Contract Flashcards
1
Q
What is a contract?
A
A legally binding agreement which imposes duties on the parties
2
Q
What contracts require writings?
A
- Guarantee: party a promises party B will perform their obligations
- Contract for sale/ other disposition of an interest in land
3
Q
What is a deed?
A
- document which makes clear it is a deed
- executed by parties to it in presence of a witness
- Delivered (parties show intention to be bound) e.g. Delivered as a deed on [date]
Examples:
1. Promise where nothing is received in return
2. conveyance (transfer) of land
4
Q
Difference between Contracts by Deed and contracts not by deed
A
Time limit in which a claim of breach can be made
Deed: 12 years from the date of breach
Without Deed: 6 years from date of breach
5
Q
What are the Elements of a contract?
A
- Agreement
- Offer: promise, undertaking, commitment
- Acceptance - Consideration
- bargained for exchange of something of legal value
-substitute for consideration (promissory estoppel) - Intent
- presumption of intent in commercial arrangements
6
Q
What are the requirements of an offer?
A
- Must be definite and certain
- e.g. ‘‘I WILL’ sell you my car for £5000’ not ‘‘I might’ sell you a car for around £5000 - Communicated to the Offeree
- response for info not sufficient to be offer
7
Q
What is an invitation to treat?
A
First step in negotiations BUT NOT an offer
Examples:
1. Advertisements
2. Shop sales (goods displayed)
3. Price Lists
4. Tenders (invitation to submit bid, and submissions are offers)
4. Auctions (makes offers by placing bids)
5. Price Quotations - difficult to ascertain, is a question of fact based on intention of parties
8
Q
What is the Exception of Unilateral Contracts?
A
When an advertisment does constitute an offer
Arises when person making offer promises to do something if the person receiving offer does something in return and then the offeree actually does it
- completed performace is required
- cannot claim promise after performance if you did not know of the promise
- beginning performance makes offer irrevocable once performance has begun
- however no contract until offeree completes performance and can withdraw before then
9
Q
What is a Collateral Contract?
A
Distinct contract in which the offeree gives consideration for a promise by the offeror
e.g to keep an offer open for offeree for a certain period if offeree pays 500
10
Q
How can an OFFER be Terminated
A
- Revocation by Offeror
- Effective when received
- Can be expressed or implied
Limit: Collateral Contracts, Beginning Performance of Unilateral Contract - Rejection by Offeree
- Effective when received
- Express rejection, counteroffer, lapse of reasonable time
Limit: generally cannot reject if accepted, a mere enquiry is not termination, rejection/counter offer of collateral contract does not terminate original offer - Termination by Operation of Law
- Effective when
death, insanity of either party
destruction of subject matter,
supervening illegality,
failure of any condition contained in offer
11
Q
What is the requirement for Acceptance
A
- Only person whom offer addressed can accept
- Cannot be assigned (unless there is an agent acting on behalf)
- Offeree must KNOW of the offer
- Acceptance will be by any method reasonable under the circumstances (e.g. promise to perform or through performance)
- Unless a particular method of acceptance is required by the offeror
- Exception to rule: when method is different but no less advantageous - General rule that silence is not acceptance
- offeree can accept offer by conduct
- Acceptance must be communicated
- this can be waived (seller packs goods and delivers them - acceptance of offer) - Postal Rule
12
Q
What is the Postal Rule?
A
- Acceptance is effective when posted
UNLESS:
a, letter not properly addressed or stamped
b, not reasonable for acceptance to be communicated by post
c, offer stipulates that acceptance is not effective until received
d, does not apply to instant methods such as email
BUT
2. Rejection is effective on receipt
3. Revocation effective on receipt
13
Q
What happens if there is a ‘Battle of Forms’?
A
In commercial situations, both parties may wish to conclude the contract on their own standard terms.
The last party to make an offer on their own terms is likely to win the battle
Offeror might include a Prevail Clause: that their term will prevail over all, in order to win battle of forms
BUT - a counteroffer rejects these clauses.
