Contract Flashcards
1
Q
if there is an auction “without reserve”, what can you do if the auctioneer refuses to accept your otherwise winning bid?
A
An auction without reserve is an unilateral order (not an invitation to treat).
If the auctioneer does not bang the hammer (acceptance), you are not entitled to the auctioned good.
You can sue for damages for breach of a separate collateral contract (Barry v Davies).
2
Q
What is the implied assumpsit rule? (exception to past consideration)
A
Pao On v Lau Yi Long [1980]
An act done before giving a promise to make payment/confer a benefit can sometimes be consideration for the promise
3
Q
What was the outcome of WIlliams v Roffey Bros [1991]?
A
If the court can find that you will obtain a “practical benefit” for performing existing obligations, this may be good consideration.
The practical benefit is factual, not legal (i.e., not having to find alternative contractors).
Cannot be invoked due to economic duress/fraud.
4
Q
What is needed for duress to the person?
Barton v Armstrong [1976]
A
Physical threats which contributed to the decision to enter into the contracts.
The threats must be one of the reasons for contracting.
5
Q
What is needed for economic duress?
DSND Subsea Petroleum v Geo Services
A
Illegitimate pressure
Whose practical effect is that there is a compulsion on, or a lack of practical choice for the victim
Which is a significant cause inducing the claimant to enter into the contract
6
Q
When will a limitation on liability for providing a service with reasonable care and skill be binding?
S.49 Consumer Rights Act
A
A limitation on liability under S.49 will not be binding to the extent that it would prevent the consumer from recovering the price paid.
Liability cannot limited to less than the price paid.
Any attempt to entirely exclude liability for negligence will not be binding.
7
Q
When can an innocent misrepresentation turn into negligent misrepresentation?
A
When the representation is made, they believed they had reasonable frounds to believe that what they said was true (innocent).
Defendant is liable for negligent misrepresentation if they find out what was said is not true before the contract is made.
Where there is a continuing representation, there is an exception to the general rule that there is no duty of disclosure.
8
Q
If you see a price-marked item in a shop window, is it an offer or an invitation to treat?
A
Invitation to treat - Fisher v Bell.
9
Q
What does a collateral contract allow you to do?
A
Circumvent privity of contract.
Shanklin Pier v Detel Products Ltd - A collateral contract can be found where A gives a warranty to B, and as a result, B instructs C to buy from A.
B can sue A directly as they have a collateral contract.
10
Q
If there is a breach of contract, when can the innocent party affirm the contract?
A
Unless the guilty party can prove the innocent party does not have a legitimate interest in performing the contract, the innocent party can affirm the contract, performance applications, and claim the contract price.
11
Q
If a seller wants to restrict its liability for breach of implied term that goods are of satisfactory quality, what does the Unfair Contract Terms Act put the exclusion clause through?
A
A reasonableness test.
12
Q
A contract was frustrated, You have been paid a £300 advance and spent £100 on a hotel to perform the contract. What is recoverable by the payor?
A
The court has the discretion to allow the payee to keep sums paid up to the amount of expenses incurred for performing the contract.
You will likely be able to keep £100 but must return the £200 left.
13
Q
If a contract includes an exclusion clause, preventing liability for lost/stolen property whilst on the premises, is it enforceable?
A
Yes - So long as the clause was incorporated and (on a strict interpretation) it covered the breach complained of.
14
Q
For a 3rd party to enforce a contract term under Contracts (Rights of Third Parties) Act, what must be present in the contract?
A
The 3rd party must be expressly identified in the contract by name, class, or as answering to a particular description.
Contract must also state they can enforce the term.
15
Q
What is a penalty clause and can they be enforced?
A
If a clause is included detailing a payment which bears no relation to the innocent party’s legitimate interest in ensuring the contract is enforced, it is a penalty.
Penalty clauses are prima facie void.
16
Q
What is a contract?
A
A contract is an agreement between two or more parties which is binding in law. This means that the agreement creates rights and obligations which the court may enforce.
17
Q
What is a deed?
A
A type of contract. They must be ‘signed, sealed, delivered’ to be valid. Used when no consideration is being exchanged.
Signed - Deeds must be witnessed
Sealed - A deed must be dated
Delivered - Must be intended to be a deed
18
Q
What is a simple contract?
A
Can be made orally, by conduct or in writing.
Always requires an exchange of consideration.
19
Q
What is executory consideration?
A
Also known as future consideration.
Where there is a promise to do something in the future - both parties have not yet ‘executed’ their promises.
Found within bilateral contracts.
20
Q
What is executed consideration?
A
An act performed in exchange for a promise.
One party makes a promise and the other performs an act as consideration for that promise.
Found in unilateral contracts.
21
Q
What is a bilateral contract?
A
An agreement between two parties in which each side agrees to fulfil their side of the bargain.
E.g., performing an act in return for the promise of money once completed.
22
Q
What is a unilateral contract?
A
One party promises to do something (normally give money) in return for an act of another.
Acceptance happens when the offeree does the act.
Only the party who makes the promise to give something is bound
The exchange of consideration is the promise to pay for the act.
23
Q
What are the requirements for an agreement?
