Contract Law 1 Flashcards

Question

Without reserve meaning auctions

Answer 1

Promise to sell to the highest bidder Known as an absolute auction

Answer 2

Bilateral - For the goods Unilateral - Based on the promise to sell without the reserve

Answer 3

Unilateral - Bilateral contract has not been made - Therefore bidder is not entitled to the goods in question

Answer 4

A formal proposal or offer to provide goods, services, or works at a specific price - Also known as an invitation to tender, a request for tender, or a bid Two contract’ (or collateral contract) analysis also applies to the tenders - Request for tenders normally invitation to treat * But an express contractual promise to accept most competitive bid or to confirm certain bid conditions may constitute a unilateral offer

Answer 5

A willingness to enter into negotiations Lacks an intention to be bound and sufficient certainty required for an offer - This is judged objectively

Answer 6

- Advertisements - Display of goods in a shop - Price lists - Websites

Answer 7

Lacks intention to be bound Lacks sufficient certainty

Answer 8

An expression of willingness, by words or conduct, of an intention to be bound on certain terms Objective Must be capable of being accepted

Answer 9

Rejection of the terms of an offer Extinguishes the original offer so the person making the counter-offer may not go back and accept it The ‘battle of the forms’ 'Last shot' rule

Answer 10

The terms presented last before a contract is formed are the ones that apply

Answer 11

The ‘final and unqualified assent to the terms Needed in order for there to be an agreement between the parties

Answer 12

- Must be unequivocal - Must be made in response to an offer - Must match the offer - Must be communicated to the offeror

Answer 13

- A prescribed mode of acceptance must be followed - Silence cannot amount to a valid acceptance - Acceptance may be communicated by an authorised third party - Instantaneous communication - The postal rule

Answer 14

 A contract is formed when an offer is accepted by post, regardless of when the offeror receives the acceptance  Applies when using the post is within the reasonable contemplation of the parties  The rule applies to mail, postcards, and telegrams, but not to instantaneous communication like email, fax, or electronic transactions  The rule may be ousted by evidence the parties wanted to receive acceptance  If the acceptance does not arrive then it is still effective  But if incorrectly addressed the rule is displaced and acceptances takes effect when receive  Generally cannot be revoked by a more expeditious method

Answer 15

An offer is only accepted when the offeror receives the acceptance

Answer 16

- If the offeror stipulates a prescribed method of acceptance (e.g. “you must reply by email”) then an acceptance by a non-prescribed mode will only be valid if it’s no less advantageous to the offeror - Acceptance may be communicated by a reliable and authorised third party

Answer 17

Cannot amount to valid acceptance

Answer 18

Anytime before acceptance – unless the offer is supported by consideration to keep open Takes effect upon receipt - No postal rule May be revoked by reliable third party

Answer 19

Invitation to Treat: An invitation to negotiate or make an offer (e.g., advertisements, displays of goods) Offer: A clear proposal made by one party

Answer 20

Invitation to Treat Offer Clear and Definite Terms Intention to Create Legal Relations Communication Capacity Legality Possibility of Performance

Answer 21

Something of value that is exchanged between parties when forming a contract A crucial element for a contract to be legally enforceable Law is not concerned with gratuitous promises Represents the ‘bargain’/exchange in contract

Answer 22

Agreement between the parties But one of the parties does not keep or wants to go back on their promise Alternatively, may be an existing agreement but something new has been agreed on Alteration/Modification Issue here is whether the promise is enforceable Is consideration valid?