14
Q
What presumptions and rebuttals are there to an intention to create legal relations?
A
Domestic situations
- parties don’t intend to be legally bound
Social Situations
- no intention UNLESS their dealings are within a commercial context
Commercial Situations
- strong presumptions that parties intend to be legally bound
BUT - if agreemnt states:
‘binding in honour’, ‘subject to contract’ - NO INTENTION
15
Q
Rule on Capacity for Minors
A
Minors - aged under 18
- contract entered into by minor is voidable by minor
- minors can enforce contracts but not bound until they ratify when 18
EXCEPTION:
- contract for necessary goods or services at a reasonable price
- employment contracts
- contract for the acquisition of a permanent interest in property binding on minors unless they repudiate contract
- Minors Contracts Act 1987: court may require minor to transfer property back to them if its just and equitable to do so
16
Q
Rule on Lack of Mental Capacity and Companies
A
contract voidable by person who lacks mental capacity if the other party knew they lacked capacity
- can ratify upon recovery
- intoxication: not bound by other contracts if other party aware of intoxication
-exception of necessaries
Companies:
- separate legal entity
- has capacity in its own name
17
Q
What is consideration?
A
The price for which the promise or action of the other party is bought
Must be provided by the parties themselves
If party to contract does not provide consideration, contract is unenforceable - unless it was a deed
18
Q
What is considered ‘good consideration?’
A
Consideration that is sufficient but it need not be adequate.
Court not concerned with whether it was a good deal/had economic value
HOWEVER, court will still require the consideration to have some value in the eyes of the law and not be wholly illusory
19
Q
Q: What is bad consideration?
A
A: Consideration that includes
1. Performance of an existing contractual duty owed to the person making the promise (unless it confers a practical benefit),
2. Performance of an existing statutory duty,
3. Illusory consideration
4. Past consideration.
5. Part Payment of Debt (with exceptions)
20
Q
What is the exception to the rule that performance of any existing obligation, owed under contract to person making promise, is not good consideration?
A
Exception: Practical Benefit
If performance of an existing contractual duty confers a practical benefit on party offering additional consideration.
E.g. avoidance of a monetary sanction by virtue of a time penalty clause in a construction contract
21
Q
Q: What are the exceptions to past consideration being considered bad?
A
A: Implied understanding of payment for an act or promise given at the promisor’s request, where the act was done at the promisor’s request, parties understood it was to be remunerated, and it would be legally enforceable if made in advance.
22
Q
Q: When is the performance of an existing contractual duty owed to a third party considered sufficient consideration?
A
If duty already owed to a third party, promise to perform the same duty to someone else is valid consideration
23
Q
Q: List the exceptions to part payment of a debt being bad consideration.
A
A: Exceptions include:
- Debt disputed in good faith,
- Unliquidated claims,
- Payment at a different place, time or means
- Third party makes payment,
- Payment made by different means,
- A composition with creditors. (agreement by creditors to accept lesser amount)
24
Q
Q: What is promissory estoppel?
A
- Equitable principle that gives legal effect to an agreement unsupported by consideration
- Prevents party from going back on their promise to do something on basis they are ‘estopped’
- Shield not sword
- For continuing obligations (e.g. rent): suspensory effect only
25
What are the conditions for promissory estoppel to apply?
Conditions:
a) Clear and unequivocal promise (express/implied) by the promisor not to rely on existing legal rights
b) Promise must have altered their position in reliance on the promise
c) Must be inequitable for the promisor to go back on their promise
26
Q: What is the basic principle of privity of contract?
A: Only parties to a contract can sue and be sued under it.
27
Q: What is the key statute that provides exceptions to the privity of contract rule?
A: The Contracts (Rights of Third Parties) Act 1999 (CRTPA).
28
Q: Under CRTPA, when can a third party enforce a term in the contract?
