contract law Flashcards
1
Q
contract-
A
- In very basic terms a contract is an agreement that the law will uphold.
- once agreed and signed it’s legally binding
2
Q
Deed
A
formal legal document, signed, witnessed and delivered
e.d used for owning of land
3
Q
Contract simple
A
exchange of promises (bilateral) or promise and act (unilateral) – no general requirement to be in writing.
4
Q
Ingredients’ of a binding contract
A
- offer
- acceptance
- consideration
- intention to create legal relations
- no vitiating factors
(Osh Always Cries In Nightclubs)
5
Q
Capacity
A
-To enter a contract, a person must have legal capacity to do so
some exceptions: people under legal age i.e. 18, mentally ill, under influence of drugs or bankruptcy
6
Q
offer and acceptance: bilateral v unilateral
A
Where the offer and acceptance are both promises, the contract is bilateral.
Where the offer is a promise and the acceptance an act, the contract is unilateral.
7
Q
Consideration
A
That is, something of value in exchange for the promise. This is the ‘price paid for the promise’. In the absence of a deed, there has to be consideration for a contract to be binding.
8
Q
Intention to create legal relations
A
The parties must have intended to create legal relations. In a business context this will be presumed where the context is a social or domestic one it will be presumed to be absent.
The presumption can be rebutted if there is evidence to support it.
9
Q
Absence of vitiating factors
A
There must be nothing to make the contract void, voidable (that is, allowing a party to rescind the contract if they choose to) or unenforceable.
10
Q
offer def.
A
An offer is the expression by the offeror of his or her willingness to be contractually bound by the set terms of that he or she proposes.
The offer is made by the offeror to the offeree. The offeree might be an individual or a group or even the world at large.
Carlill v Carbolic Smokeball Co is an example of an offer of a unilateral contract made to all the world.
11
Q
Rules about offers
A
- Offers must be communicated.
- Offers will lapse on expiry of a prescribed time or after a reasonable period.
- Revocation of an offer is permissible as long as there has not been acceptance of the offer.
- If an offeree rejects the offer or makes a counter-offer the offer will be terminated (Hyde v Wrench)
12
Q
Offers and invitations to treat
A
An offer indicates an intention to be bound whereas an invitation to treat simply indicates an intention to enter into negotiations.
<>adverts are often invitations
• A display of goods for sale with price tickets attached will often be an invitation to treat rather than an offer.
13
Q
Offers and ‘sales puff’
A
Some statements made during negotiations may be labelled as ‘mere sales puff’ or ‘sales talk’ rather than terms proposed by the offeror.
14
Q
Acceptance
A
Once an offer is accepted a contract is formed and the parties will be legally bound. Acceptance can be made by words or conduct. The offer may stipulate the mode of acceptance.
15
Q
How can we tell when acceptance has taken place?
A
- With exceptions, communication is necessary for acceptance to be valid. Silence, therefore, is not to be taken as acceptance.
- For acceptance made by instantaneous forms of communication the general approach seems to be that acceptance occurs when communicated and received.
- For acceptance made by post, the time of posting is the time of acceptance: Adams v Lindsell and Household Fire Insurance v Grant. The postal rule can be excluded by a requirement to actually give notice of acceptance (Holwell Securities v Hughes).
- For unilateral contracts (such as in Carlill) acceptance is the carrying out of the act in response to the offer.
16
Q
Acceptance must match the offer
A
- Acceptance must match the offer - otherwise it is a counter-offer (Hyde v Wrench; Neale v Merrett).
- A counter-offer terminates the original offer but then may be accepted by the original offeror (Butler Machine Tool).
17
Q
Counter-offer and enquiry
A
- A counter-offer is to be distinguished (on the basis of the words used) from a mere enquiry: Stevenson Jacques & Co v Maclean.
- Where the offeree made a mere enquiry the offer will still stand and can be accepted.
