Section 7. The law of contract

Question 1

What is a contract?

Answer 1

A contra t is an agreement the law will enforce

Question 2

What is the general rule of contract law?

Answer 2

-The general rule of contract law is that only a party to a contract can take legal action to enforce it
-Contrat law follows the rules for other civil cases: if a party to the contract takes legal action, the burden of proof is on the claimant, who must prove their case against the defendant on the balance of probabilities

Question 3

What problems do some statutes deal with that have arisen in the common law?

Answer 3

-The sale of goods act 1979 is a modern incarnation of the sale of goods act 1893. This first act was created by parliament to reflect Victorian case law on the sale of goods, to codify commercial law so that it could easily be used throughout the world
-European law has influenced today’s contract law by making regulations that are often designed to help consumers. The unfair terms in consumer contracts regulations 1999 are the one example. These regulations are now subserved in the consumer rights act 2014, which also provides a range of different remedies

Question 4

What are the different aspects of contract law you are required to know?

Answer 4

-Formation
-The terms of the contract
-The validity of the agreement
-Discharge of contract
-Remedies

Question 5

What is a summary of formation in contract law?

Answer 5

-This is about making an agreement to do something, for example, buy a car.
-Formation is governed by the principle of private of contract
-Am agreement requires an offer and acceptance, an intention to create legal relations and the consideration needed for a valid contract

Question 6

What is a summary of the terms of the contract in contract law?

Answer 6

-These are the obligations and rights of each party to the contract
-The terms for buying a care would be for one party to pay the agreed price for the car and for the other party to hand over legal ownership of the car
-However, some terms are specifically agreed by the parties, while others are implied; that is, they are part of the contract whether or not the parties have thought about it

Question 7

What is a summary of the validity of that agreement in contract law?

Answer 7

-This area covers factors that may make a contract invalid (called ‘vitiating factors’)
-Here we are considering the law of misrepresentation and economic duress
-Misrepresentation might be where the seller of the car stated it’s mileage was at 20,000 when in fact it was at 80,000

Question 8

What is a summary of discharge of contract in contract law?

Answer 8

-This involves examining exactly what amounts to performance of a contract, when the contract is breached (broken) through non or part performance, and what happens when performance of the contract is prevented by events outside the control of either party

Question 9

What is a summary of remedies in contract law?

Answer 9

What a party to the contract is entitled to when the contract has been breached or affected by a vitiating factor

Question 10

What is the freedom of contract theory and inequality of bargaining power?

Answer 10

-The usual or classical principle of the common law is freedom of contract and the sanctity of contracts
-Under this theory, contract law is based on making promises. An agreement requires the making of a promise in return for a promise and if an agreement is recognised as a contract In law, the law recognises a contracting party as legally obliged to perform their promise

Question 11

What are promises in a contract?

Answer 11

-Promises relate to things to be done or refrained from, either now or in the future
-This is the basis of formation of contract and the concept of consideration

Question 12

Where is there protection for the theory of freedom of contract for individuals against big companies?

Answer 12

Through legislation such as the consumer rights act 2015 and the unfair contract terms act 1977

Question 13

What is reliance theory?

Answer 13

-Reliance theories see contractual obligations as being imposed by the law to ensure that those induced to rely upon other parties are not made worse off as a consequence.
-Under the reliance theory, an agreement specifies the performance of a contracting party. The contract is not based on promising but on what is described as the assumption of responsibility
-Each party assumes responsibility for reliance incurred by the other party on the assumption that the specified performance will be provided
-The classical theory can be seen as, ‘I promise to do this, and you promise to do that’
-Reliance theory can be seen as. ‘We will proceed on the assumption that I am to do this and you are to do that. I do not promise that I will do this but I accept responsibility for your reliance on the assumption that I will do it. Similarly, you will accept responsibility for my reliance in the same way’

Question 14

What is an offer?

Answer 14

A proposal (or promise) showing a willingness to contract on firm and definite terms

Question 15

What is an offeror?

Answer 15

The person who makes the offer

Question 16

What is an offeree?

Answer 16

The person to whom an offer is made

Question 17

What is an invitation to treat?

Answer 17

An indication that one person is willing to negotiate a contract with another, but that they are not yet willing to make a legal offer

Question 18

How do we know something is an offer?

Answer 18

-The offer must be definite in it’s terms. The difficulty is in deciding whether a statement amounts to an offer or whether it is just a Statement preparatory to an offer, an invitation to treat
-Words such as ‘might be prepared to’ or ‘may be able to’ indicate uncertainty. As seen in Gibson v Manchester City council
-An acceptance of the offer forms the basis for a contract

Question 19

How does the law distinguish between an offer and an invitation to treat?

Answer 19

-An invitation to treat is not an offer and therefore it cannot be accepted to make a contract, as shown in Gibson v Manchester City council
-In this case it said “The corporation may be prepared to sell the house to you… If you would like to formal application to buy your council house, please complete the enclosed application form

Question 20

What are the examples of invitations to treat?

Answer 20

-Advertisements
-Goods in a shop window or on a shop shelf
-Lots at an auction
-A request for information

Question 21

How is an advertisement an invitation to treat?

Answer 21

-Generally an advertisement is not an offer and is therefore only an invitation to treat
-This can be seen in the case of Partridge v Crittenden
-Exceptiomally, if an advertisement contains a clear indication that there is an ‘offer’ because it is expected to be taken seriously, then the court may well decide it is an offer
-This usually occurs in a unilateral rather than a bilateral contract

Question 22

What is a bilateral contact?

Answer 22

This type of contract requires both offeror and offered to do something. Both parties have obligations

Question 23

What is a unilateral contract?

Answer 23

In a unilateral contract there is an agreement to pay in exchange for performance, if the potential performer chooses to act. There is no obligation to perform the act

Question 24

What case shows a unilateral contract?

Answer 24

Carlill v Carbolic smoke ball co.

Question 25

How is goods in a shop window or on a shop shelf an invitation to treat?

Answer 25

-The goods on the shelf or in the customer’s basket are an invitation to treat.
-The contents of the basket become an offer when the customer presents them to the checkout operator
-The shop then accepts or declines the customer’s offer through their checkout operator or assistant at the self service scammer
-The goods in a shop window are similar to those on the shelves, in that the shop window are similar to those on the shelves, in that the shop has jo obligation to sell the items to a potential customer

Question 26

How is lots at an auction an invitation to treat?

Answer 26

-At an auction, the bidder makes the offer that the auctioneer then accepts by banging his hammer.
-This means that the lots available at an auction are an invitation to treat. This can be seen in British Car auctions v wright

Question 27

How is a request for information an invitation to treat?

Answer 27

-A request for information and a reply to such a request is not an offer
-This might be just a general enquiry such as when an item displayed for sale does not have a price in it

Question 28

Who can make an offer?

Answer 28

-An offer can be made by anyone. This can be by an individual, a partner ship, limited company or other organisation
-An offer made other than by an individual is made by an employee of the business or an agent
-It can also be made through a notice or a machine, as in Thornton v Shoe lane parking

Question 29

To whom can an offer be made?

Answer 29

-A named individual, as in Gibson v Manchester City council
-A group of people
-The world at large, as in Carlill v Carbolic Smokeball co.

Question 30

How can an offer end?

Answer 30

-Revocation
-Rejection
-Lapse of time
-Death
-Acceptance

Question 31

How can an offer end due to revocation?

Answer 31

-An offer can be revoked at any time before acceptance. The offeror must communicate the revocation to the offeree before the revocation can take effect, as in Routledge v Grant
-This can have implications where there is an offer to the whole world- the Carlill b Carbolic smokeball type of offer

Question 32

In cases like the Carlill v carbolic smokeball type of offer in which 3 cases can an offer end?

Answer 32

1. Set a time limit in the offer, such as by stating the ‘reward’ will only be available to be paid until a particular date
2. The expiry of a reasonable time
3. Public revocation or the offer in the same way as the original offer was made

Question 33

What can an offeree do to make a separate contract?

Answer 33

-An offeree can make a separate contract with the offeror to keep the offer open, or only to sell to them.
-This is known as a collateral contract, and can be enforced if the offeror refuses to sell within the agreed period or sells the item to someone else
-The revocation must be communicated by a reliable person, not necessarily by the offeror:
-In Routledge v Grant (1828), thr offeror communicated the revocation of the offer to the offeree
-In Dickinson v Dodds, the offeree heard about the revocation of the offer from a reliable source. This was effective communication of revocation

Question 34

What is rejection in an offer?

Answer 34

-Once an offer is rejected, this ends the offer
-If the offer is made to more than one person, rejection by one person does not mean the other offerees can no longer accept the offer
-The rejection must be communicated to the offeror before it takes effet as in revocation

Question 35

How can an offer be rejected?

Answer 35

1. Specifically responding to the offer by saying ‘no’
2. Making a counter offer: this could be, for example, a different price or delivery date. An example of rejection through a counter offer occurs in Hyde v Wrench

Question 36

How can an offer end through lapse of time?

Answer 36

-An offer can end by lapse of time. If a fixed period for the duration of the offer is stated, then as soon as that expires, there is no offer to accept
-The problem arises when no time is set. In this situation, the time is a reasonable time, which will obviously vary, depending on the nature of the offer
-You would expect a longer time for the duration of an offer to buy a metal tank than an offer to buy a cake from a cake stall in a market

Question 37

How can an offer end through death?

Answer 37

-The effect of the death of either the offeror or the offeree depends on which party died and the type of contract involved
-If the offeree dies, then the offer ends, and those dealing with his estate cannot accept on his behalf. The executors or administrators of his estate can make a new offer, as can the offeror
-When an offeror dies, acceptance can still take place until the offeree learns of the offeror’s death
However this is obviosulh not the case where the offer is to perform some personal service, such as to provide personal tuition

Question 38

What must acceptance be?

Answer 38

-Acceptance must be positive and unqualified
-It must be acceptance of the whole offer and all the terms in it
-There is no acceptance if the response to the order is ‘Yes, if…’ or Yes, but …’. This would be a counter offer unless it is just a request for information

Question 39

What is acceptance?

Answer 39

-Acceptance of all terms in a contract can be seen when you tap on ‘I agree’ to accept the contract on your phone or computer
-This then incorporates all the terms and conditions that you have indicated you have read, whatever they might be

Question 40

How do you accept an offer?

Answer 40

-Acceptance can be in any form, provided it is definite and communicated to the offeror.
-It does not have to be in the same format, so an email can be responded to by a text, letter, phone call etc
-However acceptance cannot be by silence; there must be some positive act for acceptance
-This can be seen in Felthouse v Blindley
-Although there can be any form of acceptance, providing it is effectively communicated, the offeror can require a specific method for acceptance
-For example, the acceptance must be made personally
-If the offer requires a particular manner of acceptance, it must usually be complied with for a valid acceptance
-There can sometimes be a waiver of the requirement stated
-This can be seen in Yates v Pulleyn

Question 41

When does acceptance take place?

Answer 41

-As we have seen in Stevenson v McLean, the actual time of revocation of an offer is critical. This is equally important with acceptance
-The general rule is that acceptance takes place when the acceptance is communicated to the offeror

Question 42

What are the 3 ways of accepting an offer that needs special attention?

Answer 42

1. Acceptance by conduct
2. Acceptance by use of the post- the postal rules
3. Electronic methods of communication

Question 43

What is acceptance by conduct?

Answer 43

-This has been seen in Carlill v Carbolic Smokeball co. The case of Reveille independent LLC anotech international Ltd reflects what occurs quite often in business contracts
-The job begins before the formal contract is agreed in all it’s detail, with numerous offers and counter offers

Question 44

What is acceptance by the use of post?

