Contract Law

Question 1

What is a contract?

Answer 1

An agreement enforceable at law, provides the basis for commercial activities and the means for people/businesses to sell property, services, and other rights.

Question 2

What are the five elements of a legal contract?

Answer 2

1) Offer and acceptance.
2) Intention to create legal relations.
3) Consideration given by both parties.
4) Legal capacity to contract.
5) No vitiating factors such as duress or illegal subject matter.

Question 3

What is an offer?

Answer 3

An offer must indicate the terms the offeror intents to make in the contract and should give a clear indication the offeror intends to be bound by such terms.

Question 4

What is an invitation to treat?

Answer 4

Where one party invites the other to make an offer, it is not an offer or a statement of intent.

Question 5

What is privity of contract?

Answer 5

The relationship that exists between the immediate parties to a contract which allows them to sue and be sued. A contract can only impose rights and obligations on those who are parties to it.

Question 6

What does the Contracts (Right of Third Parties) Act 1999 state?

Answer 6

A third party can sue if the contract states they can or if the contract was made to benefit the third party. Third party does not have to exist when the contract is made. Parties cannot change agreement without the consent of the third party unless contract states so.

Question 7

What is void ab initio?

Answer 7

No legal effect. Illegal contracts are void as if they had never been created.

Question 8

Who can avoid a contract?

Answer 8

1) Minors.
2) Mentally incapable persons.
3) Intoxicated persons.

Question 9

When can an offer be revoked?

Answer 9

An offer can be revoked at any time, offeree must receive this intention for it to be valid. Revocation is not allowed once the offeree has started to perform their side of the contract.

Question 10

In what four circumstances can an offer lapse?

Answer 10

1) At the end of a stated time period.
2) After a reasonable time.
3) Where the offeree dies.
4) Where the offeror dies and the contract was of a personal nature.

Question 11

What is consideration and what are the three types?

Answer 11

The price paid for a promise.
1) Executory consideration.
2) Executed consideration.
3) Past consideration.

Question 12

What are the four rules of consideration?

Answer 12

1) Performance must be legal.
2) Performance must be possible.
3) Consideration must move from the promise.
4) Consideration must be sufficient but need not be adequate.

Question 13

What is Pinnel’s case 1602 and what are the five exceptions?

Answer 13

Payment of a lesser sum is not satisfaction for the whole.
Exception where:
1) Payment in kind.
2) Payment of a lesser sum before the due date of payment.
3) Payment at a different place.
4) Payment of a lesser sum by a third party.
5) A composition arrangement.

Question 14

What is promissory estoppel?

Answer 14

A promise is enforceable by law even if made without formal consideration. Applies when a promisor has made a promise to a promisee who relies on that promise to their detriment. Prevents the promisor from arguing that the promise should not be legally upheld.

Question 15

What are the four points to promissory estoppel?

Answer 15

1) Promise must have been clear and unambiguous.
2) Promise must have been relied on.
3) Promisee must have suffered a loss as a result.
4) Injustice can only be avoided by enforcing the promise.

Question 16

What are the six circumstances where a third party can enforce a contract?

Answer 16

1) Where they are legally appointed to administer the affairs of a party.
2) Where the situation involves a collateral contract.
3) Where a party can transfer the benefit to the third party.
4) Novation.
5) Where foreseeable damage will be caused by a breach which will cause loss to the third party.
6) Where one of the parties has entered the contract as a trustee for the third party.

Question 17

What is capacity?

Answer 17

The legal ability to enter a contract.
1) Minors.
2) Mental incapacity and intoxication.

Question 18

What is a waiver?

Answer 18

The decision to not pursue the rights a party has acquired under the contract, this includes the right to take action against a breach.

Question 19

What is a variation?

Answer 19

The process of altering contractual rights in a mutually agreed process.

Question 20

What are representations?

Answer 20

Pre-contractual statements that are not part of the contract.

Question 21

What are contractual terms?

Answer 21

Statements that form part of a contract.

Question 22

What are conditions?

Answer 22

The fundamental part of the agreement, a breach of a condition gives innocent party right to terminate, refuse to perform, or go through with the agreement and sue for damages.

Question 23

What is a warranty?

Answer 23

A subsidiary obligation that isn’t vital to the agreement, breach does not give right to terminate and innocent party must perform their party and can only sue for damages.

Question 24

What are innominate terms?

Answer 24

Considers if a breach substantially deprives the innocent party of the whole benefit of the contract, right to terminate follows. If the whole benefit is not lost then they cannot terminate but can settle for damages.