18
Q
Offer and acceptance
A
- sales ‘puff’
- invitation to treat
- offer
- counter-offer
- enquiry
- acceptance
19
Q
Consideration
A
The element of exchange in a contract is called ‘consideration’.
Lush J explained the concept in Currie v Misa (1875) as follows:
- some right, interest, profit, or benefit accruing to the one party,
- some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other party at his/her request
20
Q
Requirement for consideration
A
Promises without anything in return are ‘bare promises’ and are not enforceable unless they came into existence through a deed (see above). Otherwise, contracts require consideration – something of value. A contract is in the nature of an exchange.
21
Q
not valid considerations
A
Pre-contract consideration is not valid consideration because it is not part of the contractual promise.
In general a promise to perform existing obligations is not valid consideration. This is because nothing of additional value is given (Stilk v Myrick; Hartley v Ponsonby distinguished – extra duties)
However the case of Williams v Roffey Bros modifies this principle in the light of modern business practice – there can be consideration where a disadvantage is avoided..
22
Q
Privity of contract
A
The doctrine of privity of contract means that as a general rule only a party to a contract can sue or be sued on that contract.
]exception- agency
23
Q
Collateral contracts
A
Collateral contracts exist alongside a main contract although they may exist even if the main contract does not come into being.
An example would be a lock-out agreement in the sale of a business or land (see Walford v Miles and Pitt v PHH).
24
Q
Vitiating factors
A
- mistake
- misrepresentation
- illegality
- duress
- undue influence
25
Void
(ab initio – from the beginning) so that no rights or duties arise;
26
• voidable
meaning that it is initially valid but one or more of the parties has the right to choose to avoid the contract; and
27
• unenforceable
where the contract is valid but the courts will not enforce it (for example, because its purpose is contrary to public policy).
28
Mistake
A mistake which renders the contract void is known as an operative mistake.
29
Generally, a party will be bound by a document that they have signed but the following are exceptions.
* Fraud – false statement or conduct to gain material advantage. The tort is deceit.
* Misrepresentation (see below)
* Non es factum (‘it is not my deed’): where there is a fundamental difference between what is signed and what the signer thought it to be, without the signer being careless.
* Rectification: where the parties recorded the agreement incorrectly.
30
Common mistake
A common mistake occurs where both parties have made the same mistake.
31
• Mistake as to the existence of the subject matter
– contract void for mistake (unless one party has assumed the risk).
32
• Mistake as to ownership
contract void for mistake (unless express / implied warranty or term that seller has right to sell – e.g. terms implied by the Sale of Goods Act 1979 – see later lectures)
33
• Mistake as to quality
unlikely to be an ‘operative mistake’ therefore contract likely to be valid.
following Great Peace (Shipping) Ltd v Tsavliris (Salvage) International Ltd the position is that mistakes as to quality cannot make the contract voidable in equity.
34
• Mutual mistake
the parties misunderstand each other’s intentions and are at cross purposes.
The test is an OBJECTIVE TEST - what would a reasonable third party think? If the reasonable third party couldn’t work out which understanding was objectively intended then the contract will be void.
35
Unilateral mistake as to terms
Where one party is in fundamental error and the other party knows this or should know it - the contract is void.
36
Unilateral mistake as to worth (value/quality)
This is a valid contract (Smith v Hughes).
37
Meaning of illegality
legal purpose
Contracting may be prohibited by law, for example to commit a crime, or the contract may be invalid because its purpose is contrary to public policy, for example engaging in immoral activity.
38
• Illegal performance
The purpose of the contract may be legal but the manner of the performance may be illegal.
39
Effect on the contract (illegal)
A contract with an illegal purpose will be void for illegality but the law is more flexible where there is illegal performance, particularly if one of the parties is innocent. In such circumstances, the innocent party may still sue on the contract.
40
Undue influence
Undue influence is an equitable concept allowing a contract to be avoided in the context of one of the parties having a dominant position.
