Contract Law Flashcards
Contract
An agreement which the law will enforce
Elements of contract
- Parties in agreement
- Intention to be legally bound
- Consideration
What important contracts must be in writing (all others don’t)?
- Contracts of guarantee
- Contracts to sell land
- Consumer credit agreements
Offer to enter into a contract (offeror)
+
Acceptance (offeree)
= Contract
Requirements for a valid offer (three)
- Party making it is prepared to enter into contract (willingness)
- Terms of offer are sufficiently certain i.e. drink vs coffee (specific)
- Offer needs to be communicated to the other party (can be oral)
Requests for information are NOT offers
(Example: asking for price is NOT an offer)
Invitations to treat
Invitations to another to make an offer is NOT an offer
(Example: advert selling an item is not an offer to sell to those who want it as could be multiple buyers who would enforce a contract)
Invitations to treat - examples
Adverts
Price lists
Auctions
Tenders i.e. parties submit bids - submissions = offers and the one picked
Invitations to treat = NOT an offer = NO contract
Buyer can make an offer and seller can accept = contract formed
Unilateral contract
Contract where offeror promises to do something IF the offeree actually does something in return e.g. missing dog reward
Only way to accept the offer is to do the requested action
Promise not enough only action is enough
Terminating offers
- Revocation: offer terminated by offeror at any time before it is accepted BUT remember exceptions
Bilateral contracts (i.e. all apart from unilateral) can be revoked at any time until it is accepted
- Rejection: offer terminated by offeree
- Counteroffer
- Passage of time: limited time offer OR if not accepted in a reasonable time
- Operation of law: failure of a condition contained in the offer (explicit or implicit condition)
Offeror > revokes
Offeree > rejects
Situations where offeror can’t revoke offer
- Collateral contract: when parties enter into separate binding contract where offeror agrees not to revoke offer
- Unilateral contract:
Counteroffer = rejection and new offer
Acceptance
The offeree agreeing to be bound by the offer
How are offers accepted?
Bilateral contracts: performance or promise of performance
Unilateral contracts: performance only
Exception: a method of acceptance that’s just as advantageous as the method requested
Silence cannot be stipulated as a method of acceptance of an offer
Acceptance must be communicated to the offeror in some way
Can be by conduct and not words as long as the offeror is aware of the conduct
Action of accepting performance e.g. accepting delivery of goods is usually enough to act as acceptance of conduct
Terms of last offer will control what happens
Acceptance without any communication at all is possible only IF the offer specifically provides that acceptance need not be communicated
The postal rule
Acceptance by post creates contract at moment of posting UNLESS
- Letter wasn’t properly addressed and stamped
- It wasn’t reasonable to accept by post
- The rule has been excluded by the offeror (expressly or by implication)
IMPORTANT: only applies to acceptance NOT rejection or revocation
Rebuttable presumpiton parties did NOT intend a binding agreement
- Domestic family situations
- Social situations
Presumption can be rebutted if the circumstance show a different intent i.e an intent to be legally bound
Rebuttable presumption there is intent for agreement to be binding
Commerical and business agreements
Presumptions can be rebutted if the circumstance show a different intent
Who can lack capacity to be bound?
Minor (under 18)
Mental incapacity
Intoxication (alcohol/drugs)
A contract entered into by an individual who lacks capacity is voidable until such time that they restore capacity i.e. sober up/turn 18 etc.
