Contract Law Revision Summer PDF

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Topic 1: The Nature of the ContractThere are 2 types of Contractual Obligations Those that impose an obligation regardless of any standard of care. Those that impose a contractual responsibility to take reasonable care. Primary Obligations > Law of Contract is the principle law that legally f...

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CONTRACT LAW REVISION Topic 1: The Nature of the Contract There are 2 types of Contractual Obligations 1) Those that impose an obligation regardless of any standard of care. 2) Those that impose a contractual responsibility to take reasonable care. -

Primary Obligations > Law of Contract is the principle law that legally facilitates the economic exchange that make up the market economy. These are not LEGAL obligations; They are ECONOMIC exchange obligations (primary obligations).

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Secondary obligations > the obligation to provide in the event of a breach a remedy. If such an exchange is being breach by the defendant, D must provide a remedy. It is normally latent. Maybe it is not explicit. If there is a breach, secondary obligation becomes crystallised and thusly the defendant may provide a remedy to the claimant. This is what distinguishes a legally enforceable contract to a non-legally enforceable one. Such remedy will be compelled by the state to the defendant to pay damages/remedy. The state ensures security of the possibility of obtaining a remedy to the claimant.

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People enter a contractual agreement with the expectation of a reciprocal performance.

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A contract is legally binding when economic in nature.

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Realisation of Surplus being the purpose for an economic exchange (motivated by selfinterest). 2 types of Surplus: 1. Make Profit (usually the surplus interest is the profit from the sales of the product NOT the product negotiated in the contract; the losses of the claimant after a breach of contract will be confined to the surplus interest). 2. Consumer service (Based on the end consumption of the object in negotiation).

Void Contracts: Ones by which the law holds to be no contract at all, from the beginning. The parties would be in the same position as they would have been had the contract never been made. Money paid in pursuance of a void contract could be recovered from the person to whom it had been paid. Illegal Contracts: Can be said to be void, however, the difference is that determination of invalidity of a contract would derive from law. The subject matter, morality, the culpabilities of the parties and whether the contract itself is illegal will be considered. Voidable Contracts: a contract where one of the parties has the option to rescind or affirm it. The contract is not a nullity from the beginning. Until it is rescinded, it is valid and binding. The right to rescind must be exercised within a reasonable time lapse or else it would automatically be binding to the party that had that right.

Unenforceable Contracts: A contract, which is good in substance, though the reason of some technical defect, one or both of the parties cannot be sued on it. The difference between what is voidable and unenforceable is mainly a difference between the substance and procedure. A contract may be good, but incapable of enforcement because it is not evidenced by writing as required by statute

CONTRACT LAW REVISION Topic 2 & 3: Remedies Common Law Remedies: DAMAGES -

The awarding of damages consists of placing the injured as far as possible as if the contract had not been breached. Robinson v Harman [1848]. Damages should be restorative and not punitive (Addis v Gramaphone [1909]). Damages is a right of the innocent party if victim of a breach of contract.

3 Limitations on the Availability of Damages -

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Causation (cause in FACT) - (County Ltd v Girozentrale Securities [1996]) o Breach of Contract must have been the cause of loss. An intervening act waives defence liability. The breach of contract need not to be the sole cause of the loss. o Overriding Cause: When the claimant’s loss was caused as a result of his irrational behaviour such as negligence, it will override the cause of loss and hence most likely exonerate the defendant’s liability (Quinn v Burch Brothers (Builders) Ltd [1966]; C. & P. Haulage v Middleton). o Joint Cause: If both parties are partly at fault for the claimant’s loss, damages will be reduced under the Law Reform (Contributory Negligence) Act 1945 and if the breach was an obligation to take reasonable care. Liability in these circumstances relate to Tort offences also. Remoteness (cause in LAW)– (Hadley v Baxendale [1854]) o Necessary to establish that the loss, even though caused by the breach, is not too remote from it. o Foreseeability Test (2 Limbs) will satisfy remoteness  Limb 1: Loss recurring naturally because of the breach  Limb 2: Loss which was reasonably contemplated by both parties upon forming the contract. Covers loss that does not derive ordinarily from the breach.  Victoria Laundry Ltd v Newman Industries [1949] sets the standard of ‘reasonable foreseeability’. o Reasonable person knowledge of loss from the Claimant required. o C may prove D had knowledge of special circumstance that may lead to the loss for breach.  Heron II [1969] o Reasonable foresight differs from Contract and Tort  Contract: Foreseeable if a ‘serious possibility’  Tort: Foreseeable if a ‘slight possibility’

Provided the type of loss caused by the breach is within reasonable contemplation of the parties, the magnitude of that loss does not have to be.

