Contract Law Flashcards
1
Q
How can an offer be distinguished from an invitation to treat?
A
Offer - involves an expression of willingness to contract on certain terms, made with intention to be legally binding once accepted (can often answer yes!).
Invitation to treat - cannot be accepted and involves conditional wording. Likely to lead to contract at a later date.
2
Q
List some common examples of invitations to treat?
A
- Displays of goods (offer made at checkout).
- Websites.
- Tenders.
- Auction sales (auctioneer inviting bids).
3
Q
When will advertisements not be considered an invitation to treat?
A
Unilateral advertisements; where an offeror makes a promise in exchange for the offeree performing an act (e.g. promise of a reward for the person who finds a lost cat).
4
Q
When is an offer accepted at auction?
A
When the auctioneer’s gavel goes down. At this point, a bilateral contract has been entered into and auctioneer drops out the picture.
5
Q
When will an auction not be an invitation to treat?
A
When the auctioneer advertises the auction as being ‘without reserve’ (promise to sell to the highest bidder).
6
Q
When will tenders not be an invitation to treat?
A
When the tender promises to accept the most competitive bid amounts; and promise to consider bids that conform to the tender conditions.
7
Q
Are goods displayed by vending machines offers or invitations to treat?
A
Offers; a person paying then accepts the offer to form a legally binding contract.
8
Q
What is the difference between a bilateral and unilateral offer?
A
Bilateral - offer or promise in exchange for an offer or promise.
Unilateral - offer in exchange for a specified act, made either to a specific person, or to wider public.
9
Q
How can an offer be accepted?
A
- By an expression of assent (communicated by the offeree or their authorised agent, by words or conduct - not silence).
- Which is unqualified (conditional response will not amount to acceptance but counter-offer).
10
Q
What is the effect of a counter-offer?
A
Destroys the original offer and represents a new offer that the other party is free to accept or reject.
11
Q
What is ‘battle of the forms’?
A
Both sides passing their Ts & Cs to the other side for agreement as counter-offers.
The last shot wins.
12
Q
Is a request for flexibility in payment terms a counter-offer?
A
No; it leaves original offer open to accept.
13
Q
When will a letter of acceptance be effective when posted?
A
- When reasonable to use post.
- The letter was properly addressed, stamped, and posted.
- The postal rule had not been excluded by the offeror (other form of acceptance stated).
N.B. Offeree’s acceptance is effective as soon as the acceptance is posted, even if offeror never receives the acceptance.
14
Q
When will acceptance be deemed communicated when sent via telephone and fax?
A
Receipt rule applies; when the offeror has received the acceptance (offeree is responsible for ensuring offeror has received the acceptance).
15
Q
When will acceptance deemed to be received when sent outside ‘ordinary business hours’?
A
At the start of the following working day.
16
Q
What are the 3 ways in which one can terminate an offer?
A
1) Rejection by the offeree (expressly or impliedly e.g. counteroffer).
2) Revocation (withdrawal) of the offer.
3) Lapse of time - ‘reasonable’ time will depend on the circumstances.
17
Q
When can an offer be revoked?
A
At any time before acceptance even if the offeror promised to keep the offer open for a certain period of time.
18
Q
What is the exception to the rule that an offer can be revoked at any time before acceptance?
A
Where the offeree gives something in return for the promise to keep the offer open.
19
Q
How can an offer made to the public at large be revoked?
A
By the offeror publishing a notice of revocation in the same place as the offer.
20
Q
How is notice of revocation different to communication of acceptance?
A
Acceptance must be communicated by the offeree or an authorised agent and the postal rule does not apply to notices of revocation.
21
Q
What factors are considered when judging whether parties have reached complete agreement in relation to the material terms of a deal?
A
- Whether the parties are in the same trade.
- Trade usage.
- Whether the agreement has been acted on for any length of time.
- Whether there is a mechanism to resolve uncertainty e.g. arbitration clause.
22
Q
In the absence of any further details about hire purchase agreement, would agreement to buy a car on ‘hire purchase terms’ be sufficient?
A
No as too vague. A contract can only be enforceable if its terms are certain.
23
Q
What is the presumption RE intention to create legal relations in a domestic context?
A
Presumption of no intention to create legal relations, unless facts show otherwise to rebut presumption. E.gs;
- Parties expressly agree that agreement will be legally binding.
- 2 cousins selling house to the other.
24
Q
What is the presumption RE intention to create legal relations in a commercial context?
A
Strong presumption that the parties intended legal relations (evidence required is small) but it may be rebutted if the agreement is stated to be ‘binding in honour only’.
25
Define consideration?
A benefit to one party or a detriment to the other.