If the relationship is a fiduciary one (that is, based on trust, such as parent/child, trustee/beneficiary or solicitor/client) it will be for the person alleged to have used undue influence to establish that they did not do so
41
Unconscionable bargains
An unconscionable bargain is a contract on very unfair terms.
inequality of bargaining power
e.g. An old person who is very confused sells their house for much less than it is worth.
A court may intervene here on grounds of equity.
42
Uncertainty
A contract may also be void for uncertainty, that is, if the terms cannot be properly determined.
If the uncertain part of the agreement is peripheral, the rest of the contract may be upheld, but if the vague or uncertain terms are vital to the contract then that contract will be void.
43
Misrepresentation
A contract that has been made because of an actionable misrepresentation is voidable.
gives rise to the equitable remedy of rescission.
44
Normally excluded from the concept of representation
* Statements of law
* Future conduct or intention
* Opinion
* Sales talk “puff” (hype)
* Advertising.
45
Meaning of actionable misrepresentation
An actionable misrepresentation is a false statement of fact made by one party to the other which induces the other party to enter the contract.
46
Meaning of misrepresentation
* false statement of fact by defendant (d)
* addressed to claimant (c)
* relied on by c
* induces c to enter contract
e,g. (Spice Girls v Aprilia, 2002).
47
Silence as misrepresentation
* Change of circumstance
* silence makes the statement misleading
* uberrimae fidei (of the utmost good faith)
* fiduciary
* statute
* concealed fraud
48
Types of misrepresentation
* wholly innocent
* negligent
* fraudulent
49
misrepresentation- • Wholly innocent
genuine belief that the statement is true, based on reasonable grounds.
50
misrepresentation • Negligent
genuine belief but without reasonable grounds
51
misrepresentation • Fraudulent
knowing that statement is false or without belief in its truth or reckless
(careless as to whether the statement is true or false) (Derry v Peek).
52
Misrepresentation Act 1967
Deals with wholly innocent and negligent misrepresentation but not fraudulent misrepresentation.
Allegation of negligence – onus on representor to show reasonable grounds for belief (s.2(1)).
The court may award damages in lieu of rescission where it would be equitable to do so (s.2(2)).
53
• Terms -->
• Terms (contractual promises)
54
• Representations =
(statements of fact that induce the other party to enter the contract)
55
If a term is broken –
there will be a remedy for breach of contract
56
If a representation is untrue –
there may be a claim of misrepresentation
57
Sources of contract terms
```
Express
Implied at common law
• Specific
• Generic
Imposed by statute
```
58
Express terms
These are terms expressly agreed by the parties, either orally or in writing or a mixture of the two.
59
Implied terms
a) Specific terms
These may be implied into a particular contact (such as between A and B) for ‘business efficacy’ (to make the contract work).
b) Generic terms
These are implied into all contracts of a particular type, such as all contracts of sale or all contracts of employment.
uses officious bystander test
e.g.• There is an implied term in every contract of sale requiring the goods to be of ‘satisfactory quality’ (Sale of Goods Act 1979 s.14(2) / Consumer Rights Act 2015 s.9)
60
‘Officious bystander’ test
the term is so obvious that the parties didn’t need to express it
* How would the parties have reacted if a bystander had suggested that the term be expressly included in the contract?
* If they would have irritably responded “of course” – the tem would be implied.
61
Statutory terms
Terms may be imposed by statute either as a codification of former (common) law, such as implied terms in the contract of sale in the Sale of Goods Act 1979 / Consumer Rights Act 2015
or as a new legal initiative (such as the equality clause in the contract of employment by virtue of s66 of the Equality Act 2010).
62
Incorporation
Incorporation is a process by which terms from outside the contract are included in the contract.
Sources of incorporated terms include documents and custom.
once incorporated they are legally enforceable
63
Express incorporation
This will be an oral or written form of words in the communication between the contracting parties which states expressly that the contents of, say, a particular document, form part of the contract.