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Mitigation of Loss o Innocent victims will be entitled to damages to cover losses by the breach if he took reasonable steps to reduce the amount of loss. This will depend on the circumstances and of the capacity and practicalities the plaintiff had to mitigate. o Brace v Calder [1895] – Damages refused. No reasonable steps of mitigation taken.

CONTRACT LAW REVISION Pilkington v Wood [1953] – Mitigating steps where not adequate and thus the defendant paid for damages.

Calculation of Damages Damages for Loss of Reputation?? Sales of Good Breaches: Non-delivery; late deliver; non-acceptance; breach of warranty

2 Methods of determining the extent of damages -

Loss of Bargain/Expectation Loss (Generally when the claimant makes a good bargain): Places the injured in the position had the contract been performed.

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Reliance Loss (Generally when the claimant makes a bad bargain): Places the injured in the position had the contract never been made. (Retrospective). o It also covers situations when the amount of prospective loss is difficult to calculate and thus the best option is to calculate the expenditure lost on reliance of the contract (Anglia Television Ltd v Reed [1972].

Reliance/Expectation Measure: Good Bargain/Bad Bargain: When claimant gets into a contract where the proven expectation interest is more than the reliance interest it is considered as a ‘good bargain’. Contrary to the point, it would be considered a ‘bad bargain’ if no loss had occurred after a breach. Compensatory damage quality would be affected significantly depending on the type of bargain could be proven to have been taken at the signing of the contract. Depending on the circumstances of the breach of the contract, when it comes to awarding damages, the claimant can choose whether he or she would claim the expectation measure (usually on good bargains) or the reliance measure (usually on bad bargains).

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Restitution Interest Measure o This is another measure considered in the courts to compensate the claimant with the gains of the defendant. It is, however, a matter of proving such gains because of the breach. Attorney-general v Blake [2001] 3 WLR 625 HL.

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Non-Pecuniary Loss (Non-Financial) o These are losses that are not based on financial loss, rather they focus on emotional effect due to breach of contract: injury to feeling, mental distress (Diesen v Sampson [1971], loss of chance (Chaplin v Hicks [1911]) and loss of amenity (Ruxley Electronics [1995]).

IMPORTANT:

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If a claimant has neither spent or lost money cannot recover damages. Only nominal damages, a small sum of compensation, would be awarded as to acknowledge the breach. Ruxley Electronics & Construction Ltd v Forsyth [1995]: Damages is not required to be in the value of specific performance to fix a breach of contract (cost of cure). Damage for loss of enjoyment (Jarvis v Swans Tours Ltd [1973]).

Equitable Remedies

CONTRACT LAW REVISION Specific Performance -

Generally positive in nature; Compels the breaching party to perform his contractual obligation.

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Damages are not adequate. o Sales of goods: damages will not be adequate in relation to the expectation of a unique product, non-substitutable, rare, or interest. o Awarded when a person originally not part of the contract suffers from the breach (Beswick v Beswick [1968]). o The judge will use discretion as to impose specific performance based on the facts of the case. o Where the Consumer Rights Act sections of replacement or repair of a product sold within a reasonable time is applicable the court can use its powers to impose a specific performance on the company to do so. o General rule is that the courts can order specific performance in relation to the sale of land because the subject matter is unique. Fairness/Mutuality o Specific performance must not be unfair. Both parties of a contract must perform. Specific performance may be refused if the claimant for instance does not perform his side of the bargain. (Walters v Morgan 1861] Personal Service o Generally, specific performance of having the defendant work for the claimant would not be granted. ‘No one want to convert a contract of service into a contract of slavery’ (De Francesco v Barnum [1890]. This is due to bad blood. This applies from employer to employee. (Posner v Scott-Lewis) o Employee to be reinstated by the employer can be acceptable by the courts in exceptional circumstances where there is still mutual confidence and respect. (Hill v C.A. Parsons Ltd) Uncertainty o The court may refuse specific performance if the contract is too vague as to how it is to be performed. Constant supervision by the Court o The court refused specific performance in impractical situations where it would be difficult to supervise the defendant and punish him if there was a contempt of court. (Co-operative Insurance Society Ltd v Argyll Stores). Conduct / Hardship o The courts can refuse specific performance in a case where the claimant has acted unfair as to claim a breach of contract. o The courts may also refuse if such specific performance causes hardship (Patel v Ali).