26
What should be considered when assessing whether 'consideration' has been provided?
1) Consideration must be sufficient but need not be adequate (anything of value to meet seller's request).
2) Consideration must move from the promisee (can move to promisor or 3rd party at promisor's request).
3) Past consideration is not good consideration (exchange of value must occur reciprocally).
27
What are the 3 conditions to be satisfied as an exception to the 'past consideration is not good consideration' rule?
1) The past act/promise was done at the promisor's request.
2) There was a mutual understanding between the parties that the act/promise would be compensated for in some way, and
3) Had the promise been made in advance it would have been legally enforceable.
28
What happens in cases where a contractual duty has been exceeded e.g. by working overtime, conferring a practical benefit?
Valid consideration as there is a clear detriment to the promisee and benefit to the promisor. Variation is binding in such cases.
Allowing shop e.g. to open on time for more £ is a practical benefit (obliged to pay).
29
Is part-payment of a debt consideration for a promise to accept less?
No. Unless a new element is given in addition to part-payment.
30
When can promissory estoppel apply to prevent the enforcement of strict legal rights?
In circumstances where it would be inequitable to do so.
N.B. A party must have 'clean hands' to be able to use the doctrine.
31
List some limitations to the doctrine of promissory estoppel?
- It can only be used as a defence when a party brings an action at common law to enforce their legal rights.
- There must have been a promise to waive strict legal rights.
- The promisee (usually a debtor) must have acted on the promise but not necessarily to their detriment.
- With ongoing payments such as rent, the doctrine operates to suspend the strict legal right, which means the creditor can resume their right to full payment going forward by giving reasonable notice. BUT, cannot claim back any payments for the concessionary period.
32
What is the effect of duress on contract variation?
It makes a variation voidable.
33
Define privity of contract?
Only a contracting party can sue for breach of contract or be liable for a breach.
34
Are there any exceptions that allow damages to be recovered outside of strict privity of contract?
Yes; where contracts provides pleasure e.g. holidays. In such case, the party to the contract can claim on the group's behalf.
35
When may a third party acquire rights under Contracts (Rights of Third Parties) Act 1999?
- If the contract expressly provides that they may acquire a benefit OR
- The term purports to confer a benefit on them (must be identified by name or member of a particular class).
36
What is meant when referring to a 3rd party in the context of agency?
Someone who is a 3rd party to the relationship of agency between the principal and agent.
E.g. travel agents, insurance brokers, ticket agents, auctioneers, company directors.
37
How is actual authority worked out?
Assessing what the parties have said or done, and all surrounding circumstances.
An agent may have express authority to sell certain products, but also implied actual authority to do things usually carried out by sellers of goods e.g. advertise them and receive payment for them.
38
What happens if an agent holds itself out as contracting on behalf of the client and a buyer relies on that representation?
The client is bound even if the agent lacked actual authority.
39
What 3 conditions must be satisfied for an agent to have apparent authority?
1) The principal must have represented (by words or conduct) that the agent had authority.
2) The 3rd party must rely on this representation, believing that the agent has authority.
3) The 3rd party must alter their position e.g. by entering into a contract.
40
When will implied actual authority apply?
Where an agent performs acts that are typical for their role/position.
41
Which 2 categories of people may have their power or capacity to enter contracts limited by law?
1) Minors (under 18).
2) People with a mental incapacity.
42
Can minors be bound by contracts they have entered?
General rule = no.
This means the other party is bound and can be sued, but not the minor.
Exception = contracts for 'necessaries' (necessary goods and services but goes beyond absolute essentials) and contracts for service for minor's benefit e.g. apprenticeships.
43
If a 17 year old has a business contract selling dance and stage clothing to her, will this bind the girl?
No; they are trading contracts and not contracts for necessaries.
44
What is the general rule regarding contracts made with someone suffering from mental impairment or drunk?
Valid unless the person was incapable of understanding the nature of the transaction AND the other party knew this to be the case.
In such cases, the contract will be voidable (binding unless the other party terminates).
45
What are the different levels of contracting ability of corporations?
A statutory corporation will not be bound by contracts outside its statutory powers.
LLP's have unlimited capacity.
46
What are the 3 ways that terms can be incorporated into a contract?
1) By signature (once you sign, you are bound).
2) By reasonable notice before or at time of contract (must be a contract one would expect there to be contract terms and more onerous terms require more to give notice e.g. clear and legible, drawing other party's attention to them).
3) By a previous consistent course of dealings (large numbers of exact same T+C's will be assumed parties familiar with these).
N.B. An invoice given after time of contract will not incorporate any terms.
47
What are the 3 recognised types of term?