Answer 23

* Consideration must be sufficient, but need not be adequate * Consideration must not be in the past * Consideration must move from the promise * Performance of a pre-existing duty is not good (valid) consideration

Answer 24

To be enforceable, the consideration given in exchange for a promise must be ‘sufficient’ – recognised as being of value in the eyes of the law

Answer 25

Chappell V Nestlé [1960] AC 87  Consideration in the form of chocolate bar wrappers was held to be ‘sufficient’ consideration despite the fact that they were of virtually no economic value and were simply discarded Hamer v Sidway 124 N.Y. 538, 27 N.E. 256 (1891) – USA  The decision by a nephew to give up drinking, smoking and gambling in return for a promise of a certain sum of money from their uncle was held to be sufficient consideration  The nephew had given up their lawful freedom, their right, to engage in such activities

Answer 26

If the consideration is given before the promise is made then it cannot be said to have been given in support of the promise Promise is not enforceable

Answer 27

Re McArdle [1951] Ch 699  A promise to reimburse a relative for work already done to a house was unenforceable Roscorla V Thomas (1842) 3 QB 234  An oral warranty as to soundness of a horse, given after sale of the horse was held to be unenforceable

Answer 28

Consideration must be provided by the promise and not a third party (but does not have to move to the promisor) Must also be a link between the consideration and the promise

Answer 29

Combe V Combe [1951] 2 KB 215  A promise by a husband to pay his wife maintenance was not supported by consideration in the form of the wife refraining from going to court because the husband had not (on the facts) requested her not to do so

Answer 30

Performance of something that is already required or promised is generally held not to be valid consideration Legal or moral duties Contractual duties Duties owed to a third party

Answer 31

Collins v Godefroy (1831) 1 B & Ad 950  A promise was made to pay to Collins a guinea a day for attending a trial as a witness but because he was already subpoenaed to give evidence, he was obliged by law to do so and was not doing anything more than he was already obligated to do = no consideration, not enforceable

Answer 32

Stilk V Myrick [1809] EWHC KB J58  Voyage from London to Baltic and back  2 out of 11 men deserted  Captain promised to divide the two men’s wages amongst the rest of the crew if he could not replace the two deserters  No replacements available, so the existing crew sailed the ship back to London

Answer 33

Original Agreement -Promise to pay more OR -Promise to accept less Consideration

Answer 34

Performance of a pre-existing contractual duty is not valid consideration -Ensure both parties are giving something of value in new deal Avoid PPECD rule -Find fresh/additional consideration -Can go beyond contractual duty A practical benefit to promisor may support finding of consideration -Then promise to pay more may be supported by consideration

Answer 35

Part-payment of debt is not sufficient consideration to support promise to discharge entire debt Promise to discharge debt may be supported by consideration if something different or new element is given in exchange Can presence of practical benefit from part-payment support finding of consideration to enforce the dishcharge of debt?

Answer 36

Proposal Person Exchange Capacity Deliberation

Answer 37

Prevents a party from withdrawing a promise when the other party has reasonably relied on that promise to their detriment, even in the absence of a formal contract Serves to enforce fairness and justice in situations where a promise was made and reliance was placed on that promise

Answer 38

- There must be a clear and unequivocal promise - The promisee has altered their position - It must be inequitable (unfair) to go back on the promise - Promissory estoppel cannot be used as a ‘sword’ - Promissory estoppel suspends, does not extinguish, legal rights

Answer 39

- Some change in position - Part payment? - Detrimental reliance

Answer 40

- Absence of detrimental reliance = could make it fair to go back on the promise - Time lag - Prejudice to promise - Bad faith

Answer 41

-Promissory estoppel cannot be used to found a cause of action

Answer 42

Means it might be possible in the future to go back on promises by giving reasonable notice

Answer 43

* There must be a contract for goods and services * Doubt that the promisee will complete on time * Promise to pay more * Promisor obtains a practical benefit * No duress (usually economic * Consideration must otherwise be valid

Answer 44

Define the rights and liabilities under a contract

Answer 45

- Importance of the statement - Special knowledge of the subject-matter - Time between statement and formation of contract - If the contract has been made in writing - Statement maker in a better position to ascertain in the accuracy of statement - Request to verify the truth of the statement/Assurance – no need to verify truth

Answer 46

Statement -> Representations -> Terms

Answer 47

Orally or in writing

Answer 48

Where a contract has been reduced to writing then the general rule is that oral statements cannot be used as evidence to vary the terms of a written contract (contractual certainty)