1.) The contract expressly provides the third party may enforce the term
2.) A term of the contract purports to confer a benefit on the third party
3.) It appears from terms of the contract that parties intended the term to be enforceable by third party
4.) Person must be expressly named in contract or be a member of a benefiting class of people described in the contract
29
Q: Who must be expressly named or described in the contract for a third party to enforce a term?
A: The third party must be expressly named in the contract or be a member of a benefiting class of people described in the contract.
30
Q: Can CRTPA impose obligations on third parties?
A: No, it only allows third parties to benefit from a contract but does not impose obligations on them.
31
Q: Does CRTPA apply to employment contracts or articles of association?
A: No, it does not apply to employment contracts, articles of association, or if the contract explicitly states that CRTPA will not apply.
32
Q: Under what conditions can parties not vary or rescind a contract to the detriment of a third party?
A: If the third party has communicated their agreement to the term, relied on the term and the promisor is aware, or if the promisor should have foreseen the reliance and the third party has in fact relied on it.
33
What are the Common Law Exceptions to privity of contract
1. Agency
2. Assignment
3. Subrogation
4. Collateral Contract
5. Trusts
34
Q: What is the common law exception to the privity rule involving agency?
A: An agent negotiates and enters into a contract on behalf of a principal with third parties. The agent is not a party to the contract, but the principal is privy to it.
35
Q: Can an undisclosed principal and an agent sue or be sued under a contract?
A: Yes, if the third party is unaware of the principal and deals with the agent, both the agent and the undisclosed principal can sue or be sued.
36
Q: What is assignment in the context of contracts?
A: The transfer of a contractual right to a third party outside the terms of the original contract. Only the benefit can be assigned, not the burden.
37
Q: What must happen for obligations to be transferred along with benefits in a contract?
A: The old and new parties must enter into a novation agreement, releasing the former parties and making the new parties a part of the contract.
38
Q: What is subrogation in the context of insurance?
if insurer has to pay a claim to the policyholder, insurer is ‘subrogated’ to the rights of the policy holder.
Insurer stands in the shoes of the policyholder and has all rights that policyholder would have against person responsible for loss.
39
Q: How does subrogation apply to guarantor-guarantee relationships?
if guarantee is called upon and the guarantor is required to pay a creditor, guarantor is subrogated to the rights of the creditor – so can sue the debtor in creditors place. [see 316 for examples]
40
Q: How do trusts create an exception to privity of contract?
A: If A makes a promise to B for the benefit of C, the courts may say B holds A’s promise on trust for C, allowing C to enforce the promise directly against A.
(trust can be implied but will not be implied if there is no indication of it being parties intention).
41
Q: What are terms in a contract?
Terms: the contents of a contract as agreed by parties. They can be expressly agreed or implied by statute, custom, and usage.
Types of terms: conditions, warranties. Innominate terms
42
Q: What are conditions in a contract?
a.) Fundamental term that goes to the root of the contract;
b.) breach of condition is a repudiatory breach – innocent party can terminate contract and claim damages.
c.) If they affirm this breach they lose the right to terminate but can sue for damages
43
Q: What happens if a party affirms a breach of condition?
A: They lose the right to terminate but can still sue for damages.
44
Q: What are warranties in a contract?
A: Terms that are incidental or collateral to the main terms; breach does not allow termination of the contract.
45
Q: What are innominate terms?
A: Terms where it is unclear at the outset if they are conditions or warranties; courts determine the remedy based on the effect of the breach.
46
Q: What happens if the breach of an innominate term causes substantial loss of contract benefit?
A: It is treated as a condition.
47
Q: What is the significance of "Time is of the Essence" in a contract?
A: If time is of the essence, it is a condition; otherwise, it is a warranty.
48
Q: What are representations in contract negotiations?
A: Statements of fact or law intended to induce a party to enter the contract but are not incorporated as terms.
49
Q: How do courts determine if a statement is a term or representation?
A: By considering the importance of the statement, stage of negotiations, and special knowledge or expertise of the party.
50
Q: What is the Parol Evidence Rule?