64
Implied incorporation
This will be subject to the rules about specific implied terms
i.e. trade unions
65
Terms not suitable for incorporation
Not all terms are capable of being incorporated, for example, ‘collective’ terms (such as a procedure for handling disputes) in employment contracts.
66
Classification of contract terms
* condition
| * warranty
67
Conditions
Some terms are more important than others. Conditions are fundamental terms going to the root of the contract.
i.e. pay
68
Warranties
These are terms that are not central.
69
Innominate terms
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd: these terms can be warranties or conditions depending on the seriousness of the effect of a breach.
The important distinction for our purposes is between conditions and warranties.
70
Significance for remedies
* Fundamental breach: innocent party can rescind contract.
* Other breaches: damages.
This is governed by the doctrine of fundamental breach
71
Conflicts between express and implied terms
what happens when they're in conflict?
the ‘modern’ view is that generic implied terms override express terms (and this will certainly be the case where the implied terms have been codified into statute unless the statute allows otherwise).
72
Restraint of trade
The doctrine of restraint of trade
>Contracts preventing a party working for someone else or setting up in competition are generally contrary to public policy because they are in restraint of trade
They will be void unless they are in the public interest and reasonable as between the parties. See Esso Petroleum v Harper’s Garage (Stourport) Ltd: this was a ‘solus’ agreement – an agreement under which the recipient of goods or services agrees to have only one supplier.
73
restraint of trade
The doctrine of restraint of trade
Restrictive covenants: protectable interests
Restrictive covenants: adequate protection but no more
74
Restrictive covenants: protectable interests
Such contracts are known as restrictive covenants.
To meet the requirements set out above the restriction must be reasonable and aimed at protecting legitimate business interests.
75
Restrictive covenants: adequate protection but no more
The duration, geographical limits and nature of the restriction must be the minimum required to provide adequate protection, and no more. Twenty-one years was too long in Esso Petroleum above
76
Unfair contract terms
* Clauses limiting or excluding liability may be unlawful under Common Law or Statute
* Statute introduces the general concept of an unfair contract term. Such a term is void.
77
Meaning and legitimacy of exclusion and limitation clauses
These are clauses which seek to exclude or limit liability that would otherwise arise in contract or negligence.
e.g.
• Sign at entrance to car park: “The Car Park Owners accept no liability for any damage to or the loss of any items from cars parked in this car park.”
This is an exclusion clause.
• Notice in dry cleaner’s shop: “Liability for any claim for loss or damage shall be limited to the sum paid by you for the services provided.”
This is a limitation clause.
78
Legitimacy of such terms
These terms are generally lawful at common law.
Following statutory intervention e.g. the introduction of the Unfair Contract Terms Act 1977, exclusion clauses and limitation clauses have been subject to even greater control.
79
The Consumer Rights Act 2015 and the statutory regulation of exclusion/limitation clauses
Consumer Rights Act 2015. The CRA 2015 deals with exclusion/limitation clauses and other forms of potentially unfair terms in consumer contracts.
It tries to simplify things by using uniform approach to all potentially unfair terms
80
Non-consumer contracts and the statutory regulation of exclusion/limitation clauses.
Non-consumer (i.e. commercial) contracts are still covered by the old provisions found in the UCTA 1977.
These regulate exclusion/limitation clauses
no statutory regulation
81
Exclusion and limitation clauses: the courts’ approach
• Is the clause a term in the contract?
• Does the clause cover the loss which has arisen?
• For non-consumer contracts:
o Is the term reasonable under the UCTA 1977?
• For consumer contracts:
o Is the term fair under the CRA 2015?
82
Contra proferentem rule
According to the contra proferentem rule, terms are interpreted against the party who seeks to rely on them.
This rule can be applied to any ambiguous term in a contract but has been used particularly keenly where the term is an exclusion / limitation clause
used less after Unfair Contract Terms Law 1977
83
Statutory regulation.