Answer 44

The postal rules only apply to letters of acceptance not to offers or counter offers, and are as follows:
1. The rules only apply if post is the usual or expected means of communication
2. The letter must be properly addressed and stamped
3. The offeree must be able to prove the letter was posted
If the rules apply, acceptance takes place at the moment the letter is properly

Question 45

When is an offer accepted through electronic methods of communication?

Answer 45

1. The person signing the document intends to authenticate the document, and
2. Any formalities relating to executing that document are satisfied such as clicking on an icon in a website accepting terms and conditions

Question 46

Do they actually need to read the email/fax/text is required before acceptance?

Answer 46

-The consumer protection regulations 2000 give consumers a number of rights, which were added to the consumer rights act 2015
-If key information to the consumer is omitted, no contract is formed. The regulations apply to telephone, fax, internet shopping, mail order, email and television shopping
-Article 11 of the electronic commerce regulations 2002 states that where a buyer is required to give his consent through technological means, the contract provider electronically an acknowledgment of receipt of the acceptance

Question 47

What is the case for acceptance by conduct?

Answer 47

Carlill v Carbolic Smokeball co.

Question 48

What is the case example for prescribe method of acceptance may be waived?

Answer 48

Reveille independent LLC v Anotech international Ltd

Question 49

What is the case example for postal rules?

Answer 49

Adams v Lindsell

Question 50

What is the case example for electronic methods of communication?

Answer 50

Electronic commerce, Article 11

Question 51

What is the case example for email auto signatures?

Answer 51

Neocleous v Rees (2019)

Question 52

What is the brief legal rule for acceptance by conduct?

Answer 52

Valid. Particularly in unilateral contracts

Question 53

What is the brief legal rule for prescribed method of acceptance may be waived?

Answer 53

Acceptance by a different method to that in the offer may be permitted

Question 54

What is the brief legal rule for postal rules?

Answer 54

If they apply, acceptance takes place at the moment of posting the letter

Question 55

What is the brief legal rule for electronic methods of communication?

Answer 55

Acceptance occurs when the offeror is aware of the acceptance

Question 56

What is the brief legal rule for email auto signatures?

Answer 56

Auto generation by a computer on emails can be the same as a signature

Question 57

What is needed in a contract after offer and acceptance?

Answer 57

An intention to create legal relations which will make the contract legally binding

Question 58

Where is there an intention to create legal relations?

Answer 58

-It is presumed in a business agreement, and is presumed not to exist where the agreement is purely of a social and domestic nature
-This means that where an agreement is made between a business and someone else (whether another business or consumer), the law presumes that the agreement is intended to be legally binding and a contract
-There can, however, be evidence that the agreement is not intended to be legally binding and then it will not be a contract
-This is shown when the presumption is rebutted as seen in Jones v Vernons Pools
-Similarly, where the agreement is merely a social agreement, the presumption is that it is not legally binding, although, as we shall see, this presumption may also be rebutted

Question 59

What is the definition of intention to create legal relations?

Answer 59

The parties to a contract expressly or impliedly agree that the contract is legally binding and therefore enforceable in court

Question 60

What is the brief legal rule of the presumption with social and domestic arrangements!

Answer 60

Social and domestic arrangements are presumed not to be legally binding

Question 61

What is the case example for the presumption with social and domestic arrangements?

Answer 61

Balfour v Balfour (1919)

Question 62

What is the brief legal rule for rebutting the presumption in social and domestic arrangements?

Answer 62

The presumption can be rebutted by showing the opposite is the case

Question 63

What is the case example for rebutting the presumption in social and domestic arrangements?

Answer 63

Merritt v Merritt (1971)

Question 64

What is the brief legal rule for the presumption with business contracts?

Answer 64

Business agreements are presumed to be legally binding

Question 65

What is the case example for the presumption with business contracts?

Answer 65

Edwards v Skyways Ltd

Question 66

What is the brief legal rule for rebutting the presumption in business contracts?

Answer 66

The presumption can be rebutted by showing the opposite is the case

Question 67

What is the case example for rebutting the presumption in business contracts?

Answer 67

Jones v Vernons Pools (1938)

Question 68

What is the brief legal rule for the position of letters of comfort?

Answer 68

A letter of comfort is not usually intended to be legally binding document but, confusingly, it may give rise to a legally binding obligation depending on the wording

Question 69

What is the case example for the position of letters or comfort?

Answer 69

Kleinwort Benson Ltd v Malaysian Mining corporation

Question 70

What is the brief legal rule for social arrangements can be like business arrangements?

Answer 70

If money has changed hands, then even if the arrangement is made socially, it is more likely to be a commercial arrangement and therefore legally binding

Question 71

What is the case example for social arrangements can be like business arrangements?

Answer 71

Simpkins v Pays

Question 72

What is the next stage after offer and acceptance have taken place?

Answer 72

Intention to create legal relations

Question 73

What happens in social and domestic arrangements with intention to create legal relations?

Answer 73

-These are presumed not to be legally binding, but the presumption can be rebutted. The distinction can be seen in Balfour v Balfour and Merritt v Merritt
-However, where husband and wife are already separated, an agreement between them may be taken as intended to be legally binding

Question 74

What is a letter of comfort?

Answer 74

A written assurance, usually provided by a parent company in respect of its subsidiary’s financial obligations to a bank

Question 75

What situations create a problem with commercial agreements with intention to create legal relations?

Answer 75

-The offer of a free gift creates problems. Where this is to promote a business, it can still be held to be legally binding, as in Esso petroleum co. Ltd v commissioners of customs and excise (1976)
-Another satay ion is where prizes are offered in competitions. Just as the free gift is designed to promote the company offering it, the same occurs where a company offers a competition prize, as in McGowan v Radio Buxton (2001)
-The same problem arises with a letter of comfort, which is not usually intended to be legally binding. This occurs where the parent company wishes to give some assurance to the lender regarding the subsidiary’s ability to repay a loan, but has no obligation to pay on its behalf

Question 76

What is consideration?

Answer 76

Consideration is essential for every valid contract because contract law requires a bargain and not a gift. This means that both parties to a contract will give something to the other by way of exchange

Question 77

What case is the definition of consideration set out in?

Answer 77

Lord Dunedin in Dunlop v selfridge ltd

Question 78

What is the definition given for consideration?

Answer 78

“An act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable”

Question 79

What is executed consideration?

Answer 79

An act in return for a promise

Question 80

What is executors consideration?

Answer 80

A promise for a promise

Question 81

What are the rules that are applied to the principle of consideration?

Answer 81

1. Consideration need not be adequate but must be sufficient
2. Past consideration is not good consideration
3. Consideration must move from the promisee
4. Performing an existing duty cannot be the consideration for a new contract
5. A promise to accept any part payment of a pre existing debt in place of the whole debt is not consideration

Question 82

What is adequacy of consideration?

Answer 82

-The law is concerned with bargains and not gifts.
-The idea of adequacy is that the parties to the contract themselves agree that the value of things being exchanged is acceptable
-Paying a sum of money to abandon a claim is valid consideration, even though the claim had little chance of success (but was not fraudulent)
-This makes an agreement to settle a claim, for example, for alleged defective goods, enforceable as a contract, whether or not the original claim would have succeeded

Question 83

What is sufficiency of consideration?

Answer 83

Sufficiency means the consideration must be real, and have some value
-Real means the consideration must exist
-Consideration must be definite, and having some value means it has at least a nominal amount of value
-However, there is little consistency in approach white v Bluett and ward v Byham show conflicting decisions

Question 84

What does past consideration is no consideration mean?

Answer 84

-This means that consideration has no value where it has already been done at the time the agreement is made
-It is clearly not the price for which the promise is bought, as it had been completed before the agreement was made
-This can be seen in Re McArdle (1951)

Question 85

What is the exception to the rule that past consideration is no consideration?

Answer 85

-When the promisor makes an express or implied request for a particular task, and there must be an implied understanding that the task should be paid for
-This is often the case in commercial agreements such as Re Casey’s patent (1892)), and occasionally can be seen in other ‘important’ matters
-As in the case of Lampleigh v Brathwait (1615)

Question 86

What is the promisor?

Answer 86

In contract law, a person who makes a promise to another

Question 87

What is the promisee?

Answer 87

In contract law, the person who is promised something

Question 88

What all has to happen for the exception for past consideration is no consideration to apply?

Answer 88

-An express or implied request by the promisor to the promisee to perform a task
-An implied promise inherent in the request that the promisor will pay the promisee a reasonable sum for performing the task
-The performance of the task, and
-The pay,ent of money by the promisor to the promisee for that performance
While it is sometimes said that this is an exception to ‘past consideration is no consideration’, it is not the performance of the task occurs after the implied promise to pay by the promisor

Question 89

What does it mean that consideration must move from the promisee?

Answer 89

-Consideration moving from the promisee means that a person cannot sue or be sued under a contract unless they have provided consideration for it
-In a bilateral contract, each person is a promisor and a promisee, but in a unilateral contract, one party makes the promise and the other does the act rather than make a promise
-An example can be seen in Tweddle v Atkinson

Question 90

Where can a pre existing duty occur?

Answer 90

1. A duty imposed under a public duty to act, such as the police doing what they are required to do under their public duty
2. A duty imposed under an existing contract with the promisor such as, in a contract of employment, merely doing one’s job
3. A promise to make payment of an already existing debt, such as repaying a loan

Question 91

What is a promise to accept part payment of an existing debt in place of the whole debt is not consideration?

Answer 91

-This rule arises from Pinnel’s case (1602), where the judge said that the payment of a lesser sum on the day a debt is due cannot be in satisfaction of the greater debt
-This means that a creditor is able to claim the reminder a debt, even if they have agreed with the debtor that a part payment will clear the debt, unless there is early repayment or something additional is given

Question 92

What is the general principle of privity of contract?

Answer 92

-The principle of privity of contract is; a contract cannot confer rights nor impose obligations on someone who is not a party to the contract
-A contract between A and B cannot result in C claiming rights under the contract

Question 93

What case sets out the privity of contract?

Answer 93

Dunlop pneumatic tyre co. Ltd v selfridge (1915)

Question 94

What is the definition of privity of contract?

Answer 94

Only those who are parties to a contract are bound by it and can benefit from it

Question 95

What is the relationship between privity and consideration?

Answer 95

-The rule of privity is based on the rule that consideration must move from the promisee, as in Tweddle v Atkinson
-The privity rule is seen as causing injustice, and the courts have tried to find ways of avoiding the rule
-There are special cases, where a contracting party may sue on behalf of another who was intended to benefit from the contract
-In Jackson v Horizon holidays ltd, it was decided that the rule does not apply to contracts on behalf of themselves and others, such as holidays and restaurants

Question 96

What are the common law exceptions to privity?

Answer 96

-Agency
-Collateral contracts
-Restrictive covenants

Question 97

How is an agency an exception to privity of contract?

Answer 97

-An agency arises when one person, the agent, is authorised to make a contract on behalf of another person, the principal
-The principal and the agent are treated as being the same person, so the principal is a party to the contract
-This occurs, for example, when an employee makes a contract on behalf of a company
-The doctrine of privity usually prevents a third party from relying on the terms of a contract. This means that an exclusion clause in a contract may not offer protection to anyone other than the parties to the contract, as seen in Scruttons Ltd v Midland silicones ltd

Question 98

How are collateral contracts an exception to privity?

Answer 98

-The court may be able to avoid the strict rule of privity by finding a second contract alongside the main agreement, as in the case of Shanklin pier Ltd v Detel products Ltd

Question 99

How are restrictive covenants an exception to privity?