A: External evidence cannot add, subtract from, contradict, or vary the terms of a written contract, with some exceptions (such as incorporated terms or implied terms)
51
Q: What are implied terms?
A: Terms that are not expressly stated but are binding as conditions, warranties, or innominate terms, implied by statute, courts, custom, or usage.
52
Q: What are some implied terms by statute?
Sales of Goods Act 1979 (B2B/Private)
Implied terms:
- Legal right to sell
- Matches description
- Satisfactory quality
- Fit for known purpose
Conditions
UCTA '77:
No exclusion of title term
Other terms can be excluded if reasonable
Consumer Rights Act 2015 (Trader to Consumer/Services)
Goods must:
-Match description
-Be satisfactory quality
-Be fit for purpose
Services:
-Reasonable care and skill, price and time
-Adhere to relied-on info
-No exclusion/limit of liability in CRA
Supply of Goods and Services Act 1982 (B2B/Private)
Services:
-Reasonable time, care and skill
-Innominate terms
UCTA '77: Reasonableness test for exclusion of liability
53
Q: When will courts imply terms into a contract?
A: If necessary to give 'business efficacy' and make the contract work as intended.
54
Q: How can custom and usage influence implied terms?
A: Industry or market standards may imply terms into the contract unless expressly excluded.
55
Q: When might courts sever uncertain terms from a contract?
A: If they cannot find sufficient certainty to enforce a term, they can sever it and allow enforcement of the remainder.
Court will get involved if contract provides mechanism for resolution of uncertainties
56
When else will courts get involved if there is incomplete agreements or vague terms?
if courts are satisfied that the parties intended to be bound by terms of contract, they will give effect to intention, despite uncertainty e.g:
1. Contract provides mechanism for resolution of uncertainties
2. Commercial cases where parties are familiar with the trade
3. Contracts for future performance over a period of time in which the parties leave matters to be adjusted in the working out of their contract
4. Cases in which there has been partial performance or in which one of the parties has made an investment
57
Q: What is the role of statutory assistance in incomplete contracts?
A: Statutes can provide assistance, such as requiring the buyer to pay a reasonable price if no price is agreed upon.
58
Q: What is an exclusion clause in a contract?
A: A term that attempts to exclude or limit the liability of one of the contracting parties.
59
Q: What are the three considerations for an exclusion clause to be valid?
1. Clause must be incorporated into the contract.
2. Properly drafted to effectively exclude liability.
3. Must not be prohibited by statute.
60
Q: What are the three ways an exclusion clause can be incorporated into a contract?
A:
1. Signature
2. Notice
3. Custom or previous dealing
61
Q: What are the defences against incorporation by signature?
A: a. Oral misrepresentation
b. Non est factum (no understanding of the document signed)
62
Q: What are the requirements for incorporation by notice?
A: a. Reasonable steps to bring it to the attention of the other party.
b. Included in a contractual document.
c. Brought to attention before or at the time the contract was concluded.
63
Q: When must an exclusion clause be incorporated into the contract?
A: At the time when or before the contract is concluded.
64
Q: What is required for the construction of exclusion clauses?
A: Clauses must be clear and unambiguous, especially for negligence.
65
Q: What is the Contra Proferentem Rule?
A: Ambiguity in an exclusion clause is interpreted against the party relying on it.
66
Q: Under UCTA, what is void in a business-to-business contract?
A: 1. Exclusion for death or personal injury caused by negligence.
2. Exclusion for other negligence-caused loss unless reasonable.
3. Exclusion of liability for breach of implied condition to title.
67
Q: What is prohibited under UCTA in relation to SGA '79 or SGSA '82?
A: Exclusion of liability for obligations regarding description, quality, or fitness for purpose unless reasonable.
68
Q: Under UCTA, what restrictions are placed on standard form terms and conditions?
A: Cannot rely on terms, unless reasonable, that:
a. Restrict liability for breach of contract.
b. Reserve the right to render performance substantially different from expected.
c. Render no contractual performance.
