Contract Law Flashcards
What is contract law
Largely derived from common law. Equity is always considered. Freedom of contract states we are free to make any contract we want even if disadvantageous and is based on the sanctity of a promise to be enforced by law
Guthing v. Lynn: contract was too vague therefore was not a valid contract
Butler Tool Machine Co: Lord Denning said that as soon as the last forms have been exchanged and no objections raised, the contract is valid
Reliance Theory
Not a promise but an assumption of responsibility
Good Faith
Expectation is that both parties will do what they’ve said they will do and there are criminal sanctions for the worst breaches eg Fraud
Victoria Laundry v. Newman: responsibility for any losses taken by the person at fault however must be within contemplation of parties at the time
Wellesley Partners v. Withers: the damage resulting from the breach would have been the type in mind when the contract was made
Problems with this and good faith
Good Faith- businesses are competitive therefore may not reveal every aspect of their deals
Balance needs to be struck and some form of equity must be present
Result- lack of certainty
Balancing Interests and Justice
.Exclusion Clauses, buyer beware, caveat emptor eg Olley v. Marlborough Court Hotel, Thompson v. LMS Railway
-Only a party to a contract may take legal action. If you’re a third party you cannot take legal action eg Jackson v. Horizon Holidays
The Principle of Fault
Responsibility is one theory in contract law. An untrue statement of fact is a misinterpretation and a vitiating
factor therefore remedies would be appropriate
If one party doesn’t ask about something there is no obligation to tell. If there is a deliberate attempt to conceal a fact then there is liability
Degree of seriousness in misinterpretation
-Innocent
-Negligent
-Fraudulent
Eg: Smith v. Land and House Property
1995 Law Commission on Contracts
Recommended no punitive damages for breaches of contract eg Parking Eye v. Beavis as long as penalties are not excessive they are legal
Morality in contract
Examples of immoral contracts:
.Pearce v. Brooks: they had the freedom to enter the contract but morally the court held it was not a contract
.Parkinson v. The College of Ambulance: purpose of which to buy a knighthood
.Dann v. Curzon: a contract to commit a tort or a crime
Tax Contracts
Tax avoidance is legal and tax evasion is illegal however question of morality comes into play
Estoppel
The principle states that when terms are agreed you cannot go back on the agreement or change it
Central London Property Trust v. High Trees House: held that according to Denning and promissory estoppel they were prevented from going back on their promise to accept lower rent
D and C Builders v. Rees: the agreement was invalid as there was no consideration in favour of Builders being under financial duress which Rees took advantage of
Derry v. Peek
Tort of deceit: wrong to allow contract to be obtained by fraud
The offer
.Is the starting point of a contract. Must be definite and not vague eg Gibson v. Manchester
-An ‘invitation to treat’ does not count as an offer eg adverts,goods in a shop window etc
-Unilateral Contract eg Carlill v. Carbolic Smoke Ball/ Flu Bomb
-Goods in a shop window not contract until taken into the checkout eg Fisher v. Bell
-Request for information is not an offer eg Harvey v. Facey
Who can make an offer
An offer can be made by anyone, even a machine eg Thornton v. Shoe Lane
An offer only lasts as long as it’s open and this must be communicated to the offeree eg Taylor v. Laird
Exact timing is critical eg Stevenson v. McLean
How can an offer end
Revocation- withdrawn at anytime before acceptance and this must be communicate to the offered eg Routledge v. Grant
The offered can make a separate contract with the offered to keep it open- a collateral contract
Rejection- this ends the offer. Costner offer can be made but they will be new offers eg Hyde v. Wrench where an offer made to a group of people and rejected by one the offer remains open
Lapse of time- if no time limit has been set on the offer it will depend on the nature of the offer and what is reasonable eg Kamsgate Victoria v. Montefiore
Death- offer ends unless someone else communicated that the offer is open
Acceptance- once the offer is accepted it ends and a binding contract is formed
Acceptance of the offer
Must be positive and unqualified based in terms and must be communicated to the offeror
Article 1 of the Electronic Commerce states the acceptance occurs when when the buyer receives confirmation that their purchase has been acknowledged by the offeror