Through the Unfair Contract Terms Act (UCTA) 1977 Parliament sought to control the use of exclusion and limitation clauses to some extent
* Under the UCTA 1977 the test is of reasonableness.
* Under the CRA the test is of fairness.
84
Consumer Rights Act 2015, applies to all
all issues around the fairness of terms within consumer contracts. A consumer contract is a contract between a consumer and a trader
85
Unfair Contract Terms Act 1977 applies to
the use of exclusion/limitation clauses in non-consumer contracts, but only applies to the exclusion / limitation of business liability.
86
UCTA 1977 / CRA 2015• Liability in negligence for death and personal injury
o Consumer contract - no exclusion/limitation (exclusion/limitation clause has no effect)
o Non-consumer contract – no exclusion/limitation (exclusion/limitation clause has no effect)
87
UCTA 1977 / CRA 2015• Liability in negligence for other forms of loss / damage
o Consumer contract - exclusion/limitation only if the term passes the fairness test
o Non-consumer contract - exclusion/limitation only if the term passes the reasonableness test
88
UCTA 1977 / CRA 2015• Liability for beach of statutory implied terms as to title (right to sell) (eg Sale of goods Act 1979 s.12 / Consumer Rights Act 2015 s. 17)
o Consumer contract - no exclusion/limitation (exclusion/limitation clause has no effect)
o Non-consumer contract – no exclusion/limitation (exclusion/limitation clause has no effect)
89
UCTA 1977 / CRA 2015
• Liability for beach of statutory implied terms as to description and quality (eg Sale of Goods Act 1979 s.13&14 / CRA 2015 s.11&9)
o Consumer contract – no exclusion/limitation (exclusion clause has no effect)
o Non-consumer contract – exclusion/limitation only possible if passes reasonableness test
90
Non-consumer contracts: reasonableness test in UCTA 1977
Factors in applying the test:
• the circumstances when the contract was made s.11(1).
• where there are limits on amount payable, the resources of the person relying on the clause and the opportunities for insurance
Burden of proof on person claiming that the term is reasonable: s.11(5)
example: Mitchell v Finney Lock Seeds [1983] 2 AC 803
91
Mitchell v Finney Lock Seeds [1983] 2 AC 803
*Non-consumer contracts: reasonableness test in UCTA 1977*
The House of Lords held that the defendant should pay damages based on the actual loss suffered by the claimant rather than merely the replacement cost of the seeds that had been supplied. The seeds had been of the wrong variety. The limitation clause was not reasonable under UCTA.
92
Consumer Rights Act 2015 and the fairness of terms
Any term that is deemed unfair will not bind the consumer.
* Fairness: terms are considered to be unfair if they are contrary to good faith and cause significant imbalance in the rights and obligations between parties to the consumer’s detriment (CRA s.62(4)).
* Such terms are unfair and do not bind the consumer (CRA s.62(1)).
* A “grey list” of terms which may be unfair is included at Part 1 of Schedule 2 (exceptions are found in Part 2 of Schedule 2) (CRA s.63(1)).
* The terms in the grey list are not automatically unfair, they are used to guide the courts but the fairness test in s.62 should still be applied.
93
CRA 2015 Fairness test
‘Unfair term’:
• not in good faith
• ‘significant imbalance’
• detrimental to consumer
94
Definition of consumer
“Consumer” means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.
“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.
“Consumer” and “trader” (s.2 CRA 2015 and 76(2))
95
Types of contract
```
• Goods contracts
o Sale of goods
o Transfer of goods
o Hire of goods
o Hire-purchase
• Supply of a service
• Digital content (new – added by the Consumer Rights Act 2015, consumer contracts only).
```
96
Sale of goods (CRA 2015)
* Transfer of ownership in goods
* In exchange for the price (must be monetary)
* Can be a series of payments (conditional sale)
* Still a sales contract where the trader agrees to manufacture or produce the goods.