69
Q: What factors are considered in the reasonableness test under UCTA?
1. Strength of bargaining position.
2. Any inducement received to agree to terms.
3. Opportunity to enter a contract without a similar term.
4. Customer's knowledge of the term.
5. Reasonableness of compliance with the term.
6. Special order of the customer.
70
List of Potentially Unfair terms under CRA
- Excluding/limiting liability for death or personal injury
- Requiring consumer to pay disproportionate sum in compensation for consumer not performing/concluding contract
- Enabling trader to terminate without reasonable notice, except where there are serious grounds.
- Enabling trader to alter terms of contract unilaterally without valid reason
- giving trader discretion to decide price after consumer enters contract
- excluding/hindering right to take legal action/remedy
71
Q: What is a void contract?
A: A contract that is totally without legal effect from its inception and cannot be enforced by either party.
1. Illegality
2. Mistake
72
Q: What makes a contract illegal?
1. Illegal by Statute
2. Illegal by Common Law
3. Contrary to Morality or Institution of Marriage
4. Damaging to Government
e.g. trading with the enemy in time of war
5. Interferes with Justice
73
74
Q: When is a restrictive covenant (Restrain of Trade) in an employment contract considered illegal?
A: If it is not reasonable in length and geographic scope or does not protect a legitimate interest.
Reasonable:
- depends on if viewed as normal commercial relationship
- were terms negotiated with benefit of legal advice
Legitimate Interest:
- activities covered, geographical scope, duration are proportionate
- must show it was reasonably necessary to protect legitimate interests
75
Q: What are the types of mistakes that can make a contract void?
1. Common/identical mistake: same mistake made by both (e.g. belief subject matter exists)
2. Mutual mistake: both mistaken about different things
3. Unilateral mistake: one party mistaken as to terms and other party is aware
4. Mistake as to identity: one party believes they are contracting with a person that the other party is pretending to be
5. Non est factum: if a party signs document believing it is something it is not (person who has difficulties understanding document can rely on this) - person must not have been careless in signing. limited in scope
76
Q: What can make a contract voidable?
1.Misrepresentation: Entered into based on false statements.
2.Minors: Most contracts with minors, except for necessary items.
3.Duress: (common law)
Entered into under illegitimate pressure, such as threats, to the person or goods.
4.Undue Influence: (equitable doctrine)
Outside influence prevents true consent, e.g., blackmail or misuse of a position of trust.
77
What will the courts consider in deciding if Economic duress has occured?
Mere commercial pressure is not enough; must be:
1. A coercion of the will so as to vitiate consent
2. Illegitimate pressure which induces other party
Factors taken into account:
- Does threat deprive innocent party of practical choice
- Is the threat unlawful
- Did party seek to rely on contract
- Did innocent party protest
78
Undue Influence
1. Actual -overt acts: e.g. directly through blackmail or indirectly though misleading/tricking or excess pressure
2. Presumed - requires a relationship of trust and confidence between parties. e.g. misuse of a position of trust.
- Presumed in relationships like parent-child, solicitor-client, guardian-ward, or medical adviser-patient.
Once presumption arises, burden of proof shifts to influencer to rebut the presumption and prove there was no undue influence.
- innocent party seeking independent advice is strong evidence against undue influence but not conclusive
3. Third Party: if other party to contract is aware that there may be undue influence on other party (by a third party) but does not take reasonable steps
79
Q: What can a party who rescinds a voidable contract claim?
They can claim back money they paid under the contract.
80
Q: What is rectification?
A remedy that allows the written contract to reflect the oral agreement when the written terms mistakenly do not match the oral agreement.
81
Q: What is an actionable misrepresentation?
A: A false statement of fact or law made by one party to induce another to enter a contract. - must induce a party for it to be actionable
82
Q: What is a statement of fact?
A: Information related to past or present events, not future events.
Statements of opinion are not fact unless genuinely held
83
Q: When is a statement of intention actionable?