A
OFFER and ACCEPTANCE are required to make an agreement, the first element of a contract. Applies to both unilateral and bilateral.
Offer - When an offeror makes a clear and certain offer with intention to be bound.
Acceptance - When the offeree accepts the offer clearly and unequivocally on exactly the same terms as given by the offeror.
24
Q
What are the two types of offer?
A
BILATERAL OFFER and UNILATERAL OFFER
Bilateral Offer - An offer to exchange one thing for another; this can be an exchange of a promise. The other part accepts the first promise by exchanging another (two promises).
Unilateral Offer - Promise to do something in return for another party performing an act. The other party accepts by performing the act (one promise). Once that act is performed, the offeror is bound.
Once an offer has been made and accepted - a contract is formed.
25
What are the requirements for a valid offer?
Clear and certain with intention to be be bound.
26
What is an invitation to treat?
An invitation to treat is the first step in negotiations. It is inviting the other party to make an offer. It is not an offer.
Examples:
- Adverts (unless they amount to unilateral offers)
- Auctions (unless it is an auction without reserve)
- Display of Goods for Sale
- Invitation to Tender (unless it is a tender for the highest price or is a unilateral offer to consider)
- Statements of Price
27
When is an advert not an invitation to treat?
When it is in fact a unilateral offer.
Is it a promise to pay or give money in return for an act?
E.g., a company offering customers £15,000, which they have set aside, if someone uses their shampoo and it doesn't work on them.
28
When is an auction not an invitation to treat?
When it is an auction without reserve - this is usually when an item will definitely be sold, regardless of price, usually to the highest bidder (a unilateral contract).
If someone makes a successful bid, the item cannot be withdrawn from the auction.
Unilateral contract is the promise to sell the item to the highest bidder, the action being to make the highest bid.
A standard auction is an ITT.
29
When is an invitation to tender not an invitation to treat?
2 ways an invitation to tender can make a unilateral offer:
1. Where the tender has an undertaking to accept the highest bidder.
2. The tender is made to a specific number of parties and contains clear conditions setting when and how the bids should be submitted (e.g., a time limit and a method of posting).
Tenders = Invitation to make a bid.
30
How can an offer be terminated?
1. Acceptance
2. Rejection
3. Lapse
4. Revocation
31
What is the "battle of the forms"?
If you try and accept an offer on new terms, this creates a counteroffer.
The counteroffer ends the original offer.
In effect, you reject the original offer.
Instead, the new terms proposed become the new offer which can be accepted or rejected by the original offeror. If they now propose different terms, this again becomes another counteroffer.
32
How does an offer lapse?
3 ways an offer can lapse:
1. Time Passing - within period of time stated in the offeer or after a reasonable time if there is no such period (reasonable depends on the facts).
2. Death of a Party
3. Condition of Acceptance not satisfied
Death of an Offeror IF the contract involves their personal service or the offeree is notified of the death prior to accepting.
Death of an Offeree - Offer lapses (cannot be accepted by PRs).
33
How can a bilaterial offer be revoked?
A bilateral offer can be revoked at any time before acceptance, provided that the revocation reaches the offeree before they accept - it must actually reach/be communicated to the offeree.
Postal Rule does not work for revocation - if it is within a letter, it must be read.
34
How can a unilateral offer be revoked?
A unilateral offer can be revoked prior to the completion of the act which constitutes acceptance.
Must be communicated to the person whom the offer is made if made to one person.
If made to the world (e.g., an advert) then the offer can be revoked prior to anyone completing the prescribed act by taking reasonable steps to notify those who are likely to accept - using the same method used to make the offer to revoke it.
If a party has partly performed the action and has the intention to complete it, you cannot revoke it.
35
What are the requirements for valid acceptance?
1. Acceptance made in response to an offer
2. Acceptance unqualified
3. Acceptance communicated to the offeror
4. Silence cannot amount to acceptance
Rules for Acceptance by email or phone:
Email - A takes place when it reaches the offeror's server. If it is stuck in the outbox, no acceptance. If within office hours (9-5), same day. If outside of office hours, next business day. Office hours can be later if parties often communicate/work late at night.
Phone - A takes place when the offeror hears the acceptance over the phone. If line is bad and it cannot be heard, no A.
36
What are the exceptions to the rule that acceptance must be communicated?
1. Unilateral Contracts - No need to communicate A to form the contract, only the act needs to be performed to make the contract binding.
2. Acceptance by Conduct - Occurs mostly in contracts for the delivery of goods. If there is no communication of A but both parties purchase and deliver goods to one another on the basis of draft or agreed terms (even if oral), then a contract can be formed.
3. Postal Rule - A of the offer takes place when the letter is properly posted, NOT when and where it reaches the offeror:
- Must be properly posted - i.e., correctly addressed and put in a postbox or the hands of someone at a post office authorised to receive mail
- As long as the above is complted, the rule applies (contract formed at time of posting) even if the letter is lost or destroyed and never reaches the offeror
PR cannot be used where it is unreasonable to use the post to accept an offer (e.g., offer sent by email) or the use of post has been explicitly excluded by the offeror.
37
When is ICLR (intention to create legal relations) presumed to exist and presumed not to?