1) Condition (important term)
2) Warranty (minor term)
3) Innominate (breach of condition so slight most people would regard termination as unreasonable and out-of-proportion to the effect of breach).
48
What remedies are available to the innocent party for breach of each type of term?
1) Condition - termination and damages.
2) Warranty - damages only.
3) Innominate - damages and possibly termination depending on severity of breach.
49
What is the purpose of termination in this context?
Operates to discharge parties from future contractual obligations. If none, termination will be impossible.
50
In what 4 ways may terms be implied into a contract?
1) By custom - reflects legally binding customs of a particular trade but cannot contradict an express term.
2) In fact - contract unworkable without the relevant implied term (commercial point).
3) In law - essential to be implied in a particular contract (e.g. duty on employer to provide safe working environment for employee, obligation not to disclose confidential information is a necessary incident of all employment contracts).
4) By statute;
-- B2B contracts for sale and supply of goods and/or services = SGA 1979, SGSA.
-- Contracts for a service/work and for supply of work and materials = SGSA.
-- B2C contracts = CRA 2015.
51
What are some of the main implied terms under SGA 1979?
s12 - implied term that the seller has a right to sell the goods.
s13 - for sale of goods by description, implied term that the goods will correspond with the description.
s14 - for sale of goods in the course of business, an implied term that goods supplied are of satisfactory quality, meeting the standards that a reasonable person would regard as satisfactory, and fit for purpose.
N.B. Above are conditions and impose strict liability on the seller.
52
What are the bars to rejecting goods where s12/13/14 SGA have been breached?
Where the buyer has accepted the goods (kept beyond reasonable timeframe without seeking to reject them) OR
Where the breach is so slight, it would be unreasonable to reject the goods.
53
Are the implied terms in relation to the work/service supplied under the SGSA conditions or innominate terms?
Innominate terms (despite being almost identical to SGA).
54
List some consumer remedies under the CRA 2015 if a man has lost confidence in the retailer and the goods are not reasonably fit for purpose?
Reject the product and seek a full refund within 30 days of purchase date (BEST).
The right to repair or replacement (if appropriate).
The right to a price reduction or the final right to reject and get a partial refund to reflect the consumer's use of the goods.
N.B. These do not affect a consumer's additional common law right to damages.
55
If a private landlord employs a builder to supply and fit a new kitchen in one of the properties she lets out, and sacks the builder before the work was finished due to substandard workmanship, what is the client's legal position if the builder sues for loss of profit?
Unless the builder had committed a very serious breach of the statutory implied term that the building work had to be carried out with reasonable care and skill, the client was wrong to dismiss him.
-- Term implied (S13 SGSA) is an innominate term.
56
If the customer's T's and C's were never requested and seen, what is the most likely legal position?
There was a contract but on neither party's terms and conditions.
57
Will the breach of an implied term always allow the innocent party to terminate the contract?
No; available remedies will depend on the classification of the term.
58
When is the short-term right to reject non-perishable goods and claim a full refund lost?
After 30 days from installation.
N.B. Pecking order of remedies where the goods do not conform to the contract under CRA. Would still have a right to request a replacement and if not, a final right to reject and claim a partial refund.
59
What are exemption clauses?
Clauses in contracts (often in small print) that attempt to either limit or exclude a party's liability to the other.
60
What are the 2 common law tests related to exemption clauses?
1) Incorporation - was the exemption clause truly part of the contract between the parties.
2) Construction - the clause must purport to exclude liability for the particular breach and loss.
-- E.g. personal injury/damage/theft; 'cars parked at owner's risk' purports to exclude liability for damage to cars but not personal injury.
61
What must a party do to exclude liability for negligence or lack of care?
Make sure the language of the exemption clause makes it very clear that are not to be liable even in the event of their negligence or carelessness.
62
Applying UCTA (exemption clauses in business-to-business contracts) gives 1 of what 3 results?
1) It prevents the defendant from excluding or restricting liability by reference to the term (e.g. in relation to death/personal injury caused by negligence; S2 UCTA), and the seller's implied undertaking as to title of goods sold or transferred.
2) It has no effect on the term, and so the defendant can rely on the term (e.g. a clause in a freely negotiated contract that exempts liability for breach of an express term S3 UCTA).
3) It subjects the term to a 'requirement of reasonableness' (meaning the defendant can rely on the term only if it satisfies this requirement).
63
When does the reasonableness test apply for exemption clauses under UCTA?
Where the clause was a fair and reasonable one to be included in the contract based on the circumstances at the time of contract, considering all factors, including bargaining positions and clarity of terms.
N.B. Applies to most exemption clauses in business-to-business contracts, particularly to clause exempting liability for;
-- Loss or damage (other than death or personal injury) caused by negligence.