A: Only if it can be proved the speaker did not genuinely have the intention when stated.
84
Q: When can silence be an actionable misstatement?
1. In contracts requiring utmost good faith.(uberrimae fidei)
- it is incumbent on the parties to make full disclosure
- e.g. insurance policies are contracts of utmost good faith and failure to disclose is an actionable misrepresentation
2. When partial disclosure would be misleading.
3. If an earlier representation has become untrue.
85
Q: Is mere puffery considered actionable misrepresentation?
A: No, because a reasonable person wouldn't rely on it to enter a contract.
86
Q: What are the three types of misrepresentation?
1. Fraudulent misrepresentation
2. Negligent misrepresentation
3. Innocent misrepresentation
87
Q: Define fraudulent misrepresentation.
A: A false statement made knowingly, recklessly, or without belief in its truth.
- difficult to prove
88
Q: Define negligent misrepresentation.
A: A false statement made without reasonable grounds for belief in its truth.
- burden of disproving negligence is on the party making the (negligent) representation
- easier claim to bring
89
Q: Define innocent misrepresentation.
A: A false statement made without fault. maker had reasonable grounds to believe it was true
90
Q: What can an innocent party do if a contract is based on misrepresentation?
A: Rescind the contract or carry on with it and possibly claim damages for any losses arising.
Recission:
- unwinds contract, puts parties back in position as if misrepresentation had never taken place.
- innocent party must notify of intention to rescind/ obtain court order
- if recission occurs, court may order an indemnity from party who made misrepresentation - to assist in restoring parties to pre-contractual position by covering expenses/obligations incurred
91
Q: When does a party lose the right to rescind a contract?
1. If they affirm the contract after discovering the misrepresentation.
2. If they delay rescission, causing harm to the other party.
3. If it's impossible to restore pre-contract positions.
4. If a bona fide third-party purchaser for value gains rights unaware of the misrepresentation.
92
Q: What damages can be recovered for the types of misrepresentations?
1. Fraudulent: all losses incurred
2. Negligent: same as fraudulent, both based on tort of deceit. Innocent party also has action in tort for negligent misstatement. Damages in lieu of recission can also be rewarded.
3. Innocent: generally, no damages available but Court may award in lieu of rescission
93
When will Damages in lieu of Recission be awarded?
Under the courts discretion, damages can be awarded instead of ordering recission for negligent or innocent misrepresentation only.
Not available if right to rescind has been lost. Usually only rewarded if misrepresentation was minor
94
Q: What is the general measure of damages for misrepresentation?
A: Losses incurred from entering the contract and incidental expenditures.
a) Can be recovered even if they rescind contract.
b) Must take reasonable steps to mitigate loss.
c) Damages received will be reduced by any benefit innocent party received as a result of contract.
(this is in contrast to breach of contract, which is to put party back in position they would have been in had contract been performed)
95
Q: What happens to any attempt to exclude liability or remedy for misrepresentation?
A: It is void unless reasonable.
Exclusion of liability for fraudulent misrepresentation unlikely to be reasonable
96
How can a contract be discharged?
1. Expiry of Fixed Term
2. Agreement of Parties - consideration required (i.e both have unperformed obligations, different consideration, deed)
- if one party has performed in full, agreement will have to be by deed as no consideration given
4. Full Performance
5. Substantial Performance - breach of warranty so nonbreaching party can claim damages
6. Frustration
7. Breach of Condition
97
How is discharge different from recission?
Discharge - terminates remaining duties under contract
Recission of voidable contract- rights and obligation accrued before termination remain in place
98
How can parties vary the terms of a contract?
1. By Agreement to vary by all parties and by consideration. If one party has fully performed, the other must give new consideration.
If all parties are giving up rights, requirement for consideration will be met.
99
What is a waiver?
A waiver - A promise not to enforce the other party's obligations; can get around the consideration problem
Waiving party has right to reinstate original obligation by giving reasonable notice, UNLESS other party DETRIMENTALLY RELIED on waiver
100
When will the courts imply a variation or waiver?
