Contract Law Flashcards
What are the 3 essential elements required to form a legally binding contract
- Agreement (offer and acceptance)
- Intention to create legal relations
- Consideration
An offer must be…
- Clear and certain
- Communicated to the offeree
- Demonstrate an intention to enter into a legal relationship
What are the 3 ways in which an offer can be terminated? Define each of these.
- Revocation = can happen anytime before acceptance; must be communicated; will be effective on receipt where it is reasonable to expect a person to read the notice
- Rejection = can be done impliedly (eg: counter offer) or expressly; querying method of payment DOES NOT constitute a counter offer
- Lapse of time = can be after a reasonable period or the passing of an express deadline
Define acceptance
It must be a complete, unqualified acceptance of all the terms of the offer
It CANNOT be inferred by silence, but CAN be inferred by conduct
Explain the postal rule and its limitations
Explanation: A letter of acceptance which is complete on posting, forming a contract
Limitations:
1. Must be properly stamped, addressed and posted
2. Only applies to acceptances
3. Only applies where it is reasonable for acceptance to be sent via post
4. If the postal rule is ousted by offeror expressly or impliedly
Define the two presumptions to create legal relations
Domestic/social agreements = presumption there is NO intention to create legal relations
Commercial agreements = STRONG presumption parties intended to create legal relations
Are minors bound by contracts they have entered into? Exceptions?
No
Exception: contracts for necessities bind minors (eg: supply of goods and services for a minor’s benefit)
Define privity of contract
A third party cannot:
1. Enforce
2. Acquire rights under; or
3. Be liable for a contract to which that person is not a party
Third party may be able to acquire a benefit under the contract if it was clearly intended that they should be able to enforce it and was identified as name/member of a particular class
What are the 3 conditions for agency by estoppel
- The principal represented that the agent has authority by words/conduct
- The third party relied on the principal’s representation AND believes agent has authority
- The third party alters their position (enters into a contract)
What is the general rule for past consideration and what are the exceptions?
General rule = past consideration is no consideration
Exceptions:
1. It was at the request of the promisor
2. The parties understood from the outset that the act was to be rewarded in some way
3. If the payment had been made in advance, would it have otherwise been legally enforceable (offer and acceptance issues? etc.)
What are the 3 main methods of incorporation?
- Signature = binding unless there has been a fraudulent misrepresentation
- Reasonable notice/unsigned document = (a) document must be contractual in nature (b) innocent party must either know of the clause or the party relying on the clause must have taken reasonable steps to bring it to the other’s notice (c) timing of reasonable steps must be before the contract is finalised
- Consistent and regular course of dealings
Define conditions, warranties and innominate terms
Conditions = goes to the root of the contract; use of the word ‘condition’ is not definitive
Warranties = term of less importance, not going to the root of the contract
Innominate term = neither conditions nor warranties, but are innominate by nature; does the breach deprive the innocent party of substantially the whole benefit of the contract? yes = treat breach as that of a condition, no = treat breach as that of a warranty
Identify the remedies for breaches of conditions, warranties and innominate terms
Conditions = choose to terminate or affirm contract and to claim damages
Warranties = can only sue for damages
Innominate term = depends on whether the breach deprives the innocent party of substantially the whole benefit of the contract
What is needed for a valid exemption clause?
- Incorporation
- Construction = exemption clause must cover the alleged breach and loss/damage
- Unfair terms = term must not be prohibited by any legislation on unfair contractual terms
List the main Unfair Contract Terms with a B2B
- Cannot exclude liability for negligence that results in death/PI (s 2(1))
- Can only exclude liability for any other loss/damage resulting from negligence if the clause passes the reasonableness test (s 2(2))
- For a businesses’ standard written terms of business, excluding/restricting liability for breach of contract must pass reasonableness test
What is the reasonableness test for Unfair Contract Terms B2B
Term shall have been a fair and reasonable one to be included having regard to what was/ought to have been in the contemplation of the parties when the contract was made
a) Strength of bargaining positions of parties
b) Was there an inducement to agree to the exemption clause?
c) Did the consumer know or ought reasonably to have known of the existence and extent of the clause
d) Was it reasonable at the time of the contract to expect that compliance with the condition would be practicable
e) Whether the goods were manufactured/processed/adapted to the special order of the customer
List all the elements misrepresentation
An (a) unambiguous, false (b) statement of fact (c) made to the claimant (d) which induces the claimant to enter into a contractual relationship with the statement-maker
Define the general rule and exceptions for false statement of fact in relation to misrepresentation
General rule = silence will not amount to misrepresentation
Exceptions = (1) where there is a fiduciary relationship between the parties (2) where the contract is one of the utmost good faith (3) where there has been a half-truth (4) statement of fact is made but a change of circumstances occurs before the contract is formed making the statement untrue, where such a change is not disclosed
Define the general rule and exception of statement of fact in relation to misrepresentation
General rule = cannot be opinion
Exception = unless that opinion can be construed as a false statement of fact
Define ‘induces the claimant’ in relation to misrepresentation
Claimant must rely on statement for it to be actionable
Does not need to be sole reason
Claimant has NO general duty to check statements made by the defendant
Can claim if claimant relied on misrepresentation as well as their own investigation
What are the two types of misrepresentation
- Fraudulent misrepresentation = representation made knowingly, without any belief in its truth, or recklessly as to whether it is true or false
- Negligent misrepresentation = made carelessly or without reasonable grounds for believing in its truth
What are the remedies that are available for misrepresentation and what are the exceptions/bars to them?