Presumed to exist in commercial agreements. Not presumed to exist in domestic agreements and adverts.
To rebut the presumption for commercial agreements:
- The parties must have made it explicitly clear that they did not intend to create legal relations in the agreement - e.g., insertion of a clause stating this
- Stating that the agreement is "subject to contract" - not binding until a contract has been concluded
To rebut the non-presumption for domestic agreements:
- Money has changed hands between the parties
- They expressly agree they are entering into a contract
- The agreement is formally written down
- The parties are dealing on arm's length terms
- Solicitors are involved
Adverts - Presumption it is not ICLR can be rebutted if it is in fact a unilateral offer
38
What are the rules for capacity of minors, intoxicated and vulnerable people and illegality?
Minors - Void, unless necessaries or benefit exception applies
Mentally Incapacitated - Voidable, unless necessaries exception applies or other party doesn't know (and shouldn't have known)
Intoxication - Voidable, unless necessaries exception applies or other party doesn't know they're drunk
Illegality - Void, but court does have discretion. It will not allow a party to profit from illegality or allow inconsistency with underlying law. Also, if contract becomes illegal on performance, court will check purpose of underlying law and knowledge of the parties.
39
What is the "necessaries" exception?
An exception which makes contracts with minors, mentally incapacitated individuals or the intoxicated binding.
A "necessary" is something purchased that:
- Is for the individual's benefit; and
- A reasonable price is paid for it (rather than actual cost if very expensive)
A necessary is something that the individual needs at the time of contracting that they do not already have.
40
What are the rules on certainty of terms of a contract?
Parties should ensure their terms are sufficiently complete and certain so that the contract is enforceable.
However, the courts can also read in terms that they think are necessary to enforce the contract, provided that it is reasonable to do so and is in line with the parties' business intentions.
41
What are the rules for valid consideration?
1. Past consideration is not good consideration.
2. Consideration must be exchanged.
3. Consideration must be sufficient but does not need to be adequate.
There must be a promise to pay in exchange for the promise to give a benefit before the benefit is actually given, the only exception is where an act is done at the request of the other party, and all parties have understood that there would be payment and there is ICLR.
42
What the rules for pre-existing obligations and consideration?
If you wish to be paid more under a contract, fresh consideration must be provided.
43
What are the rules for obligations under a public duty?
Merely carrying out your duty under public law will not amount to any consideration and therefore will not entitle extra payment.
This rule applies when a public servant, like a police officer, claims they should be paid more for going above and beyond their day to day job.
If they only do their job, they won't get extra money.
44
What are the rules for pre-existing obligations to a third party?
Pre-existing obligations to a third party can make a valid contract - you can get paid for doing something for someone for which you were going to get paid for anyway by someone else.
45
What is the privity of contract rule?
Only people who are parties to a contract can sue or be sued under that contract and those parteis must have provided consideration.
Dunlop v Selfridge
46
What are the exceptions to the privity rule?
1. Agency
2. Collateral Contract
3. Assignation
4. Contract (Rights of Third Parties) Act 1999
47
What is agency?
When a principal (e.g., a company) authorises an agent to contract on their behalf with a third party (the customer).
As long as the agent acts within the authority granted by the principal, the principal is bound by any contract the agent enters into. A contract is therefore formed between the principal and the person with whom the agent deals. There is no contractual relationship with the agent.
48
What is a collateral contract?
Formed between one party of a contract and a third party outside of that contract where the third party has given a promise on which the party relied and entered into the contract with the other party, and for which the third party has received some sort of benefit.
49
When do rights of third parties arise under C(RTP)A 1999?
Two circumstances when the Act can arise:
1. The contract expressly provides that a third party may enforce the terms of the contract;
OR
2. The contract:
- Purports to "confer a benefit" on the third party: to confer a benefit means that one of the purposes of the contract must be to benefit the third party: AND
- The parties intended the term to be enforceable by the third party. This is presumed if the contract confers a benefit on the third party, but the presumption is rebutted.
PROVIDED THAT in both scenarios, the third party can be "expressly identified" in the contract, which means it must be absolutely clear who they are whether by name, class or description.
50
How are express terms incorporated into a contract?
1) In a written document signed by both parties or as orally agreed (if an oral contract)
2) Reasonable notice
3) Previous consistent course of dealing
4) Oral statements made prior to entering into the contract (during negotiations)
Express Terms = Terms the parties intended to be in the contract
51
How are contract terms incorporated via reasonable notice?
Three hurdles:
1. The terms must be contained or referred to in a contractual document/document intended to have contractual effect
2. Notice of the terms must be given at the time of contracting
3. Reasonable steps must be taken to bring the terms to the attention of the counterparty (meaning any notice of the terms must be reasonable).
The counterparty does not have to actually read the notice.
If the notice contains difficult/harsh terms, these must be clear and brought to the attention of the other party (red hand rule).
52
How are oral statements made prior to the contract being entered to incorporated?