-- Breach of the statutory implied terms relating to goods - description, quality and fitness for purpose.
-- Breach of an express term contained in the standard written terms of the person seeking to exempt liability.
64
When assessing whether the clause was a fair and reasonable one, list some guidelines/factors that may be considered?
- Whether the risk was insurable.
- Nature of the parties' dealings and negotiations.
- The relative strength of the parties bargaining positions.
- Did the customer receive an inducement to agree to the exemption clause, or in accepting did the customer have an opportunity to enter a similar contract with someone else, but without having to accept a similar exemption clause?
- Whether the customer knew, or ought reasonably to have known, of the existence and extent of the clause, taking into account any trade custom or previous dealings between the parties.
N.B. Courts are reluctant to find clauses unreasonable where they have been agreed between substantial businesses.
65
In what specified cases under UCTA must the court consider the guidelines/factors?
E.g. the court must have regard to the guidelines in cases involving the sale or supply of goods.
66
Will an exemption clause be more likely to be reasonable if the bargaining positions of the parties is equal?
Yes.
67
How does the CRA protect consumers in sales contracts?
Prohibits exclusion or restriction of liability for breaches of statutory rights ss 9-11 (goods to be of satisfactory quality, goods to be fit for purpose, goods to be as described).
Thus, these 3 requirements are all non-excludable statutory rights that consumers should be able to enforce without restriction to attain the appropriate remedy.
N.B. CRA governs exemption clauses in business-to-consumer contracts.
68
A term in a sales contract is not binding on the consumer to the extent that it would?
Exclude or restrict a right or remedy of breach of ss 9-11 (goods to be of satisfactory quality, goods to be fit for purpose, goods to be as described).
Make sure a right or remedy or its enforcement subject to a restrictive or onerous condition.
Allow a trader to put a person at a disadvantage as a result of pursuing such a right or remedy, or
Exclude or restrict rules of evidence or procedure.
69
What restrictions does the CRA place on service contracts?
S57 effectively prevents traders from excluding liability for breach of s49 (implied term to perform a service with reasonable care and skill; also includes preventing an obligation or duty arising in the first place).
A trader also cannot restrict liability for breach of s49 or where they apply, ss 51 and 52 (reasonable price and reasonable time), if it would prevent the consumer in an appropriate case from getting a refund.
70
What else can a trader not do under service contracts (CRA)?
Exclude or restrict a right or remedy in respect of liability for breaches of ss 49-52.
Make such a right or remedy or its enforcement subject to a restrictive or onerous condition, or
Put a person at a disadvantage as a result of pursuing such a right or remedy, or exclude or restrict rules of evidence or procedure.
71
What is the general rule regarding exemption clauses and third parties?
Cannot protect a third party due to privity of contract.
N.B. Exceptions = where a third party is named in an exemption clause or identified as a member of a class entitled to benefit from it, the third party can rely on the exemption to the same extent as the contracting party.
72
What will the court do when a party tries to rely on a clause that is ambiguous or unclear?
Interpret that clause against them.
73
What 3 hurdles must exemption clauses clear to be upheld?
1) Common law rules of incorporation.
2) Common law rules of construction.
3) Relevant statutory control (UCTA 1977/CRA 2015).
74
In a B2C contract where CRA applies, what should the consumer demand?
Repeat performance but, entitled to price reduction if repeat performance cannot be carried out within a reasonable timeframe.
75
What is the difference between pecuniary and non-pecuniary losses?
Pecuniary - easy to translate into financial terms e.g. loss of profit, amount of damage to property.
Non-pecuniary - usually claimed in limited circumstances e.g. pain and suffering, distress where object of contract was to provide pleasure e.g. holiday/wedding.
76
What is the normal rule in contract to identify someone's 'loss' as a result of the breach of contract?
Compare the claimant's position after the breach, with where they would have been if the contract was properly performed (expectation loss).
77
What will a claimant be awarded if there has been no loss?
Just nominal damages.
78
In cases where profits hoped to materialise from the contract are too speculative, what may the claimant claim for?
Reliance loss (expenses incurred because of reliance on the contract being performed).
E.g. for actor in play, this may include director's fees, stage manager's fees, production costs etc.
79
Explain how remoteness of loss affects damages?
Is the particular loss an inevitable/natural consequence of breach?
- Yes = damage for the loss recoverable.
- No = did the defendant know of special circumstances making the loss a less likely consequence of breach?
- Yes = damages for the loss recoverable.
- No = loss is too remote.
N.B. Hinges on whether a particular type of loss would have been in the reasonable contemplation of the parties at the time of the contract as being a likely consequence of the breach.
