell to the highest bidder
Known as an absolute auction
Auctions without reserve have 2 contract options
Bilateral
- For the goods
Unilateral
- Based on the promise to sell without the reserve
What contract is the auctioneer in breach of if he refuses to sell the goods
Unilateral
- Bilateral contract has not been made
- Therefore bidder is not entitled to the goods in question
Tenders
A formal proposal or offer to provide goods, services, or works at a specific price
- Also known as an invitation to tender, a request for tender, or a bid
Two contract’ (or collateral contract) analysis also applies to the tenders
- Request for tenders normally invitation to treat
* But an express contractual promise to accept most competitive bid or to confirm certain bid conditions may constitute a unilateral offer
Invitation to treat
ITT
A willingness to enter into negotiations
Lacks an intention to be bound and sufficient certainty required for an offer
- This is judged objectively
ITT examples
- Advertisements
- Display of goods in a shop
- Price lists
- Websites
Reasons for treating specific exchange or communication as an ITT and not offer
Lacks intention to be bound
Lacks sufficient certainty
Offer
An expression of willingness, by words or conduct, of an intention to be bound on certain terms
Objective
Must be capable of being accepted
Counter-Offers
Request for information
Rejection of the terms of an offer
Extinguishes the original offer so the person making the counter-offer may not go back and accept it
The ‘battle of the forms’
‘Last shot’ rule
The ‘last shot’ rule
The terms presented last before a contract is formed are the ones that apply
Acceptance
The ‘final and unqualified assent to the terms
Needed in order for there to be an agreement between the parties
General rules what constitute a valid agreement
- Must be unequivocal
- Must be made in response to an offer
- Must match the offer
- Must be communicated to the offeror
Factors to consider on communicating and receiving acceptance
- A prescribed mode of acceptance must be followed
- Silence cannot amount to a valid acceptance
- Acceptance may be communicated by an authorised third party
- Instantaneous communication
- The postal rule
The postal rule
A contract is formed when an offer is accepted by post, regardless of when the offeror receives the acceptance
Applies when using the post is within the reasonable contemplation of the parties
The rule applies to mail, postcards, and telegrams, but not to instantaneous communication like email, fax, or electronic transactions
The rule may be ousted by evidence the parties wanted to receive acceptance
If the acceptance does not arrive then it is still effective
But if incorrectly addressed the rule is displaced and acceptances takes effect when receive
Generally cannot be revoked by a more expeditious method
The receipt rule
An offer is only accepted when the offeror receives the acceptance
Prescribed mode of acceptance
- If the offeror stipulates a prescribed method of acceptance (e.g. “you must reply by email”) then an acceptance by a non-prescribed mode will only be valid if it’s no less advantageous to the offeror
- Acceptance may be communicated by a reliable and authorised third party
Silence
Cannot amount to valid acceptance
Revocation
Anytime before acceptance – unless the offer is supported by consideration to keep open
Takes effect upon receipt
- No postal rule
May be revoked by reliable third party
How is an invitation to treat distinguished from an offer?
Invitation to Treat: An invitation to negotiate or make an offer (e.g., advertisements, displays of goods)
Offer: A clear proposal made by one party
What constitutes a valid offer?
Invitation to Treat
Offer
Clear and Definite Terms
Intention to Create Legal Relations
Communication
Capacity
Legality
Possibility of Performance
What is a consideration
Something of value that is exchanged between parties when forming a contract
A crucial element for a contract to be legally enforceable
Law is not concerned with gratuitous promises
Represents the ‘bargain’/exchange in contract
Basic structure to addressing consideration
Agreement between the parties
But one of the parties does not keep or wants to go back on their promise
Alternatively, may be an existing agreement but something new has been agreed on
Alteration/Modification
Issue here is whether the promise is enforceable
Is consideration valid?