Answer 49

 Does not apply to part oral partly written contracts  Collateral contracts  But note use of entire agreement clauses and no oral modification clauses

Answer 50

Courts Statutes Custom

Answer 51

Terms implied in fact Terms implied in law

Answer 52

 To give effect to the presumed intentions of the parties Can use officious bystander of business efficacy test

Answer 53

 The test asks if the term is so obvious that if an officious bystander suggested it to the parties, they would respond with "oh of course"  The test is used to determine if the parties intended to include the term, but didn't feel the need to make it explicit

Answer 54

 Is the term necessary for the contract to work in a practical sense? = intention of both the parties  The term must be necessary to give the contract commercial or practical coherence. This is a value judgment, and the term is not considered "absolutely necessary"

Answer 55

 The implication of terms as a matter of policy into all contracts of a particular type

Answer 56

Sales of Goods Act 1979 -Business to business Supply of Goods and Services Act 1982 -Business to business Consumer Rights Act 2015 -Consumer to business

Answer 57

 Sometimes a term can be implied where there are previous dealings between the parties and such terms are usual in the parties’ particular trade of custom

Answer 58

The courts must give effect to the intention of the parties as objectively determine

Answer 59

Old - literalist/textualism Modern approach - contextual or purposive Lord Hoffman's 5 principles of interpretation

Answer 60

Interpretation reflects commercial common sense

Answer 61

Stay within the ‘four corners’ of the contract

Answer 62

1. Interpretation is about figuring out what a document means to a reasonable person, based on the background knowledge both parties had at the time they made the contract. 2. The background, often called the "matrix of fact" by Lord Wilberforce, includes everything that could have influenced how a reasonable person would understand the document’s language. 3, The law does not allow the parties' past discussions or their personal intentions to be used as background in interpreting the document. 4. The meaning of a document for a reasonable person isn’t always the same as the literal meaning of the words used. 5. The "rule" that words should be understood in their "natural and ordinary meaning" simply reflects the idea that people usually don’t make obvious mistakes in formal documents.

Answer 63

A promise to do something in exchange for a similar promise E.g. you might promise to pay someone for a service in exchange for their promise to perform the service

Answer 64

When one party has fulfilled their side of the contract, and the other party is now responsible for their obligations E.g. if you pay someone to house-sit for a week, and they complete the task, the consideration is executed

Answer 65

When a promise is made after an action has already been performed Past consideration is generally not valid E.g. if you promise to pay someone for a service they already completed, the consideration is past and not binding

Answer 66

Executory Executed Past

Answer 67

Payment at a different place Payment at a different location Payment in a different form Payment early

Answer 68

Exemption clauses Certain consumer contract clauses Termination clauses Penalty clauses

Answer 69

A party wishing to rely on an exclusion clause must prove that: o It has been validly incorporated into the contract o The clause is effective to exclude liability for the loss suffered o The clause valid under UCTA 1977 or the CRA 201

Answer 70

Consumer Rights Act 2015  Consumer protection  Imposes restrictions on use of exclusion and limitation clauses  Regulates other unfair terms

Answer 71

- Breach of Contract? - Term(s) that has been breached? - Express or Implied? - Negligence? - Misrepresentation?

Answer 72

By signation By notice By previous dealings or custom

Answer 73

 A party is in general bound by his signature – whether they have read the terms or not (the ‘signature rule’)  The exceptions to the ‘signature rule’ are limited

Answer 74

Defence of non est factum applies Misrepresentation is established

Answer 75

Person must be somebody who relies on others for advice as to what they are signing e.g. blindness or illiteracy The document signed must be radically different in character or effect from what the person thought they were signing

Answer 76

 Before or at the time of contracting  The terms must be contained or referred to in a document intended to have contractual effect or to contain contractual terms  Reasonable notice must be given of the terms

Answer 77

 Constructive notice, not actual notice  Red hand rule

Answer 78

o If a contract includes unusually harsh or surprising terms, these must be brought to the attention of the other party in a clear and conspicuous way o It's like saying "these terms are especially important, so pay close attention!"