BUT for mental incapacity and intoxication the contract is only voidbale IF the other party to the contract knew of their incapacity
Ratifying a contract
Choose to adopt the contract i.e. if someone who previously lacked capacity gains capacity e.g. drunk person sobers up then they can choose to ratify the contract so it becomes properly binding on them OR they can leave it
Someone who lacks capacity can enter into a contract to pay a reasonable price for goods or services which are necessary for them
No goods will be deemed necessary if the price is unreasonably high
Someone who lacks capacity can be bound by a contract where the contract is for the acquisition of a permanent interest in property e.g. land or shares in a company
Consideration
The act of each party doing something or promising to do something e.g. giving goods or money or land or a promise not to compete
‘Something’ = consideration
Executory consideration
A promise to do something
Executed consideration
Actually doing something
Consideration must move from the promisee
Example promising to pay someone for painting house
Promisee = painter
Promisor = payer
Person to whom the promise is made must give consideration in return
The promisee must give consideration in return (IMPORTANT)
This does NOT mean that consideration has to move from the promisee to the the promisor i.e. when consideration is given to a third party by carrying out an existing duty and not to the the promisor when they make a promise to the promisee - this is considered good consideration given by the promisee to the promisor even though it is by carrying out an existing duty to a third party
Consideration must be sufficient but need not be adequate
Sufficient consideration: must give or promise something that the law recognises as consideration e.g. 1p or 1 peppercorn
Adequate consideration: economic value - law doesn’t ask about the value of the consideration i.e. it need not be the economic equivalent of the consideration given by the other side - court doesn’t police the value of a bargain i.e. need not be a fair deal
Inadequacy of consideration may be evidence of a vitiating factor that could render a contract void or voidable because of mistake or duress
Illusory consideration = NOT sufficient consideration
Consideration that has no value at all - not sufficient - too hard to count and enforce
Example: promise to stop complaining
Situations where an act does NOT count as good consideration
- Performance of an existing duty
- Past consideration
Performance of an existing duty = NOT good consideration
It is not good consideration to agree to do something that you have already agreed to do e.g. agreed to fix lights (contract formed) then an hour later say will fix lights for £100 - insufficient consideration = no new contract and previous contract still stands
EXCEPTION 1: when someone owes the existing duty but agrees to do something more e.g. will come round earlier to fix the lights but will cost £100
EXCEPTION 2: if the existing duty is owed to someone else it can also be used sufficient consideration for
Performance of an existing statutory duty does not amount to good consideration
Example: owner of a pub offered to pay a police officer £50 per night to keep the peace in the pub while the officer was on duty - the officer would have given no consideration
Past consideration = NOT good consideration
Consideration that has already taken place is not good consideration i.e. if someone fixes a bike and then the other party promises to pay £10 for it this is not good consideration because the work has already been done
EXCEPTION - implied understanding of payment
It is different if the promisee understood they would always pay the promisor something to have their bike fixed i.e. somone takes a bike to be fixed at a bike repair shop they expect to pay something to have bike fixed and will pay whatever the price turns out to be - contract was made before the bike was fixed
Part payment of a debt
English law does NOT recognise a promise o accept part payment of a debt because there is no fresh consideration so it is not enforceable e.g. Anne owed Ben £500, Ben offers £450 in full and final settlement and Anne agrees. Anne can still sue Ben for the remaining £50.
EXCEPTIONS
1. Debt is disputed in good faith e.g. the debt is of uncertain value and so the debtor is providing consideration by agreeing to pay something
2. Unliquidated claims - amount owed is uncertain
3. Payment at a different place or earlier payment e.g. lesser amount paid earlier
4. Third party makes payment e.g. third party made payment on an agreement reached in good faith that the payment would discharge the debt
5. Payment is made by different means at the request of the party accepting the lesser amount e.g. good or services instead of money
6. Composition with creditiors - an agreement between a debtor in financial difficult and all their creditors that the debtor will pay an agreed amount in satisfaction of all their debts
Promissory estoppel
Situations where it is unfair for the creditor to go back on their promise to accept a lessor amount
Gives debtor a defence
Can’t form a basis of a claim
Suspends the creditor’s original rights, it doesn’t destroy them all together
Only works if it is inequitable for the creditor to claim the full amount
Contracts by deed do NOT need consideration
Giving up the right to litigate a good faith dispute is valid consideration
Example if pay a lower amount than previously agreed because the work quality was poor - fresh consideration is giving up the right to litgate
Privity of contract
Only the parties to a contract can sue under it or be sued by it