4 main rules of consideration
- Consideration must be sufficient, but need not be adequate
- Consideration must not be in the past
- Consideration must move from the promise
- Performance of a pre-existing duty is not good (valid) consideration
Consideration must be sufficient, but need not be adequate rule of consideration
To be enforceable, the consideration given in exchange for a promise must be ‘sufficient’ – recognised as being of value in the eyes of the law
Consideration must be sufficient, but need not be adequate rule of consideration examples
Chappell V Nestlé [1960] AC 87
Consideration in the form of chocolate bar wrappers was held to be ‘sufficient’ consideration despite the fact that they were of virtually no economic value and were simply discarded
Hamer v Sidway 124 N.Y. 538, 27 N.E. 256 (1891) – USA
The decision by a nephew to give up drinking, smoking and gambling in return for a promise of a certain sum of money from their uncle was held to be sufficient consideration
The nephew had given up their lawful freedom, their right, to engage in such activities
Consideration must not be in the past rule of consideration
If the consideration is given before the promise is made then it cannot be said to have been given in support of the promise
Promise is not enforceable
Consideration must not be in the past rule of consideration examples
Re McArdle [1951] Ch 699
A promise to reimburse a relative for work already done to a house was unenforceable
Roscorla V Thomas (1842) 3 QB 234
An oral warranty as to soundness of a horse, given after sale of the horse was held to be unenforceable
Consideration must move from the promise rule of consideration
Consideration must be provided by the promise and not a third party (but does not have to move to the promisor)
Must also be a link between the consideration and the promise
Consideration must move from the promise rule of consideration example
Combe V Combe [1951] 2 KB 215
A promise by a husband to pay his wife maintenance was not supported by consideration in the form of the wife refraining from going to court because the husband had not (on the facts) requested her not to do so
Performance of a pre-existing duty is not good (valid) consideration rule of consideration
Performance of something that is already required or promised is generally held not to be valid consideration
Legal or moral duties
Contractual duties
Duties owed to a third party
Performance of a pre-existing duty is not good (valid) consideration rule of consideration example
Legal
Collins v Godefroy (1831) 1 B & Ad 950
A promise was made to pay to Collins a guinea a day for attending a trial as a witness but because he was already subpoenaed to give evidence, he was obliged by law to do so and was not doing anything more than he was already obligated to do = no consideration, not enforceable
Performance of a pre-existing duty is not good (valid) consideration rule of consideration example
Contractual
Stilk V Myrick [1809] EWHC KB J58
Voyage from London to Baltic and back
2 out of 11 men deserted
Captain promised to divide the two men’s wages amongst the rest of the crew if he could not replace the two deserters
No replacements available, so the existing crew sailed the ship back to London
Structure of modifying promises
Original Agreement
-Promise to pay more
OR
-Promise to accept less
Consideration
Promise to pay more
Performance of a pre-existing contractual duty is not valid consideration
-Ensure both parties are giving something of value in new deal
Avoid PPECD rule
-Find fresh/additional consideration
-Can go beyond contractual duty
A practical benefit to promisor may support finding of consideration
-Then promise to pay more may be supported by consideration
Promise to accept less
Part-payment of debt is not sufficient consideration to support promise to discharge entire debt
Promise to discharge debt may be supported by consideration if something different or new element is given in exchange
Can presence of practical benefit from part-payment support finding of consideration to enforce the dishcharge of debt?
PPECD rule
Proposal
Person
Exchange
Capacity
Deliberation
Promissory estoppel
Prevents a party from withdrawing a promise when the other party has reasonably relied on that promise to their detriment, even in the absence of a formal contract
Serves to enforce fairness and justice in situations where a promise was made and reliance was placed on that promise
Ingredients of a promissory estoppel
- There must be a clear and unequivocal promise
- The promisee has altered their position
- It must be inequitable (unfair) to go back on the promise
- Promissory estoppel cannot be used as a ‘sword’
- Promissory estoppel suspends, does not extinguish, legal rights
Altered position/reliance
Promissory estoppel
- Some change in position
- Part payment?