To see if they are terms, use an objective test (would a reasonable man consider these statement terms?) alongside the following factors:
i. The importance of the statement - if it caused the other side to enter into the contract = term
ii. Timing - If made at the time the contract is entered into (rather than at the start of negotiations) = term
iii. If it was written down into the contract = term
iv. If the party giving the statement either has some knowledge or special skill (e.g., a car dealer selling a car) or emphasises that what they are saying is true (e.g., selling bananas and insisting they are yellow, so the buyer doesn't check) = term
The parties can use an entire agreement clause in their written contract to ensure no oral statements are terms. This clause means that only the terms written in the contract are the terms of the agreement.
53
How are terms implied by facts into a contract?
When implying terms based on fact, the court regards what the intention of the parties should have been at the time of contracting to give the contract "business efficiacy".
This means that the courts are adding terms based on the imputed intention of the parties: the intention that a reasonable man would conclude should have been there to make the contract workable.
54
How are terms implied by custom into a contract?
The court may imply a term if it is a longstanding custom of the industry on the basis that the parties within that industry intended to follow the customs, they just didn't bother to write that down in the agreement.
Similarly, if the parties have been dealing with each other on a consistent and regular pattern, the courts may imply a term that was based on that pattern but only if the parties have followed it precisely and for a long time.
55
How are terms implied by common law into a contract?
Terms can be implied by the court's discretion in contracts of public interest where the other side is particularly weak or vulnerable.
56
What are the implied terms under the Sale of Goods Act 1979?
S.12(1) - Implied Terms as to Title - The seller has the right to sell the goods.
S.13(1) - Correspondence with Description - Where goods are sold by the description, the goods will correspond with the description.
S.14(2) - Satisfactory Quality - Goods sold must be of a satisfactory quality; this means they must be fit for purpose, durable, safe, free from defects and look decent.
S.14(3) - Fitness for a Particular Purpose - If the buyer tells the seller the goods are to be used for a particular purpose and they must be fit for that purpose.
S.15(2) - Sale by Sample - Bulk must correspond with a sale by sample.
57
What are the implied terms under the Supply of Goods and Services Act 1982?
S.13 - Care and Skill - Supplier must carry out the service with reasonable care and skill.
S.14 - Time of Performance - Supplier must carry out the service within a reasonable time (if no fixed time period given).
S.15 - Consideration - The party contracting with the supplier of services must pay a reasonable price (if the price has not been fixed).
58
What are the implied terms under the Consumer Rights Act 2015?
Sale of Goods Contract -
S.9 - Goods will be of a satisfactory quality.
S.10 - Fitness for a particular purpose.
S.11 - Correspondence with Description.
Sale of Digital Content -
S.34 - Digital content to be of satisfactory quality.
S.35 - Digital content to be fit for a particular purpose.
S.36 - Digital content to be as described.
Sale of Services -
S.49 - Care and Skill
S.50 - Consideration
S.51 - Time of Performance
59
What is a condition?
Goes to the "root" of the contract.
Important that if it is breached then the contract can no longer go ahead or, if it did, it would be substantially different from that intended by the parties.
If a condition is breached:
1. The other party is entitled to damages; and
2. Has a "right of election" - this means they can choose to either repudiate the contract (end the contract immediately) or affirm the contract (allow the contract to carry on).
60
What is a warranty?
Does not go to the root of the contract and is not fundamental to it. If breached, the contract can continue.
If a warranty is breached, the other party is entitled to damages only, as the contract can still continue, unlike when a condition is breached.
61
What is an innominate term?
Unclear whether the term is a condition or warranty.
These uncertain terms are called innominate terms.
Use the Hong Kong Fir test to see if they are conditions or warranties:
1. Does the breach of the term deprive the innocent party of substantially the benefit of the contract?
In other words, if the breach serious enough so that the main purpose of the contract is frustrated, the term will be a condition.
62
Which of the implied terms under SoGA 1979 are conditions?
All are conditions.
Breach of these implied terms entitles damages and the rigt to repudiate or affirm and claim damages.
The seller has strict liability - they are liable regardless of whose actual fault it was.
However, there are two modifications:
- The buyer has accepted the goods for a reasonable time and has taken no action.
- S.15A SoGA 1979 - If there is a breach of the conditions above but the breach is so slight that it would be unreasonable to treat the breach as a condition (and reject the goods), it is a breach of warranty.
- Must analyse how serious the breach is.
63
Which of the implied terms under SGSA 1982 are conditions?
All are innominatt terms.
Apply the Hong Kong Fir test.
64
What are the remedies available for breach of implied terms under CRA 2015?
Consumers have specific remedies under CRA 2015
Note - Consumers also have the right to damages for a breach of implied terms (if statutory remedies are not appropriate) and for a breach of express terms.
65
What are the specific remedies available for breach of implied terms under a goods contract under CRA 2015?
This is a cascading order: go down the list to see which is appropriate. So, if repair/replacement is not suitable/possible, use the price reduction/refund right.
The consumer has the right to:
- Reject the goods and get a full refund (must be done within 30 days of purchase/delivery/installation for non-perishable goods; for perishable goods, no longer than goods would be reasonably expected to last). The consumder will have to return the goods or make them available to the trader to collect but if they have paid any money they are entitled to a refund (which must be given within 14 days of the date the trader agrees to the refund).
- Have the goods repaired or replaced. The trader must do so within a reasonable time and bear the costs of repair. This remedy cannot be used where repair or replacement is impossible or disproportionate.