Courts will find implied variation to contract if nothing is said but parties proceed with new understanding and consideration.
If no consideration, may still be an implied waiver.
101
Entire Obligation Rule
The general rule is that only full (exact and precise) performance will discharge the contract.
Common law exception: substantial but imprecise performance has been held to be sufficient to discharge (minor breaches of warranty)
102
What is a divisible contract?
If contract drafted in way that court can subdivide obligation to perform into components, failure to substantially perform one part does not prevent enforcement of another part. e.g. delivery of goods in instalments
103
If partial performance has been agreed but parties have not agreed a revised price, how will the amount due be assessed?
Quantum Meruit basis - amount payable reflects work carried our (reasonable meruit)
If other party has no choice but to take over partially completed work, court will NOT order a quantum meruit payment
104
What happens if a party prevents the other party from performing their obligations?
Preventing performance may be a breach of a condition and the innocent party can terminate contract and claim damages.
If circumstances are beyond the parties control prevent contract performance, it is frustrated.
A breach of warranty only gives rise to claim for damages
105
Q: What is anticipatory breach and its consequences?
A: Anticipatory breach arises when it is clear one party won’t perform when their performance arises. The nonbreaching party can:
1. Immediately sue for damages if the breach goes to a condition of the contract.
2. Choose to wait until performance is due, but risk losing the right to sue if something happens that discharges the contract.
106
If goods have been delivered under contract but they do not conform to the contract, what can buyer do?
Buyer can terminate the contract:
- not obliged to pay for them
- must return them
- can claim damages
107
Q: Under what conditions can a contract be discharged for frustration?
A: A contract is discharged for frustration if an event makes performance impossible or radically different from what was envisioned.
Conditions include:
a) Destruction or supervening illegality of the subject matter.
b) Death or serious illness of a party.
c) Supervening event makes performance radically different- The event must not have been considered by the parties when making the contract.
108
What does not constitute Frustration?
1. More Difficult or Expensive to Perform
2. Self-Induced Frustration
3. Events that could be foreseen - doctrine of frustration only triggered by unforeseen events
109
What is the Effect of Frustration? (Expenses and Benefit)
Releases party from any further liability to each other. No breach of contract committed and so no damages are awarded so contract is discharged from moment of event.
LRFCA: if contract becomes frustrated, all sums paid in respect of the contract before discharge will be recoverable
- court may allow retention of sums paid to account for expenses incurred.
- non-monetary benefit attained before discharge: the party who benefited may have to pay for it.
110
Q: What are the exceptions to the doctrine of frustration?
Law Reform (Frustrated Contracts) Act 1943 can be overridden by express terms in contract and does not apply to
1. Charterparties
2. Insurance contracts.
3. Contracts for sale of goods where goods have perished.
4. Contracts with a force majeure clause - allows termination on occurrence of event outside of parties control which prevents performance (outbreak of war, act of God)
111
Q: What is the purpose of damages in a contract?
A: To put the innocent party in the position they would have been in if the contract had been performed.
112
Q: What are the two main types of damages in contract law?
A:
1. Expectation damages (loss of bargain): put nonbreaching party in position as if contract was properly performed
2. Reliance damages: put parties in position as if contract didn't exist
- compensate nonbreaching party for expenses incurred in reliance of contract up until breach.
113
Q: What are nominal damages?
A: Awarded when a breach is established but no actual loss is proven.
114
Q: Can non-monetary losses be awarded in contract law?
A: Yes,
- damages for physical injury are recoverable if not too remote,
- damages for injury to feelings are usually not awarded except in specific consumer contracts (loss of amenity where the sole purpose of contract was enjoyment)
- loss of reputation damages may also be awarded
115
Q: Are punitive damages recoverable in contract law?
A: No, they are not recoverable in contract law but may be in tort law.
116
Q: What is the rule on remoteness of damages?
