Contract Law

Question 1

What are an innocent party’s rights for breach of a condition and breach of an innominate term?

Answer 1

Breach of a condition
—> right to terminate AND damages

Breach of an innominate term
—> same as above but ONLY where the breach is sufficiently serious to be treated as repudiatory

Question 2

The rule in Hadley v Baxendale

Answer 2

• sets out the traditional test of remoteness

Hadley v Baxendale

special notice

The Achilleas

A loss for which the seller has “assumed responsibility”

Question 3

What is the law on penalties?

Answer 3

• penalty rule only regulates secondary obligations
• test is whether the secondary obligation 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
• whether the remedy is extravagant, exorbitant or unconscionable
• if a penalty, the penalty element would be unenforceable but the balance would still be payable

Cavendish v Makdessi

Practical point: need to be careful with default rates of interest

Question 4

Variation to a contract

Answer 4

Prudent that an agreement that varies the terms of an existing contract should be supported by consideration or executed as a deed.

Question 5

Contra proferentem rule

Answer 5

• may apply where drafting is ambiguous in a contractual exclusion clause
• an interpretive rule that provides that where a party has drafted or proposed an ambiguous clause and later seeks to rely on that clause - the court will adopt the interpretation most favourable to the other contracting party
• the clause must be ambiguous in the first place

Question 6

Mitigation

Answer 6

Common law provides that avoidable losses are not recoverable if a claimant acts unreasonably by not avoiding them

Question 7

Severance and the blue pencil test

Answer 7

• a court does not need express authorisation in a contract to sever unenforceable wording from a clause
• it must be possible to strike out the unenforceable wording without adding to or modifying the wording that remains

Question 8

Variations

Answer 8

Despite developments on the need for consideration when varying an existing contract (Williams v Roffey), it’s prudent that an agreement that varies the terms of an existing contract is supported by consideration or executed as a deed

Question 9

If you are seeking a guarantee what potential problems should you be mindful of?

Answer 9

1 - reliant on underlying obligation

a guarantor’s liability under a guarantee is contingent on the underlying obligation - so if the underlying obligation is void and unenforceable, the guarantee will fall away

2 - inadvertent release by amending the underlying contract

as a general rule, any amendments to the underlying contract after giving the guarantee will discharge the guarantor’s liability under the guarantee unless:
I) the guarantor consents to the variation; or
II) the variation is patently insubstantial or incapable of adversely affecting the guarantor

Get consent of the guarantor to the amendment

• still need substance / credit worth of the guarantor