Contract Law

Question 1

Formation of Contracts

Legal capacity factors

3

Answer 1

1. AGE - 16 for legal capacity - age of legal capacity scotland act 1991
2. IMPAIRMENT of understanding - could be alcohol, drugs, or other external factors - Taylor v Provan 1864
3. lack of MENTAL CAPACITY - Louden v Elders 1923

Question 2

Formation of contracts

Intention presumptions

Answer 2

SOCIAL - no presumption of intention to be bound
COMMERCIAL - presumption that there is intention to be bound.

Question 3

Formation of contracts

Law of Promise

requirements, rules.

Answer 3

Requires only one party, does not need agreement.

Morton v Trustees 1899 - promises must be communicated to somebody, can be third party // cannot be revoked.
Cawdor v Cawfor 2007 - no acceptance needed, can be rejected.

Question 4

Formation of contracts

Requirements of an offer

Answer 4

Offer must have intention and sufficient detail.

Terms must be clear enough to begin a contract an dmust coincide with the terms of the acceptance - Mathieson Gee v Quigly - mouldy pond case, one thought they were just providing the quipment and the other thought they were completing the task so no consensus in idem

Question 5

Formation of contracts

When can an offer no longer be accepted?

4

Answer 5

1. It has been withdrawn.
2. It has been rejected - incl. counter-offer.
3. It has lapsed.
4. Offeror has died.

Question 6

Formation of contracts

Acceptances - rules

Answer 6

Acceptances must be oral or in writing - ROWA 1995

Acceptances must have definitely settled on essential terms - May and Bitcher v King 1943
- SALE - subject matter and price, LEASE - parties, rent, subjects and duration.

Must pay if service has already been done - Avintair v Ryder Airlines 1994

Question 7

Formation of contracts

Communicating acceptances - rules

Answer 7

Must be communicated.
INSTANTANEOUS COMMS - valid if received and understood - ENTORES V MILES

NON-INSTANTANEOUS - postal rule, valid from the moment of sending -Thomson v James.
- if letter goes astray, valid if right address - Jacobsen v Underwood
- invalid if it never arrives, must show up eventually - Mason v Benhar

Question 8

Defective contracts

Void contracts

Answer 8

EFFECT - contract has never existed, no rights or obligations can arise from the contract.

WHEN? - external effects are so serious that the consent is considered to never have been given.

Morrison v Robertson - buyer lied about identity during sale of cows, pretended to be son of reputable farmer - identity was crucial to the sale so no consent.

Question 9

Defective contracts

Voidable contracts

Answer 9

EFFECT - the contract is not considered null, some factors remain such as third party rights.

MacLeod v Kerr 1965 - car owner pretended to be different person and sold it on, contract failed because fake identification but identity not essential so only voidable.

Question 10

Defective contracts

Voidable contracts - when do third party’s acquire rights?

Answer 10

1. Ownership must be in good faith.
2. Must be an onerous contract - transaction.

Question 11

Defective contracts

Conditions for contract recission?

Answer 11

Void/voidable can be rescinded if:
1. Rescinding party cannot have known the contract had an issue and continued to benefit.
2. restitutio in integrum must be possible.

Question 12

Defective contracts

Fraud

Definition, types

Answer 12

Intention to recklessly deceive.

TYPES:
1. Misrepresentation - caused by a flase statement.
2. Fraudulent concealment - not disclosing something.
3. Improper negotiations - pressure or unfair advantage taken of another party.

Question 13

Defective contracts

Fraud - Misprepresentation

test and consequences

Answer 13

TEST - Ritchie v Glass - dispute over store front.
1. statement made by the other contracting party.
2. made prior to the formation of the contract.
3. must cause a material error.
4. causal link between error and formation.

CONSEQUENCES - VOIDABLE, if recission conditions met.

Question 14

Defective contracts

What behaviour counts as misrepresentation?

Answer 14

1. inaccurate statement of fact.
   - not opinions unless by an expert - Bisset v Wilkinson
   - not adverts unless factual basis - Bean v Davidson
2. misleading conduct - Paterson v Landesberg, seller made furniture look old intentionally.
3. silence, if duty to speak out, e.g. relationship of trust.