80
If the particular type of loss is not deemed too remote, what can be said about the extent of the loss?
It is irrelevant.
E.g. if physical injury or damage is within the contemplation of the parties, recovery is not limited because the degree of physical injury or damage could not have been anticipated.
81
What may mitigating loss involve?
Claimant taking reasonable steps to mitigate the loss caused by the breach.
E.g. looking for suitable alternative employment, going into the marketplace to try and buy/sell similar goods, looking for someone to finish work at reasonable price.
NOT a strict duty.
82
Will claimants be allowed to claim for any part of the damage that was due to their failure to take reasonable steps to mitigate their loss?
No.
N.B. Burden of showing that claimant has failed to mitigate their loss is placed on defendant and may be hard to prove.
83
Can a claimant who has acted reasonably claim for their loss, even if their reasonable attempts to mitigate loss have failed to reduce their loss, or even increased it?
Yes.
84
What are the usual measures of loss?
Difference in value and cost of cure.
N.B. Damages have been awarded for loss of amenity where there was no difference in value and the cost of cure was deemed out of all proportion to the loss sustained.
85
When may damages for distress be awarded?
Where the main purpose of the contract is pleasure/enjoyment.
86
What is the difference between a specified damages clause and a penalty clause?
Specified damages clause = a genuine attempt to pre-estimate the loss that is likely to be caused by the breach.
-- Effect = binding clause, and the specified sum is to be applied regardless of actual loss suffered (claimant may receive more or less).
-- N.B. Common in commercial contracts; avoids court cost.
Penalty clause = an attempt to put pressure on a party to perform the contract because the stipulated sum is extravagant or disproportionately high.
-- Effect = non-binding clause; courts to assess damages in usual way applying usual principles.
87
When are specified damages clauses usually used?
In commercial contracts; provides certainty for parties and if both parties are willing to abide by the clause, avoids cost of going to court in the event of a breach.
88
List the 4 limitations that exist on awards of damages?
1) Type of loss
2) Remoteness
3) Mitigation
4) Specified damages
89
What remedies make the defendant perform the contract as they agreed to do?
Action for an agreed sum.
Specific performance.
Injunction.
90
Explain what the 'action for an agreed sum' remedy involves?
Suing for a fixed amount of money that is owed.
-- More direct remedy than damages. Once a claimant can establish their right to the money (money owed and date for payment fallen due), they can claim it plus accrued interest for late payment.
-- No need to prove loss or show it is not too remote.
91
Explain what the 'specific performance' remedy involves?
Equitable remedy; usually only available if damages are not an adequate remedy but at court's discretion where just and equitable to do so.
-- E.g. will be granted in land sale contracts but rarely in sale of goods or EMP.
92
Explain what the 'injunction' remedy involves?
Equitable remedy; commonly used to restrain defendant from doing what they have agreed not to do e.g. set up business in the same village.
N.B. Will not be granted if the effect would be to compel the defendant to do acts they could not be ordered to do by specific performance.
93
What restitution claims may arise?
Where money has been paid by one party under the contract and there has been a total failure of consideration, and
Where one party has done work for the other, or supplied goods to the other, and wants to be compensated for the work done or goods delivered.
94
Where there has been a total failure of consideration (payee has not done any part of what they were supposed to do under the contract), what can the payer do?
Bring an action in restitution to recover the money if the payee is in breach and there has been a total failure of consideration.
95
List 2 situations where compensation for work done or goods supplied may be relevant?
1) Where the contract has been broken.
-- May be able to bring a claim in restitution for a reasonable sum for the work done or goods supplied as an alternative to damages.
2) Where a contract was never formed.
-- E.g. complex negotiations but work starts, the contractor would be entitled to a reasonable sum for the work they had done.
96
How do restitutionary damages differ from traditional compensatory damages?
Restitutionary damages focus on stripping gains made by defendant from their breach, rather than compensating claimant for their loss.
Traditional compensatory damages aim to put claimant in the position they would have been in had the contract been performed, using either the expectation or reliance measure.
97
When may negotiating damages be awarded?
When a claimant suffers no financial loss other than the chance to negotiate a release fee.
N.B. Not awarded if the claimant suffers clear financial loss, even if that loss is hard to quantify.
98
What is a contract of guarantee?
Guarantor agrees to discharge the debt only if the debtor defaults as a secondary obligation to pay only if the debtor does not.
Must be evidenced in writing or will be void and ineffective.
The evidence must have existed before the creditor seeks to enforce the contract and must be signed by the guarantor.
99
What is an indemnity?
A primary obligation where one party undertakes to reimburse pound-for-pound the other party for a particular loss arising under the contract.