Exceptions to privity rule
- Contracts Rights of Third Parties Act 1999: third parties can sue to enforce their rights - the third party is included in the contract and so can enforce the contract - allows you to assign the right to claim under a contract but can’t use it to transfer obligations
- Agency: middle man agrees contract but contract can be enforced by third party who instructed middle man to create contract - the interest is enforced after the contract is formed
- Assignment: after a contract is formed one party directs the other to pay someone else instead i.e. they owed them the money so asked them to pay them directly - the interest is enforced after the contract is formed - allows you to assign the right to claim under a contract but can’t use it to transfer obligations
- Subrogation: limited to insurance and guarantees
Types of contract terms
- Conditions
- Warranties
Expressly or impliedly stated into a contract
Terms v representations
Condition v warranty
Condition: obligation that goes to the root of the contract - breach will repudiate the contract = can end contract and/or claim damages
Warranty: doesn’t go to root of contract - breach = damages only
Presumption in commercial contracts that time for delivery is presumed to be of the essence if a time for delivery has been agreed unless the contract says it is not of essence
Innominate terms
If you can’t tell if a statement is a condition or warranty = innominate term
Breach = depends on impact of the breach whether the contract can be ended
Express terms
Parties MUST have reasonable notice on a term for it to be express terms
Parole evidence rule
A written contract is presumed to contain all the terms that have been agreed
Can’t bring in external evidence to add to or vary the written terms
Implied terms
By statute
By the courts
Implied terms by the courts
Only imply a term if it is necessary to make the contract work
Must be necessary to give the contract business efficacy
High threshold
Agreement to agree
Void for uncertainty
Severing the uncertain term
Test: if the uncertain term is removed will this alter the essential bargain between the parties
Exclusion/limitation clauses
A party won’t be liable if they breach the contract
OR
A party who breaches the contract is only going to be liable up to a certain amount
Rules for exclusion clauses
- Incorporation: Clauses need to be incorporated into the contract at time it is made
Three ways:
a. by signature
b. by notice i.e. informed of term before contract is made - if clause is onerous extra steps need to be taken to ensure notice is given
c. by custom or course of dealing - must be regular and consistent dealing - Construction: clause has to cover the liability that the clause is trying to exclude - matter of interpretation
Interpretation of what a term means = construction
Contra proferentem rule: if there is any uncertainty in the clause it will be decided against the party relying on it
- Legislation prohibits some exclusion clauses
Different rules for exclusion clauses depending if it is a commercial or consumer contract
Exam tip: clauses printed on a receipt or invoice are not incorporated in a contract as it is too late - contract already formed and it is not on a contractual document
Contra proferentem rule
Statutory rules on exclusion clauses
Unfair Contract Terms Act 1977: between businesses
Consumer Rights Act 2015: between business and consumers
Unfair Contract Terms Act 1977
Some exclusions are void:
1. Death or injury by negligence
2. Exclusion of the implied condition that a seller must have good title to the goods (Sale of Goods Act 1979)
Other exclusions are valid only if reasonable
Reasonableness test: was it reasonable to include exclusion term at time contract was made?
1. Quality -
2. Contracts on standard terms - any exclusion clauses must be reasonable
Rules apply to exclusion and limitation clauses i.e maximum amount set
Consumer Rights Act 2015
Prohibited terms are unenforceable
Any attempt to void the implied terms about quality of goods and services is prohibited
A term is unfair if it causes an imbalance between the parties
Terms must be transparent (plain language) and legible - unfair if not
Unfair terms are not binding on the consumer
Potentially unfair terms:
1. Exclusion for death or injury
EXCEPTION TO CRA 2015:
Doesn’t apply for terms which are specific to the main subject matter of the contract e.g. price would not be caught by the unfairness test BUT core terms must be transparent and prominent in the contract
Vitiating factors
Factors that prevent a contract from being effective
Void contract
Has no effect
When?
1.Mistake
a. Common mistake: both parties make the same mistake e.g. a ship sank (before contract) so couldn’t be sold
b. Mutual mistake: parties are mistaken about different things e.g. both parties think they’re talking about same boat but actually different boats with same name
c. Unilateral mistake: one party is mistaken but the other party knows of the mistake or should know e.g.
Neither apply if the mistake was about quality - contract will NOT be void but could be a breach instead
Mistaken identity: depends how important identity is to other party i.e wouldn’t have entered into contract tif knew true identity - void if important
d.Non est factum: protects those who sign a document in mistaken belief that it represents something else e.g. footballer thinking they signed autograph actually signed a contract
e.Rectification: parties agree on terms but they are incorrectly recorded in writing
- Illegality
Voidable contract
Remains in effect unless rescindable by a party
When?
