Contracts

Question 1

For consideration to be sufficient in the eyes of the law, it must…

Answer 1

must have some value, even if very small. Only needs to be sufficient. Doesn’t need to be adequate.

But inadequacy of consideration may be evidence of a vitiating factor that could render a contract void or voidable such as mistake or duress.

Question 2

What rights do third parties have to enforce the terms of a contract to which they are not a party?

Answer 2

A party who has not provided consideration will not be able to enforce its terms unless the contract is entered into by way of a deed.

The Contracts (Rights of Third Parties) Act 1999 gives third parties a limited right to enforce the terms of a contract to which they are not a party, providing

• they are named in the contract; and
• the term is for their benefit.

Question 3

What are the three basic principles of contract law?

Answer 3

1. The parties must be in agreement
2. Have intended to be legally bound; and
3. The agreement must be supported by consideration

Question 4

What are some examples of contracts that are required to be in writing, or evidenced in writing for them to be enforceable?

Answer 4

-Guarantees:
A (the guarantor) promises to pay the debt of B if B is unable to pay.

-Interest in Land:
A contract for the sale or other disposition of an interest in land.

-Consumer Credit:
consumer credit agreements.

-Sale of Shares:
Sale of shares in private or public company is limited by shares

Question 5

What does it mean for a contract to be void? Can it be enforced?

Answer 5

totally without any legal effect from the beginning.

It cannot be enforced by either party.

Question 6

Are damages available for either party in a void contract?

Answer 6

Damages will not be available for a contract that is void.

Because a void contract can not be enforced by either party (as it had no legal effect from the beginning), it cannot be enforced by either party so damages will not be available for breach of contract.

Question 7

What is a voidable contract? Is it a valid contract?

Answer 7

operates as a valid contract until one or both parties elects to avoid it.

A party can elect to avoid a contract by raising a defence which would make the contract voidable such as misrepresentation.

Question 8

What choice does an innocent party to a breach of a voidable contract have?

Answer 8

The innocent party to the breach of a voidable contract has a choice to rescind or affirm (carry on) the contract.

Rescinding the contact will put both parties back into the position they would have been in had the contract not been entered into.

Question 9

Sam owns a construction company. Sam and his crew were contracted to build an apartment complex. In their contract there is a penalty clause if the job was not completed by a certain date. Sam subcontracted some of the work to Tim. When Tim fell behind on the work, Sam offered Tim extra pay if he finished the work on time. Tim finished the work on time but Sam refused to pay him the extra pay.

Is Sam’s promise for the extra pay enforceable?

Answer 9

Yes, the promise to pay Tim extra is enforceable.

The promise to make extra payments for the work to be completed on time had the practical benefit of avoiding a monetary sanction.

If performance of an existing contractual duty confers a practical benefit on the party offering additional consideration, then this may amount to good consideration.

Question 10

Can consideration that has taken place prior to the contract being formed count as consideration?

Answer 10

No. Consideration that has taken place prior to the contract being formed will not be sufficient consideration.

Question 11

Abby promises to paint Bob’s house. Abby paints Bob’s house. Subsequently after painting Bob’s house, Bob says to Abby “I will pay you for painting my house”. Later that day Bob changes his mind and decides not to pay Abby.

Does Abby have any right to damages against Bob?

Answer 11

No. Abby has no right to damages against Bob for not paying because there is no consideration to support Bob’s promise to pay.

*exam tip

Beware of questions that use the word consideration to refer to something already done. For example ‘In consideration of your having done X, I promise you $1000’. This is NOT enforceable because the promise is given in exchange for past acts.

Question 12

What are the three conditions required for the prior consideration exception to apply?

Answer 12

Implied Understanding of Payment

1. The promisor requested the act that was done.
2. Both parties understood that the act would be reimbursed by pay or benefit; and
3. The payment or benefit must have been legally enforceable had it been made in advance.

Question 13

Anna owes Blake $500. Anna offers Blake $450 in full and final settlement. Blake agreed to this.

Can Blake still sue Anna for the remaining $50? Why?

Answer 13

English law does not recognize a promise to accept partial payment of a debt.

Yes, Blake can still sue Anna for the remaining $50. This is because there is no fresh consideration from Anna to support Blake’s promise so it is not enforceable.