- Detrimental reliance
Inequitable to go back on the promise
Promissory estoppel
- Absence of detrimental reliance = could make it fair to go back on the promise
- Time lag
- Prejudice to promise
- Bad faith
Cannot be used as a ‘sword’
Promissory estoppel
-Promissory estoppel cannot be used to found a cause of action
Suspends, does not extinguish, legal rights
Promissory estoppel
Means it might be possible in the future to go back on promises by giving reasonable notice
Glidewell LJ’s criteria required to find consideration
- There must be a contract for goods and services
- Doubt that the promisee will complete on time
- Promise to pay more
- Promisor obtains a practical benefit
- No duress (usually economic
- Consideration must otherwise be valid
What are terms
Define the rights and liabilities under a contract
Factors to determining if statement constitutes a term rather a representation
- Importance of the statement
- Special knowledge of the subject-matter
- Time between statement and formation of contract
- If the contract has been made in writing
- Statement maker in a better position to ascertain in the accuracy of statement
- Request to verify the truth of the statement/Assurance – no need to verify truth
How to identify a term
Statement -> Representations -> Terms
How can you express terms
Orally or in writing
Parol evidence rule
Where a contract has been reduced to writing then the general rule is that oral statements cannot be used as evidence to vary the terms of a written contract (contractual certainty)
Getting around parol evidence rule
Does not apply to part oral partly written contracts
Collateral contracts
But note use of entire agreement clauses and no oral modification clauses
Sources of implied terms
Courts
Statutes
Custom
Courts as source of implied terms
Terms implied in fact
Terms implied in law
Terms implied in fact
To give effect to the presumed intentions of the parties
Can use officious bystander of business efficacy test
Officious bystander test
The test asks if the term is so obvious that if an officious bystander suggested it to the parties, they would respond with “oh of course”
The test is used to determine if the parties intended to include the term, but didn’t feel the need to make it explicit
Business efficacy test
Is the term necessary for the contract to work in a practical sense? = intention of both the parties
The term must be necessary to give the contract commercial or practical coherence. This is a value judgment, and the term is not considered “absolutely necessary”
Terms implied in law
The implication of terms as a matter of policy into all contracts of a particular type
Statute as course of implied terms
Sales of Goods Act 1979
-Business to business
Supply of Goods and Services Act 1982
-Business to business
Consumer Rights Act 2015
-Consumer to business
Trade or custom as source of implied terms
Sometimes a term can be implied where there are previous dealings between the parties and such terms are usual in the parties’ particular trade of custom
What is contractual interpretation
The courts must give effect to the intention of the parties as objectively determine
Approaches to contractual interpretation
Old - literalist/textualism
Modern approach - contextual or purposive
Lord Hoffman’s 5 principles of interpretation
Modern approach to contractual interpretation
Interpretation reflects commercial common sense
Old approach to contractual interpretation
Stay within the ‘four corners’ of the contract
Lord Hoffmann’s 5 principles of interpretation – a broader approach
- Interpretation is about figuring out what a document means to a reasonable person, based on the background knowledge both parties had at the time they made the contract.
- The background, often called the “matrix of fact” by Lord Wilberforce, includes everything that could have influenced how a reasonable person would understand the document’s language.
3, The law does not allow the parties’ past discussions or their personal intentions to be used as background in interpreting the document.
- The meaning of a document for a reasonable person isn’t always the same as the literal meaning of the words used.
- The “rule” that words should be understood in their “natural and ordinary meaning” simply reflects the idea that people usually don’t make obvious mistakes in formal documents.
Executory consideration
A promise to do something in exchange for a similar promise
E.g. you might promise to pay someone for a service in exchange for their promise to perform the service
Executed consideration
When one party has fulfilled their side of the contract, and the other party is now responsible for their obligations
E.g. if you pay someone to house-sit for a week, and they complete the task, the consideration is executed
Past consideration
When a promise is made after an action has already been performed
Past consideration is generally not valid
E.g. if you promise to pay someone for a service they already completed, the consideration is past and not binding
3 main types of consideration
Executory
Executed
Past
Pinnel’s case 1602 consideration exceptions
Payment at a different place
Payment at a different location
Payment in a different form
Payment early
What terms are examined closely
Exemption clauses
Certain consumer contract clauses
Termination clauses
Penalty clauses
Exemption clauses
A party wishing to rely on an exclusion clause must prove that:
o It has been validly incorporated into the contract
o The clause is effective to exclude liability for the loss suffered
o The clause valid under UCTA 1977 or the CRA 201
Certain consumer contract clauses
Consumer Rights Act 2015
Consumer protection
Imposes restrictions on use of exclusion and limitation clauses
Regulates other unfair terms
Possible liabilities of party seeking to rely on exemption clause
- Breach of Contract?
- Term(s) that has been breached?
- Express or Implied?
- Negligence?
- Misrepresentation?
3 main ways of incorporating a term into a contract
By signation
By notice By previous dealings or custom
By signation
Incorporation of terms
A party is in general bound by his signature – whether they have read the terms or not (the ‘signature rule’)
The exceptions to the ‘signature rule’ are limited
How can a person signing a contract get out of their signature
Defence of non est factum applies
Misrepresentation is established
Non est factum
Person must be somebody who relies on others for advice as to what they are signing e.g. blindness or illiteracy
The document signed must be radically different in character or effect from what the person thought they were signing
By notice
Incorporation of terms
Before or at the time of contracting
The terms must be contained or referred to in a document intended to have contractual effect or to contain contractual terms
Reasonable notice must be given of the terms
What constitutes reasonable notice?