Answer 79

 Sufficiently regular and consistent  Consistent use of terms  Regular course of dealings over a sufficient period of time  Custom  Burden of proof lies on person seeking to enforce the clause

Answer 80

Whether clause covers type of liability and loss in question Question of contractual interpretation and construction

Answer 81

The contra proferentem rule

Answer 82

In the event of ambiguity around the meaning of the clause, the ambiguity will be resolved against the party seeking to rely on the exemption clause

Answer 83

Use clear words If wording could be applied to either negligence/non-negligent liability and is concurrent liability in contract and tort, then clause will generally be confined to non-negligent source of liability

Answer 84

* Commercial contracts (B2B) * Certain clauses are deemed ineffective at the outset e.g. excluding liability for personal injury * Others are subjected to the ‘reasonableness test’ - Are only valid if the party seeking to rely on the clause can establish that it is reasonable

Answer 85

- It is for the person relying on the protections of UCTA to show that the statute applies - UCTA applies to ‘business liability’ – things done or to be done in the course of business and liability arising from occupying business premises (s1(3)) - No general power to strike out any term which is unfair or unreasonable – UCTA applies to exemption clauses (excluding or limiting liability): a term that seeks to restrict any right or remedy (s13)

Answer 86

- Liability for negligence  Death or personal injury cannot be excluded or restricted  Other loss and damage may be excluded or restricted only if the term satisfies the reasonableness test - Sale or supply of goods: defective products  Implied terms about title (e.g. s12 SGA 1979) cannot be excluded or limited  Implied terms about satisfactory quality, fitness for purpose or sale by description (e.g. s13, 14, 15 SGA 1979) may be excluded or restricted only if the term satisfies the reasonableness test - Liability for breach of strict contractual obligation (not sale and supply contracts)

Answer 87

* For consumer contracts, replaces the SGA 1979, SGSA 1982, UCTA 1977 and the Unfair Terms in Consumer Contract Regulations (UTCCR) 1999 * Introduced in order to simply, strengthen and update the law relating to consumer protection * Implied terms around product quality (s9...) and around supply of service (s49...) covered when we discussed Terms

Answer 88

- Applies to contracts between a ‘trader’ (defined in s2(2) CRA 2015) and a ‘consumer’ (defined in s2(3) CRA 2015) - S2(2): “Trader” means 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 - S2(3): “Consumer” means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession - Applies to unfair terms (and not just exemption clauses)

Answer 89

* Regulation of exemption clauses - Section 31  Attempts to ‘exclude or restrict’ liability in goods contracts (e.g. satisfactory quality) are ‘not binding’ (replacing s6 /s7 UCTA) - Section 57  Attempts to ‘exclude’ liability arising in services contracts (e.g. failing to take reasonable care and skill) are ‘not binding’ (see s47 on digital content)  Possible to limit liability but cannot be less than the contract price and is subject to the fairness test

Answer 90

- Part 2 previously found in the UTCCR 1999  UTCCR implemented the Unfair Consumer Contract Terms Directive 93/13/EEC into domestic law  Overlapped with UCTA - Cannot exempt liability for death of personal injury  “A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.” (s65(1))

Answer 91

* A term is unfair where “contrary to the requirement of good faith” it “causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer” * Case law under the UTCCR 1999 relevant * Applies to all unfair terms

Answer 92

- Contrary to the requirement of good faith – fair and open dealing: the clause must be expressed fully and clearly - Causes a significant imbalance in the parties’ rights and obligations: the clause must not tilt the parties’ rights and obligations significantly in the proferens’ favour, to the disadvantage of the consumer

Answer 93

Various remedies

Answer 94

- Damages Court assessed (unliquidated damages)  Agreed damages clause (liquidated) - Other remedies  Restitution (limited)  Specific Performance (limited)  Termination or affirmation (limited)

Answer 95

General right to damages following any breach * Damages are primarily awarded in compensation for loss * Compensation for expectation loss (loss of the benefit of the promised performance – the expected gain under the contract) * The amount paid to the claimant in damages depends on their loss, the ability of the courts to measure the loss and various restrictions and limiting factors

