Contract Law

Question 1

Who has rights and liabilities under a transaction (general rule)?

Answer 1

Contracting parties (remember agency law)

Question 2

What is privity of contract?

Answer 2

Only a contracting party can sue for breach of contract as only they have rights under the contract.

Question 3

How can a third party acquire rights under the Contracts (Rights of Third Parties) Act 1999?

Answer 3

If: the contract expressly provides that they may acquire a benefit; or the term purports to confer a benefit on them.
The third party must be expressly identified by name or as a member of a class or as matchign a particular description in the contract.

This Act creates statutory rights which represent an exception to the doctrine of privity of contract.

Question 4

How can actual authority be granted to an agent?

Answer 4

Expressly or implied. Most agents have a contract of some sort with the principal.

Question 5

How does apparent authority of an agent arise (contract is binding)?

Answer 5

The following conditions must be satisfied:
- at some stage the principal must have represented (by words or conduct) that the agent had authority;
- the third party must rely on this representation, believing that the agent has authority; and
- the third party must alter their position, e.g. by entering into a contract.

Question 6

Why is capacity important in contracts?

Answer 6

Occasionally a contract will not bind a party because the party lacked the necessary capacity to enter into it.

Question 7

Can minors enter into a contract?

Answer 7

The basic common law principle is that minors are not bound by the contracts they have entered into. The other party is bound and can be sued, but not the minor.
However, contracts for ‘necessaries’ are an exception. They are also bound by contracts of service that are, on the whole, beneficial to them, e.g. apprenticeships.

Question 8

What are ‘necessaries’?

Answer 8

They are defined under the SGA 1979 as ‘goods suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery’ .

Question 9

How does mental incapacity affect a contract?

Answer 9

i.e. those suffering from mental impairment and those who are drunk when the contract is made.
Generally, these contracts are valid unless at the time the contract was made, the person was incapable of understanding the nature of the transaction and the other party knew that to be the case.
Here, it is ‘voidable’, i.e. binding unless the person suffering from mental impairment or inebriation terminates it.

Question 10

Can an unincorporated association enter a contract?

Answer 10

No - not a competent contracting party. No individual member can be sued on it except the person who actually made the contract and any other member who authorised them to do so.

Question 11

What does s39 of the CA 2006 provide for?

Answer 11

An act undertaken by the company with an outsider (e.g. entering into a contract) cannot be challenged if it is beyond the powers granted in the company’s constitution.

s40(1) then states the powers of the directors to bind a company are deemed to be free of any limitation under the company’s constitution in favour of a person dealing with the company in good faith.

Question 12

What capacity to limited liability partnerships have for entering contracts?

Answer 12

Unlimited capacity.

Question 13

Are statutory corporations bound by contracts?

Answer 13

They will not be bound by contracts that are outside its statutory powers.

Question 14

What are the limitations to promissory estoppel?

Answer 14

• Only can be used as a defence
• Must have been a promise to waive strict legal rights
• Promisee must have acted on the promise but not necessarily their detriment
• doctrine operates to suspend the legal right (can resume their right with reasonable notice)
• to use any equitable doctrine a party must have ‘clean hands’

Question 15

How are terms incorporated into a contract?

Answer 15

• Signature
• Reasonable notice before or at the time of the contract
• A previous consistent course of dealing

Question 16

What is an innominate term?

Answer 16

An intermediate term that cannot be described as either a condition or a warranty.

Only if breach is really serious and deprived the innocent party of the whole benefit of the contract should they have the choice to either terminate or affirm the contract.

Question 17

What are the four main categories of implied terms?

Answer 17

• Terms implied by custom
• Terms implied in fact
• Terms implied in law
• Terms implied by statute

Question 18

What sort of terms are the implied conditions from the SGA?

Answer 18

Conditions - they impose strict liability. If they are breached prima facie the innocent party can reject the goods and get a refund as well as claim damages.

Question 19

What are the only bars to rejecting goods?

Answer 19

a) where the buyer has accepted the goods

b) in relation to ss 13 and 14, where the breach is so slight that it would be unreasonable to reject the goods

Question 20

What sort of term is the implied term that work/service will be carried out with reasonable care and skill?

Answer 20

An innominate term

Question 21

What rights does a consumer have if the goods to not conform to the contract?

Answer 21

a) the short-term right to reject and get a full refund

b) the right to repair or replacement (if appropriate)

c) the right to a price reduction or the final right to reject and get a partial refund to reflect the consumer’s use of the goods

Question 22

What is the time limit for the short-term time to reject?

Answer 22

Non-perishable goods is 30 days after they have been bought, delivered and where appropriate, installed.

Perishable goods is no longer than the goods could reasonably be expected to last.

Question 23

What right does a consumer have if there is a breach of the implied term as to performance within a reasonable time?

Answer 23

An appropriate price reduction.

Question 24

What is the major exception to the rule that exemption clauses do not protect third parties?

Answer 24

Provided a third party is named in an exemption clause or identified as a member of a class entitled to benefit from it, the third party can rely on the exemption to the same extent as the relevant contracting party.

Question 25

What is a specified damages clause?

Answer 25

A genuine attempt to pre-estimate the loss that is likely to be cause by the breach.

Such a clause is binding and the sum specified is the amount that will be paid regardless of the actual loss the claimant has suffered.

Question 26

What is a penalty clause?

Answer 26

An attempt to put pressure on a party to perform the contract because the sum stipulated is extravagant or otherwise disproportionately high.

It is unenforceable.

Question 27

What is the difference between an injunction and specific performance?

Answer 27

Specific performance is used to make the defendant do what they have agreed to do, injunctions are used to refrain the defendant from doing what they have agreed not to do.

Question 28

When will an injunction not be granted?

Answer 28

If the effect would be to compel the defendant to do acts that they could not be ordered to do by specific performance.

Question 29

What is restitution?

Answer 29

The general idea behind a restitutionary remedy is to prevent one party being unjustly enriched at the expense of another party.

Question 30

What are restitutionary damages?

Answer 30

An award of remedies based, not on loss to the claimant, but on the gains made by the defendant.