Contract Law

Question 1

What is a contract?

Answer 1

A contract is an agreement between two or more persons which is legally binding. It could be either written or spoken.

Question 2

Why is contract law important?

Answer 2

It gives an importance and enforceability to a promise, and provides us with remedies when things go wrong.

Question 3

Is there a specific form a contract must take?

Answer 3

There is no specific form, however a contract could be verbal, written or with conduct.
However there are exceptions that must be written such as: disposition of land, copyright agreement and consumer credit and regulatory agreements.

Question 4

What is the measure of damages in contract?

Answer 4

-The aim of contract damages is to put the innocent party in there position they would have been in if the contract had been properly performed.
-The amount of damages that can be recovered is the liquidated damages - actual loss suffered.
Penalty clauses are only valid if there are a genuine pre-estimate of the cost of the breach.
-There are also equitable remedies for breach of contract: specific performance and injunction.

Question 5

Are you generally bound by a contractual document that you have signed? What if you have signed it without reading it? What is the authority for this?

Answer 5

Yes, you are legally bound by a contractual document that you have signed. This is true even if you did not read the contract, or were unsure what it meant.However, there can be exceptional cases where you are not bound, even though you have signed.

Question 6

What are the elements necessary to form a valid contract?

Answer 6

• Agreement (Offer and Acceptance)
• Consideration
• Intention to be legally bound
• Certainty of terms

Question 7

Difference between offer and invitation to treat

Answer 7

Offer – An invitation communicated by one party to another to enter a legally binding contract on certain specified terms.
Invitation to Treat – An invitation to enter negotiations with a view to creating an offer.

Question 8

Offer

Answer 8

• must be clear and the terms of offer certain
• must be distinguished from an invitation to treat, a statement giving information or expressing an intention
• must be communicated to the other party by the offeror or a reliable third party
• may be terminated by revocation, lapse of time, death, counter offer, rejection

Question 9

Acceptance

Answer 9

• it is the unconditional assent to all terms of the offer

* will only be valid if it is communicated in that way or an equally effective manner. Silence is not acceptance.

Question 10

Consideration

Answer 10

Consideration is an essential element of a binding contract. Consideration is ‘some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other party’.

• Consideration must be performed in full.
• Past consideration is no consideration.
• Must have value.
• Consideration must be sufficient; it need not be adequate.

Question 11

Intention to be legally bound

Answer 11

For an agreement to be legally binding, both parties must intend that the agreement should impose legal rights and obligations on them.
Two presumptions that are important here:
-In a business agreement, there is presumed to be intention to create legal relations.
-In a social agreement, there is presumed to be no intention to create legal relations.
In both cases, the presumptions can be overturned by evidence, or by clear statements of the parties. They are not absolute rules.

Question 12

Certainty of Terms

Answer 12

If the terms of the contract are not certain, then there cannot be a contract. You cannot ask the court to enforce something if it is not clear what the agreement was.

Question 13

What is privity of contract?

Answer 13

Privity of contract means that persons who are not party to the agreement of contractural terms or take actions if its terms are broken.

Question 14

What legislation has attempted to protect the rights of people who are thirdd party’s to contracts?

Answer 14

Contracts(Rights ofThird Parties)Act 1999

Question 15

What three things must be stated in the original contract for the Contracts Act to apply?

Answer 15

• identify the beneficiary: name or by class of people
• identify the benefit they are going to receive under the contract
• you must give an express right to sue

Question 16

What is the difference between a unilateral and a bilateral contract?

Answer 16

A bilateral contract means that each party takes on some sort of obligation, usually promising to do something in return for a promise to do something from the other party.

A unilateral contract is where one party promises to do something, usually in return for completion of a specified act, but occasionally for refraining to act. The other party does not have to promise to carry out the act.

Question 17

What is a valid contract?

What makes a contract invalid?

Answer 17

It is a contract that exists in law.

• capacity
• form
• duress and undue influence
• mistake (caveat emptor)
• illegal against public interest
• contracts in restraints of trade
• misrepresentation

Question 18

What is a void contract?

Answer 18

It is not a contract and so has no legal effect. If a contract is void, this means that there is not contract and never has been a contract.

Question 19

What is a voidable contract?

Answer 19

It is a contract that is binding on one party but the other party has the option to have it set aside. Until the contract is set aside, it is treated as a valid contract and goods can be legally transferred under it. (Due to a flaw or a breach, it can be restored to pre-contractual decision).

Question 20

What is a mere puff?

Answer 20

A mere puff is a mere boast, often a gimmick used to advertise a product. A statement that is extremely vague or exaggerated that cannot be believed. It is commonly used in advertising.

Question 21

What is representation?

Answer 21

Representation is a pre-contractual statement that induces the making of the contract.
It does not become part of the contract.

Question 22

What action can you take if the representation turns out to be untrue?

Answer 22

If the representation is later found to be untrue, the misled party will be limited to the remedies of misrepresentation. The misled party will not have a remedy for breach of contract but may make a claim for misrepresentation.

Question 23

What three things need to be shown before action can be brought for misrepresentation?

Answer 23

• untrue statement
• must be a statement of fact and not mere opinion
• must be a statement that is capable of inducing a contract

Question 24

What are the three types of misrepresentation?

Answer 24

Fraudulent
Negligent
Innocent

Question 25

Fraudulent Misrepresentation

Answer 25

It is where a party makes a false statement that he does not believe is true. The innocent party is entitled to damages for all losses he has suffered, and recession of the contract. (Under the tort of deceit).