Answer 99

-In English land law, if a purchaser of land promises the seller in a contract for the purchase of land that they will not do something on the land, then this is a restrictive covenant
-An example might be not to keep a caravan on the land
-This becomes part of the title to land than an owner has. That promise will ‘run with the land’, which means that all subsequent purchasers of that land are legally bound by that promise even though they are not parties to that initial contract
-This can be seen in Tulk v Moxhay

Question 100

What is a statutory exception to privity of contract?

Answer 100

Contracts (Rights of third parties) Act 1999

Question 101

When can someone who is not party to a contract enforce the contract against either or both of the actual parties under contracts (Rights of third parties) act 1999?

Answer 101

-The third party is expressly identified by name, or as a member of a class or as answering a particular description, and
-The contract expressly provides that the third party May enforce the contract, or
-The contract term is an attempt to confer the benefit of the term on the third party
This seems to get round the difficulty that occured in Beswick v Beswick

Question 102

What is made clear in Nisshin shipping company limited v cleaves & co limited & others (2003)

Answer 102

-This makes it clear that if parties to a contract wish to ensure that a benefit is not conferred upon third parties, the parties should use an express term in their contract to rebut any presumption that might be made under s1 (1)(b) of the 1999 act

Question 103

What do the parties have the right to do under the contracts act 1999 with privity?

Answer 103

-The parties to the contract have the right to exclude the act from benefiting a third party
-Where the act applies, under s3 if the contract is being enforced by a third party, the person who made the contract can rely on any defence or valid exclusion clause that was available to the original contracting party:
-If A books a holiday with B and the list given to A of those going on that holiday includes another, C, C will be able to claim rights under the contract
-A will, however, be able to rely on any defence they might have, including relying on any valid term of the contract limiting their liability for any breach of that contract
-One success among many attempts to evade the consequences of the privity rule in this context is found in New Zealand shipping c. V Satterthwaite (1974)

Question 104

What are other statutory exceptions to privity of contract?

Answer 104

-They include giving rights to third parties under insurance contracts, both marine and motor
-For motor insurance, this would include named drivers on a policy, and someone driving another car in an emergency under ‘driving of other cars’ terms in the insurance policy
-Some aspects of life assurance also fall within these exceptions

Question 105

What factors will the courts take into account when looking at something is a term or remains representation.

Answer 105

1. The importance attached to the representation.
2. Special knowledge or skill of the person making the statement
3. Any time lag between making the statement and making the contract
4. Whether there is a written contract

Question 106

Why is the distinction between a term and a representation important in relation to remedies?

Answer 106

-If a term is not observed, there can be a claim for breach of contract
-If a representation is untrue, the remedy is for misrepresentation

Question 107

What is the importance attaches to the representation?

Answer 107

Where the statement is obviously important to the contract, it will be seen as a term of the contract. This was demonstrated in couchman v Hill

Question 108

How is special knowledge or skill of the person making the statement?

Answer 108

-There are 2 contrasting cases that show the importance of the skill expected of a person making a statement
-In these examples, the private seller of a car is not expected to have the same level of understanding about cars as a car dealer

Question 109

What are the 2 contrasting cases with special knowledge of skill of the person making the statement with terms?

Answer 109

-Oscar chess v Williams (1957): the private seller of a car believed to to be a 1948 mode, but it was actually much older. This statement was not a term of the contract
-Dick Bentley v Harold Smith motors (1965): the car dealer stated the car had done 20,000 miles when in fact it had doe 100,000 miles. Even though that statement was not written in the contract, it was taken to be a term of the contract rather than a mere representation

Question 110

Why is the distinction important when looking at special knowledge or skill of the person making the statement?

Answer 110

The distinction is important as the purchaser of the car could take action for breach of contract rather than for misrepresentation. In the Dick Bentley case, it is crucial because the purchaser of the car would have lost his rights under the misrepresentation law at that time

Question 111

How is the time lag between making the statement and making the contract considered in terms?

Answer 111

-Where a contract is made some time after negotiations and does not refer to the statement that has been made during negotiations, it is likely that the statement will not become a term of the contract
-This can be seen in Routledge v McKay (1954)

Question 112

How is whether there is a written contract a factor considered in terms?

Answer 112

As we have seen in Routledge v McKay, the court tends to presume that everything the parties wanted to include as a term of the contract is put in the written contract

Question 113

What are express terms?

Answer 113

-Express terms are words agreed by the parties to be incorporated in their contract. They are terms which are written in a contract or stated verbally at the time the contract is made
-There can be a combination of written and oral express terms
-Where terms are expressly agreed there may be problems with incorporation or interpretation

Question 114

What is incorporation and interpretation in express terms?

Answer 114

Incorporation involves deciding what terms are in the contract, and interpretation (sometimes called construction) is concerned with what the incorporated terms mean

Question 115

What do express terms deal with?

Answer 115

-Express terms deal with matters such as price and what must be provided for the price. They may specify how the contract is to be performed and the obligations of the parties under the contract

Question 116

What are implied terms?

Answer 116

Terms can be implied into the contract by the common law or by statute. Statutory implied terms are contained in different acts such as the consumer rights act 2015

Question 117

In what 2 ways can terms be implied by common Law?

Answer 117

1. Through business efficacy and the officious bystander test
2. By custom or prior dealings between the parties

Question 118

What is business efficacy and the officious bystander test with implied terms?

Answer 118

The courts will imply a term into a contract if the term is necessary to make sure that the contract works on a business like basis. There is a 2 part test for this:
1. Is the term necessary to make the contract effective?
2. If the parties to the contract had thoughts about it, would they have agreed that the suggested term was obviously going to be in the contract
An example of business efficacy can be seen in the case of the Moorcock (1889)

Question 119

Where can the officious bystander test be seen?

Answer 119

Shirlaw v Southern Foundries Ltd (1939)
It was stated: “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testify suppress him with a common ‘Oh, of course!’

Question 120

What was accepted in Holliee v Rambler motors (1972)?

Answer 120

-In Hollier v Rambler motors (1972), the court accepted that a failure to sign a document in one occasion did not prevent the terms in that document being present in the contract, if it was merely an oversight in not signing the document on that particular occasion

Question 121

What was shown in Shell UK Ltd v Lostock Garage Ltd (1977)?

Answer 121

Terms will not be implied if the parties would never have agreed to it had they thought about it

Question 122

What are genuinely implied terms?

Answer 122

-Genuinely implied terms are what a reasonable person would have understood to be the intention of both parties in the context of the contract
-Egan v Static control components (Europe) Ltd (2004) is a good example

Question 123

What is the law relating to implied terms in contracts and in what case is it clarified?

Answer 123

In marks and spencer plc v BNP paribas securities services trust company Ltd (2015), the Supreme Court clarified the law relating to implied terms in contracts:
-Reasonableness is to be judged objectively, according to what the ‘notional reasonable’ person would agree to
-Fairness and acceptability to the parties are not enough to imply a term
-The requirement for reasonableness and equitebleness will usually add nothing to the other tests- ‘if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable’
-Only one test needs to be satisfied- the business efficacy or officious bystander test. However ‘it would be a rare case where only one of those 2 requirements would be met’
-The officious bystander test may not be straightforward- it is important to take ‘the utmost care’ in forming the question to be posed by the officious bystander
-The test of necessity for business efficacy involves a value judgement- it is not a test of absolute necessity, because the necessity is judged by reference to business efficacy. Lord Sumption suggested that it may be more helpful to say that ‘a term can only be implied if, without the term, the contract would lack commercial or practical coherence’

Question 124

What are terms implied by custom?

Answer 124

-Much of English law is founded on the law of custom. Some local customs survive, such as the one in the case of Hutton v Warren (1836) where local custom meant that at the end of an agricultural lease, a tenant farmer was entitled to an allowance for seed and labour on the land
-The court decided that the terms of the lease must be viewed in the light of the custom

Question 125

What are terms implied by prior dealings between the parties?

Answer 125

The prior conduct of the parties may indicate terms to be implied, as shown in Hollis v Arcos

Question 126

What are terms implied by statute?

Answer 126

-The consumer rights act 2015 brings together rights and remedies available to consumers when making a contract with business. These contracts are defined as being between consumer and trader in the act, with both ‘consumer’ and ‘trader’ being defined
-With these contracts, terms are implied in the contract and ‘rights’ are given to the consumer and impose a duty on the trader
The act also
-Reforms and consolidates the law relating to unfair terms in consumer contracts
-Sets out specific remedies available to consumers in contracts to which the act applies

Question 127

What does the consumer rights act 2015 define a consumer as?

Answer 127

-‘An individual acting for purposes that are wholly or mainly outside that individuals trade, business, craft or profession’
-A company cannot therefore be a ‘consumer’, as it is not an ‘individual’
-The definition is wider than existing definitions, as it includes individuals who enter into contracts for a mixture of business and personal reasons, so long as the contracts are mainly for personal reasons

Question 128

What is a trader described as in the consumer rights act 2015?

Answer 128

-“A person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf”
-So a trader can be a sole trader, a company, business partnership or any other form of business organisation
-This definition expressly provides that traders remain liable when dealing through a third party, as, for example, when dealing through an agent

Question 129

What are the implied terms of the consumer rights act 2015?

Answer 129

For the supply of goods:
-S9- the right of satisfactory quality
-S10- the right of fitness for particular purpose
-S11- the right relating to description

For the supply of services:
-S49- reasonable care and skill
-S52- performance within a reasonable time

Question 130

What is satisfactory quality in s9 of the consumer rights act 2015?

Answer 130

-Satisfactory quality is defined as being where the goods meet the standard that a reasonable person would consider satisfactory taking account of:
-Any description of the goods
-The price or other consideration for the goods (if relevant)
-All the other relevant circumstances

Question 131

What does s9 of the consumer rights act 2015 take into account with the quality of products?

Answer 131

-The fitness for all the purposes for which goods of that kind are usually supplied and their durability
-Appearance and finish of the goods
-Freedom from minor defects of the goods
-The safety of the goods

However this will not apply:
-With respect to defects specifically drawn to the consumers attention before the contract 8 made
-Where the consumer examines the goods before the contract is made in relation to any defect that the examination would have revealed, or
-Where the goods have been sold after inspection of a sample and the defect would have been apparent on a reasonable examination of the sample

Question 132

What is the test of satisfactory quality for s9 of the consumer rights act 2015?

Answer 132

-Whether goods are of satisfactory quality is an objective test based on the views of a ‘reasonable person’ rather than those of the trader/ supplier or of the consumer
-Seen In Rogers v Parish Ltd

Question 133

What is meant by s10 of the consumer rights act 2015- the right of fitness for particular purpose?

Answer 133

-This section applies to a contract to supply goods if, before the contract is made, the consumer lets the trader know the particular purpose for which they are contracting for the goods.
-The consumer can make the purpose known either expressly or impliedly
-In these circumstances, where the buyer is relying on the skill and judgement of the seller, there is an implied term that the goods are reasonably fit for that purpose, whether or not goods of that kind are usually supplied for that purpose
-This term is again similar to the provision in the sale of goods act 1979
-There is no need to state a purpose where the goods are being brought for their normal use, as in Grant v Australian knitting mills ltd (1936) which involved underwear
-There was no need to state that the underpants were to be worn by a human for the section to apply

Question 134

What happens under section 10 of the consumer rights act 2015 when the purchaser has a particular sensitivity?

Answer 134

-Where, however, the purchaser has a particular sensitivity that is not known to the seller, then so long as the goods are fit for the normal purpose to most people, there will be no breach of the requirement
-This can be seen in the case of Griffiths v Peter Conway Ltd (1939), where the claimant had abnormally sensitive skin and suffered dermatitis from a new coat made especially for her
-Since she had not made the seller aware of this, the seller was not in breach of the implied as to fitness for purpose

Question 135

What do the cases with section 10 of the consumer rights act 2015 show?