- Get a price reduction or partial refund (final right to reject goods and return for a partial refund). This is appropriate if the consumer continues to use the goods and it is impossible/disproportionate to get a repair or replacement. The trader will reduce the price under the contract.
Note - The consumer is not prevented from also recovering damages for any loss suffered.
66
What are the specific remedies available for breach of implied terms under a digital content contract under CRA 2015?
Cascading Order:
The consumer has the right to:
- A repair or replacement - The trader must supply repair within a reasonable time and without inconvenience to the consumer.
- Price Reduction
- Right to a Refund
Damages for any loss can also be claimed.
67
What are the specific remedies available for breach of implied terms under a services contract under CRA 2015?
Depends on which implied term has been breached.
For a breach of S.49 (Reasonable Care or Skill):
- Right to repeat performance - the trader must do the repeat performance within a reasonable time and bear the costs and must not be at the customer's inconvenience. Cannot be done if impossible.
- Price reduction must be given within 14 days of the day the trader agrees the consumer is entitled to a price refund. The price reduction remedy can ONLY be used if repeat performance is impossible or the trader has not done it in a reasonable time and without inconvenience to the consumer.
For a breach of S.52 (contract not performed within a reasonable time) -
- The consumer has a right to price reduction. As above (14 days).
68
What are the three requirements for an exemption/exclusion clause to be used?
1. Incorporation - Has the clause been validly incorporated in the contract?
2. Construction - Does the clause cover the liability or breach in question?
3. Statute - What is the effect of the Unfair Contract Terms Act (UCTA) 1977 (for B2B contracts) OR the CRA 2015 (for B2C contracts) on the clause?
69
How do you incorporate an exemption clause into a contract?
Two conditions are necessary for incorporation:
1. Timing - Notice of the exemption clause must be given before or at the time of contracting NOT after.
2. Contractual Document - If the exemption clause is written in a document, this document must be a contract.
To effect incorporation, do one of:
- Signature
- Reasonable Notice
- Course of Dealing
70
What are the rules of construction for exemption clauses?
The general rule is that:
- Exemption clauses must state expressly and clearly what they are seeking to exclude or limit.
- The court uses the contra preferentem approach - they interpret against the party trying to rely on the exemption clause.
- If you are seeking to exclude liability for negligence, the clause must expressly state "negligence" or words like "lack of reasonable care and skill".
But for commercial parties of equal bargaining power: the courts take a more flexible approach. More likely to look at the ordinary meaning of the exemption clause taken as a whole in the clause and the contract. Look at the underlying intention of the parties when entering into the contract.
71
When will UCTA render an exemption clause invalid (B2B)?
Limitation/Exclusion for Death/PI caused by Negligence - UCTA renders void.
Limitation/Exclusion for other loss caused by Negligence - UCTA renders valid if reasonable.
Limitation/Exclusion for breach of S.12(1) SoGA - UCTA renders void.
Limitation/Exclusion for breach of S.13, S.14, and S.15 SoGA - UCTA renders valid if reasonable.
Limitation/Exclusion for any other breach of contract - UCTA does not apply UNLESS the contract is on written standard terms, in which case the clause is valid if reasonable.
72
What is the reasonableness test under UCTA?
The requirement of reasonableness must be based on the circumstances known or which ought to have been known by the parties at the time of contracting.
Must base your test on the facts as they were when the contract was made, not afterwards.
The person who is trying to benefit from the exemption clause has the burden of proof to show it is reasonable.
You must use the reasonableness factors (Schedule 2 UCTA) to determine if the exemption clause is reasonable.
The factors are:
- The strength of the bargaining positions of the parties?
- Was the customer persuaded to enter into the contract because of the insertion of the exemption clause?
- Did the customer know or ought to have known of the extent of the exemption clause taking into account previous dealings between the parties or trade customs?
- If the exemption clause is dependent on a condition, is that condition reasonable?
If the clause wants to only limit the liability of one of the parties, rather than completely exclude it, you also need to:
- How much money the party trying to limit the liability actually has to meet the liability should it arise?
- Whether insurance cover was available to that party?
73
What are the rules for the limitation of liability under CRA 2015?
You cannot exclude liability for negligence resulting in death or PI.
All terms implied in a consumer-business contract by the CRA (s.9, 10, 11, 34, 35, 36, 49, 51, and 52) CANNOT be excluded or limited in any way.
Any exclusion clause seeking to exclude liability for any other breach must be fair. Cannot be too wide-ranging or onerous.
Consumer contractors cannot contain any unfair terms or ambiguous terms.
Ambiguity will be read in favour of the consumer.
74
Explain the principle of damages
Damages are a financial remedy. The underlying principle behind damages is that they should compensate the injured party for their loss caused by a breach of contract.
The injured party should be put in the position they would have been had the contract been performed properly.
75
Explain the penalty rule and the test
When the parties to a contract have inserted a clause, a liquidated damages clause, which sets out how much money is payable on breach of contract. The amount of damages payable will follow the amount stipulated by the parties in the clause.
The liquidated damages clause can be struck out (void) as a penalty by the courts. This is called the penalty rule.