Question 26

Negligent Misrepresentation

Answer 26

It is a false statement made by a person who believes that the statement is true, but has no reasonable grounds for that belief. The innocent party is entitled to damages and rescission, or, if fairer, only damages. (Under misrepresentation act 1967).

Question 27

Innocent Misrepresentation

Answer 27

It is a false statement made by a person who has an honest and reasonable belief in its truth. The innocent party is entitled to recession only. (Under misrepresentation act 1967).

Question 28

What is a condition and what are the consequences if one is breached?

Answer 28

Conditions are major terms of a contract. If a condition is broken, the innocent party can treat the contract as discharged and claim damages, or can continue with the contract and claim damages.

Question 29

What is a warranty and what is the consequence if one is breached?

Answer 29

Warranties are minor terms of the contract. If a warranty is broken, damages can be claimed.

Question 30

What is an innominate term and what are the consequences if one is broken?

Answer 30

Innominate terms are ones where the seriousness of the breach can only be ascertained after it has occurred.
Repudiation and Damages

Question 31

What is an implied term?

Answer 31

It is a term in a contract which is not expressly agreed by the parties to the contract.

Question 32

What is an express term?

Answer 32

It is a term either stated orally or in writing by one of the parties making the contract.

Question 33

What does the Sale of Goods Act 1979 do?

Answer 33

The Sales of Goods Act 1979 is an Act that regulates the sale of goods that are bought and sold in the UK and the binding contract between both parties. The contract of sale states that the transfer of property from a seller to a buyer is completed through a money transaction, known as the price.

Question 34

What does the Consumer Rights Act 2015 do?

Answer 34

It only applies to consumer contracts for the supply of goods, digital content, or services. A consumer contract is one that is made between a trader and a consumer.

Question 35

How does the legislation define a contract for the sale of goods?

Answer 35

A contract for the sale of goods is a contract by which the seller transfers, or agrees to transfer, the ownership in goods to the buyer and the buyer pays or agrees to pay the price. Under the CRA the buyer must be a trader and the seller must be a consumer.

Question 36

What are the three tests for a consumer contract and where are they found?

Answer 36

1. Seller is selling in the course of business
2. The buyer is not buying in the course of business
3. Goods are to be used in the course of business

Question 37

SoGA 1979- Section 12

Title

Answer 37

• A condition that the person selling the goods is the owner of the goods.
• A warranty that the goods are not subject to any charge of encumbrance and the person buying the goods can have quiet enjoyment of them

Question 38

SoGA 1979- Section 13

Description

Answer 38

• Goods sold by description shall correspond with the description.
• Consumer can claim conditions: damages and repudiation.
• Business can only claim warranty: damages only.

Question 39

SoGA 1979- Section 14(2)

Answer 39

Where the seller sells goods in the course of a business, the goods are of satisfactory quality.

Question 40

SoGA 1979- Section 14(3)

Answer 40

Where the seller sells goods in the course of a business, the goods sold are reasonably fit for purpose. They must be fit for their usual purpose as well as intended purpose that is made to seller during the sale.

Question 41

SoGA 1979- Section 15

Answer 41

Where goods are sold by reference to a sample, the goods will correspond with the sample. It also implies a condition that if there is any fault with the good, the fault should be apparent on a reasonable examination of the sample.

Question 42

SoGA 1979- Section 48A

Answer 42

States that if an electrical item develops a fault within the first 6 months of owning it, then there is a presumption that it was faulty when bought and the fault simply took length of time to show itself. Also states that the consumer chooses if they want their product replaced, repaired, or money back.

Question 43

What is an exemption clause?

Answer 43

A contract may contain express clauses that attempt to exclude or limit one of the party’s liabilities to the other party. These clauses may be referred to as exemption clauses as they seek to exempt one of the parties from certain liabilities for breach of contract.

Question 44

What is an exclusion clause?

Answer 44

A clause which excludes the liability of one party.

Question 45

What is a limitation clause?

Answer 45

A clause which limits the liability of one party to a certain sum.

Question 46

What are the two main methods of common law that control the exemption clauses?

Answer 46

Incorporation-to ensure the clause has been properly incorporated into the contract
How? By signature. Through notice. When? Before or at the time of contract

Contra Proforentum- where the court examines the question, is there any ambiguity.

Question 47

Under statutory law, the Unfair Contract Terms Act 1977, what must exemption clauses be to be effective?

Answer 47

UCTA looks at whether clauses are reasonable. If the term is not reasonable, then it is void; it does not exist. Section 11 points out to a list in schedule 2 of the act which distinguishes what the court should look at when deciding whether or not the term is reasonable:

(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
(d) where the term excludes or restricts any relevant liability if some condition was not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the special order of the customer.

Question 48

Can the term implied by section 12 Sale of Goods Act 1979 ever be excluded from a contract for the sale of goods?

Answer 48

Can never be excluded or restricted.

Question 49

Can the terms implied by sections 13, 14 and 15 Sale of Goods Act 1979 ever be excluded from a contract for the sale of goods?

Answer 49

Cannot be excluded or restricted by reference to a contract term except in so far as the term satisfies the requirement of reasonableness.
Consumer contract- Yes
Business contract- No

Question 50

What does UCTA provide regarding liability for negligence?

Answer 50

Liability for negligence S2:

(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.
(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

Question 51

How can a contract come to an end?

Answer 51

Performance - contract being fulfilled.
Agreement - end by agreement.
Breach - breaking one of the major terms.
Frustration - something happens that make it impossible to perform the contract. Event outside control of both parties.