Answer 135

-There must be fitness for the purpose such goods are normally used
-Where a purchaser has a specialist need, that need must be made known to the trader before the contract is made. This could include a particular food allergy to a food trader, sensitivity to a hair colouring dye to a hairdresser or a particular strength of a fixing to a builder’s merchant

Question 136

What is stated in s11 of the consumer rights act 2015?

Answer 136

“Every contract to supply goods by description is to be treated as including a term that the goods will match the description”

Question 137

Under s11 of the consumer rights act 2015 what information must the trader provide for distance selling?

Answer 137

-A description of the goods, service or digital content provided
-The duration of any agreement
-The total price of the contract
-Additional delivery charges and other costs
-Information about the seller

Question 138

What is there also a provision for under s11 of the consumer rights act 2015?

Answer 138

-There is also a provision that where goods are supplied after being seen or examined by the consumer, the goods must match the model
-This could include the way in which goods are logoed, as in Beale v Taylor (1967)

Question 139

What are the remedies for breach of terms to supply goods?

Answer 139

-A three tier remedy structure will usually apply when a trader breaches the standards contained in the act
-The consumers rights are cumulative, and are in addition to the usual contract remedies such as damages. The rights are:
-The short term right to reject- s20 of the consumer rights act 2015
-The right to repair or replacement- s23 of the consumer rights act 2015
-The right to a price reduction or the final right to reject- s24 of the consumer rights act 2015

Question 140

What is section 20- the short term right to reject, of the consumer rights act 2015?

Answer 140

The short term right to reject under s20 must be exercised within 30 days of the delivery of the goods. The period will be shorter where the goods are perishable
-The consumer must clearly indicate to the trader that they are rejecting the goods and ending the contract
-As long as the consumer makes the goods available to the trader, they are entitled to a full refund
-The trader must pay for reasonable costs of returning the goods (although this doesn’t include the consumers costs in returning the goods in person). This is usually done with a prepaid label, and is particularly important with respect to distance selling
-A refund must be given within 14 days, beginning with the day on which the trader agrees that the consumer is entitled to a refund
-The refund must be given using the same means of payment as the consumer used, unless the consumer expressly gave notice otherwise
-The trader must not impose any fee on the consumer for making the refund. More bulky items such as a bike may incur costs to the consumer, but these are then repayable by the trader

Question 141

What must the trader do under s23- the right to repair or replacement of the consumer rights act 2015?

Answer 141

-Repair or replace the item in reasonable time, taking into account the nature of the goods and the purpose for which they were acquired
-Do this without significant inconvenience to the consumer
-Bear any necessary costs incurred in doing so. This includes the cost of any labour, materials or carriage relating to the exercise of this right

Question 142

What are other terms under s23 of the consumer rights act 2015?

Answer 142

-The fault complained of must have been present at the time of the original delivery.
-The consumer cannot require the trader to repair or replace the goods if it would be impossible, or disproportionate compared to other remedies
-It would be impossible, for example, to replace faulty goods if they were unique
-A replacement would also have to be identical, so that if the same make and model was no longer available, replacement would be impossible
-A major factor determining whether either repair or replacement is disproportionate is if it would impose an unreasonable cost on the trader compared with an alternative remedy

Question 143

What happens under s23 of the consumer rights act 2015 if the consumer requests a repair or replacement within the first 30 days?

Answer 143

-If the consumer requests a repair or replacement within the first 30 days of the goods being supplied, then the short term right to reject is paused
-Once the goods are repaired or replaced goods, the consumer has either the remainder of the 30 day period or 7 days, whichever is the longer, in which to reject the goods if they still do not conform to the contract
-For example a phone develops a fault on day 26 and is returned to the phone shop for repair; the phone is returned on day 29 supposedly repaired. If it has not been repaired satisfactorily, the consumer has until day 36 to reject the phone
-The consumer only has to accept one repair or replacement. If the goods still do not meet the consumer’s rights, whether because the original issue persists or a new one has arisen, the consumer can exercise their right to a price reduction or final right to reject

Question 144

What is s24- the right to a price reduction or the final right to reject of the consumer rights act 2015?

Answer 144

-If s23 does not bring satisfaction, the consumer has the right to a price reduction or a final right to reject the goods and claim a refund under s24
-The trader can have only one attempt at repair or replacement for the consumer to have this right.
-Any refund is subject to a deduction for use. During the first 6 months, any deduction for use is, at present, limited to motor vehicles

Question 145

What are the tiers for consumer remedies under the consumer rights act 2015?

Answer 145

1. A short term right to reject and claim a refund within 30 days, which if not exercised leads to
2. The right to repair or replacement, and if this is unsatisfactory, then
3. The right to a price reduction or a final right to reject (and claim a refund) with a possible reduction for use of the item

Question 146

Who has to show the non conformity at time of supply for a breach of ss9-11 of the consumer rights act 2015?

Answer 146

-Under ss 19(14) and (15) of the consumer rights act 2015, if a breach of the statutory rights, for example, a fault in the goods supplied, arises in the first 6 months from delivery, it is presumed to have been present at the time of delivery
-Therefore, if a fault is discovered within the first 6 months after buying the product, it is presumed to have been there since the time of the purchase- unless the trader can prove otherwise
-This applies where the consumer exercises his or her right to a repair or replacement or his or her right to a price reduction or the final eight to reject
-This does not apply where the consumer exercises the short term right to reject
-If a fault develops after the first 6 months, the burden is on the consumer to prove that the product was faulty at the time of delivery

Question 147

What is section 49- reasonable care and skill, of the consumer rights act 2015?

Answer 147

-A contract to supply a service implies that the trader must perform the service with reasonable care and skill
-A contract to supply a service might be a contract to carry out building work, or to service a car
-Such contracts often include both goods and services. The service element would include deciding what was needed and the fitting of the parts to the car
-The parts themselves are a supply of goods
-This is equivalent to the relevant section of the supply of goods and services act 1982, which the consumer rights act 2015 replaced
-Here the standard of care is equivalent to the standard of care expected in a claim in the tort of negligence. This is decided on a case by case basis, and can be seen in the cases of Thame v Maurice (1986) and Wilson v Best travel (1993)

Question 148

What is section 52- performance within a reasonable time, of the consumer rights act 2015?

Answer 148

-This term applies where the contract does not include a specific time and the service has not been completed or has taken longer than expected
-What is a reasonable time is a question of fact, which will depend on the circumstances
-The rights under ss49 and 52, and the right of the trader to be paid a reasonable sum where no price is agreed, are sometimes included in pre contract statements incorporated into the contract
-These are likely to be quite detailed, particularly where the contract is for building work

Question 149

What are remedies for breach of terms to supply services?

Answer 149

If the service does not conform to the contract, the consumers rights are:
-The right to require repeat performance (s55)
-The right to a price reduction

Question 150

What is section 55- the right to a repeat performance, of the consumer rights act 2015?

Answer 150

-This right requires the trader to perform the service again, to complete its performance in accordance with the contract
-If the right is demanded, and assuming that performance is not impossible, the trader must provide it within a reasonable time and without significant inconvenience to the consumer
-The trader must also bear any necessary costs incurred in doing so such as the cost of any labour or materials

Question 151

What is section 56- the right to a price reduction, of the consumer rights act 2015?

Answer 151

-This right to reduce the price to a consumer by an appropriate amount for the traders failure to perform the contract
-This may result in the trader giving a refund, up to the full contract price.

Question 152

In only what 2 situations is the right to a price reduction available under the consumer rights act 2015?

Answer 152

-Where completion by repeat performance is impossible, or
-If the consumer has asked for repeat performance but the trader breaches the requirement to do it within a reasonable time and without significant interference to the consumer

Question 153

What are the 2 types of terms?

Answer 153

1. Condition
2. Warranty

Question 154

What is a condition?

Answer 154

-A condition is a term in a contract so important that a failure to perform the obligation would destroy the main purpose of the contract
-A condition is said to go to the root of a contract. This can be seen in the case of Poussard v Spiers and Pond (1876)

Question 155

What is a warranty?

Answer 155

-A warranty is a minor term of the contract. Only damages can be claimed for a breach of warranty- the contract is not ended and the main purpose of the contract can continue to be performed despite the breach
-An example of a breach of warranty can be seen in Bettini v Gye (1876)

Question 156

What is an example of a condition?

Answer 156

For example, if I make a contract to buy a SIM card to fit an iPhone, it is central to the contract that the SIM card will fit an iPhone. There would be either an express term in the contract (for example suitable for iPhone) or an implied term to that effect. The term would be a condition. This is important because if a condition is broken, the person suffering the failure to perform is entitled to end the contract

Question 157

What is an example of a warranty?

Answer 157

For examples for a phone, it is not central to the contract if the phone will only store 99 contact rather than the 100 stated in the contract. It still performs the main purpose of making calls. One fewer contact available in the memory is not central to contract

Question 158

What is an innominate term?

Answer 158

-An I nominate term is a term in a contract that is not clearly a condition or a warranty. They are ‘intermediate or indeterminate terms’
-The consequences of the breach of an innominate term can be the same as for a condition or a warranty, depending on the seriousness of the breach
-The parties wait until the effect of the breach when it is treated as a condition or warranty
-An example of an innominate term can be seen in Hong Kong Fir Shipping co. Ltd v Kawasaki Kissn Kaisha Ltd (1962)

Question 159

What are exclusion and limitation clauses?

Answer 159

-Exclusion clauses are terms in a contract that exclude or limit liability if the contract is breached. They may also attempt to exclude liability in other areas of law, for example, under the tort of negligence
-Exclusion clauses are often found in standard form contracts and on notices
-There are many ways that a term of the contract tries to limit or exclude liability:
-A term may restrict the value of any claim to the purchase price of the goods
-It may try to exclude a claim for defect after 14 days from the date of the contract
-We have already seen that many contracts attempt to exclude the operation of the contract (rights of third parties) act 1999

Question 160

What is the nature of exclusion and limitation clauses?

Answer 160

-Courts generally accept that the parties to contract can agree any terms they like under the principle of freedom of contract
-However, this view is balanced by the idea that often during negotiations, one party is in a much stronger position than another
-For example, as an individual or even as a business, you have little opportunity to negotiate the terms of a contract for a rail ticket or a mobile phone contract
-The courts and parliament have tried to find ways of limiting the effectiveness of an exclusion clause

Question 161

What is the starting point for analysis of interpretation of contract?

Answer 161

-Tye language in the contract
-In pink Floyd music Ltd v EMI records Ltd (2010), it was stated that ordinary English words will mean what they say. If the words of the contract are clear and unambiguous, then it is assumed that is what the parties intended

Question 162

What happens if the words are not clear and unambiguous in the contract?

Answer 162

-An objective test should be applied
-Investors compensation scheme Ltd v West Bromwich building society (1998) set out an objective test- what would a reasonable man interpret to be the meaning of the contract?
-This is wider than just the words in the contract and can include relevant background information and contextual information. The key issue is what the parties’ understanding and intention were at the time the contract was made
-In M T Højgaard v E.ON climate and renewable Uk Robin East Ltd (2014), the court said that post contract conduct is not usually a guide to interpretation
-It is possible to add a commercial, common sense angle to contract interpretation. This is obviously very wide but does allow common sense when the actual meaning of the words is unclear and ambiguous

Question 163

What are the common law controls on limitation and exclusion clauses?

Answer 163

-A clause in a contract that seeks either to limit or exclude liability for contract breach is subject to all of the normal rules regarding terms, particularly those concerning incorporation of the term
-Such terms will seriously limit a party’s rights under the court is whether the term is part of the contract.