No need to be evidenced in writing.
Often required by commercial buyers in relation to business acquisitions and purchases of land where there is a known specific liability that the buyer is taking on.
100
In what 2 main circumstances does the right to terminate the future performance of the contract arise?
1) Where there is a breach of a condition.
2) Where there is a very serious breach of an innominate term.
N.B. Termination only applies to discharge parties from future contractual obligations. If there are none e.g. because contract has been performed, termination will be impossible.
101
What can the innocent party do where an innominate term is breached?
Choose to terminate the contract or affirm it; contract will not automatically end.
Damages will be available too.
102
What can the innocent party do where a condition is breached?
Terminate contract and claim damages.
103
What constitutes frustration?
Where the supervening event or changes of circumstance must;
-- Make performance of the contract impossible, or radically different.
-- Be something beyond the ordinary risks that the parties can be treated as having taken on board when entering into their contract (unexpected).
-- Be something that was beyond the control of either party.
104
Is frustration an exception to the general rule requiring complete performance of obligations to avoid being in breach of contract?
Yes.
105
What categories of circumstances may render performance of the contract 'radically different'?
- Government intervention e.g. COVID.
- Unavailability of a specific person crucial to the contract.
- Illegality.
- Destruction of the subject-matter.
- Non-occurrence of a fundamental event.
N.B. Always a question of degree.
106
What must be considered when deciding if delay frustrates the contract?
Whether there are any contract provisions for the consequences of delay.
The likely length of delay relative to the duration of the contract.
Any time set in the contract for the obligations to be performed.
Whether the performance resumed is radically different from the contract.
N.B. Courts are reluctant to hold that delay frustrates a contract unless a big one. Otherwise, delay will equal breach of contract.
107
Will a 14 month delay in completing a building contract due to labour shortages be held to frustrate the contract?
No; building contract has just become more expensive and difficult to perform, not radically different.
108
What makes an event 'unexpected'?
Most commercial contracts will make express provision for the unexpected to be sure where they stand, and how risk is allocated in such an event.
Where the parties have included a 'force majeure' clause to govern such, there is no need for the doctrine of frustration as defendant's defence to non-performance arises as it was agreed that defendant need not perform in the specified circumstances.
109
Can illegality ever be provided for in the contract?
No.
110
What governs force majeure clauses?
UCTA 1977; must satisfy reasonableness test in order to be upheld.
111
Can a party be successful in defending an action for breach where self-induced?
No; supervening event or change of circumstances must be beyond the control of either party.
112
What is the effect of frustration?
Contract automatically terminated as a matter of law; both parties excused from future obligations.
The law determines how any losses should be borne between the parties.
-- Money paid before the event can be recovered.
-- Money that should have been paid before the event need not be paid.
-- At the court's wide discretion, expenses incurred by the payee can be recovered out of the total sums paid/payable before the event.
N.B. The maximum the court can award for expenses incurred by the payee is a sum equal to the total paid and payable before the frustrating event or the amount of the expenses incurred (whichever is the lowest sum).
N.B. If one party has conferred a practical benefit on the other party before the frustrating event, the court may order a just sum to be paid by the recipient.
113
What is the doctrine of complete performance?
Performance of contractual obligations must be precise and exact.
A supplier is not entitled to the price unless and until performance is precise and exact (obligations performed under the contract).
114
What are the exceptions to the doctrine of complete performance?
Divisible obligations - if the parties have agreed specific payments for each distinct stage of the contract, they are treated as such so once completed, the contractor is entitled to be paid in full for it.
Substantial performance - if a contractor has completed the work but it is slightly defective, they may not be entitled to the price, but will be entitled to price less cost of putting right the defect.
Wrongful prevention - if a party is wrongfully prevented from completing their contractual obligations, they will be entitled to either damages or a reasonable sum in restitution for what has already been done.
-- If an employer terminates in circumstances falling short of a serious enough breach, that will be wrongful prevention and a repudiatory breach by the employer.
Voluntary acceptance of part performance - where a supplier of goods or services partly performs their contractual obligations and the other party voluntarily accepts the partial performance (having had a genuine choice to accept), the supplier is entitled to a reasonable sum for what they have done.
N.B. If one exception applies, then some payment (not the price) can be recovered.
115
What is the general rule RE substantial performance?
As long as the cost of rectifying the problem is not more than 1/14 of the contract price, a court is likely to accept that the work has been substantially performed.
116
What are the 4 stages of the law on misrepresentation?
1) Categories of pre-contract statements.
2) Definition of misrepresentation.
3) Types of misrepresentation.
4) Remedies.
117
What are the 3 types of pre-contract statements?