Answer 96

1. Identify breach, losses and remedies available 2. Measure: what is measure of loss? 3. Non-pecuniary loss 4. Causation: did the breach cause the loss(es)? 5. Remoteness: is each loos too remote? 6. Reduction: mitigation/contributory negligence

Answer 97

* Following a Breach of Contract, the claimant is entitled to various remedies

Answer 98

Damages court assessed (unliquidated damages) Other remedies  Restitution (limited)  Specific Performance (limited)  Termination or affirmation (limited)

Answer 99

* Generally there is a right to damages following any breach * Damages are primarily awarded in compensation for loss * Compensation for expectation loss (loss of the benefit of the promised performance – the expected gain under the contract) * The amount paid to the claimant in damages depends on their loss, the ability of the courts to measure the loss and various restrictions and limiting factors

Answer 100

1. Identify the breach, losses and the remedies available 2. Measure: What is the measure of loss? Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)? 3. Non-pecuniary loss: Is there any non-pecuniary loss (if relevant)? 4. Causation: Did the breach cause the loss(es)? 5. Remoteness: Is each loss not too remote? 6. Reduction: Mitigation/Contributory negligence

Answer 101

Breach Loss(es) Remedies

Answer 102

Expectation (or performance) interest  Covers both the benefits expected (e.g. loss of profit) and also the cost of the performance itself (e.g. cost of cure)  Is primary measure of damages in contract law  Cost of cure damages will be awarded Reliance interest Consequential loss

Answer 103

 Reasonable to award damages = cost of cure not out of proportion to benefit obtained  There is an intention to remedy the defect (note – relevant to determining the actual loss)

Answer 104

 Difference in value  Cost of cure  Loss of amenity

Answer 105

Wasted expenditure  Pre-contractual (if within the reasonable contemplation of the parties) / Post-contractual but must be prior to the breach  Claimant has an unfettered choice  The courts will not award expectation damages if they are highly speculative

Answer 106

Mental distress = is there any non-pecuniary loss? Is it recoverable?

Answer 107

 Where the very object of a contract is to provide pleasure, relaxation, peace of mind or freedom from molestation, damages will be awarded if the fruit of the contract is not provided...  In cases not falling within this exceptional category, damages are in my view recoverable for physical inconvenience and discomfort caused by the breach and mental suffering directly related to that inconvenience and discomfort

Answer 108

- The breach must be a dominant or effective cause of the loss - Intervening acts

Answer 109

- Not all losses flowing from a breach of contract are recoverable => traditionally – test of reasonable contemplation - Narrower test of remoteness than in tort (reasonable foreseeability) – greater degree of probability required in contract – ‘not unlikely’, ‘serious possibility’, ‘real danger’ - Type of loss (not the extent) needs to be foreseeable

Answer 110

- Injured party should take ‘all reasonable steps’ to mitigate (reduce) their loss - Reasonable expenditure can be recovered - Does not prevent a party affirming a contract from going to the expense of performing their side of the bargain

Answer 111

 Only applies where D’s liability in contract is the same as his liability in negligence (negligent breach) which arises independently of the contract

Answer 112

* (or liquidated damages (LD) clause) stipulates a sum payable upon breach, e.g. pay £5 upon every breach * But penalty clauses are unenforceable and the injured party may bring an action for unliquidated damages

Answer 113

* Incentive to carry out the work on time * Right to claim an agreed rate of compensation * BUT - Not allowed to punish the D - The courts have retained a jurisdiction to control the content of such clauses

Answer 114

Genuine pre-estimation of loss = agreed damages clauses

Answer 115

- The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation

Answer 116

If primary, it will not engage the penalty rule  If secondary, the clause will not be a penalty if it:  Protects a legitimate interest (the commercial context is relevant and if contract is negotiated); and  Imposes a detriment proportionate to the legitimate interest (it is not ‘extravagant’, ‘exorbitant’ or ‘unconscionable