Accord: Blake would need to receive some benefit to support the agreement to do without the remaining balance owed (parties are in agreement).

Satisfaction: here there was no additional benefit provided by Anna. (the additional benefit received)

An accord and satisfaction is a legal contract whereby two parties agree to discharge a tort claim, contract, or other liability for an amount based on terms that differ from the original amount of the contract or claim.

Question 14

What is the doctrine of privity?

Answer 14

‘privy’ to the contract

principle that parties to a contract can sue and be sued under it.

But, a third party cannot acquire rights under a contract, nor does a contract impose any burden on anyone other than the parties to it.

Question 15

Andy and Brent have a contract between them. Andy promises to pay Cathy money if Brent fulfills his contractual obligations. Andy does not pay.

Is Cathy able to sue Andy for damages?

Answer 15

Privity of contact

No, Cathy is not able to sue Andy for damages if Andy does not pay.

This is because Cathy is a third party and can not acquire rights under a contract that she is not a party to.

Question 16

What types of contacts are excluded from the exception of allowing third parties to obtain a benefit but not the burden from the Contracts (Rights of Third Parties) Act 1999?

Answer 16

• Employment contracts
• articles of Association(The internal constitution of a company i.e. contract between a company and its shareholders)
• Note, The act also requires the contract specifically identify the third-party. This will allow the third-party to obtain the benefit but still not the burden of the contract.

Question 17

A 3rd party is unaware of the existence of the principle and thinks they are dealing directly with the agent (they don’t know there is principle, think the agent IS the principle).

Is the principle still a party up the contract?

Answer 17

Yes. This is an exception to the privity rule. Meaning the unknown party, the principal, will still be a party to the contract.

Under the law of agency, both the agent and the undisclosed principal can sue or be sued under the contract.

Question 18

Albert and Betty enter into a contract. Albert transfers his rights under the contract to Carl.

What ability does Carl have under the contract?

Answer 18

Carl will only have the benefit of the contract not any burdens.

This means Carl has the ability to sue Betty under the terms of the contract.

*Note that only the benefit can be assigned without the 3rd party’s consent

Question 19

What is Assignment?

Answer 19

Assignment is a method whereby a contractual right can be transferred to a third person outside of the terms of the original contract. It is only the benefit of a contract they can be assigned without the consent of the other party however not the burden.

Question 20

What rights does a guarantor have?

Answer 20

The guarantor stands in the shoes of the creditor and has all the rights that the creditor would have against the debtor.

*this is one of the exceptions to the privity doctrine

Question 21

What are the exceptions to the privity rule?

Answer 21

Statutory exceptions

-Contracts (Rights of Third Parties) Act 1999

Common law exceptions

• Agency
• assignment
• subrogation
• collateral contracts
• trusts

Question 22

Courts will take what factors into account when determining whether a statement is a term or representation?

Answer 22

Importance: would the innocent party have entered into the contract if it wasn’t for the statement being made?

Stage in the contract negotiations statement was made: made during preliminary negotiations = representation. It made at time of contract = term.

Special knowledge: if maker has special knowledge and intended for buyer to act in it = term. But statement made with no direct knowledge = representation, not a term.

Question 23

In commercial relations there is a strong presumption…

Answer 23

The parties DO intend to be bound.

This presumption can be rebutted but very difficult to.

“Binding in honor only” = no intention

“Subject to” = no intention

Question 24

Three classes of people who do not have capacity to fulfill the intent element?

Answer 24

Minors
Lack of mental capacity
Intoxication

Question 25

What is an exclusion clause?

Answer 25

Term of a contract that tries to limit the liability of one of the parties.

Question 26

What is required for an exclusion clause to be valid and effective?

Answer 26

(1) needs to have been incorporated into the k; and
(2) be constructed properly in a way so that in effect it excluded liability (I.e. wording covers the loss that’s been suffered).

Question 27

One of the elements of being able to have an exclusion clause is that it must be properly constructed (worded in a way that it covers the loss that is claimed to have been suffered that the party is claiming they are not liable for).

What are the requirements for it to be “properly constructed?

Answer 27

-wording of exclusion clause must be clear and unambiguous so that it clearly excludes the loss that has been suffered.

Question 28

When interpreting an exclusion clause what is the Contra Proferentum Rule?