* Sale or agreement to sell.
97
Hire-purchase contracts (CRA 2015)
• Goods are hired by the trader in return for periodical payments by the consumer
• Ownership of the goods will transfer to the consumer if the terms of the contract are complied with and
o the consumer exercises an option to buy the goods,
o any party to the contract does an act specified in it, or
o an event specified in the contract occurs.
• Not a hire-purchase agreement if it is a conditional sales contract.
98
The supply of a service (CRA 2015)
* A contract for a trader to supply a service to a consumer.
* Not a contract of employment or apprenticeship
* In ‘mixed contracts’ e.g. contracts for the supply of both goods and services, the service element of the contract attracts service rights and remedies, the goods elements attract goods rights.
99
Digital content (CRA 2015)
* New category of contract added.
* Digital content defined as “data produced and supplied in digital form.”
there's also hire and transfer of goods
100
Key generic implied terms in contracts for goods
* The right to sell (‘title’)
* Match description
* Match sample
* Match model (new consumer contracts only)
* Quality
* Fit for a particular purpose
* Other pre-contract information included in contract (new consumer contracts only)
* Installation as part of conformity of the goods with the contract (new consumer contracts only)
101
Goods contracts: Satisfactory quality and fitness for purpose
• Reasonable person would regard as satisfactory
• Taking into account description, price and other circumstances
• Quality of goods includes state and condition and possibly:
- Fitness for purpose
- Appearance and finish
- Freedom from minor defects
- Safe and durable
102
Key generic terms in contracts for services
* Reasonable care and skill
* Reasonable time of performance
* Reasonable charge
* New: service must be performed in line with information provided about the service and information provided about the trader (Consumer contracts only)
103
Consumer remedies: Goods
• The short-term right to reject (30 days) and obtain full refund (s.20 and 22)
• Time stops running if the consumer requests / agrees to repair or replacement (s.22)
• Outside of the 30 day period:
o The right to a price reduction after one unsuccessful repair/replacement (s.24)
o The final right to reject and receive a refund (with a deduction for use by the consumer) after one unsuccessful repair/replacement (s.24).
104
Consumer remedies: Services
* Repeat performance (s.55)
| * Price reduction (s.56)
105
Consumer remedies: digital content
* Repair or replacement (s.43)
* Price reduction (s.44)
* Right to a refund (no need to return the data by deleting it, etc) (s.45)
* Compensation for corrupted devices. If the digital content supplied by the trader damages the consumer’s electronic device or other digital content and the trader did not exercise reasonable care and skill (s.46)
106
Legislation relating to certain contractual relationships
• Unsolicited goods and services - ‘inertia selling’
>unfair trading practices under CPUT 2008 (criminal offence)
• Contracts concluded away from the seller’s premises (doorstep etc) - ‘off premises contracts’
• Distance selling - ‘distance contracts’
the Consumer Protection from Unfair Trading Regulations 2008 (
107
Unsolicited goods and services ‘inertia selling’
An opportunistic seller might deliver goods to a consumer even though the consumer had not ordered them (the goods were unsolicited) and then follow the delivery with an invoice demanding payment.
remedy:
reg27 CPUT makes it into an actual free gift
the Consumer Protection from Unfair Trading Regulations 2008 (
108
Contracts concluded away from the seller's business premises ‘off premises contracts’
* They apply to contracts for goods, services and digital content.