Question 164

What are the 3 matters to consider when looking at common law controls?

Answer 164

1. Is the agreement signed
2. Is any notice with the term in it incorporated in the contract?
3. Is the term incorporated as a result of the previous dealings of the parties

Question 165

What is meant by ‘is the agreement signed’?

Answer 165

-Where a party has signed a written agreement, they are bound by that agreement, as in L’estrange v Graucob (1934)
-However, if a party relying on an exclusion clause in a written document asks the other to sign it and, in response to a query from the otter, misrepresents the effect of the clause, the clause will be interpreted in accordance with the misrepresentation and not with the written document
-This is so even if the document is signed by the other. This was shown in Curtis v Chemical cleaning and Dyeing co. Ltd (1951)

Question 166

Is any notice with the term in it incorporated in the contract?

Answer 166

-Incorporation can only happen if, at the time the contact was made, the unsigned document was brought to the attention of the person suffering the exclusion clause
-Any attempt to introduce new terms to the contract after acceptance will fail unless, there is a new contract changing the original one or the original contract allows for terms to change
-An example of price change can be seen in most mobile phone contracts
-The problem of incorporation arises when the terms are not made clear when the contract is made. This can be seen in Olley v Marlborough court hotel (1949)

Question 167

What must happen for reasonable notice?

Answer 167

1. There must be a contractual document, with reference to the distinction between such a document and a receipt: Chapelton v Barry
2. There must be reasonable steps to draw the exclusion clause to the other party’s attention: Thompson v LMS railway
3. The reasonable notice must be given before conclusion of a contract by acceptance of an offer: Olley, Thornton v Shoe lane parking Ltd

Question 168

Is the term incorporated as a result of the previous dealings of the parties?

Answer 168

-If the parties have dealth on the same terms in the past, it is possible to imply knowledge of the clause from these past dealings
-However, the courts are reluctant to find an exclusion clause present, for example, in McCutchoen v David MacBrayne Ltd (1964)

Question 169

What is the effect of exclusion clauses on third parties to the contract?

Answer 169

-The doctrine of privity usually prevents a third party from relying on the terms of a contract. So an exclusion clause in a contract may not offer protection to parties other than the parties to the contract
-This has already been seen in Scruttons Ltd v Midland silicones Ltd (1961)

Question 170

What 4 conditions did the court set out need to be fulfilled before it can be said the contract was made as agent for a third party so that the third party can take a benefit?

Answer 170

1. Was the third party intended to benefit from the contractual term?
2. Was it clear that the contracting party was also contracting as agent for the third party
3. Had they authority to do so?
4. Was any difficulty with consideration overcome?

Question 171

What is the contra proferentem rule?

Answer 171

-The contra proferentum ‘rule’ is a principle designed to help with contract interpretation.
-The rule is: if the meaning or scope of a term is uncertain, the term should be interpreted least favourably against the person who introduced it, and who seeks to rely on it
-For consumer contracts, this is stated in the consumer rights act 2015, s69
-Cases such as Transoceanic Drilling Uk Ltd v providence resources plc (2016) and persimmon Homes Ltd v Ove Arun and partners Ltd (2017) show that the contra proferntum rule does not apply to commercial contracts where the parties bargain on equal and clear terms
-In Oliver Nobahar-Cookson v The hut group (2016) the court stated that exclusion clauses should be narrowly construed

Question 172

What restrictions on exclusion clauses in contracts between traders and consumers does the consumer rights act 2015 set out?

Answer 172

-A ‘fairness test’ for enforceability of terms and of consumer notices
-A ‘grey list’ of potentially unfair clauses in consumer contracts
-the test of fairness doesn’t apply to the main subject matter of the contract or terms that set the price if they are ‘transparent and prominent’

Question 173

What is the general fairness of terms in the consumer rights act 2015?

Answer 173

-Under s62, all consumer contract terms and notices must be fair. The act defines ‘unfair’ terms as those which put the consumer at a disadvantage, by limiting the consumer’s rights or disproportionately increasing their obligations as compared to the trader’s rights and obligations
-However a court should take into account the specific circumstances existing when the term was agreed, other terms in the contract and the nature of the subject matter of the contract

Question 174

What is the fairness test?

Answer 174

-This fairness test is supplemented by a so called ‘grey list’ of terms. This is a non exhaustive list of terms that may be unfair
-A term can be fair even if it included on the great list and can be unfair even if it is not

Question 175

What terms are on the ‘grey list’ in the fairness test?

Answer 175

Terms that
-Allow disproportionate charges
-require the consumer to pay for services which have not been supplied when the consumer ends the contract
-Allow the trader to change the price after the consumer is bound

Question 176

What must terms about the main subject matter of the contract or that set the price be in the consumer rights act 2015?

Answer 176

-Transparent- in plain and intelligible language and, if in writing, legible
-Prominent- brought to the consumer’s attention in such a way that the average consumer would be aware of them

Question 177

What are the 2 principal provisions provided by parliament?

Answer 177

1. The unfair contract terms act 1977- applies to exclusions for liability in tort as well as contractual breaches
2. The consumer rights act 2015- applies to contracts between traders and consumers
   The unfair contract terms act 1977 provides the main protection against exclusion clauses in non consumer contracts. It contains a test of reasonableness to be applied to exclusion clauses

Question 178

What exclusions and limitations are made void by the unfair contract terms act 1977?

Answer 178

Certain types of exclusion clauses are invalidated by the act and will therefore be unenforceable:
-Under s2(1) a person cannot exclude liability for death or personal injury caused by negligence
-Under s6(1), the implied condition as to title (transferring a person’s rights over the goods) (the sale of goods act 1979 ans s7 of the supply of goods and services act 1982) cannot be excluded

Question 179

What are exclusions depending for their validity on a test of reasonableness?

Answer 179

-Section 3 imposes a reasonableness test to contracts where one party is subject to the other’s standard written terms of business
-Guidelines on what is reasonable are contained in both s11 and s2 of the act.
-This can be seen in the case of Smith v Eric S Bush (1990)

Question 180

What is misrepresentation?

Answer 180

-Representations are statements that influence a decision on whether or not to make a contract, and are misrepresentations if they are false
-A misrepresentation only occurs during the formation of a contract
-The effect of misrepresentation is to make the contract voidable. This means that the contract is valid unless the party who has suffered the misrepresentation takes action to end the contract
-This is known as rescission of the contract .

Question 181

What is rescission of a contract?

Answer 181

-Recission for misrepresentation applies in cases where a party relied on a statement by the other party to enter the contract, and the statement was not true
-Recission treats the contract as if it had never existed: it becomes a void contract
-This means the parties would be put back in the positions they were in before the contract was made
-This is known as restitution in integrum

Question 182

What are the elements of the definition of misrepresentation?

Answer 182

-A false statement
-Of material fact
-Made by a party to the contract
-That induces the other party to enter the contract

Question 183

What is meant by a false statement in misrepresentation?

Answer 183

-A statement is usually written or verbal, but doesn’t have to be. It could be anything that would influence the other’s decision, such as hiding a fault as in Gordon v Selico Ltd (1986), where a painting over dry rot immediately before selling a property was fraudulent misrepresentation
-Spice girls Ltd v Aprilia world service Bv (2000) is an example of a false statement
-To be a misrepresentation, the statement made must be false-untrue or inaccurate. Whether or not the defendant knew that the statement was false defines the type of misrepresentation it might be
-Because there must be a statement to be a misrepresentation, silence cannot be a misrepresentation. There is no obligation on a person wishing to enter a contract to make any statement about what is being offered- but anything said in that respect must be true, as in Fletcher v Kell

Question 184

What factors effect the principle of a false statement in misrepresentation?

Answer 184

-Change of circumstances
-The making of a hard truth
-Confidential relationships

Question 185

What is meant by change of circumstance in misrepresentation?

Answer 185

-Even if a statement is true when it is made, it can become a misrepresentation if it becomes false before the contract is made
-This was shown in With v O’Flanagan (1936)
-Therefore, a person must correct information where the situation has changed between making the representation and the acceptance of the offer

Question 186

What is the meaning of a half truth in misrepresentation?

Answer 186

-Silence can be a misrepresentation where a statement made is a hall truth. What is not said is a non disclosure, and may be a misrepresentation as the maker of the statement had a duty to reveal the whole truth of the situation
-This can be seen in the case of Dimmock v Hallett (1866)

Question 187

What is meant by confidential relationships in misrepresentation?

Answer 187

-Where the relationship between the parties is based on trust then silence may be a misrepresentation
-This was shown in Tate v Williamson (1866)
-Where a contract is a contract of ‘utmost good faith’ then all material facts must be disclosed, whether asked about or not
-This is usually seen in contracts of insurance, for example, in Lambert v Co-operative insurance society (1975)

Question 188

What does the consumer insurance act 2012 say about confidential relationships in misrepresentation?

Answer 188

-It replaces the consumers duty to volunteer information with a duty to answer the insurer’s questions honestly and reasonably
-The questions must be clear and specific. The consumer must take reasonable care and not to make a misrepresentation which would induce the insurer to enter the contract
-This modifies the consumers duty of utmost good faith by removing the obligation to disclose all material facts
-He or she must reply honestly and with reasonable care to questions asked only

Question 189

What is material fact in misrepresentation?

Answer 189

-The misrepresentation must be of a material fact. This means that it must have led a person to make the contract
-It must be a statement of fact rather than a statement of opinion. A statement of future intention can be seen as a ‘fact’ if the person intended to do this when they made the statement
-If they did not really intend to do something, they misrepresented their state of mind, which is a fact

Question 190

What happens with statement of opinion with a material fact in misrepresentation?

Answer 190

-In general, if a person honestly believes in their statement of opinion and it proves to be false, it will not be misrepresentation
-This is illustrated by Bisset v Wilkinson (1927) and Edgington v Fitzmaurice (1885)
-But if the person does not honestly believe their own opinion, it is regarded as a statement of fact rather than one of opinion, as seen in smith v land and house property corporation (1884)

Question 191

What happens with statements of intention for material fact in misrepresentation?

Answer 191

-A statement of intention- a promise to do something in the future- is generally not a statement of fact, because a fact relates to a past event or something in existence
-However a statement of intention becomes a statement of fact if the maker of the statement has no intention of carrying it out- because they are misrepresenting the fact that they possess the intention

Question 192

What is meant by made by a party to the contract in misrepresentation?

Answer 192

-A person is not liable for statements made by others unless it is by their agent. This means, for example, that a newspaper review of an item cannot be a misrepresentation in contract law

Question 193

What is meant by induces the other party to enter the contract in misrepresentation?

Answer 193

-The statement must be critical part of leading the other party to make the contract. In BV Nederlandse industrie van Eiprodukten v Rembrandt enterprises Inc (2018), the court held that the relevant test is whether the claimant would not have entered into the contract without the representation
-The claimant can establish that a misrepresentation was a factor in their decision to enter the contract, but it does not have to be the only or deciding factor
-However, they must have relied on the statement made rather than their own judgement or information they obtained elsewhere, for there to be a misrepresentation. This was shown in Atwood v Small (1838)
-It does not matter if the victim could have discovered the truth by taking reasonable steps or it was unreasonable to rely on the untrue statement
-The fact that the untrue statement was relied upon is enough to make it a misrepresentation, as in Redgrave v Hurd (1881)
-In Museprime properties Ltd v Achilles properties Ltd (1990), it was decided that what the reasonable person would or would not have done is irrelevant

Question 194

What are omissions in a consumer context in misrepresentation?