Yates v. Pulleyn: if the offer is a general offer without precise instructions on how it is to be accepted, then it is still valid acceptance
Reveille Independent v. Anotech International: acceptance by conduct means a contract is valid if one party has already performed its obligations however is unsigned by the other party
Adam v. Lindsell: acceptance through use of post and states if the letter of acceptance has been posted and that was the usual means of communication then the offer is accepted at the instance of the postage
Feltherers v. Bindley: the offeror must acknowledge the offer
How to apply offer and acceptance rules to a problem
Step 1: identify what happened in chronological order
Step 2: identify whether the event is an invitation to treat, offer, counter offer etc
Step 3: attach relevant rules for each event
Step 4: apply rules to establish when the offer is open and when it ends
Step 5: identify when acceptance took place
Eg: Stevenson v. McLean
Intention to create legal relations
A domestic contract does not need to be legally binding
‘Gentleman’s agreements’ are binding however only eg Jones v. Vernons
Edwards v. Skyways: tried to argue their agreement was ex-gratia and not legally binding however this failed as they had previously agreed to make the payment which was binding
Mcgowan v. Radio Buxton: covers competition prizes. Court held there was legal intention
Kleinwart v. MMC: covers letters of comfort. They are no grounds of legal intention.
Business or domestic agreements, social and domestic agreement
Sometimes there are cases which fall between business and domestic agreements eg Sadler v. Reynolds
Social and domestic agreements are not regarded as legally binding eg Balfour and Balfour as the agreement was made between a couple before the marriage broke down however in Merritt and Merritt it was legally binding as the agreement was made after the marriage broke down
Jones v. Padavatton: the court had to decide whether a domestic agreement had legal intent
Simpkins v. Pays: if money exchanges hands it is more likely to be a business arrangement and legally binding
Parker v. Clarke: if parties put their financial security at risk for the sake of an agreement, this is legally binding
Consideration
In contract law consideration is concerned with the bargain of a contract. Based on an exchange of a promise. The benefit or detriment is referred to as consideration.
Thomas v. Thomas: consideration must be something of value
A one sided promise which is not supported by consideration is a gift unenforceable by the law
Nestle Co: “consideration need not be adequate but sufficient”
Types of consideration
Executed consideration: where this has been carried out
Executors consideration: a promise to perform acts in the future
Past consideration and pre existing duty
Consideration has no value if it has already been done at the time the agreement was made eg Re Mcardle
Twedle v. Atkinson: a person cannot sue or be sued under a contract unless they have provided consideration for it
If there is a pre-existing duty that you are already legally obliged to do this cannot form basis of a new contract eg Stilk v. Myrick
A promise to accept part payment of an existing debt in place of the whole debt is not consideration
Pinnel’s Case: the creditor will be able to claim the remainder of the debt even if they have agreed with the debtor that a part payment will clear it
Privity
Only those party to the contract will be bound by it eg Beswick v. Beswick
-However the 1999 Contracts Act gave rights to third parties who are expressly named in the contract of are benefitting from the contract in a way. Most contracts now exclude third parties eg Dunlop Pneumatic Tyre v. Selfridge
Exceptions to privity
Agency: an agent who makes a contract on behalf of another
Collateral contracts: if there is a second contract alongside the main agreement, this can count eg Shanklin Pier v. Detel Products
Restrictive Covenants: in land law where the first parties contract is applicable to any future parties in the sale of that land eg Tulk v. Maxhay
Evaluation of Formation
.Intention to create legal relations
-The first issue is whether the parties intended to form a contract at all and the second issue is whether the contract is commercial or social
.Consideration
-Reform in consideration regarding third parties rights and legislation
-Needs redefining by looking at the factual benefits rather than the legal benefits
.Sufficiency
-Conflict where it clashes with criminal law of fraud or be evidence of coercion on the part of the beneficiary that may be more difficult to prove where there is a deed
Types of terms
Conditions: central to the contract, a failure to perform this obligation would be to destroy the purpose of the contract