Question 15

Defective contracts

Types of misrepresentation?

Answer 15

1. fraudulent misrepresentation - requires knowledge or recklessness.
2. negligent misrepresentation - requires acting or speaking carelessly, especially where there is a duty of care.
3. innocent misrepresentation - unintentional, an innocent mistake - CANNOT CLAIM DAMAGES.

Question 16

Defective contracts

Fraud - Facility and circumvention

Answer 16

= Abuse of on party’s weakness by another party.

REQUIREMENTS
1. Facility - incl. age, physical/mental weakness, etc.
2. Lesion - disadvantage caused to weaker party e.g. financial.
3. Circumvention - taking advantage of vulnerable person e.g. gaining agreement.

Would the person have done the same thing with no pressure?

CONSEQUENCES - VOIDABLE.

Question 17

Defective contracts

Fraud - Abuse of trust

Answer 17

= If the contract was made due to the abuse of relations of influence/trust, actual deceit is not needed.

Established in Gray v Binny 1879

Does not have to be a direct benefit, e.g. family member - Forbes v Knox 1957

CONSEQUENCES - VOIDABLE.

Question 18

Defective contracts

Error

Definition and types

Answer 18

= Arises when there is a discrepancy bewteen reality and beliefs.

TYPES
1. Expression error - when terms of contract do not match the agreement made between the parties.
- document is rectified under LR Misc Provisions Act 1995.
2. Performance error - contract exists, but the performance of the parties does not match what was written e.g. overpayed.
- UE
3. Consensual error - error impacts the consent of the parties.

Question 19

Defective contracts

Consensual error - Bell’s principles

Answer 19

Sets out essential error categories:
1. subject of the contract,
2. identity of the debtor,
3. price,
4. quality of the item,
5. nature of the contract.

Question 20

Defective contracts

Consensual error - types

Answer 20

1. Common error - parties are both mistaken about the same thing.
   - Hamilton v Western Bank - bank sold property with buildings on it without realising they do not own those buildings.
2. Mutual Error - the offer and acceptance do not coincide, misunderstanding.
   - Mathieson Gee v Quigley - mouldy pond case.
3. Unilateral error
   - INDUCED - misrepresentation.
   - UNINDUCED - only operative with error plus, e.g. gratuitous contract, error must be induced for onerous.

Question 21

Defective contracts

Force and fear - FORCE

Answer 21

Hislop v Dickson Motors
Must be genuine threat to person, not empty.
Threat must be for an unlawful act.

Trs Savings Bank v Balloch - Threat can be aimed at a third party.

CONSEQUENCES - VOID.

Question 22

Defective contracts

Force and fear - FEAR

Answer 22

Hunter v Bradford Property
Subjective test, court should take into account vulnerabilities of the person.
The fear must be such that is reasonable for them to be scared.

CONSEQUENCES - VOID.

Question 23

Defective contracts

Formal Validity - rule.

Answer 23

Requirements of Writing Scotland Act 1995
s.1(1) - a written contract is not required, and most agreements can be made orally.

Question 24

Defective contracts

Formal validity - exceptions

Answer 24

Requirements of Writing Scotland Act 1995
- s.1(2)(a)(i) - contracts for real rights e.g. land or lease must be in writing.
- s.1(2)(a)(ii) - gratuitous obligations must be in writing except for commercial.

• s.1(3) + (4) - personal bar exception.
  1. must be valid contract - consensus in idem etc.
  2. one party has acted in reliance on that obligation - carried out an act/refrained from an act.
  3. other party knew about this action and allowed it to continue.
  4. acting party has been materially affected as a result, and would be adversely effected to a material effect if the obligation was invalid.
  THEN PARTY CANNOT DENY OBLIGATION EVEN IF NOT IN WRITING WHEN REQUIRED.