1. Lack of capacity
2. Duress
3. Undue influence
4. Misreprentasentation
Duress
Makes a contract voidable NOT void
One party applies illegitimate pressure to the other party
- Duress of party e.g. sign this or I’ll kill you
- Duress of goods e.g. one party holds onto other party’s goods until they sign the contract
- Economic duress: one party is in a stronger economic position and uses that to force the other into a contract - likely to be variations of the contract that are voidable for duress rather than entire contract
Undue influence
Makes a contract voidable NOT void
One person abusing their influence over the other BUT does NOT have to be in bad faith i.e. pressure on party to enter into a contract or they will issue court proceedings
Based on personal relationship between the parties - unlikely to arise in personal situations
- Actual undue influence: innocent party proves that the other abused their relationship
- Presumed undue influence: if there was a relationship of trust and one party entered into a relationship that is so unfavourable to them that an explanation is required from the other party who would have to rebut it e.g. parent and child or fiduciary relationship i.e. solicitor and client
Law does NOT presume a relationship between spouses is a relationship of trust so MUST prove this unlike mother/child relationships etc.
Third party undue influence: undue influence by a party who is not a party to the contract e.g husband gets wife to enter into a financial transaction with contract with someone else normally a bank - bank deemed to know about husband and wife relationship so unless bank can provide explanation then wie can void contract
An acceptance is effective when it is posted BUT rejection is effective when received
For an offer to be validly accepted, the offeree must have communicated their acceptance of the offer to the offeror
An invitation to treat is an expression of willingness to negotiate, which falls short of a valid offer
Supply of Goods and Services Act 1982
When goods are supplied under a contract for services, all the statutory implied terms are implied by this Act. These terms include conditions relating to the goods similar to those which would be implied by the Sale of Goods Act 1979 in the case of a sale of goods contract. They also include terms (which are ‘innominate’ terms) that the work will be carried out with reasonable care and skill, and that it will be carried out within a reasonable time if no time for performance has been agreed
Vitiating factor: illegality
Illegal contracts are void e.g. you agree to rob a bank - your friend can’t enforce the contract
Illegal performance e.g. courier agrees to deliver parcel but is drunk driving - customer can still enforce contract if didn’t know of illegal act but courier may struggle to enforce contract against customer
Courts will try and severe the illegal element of contract
Immoral contracts e.g. prostiution
Vitiating factor: misrepresentation
A misrepresentation is a false statement of fact or law made by one party which induces another party to enter into a contract
Elements:
1. Statement made by one party or their representative
2. Statement has to be of fact or law NOT of opinion or intention (e.g. will spend money or expansion but spends on debt repayment BUT if a person making a statement of intention does not actually hold that intention then it might still be a misrepresentation)
3. Actual statement need - oral or in writing or by conduct (e.g. walk in to restaurant and order - representing that have money to pay - made a statement through conduct)
4. Silence usually not misrepresentation BUT exceptions:
a. Contracts of utmost good faith e.g. insurance contracts - policy holder under duty to disclose all relevant facts to insurer and if they don’t then it’s a misrepresentation - even if not asked question directly
b. Duty to correct - if a statement made before contract entered into is later not true must NOT remain silent and MUST correct statement or true statement will turn into misrepresentation
Deciding if a statement is a term of a contract or a misrepresentation:
Misrepresentation would not be a term of the contract and so the false statement is NOT a breach of contract
Representor: person making false statement
Representee: person believing false statement
Types of misrepresentation
3 types: fraudulent, negligent and innocent
- Fraudulent: representor made false statement knowingly, recklessly or without belief in its truth
Misrepresentation Act (decides if non-fraudelent statements are misrepresentation):
a. Innocent representation: representor can prove they had reasonable grounds for believing their statement was true and they believed it to be
b. Negligent misrepresentation: not fraudulent but representor can’t prove reasonable grounds for believing their statement was true
Misrepresentation: remedies
Misrepresentation = voidable - representee can choose to rescind the contract by telling the other party or by going to court AND can claim indemnity from representor
Rescission = equitable remedy
4 bars to rescission
- Affirmation: if you know the representation is false and you carry on with the contract anyway = affirming = can NOT rescind contract