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Injunctions -

Prohibitory Injunctions o See Anson Book. Mandatory/Interlocutory Injunction o Two questions: (American Cyanamid Corp v Ethicon)  Does evidence available at interlocutory application show that there is a serious question to be tried?

CONTRACT LAW REVISION 

If yes – where does the balance of convenience lie?

Rescission (mainly deals with Misrepresentation) -

Sets the contract aside, available regardless the type of misrepresentation. Rescinded contracts are terminated ab initio (from the very start). It aims to put the contracting parties in the position had the contract never existed. There are limitations to its availability: o Affirmation – The claimant affirms to continue with the contract. Affirmation must be done with full knowledge of the representation and the right to rescind the contract (Long v Lloyd). o Lapse of Time – Where there has been too great a time lapse before rescission is sought this may be evidence of affirmation.  Fraudulent Misrepresentations – Time runs from when the fraud was discovered.  Non-Fraudulent Misrepresentation – Time runs from the date of the contract, not from date of discover. o Rights of Third Parties – Rescission not available when a third party has gained bona fide rights for value in property under the contract (Oakes v Turquand). o Restitution is impossible o Damages in lieu of rescission is a better remedy (Misrepresentation Act 1967, s2(2)).

Restitution Obligations In the event where a party benefits from unjust enrichment at the claimant’s expense (i.e. where the claimant mistakenly pays the defendant money or discharges him from debt), the money should be compensated via the restitution obligations established in Lipkin Gorman v Karpnale Ltd (1991).

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Topics 4 & 5: Terms & Clauses TIP - Analysing Terms of a Contract in Problem Questions 1) Is a statement a term of the contract or merely a representation? 2) Can any other term be implied into the contract? 3) If a statement is a term of the contract is it a: condition, warranty, or innominate term?

Pre-Contractual Statements -

Puffs: boastful statement made in advertising. Representation: statement that induces a party to enter a contract (but does not form part of it/not binding). Term: promise or undertaking that becomes part of the contract.

Representations -

Not all representations end up being part of the contract. To determine whether they did 2 questions must be answered (Heilbut, Symons & Co v Buckleton [1913]): o What was the intention of the parties?

CONTRACT LAW REVISION o Were the statements intended to raise expectations which the contract should -

uphold? Different factors must be considered by the judge to determine the answer of these: o Contract in writing  Written contract means representations are usually considered as terms. Statements before the contract are mere representation which would be inscribed within the writing.  Depending on the circumstances the court may consider verbal agreements to be binding within a partly written contract as in J Evans & Son (Portsmouth) Ltd v Andrea Mezario Ltd [1976].

o Signed Contract 

Signed agreements are binding with everything it contains (as terms) regardless if the parties have not read it (L’Estrange v Graucob [1934]) o Importance of the Statement  The statement made must be the substantial factor that adduced the promisee into entering into the contract. As such it would become an automatic term of the contract (Bannerman v White [1861]). o Reliance on Special Knowledge  Statements may be considered as being a term of a contract if the other party relied on the special knowledge of the promisor to enter into the contract (Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965]).  However, this does not apply where the statement was erroneous but ‘honest’ by the seller, where the other party could have investigated the validity of such statement for themselves. As such in these circumstances the statement would be a mere representation (Oscar Chess Ltd v Williams [1957]). o Timing of the Statement  The longer the interval between the statement and the contract ‘the greater the presumption that the parties did not intend the statement to have contractual effect’ (Pub Co v East Crown Ltd [2000]). See also Routledge v McKay [1954].