- Rescission = aim is to restore both parties as far as possible to their pre-contract positions
- Bars to rescission: (a) innocent purchaser acquires an interest in the property before the contract is rescinded (b) affirmation (c) undue delay (d) it is impossible for party to substantially restore goods/property to the other - Damages for fraudulent misrepresentation = sue for damages in tort of deceit
- All consequential losses are recoverable - Damages for non-fraudulent misrepresentation = claimant has to show misrepresentation caused loss
- All consequential losses are recoverable
- Exception: defendant has reasonable grounds to believe and did honestly believe up until the time of the contract was made that the facts represented were true
Define 3 different types of mistake
- Common mistake = both parties have made the same fundamental mistake; neither party is at fault
- Cross-purpose mistake = parties are at cross-purposes about crucial aspects of the contract/objectively impossible to resolve ambiguity over what was agreed
- Unilateral mistake = only one party was mistaken; must be a genuine mistake (normally of identity)
What are the remedies for a mistake
Recission as mistake renders the contract void
Damages are not available
What is the general rule and exception for an illegal contract
General rule = contracts are void and courts will not allow recovery of benefits
Exception = where one party did not know of the illegal performance of the contract by the other party, the contract can be enforced
What are the requirements for economic duress
- Pressure whose practical effect is that there is compulsion on, or lack of practical choice for, the victim
- Is illegitimate
- And is a significant cause in inducing the claimant to enter into the contract
What are the remedies for duress
Makes the contract voidable
Only remedy is rescission, the effect of which is that parties are released from their future obligations and they should return money/property transferred under the contract
Define actual undue influence
Claimant must prove the defendant did actually exert undue influence on them - very difficult to prove
Define presumed undue influence
Can be presumed where:
1. There is a relationship of trust and confidence; and
2. The transaction is not readily explicable between them
Explain the effect of O’Brien in relation to undue influence
Third parties need to have taken reasonable steps to ensure that the more vulnerable party’s consent was properly obtained
Banks should often not proceed until they have explained to the disadvantageous party the full extent of their transaction and should not follow through with the transaction until they have sought independent legal advice
What are the remedies for undue influence
Contract is rendered voidable
Only remedy is rescission
Define restitution
Represents the interest a claimant has in the restoration of benefits which the defaulting party has acquired illegitimately at the claimant’s expense
Available if there has been:
1. Total failure of consideration
- Payee has not performed any part of the contract OR what had been done was completely useless
2. Compensation for work done/goods supplied
- Can bring a claim for reasonable work done/goods supplied as an alternative claim for damages (can still happen even if there was never a contract)
Define guarantees as a remedy for breach of contract
One person (guarantor) guarantees that if another person (debtor) does not pay back money owed then the guarantor will pay the money instead
Must be evidenced in writing, not necessarily a written contract
Define indemnity as a remedy for breach of contract
It creates a primary obligation on one party to reimburse the other in respect of a particular loss arising under the contract
Does NOT need to be in writing
Define frustration
- A supervening event occurring between agreement and performance
- Which is unforeseeable (and not dealt with by a force majeure clause)
- Which is not within the control of the parties
What are the 4 types of frustration?
- Impossibility = unavailability of a specific thing or person vital to the contract
- Frustration of purpose = non-occurrence of an event
- Delay = necessary to ascertain (a) length of delay (b) whether the contract specified a time limit for performance (c) if the delay radically changed the contract
- Illegality
What are 3 restrictions on frustration?
- No frustration where the event is self-induced
- No frustration where the event is foreseeable
- No frustration because of Brexit
What is the effect of frustration at common law?
Automatically comes to an end at the time of the frustrating event
Money already paid can be recovered and money due and payable before frustrating event does not need to be paid
What is the effect of frustration under LR(FC)A 1943?