Answer 117

States that a clause in a contract that is intended to punish a breaching party is unenforceable if it goes beyond the actual loss incurred This is because the amount specified in a penalty clause is not related to the actual loss

Answer 118

Unjust enrichment  Contract terminated  Must be a total failure of consideration  Non-monetary benefits conferred

Answer 119

- Enrichment by wrongdoing (account of profits)  Account of profits  General position: Damages for breach of contract cannot be measured by D’s gains or savings

Answer 120

Fiduciary duty Infringement of property rights

Answer 121

An order from the court to which requires the breaching party to perform their primary obligations

Answer 122

- Causes severe hardship to D - Contract is unfair to D - C does not deserve the remedy - C taking advantage of a mistake by D - Performance is impossible - Contract is too vague - Contract is one for personal service - Need for supervision

Answer 123

* Unambiguous, false statement of fact (or law) made prior to the contract which induces the claimant to enter into the contract with statement maker and causes loss/damage * Covers pre-contractual statements that turn out to be false * The effect is to make the contract voidable (not void) * There must be an actionable misrepresentation * Contractual remedy of rescission available * Damages available in tort or under Misrepresentation Act 1967

Answer 124

Statement is a representation Statement is false and unambiguous Statement is one of fact Statement induced the other party into the contract

Answer 125

Not a term A statement is more likely to be a term if  It is very important to one party  Made by someone with special skill or knowledge  The closer it is made to the time of contract formation More like to be a representation  Verification  Reduction of the contract in writing

Answer 126

- Representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts - Unambiguous = reasonable construction

Answer 127

- Who is the statement maker (are they attracting liability in what they said?)?  Do they have specialist knowledge?  Are they in a better position to know the truth? - What is the statement maker saying or not saying?  Silence is not a statement of fact (no duty of disclosure) - A statement of law can now amount to a statement of fact

Answer 128

- Representation would be material (would influence a reasonable person) - Must be known to the representee - Must be intended to be acted upon - Must be acted upon - Material and reliance

Answer 129

Objective – would the statement influence a reasonable person?

Answer 130

 The misrepresentation must be one of the reasons for entering into the contract  If C conducts their own investigation they may be held to have relied on their own judgement but there is no duty to investigate

Answer 131

Recission Damages

Answer 132

Cancel contract and return parties to position they were in before contract was made  An equitable remedy  Notice usually required  May be lost if contract is affirmed by the representee after discovering the state of affairs

Answer 133

 Recovery for all direct loss incurred as a result of fraudulent misrepresentation regardless of foreseeability  Includes consequential losses from the transaction

Answer 134

1. Fraudulent misrepresentation 2. Negligent misstatement (tort) 3. Negligent misrepresentation under MA 1967 4. Innocent misrepresentation under mA 1967

Answer 135

* Concerns situations where one party has pressurised or coerced the other into contract Vitiates free will

Answer 136

To render the contract voidable Recission

Answer 137

* Duress to the person * Duress to property * Economic duress

Answer 138

Typically where one party threatens breach of contract unless the contract is renegotiated and the risk of breach would lead to severe consequences

Answer 139

Lack of practical choice/compulsion of the will Illegitimate pressure Causation (but for test) Remedies

Answer 140

o There must be a threat o Is distinguished from normal commercial bargaining o Usually unlawful threats o Duress can exist even if threat is one of lawful action: whether it does so depends upon the nature of the demand

Answer 141

* Equitable doctrine * Exploitation or abuse of bargaining position => application to set aside the contract in equity: Renders the contract voidable (rescission possible) * Relationship with duress (common law)  Presumption raised then defendant must rebut the presumption by showing the claimant had acted freely

Answer 142

Actual under influence (Class 1) Presumed under influence (Class 2)

Answer 143

Domination cases

Answer 144

Relationship of influence  C must establish there was a relationship of trust and confidence (not automatic) Transaction must be advantageous  Transaction not readily explicable on ordinary motives

Answer 145

Yes This is because the delay can lead to the inference that the claimant has acquiesced in the violation of their rights