- Lapse of time: if innocent party does NOT act promptly to rescind = rescission denied
- Impossibility of restitution: if it is no longer possible to put the misrepresented substantially back in the position they were in before the entered the contract
- Third party rights: if an innocent party has acquired rights in the subject matter of the contract e.g. seller sells car to buyer but cheque bounces, buyer sells car on to third party - court won’t grant recession even though cheque bounced
Paying by cheque is a representation that the cheque will be honoured
Misrepresentation: remedies
Fraudulent misrepresentation: recession and/or damages
Negligent misrepresentation: recession and/or damages
Innocent misrepresentation: damages not available but court MAY award damages in lieu of recession
Any attempt to exclude liability for misrepresentation is only valid if reasonable (reasonableness test)
Reasonableness test:
- Strengths of parties bargaining position
- Alternatives available to the customer
- Whether the innocent party knew of the term
Ways to discharge a contract
- By agreement
- By performance
- By breach
- By frustration
Discharge of a contract = bringing to an end - releases all parties from any obligations under the contract for the future
Discharge by agreement i.e. end employment by working 4 weeks notice OR if not stipulated in contract can make an agreement (which forms a new contract)
Agreement of part payment of a debt = variation of a contract (needs to be supported by consideration)
Waiver principle
If one party promises not to enforces the others obligations under the contract - then the party has waived their obligations - equity will stop them from going back on their promise
Party who waived rights can reinstate them by giving the other party REASONABLE NOTICE
Discharge by performance: once both parties have performed all their obligations and the contracts discharged (entire obligaitons rule)
Exceptions to entire obligations rule
- Substantial performance: if contract has been substantially performed then party can claim payment for their performance e.g. kitchen extension substantially completed then builder can claim payment subject to other party’s right to claim damages for defective and incomplete performance
- Divisible contracts: mini contracts within main contract (doesn’t need to be explicit court may rule that contract is divisible) e.g. huge construction project will likely have payment due as each stage is completed - entire obligations rules applies separately to each part of the contract
Quantum meruit
A way of fixing a payment outside the contract e.g. payment for partial completion
Discharge: by breach
A contract isn’t automatically discharged if one of the parties breaches it BUT the innocent party can choose whether to discharge the contract or not
Breach of a condition or an innominate term AND it’s so serious it’s treated as a breach of condition
Breach is so serious it’s a repudiation of the contract
Anticipatory breach
The contract can be terminated from when the party says they are not going to perform their obligation i.e. do not have to wait until date of agreed performance to see if party does perform
The same applies for damages - don’t have to wait
BUT can wait to see if party backtracks and does perform obligation
Example: agree to buy boat from seller in September but in June seller says they don’t want to sell - can rescind now and claim damages before September
Frustration
An unforseen event, after the contract is formed, which either stops the contract from being performed or makes performance radically different
Examples: item being sold is destroyed OR performance of contract becomes illegal after contract was formed
Frustration occurs AFTER the contract was formed
Law Reform (Frustrated Contracts) Act
All sums paid before discharge can be recovered i.e 50% deposit would be recoverable
All sums payable before discharge cease to be payable i.e. no further payments are payable
But a party may retain the amount of expenses i.e. if they had been paid a deposit already they will have to return the money minus the cost of expenses
But the court can’t order a party to pay a sum already paid i.e. if no deposit was paid then they can’t claim for the cost of expenses - will be out of pocket
A party may have to pay for a valuable benefit e.g. a kitchen extension was partially built but builder dies - court may require payment of the value of the kitchen that has already been built to be paid to the builders estate
Remedies for breach of contract
Damages: to compensate innocent party for loss NOT to punish for breach
Intended to put innocent party in the position they would have been in had the contract been performed
Expectation interest
Compensation to put the innocent party in the position where they would have been if the contract had been properly performed
BUT can be hard to quantify e.g. potential profits made by TV company
Cure measure
vs
Value measure
Reliance interest
Can be claimed instead of expectation interest e.g. expenses incurred - film company who couldn’t shoot film as actor quit could claim for cost of adverts, other actors etc.