* gives right to cancel without incurring cost, but only have 14 days
* The right to cancel can be extended for up to 12 months if the trader does not provide the consumer with information on cancellation rights (reg 31)
* Upon cancellation the consumer must generally return goods at their own cost (reg 35)
the Consumer Protection from Unfair Trading Regulations 2008 (
109
Distance selling
* Includes mail, newspaper, catalogue, telephone, radio, TV and on-line
* Information requirements
* Right to cancel (‘cooling off period’)
* Period during which contract should be performed
110
Delivery of goods
The regs also make arrangements for timely delivery in goods contracts:
Unless there is an agreed time or period, the contract is to be treated as including a term that the trader must deliver the goods:
• without undue delay, and
• in any event, not more than 30 days after the day on which the contract is entered into (reg 42)
the Consumer Protection from Unfair Trading Regulations 2008 (
111
defective products.
The buyer of a defective product will have a remedy for breach of contract against the seller of the product – there is a contract between them.
112
The problem of the doctrine of privity of contract: (defective) §
* Contract is a private agreement between the parties and only the parties can enforce it. This imposes limitations as regards consumer redress of grievances.
* The buyer’s remedy is against the seller. The buyer cannot generally sue the manufacturer in contract.
* Third parties, such as the non-buyer user of the goods, are unable to sue the seller in contract.
• The Law of Negligence
• The civil liability under the Consumer Protection Act 1987.
o Part I of the Consumer Protection Act 1987 sets out a scheme for dealing with civil liability for unsafe goods.
113
Non-contractual change
* discretionary
* widely-drawn terms
* administrative matters
* right to vary
114
Agreed contractual change
* expressly agreed or
* implied from conduct
* agreed through incorporation
115
Law and the accommodation of change
* non-contractual arrangements
* type and duration of contract
* built-in flexibility
* renegotiation
* assignment
116
Choice of type and duration of contract
* Effect on statutory control.
* A continuing business relationship is not necessarily the same as a continuing contract. The relationship can continue under a new contract on different terms.
* A succession of short contracts is possible (for example, insurance). However, in the employment context a limit is placed on the use of successive fixed-term contracts.
117
Building flexibility into the contract
* Widely-drawn terms (above)
* Right to vary (above)
* Contractual evolution: contracts move with the times reflecting the economic, social and technical environment. Thus employees are expected to adapt themselves to new methods and techniques introduced in the course of employment e.g. the use of a computer.
* Administrative change
* Exclusion/limitation clauses (see Lecture 11)
118
Renegotiating the contract
The parties to a contract may agree to change their obligations under the contract.
The agreement to change the contract is, in effect a new contract and so there must be agreement and consideration for it to be binding.
119
The need for consideration
At common law, if the change is to be enforceable, it will need to be accompanied by consideration. Just as we need consideration in the formation of the contract, so we need it when the contract is varied.
e.g. Subcontractor (SC) tells main contractor (MC) he has underpriced the job and cannot finish it. MC agrees to pay extra to SC for the original work, to avoid having to pay a penalty to the client for late completion.
120
Variation and novation of contract
The parties can alter the terms of their contractual relationship by varying the existing contract or replacing the old one with a new one.
The former is known as consensual variation, the latter as novation.
121
Promissory estoppel
Estoppel is an equitable rule of evidence or law preventing a party from denying the truth of something they have a stated or acquiesced in where another party has acted in reliance
--> defence for the promisee
122
Breach of contract
* Fundamental (a repudiation) or
| * Other breach
123
A breach of contract occurs where:
* A party fails or refuses to perform his/her duties (without lawful excuse)
* A party performs his/her duties defectively
* A party incapacitates him/herself from performing
124
In general the following key consequences may result from a breach:
* The innocent party may be able to claim damages for losses he / she has suffered as a result of the breach
* The innocent party may be able to choose to terminate the contract (if the breach is fundamental).
125
Fundamental breach
Party not in breach must choose between
• Accepting the repudiation and terminating the contract
• Affirming the contract and continuing it.
Time is a factor.
126
The impact of rescission of a contract for breach whereby the contract is set aside prospectively (into the future) but not set aside retrospectively (from the beginning) is that:
* The obligations of the parties under the contract which have not yet been performed will terminate.
* The innocent party will be able to claim damages for any loss sustained because of non-performance of the contract in the past.