1) Sales puff (not meant to be believed and not actionable if untrue).
2) A contract term (giving rise to a breach if untrue).
3) A representation (may be actionable as a misrepresentation).
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What guidelines will the court consider when deciding between the different types of pre-contract statements if the common intention of the parties when entering the contract (primary test) is unclear?
Whether one party had greater skill or knowledge of the subject-matter.
-- If an expert makes a false preliminary statement to a non-expert, the statement may well be deemed to be a term of the contract; whereas if a non-expert makes a false preliminary statement to an expert, the statement is more likely to be deemed a simple representation.
Whether a statement made verbally was repeated in a written contract before it was agreed.
-- If so, the statement is definitely a term; if not, may just be a representation.
Whether the recipient of the statement made clear it was of vital importance.
-- If so, statement almost certainly a term.
Whether the statement maker invited the other party to verify it.
-- If so, the statement may well be just a representation; whereas if the statement maker told the other party not to bother checking it, statement is more likely to be a term.
Whether there was a lapse of time between the statement being made and the contract being formed.
-- The longer the time lapse, the more likely the statement will be held to be a representation.
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What happens if a preliminary statement is deemed to be a term and the term is broken?
This will give rise to a claim for breach of contract and the innocent party can pursue remedies for that as appropriate.
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What is the definition of misrepresentation?
An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter into the contract (reliance).
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Expand a bit on the 'untrue statement of fact' part of the definition?
- May be oral, in writing or by conduct.
- Conduct is different to silence. No obligation to disclose material facts before entering into a contract ('buyer beware'). But, silence may amount to misrepresentation where;
-- There is a fiduciary relationship between the parties.
-- The contract is one of the utmost good faith e.g. insurance.
-- There has been a half-truth (giving misleading impression).
-- A statement of fact is true when made but a change in circumstances occurs before the contract is formed that makes it untrue, and the change is not disclosed.
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Must the statement be one of fact for misrepresentation definition?
Yes; not a statement of future intention or opinion.
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What are the different types of misrepresentation?
Fraudulent misrepresentation.
Negligent misrepresentation.
Innocent misrepresentation.
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Define fraudulent misrepresentation?
Statement must be made;
- With knowledge that it is false, or
- Without belief in its truth, or
- Recklessly, not caring whether true or false.
N.B. Difficult to establish.
Damages are measured on how much misrepresentee is 'out of pocket', aiming to put them in position had misrepresentation not been made; extending to all consequential losses (remoteness of loss irrelevant).
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Define negligent misrepresentation?
Misrepresentor is liable to pay damages where, although the belief in the truth of the statement was honestly held, it was not held on reasonable grounds.
Burden of proof reversed; requires the misrepresentor to prove they made the statement on reasonable grounds; claimant need only establish misrepresentation and loss.
Difficult to establish as defendant can often do more checks to ensure statement truth.
Damages assessed in the same way.
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Define innocent misrepresentation?
If the misrepresentor can establish that they had reasonable grounds to believe their statement was true.
No damages are available as of right; but the misrepresentee may still be available to rescind the contract, if rescission is not barred.
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Define rescission?
Involves setting aside a contract and is an equitable remedy (awarded at court's discretion) available for all types of misrepresentation and may be awarded in addition to damages.
It places both parties back to their pre-contractual positions, as far as possible.
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What are the 4 bars to rescission?
1) Affirmation - once the innocent party has affirmed the contract, they cannot then change their mind and rescind.
2) Undue delay (time lapse) - court considers when the misrepresentation should have been should have been discovered, not when it was discovered, but doesn't apply for fraudulent misrepresentation as time runs from when misrepresentation was discovered.
3) Where an innocent purchaser has acquired an interest in the subject-matter of the contract before purported rescission of the contract.
4) Where it is impossible to substantially restore goods or property.
-- E.g. if a buyer of a hair salon makes extensive alterations to the salon including the addition of a new treatment room, restitution would be considered impossible.
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What is the effect of misrepresentation?
Makes the contract voidable.
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What happens if there has been duress or undue influence exerted upon an innocent party?
The resulting contract, or variation to one is voidable (capable of being set aside).
Unlike misrepresentation, the ONLY remedy available for duress and undue influence is rescission.
- N.B. The innocent party must notify the other party that it wants to rescind and can apply to the court for an order of rescission if the other refuses to return money or property.
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What will amount to duress of the person?
A threat of violence, or illegitimate threats or pressure that coerce a party into entering a contract or varying a contract.
N.B. Need not be the only reason why the innocent party entered the contract.
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What must be proved to establish that economic duress (more common) had been present?
Pressure;
- Whose practical effect is that there is compulsion on, or a lack of practical choice for the victim.