The test for the penalty rule is:
1. You must have a liquidated damages clause that is triggered by a breach of contract
2. There is not justification for the liquidated damages clause - to be justified, it must protect the legitimate interest of the innocent party (must cover the loss suffered and protect the commercial interests of the innocent party)
3. The clause is excessive or unconscionable - amount payable is completely disproportionate to the commercial interests of the innocent party
76
What is the advantage of a claim for a debt or action for price?
Claims for a debt are not subject to the restrictions on damages: causation, remoteness or mitigation.
A claim for debt or action for price arises when a party fails to pay an agreed amount for the services or goods provided by another party.
The innocent party has a right to claim the fixed unpaid amount as a debt.
77
Explain how damages are assessed under expectation loss
General Rule - Put the claimant in the position they would have been in had the contract had been properly performed (known as the Expectation Interest).
78
Explain the cost of cure rule
When D has performed the contract, but not the standard as set out in the contract.
C will want to rectify the breach by paying a third party to do the job properly.
The cost of paying this third party is recoverable.
79
How is cost of cure measured?
The amount of money needed to remedy D's defective performance so that the innocent party gets what they wanted in the contract.
Cost of Cure will not be awarded if:
1. The amount is unreasonable - cost to remedy is higher than the actual loss suffered
2. Innocent party has no intention to remedy the defective performance
80
What is diminution in value?
If cost of cure is not awarded, the innocent party will be rewarded for diminution in value.
This is the difference between the value of goods expected and the value received (what they can sell it for on the market).
If there is no diminution in value, no damages will be rewarded.
81
What if neither cost of cure nor diminution in value are awarded?
Usually the case if the cost of curing the defect is huge (whole or well above the contract price) and the claimant has actually suffered none or very little diminution in value.
C will receive nominal damages and, if the contract is one of pleasure, damages to reflect any loss of that pleasure.
82
Explain Reliance Loss
Used to recover the expenses incurred by the inncoent party up to the point when the contract was breached.
By recovering expenditure, the innocent party is put in the position they would have been in had the contract been properly performed.
Used when the claimant is undertaking a venture (e.g., exploration, production, something creative or experimental) and the breach of contract by the other party puts a stop to that venture.
83
What must be proven to establish that the claimant's loss has been caused by the defendant's breach of contract?
1. Factual Casuation - But For test
2. Legal Causation - Break in chain of causation
84
Why must a claimant mitigate?
Because any losses incurred from a failure to mitigate or from unreasonable steps will be rejected.
If C fails to mitigate, and that failure to mitigate causes loss, that loss will not be recoverable.
C must take reasonable steps to mitigate their loss.
85
What is the test for remoteness?
2 limb test for whether losses are foreseeable at the time of contracting (and therefore if D is liable for them):
1. Losses are foreseeable which occur in the natural course of things.
2. Losses are also foreseeable if the parties had actual knowledge of the special circumstances.
86
How does contributory negligence operate under contract law?
Where D has a concurrent duty of care in both contract and tort and C's negligence or fault has contributed to the loss, the amount of loss caused by C's negligence can be set off against the amount of damages owed.
87
When is specific performance available as a remedy for breach of contract?
1. Damages are not an adequate remedy
2. The rules of equity are satisfied - no delay, the application is dishonest, SP is possible, and SP will not cause undue harm to the respondent
3. Cannot be a contract for personal services - the court will not enforce this via SP
Specific Performance = An equitable remedy (at the discretion of the court) that compels the party to perform their part of the contract
88
Other than specific performance and damages, what other remedies are there for breach of contract?
1. Injunction - Prevents the respondent from doing something. Equitable remedy so rules of equity must apply (claimant must come with clean hands and not delay).
2. Restitution - Restoration of money paid where there has been a total failure of consideration. Damages can be used where there has also been a loss as a result of the breach.
89
What is a guarantee?
A promise given by the guarantor, guaranteeing that the party will perform the contractor.
Promises that if the contract is not fulfilled, the guarantor will do so/pay a sum of money. G is responsible for any loss.
A secondary obligation - if the contract falls away, is amended or is declared invalid, the guarantee will no longer exist.
A contract of guarantee must be:
1. Evidenced in writing; and
2. Signed by the guarantor.
90
What is an indemnity?
A promise to be responsible for the loss.
Can be one of the parties to the contract or a third party on behalf of a party to the contract.
No formal requirements and is a primary obligation - if the contract fails, this obligation still stands.
91
Is the part payment of a debt enforceable?
No. Paying less than what is owed is not good consideration.
If the debitor want to pay less, and the creditor is willing to accept less, the debtor must give fresh consideration.
92
What is the rule of promissory estoppel?
Where one party acts in a certain way relying on the promise of another party and that party subsequently goes back on that promises, estoppel prevents, or estops, that party from going back on their previous promise.
Equitable doctrine at the courts discretion - any parting seeking to use it must come with clean hands
Designed to prevent unconscionable conduct
93
What are the requirements to establish promisory estoppel?
1. A pre-existing contractual relationship.
2. A clear and unequivocal communication from B (the person who will go back on their promise) that he will not insist on his strict contractual rights (e.g., demand full payment under a contract).