Incorporation of Terms o Right Place: terms should be visible and acknowledgeable by the entering party (Chapleton & Barry U.D.C [ticket case]).

o Right Time: terms must be made at the adequate time window. For example, hotel check in terms should be incorporated before the stay not after (Olley v Marlborough Court Hotel).

Parol Evidence Rule -

General rule, where the contract is in writing, extrinsic evidence (whether oral or in writing) are inadmissible to add to, vary, or contradict its terms. Anything that has been said yet not embodied within in a contract would not be considered as a term as it had never been intended to do so. o Exceptions:  Written agreement was not intended to be the whole off the terms of the contract. Parole evidence admissible (J. Evans & Son Case).  Parol evidence rule may be given to determine the validity of the contract.

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Rule can be used to show that the contract does not yet operate, or that it has ceased to operate (Pym v Campbell [1856]). There are more exceptions within the Law express book.

Classification of Terms: 3 Categories -

Conditions: Most important and substantive terms of the contract. It allows the injured of a breach of conditions to access full range of contractual remedies. If breached, the injured can claim damages and may repudiate the contract as to discharge himself from subsequent performance. (Poussard v Spiers). These terms ‘go to the root’ of the contract and are essential. o Promissory Conditions  A promise as to the fact or as to the future conduct, which forms an essential term of the contract. o Non-Promissory/ Contingent Conditions  These types of conditions impose an obligation to perform a condition for a contract to take effect. The enforceability of the contract will depend on the fulfilment of the stipulated conditions.

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Warranties: Less important than a condition. As such the contract may be able to continue after a breach, thus, does not entitle the innocent thee chance to repudiate and be discharged from the contractual performance, yet can allow claims for DAMAGES ONLY (Bettini v Gye [1876]). o Not necessarily a labelled ‘condition’ is considered as a condition by the courts. It is the importance of the term that categorises it as a condition or less (Schuler AG v Wickman Machine Tool Sales Ltd [1974]). See also: Dick Bentley Case.

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Innominate Terms: This is referred to cases where the parties dispute as to whether a term was a condition or a warranty as to receiving the effects either one of them. Innominate terms are the ‘wait and see’ approach. It only arises where the contract has broken down and the courts analyses the effect on the injured resulting from a condition or a warranty. It allows the court some flexibility as to deciding whether to award damages only or allow repudiation and/or damages (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962]). This approach can offer uncertainty however, where parties will not be sure of the contractual relationship.

Implied Terms These are terms that have not been incorporated within the contract however are incorporated by 3 understanding of what the contract is supposed to achieve, its legality, among other issues that may slip through the contract creating issues for either party. It offers protection and certainty for both parties within contract law.

Implied Terms can be applied into contract by: -

The Court o Implied Terms in FACT:

CONTRACT LAW REVISION 

Court may apply a term in fact to give it business efficacy. The ‘bystander’ test used for this derives from Shirlaw v Southern Foundries Ltd [1940 ]. A term by which an objective bystander would suggest and that both parties to the contract would indicate its approval ‘oh of course!’ test. See The Moorcock Case LEADING CASE IN THIS RESPECT (Term implicated and defendant liable for remedies).  However, at times the court must recognise that a term was omitted intentionally and reasonably and thus must allow the loss to lie where it falls (Attorney General of Belize v Belize Telecom [2009]). o Implied Terms in LAW  Terms implicated regardless the wishes of the parties. This is to regulate a particular agreement and to protect the interest of the weaker contracting side (Liverpool City Council v Irwin [1976]).  Test for implication of such terms:  Reasonable to imply (Liverpool v Irwin)  Test of Necessity (Scally Case).

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Custom o Implied of local common practice only where matters remain silent (Hutton v Warren). This does not allow such implications to override express terms (Les Affreteurs Reunis SA v Walford). o The courts will consider the following:  Certainty  Notoriety  Recognised as legally binding  Reasonableness  Consistency with express terms

SEE ANSON’S BOO...