- Which is illegitimate and
- Which is a significant cause inducing the claimant to enter the contract.
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What factors must the court consider when determining illegitimate pressure?
Whether;
- There has been an actual or threatened breach of contract.
- The threat was made in good or bad faith.
- The victim protested at the time.
N.B. Illegitimate pressure to be distinguished from the usual commercial bargaining.
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Who is the onus on to prove duress?
The innocent party.
N.B. Bars to rescission may apply.
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Define undue influence?
Influence that goes beyond what is regarded as acceptable, or
Where one party is in a position to influence another and takes unfair advantage of that position.
N.B. Approach adopted by the law involves identifying unequal relationship and then considering whether the transaction resulted from the dominant party abusing that relationship.
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List the 2 types of undue influence?
1) Actual (proven on the facts).
2) Presumed.
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What must exist for undue influence to be presumed?
A relationship of trust and confidence (e.g. solicitor/client, doctor/patient, parent/child but NOT husband/wife). AND
A transaction that calls for explanation (e.g. where a party enters a contract not for their benefit or exposing them to risk).
N.B. Presumption can be rebutted by evidence to show that the innocent party had taken independent advice.
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What will the innocent party have to where the relationship is not one where undue influence is presumed?
Prove it.
- E.g. wife to prove that she did in fact place trust and confidence in her husband in relation to financial matters.
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What is the position with undue influence and third parties?
Hinges on whether the creditor had actual or constructive notice of the debtor's undue influence.
If so, it will be tainted with it and any security contract obtained as a result will be voidable and capable of being set aside.
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When will a creditor be deemed to have constructive notice?
If it ought to have been put 'on inquiry' and
-- Will be in all cases where the relationship between the debtor and surety is non-commercial and the loan is not for their joint benefit.
It did not take reasonable steps to ensure that the surety was aware of the implications of what they were signing.
-- Could have a private meeting with the surety to explain the risks and advise them to take independent advice away from the surety.
-- Creditors tend to insist taking of independent advice from a solicitor.
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What will happen when a creditor is stopped from enforcing its security?
It will still have an action against the debtor for the sum of money it is owed. But, it may be difficult to enforce bearing in mind the financial situation of the debtor.
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Give an example of when the creditor is not ought to have been put 'on inquiry'?
If the husband wrongly states in his loan application that he intends to use the money to buy a holiday home for him and his wife (rather than use on the stock market as his true intention), the creditor will not be. Nothing to alert creditor to risk of any wrongdoing by the husband.
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What are the 3 different types of mistake?
1) Common mistake; where both parties have made the same fundamental mistake.
-- Will not operate if one party is at fault.
-- Contract must not make express provisions on the matter.
-- E.g. both parties are mistaken as to the very existence of the contract's subject matter.
2) Cross-purpose mistake; where the parties are literally at cross-purposes about some crucial aspects of the contract.
-- Objectively, it is impossible to resolve ambiguity so the only possible conclusion is to void the contract.
3) Unilateral mistake; where only 1 party is mistaken e.g. as to the identity of the contracting party.
-- Must be a genuine mistake where the identity of the other party is of vital importance to render contract void.
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When must the mistake occur?
Before the contract and have induced it.
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What is the effect of each of the 3 types of mistake?
The contract is void.
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When considering a set of facts, how do you work out whether the contract is voidable (for misrepresentation) or void (for mistake)?
Strong presumption in face-to-face dealings that the innocent party intends to deal with the person in front of them (i.e. the rogue) rather than the person they are pretending to be. As such, the contract is unlikely to be declared void for mistake, but may be rescinded for misrepresentation.
Consider with whom the innocent party intended to contract with in written dealings. If it was with someone other than the rogue, the contract might be void for mistake.
The nature of the transaction may indicate to the rogue that it is vital they possess a particular attribute and if they do not do so, the offer is not addressed to them.
If the person/entity who the rogue is pretending to be actually exists and is known to the mistaken party (e.g. a registered company), it suggests that the offer is not addressed to the rogue so there would be no contract with the rogue.
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When may contracts be illegal?
Where its formation, purpose or performance involves a legal wrong.
-- Violating a statutory provision, common law or public policy.
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When are illegal contracts void (general rule)?
Where both parties are aware of its illegality but innocent parties enforce the contract if they did not know of the illegal performance by the other party.
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When may restraints of trade be enforceable?
If there is a legitimate business interest to protect e.g. customers, employees and trade secrets; and
The restraint is reasonable in terms of geographical area, duration and scope of prohibited activities.
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When does mistake tend to be pleaded?
Where there is no other effective cause of action (e.g. no breach of contract or misrepresentation).