3. B must have objectively intended A to rely upon that statement or promise.
4. A reasonably relied on the communication or understanding and changed their position. Not necessary for A to suffer a detriment.
5. B now seeks to go back to the original understanding and it is inequitable for them to do so.
6. It will be inequitable if it would cause A to suffer detriment having changed their position in reliance on the promise.
94
When does promissory estoppel come to an end?
1. The circumstances that caused the promise to be given comes to an end.
2. Reasonable notice by the party giving the promise that the promise will now be ending. This will prevent the other party from applying to the court for estoppel because they now know the promise will come to an end.
95
Explain Economic Duress
A threat that is direct towards one's financial standing - e.g., 'if you don't enter the contract, or vary the terms of the original contract, I will not do business with you.
The essence is a threat of "do this or else" - you are looking to see whether the duress has caused the person to enter the contract against their will.
Three requirements for economic duress:
1. Pressure resulting in a lack of choice - the victim has no practical alternative but to enter into the contract.
2. The pressure must be illegitimate.
3. The pressure must be a "significant cause" for the person entering into the contract or agreeing to its revised terms.
96
When can the pressure be "illegitimate" for the purposes of establishing economic duress?
1. Unlawful Threat - To commit a crime or a tort
2. Threatened Breach of Contract - Illegitimate pressure is likely if the party threatens to breach the contract unless the counterparty enters into a new contract or the terms of the original contract are amended.
3. Pressure Applied in Bad Faith - Used to get more money than entitled to or based on unalwful grounds but lawful threats.
97
What test is used to see if the pressure was a 'significant cause' of the claimant entering into or revising the contract for the purpose of establishing economic duress?
But For test.
98
Explain what "presumed undue influence" is
Where there is a fiduciary relationship (doctor-patient, solicitor-client, teacher-pupil; but NOT husband-wife, civil partners) OR a relationship of trust and confidence can be proven on the facts;
AND
A transaction that calls for an explanation (the party enters into a contract that is not for their benefit or is risky).
If both of the above apply, the presumption of undue influence is rasied and must be rebutted by D.
If not rebutted, the only remedy is rescission, NOT damages.
99
Explain what "constructive notice" is
A spouse/CP has influenced their partner to mortgage their house/shares in a business/any asset for their debt (meaning there is UI).
The bank, which is the counterparty to the contract with the partner, may have constructive notice of the undue influence exerted by that spouse.
If the bank has constructive notice, the transaction is voidable.
100
How can the bank avoid having constructive notice?
They should take reasonable steps to ensure the other party to the contract (the one being influenced) entered into the contract freelt and with full knowledge of the facts.
These would be to:
1. Insist the other party has a private meeting with a representative of the bank where they are advised of the risks of the transaction and provided all relevant financial information; and
2. Ensure they have written confirmation from a solicitor that a solicitor has provided independent, effective impartial advice to the other party, explaining in full the nature, extent and consequences of the mortgage in clear language. This must be given in the absence of the partner.
The solicitor should be provided will all the relevant financial information by the bank.
101
What are the required elements for an actionable misrepresentation?
1. Unambiguous
2. False
3. Statement of Fact - Sales talk, opinions, and statements of future intentions are not statements of fact.
Exception to Opinion - If the representor has some special knowledge or skill.
4. No silence (exception: half truths, continuing representations and contracts of utmost good faith)
5. Addressed to the claimant
6. Induces the claimant to enter into the contract
102
What are the requirements for fraudulent misrepresentation?
1. A false representation must be made
2. That false statement must be made:
- Knowingly;
- Without belief in its truth; or
- Recklessly (without care whether it is true or not and flagrant disregard for the truth)
3. Motive of the representor is irrelevant
Burden of Proof - On the claimant to show the representor made a fraudulent misrepresentation.
103
What are the remedies for fraudulent misrepresentation?
Rescission and Damages (under S.21(1) Misrepresentation Act 1967).
Rescission is an equitable remedy. It will only be used where parties can be restored to their original position by returning all the property that has been exchanged between the parties back to their original owners.
To claim recission, the claimant must communicate to the defendant that they intend to rescind the contract (and have property returned between the parties) or commence proceedings in court (which amounts to the communication of intention to rescind).
There are certain "bars to rescission" - factors that make giving rescission impossible:
- Claimant chooses to continue the contract even though they know there has been a misrepresentation;
- Lapse of Time; too much time passes from the discovery of the fraudulent misrepresentation; and
- Restitution is Impossible; e.g., the goods under the contract have perished or changed in nature (e.g., renovations to a property); new contracts have been entered into; or a bona fide third party (with no notice of the misrepresentation) has rights in the property.
If rescission is not available, the claimant can still claim damages.
104
What are the requirements for negligent misrepresentation (under S.2(1) of the Misrepresentation Act 1967)?
The requirements for negligent misrepresentation under S.2(1) MA are:
1. A false statement is made
2. The defendant believes that the false statement is true
3. The defendant made the statement carelessly or without reasonable grounds for believing in its truth up to the time the contract is made; and
4. The claimant, relying on this statement, has suffered loss
Where there is a contract between the parties, use S.2(1) MA; otherwise, where there is a 'special relationship' between the parties, use negligent misstatement
105
What are the remedies available for negligent misrepresentation?