Payee can recover some/all of expenses in following circumstances:
1. Payee has incurred expenses for the purpose of the performance of the contract
2. Money that should have been paid before the event need not be paid
3. Court may allow payee to retain/recover expenses incurred out of money paid/payable before the event
If one party has obtained a non-monetary valuable benefit, they may be required to pay a just sum for it
Explain the doctrine of complete performance and the exceptions to the rule
General rule: one will not be entitled to any payment if they have not fully completed the contract
Exceptions:
1. Wrongful prevention of performance by the other party
2. Voluntary acceptance of partial performance by the other party
3. Substantial performance (work finished but slightly defective)
4. Divisible obligations = parties have agreed payments for distinct stages of the work
Damages: define expectation loss and its exception
Claimant will be able to recover loss of benefit which they would have enjoyed had the contract been performed properly
Exception: where the reward would not recover compensation loss but be a very gratuitous benefit
Damages: define reliance loss and its exception
Damages to cover expenses incurred in reliance on the contract
NOT awarded for distress or disappointment
Exception: where the contract is to provide pleasure, entertainment, enjoyment or peace of mind
Define the remoteness rule
Loss must have been within the reasonable contemplation of the parties at the time of the contract as being a probable result of the breach
Define specific performance
Order from the court requiring the party to perform its contractual obligations
Can be combined with damages, but this is unlikely where damages is an adequate remedy
Define the 2 types of injunctions
Prohibitory = forbids the defendant from persisting in the wrongful act
Mandatory = requires positive action to rectify consequences of what they have done/put right the breach of contract (v rare)
Under what circumstances can a party terminate a contract
If EITHER (a) a condition is broken or (b) an innominate term is broken AND the effects of the breach are major
What are the elements of promissory estoppel? If rights are suspended under PE, when can they be resumed?
- A clear and unequivocal promise which was intended to affect the legal relations between the parties
- A change of position by the promisee in reliance on the promise
- The reliance need not be detrimental
- It must be inequitable for the promisor to go back on the promise
- PE is a shield not a sword
Rights can be resumed later on:
1. Following reasonable notice; or
2. When the circumstances giving rise to the estoppel cease
When does SGA 1979 apply? What remedies are available under the Act and what are the exceptions to these?
Sale of goods which are made:
a) Business-to-business
b) Consumer-to-consumer
c) Consumer-to-business
Remedies:
1. Reject goods and recover money; or
2. Claim damages
Exceptions:
a) Breach is so slight, it would be unreasonable to reject; or
b) Buyer has accepted goods by keeping them beyond a reasonable time
What implied terms are available under SGA 1979?
- Trader holds the title to the goods and is able to sell them
- Implied condition that goods will correspond with their description
- Goods will match any sample provided and be free of defects that would not be apparent on a reasonable examination
- Goods are of satisfactory quality and be generally fit for purpose
- Goods are reasonably fit for purpose which the buyer expressly or by implication makes known to the seller
When does CRA 2015 apply? What implied terms apply under the Act? What remedies are available under the Act?
Sale of goods/digital content/services made between trader/business and consumer
All implied terms are available under the Act
Remedies:
1. Short-term right to reject and get a full refund (30 days) (only available to consumers who buy from traders)
2. After 30 days:
a) Right to repair/replacement
b) Right of price reduction
c) Final right to reject and get partial refund reflecting consumer’s use of goods
When does SGSA 1982 apply?
Contracts for services/work and materials that are NOT made between trader and consumer
What implied terms are available under SGSA 1982 and CRA 2015?
Strict liability implied conditions:
- Goods will correspond with description
- Goods are of satisfactory quality and be generally fit for purpose
- Goods are reasonably fit for purpose which buyer expressly or by implication makes known to the seller
Implied innominate terms:
- Service is carried out with reasonable care and skill
- In absence of express term, service will be carried out within a reasonable time
- In absence of an express term, party contracting with supplier will pay a reasonable price
Define a specified damage clause
Genuine attempt to pre-estimate the loss which is likely to be caused by the breach
This is binding and the sum specified will be the sum paid regardless of the actual loss
Define a penalty clause
Attempt to put pressure on the party to perform the contract
Test is whether the clause is out of all proportion to the legitimate interest of the party seeking to rely on the clause
In what circumstances can negotiating damages be awarded?
Where there is no other financial loss other than the chance to negotiate a release fee and where it would be unfair to allow the defendant to take the full benefit of their breach of contract
What is needed for construction of an exemption clause?
Needs to cover the alleged breach of contract or loss/damage
Contra proferentem rule = any ambiguity in the clause will be construed against the proferens
Limitation clauses = clauses which limit rather than exclude liability
- These are read less restrictively
What exemption clauses are never effective in a B2C contract?
- Excluding or restricting liability for death/PI arising from negligence
- Clauses that purport to exclude terms implied by statute, both in relation to goods and services
When can an exclusion clause in a B2C be effective?
Exclusions are only effective if they are fair
Fairness = if it is not contrary to good faith and does not cause a significant imbalance in the parties’ rights to the detriment of the consumer
The general rule is that performance of an existing obligation is not good consideration. What is the exception to this rule and when can it apply?
- There is already a contract between A and B
- B has reason to doubt that A will complete
- B approaches A and promises to pay A extra to complete on time
- B obtains a practical benefit
- B’s promise was not given as a result of duress and fraud; and
- The benefit to B is capable of being consideration => it will be binding
This has NOT been extended to the part payment of debt
The general rule is that part payment of debt is not sufficient to forgo the balance. What is the exception to this?
Provided the creditor gives the debtor something (other than the part payment) in return for the creditor’s promise to forgo the balance