-If a condition is broken the person suffering the failure is entitled to end the contract. Recission is an equitable remedy where the courts place the parties in a pre-contractual position eg Paussards v. Spier
Warranty: minor term in the contract that if breached does not end the contract eg Bettini v. Gye
Innominate term: not clearly defined as a condition or a warranty. Courts must decide and apply a remedy. It depends until a breach has occurred eg Honk Kong Fir v. Kawasaki
Is a statement a representation or an actual term of contract
A representation is a statement of fact which does not amount to a term of contract. This gives rise to no contractual obligation however possibly a tort
.In order to decide whether a statement is a representation or a term of contract the court will look at:
-The importance attached to it
-Special Knowledge or skill of the person who made it
-Included in the contract or not
Importance attached to the representation
If it is obviously vital to the contract then it will be seen as a term eg Couchman v. Hill
Special Knowledge or skill of the person
Oscar Chess v. Williams: not a term of contract as the seller genuinely didn’t know the registration of the vehicle
Dick v. Harold Smith: car dealer judged to have been a person of special knowledge therefore his statement was taken as a term of contract
Terms implied by Common Law
Business Efficacy: this is where courts will imply a term into a contract to make sure it works in a business basis and makes commercial sense eg Moorcock and Schawel v. Reade
The officious bystander test: is from a third party or a bystander point of view and this is a term that is so obvious it goes without saying
Marks and Spencer v. BNP: held that either business efficacy or officious bystander test need to satisfied
Terms implied by prior dealings between parties eg Hillas v. Arcos
Terms implied by statute
.Consumer Rights Act 2015
-Is an act that brings together rights and remedies in relation to contracts between consumers and traders. It sets out implied terms in pre-contract information eg total price, arrangements for payment etc
-Application of the implied rights with respect to the supply of goods
-The right to satisfactory quality
-The right of fitness for particular purpose
-The right relating to description
The right to satisfactory quality
Section 9 states goods need to be in a state that a reasonable person would find satisfactory given the price, description etc
The right of fitness for particular purpose
Section 10
The right relating to description
Section 11. The goods must match the description and relevant information provided
Remedies for failure to provide the rights with respect to supply of goods
.S20 covers the short term right to reject
-Must be exercised within 30 days
-Trader bear any reasonable costs
-Consumer entitled to a full refund within 14 days
.S23 covers right to repair or replacement
.S24 covers the right to a price reduction or a final right to reject
Remedies for failure to provide the rights with respect to the supply of services
.S49 covers the fact that the trader must perform the service with reasonable skill
.S52 covers the fact the service needs to be performed in a reasonable time if not expressly stated
What are exclusion and limitation clauses
Exclusion Clauses: a term in a contract that regent one party being liable for a breach of contract
Limitation Clauses: sets an upper limit on liability for breach of contract
-Both are statutory and common law
Common Law Approach
Under the freedom of contract, both parties are free to engage in any sort of contract
The courts will therefore hear 3 matters:
-Has the agreement been signed
-Has any notice with the term been incorporated in the contract
-Has the term been incorporated as a result of previous dealings
Has the agreement been signed and has any notice with the term been incorporated into the contract
Signing: if the contract has been signed (even if not read) the exclusion clause can be relied upon eg L’Estrange
-However if the clause has been queried and an inaccurate oral assurance has be replied, it cannot be relied upon eg Curtis v. Chemical Cleaning
-Terms incorporated into the contract must be made known to the party and made clear
The effect of exclusion clauses on third parties to the contract
Contra Proferentum: when the wording of a contract is in doubt it can be held against the person who put the words into the contract
If wording is clear this is not a problem eg Transocean Drilling v. Providence Resources
Statutory Controls
.If an exclusion clause hasn’t been included in the contract, then it won’t count
-2 statutes providing protection against exclusion clauses:
-The Unfair Contract Act deals with B2B contracts
-The Consumer Rights Act deals with B2C
Exclusions depending for their validity on a test of reasonableness
S11(5) states whoever inserted the clause needs to show it is reasonable in all circumstances eg Warren v. Trueprint
The Consumer Rights 2015 on exclusions
.Section 31- Products
-Bars on exclusion clauses
-S9 (goods to be of a satisfactory quality)
-S10 (to be for for purpose)
-S11 (to be as described)
-S15 (installed or done correctly)
.Section 7- deals with exclusions clauses about services
-S49 (service to be performed with reasonable care and skill)
-S51 (reasonable prices)
-S52 (reasonable times)
-S65 (liability or death resulting from personal injury as a result of negligence)
General terms of fairness
.S62 states must not put customers at a disadvantage
-Terms must be transparent eg easy to read and understand
Evaluation of contract terms
.The distinction between different types of terms based on how judges and the contract deems them to be as well as the significance they hold. In doing this the court might ignore the literal interpretation of the words used. This is unfair on the weaker party as it means the stronger party may see all terms as conditions
. The use of the officious bystander test imposes a very strict standard and an unrealistic one
.Lack of certainty in implied terms
Vitiating Factor
Is something that makes a contract void or voidable
What is a misrepresentation
.Representation are statements made during the formation of a contract that may influence a decision
- A contract remains valid unless the party that suffered the misrepresentation decides to rescind it
. False statements are statements that is either untrue or not accurate
- Silence is not a misrepresentation eg Fletcher v. Krell
-However if a statement is made that was true at the time then changed before the contract is made is becomes misrepresentation eg With v. O’Hanagan
-Dimmock v. Hallett covers part-truths
-Tate v. Williamson: relationship based on trust may also be misrepresentation
Material Fact
.The misrepresentation must have led the reasonable person to have made the contract and influenced their mind
-If a statement of opinion is genuinely believed by the person making the statement to be fact then there is no misrepresentation eg Bisset v. Wilkinson
Omissions in vitiating factors
Where a trader deliberately misses out key information that the consumer might need to make an informed decision, this is misrepresentation.
3 types of misrepresentation
Innocent
Negligent
Fraudulent
Innocent misrepresentation
Is a misrepresentation made on reasonable grounds. This is a false statement made honestly.
Negligent misrepresentation
Is a false statement made by a person who had no reasonable grounds believing it to be true
Fraudulent misrepresentation
Originates from the tort of deceit. It is when a false statement is made by a person who knows it is untrue or is reckless as to whether or not it is true
Remedies for innocent misrepresentation
Rescission: equitable remedy returning the parties to the position they were in before the contract was made
.Rescission is available under the following circumstances:
- Restitution to the original pre-contract position is impossible eg Clarke v. Dickson
- Contract is affirmed. When the innocent party chooses to carry on the contract despite the misrepresentation eg Long v. Lloyd
- Delay. If no complaints then assured there is no problem eg Leaf Case
Remedies for negligent misrepresentation
.Rescission and/or damages
- Law of tort damages. Under the Henley Byrne principle
.When fraud cannot be proved, a claim under the misrepresentation act 1967 damages can be awarded in some way eg Rayston trust v. Rogerson
Remedies for fraudulent misrepresentation
.Rescission and damages
- Smith New Court v. Vickers: court awarded the victim damages based on the difference between the amount paid for the shoes and the final price of the shoe
Economic duress
Economic duress: the threat to damage a person or business financially
Undue influence: when one party appears to have entered the contract as a result of pressure
- Might include blackmail or even violence to persuade eg Barton v. Armstrong where death threats were involved
Misrepresentation act 1967 on negligent misrepresentation
Statutory liability created for negligent misrepresentation. This covers any situation when a misrepresentation has been made that led to a contract. Up to the defendant to prove there were reasonable grounds to believe the statement was true until proven as a misrepresentation eg Howard Marine v. Odgen
Remedies for economic duress
Order of restitution. In other words any property or money obtained under duress must be returned.