Answer 28

If wording of an exclusion clause is ambiguous the courts will interpret the clause in a way that the ambiguity goes against the party seeking to rely on the clause

Question 29

Contra proferentum

Answer 29

“interpretation against the draftsman”

Re interpreting ambiguous exclusion clauses

Question 30

The exceptions to the privity rule are?

Answer 30

-Contracts (Rights of 3rd parties) Act: enables 3rd parties who are specifically named to receive benefits not burdens.

Agency: an agent will become a 3rd party with rights to sue and be sued if agent acts for an undisclosed principle.

Assignment: assignment of rights to a 3rd party. But it must be in writing and signed by the person assigning the rights away.

Subrogation: guarantor gets the rights of the creditor to get money back from borrowor/debtor.

Collateral contracts: A second contract that runs along side the main contract. Ex even though the k was between the contractor and paint manufacturer, building owner would have rights as a 3rd party to sue paint manufacturer due to the manufacturer’s representation he made to the building owner.

Trusts: trust set up between trust and trustee for beneficiary.

Question 31

What are express terms and implied terms?

Answer 31

Express terms: terms agreed between the parties

Implied terms: in the contract by external means.

Question 32

How do you determine the difference between if something is a term or representation?

Answer 32

If parties intended to be legally bound to statements made and it goes to the root of the contract =term

Statement made to induce person to enter contract = representation

Written contract but oral statement made = representation

Question 33

How courts classify a statement as a term or representation?

Answer 33

• importance of the statement. Would the person have entered into the contract if it weren’t for this statement?
• stage when made? If made in the preliminary stage of negotiations = representation. If made at time contract was concluded = term
• special knowledge of person making statement. Belief vs actual knowledge

Question 34

What is the remedy for breach of a term?

Answer 34

Damages

Question 35

What is the remedy for breach of a representation?

Answer 35

If representation and had induced party to enter into the contract and it was false that’s a misrepresentation. Depending on the type of misrepresentation the innocent party will either get damages or rescission (unwind the contract, bring it to an end)

Question 36

What is the parol evidence rule?

Answer 36

External evidence to a written contract cannot in any way:

• add
• subtract
• contradict
• vary

The K in any way.

Question 37

How can a contract uphold the parol evidence rule?

Answer 37

By inserting an ‘Entire Agreement Claude’ into the contract.

The only way it won’t work is if a party tried do you use it to avoid liability of a misrepresentation

Question 38

How are implied terms inserted into a contract?

Answer 38

By:

• statute
• courts
• custom and usage
• course of dealings

Question 39

Implied terms by statute are meant to ensure the seller has good title, goods are satisfactory in quality, fit for purpose for what they are being sold for.

What are the some implied terms under statute and exceptions?

Answer 39

These implied terms won’t be implied where…

Sale of goods act
-defects that have been brought to the buyers attention

• defects that would have been obvious if the buyer had actually inspected the goods
• breaches that are so minor it would be unreasonable for the buyer to reject them.

Ex: underwear that causes skin complaint to the wearer would not be fit for its purpose

Consumer rights act (for services)

Implies:

• satisfactory quality
• fit for purpose
• services should be carried out with reasonable skill and care
• completed in accordance with the info given so they consumer can rely on it. ex price quote given to them
• completed for a reasonable price and in reasonable time.

Question 40

What terms are implied by the courts

Answer 40

courts won’t interfere in a negotiated contract.

They will though implied terms into the contract to give it business efficacy.

Will try to make the contract work to the extent that it doesn’t work. In a way so that it complies with the intentions of the parties and it mirrors their intentions and expectations.

Courts will only do this if reasonable to do so. They apply the reasonableness test. Courts will use the reasonableness test. Courts will look to in determining whether to imply terms into the contract they will use the bystander test.

“ would a reasonable person looking at the intentions of the parties have assumed the contract should operate in a particular way?”

Ex: for a contract for the mooring of a ship the contract was silent on dealing with the riverbed being safe if moored there. Using the bystander test, the courts implied terms into the contract that it was reasonable to assume that the parties intended that if you had a contract for the mooring of the ship that it would be safer that ship to do so.

Question 41

What are terms implied by customs and usage?

Answer 41

Terms can be implied by custom and usage. Customs can be expressly excluded though in the contract.