Question 25

What are implied terms?

Answer 25

Not actually stated expressly but are introduced by implication.

Question 26

What are exclusion clauses and what are the three ways of incorporation?

Answer 26

Exempt/limit the liability of a party in breach of the agreement.
1) By signature.
2) By notice.
3) By customs.

Question 27

What are the four determinations of whether an exclusion cause effectively covers a breach?

Answer 27

1) Whether the clause on its construction covers the breach.
2) The contra proferentum rule.
3) The main purpose rule.
4) The doctrine of fundamental breach.

Question 28

What is the Unfair Contract Terms Act 1977?

Answer 28

Attempts to control exclusion clauses.
1) Prohibition of exemption from liability where negligence caused death or injury.
2) Prohibition of exemption from liability where there is a breach of contract in a contract of sale or supply of goods.

Question 29

What are the four factors to assess the reasonableness of an exclusion clause?

Answer 29

1) The relative strength of the parties’ bargaining power.
2) Whether an inducement was offered in return for the limitation on liability.
3) Whether the customer knew/ought to have known about the existence or extent of the exclusion.
4) Whether the goods were manufactured for the special order of the consumer.

Question 30

What two things does the Consumer Rights Act 2015 set out?

Answer 30

1) Unfair terms.
2) The grey list.

Question 31

What are the four types of mistakes?

Answer 31

1) Common mistake.
2) Mutual mistake.
3) Unilateral mistake.
4) Mistake in respect of documents.

Question 32

What is a misrepresentation and what are the three requirements?

Answer 32

A false statement of fact made by one party before/at the time of the contract which induced the other party to enter the contract.
1) There must be a false statement of fact.
2) Must be a written/oral statement, silence is not misrepresentation.
3) The statement must actually induce the contract.

Question 33

What are the three types of misrepresentation and their remedies?

Answer 33

1) Fraudulent misrepresentation - recission, damages.
2) Negligent misrepresentation - recission, damages.
3) Innocent misrepresentation - recission, damages.

Question 34

What is a recission?

Answer 34

An equitable remedy designed to return the parties to their original position.

Question 35

What three circumstances is the right to rescind lost?

Answer 35

1) When the innocent party had full knowledge of the misrepresentation and expressly/impliedly stated they intended to continue with the agreement.
2) Where the parties cannot be restored to their original position.
3) Where a third party has acquired rights in the contract.

Question 36

What is duress and what three things must the claimant show?

Answer 36

A physical/economic force used to overrise one party’s freedom to make a contract or not, the contract is voidable by the innocent party.
1) Resulted in an absence of a real choice.
2) Was brought to bear on them.
3) Was of a nature considered illegitimate by the Courts.

Question 37

What is undue influence?

Answer 37

Where one party exploits their position of power over the other party to affect their judgement, contract can be voided by the beneficiary.
1) Assumption of undue influence in special relationships.
2) Where there is no special relationship claimant must prove there was undue influence.

Question 38

What are the three points of contracts and public policy?

Answer 38

1) Illegal contracts that breaks the law are prohibited from making a claim.
2) Contract is void if it is contrary to public policy.
3) Contracts in restraint of trade are prima facie void unless there is a legitimate interest to protect and it isn’t contrary to public interest.

Question 39

What is a discharged contract and what are the four types of discharge?

Answer 39

When both parties have fulfilled their contractual obligations the contract is discharged.
1) Discharge by agreement.
2) Discharge by performance.
3) Discharge by frustration.
4) Discharge by breach.

Question 40

In which four situations does the doctrine of frustration not apply?

Answer 40

1) Where parties made an express provision for the event that has occurred.
2) When the frustrating event is self-induced.
3) Where an alternative method of performance is possible.
4) When the contract only becomes more expensive to perform.

Question 41

What is an anticipatory breach?

Answer 41

An express/implied intention not to perform obligations, innocent party can either sue immediately or wait and give the other party a chance to perform. If they wait there is a risk the contract will be discharged for another reason and they will lose their right to sue.

Question 42

What are the six remedies for a breach of contract?

Answer 42

1) Damages - reliance loss and expectation loss. Measured by market rule, duty to mitigate loss, time of assessment, and non-financial loss.
2) Quantum merit - party is awarded as much as they earned.
3) Specific performance - party in breach has to complete their part of the contract.
4) Injunction - orders a person to not break their contract.
5) Action for the agreed contract price - party can sue for non-payment of the price.
6) Reputation - innocent party can treat contract as discharged and need not perform their obligations.