Answer 194

-S12 of the consumer rights act 2015 covers pre contract information for a contract to supply goods.
-The trader has to provide certain information to the consumer before the contract becomes binding. If my of that information changes before entering into the contract or later, it is not effective unless expressly agreed between the consumer and the trader
-All consumer information must be displayed clearly. Under the consumer protection (amendment) regulations 2014, a misleading omission is where a trader deliberately misses out key information that the consumer might need to make an informed decision about buying the goods or services

Question 195

What is misleading from a trader?

Answer 195

-Omits material information that the average consumer needs, according to the context, to make an informed transactional decision
-Hides or provides material information in an unclear, unintelligible, ambiguous or untimely manner
-Fails to identify the commercial intent of the commercial practice if this is not already clear from the context
The obscure presentation of consumer information will be treated as a misleading omission. The consumer protection from unfair trading regulations 2008 ban misleading omissions and aggressive sales tactics

Question 196

What are the 3 types of misrepresentation?

Answer 196

1. Fraudulent
2. Negligent, including under the misrepresentation act 1967
3. Innocent

Question 197

What is fraudulent misrepresentation?

Answer 197

-Fraudulent misrepresentation occurs when a person induces the contract by making a statement that they know is untrue, or is reckless as to whether or not it is true
-This can include hiding defects, as seen in Gordon v selico ltd (1986). To avoid being found to have made a fraudulent misrepresentation, the person who made the statement must believe it is true
-A fraudulent misrepresentation includes not only an out and out incorrect answer to an inquiry, but can also be an overly optimistic view of the position
-This was seen in Greenridge Luton one Ltd v Kempton investments Ltd (2016)

Question 198

What is negligent misrepresentation?

Answer 198

-Negligent misrepresentation is a false statement made by a person who believe the statement was true, but had no reasonable grounds for believing it to be true
-The misrepresentation act 1967 created a statutory liability for negligent misrepresentation. All that is needed is for there to be a misrepresentation which results in a contract and the victim suffers loss
-This is much broader than any of the previous possible claims. It is particularly useful where the claimant is unable to prove fraud
-Under the act, once the victim has proved there was a misrepresentation, the burden of proof is on the person making the statement that there were reasonable grounds to believe the statement was true
-This reverses the usual burden of proof in civil cases when it is for the victim to prove the case
-An example can be seen in the case of Howard marine v Ogden and sons (1978)

Question 199

What choice does the claimant have in a case of negligent misrepresentation?

Answer 199

-If the misrepresentation is negligently made, the claimant has the choice of suing under the misrepresentation act 1967 or under thr law of tort following the principles set out in Hedley Byrne v heller
-If the act is chosen, then the relationship required for a claim using hedley Byrne v heller does not need to be established
-The remedy for negligent misrepresentation can be Recission and damage

Question 200

What is innocent misrepresentation?

Answer 200

-The misrepresentation act 1967 provides the definition of innocent misrepresentation as: a representation which is genuinely held on reasonable grounds
-This is a false statement always believes it to be true and there is no element of negligence in that belief
-There is still a misrepresentation, albeit an innocent misrepresentation
-The remedy is either Recission or damages instead of Recission
-This is under the courts discretion, as stated in the misrepresentation act 1967

Question 201

What are the remedies for misrepresentation?

Answer 201

-Recission, setting aside contract, is possible in all cases of misrepresentation. The aim of Recission is to put the parties back in their original position, as though the contract had not been made
-Damages can also be awarded, as stated in the misrepresentation act 1967

Question 202

What happens with the remedy of Recission in innocent misrepresentation?

Answer 202

-The usual remedy for misrepresentation is Recission, as stated in salt v stratstone specialist Ltd (2015), where a care which was described as brand new was in fact not brand new
-Recission is an equitable remedy. All equitable remedies are discretionary, which means that the court will only aware them if it is fair to do so in all the circumstances

Question 203

In what situations will the remedy of Recission not be available?

Answer 203

-Resitution to the original pre contract position is impossible
-The contract is affirmed
-Delay
-A third party has gained rights over the property

Question 204

Why is Recission not available when restitution to the original pre contract position is impossible?

Answer 204

-This was shown in Clarke v Dickson (1858), where the claimant was misled into becoming a partner in a business
-The business changed to become a limited company before the claimant wanted to rescind the contract
-Recission was not available- he could not return the partnership as the firm had become a limited company

Question 205

Why is Recission not available when the contract is affirmed?

Answer 205

Affirmation is where the innocent party decided to carry on with the contract despite being aware of the misrepresentation. The right to seek to rescind the contract is then lost, as in Long v Lloyd (1958)

Question 206

Why is Recission not available when there is delay?

Answer 206

One maxim of equity is that delay defeats equity. The idea behind this is that once a contract has been completed, any complaints are likely to arise within short time and after that you can assume there are no major problems. This can be seen in Leaf v international galleries (1950)

Question 207

Why is Recission not available when a third party had gained rights over the property?

Answer 207

Where someone else has gained an interest in the subject matter of the contract, then Recission will not be granted as this would be unfair on the innocent third party. An example is Lewis v averay

Question 208

What is the remedy of damages for innocent misrepresentation?

Answer 208

-The court has discretion to award damages instead of Recission under s2(2) of the misrepresentation act 1967.
-This means that if there is no longer a right to rescind the contract, for example, because of delay, there is no possibility of damages under this section
-The measure of damages under s2(2) must be recompense for loss related specifically to the misrepresentation
-In Sind all v Cambridgeshire county council, that would have been the £18,000 necessary to preserve the value of the land as it was agreed in the contract
-There would have been no compensation for the loss in market value of the land, which had nothing to do with the misrepresentation

Question 209

What are the remedies for negligent misrepresentation?

Answer 209

-If the claim is under the misrepresentation act 1967, s2(1), damages are calculated as in fraud.
-S2(2) also gives the court discretion to make an award of damages instead of Recission for a negligent or innocent misrepresentation. For negligent misrepresentation, this could be in addition to damages under s2(1) but would have to take account of such damages

Question 210

What are the remedies for fraudulent misrepresentation?

Answer 210

-The remedies are Recission and damages in the tort of deceit
-In smith new court v scrimgeour Vickers (1996) the court awarded the victim damages based on the difference between the amount paid for shares and the final sale price- more than the usual award of damages in a contract
-In East v Maurer (1991), the court of appeal stated that it was possible in principle to recover damages for loss of profit following a fraudulent misrepresentation

Question 211

What is undue influence?

Answer 211

-Undue influence occurs where one party is pressured into entering the contract, where there is a trusting relationship and one party will benefit at the expense of another
-A contact signed under duress might involve threats, such as blackmail,or even violence to persuade one party to sign the contract

Question 212

What is economic duress?

Answer 212

Economic duress is the threat to damage a business or a person financially- is a common form of duress, and the court will consider each case according to its individual circumstances. The threats must be ‘improperly coercive’, though not necessarily unlawful. The difficulty is to decide when the line is crossed between, sat, tough business bargaining, exploiting weaknesses to advantage, and the use of improper pressure

Question 213

When does economic duress occur?

Answer 213

-Economic duress occurs when someone is effectively saying, ‘make a contract with me on these terms or else there will be no contract and you will be ruined’
-This can easily be seen where there is a shortage of an item and the supplier of that item can effectively name their price
-The court has to distinguish between legitimate commercial pressure and economic duress

Question 214

What is said about the nature of the threat in economic duress?

Answer 214

-In the case od the Siboen and the Sibotre (1976), the court said that serious threats to property should be considered as duress
-Where someone is coerced so much that they cannot properly consent, the contact can be put aside
-However commercial pressure is not enough. This idea was developed in Atlas express v Kafco (1989)

Question 215

What is said about the consequences of the threat in economic duress?

Answer 215

-For economic duress there must be pressure that:
-Takes away the victims choice
-Is illegitimate
-Is a significant cause for inducing the victim to enter into the contract
-This can be seen in universe tankshoos Inc of Monrovia v international transport workers federation (1983)

Question 216

What is additional criteria to help identify economic duress?

Answer 216

-The court in Pao on v Lau yiu Long (1979) identified the following fairies to help decide whether economic duress was present:
-Did the person claiming to be coerced protest about the pressure?
-Did that person have any other available course of action that was reasonable?
-Was hr or she independently advised before taking the action?
-After entering the contract, did he or she take steps to make the contract void?

Question 217

What are remedies for economic duress?

Answer 217

-A claim based on economic duress does not result in an award of damages. The courts can:
-Make an order for the restitution of property or money extracted under such duress
-Declare the contract void
-Restitution is an equitable remedy that restores a person to the position they would have been in without the other party’s improper action. Because it is an equitable remedy, it is discretionary, as we have seen for Recission

Question 218

What is discharge by performance?

Answer 218

-The strict rules of discharge by performance is that performance must be complete and exact
-An early case showing the rule is cutter v Powell (1795)
-Another example is Re Moore and co. Ltd and Landauer and Co.’s arbitration (1921), where even though the total number of the tins was correct, the number of tins in each carton was incorrect and so the goods did not correspond with the description in the contract

Question 219

In what circumstances has the strict rule of discharge by performance been lessened?

Answer 219

-Tender of performance
-Severable contracts
-Substantial performance
-Acceptance of partial performance
-Delayed performance

Question 220

What is tender of performance in discharge by performance?

Answer 220

If one party prevents the other from carrying out his contract, then the innocent party can claim to be paid on a quantum merit basis. This can be seen in Planche v Colburn (1831)

Question 221

What are severable contracts in discharge by performance?

Answer 221

-Where a contract can be seen as being separate parts, non completion of one part is not a breach of the whole contract
-So, if mr cutter’s contract in cutter v Powell had been described as, for example, £1 per day, then the contact for the voyage would have been divisible
-This can be seen in Richie v Atkinson (1808)

Question 222

What is substantial performance in discharge by performance?

Answer 222

-If a party has done almost everything that was required under the contract, the doctrine of substantial performance may apply
-Where it does apply, there must be payment of the amount for what has been done
-This does not apply where the contract is considered to be an entire contract, and all of the obligations in the contract are seen as a single transaction that cannot be broken down, as in cutter v Powell
-Substantial performance often occurs in large contracts where little things are not performed exactly as in Darin and Co. V Lee (1916)
-The difficulty is in establishing what amounts to substantial performance. There are no percentages to indicate when the woek has been substantially completed, and it is decided on the circumstances of each case
-2 contrasting examples are Hoenig v Isaacs (1952) and Bolton v Mahadeva (1972)
-The court used their discretion to reach a just and fair decision through quantum meruit in Young v Thames properties Ltd (1999)

Question 223

What is acceptance of part performance in discharge by performance?

Answer 223

-If one party has agreed the other party need not complete the entire contract, the contract must be paid for on a quantum meruit basis
-However, the consent must acknowledge that the defaulting party is entitled to be paid for what they have completed so far, and the agreement was made without undue pressure
-If the innocent party has no option but to accept the work partially done, this is not considered consent to part performance. This was shown in Sumpter v Hedges (1898)

Question 224

What is delayed performance and the effect of time for performance of a contract?

Answer 224

-In many contracts it is useful to insert a term stipulating time. This is particularly important when an item is needed at a particular time, for example, a wedding dress
-There are often terms in contracts about the time for performance of the contract.

Question 225

When does the court regard time as a condition?

Answer 225

If:
-The parties have expressly stated in the contract that time of performance is a critical part of performance (time is of the essence)
-In the circumstances, time for completion of the contract is critical, or
-One party has failed to perform on time and the other has insisted on a new date for completion of the contract (making time of the essence of the contract)

Question 226

What is the effect of delay to performance of a contract?