What is discharge of contract
.Once contractual obligations have ended, the contract is discharged. This means that relationship between parties has ended
-However if the contract has not been performed as agreed it may be discharged by breach
3 main areas of discharge
By performance, by frustration, by breach
Discharge by performance
.The performance must be complete and exact eg Cutter v. Powell
-Courts have tried to temper this via divisible contracts, substantial performance, prevention of full performance and acceptance of part performance
Divisible contracts
When a contract can be seen as being of separate parts, non-completion of one part does not breach the whole contract eg Richie v. Atkinson
Substantial performance
Where most of what was required has been completed but there were little things to be performed exactly eg Dakin v. Lee
Prevention of full performance
When on party prevents the other from carrying out the contract, then the innocent party is entitled to payment eg Planche v. Colburn
Acceptance of part performance
If the innocent party has no option but to take the benefit o the work done, this is not consent eg Sumpter v. Hedges
Quantum Meruit
As much as its worth
Discharge by frustration
If a party to the contract is prevented from keeping the promise because of an unforeseeable, intervening event they would not be liable for a breach of contract eg Taylor v. Coldwell
-Frustration of a contract can be divided into impossibility of performance, the contract becoming illegal to perform and a radical change of circumstances
Impossibility to perform
Covered in Jackson v. Union Marine where the ship ran aground and couldn’t be loaded for a long time led to a frustration of a contract
The contract becoming illegal to perform
A change in law might make the completing of a contract illegal such a a result of war
A radical change of circumstances
If the main purpose of a contract is based on a particular event and then the event cannot take place eg Hernebay v. Hutton
When can frustration not apply
Frustration cannot apply when:
-Self-induced frustration
-The contract has become less profitable
However courts are reluctant to find frustration because its too specific
Remedies for frustration
The Law Reform on Frustrated Contracts 1943 rectified this situation:
-S1 (2): Monday already paid such as a deposit is recoverable
-S1 (3): Money already due under the contract is not payable
.Courts can also use discretion to award compensation for any work done
Discharge by breach
.When a party fails to perform its obligations under a contract, that party may be sued for breach of contract
.An anticipatory breach is when a party give notice in advance to the other party that they will not be performing to completing the contract eg Hochster v. de la Tour and Geden Operations
Remedies for breach
.Can claim damages
.Can repudiate contract
.Breach of a condition its damages and/or compensation
.Breach of warranty, the remedy is just damages
Types of remedies in contract
.3 types of remedies available against a person in breach of contract:
-Legal remedies: available by rights such a damage
-Equitable remedies: when the courts decides at its discretion what is fair and most appropriate
-Statutory Remedies: specific remedies appropriate to a certain situation eg Law Reform Act on Frustrated Contracts
Legal remedies
.Damages or rights with respect to the goods
.Goods can be rejected, contract repudiated etc
Statutory Law on remedies
.Sellers rights with respect to the goods (Sales of Goods Act 1979). Three specific rights for seller of goods who remains unpaid:
-Lien: which is the right to hold on to the goods until the debt is paid
-Stopping goods in transit and regaining possession of them
-A right to resale
.Consumers’ rights and remedies with respect to goods:
-Short term right to reject
-Right to repair or replacement
-Right to price reduction or final right to reject
Damages and Types of damages
.There are 2 types of damages; Nominal damages and speculative damages
Nominal Damages
A very small amount that can be awarded if no loss has been suffered but there has still been a breach eg Staniforth v. Lyall
Speculative Damages
The damages do not have to be proven with absolute certainty, only reasonable certainty eg Ruxley Electronics v. Forsyth
Causation and Remoteness of damage in contract
.Remoteness of damage establishes which losses can be compensated
-A test was established in Hadley v. Boxendale which was then modified in the Victoria Laundry v. Newman
.Knowledge can be based on what the parties involved were thinking about in the circumstances at the time
Assessing the damages
.Loss of a bargain: putting the claimant in the same financial position if the contract has been performed correctly
.Reliance Loss: relates to the expense incurred by a claimant who relied on a contract being performed eg Anglican TV v. Reed
The duty to mitigate loss
.Its up to the injured party to take reasonable steps to minimise the effect of the breach
-Mitigation has to be reasonable however
-Quantum Meruit: awards for service already received eg Upton Rural v. Powell
Equitable Remedies
.These are awarded when damages are considered not enough:
-Prohibitory Injunction: when the court instructs somebody not to do something
-Can be permanent or temporary, known as an interim injunction
-A mandatory injunction is more serious as it is a court order