Rescission (or damages under S.2(2) MA 1967) and damages.
S.2(2) - Damages can be given in lieu of rescission (not available for fraudulent misrepresentation).
Additional to any damages awarded.
Damages are given in lieu when rescission is barred.
106
What are the requirements for innocent misrepresentation?
This is where a false statement is made, the claimant has relied on it , entered the contract and suffered loss, but is neither fraduluent or negligent.
107
What are the remedies available for innocent misrepresentation?
Rescission (or damages under S.2(2) MA 1967).
No separate right for damages.
108
What is an operative mistake?
An operative mistake is a mistake so fundamental that it will render the contract void.
The contract is deemed null from the start - as if it never existed.
No damages available for mistake because if mistake operates, there is no contract in the first place.
An operative mistake is a mistake of fact that:
- Prevents the formation of the contract; or
- Makes the contract something other than intended
Mistake must exist at the date the contract was formed.
Three kinds of operative mistakes - common, mutual, and unilateral.
109
Explain what a "common mistake" is
Both parties reach an agreement based on the same mistake.
Res Extincta - The subject matter is not in existence
Res Sua - Mistake as to ownership.
The above common mistakes will not be operative if:
- One of the parties is at fault
- The contract makes an express provision on dealing with the above
- Mistake as to quality does not count
110
Explain what a "mutual mistake" is
Where both parties are agreeing to something in relation to the subject matter or terms of the contract, but are actually agreeing to different things without realising it.
Reasonable Man Test - If a reasonable man would believe the subject matter or terms to be what either Party A or B thought it would be, the contract is foind on those terms.
111
Explain what a "unilateral mistake" is
Where only one party makes the mistake.
3 kinds:
1. Unilateral mistake as to the terms of the contract
- Where one party makes a mistake over the terms of the contract, and the other party knows and takes advantage of this, this will be an operative mistake
2. Unilateral mistake as to the nature of the document signed
- For this to be an operative mistake:
- There must be a fundamental difference between what was signed and what the party believed they were signing; AND
- ii. There has been trick or fraud; BUT
- iii. The signatory must have still taken reasonable care to make any checks before signing it.
There will be no operative mistake if it is down to C's carelessness.
3. Unilateral mistake as to the identity of the person contracted with
- Presumed there is no mistake if the transaction is face to face; rebutted if identity is fundamental to the contract.
112
How can a contract be discharged?
1. Performance - Contractual obligations are fulfilled
2. Agreement - Parties agree to bring their obligations to an end
3. Breach - A failure to perform obligations
4. Frustration - An intervening event prevents the performance of the contract.
113
How can a contract be terminated by agreement?
2 ways:
1. By a waiver entered into by both parties which cancels the contract.
2. Discharge by operation of a term in the contract
e.g., a term providing for termination by a specified action or after a certain time or a material breach term.
114
What is unjust enrichment?
When the defendant has been "enriched" or received a benefit, the enrichment is unjust, and it is at the expense of the claimant.
Usually when there has been a total failure of consideration.
C is entitled to get their money back.
115
How can a contract be terminated by a breach of a condition?
A breach of a condition gives an innocent party the right of election and damages.
Breach itself does not terminate the contract but gives the innocent party a right to do so.
116
What is frustration?
When:
1. Events outside the control of either party; and which
2. were completely unforeseeable and not dealt with in the contract; and
3. makes the contract incapable of beong performed.
Contract is now so different from what is intended that it would be unjust and impractical to perform or be enforced by the courts.
Allows the parties to terminate the contract without risk of being sued.
117
When will "impossibility" frustrate a contract?
3 main ways:
1. Destruction of the subject matter of the contract
2. Death or illness of a party to the contract
3. Excessive Delay - Delay has to be so bad that performance of the contract is impossible
118
When will government intervention frustrate a contract?
When the government changes the law rendering the performance of the contract incapable.
E.g., COVID-19 Lockdowns
119
When will a change in circumstances frustrate a contract?
When it renders it incapable of being performed.
Supervening event makes the commercial purpose of the contract impossible to perform - all commercial purposes must be destroyed.
120
What are the limitations to frustration applying?
1. Contracts that become difficult or expensive to perform, but are capable of being performed must still be performed
2. The unexpected event or change in circumstances is an inherent risk in the industry or at the time the contract was entered into was foreseeable
3. The event that caused the frustration was actually caused by the fault of the party intending to rely on the frustration
4. If the parties have dealt with the risk in their contract, e.g., in a force majeure clause, then the courts must uphold the clause.
121
How do you recover money after frustration under the common law?
The contract ends at the actual point of frustration. From this point on, the parties need not do anything (including return any money paid).
If an advance payment is made, it can only be returned if there has been a total failure of consideration.
122
How do you recover money after frustration under the Law Reform (Frustrated Contracts) Act 1943?
S.1(2) - Money paid in advance is recoverable, but any expenses incurred by the party performing the contract before frustration must be deducted.
S.1(3) - Benefit gained through partial performance - A party who has gained a valuable, non-monetary benefit before the contract is frustrated may have to pay
The court determines the amount paid based on what is just.