Constructive notice, not actual notice
Red hand rule
Red hand rule
o If a contract includes unusually harsh or surprising terms, these must be brought to the attention of the other party in a clear and conspicuous way
o It’s like saying “these terms are especially important, so pay close attention!”
By previous dealings or custom
Sufficiently regular and consistent
Consistent use of terms
Regular course of dealings over a sufficient period of time
Custom
Burden of proof lies on person seeking to enforce the clause
What is necessary to ask in cases of exemption clauses
Whether clause covers type of liability and loss in question
Question of contractual interpretation and construction
What restrictive approach do the courts take towards exemption clauses (especially exclusion clauses)
The contra proferentem rule
Contra proferentem rule
In the event of ambiguity around the meaning of the clause, the ambiguity will be resolved against the party seeking to rely on the exemption clause
How to exempt liability for negligence
Use clear words
If wording could be applied to either negligence/non-negligent liability and is concurrent liability in contract and tort, then clause will generally be confined to non-negligent source of liability
Unfair Contract Terms Act 1977
UCTA
- Commercial contracts (B2B)
- Certain clauses are deemed ineffective at the outset e.g. excluding liability for personal injury
- Others are subjected to the ‘reasonableness test’
- Are only valid if the party seeking to rely on the clause can establish that it is reasonable
Scope of UCTA
- It is for the person relying on the protections of UCTA to show that the statute applies
- UCTA applies to ‘business liability’ – things done or to be done in the course of business and liability arising from occupying business premises (s1(3))
- No general power to strike out any term which is unfair or unreasonable – UCTA applies to exemption clauses (excluding or limiting liability): a term that seeks to restrict any right or remedy (s13)
Main provisions of UCTA
- Liability for negligence
Death or personal injury cannot be excluded or restricted
Other loss and damage may be excluded or restricted only if the term satisfies the reasonableness test - Sale or supply of goods: defective products
Implied terms about title (e.g. s12 SGA 1979) cannot be excluded or limited
Implied terms about satisfactory quality, fitness for purpose or sale by description (e.g. s13, 14, 15 SGA 1979) may be excluded or restricted only if the term satisfies the reasonableness test - Liability for breach of strict contractual obligation (not sale and supply contracts)
Consumer Rights Act 2015
CRA
- For consumer contracts, replaces the SGA 1979, SGSA 1982, UCTA 1977 and the Unfair Terms in Consumer Contract Regulations (UTCCR) 1999
- Introduced in order to simply, strengthen and update the law relating to consumer protection
- Implied terms around product quality (s9…) and around supply of service (s49…) covered when we discussed Terms
Scope of CRA
- Applies to contracts between a ‘trader’ (defined in s2(2) CRA 2015) and a ‘consumer’ (defined in s2(3) CRA 2015)
- S2(2): “Trader” means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf
- S2(3): “Consumer” means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession
- Applies to unfair terms (and not just exemption clauses)
Regulation of exemption clauses of CRA
- Regulation of exemption clauses
- Section 31
Attempts to ‘exclude or restrict’ liability in goods contracts (e.g. satisfactory quality) are ‘not binding’ (replacing s6 /s7 UCTA) - Section 57
Attempts to ‘exclude’ liability arising in services contracts (e.g. failing to take reasonable care and skill) are ‘not binding’ (see s47 on digital content)
Possible to limit liability but cannot be less than the contract price and is subject to the fairness test
Regulation of unfair terms of CRA
- Part 2 previously found in the UTCCR 1999
UTCCR implemented the Unfair Consumer Contract Terms Directive 93/13/EEC into domestic law
Overlapped with UCTA - Cannot exempt liability for death of personal injury
“A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.” (s65(1))
S62 test of (un)fairness
- A term is unfair where “contrary to the requirement of good faith” it “causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”
- Case law under the UTCCR 1999 relevant
- Applies to all unfair terms
2 elements of S62 test of (un)fairness
- Contrary to the requirement of good faith – fair and open dealing: the clause must be expressed fully and clearly
- Causes a significant imbalance in the parties’ rights and obligations: the clause must not tilt the parties’ rights and obligations significantly in the proferens’ favour, to the disadvantage of the consumer
What is a claimant entitled to following a breach of contract
Various remedies
Remedies examples
- Damages Court assessed (unliquidated damages)
Agreed damages clause (liquidated) - Other remedies
Restitution (limited)
Specific Performance (limited)
Termination or affirmation (limited)
Court assessed damages
General right to damages following any breach
* Damages are primarily awarded in compensation for loss
* Compensation for expectation loss (loss of the benefit of the promised performance – the expected gain under the contract)
* The amount paid to the claimant in damages depends on their loss, the ability of the courts to measure the loss and various restrictions and limiting factors
Stages that need addressing in a claim for damages
- Identify breach, losses and remedies available
- Measure: what is measure of loss?