Terms can be implied into contracts according to the custom of the market in which the contracting parties are operating.

Question 42

What are implied terms by course of dealings?

Answer 42

Regular trading between two persons over a period of time on the basis of consistent terms of trade which is sufficient for the same terms to be treated as incorporated in a new contract between those persons.

Question 43

Courts will only get involved if they are satisfied on the facts that the parties intended to be bound by the terms of the contract as they stand, they will try to give affect to this intention.

Cases where the courts are likely to find the agreement is binding despite uncertainty include…

Answer 43

• commercial cases the parties are familiar with a particular trade
• future performance contracts. The courts will likely find agreement binding.
• partial performance. Binding
• If there is presence of how a dispute will be dealt with e.g. arbitration clause. Binding

Question 44

Certainty of an agreement

Answer 44

If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law.

Even though the parties may have appeared to make an agreement by the exchange of a matching offer and acceptance, the courts may refuse to enforce it if there appears to be uncertainty about what has been agreed, or if some important aspect of the agreement is left open to be decided later.

for example, the parties had agreed to the supply of a van on ‘hire purchase terms’. In the absence of any other evidence of the details of the hire purchase agreement this was too vague to be enforceable, and there was therefore no contract.

Question 45

In complete agreement or uncertainty in statute

Answer 45

Sale of Goods Act

• act allows for the court to determine a reasonable price for goods
• option for courts to sever uncertain terms so if there is a clause in the contract that is meaningless it is possible for it to be severed and taken out for the contract to continue.
• courts will not get involved if they are unable to conclude the parties intended to be bound

Question 46

What is a condition?

Answer 46

Condition:
-A term that is so fundamental that it goes to the root of the contract. The contract cannot exist or work without the presence of these terms.

-because of this, breach of a condition will bring a contract to an end.

Innocent party of a breach of a condition can repudiate the contract terminate it and sue for damages. Or they can continue on with the contract and affirm it but they then lose the right to bring that contract to an end.

Ex: Opera singer contracted to singing in an opera. She misses singing several nights including the opening night. This is breach of condition of the contract. Because it’s a breach of a condition the opera owner will be able to treat the contract as at an end and hire a new singer.

Question 47

What is a warranty?

Answer 47

More incidental term, not fundamental to the contract. Breach of a warranty does not make the contract unworkable. It’s basically a collateral term. Remedy for a breach of warranty are less severe. Innocent party for breach of warranty will get damages meaning they can only sue for the loss.

The innocent party has no right to repudiate (refuse to perform).

Ex: Opera singer missed rehearsals. That’s a breach of warranty. Owner here CANNOT repudiate the contract and hire a new singer. He would only be entitled to sue for loss via damages.

Question 48

What is a innominate term?

Answer 48

Innominate “has no classification”

it is neither a condition nor a warranty.

The court will look at the effect of the breach and determine whether the breach is so severe that the term should be treated as a condition and allow the innocent party to repudiate the contract or they’ll see the term is incidental and therefore treat the term as a warranty and the innocent party can sue for damages.

Ex:
One of the terms was two each day confirm their flight path. Appears to be a minor term of the contract at first. One particular day they didn’t confirm the flight path. After they didn’t confirm the path, they flew during a moment of silence over a crowded Square. This significantly damaged the food company’s reputation. So the court was able to determine this was so severe to make it a breach of a condition so the food company was a able to repudiate the contract.

Question 49

What is promissory estoppel?

Answer 49

Another exception to the requirement of consideration for a contract.

A promise that was made becomes enforceable, even when it’s made without any formal considerations. when someone makes a commitment to someone who goes on to rely on that promise, only to experience some sort of detriment, promissory estoppel may be enforced. This principle was created in order to prevent a promisor from arguing against the enforcement of their former promise.

Ex: A landlord who agreed to reduce the amount of rent during COVID-19 could resurrect his claim for full rent after Covid had ended. (No consideration provided by tenant)

Is it a promissory estoppel matter?

• clear and unequivocal promise express or implied by the promissor to alter existing legal rights (eg by excepting payment of a lesser amount than the original contract price).
• The promisee must have altered their position in reliance on the promise and
• it must be in equitable meaning unjust for the promisor to go back on his promise.

Question 50

Any Child under 10 is…

Answer 50

Is incapable of committing a criminal offense