A: Damages awarded should be:
1. fairly and reasonably considered to arise naturally from the breach or;
2. be within the reasonable contemplation of both parties (as probable result of breach)
3. Remoteness considered at the time the contract was made.
This is a higher bar than test in tort that damages need to be reasonably foreseeable (low bar)
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Q: When is the breaching party liable for losses caused by the breach?
1. Liable for losses caused by the breach.
2. Intervening events which can be reasonably expected does NOT break causation.
3. Liable if breach is one of two causes of loss.
4. Contributory negligence by nonbreaching party can be a defence. (last resort)
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What is the duty to mitigate loss and when will it not apply?
They must take reasonable steps to minimize their loss. But there is no duty to mitigate for debts owed as opposed to uncertain damages
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What is a liquidated damage clause (LDC) and when is it enforceable?
Clause included in contract that allows the innocent party to recover a specified amount for breach of contract without proving loss
- Only enforceable if it was based on a GENUINE ESTIMATE OF DAMAGES a breach might cause
- not enforceable on clauses that amount to penalty (damages out of proportion to obligation breached)
LDC can be challenged as
Penalty clause: imposes a detriment out of proportion to the obligation breached. party attempting to invoke it must show:
- clause protects legitimate business interest
- charge is proportionate to protect that interest
- and its not extravagant, exorbitant, unconscionable
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What is a indemnity and guarantee?
Indemnity (primary obligation): promise to accept responsibility if someone else doesn't perform obligation or promise to make good other party's losses arising from breach
Guarantee: (secondary obligation) promise to perform obligation instead of the person in primary contract performing
- must be in writing
- cease to have effect on variation or discharge
- guarantor can rely on all defences available to primary party
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When will the court award Specific Performance?
A: SP is a equitable remedy and will be granted at discretion of the court
When a party is required to perform the contract as promised, usually granted only if monetary damages would be inadequate.
Will not be granted if there is
1. UNDUE HARDSHIP,
2. if it orders someone to work for someone else,
3. extensive supervision is required
4. delay in seeking grant in detriment to other party
unconscionable behaviour
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When will equitable remedies not be granted?
Defences to claims for equitable remedies (such as specific performance, injunction, recission) are:
1. Unconscionable behaviour by claimant
2. Waiver
3. Unreasonable delay
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What rights does the Consumer Rights Act 2015 give consumers?
1. Right to Reject Defective Goods
- Consumers can reject defective goods within 30 days of purchase and receive a full refund.
2. Right to Repair or Replacement
- If not rejected within 30 days or if rejection is not possible, consumers have the right to ask for repair or replacement at the trader's expense.
3. Right to Price Reduction or Refund
- If repair or replacement is unsuccessful, too costly, or inconvenient, consumers can demand a price reduction or a refund, accounting for any use of the goods.
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What is Restitution?
Restitution seeks to prevent unjust enrichment where no contract remedy is available. It is the repayment of wrongful gains.
Conditions:
Legitimate Interest: The innocent party must have a legitimate interest in preventing unjust enrichment.
courts consider: was the enrichment as expense of other party, unjust, any defences
Forms of Restitution:
1. Payment of Money
2. Turnover of Property
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What are some examples of when restitution may be ordered?
1. Benefit Provided Without Contract
2. Payment Made by Mistake
3. Rescinded Contract with outstanding sum remaining with wrong party
4. Property Transferred under Undue Influence/ threat or pressure
5. If partial performance accepted but no price is agreed and no consideration
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What is the difference between Quantum Meiruit and Qurantum Valebat?
Quantum Meruit (Services):
Monetary award for services rendered, requiring reasonable remuneration.
Quantum Valebat (Goods):
Monetary award for the value of goods supplied, reasonable payment for the value of goods
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What happens if damages are not available or will not compensate innocent party for their loss?
Account of Profits:
SPECIFIC, EXCEPTIONAL CIRCUMSTANCE: Court may order, as a restitutionary remedy, that the arty in breach account to innocent party for the profits they have made