Question 25

# Breach of contract Breach of contract - remedies

Answer 25

Self-help remedies = - **Retention** (withholding/suspending performance) - principle of mutuality. - **Recission** (termination of the contract, ending performance), available after material breach. - **Repudiation** (goes along with recission, is a wrongful advance declaration saying that a party does not intend to carry on any performance, technically not a breach). Judicial remedies = - Damages. - Specific implement

Question 26

# Breach of contract Retention - rules

Answer 26

= Can withhold your own performance when the other party breaches the **counterpart **obligation - *Turnbull v McLean*. Obligations are counterparts when they are dependent on each other. Party that has breached the contract does not have the right to ask the other party to fulfil their obligation - *Graham v UTR*. -* Worked as an agent for one company with the rule that he could not work for any other companies at the same time, yet he did - then tried to demand the money UTR owed him anyway despite his breach.* You are only entitled to retention for **counterpart obligations**, any others must still be met - *Macari v Celtic FC*. - *Football manager dismissed with no notice, Macari sued for wrongful dismissal - both parties were in breach.*

Question 27

# Breach of contract Retention - same transaction?

Answer 27

*Inveresk v Tullis Russel* Obligations do not need to be part of the same contractual document as long as they are part of a sinngle transaction. - Q = are the separate contracts intended to be part of the same transaction? Look at overall unity of the contracts. 1.** define the trasnaction** - are the obligations part of the same agreement even if not the same contract? 2. **identify the counterparts **- obligations are presumed to be counterparts unless clear indication. 3. **degree of contemporaneousness** - if a performance is broken down into stages over long periods of time, this is not a reason to separate the contracts.

Question 28

# Breach of contract Recission - material breach

Answer 28

*Wade v Waldon 1909* Material breach established as being something that goes to the root of the contract. *- Comedian performing at Waldon's theatre, part of the contract said that they must confirm show and provide materials 2 weeks before - this was not a material breach when not performed so no recission.*

Question 29

# Breach of contract Recission - repudiation

Answer 29

*Wyman Gordon v Proclad 2011* Repudiation = objectively clear indication that, for whatever reason, material obligations are not going to be performed at the due date - MUST BE CLEAR AND INTENTIONAL. *White Carter Councils v McGregor* - innocent part can refuse the repudiation and insist on the fulfilment of the contract.

Question 30

# Breach of contract Rescinding the contract - rules

Answer 30

*Graham v United Turkey Red* It is only future obligations that come to an end, not accrued rights - other areas may still be effective e.g. liquidation damages clause. You may lose the right to recind if this is delated for a while - *Cumming v Brown*, *the pursuer waited until after the late completion to attempt to rescind their obligation - not allowed.*

Question 31

# Breach of contract Judicial remedy - action for debt

Answer 31

Enforces monetary payment for price due under the contract.

Question 32

# Breach of contract Judicial remedy - specific implement | Definition, test

Answer 32

Instructs the party to fulfil a specific obligation under the contract. TEST - 1. specific implement decree is a matter of right. 2. the decree must be clear and specific about what you are asking them to do. 3. only refused in exceptional circumstances - show granting implement would be inconvenient and unjust, and party would be worse off.

Question 33

# Breach of contract Judicial remedy - interdicts

Answer 33

Preventative remedy to stop a breach - enforces a negative obligation.

Question 34

# Breach of contract Judicial remedy - remedies agreed in contract.

Answer 34

= Contract term that sets out the consequences of a breach. *Cavendish Square Holding v Makdessi* Agreed remedy is unenforceable if it is unconscionable and extravagent. TEST - 1. amount in the clause must not be extravagant in comparison with the greatest loss that could have been anticipated. 2. if clause is for failed payment, cannot require a higher sum to be paid. 3. consequence cannot be the same for both minor and serious breaches.

Question 35

# Breach of contract Damages | Definition, how to solve damages problem.

Answer 35

Damages are available as a right, ut the loss must be proved. The difference between what should have happened if the contract had not been breached and the position of the party now is **the loss** - *Houldsworth v Brands 1877.* TO SOLVE - 1. Establish whether there has been a loss/breach? 2. Was the loss caused by the breach? 3. Was the loss too remote? 4. Is the innocent party limited by mitigation?