* The innocent party will also be able to claim damages for contractual obligations due to be performed at some point in the future.
* If the contract contains a term which sets out what should happen in the event of a breach, the courts will take this into account.
127
Damages
Any breach of a valid and enforceable contract will entitle the injured party to damages. This is so whether the term is a condition, a warranty or an innominate term.
* Financial payment
* Awarded through a legal process
* For conduct that gives rise to a legal remedy
* Done by another to the claimant
128
The purpose of damages for breach of contract
* Where a party suffers a loss
* and the loss was the result of a breach of contract
* s/he should be put in the position that s/he would have been in had the contract been performed
129
Expectation loss
>>Generally the basis for an award in contract<<
The claimant’s expectations have not been fulfilled.
The expectations are based on the defendant’s promise to perform his/her contractual obligations.
Damages are awarded to put the claimant in as good a position as he/she would have been if the promise had been performed.
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Reliance loss
>>Less commonly used as the basis for an award in contract<<
The claimant has incurred expenses in reliance on the contract.
The defendant’s breach has wasted the expenses.
Damages would put the claimant in the position they would have been in had the contract never been made.
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Factors limiting recovery of damages
* Causation
* Remoteness
* Mitigation
* Contributory negligence
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Causation:
The claimant must show that there is a causal link between the loss suffered and the breach of contract. The breach must be a cause (but not necessarily the sole cause) of the loss. The ‘but for’ test is used as a guide.
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Remoteness:
The principle of remoteness of damage serves to confine the recoverability of damages. A claimant will not be able to claim damages for a loss that is deemed too remote a consequence of the breach
Hadley v Baxendale
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Hadley v Baxendale
Remoteness: damages
subsequent cases have set out two rules. Unless one of the rules is satisfied the loss will be deemed too remote.
1. the loss must have arisen naturally from the breach, according to the usual course of things
2. the loss must reasonably be supposed to have been in the contemplation of both parties as the probable result of a breach, at the time when they made the contract
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Mitigation:
The claimant is expected to take reasonable steps to mitigate his/her loss. The claimant will be unable to recover damages for losses which have resulted from his/her failure to mitigate. This means that:
* The injured party must take reasonable steps to minimise his/her loss
* The injured party must not unreasonably incur expense following the breach.
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Contributory negligence:
In some limited contexts the defence of contributory negligence is available within a breach of contract action. This will only be the case where the acts/omissions of the defendant which gave rise to the breach of contract could also have given rise to a separate liability in tort.
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Quantification of damages
A breach of contract gives the injured party the option to claim damages.
Damages for breach of contract are designed to compensate the injured party for losses they have sustained, rather than to punish the party in breach
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Assessment of damages by the Courts
* Damages are generally assessed by reference to the market value of the promised contractual performance.
* Damages that are difficult to quantify can still be awarded (e.g. Chaplin v Hicks).
* The claimant is entitled to be put in the same financial position as if the contract had been performed properly. The claimant will not necessarily be put in the same physical position (Ruxley Electronics and Construction Ltd v Forsyth).
* The damages claimed must be reasonable (Ruxley Electronics and Construction Ltd v Forsyth).
* The general rule is that the courts will not award damages in compensation for distress, frustration, anxiety, displeasure, vexation, tension or aggravation caused by the breach of contract.
* In narrow circumstances, however, the claimant will be able recover damages for loss of enjoyment or relief from stress. For example where the object of the contract is to provide relaxation or enjoyment (Watts v Morrow).
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Similarities
• The purpose is compensatory.
• Damages are usually assessed according to the claimant's actual loss.
• The burden of proof is usually on the claimant - to show:
o the loss was suffered by him/her
o the loss satisfies the relevant rules of remoteness
o the loss was caused by the breach of duty.
• The same test of causation is used.
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• Punitive damages
(to penalise the party in breach) can be awarded in tort but not in contract