Answer 226

-The effect of delay to performance is to be treated as a breach of condition if any of these points are present
-If none of these points are present, the default position is for the delay to be treated as breach of an innominate term, so the effect of the breach is examined
-This can be seen in cases such as Charles Rickards Ltd v Oppenheim (1950) and union rage ltd v Golden achievement ltd (1997)
-Most contracts for the sale of land including houses include terms about time for performance of the contract
-It is essential that once time being of the essence has been waived, it is then reinstated as a term by giving notice, if such a term is to be relied on
-This is apparent from the case of Hakimzay Ltd v Swailes (2015), a case involving the sale of a residential property

Question 227

What is discharge by frustration?

Answer 227

-Historically the law held that a party was bound to perform their obligations under the contract, whatever happened
-In paradine v Jane (1647), the defendant was still liable to pay rent on land even though he had been forced off the land by an invading army during the English civil war
-The injustice of this strict tile led to the development of a new doctrine in the nineteenth century
-If a party to a contact was prevented from keeping the promise because of an unforeseeable intervening event, they would not be liable for a breach of contract

Question 228

What must be shown for a successful claim of frustration?

Answer 228

-The frustrating event occurred after the contract was made
-The event is so fundamental that it goes to the root of the contract and goes beyond what was contemplated by the parties when they made the contract.
-The event makes performance of the contract impossible or, at least, radically different
-The event is entirely beyond the parties control

Question 229

What must the frustrating event be a result of in discharge by frustration?

Answer 229

-Destruction of the subject matter including unavailability of a party in a contract for personal services such as through death or serious illness of the performer
-Subsequent illegality, for example, by fulfilling a contract for goods that are subsequently banned from being imported
-Destruction/frustration of the common venture this is the situation where there is no physical destruction but the essential commercial purpose of the contract cannot be achieved

Question 230

What are the grounds for claiming frustration?

Answer 230

These can be seen under the following headings:
-Impossibility
-Illegality
Radical change in circumstances
Frustration in specific situation
-Leases
-Employment contracts

Question 231

What is impossibility in frustration?

Answer 231

-This was shown in Taylor v Caldwell (1863)
-Frustration also applies where the subject matter becomes unavailable through no fault of the contracting parties. An example is Jackson v union marine insurance Co. Ltd (1874)

Question 232

What is illegality in frustration?

Answer 232

A contract may be frustrated as the result of a change in the law that makes the contract to perform, for example as a result of war

Question 233

What is radical change in circumstances in frustration?

Answer 233

-There is a radical change of circumstances as the essential commercial purpose of the contract cannot be achieved
-If the main purpose of the contract is based on a particular event and the event will not take place, the contract may be frustrated
-The contrasting cases of Krell v Henry (1903) and Herme Bay steamboat co. V Hutton (1903) illustrate this

Question 234

What do the cases of krell v Henry and herne bay steamboat co. V Hutton illustrate in frustration?

Answer 234

-In krell, the commercial purpose of the contract was to watch the procession. The contract was frustrated because the outside event beyond the control of the parties (the kings illness) destroyed the commercial purpose
-In Hutton, the commercial purpose was not destroyed as he could still go and see the fleet of ships that assembled, so the contract was not frustrated

Question 235

What happens with leases in frustration cases?

Answer 235

-In national carriers ltd v panalpina Ltd (1980), the tenant’s access to the premises was closed by the local authority because it passed by a derelict and dangerous building
-The tenant argues that it’s tenancy was frustrated. However, the lease was not frustrated as the lease had a term of 10 years, and the interruption was temporary
-In Canary Wharf v European Medicines Agency (2019), the court decided that brexit will not frustrate the EMA’s lease of premises in London, as the premises could still be used or sub let

Question 236

What happens with employment contracts in frustration?

Answer 236

-In a contract for services, the frustrating event may be the unavailability of the party who is to perform the service because of illness, as in Robinson v Davidson (1871), or failure to perform on medical advice, as in Condor v the Baron knights (1966)

Question 237

When can frustration not apply?

Answer 237

-Self induced frustration
-The contract becoming less profitable
-The event being a foreseeable risk or the event was mentioned in the contract

Question 238

What is self induced frustration?

Answer 238

-Frustration will not apply when the frustrating event is within the control of one party seen in Maritime National fish ltd v ocean trawlers ltd (1935)
-This can be contrasted with Gamerco SA v ICM Fair warning (agency) ltd and Missouri storm Inc (1995)
-Here the lack of a licence was a frustrating event as the issue of the live version was not under the control of either party and the contract was to perform at the particular location at a particular time
-For this reason, many contracts contain a force majeure clause

Question 239

What is a force majeure clause?

Answer 239

A clause often found in commercial contracts. It excludes liability for the parties for delay in performance or the non performance if there are extraordinary events

Question 240

What happens if the contract does not contain a force majeure clause?

Answer 240

-If the contract does not contain a force majeure clause, it may still be possible to rely on frustration to avoid being in breach of contract
-However, what may constitute a frustrating event depends on the circumstances of each case

Question 241

Is the contract becoming less profitable a reason for frustration?

Answer 241

A contract becoming less profitable or more difficult to complete is not a reason for frustration of that contract

Question 242

Does the event being a foreseeable risk was mentioned in the contract mean frustration?

Answer 242

-In general, the courts are reluctant to find that there had been frustration of contract
-This can be seen in the case of Armchair Answercall v people in mind (2016)

Question 243

What are the financial consequences of frustration?

Answer 243

-The law reform (frustrated contracts) act 1943 sets out the remedies available. The act does not affect the law on the situations when frustration may occur, and only sets out how frustrated contracts should be settled

Question 244

What does section 1(2) of the law reform (frustrated contracts) act 1943 provide that?

Answer 244

-Money paid before the frustrating event occurs is recoverable- this includes paying in advance for goods and then having the order cancelled because new legislation has prohibited those goods
-When the contract is frustrated, there is no longer an obligation to pay the price agreed for goods or services
-The court May award the injured party expenses incurred before the contract is discharged, to a maximum of the sum of money paid or payable before the frustrating event

Question 245

What case illustrates section 1(2) of the law reform (frustrated contracts) act 1943?

Answer 245

-In Gamerco SA v ICM fair warning (agency) ltd Missouri storm Inc. (1995), the judge ordered the repayment of the whole sum paid in advance of $412500 and, as both parties had incurred some expenditure in advance of the proposed performance, justice was done by both parties bearing the loss of their own expenses

Question 246

What does section 1(3) of the law reform (frustrated contracts) act 1943 provide that?

Answer 246

-If one party has obtained a valuable benefit from the contract before the frustrating event, the court may order them to pay a just sum, depending on the circumstances of the case
-The purpose of judicial discretion on this is to fairly compensate the claimant from the date the loss is suffered
-This can be seen in the case of BP exploration v Hunt (no.2) (1979)

Question 247

What does section 1(4) of the law reform (frustrated contracts) act 1943 provide that?

Answer 247

That in estimating the expenses incurred by any party to the contract, the court should consider:
-Overhead expenses
-Any work or services performed personally by a party to the contract
This explains the nature of expenses mentioned in s1(2)

Question 248

How can breach of contract occur?

Answer 248

-Actual breach- there has been a failure to perform the contract
-Anticipatory breach- one party indicates that they will not be performing the contract

Question 249

What is an actual breach?

Answer 249

-When a party fails to perform their obligations under a contract, that party may be sued for breach of contract
-If a repudiatory breach is established, the other party who is not in breach May terminate the contract and claim damages or continue the contract and claim damages

Question 250

In what 3 ways can repudiation breach occur?

Answer 250

-A breach of condition
-A refusal to perform the contract
-A serious breach of an innominate term that would be considered a Bosch of condition

Question 251

What is the difference between the ending of the contract depending on the type of term that has been breached?

Answer 251

-Breaching any term of a contract gives the right to claim damages, but only a breach of condition gives the right to repudiate and end the contract, and/or sue for damages
-Breach of a condition includes breach of an innominate term where the term is treated as a condition

Question 252

What are the 3 sets of circumstances giving rise to a breach?

Answer 252

1. Renunciation by a party of their liabilities under it- such as not paying a bill on the due date
2. Impossibility created by own action- such as closing a hairdresser’s business for holidays with appointments during that time
3. Total or partial failure of performance- such as delivering defective goods

Question 253

What are express termination provisions?

Answer 253

-Sometimes contracts contain express terminatIon provisions, which means that the contract can be terminated in the event of any of the circumstances set out in the contract
-This was illustrated in Stocznia Gdynia SA v Gearbulk Holdings (2009).
-These rights are in addition to any right to terminate set out by the common law

Question 254

What is an anticipatory breach?

Answer 254

-An anticipatory breach occurs when a party to a contract gives advance notice to the other party that they will not be performing or completing the contract

Question 255

What choice does the innocent party have in an anticipatory breach?

Answer 255

-To sue immediately for breach of a condition, or
-To wait for the time agreed for performance of the contract and to sue if performance does not take place then
The injured party can treat the contract as repudiated immediately and/or claim damages. An example is Hochster v de la tour (1853)

Question 256

What happens if one party makes the other conclude they do not mean to carry out the contract?

Answer 256

-If one of the parties to a contract, either expressly or by conduct, leads the other party to reasonably conclude that they do not mean to carry out the contract, this amounts to repudiation
-The other party can treat the contract as at an end. In ge den operations ltd v Drybulk handy holdings Inc (2014), the principle was summarised as conduct
-The inevitably of non performance entitled the innocent party to treat the contract as at an end prior to the time for performance
-However, unlikelihood or uncertainty in future performance is not enough to prove anticipatory breadh

Question 257

What are the remedies for a breach of contract?

Answer 257

-If the victim claims an anticipatory breach, they may claim damages immediately, to put them in the same position they would have been in has the contract been completed. However, they must mitigate their losses within reason
-The victim may choose not to accept the anticipatory breach but to see if the defendant commits an actual breach. The damages are assessed at the time when performance should occur, and the loss might increase due to a change in market factors. Alternatively, an event may occur which discharges the contract, such as frustration of contract for which there are different remedies
-The victim may also repudiate the contract under anticipatory breach. They would no longer be bound to perform any obligations under the contract
-For a breach of condition, the victim can claim for damages and/or repudiation
-For a breach of warranty, the claim is limited to damages

Question 258

What is the remedy of damages?

Answer 258

-The purpose of damages is to put the victim in the position they would have been in if the contract had been properly completed and performed by the defendant
-The court is therefore looking at what should have happened and the consequences of non or part performance
-Damages are normally awarded for expectation loss (loss of a bargain) or reliance loss (wasted expenditure)

Question 259

What is the basis for a claim in damages?

Answer 259

-The problem for the courts is to establish how much the loss will be. As damages are compensatory, they will not include losses that are too remote to be awarded. Compensatory damages are the main type of damages

Question 260

What needs to be considered in a claim for damages?

Answer 260

-Loss of a bargain
-Reliance loss
-Restitution

Question 261

What is the loss of a bargain (expectation loss)?

Answer 261

The idea here is to place the claimant in the same financial position as if the contract had been properly performed. This can be seen in a number of ways
-The difference in value between the goods or services required in the contract and those actually provided. An example of this is Bence graphics international v fasson Uk ltd (1996)
-Where there is a market, damages will be the difference between the contract price and the price in the market. If the claimants profit remains, there is no loss. This can be seen in the case of Charter v Sullivan (1957). However, if there is no available market then the claimant can recover the full loss, as in WL Thompson Ltd v Robinson gunmakers ltd (1955)
-Loss of profit not just for goods, but also in other contracts- as in Victoria laundry v Newman industries Ltd (1949), where the claimant recovered the profit that he would have been able to make but for the breach of contract
-Loss of a chance- generally a speculative loss is not recoverable in contract, and most cases are based in negligence rather than contract. There was an exception in chaplin v hicks (1911), where the actress lost the chance of being selected for the part. The court stated that the mere fact that damages were difficult to calculate should not prevent them being awarded

Question 262

What is reliance loss?