Question 36

# Breach of contract Damages - pecuniary loss

Answer 36

Monetary loss can be claimed. *Balfour v Scottish Power* * - Scottish Power failed to provide electricity during construction, meant the pursuers had to completely demolish and rebuild the road.* Damages claim was the money it cost them demolish and rebuild.

Question 37

# Breach of contract Damages - loss of amenity

Answer 37

*Ruxley Electronics v Forsyth* Established the recognition of loss of amenity. Where a contract is for the provision of an amenity that will cause pleasure, can compensate the buyer for his disappointed expectations.

Question 38

# Breach of contract Damages - loss of pleasure

Answer 38

*Diesen v Samson* Loss could be being deprived of pleasure that had been banked on as a result of the performance - e.g. wedding photographs. Some contracts are more about the emotional benefit than money/business.

Question 39

# Breach of contract Damages - mental distress

Answer 39

*Watts v Morrow* Can claim damages for mental distress if caused by a physical inconvenience e.g. house had defects, causes physical inconvenience and stress.

Question 40

# Breach of contract How to calculate contractual damages?

Answer 40

1. identify the loss. 2. choose a measure of loss to quantify the damages: - **cost of cure** (cost of completion or reinstatement of defective performance). - **diminuition of market value** (reduction of the value of the asset because of the breach). - **loss of amenity**

Question 41

# Breach of contract Causation (limit on damages)

Answer 41

If the cause of the loss was an additional action of the pursuer after the breach then this would limit/exclude damages. *Wilson v Carmicheal - cabbage sale, seller supplied with wrong seed but should have noticed what he was selling.*

Question 42

# Breach of contract Remoteness of loss (limit on damages)

Answer 42

When it is unfair to hold the contract breaker liable for a loss they could not have reasonably foreseen. *Hadley v Baxendale* Can only recover damages which would have arised naturally or been reasonable expected to have been in contemplation of the parties.

Question 43

# Breach of contract Mitigation (limit on damages)

Answer 43

*British Westinghouse v Electric Railway* Innocent party has a duty to take all reasonable steps to mitigate the loss caused by the breach.

Question 44

# Assignation Assignation - rules | description, process, intimation rules

Answer 44

Rights to performance within a contract may be transferred to a third party through assignation - *Movable Transactions Scotland Act 2023* PROCESS 1. Contract created that agrees to assign a contractual right to performance. 2. Assignation of the claim takes place, must deliver a doc of assignation in order to actually transfer a right. 3. Intimation to the other party, giving them notice that the rights have changed. INTIMATION RULES The moment of intimation is the moment the assignation takes effect. If the debtor performs the obligation to the original creditor in good faith before the intimation, then it is valid - s.10 Intimation must be communicated formally - s.8

Question 45

# Assignation Assignation - defence and limits

Answer 45

DEFENCE - all defences available against the assignor are available against the new assignee s.14 LIMITS - - **Express terms** - s.26 = no effect if the original contract agreed that performance could not be assigned. - **Delectus personae** - *Berlitz School v Duchene* - no effect if the identity of the original party is special to the contract in some way.

Question 46

# Illegality Illegality - rules

Answer 46

If a contract is illegal, there is a rule of **no recovery.** - link to UE condictio ob turpem vel inuistam causam. CATEGORIES: 1. Contract itself is illegal - *Cuthbertson v Lowes, scots acre case.* 2. Contract makes an agreement to do something illegal - *Barr v Crawford, bribery case.* 3. Contract itself is legal, but the performance is done in an illegal way - *Jamieson v Watts Trs, upgraded a cottage without appropriate license.*

Question 47

# Illegality Restrictive Covenants

Answer 47

Contract term which is illegal - restricts another's freedom to trade. *Nordenfelt v Maxim* - illegal EXCEPT if the restriction is reasonable, in reference to both the interests of the parties and the public.

Question 48

# Illegality Frustration

Answer 48

*Davis v Fareham* Occurs when a change in circumstances has made the performance **illegal, impossible** or **radically different and original purpose is lost.** This is trhough no failt of either party, but an external cause.