- Non-pecuniary loss
- Causation: did the breach cause the loss(es)?
- Remoteness: is each loos too remote?
- Reduction: mitigation/contributory negligence
Remedies
- Following a Breach of Contract, the claimant is entitled to various remedies
What remedies is C entitled to
Damages court assessed (unliquidated damages)
Other remedies
Restitution (limited)
Specific Performance (limited)
Termination or affirmation (limited)
Court assessed/umliquidated damages
- Generally there is a right to damages following any breach
- Damages are primarily awarded in compensation for loss
- Compensation for expectation loss (loss of the benefit of the promised performance – the expected gain under the contract)
- The amount paid to the claimant in damages depends on their loss, the ability of the courts to measure the loss and various restrictions and limiting factors
Stages that need addressing in claim for damages
- Identify the breach, losses and the remedies available
- Measure: What is the measure of loss? Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)?
- Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)?
- Causation: Did the breach cause the loss(es)?
- Remoteness: Is each loss not too remote?
- Reduction: Mitigation/Contributory negligence
- Identify the breach, losses and the remedies available
Breach
Loss(es)
Remedies
- Measure: What is the measure of loss? Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)?
Expectation (or performance) interest
Covers both the benefits expected (e.g. loss of profit) and also the cost of the performance itself (e.g. cost of cure)
Is primary measure of damages in contract law
Cost of cure damages will be awarded
Reliance interest
Consequential loss
When will cost of cure damages be awarded
Reasonable to award damages = cost of cure not out of proportion to benefit obtained
There is an intention to remedy the defect (note – relevant to determining the actual loss)
Ways of calculating expectation interest
Difference in value
Cost of cure
Loss of amenity
What is reliance interest
Wasted expenditure
Pre-contractual (if within the reasonable contemplation of the parties) / Post-contractual but must be prior to the breach
Claimant has an unfettered choice
The courts will not award expectation damages if they are highly speculative
- Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)?
Mental distress = is there any non-pecuniary loss? Is it recoverable?
Exceptions to non-pecuniary loss
Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided…
In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort
- Causation: Did the breach cause the loss(es)?
- The breach must be a dominant or effective cause of the loss
- Intervening acts
- Remoteness: Is each loss not too remote?
- Not all losses flowing from a breach of contract are recoverable => traditionally – test of reasonable contemplation
- Narrower test of remoteness than in tort (reasonable foreseeability) – greater degree of probability required in contract – ‘not unlikely’, ‘serious possibility’, ‘real danger’
- Type of loss (not the extent) needs to be foreseeable
- Reduction: Mitigation/Contributory negligence
- Injured party should take ‘all reasonable steps’ to mitigate (reduce) their loss
- Reasonable expenditure can be recovered
- Does not prevent a party affirming a contract from going to the expense of performing their side of the bargain
What about contributory negligence in reduction
Only applies where D’s liability in contract is the same as his liability in negligence (negligent breach) which arises independently of the contract
What are agreed damages clauses
- (or liquidated damages (LD) clause) stipulates a sum payable upon breach, e.g. pay £5 upon every breach
- But penalty clauses are unenforceable and the injured party may bring an action for unliquidated damages
Justifications for allowing agreed damages clauses
- Incentive to carry out the work on time
- Right to claim an agreed rate of compensation
- BUT
- Not allowed to punish the D
- The courts have retained a jurisdiction to control the content of such clauses
Old approach for agreed damages clauses justifications
Genuine pre-estimation of loss = agreed damages clauses
New test for agreed damages clauses justifications
- The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation
Is agreed damages clause a primary or secondary obligation
If primary, it will not engage the penalty rule
If secondary, the clause will not be a penalty if it:
Protects a legitimate interest (the commercial context is relevant and if contract is negotiated); and
Imposes a detriment proportionate to the legitimate interest (it is not ‘extravagant’, ‘exorbitant’ or ‘unconscionable
Penalty rule
States that a clause in a contract that is intended to punish a breaching party is unenforceable if it goes beyond the actual loss incurred
This is because the amount specified in a penalty clause is not related to the actual loss
Restitution
Unjust enrichment
Contract terminated
Must be a total failure of consideration
Non-monetary benefits conferred
Restitution for wrongs
- Enrichment by wrongdoing (account of profits)
Account of profits
General position: Damages for breach of contract cannot be measured by D’s gains or savings
Exceptions for restitution for wrongs
Fiduciary duty
Infringement of property rights
Specific performance in clauses
An order from the court to which requires the breaching party to perform their primary obligations
Restrictions to specific performance
- Causes severe hardship to D
- Contract is unfair to D
- C does not deserve the remedy
- C taking advantage of a mistake by D
- Performance is impossible
- Contract is too vague
- Contract is one for personal service
- Need for supervision
What is a misrepresentation
- Unambiguous, false statement of fact (or law) made prior to the contract which induces the claimant to enter into the contract with statement maker and causes loss/damage
- Covers pre-contractual statements that turn out to be false
- The effect is to make the contract voidable (not void)
- There must be an actionable misrepresentation
- Contractual remedy of rescission available
- Damages available in tort or under Misrepresentation Act 1967
What is needed to establish an actionable misrepresentation?