Answer 262

-This is the expense incurred by a claimant who relied on a contract being performed. A claimant may also recover expenses he or she has had to spend in advance of a contract that has been breached
-An example of this can be seen in Anglia television ltd v reed (1972)
-It is also possible sometimes to recover damages for the loss of an amenity, as in Farley v Skinner

Question 263

What is expectation loss?

Answer 263

-This is the normal measure of damages for breach of contract. It refers to the innocent party’s loss of bargain
-This includes the profits that it would have expected to receive had the contract been performed, taking into account the costs it would have incurred to earn that profit
-The aim of expectation loss damages is to put the innocent party in the same position as if the contract had been performed

Question 264

How is reliance loss different to expectation loss?

Answer 264

-This is wasted expenditure. It refers to the expenses incurred by the claimant in reliance of the contract being performed.
-The aim of damages for reliance loss is to put the claimant in the position he or she would have been in has the contract never been made; here the claimant has incurred expense in preparation for the contract that is expected to be performed, but it has not been performed
-Expectation loss and reliance loss are mutually exclusive to prevent double recovery of damages

Question 265

What is restitution?

Answer 265

Restitution is a repayment of any money or other benefits passed to the defendant in advance of the contract that is breached

Question 266

What are the special situations with damages?

Answer 266

-Nominal damages
-Speculative damages

Question 267

What are nominal damages?

Answer 267

-If no loss is actually suffered but there is breach, the court may award ‘nominal damages’. In staniforth v Lyall (1830), the award of nominal damages was made as the claimant has made no loss
-In fact, the main purpose of bringing the case was to have proof that the contract was at the end
-In some cases, substantial damages have been awarded where nominal damages might have been considered more appropriate. One example is experience hendrix LLC v PPX enterprises Inc. (2003)
-This is sometimes called a ‘wrotham park’ award following the case of wrotham park estate co. Ltd v parkside homes ltd (1974), but is now known as negotiating damages

Question 268

What do wrotham park damages do?

Answer 268

-Instead of working out how much the innocent party has lost, or how much the wrong doer has gained, wrotham park damages try to quantify the sum which might reasonable have been negotiated between the parties for giving permission to the wrong does to act as they did
-The difficulty with wrotham park damages is that it is not clear when they should be awarded. In Morris-Garner v ones two (support) ltd (2018) it was stated that wrotham park damages:
-Should be awarded when the claimant would have very real problems in establishing financial loss
-Is a ‘just’ response to a breach of contract
-should not be restricted to exceptional circumstances

Question 269

What are the type of damages in wrotham park known as?

Answer 269

-This type of damages is now known as negotiating damages. They can be awarded for breach of contract where the loss suffered by the claimant is measured for its econ-omic value
-The defendant has taken something for nothing, for which the claimant is entitled to require payment. Typically this may occur in cases involving breach of confidentiality, breach of restrictive covenants over land or breach of an intellectual property agreement

Question 270

What are speculative damages?

Answer 270

-The courts have been careful to avoid granting speculative damages
-However, in Chaplin v hicks (1911), the claimant succeeded
-There are cases allowing damages of a highly speculative nature for mental distress, while also recognising the problems with respect to privity of contract, such as Jackson v Horizon holidays ltd (1975)
-Damages for loss of amenity have been allowed where the sole purpose of the contract was to provide the pleasurable amenity
-Ridley electronics and construction v Forsyth (1996) is an example

Question 271

What is causation?

Answer 271

-Losses may have been foreseeable at the time of making the contract, but they will only be recoverable if those losses were caused by the breach of contract. Therefore, the claimant must prove that the breach caused the loss
-This is the ‘but for’ test- but for the breach of contract, would the claimant have suffered the loss claimed? If the loss would have happened in any event, then the breach could not be said to have caused the loss

Question 272

What is remoteness of damage?

Answer 272

This does not establish how much compensation will be payable (damages), but merely which losses can be the subject of compensation (damage)
-The test of remoteness was set out in Hadley v Baxendale (1854)

Question 273

What is the remoteness test?

Answer 273

The remoteness test is in 2 parts
1. The objective test: what loss is a natural consequence of the breach? In this case, the loss was late
2. The subjective test: this is based on specific knowledge of potential losses in the minds of both parties when the contract is formed. Did the carrier know that the mill could not operate without the crankshaft

Question 274

How has the remoteness test been developed?

Answer 274

-The test has been developed in subsequent decisions, as in Victoria Laundry Ltd v New an industries Ltd (1949)
The remoteness test is:
-Recoverable loss should be measured against a test of reasonable foreseeability
-Foreseeability of loss depends on knowledge at the time the contract was made
There are 2 types of knowledge: common knowledge and actual knowledge of the defendant, as in Hadley v Baxendale (1854)
-Knowledge can be implied on the basis of what a reasonable man may have contemplated in the circumstances. This is shown in Czarnikow Ltd v Koufos (The heron II) (1969)
-This principle was considered in H parsons (livestock) Ltd v Uttley Ingham (1978)

Question 275

What was established later about the position of knowledge in remoteness of damage?

Answer 275

-In Wellesley partners LLP v Withers LLP (2015), the position was clarified where a claim is made in both contract and negligence, by stating that the contract interpretation of the law as set out here should prevail
-Once the tests of causation and remoteness have established that there is liability for the loss claimed, the court then has to determine how much the claimant can recover

Question 276

What is mitigation of loss?

Answer 276

-The injured party must take reasonable steps to minimise the effects of the breach. This is known as mitigation of loss. How this works can be seen in British Westinghouse Electruc v underground electric railways (1912)
-However, a claimant is not bound to go to extraordinary lengths to mitigate the loss, only to do what is reasonable in the circumstances
-In anticipatory breach, they are not bound to sue immediately they know of the possibility of the breach
-This can be seen in White and carter (councils) ltd v mcgregor
-The case of Thai airways v KI holdings (2015) shows the principle of mitigation when calculating damages

Question 277

What are liquidated damages?

Answer 277

-Liquidated damages are where the amount of damages has been fixed by a term in the contract. However, the courts will only accept this sum as the award of damages if the sum identified in the contract represents an accurate and proper assesment of loss
-If it is not, it is seen as a penalty and will be unenforceable. The courts developed rules for determining the difference between genuine liquidated damages and a penalty in Dunlop pneumatic tyre co. V new garage and motor Co. (1914)

Question 278

What are the rules for determine the difference between genuine liquidated damages and a penalty?

Answer 278

-An extravagant sum will always be a penalty.
-Payment of a large sum for failure to settle a small debt is pro amount a penalty
-A single sum operating in respect of a variety of difference breaches is likely to be a penalty
-The wording used by the parties is not necessarily conclusive
-It does not matter that actual assesment of the loss was impossible before the contract

Question 279

What is the rule on penalties?

Answer 279

-The rule on penalties has been updated In the case of Cavendish square holding Bv v tall el makdessi (2015) and padkingeye ltd v bevies (2015)
-Under the new test, the party relying on a term in a contract which sets out the damages to be paid must ne able to show that the clause is to protect a legitimate interest and that the amount is not exorbitant or unconscionable (excessive).

Question 280

What principles will apply when looking at test for a penalty in a contract?

Answer 280

-The amount no longer has to be a genuine pre estimate of loss
-This rule applies to commercial and consumer cases
-The party seeking to rely on the term does not have to have suffered loss
-The purpose of the term can be to act as a deterrent against a specific breach of contract
-The recompense under the term does not have to be financial
-The term can only apply to a breach of a primary obligation, not a secondary one, such as not paying a contractual penalty
-The traditional tests in the Dunlop case are useful for cases concerning standard damages valises but are of little use in more complex cases. The tests are not fixed rules of general application to all situations and were never intended to be this
-In a more complex case, a broader approach is more suitable, which focuses on the nature and extent of the innocent party’s interest in performance
-A term with respect to damages may be justified apart from the desire to recover compensation for a breach. This is the commercial justification approach
-The old penalty rule is an interference with freedom of contract. In a negotiated contract between parties of similar bargaining power, the strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach

Question 281

What are the remedies in a situation of quantum meruit?

Answer 281

-We have seen the operation of quantum meruit in relation to part performance. There are 3 common circumstances in which such as award is made:
1. In a contract for services where no price is stated as in Upton rural district council v powell (1942), where a retained fireman provided services with no fixed agreement as to wages; the court awarded a reasonable amount
2. Where the circumstances of the case show that a fresh agreement can be implied in place of the original one, as in Steven v Bromley (1919). Here Steven had agreed to carry a cargo of steel at a specified rate. When the steel was delivered, there were also additional items. Steven was able to claim extra for the additional items
3. Where a party considers the contract discharged by the others breach, or where a party has been prevented from performing by the other party. In either case, they might claim for woek they have already done, as in De Barnady v Harding (1853): a principal wrongly revoked his agents authority to act on his behalf. The agent was then entitled to claim for the work he had already done and for expenses incurred

Question 282

What are equitable remedies?

Answer 282

-Equitable remedies are awarded where the remedy of damages is inadequate and justice would not be served merely by damages
-Equitable remedies are not a right as they are at the discretion of the court
-Unlike damages, equitable remedies are not constrained by remoteness of damage or causation. We will consider injunctions and specific performance

Question 283

What is an injunction?

Answer 283

-An injunction in contract law is a court order instructing someone not to breach a term of their contract
-The idea is that the prohibition will prevent someone interfering with the rights of another. This is the most usual type of injunction and is known as a prohibitory injunction
-Occasionally an injunction will order a party to do something. This is known as a mandatory injunction
-An injunction will not be awarded for a party to complete a personal service, as the court is unable to supervise such an order
-This was shown in page one records ltd v Britton (1967)

Question 284

What time frame is an injunction under?

Answer 284

-An injunction can be permanent or temporary, for example, until a full trial of the issues in a dispute. A temporary injunction is called an interim injunction
-Injunctions are often applied for with respect to:
-Intellectual property rights
-Employment contracts, to prevent an employee competing when leaving employment or when a business owner is selling the business

Question 285

What is specific performance?

Answer 285

-This equitable remedy is the opposite of an injunction. When the court orders specific performance, it is ordering one party to perform their contractual obligation, rather like a mandatory injunction
-There are clear examples of where the judge exercises his discretion, such as Airport industrial GP Ltd v Heathrow airport Ltd (2015)
-Here the judge was concerned that making an order for specific performance would inevitably force a company into liquidation, so he did not make an order for specific performance of the construction of a car park

Question 286

When will equitable remedies such as specific performance not be available?

Answer 286

-Where damages would be an adequate remedy, for example, where substitute goods are available
-Contracts involving personal service and contracts of employment, as we have seen in the case of page one records ltd v Britton (1967)
-Where the court cannot supervise the enforcement of the contract- this would clearly be the case with a contract of personal service such as in page one records, but would not be case where a unique item such as a work of art was the subject matter of the contract. The court could easily enforce delivery of a painting
-Impossibility- Where a defendant cannot perform their obligations under the contract, or could only do so illegally, the court will not grant specific performance, for example, the export of a famous painting without the required export licence
-Where the claimant cannot (or is not sure whether they can) perform their part of contract
-Laches- if a claimant is aware of the defendants breach of contract, they must quickly apply to the court for an order of specific performance, otherwise it suggests that they are content with the contract. An example of laches was seen in the case of leaf v international galleries (1950)
-The conduct of the claimant- one of the maxims of equity is ‘he or she who seeks equity must do equity’, and the court will not grant a claimant specific performance if they have in some way behaved dishonestly