Damages in contract law are awarded for:
- Monetary losses
- Lost profits
- Damage to property
- Physical injury
- Loss of reputation
BUT not for disappointment or mental distress BUT some exceptions e.g. loss of amenity (awarded if the purpose of the contract was to provide a particular benefit in terms of enjoyment e.g. holidays)
Damages are usually assessed as of the date of breach e.g. damages for aniticpatory breach is calculated from the date the party announces they will breach the contract
Remoteness of loss (KEY FOR EXAM)
To recover damages losses can’t be too remote
Losses must either:
1. Flow naturally from breach
OR
2. Be in reasonable contemplation of parties when contract is made
Contributory negligence
A defence to a claim in contract IF the defendant is under the same duty in both contract and tort i.e. same duty would have arisen in tort even if there had been no contract
Mitigation
The innocent party must take reasonable steps to minimise their loss
Innocent party can’t recover damages for losses that they should have been able to avoid if they had mitigated their loss e.g. electricians van is being repaired and will take longer than agreed - electrician can mitigate by hiring a van and claiming for the cost of the hire
Liquidated damages clauses
A clause where a party promises to pay a specified sum if they breach their obligations under the contract
Courts will upload liquidated damages clauses UNLESS unless it is a penalty i.e. if it doesn’t protect a legitimate interest or if the amount charged isn’t proportionate to protect that interest
Equitable remedies (discretionary)
- Specific performance: an order requiring a party to perform their obligations - rarely used unless subject matter of contract is unique e.g. rare painting - not granted if damages are adequate remedy
EXCEPTION: personal services e.g. job contract - employer fires employee but court would not make employer reemploy employee (too many issues) - Injunction: an order requiring a party not to do something i.e. not to breach a contract - rarely used - not granted if damages are adequate remedy
Personal services contract
No specific performance
No injunction
All equitable remedies have special defences
Restiutionary remedies
Available when
1. Someone has been enriched or benefitted
2. Enrichment is at expense of other party
3. Enrichment is unjust
4. There are no defences e.g. waited too long
Total failure of consideration
For frustration to apply, the contract must be incapable of being performed, not just more difficult or expensive.
A misrepresentation is a false statement of fact or law (NOT of opinion) made by one party to another to induce the other party to enter into a contract
Contracts by deed
Makes clear on its face that it’s intended to be a deed
Must be executed by the parties in the presence of a witness and delivered
Delivered means the parties must have shown their intention to be bound
Dead v contract not made by deed
Time limit in which a claim for breach must be made varies
Contract not made by deed = up to 6 years from date of breach
Deed = up to 12 years from date of breach
Revocation
Offeror may revoke by directly revocation to offeree at any time before acceptance
Offer may be revoked indirectly i.e by third party and not offeror
Revocation must be received by offeree
Offer can be revoked even if there was a promise not to revoke EXCEPT if a collateral contract was formed to prevent revocation
Revocation: unilateral v bilateral contract
Unilateral: irrevocable once performance has begun BUT still no contract until offeree has completed performance so can withdraw at any time
Bilateral: irrevocable once performance has begun - beginning performance constitutes acceptance and contract is formed immediately
A mere enquiry/request for further information will NOT terminate an offer
Test: whether a reasonable person would believe that the original offer had been rejected
An agreement to keep the original offer open = collateral contract SO a rejection of or counter offer to the collateral contract does NOT terminate the original offer
Offeree must know of offer i.e if the offeree acts without knowledge and later learns of the offer their acts are not an acceptance
Postal rule: acceptance effective ON POSTING
BUT revocation and rejection effective ON RECEIPT
Postal rule does NOT apply to instantaneous methods of communication e.g. email
Offer accepted at point it is received i.e. when email is opened
A battle is won by the person who fires the last shot i.e. a contract is formed after the last set of terms is sent and not objected to and performance of the contract has begun
Prevail clauses: offeror includes a term stating their terms will prevail BUT rarely effective as the offeree can make a counteroffer to enter contract on their terms which rejects the whole of the original offer including the prevail terms
Presumption that there is no legal intention to be bound is social arrangements is generally ebutted when family members club together in enter a race or competition
Minors can enforce contract but they are not bound by them unless they ratify the contract when they turn 18
Conveyance of land (the actual transfer of land made in order to implement the contract for sale) must be executed by deed
For consideration to be valid, it must be sufficient but need not be adequate. The law requires there to be some value to the consideration (that is, sufficiency) but the law will not interfere if you have made a contractually bad bargain, that is, if the value of the consideration flowing from one party to the other is unequal (that is, not adequate).
When may a contract be void or voidable?
Mistake (void)
Duress (voidable)
Undue influence (voidable)
Illegality or contravention of public policy (void)
Misrepresentation (voidable)
Void = cannot be enforced
Voidable = can elect to enforce (or rescind)
Title to goods can never pass under a void contract