Statement is a representation
Statement is false and unambiguous
Statement is one of fact
Statement induced the other party into the contract
Statement is a representation
Not a term
A statement is more likely to be a term if
It is very important to one party
Made by someone with special skill or knowledge
The closer it is made to the time of contract formation
More like to be a representation
Verification
Reduction of the contract in writing
Statement is false and unambigious
- Representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts
- Unambiguous = reasonable construction
Statement is one of fact
- Who is the statement maker (are they attracting liability in what they said?)?
Do they have specialist knowledge?
Are they in a better position to know the truth? - What is the statement maker saying or not saying?
Silence is not a statement of fact (no duty of disclosure) - A statement of law can now amount to a statement of fact
Statement induced the other party into the contract
- Representation would be material (would influence a reasonable person)
- Must be known to the representee
- Must be intended to be acted upon
- Must be acted upon
- Material and reliance
Materiality
Objective – would the statement influence a reasonable person?
Reliance
The misrepresentation must be one of the reasons for entering into the contract
If C conducts their own investigation they may be held to have relied on their own judgement but there is no duty to investigate
Primary remedies for misrepresentation
Recission
Damages
Recission
Cancel contract and return parties to position they were in before contract was made
An equitable remedy
Notice usually required
May be lost if contract is affirmed by the representee after discovering the state of affairs
Damages for misrepresentation
Recovery for all direct loss incurred as a result of fraudulent misrepresentation regardless of foreseeability
Includes consequential losses from the transaction
Types of misrepresentation to find remedies available
- Fraudulent misrepresentation
- Negligent misstatement (tort)
- Negligent misrepresentation under MA 1967
- Innocent misrepresentation under mA 1967
Duress in contract
- Concerns situations where one party has pressurised or coerced the other into contract
Vitiates free will
What is the effect of duress
To render the contract voidable
Recission
3 types of duress
- Duress to the person
- Duress to property
- Economic duress
Economic duress
Typically where one party threatens breach of contract unless the contract is renegotiated and the risk of breach would lead to severe consequences
Ingredients of economic duress
Lack of practical choice/compulsion of the will
Illegitimate pressure
Causation (but for test)
Remedies
Illegitimate pressure
Economic duress
o There must be a threat
o Is distinguished from normal commercial bargaining
o Usually unlawful threats
o Duress can exist even if threat is one of lawful action: whether it does so depends upon the nature of the demand
Undue influence
- Equitable doctrine
- Exploitation or abuse of bargaining position => application to set aside the contract in equity: Renders the contract voidable (rescission possible)
- Relationship with duress (common law)
Presumption raised then defendant must rebut the presumption by showing the claimant had acted freely
2 types of undue influence
Actual under influence (Class 1)
Presumed under influence (Class 2)
Actual under influence
Domination cases
Presumed undue influence
Relationship of influence
C must establish there was a relationship of trust and confidence (not automatic)
Transaction must be advantageous
Transaction not readily explicable on ordinary motives
Can an unreasonable delay in seeking rescission be a bar to rescission
Yes
This is because the delay can lead to the inference that the claimant has acquiesced in the violation of their rights
