Contract Lecture Notes Term 1 PDF

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Lecture 1: Intro to Contract Law -At the heart of any contract is the agreement between the parties.-In essence, a ‘transaction’ is any kind of exchange between individuals or businesses. It can be reciprocal (each individual provides something to the other), or only involve one party providing some...

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Lecture 1: Intro to Contract Law -At the heart of any contract is the agreement between the parties.

-In essence, a ‘transaction’ is any kind of exchange between individuals or businesses. It can be reciprocal (each individual provides something to the other), or only involve one party providing something to another without anything being provided in return (a gift). Contracts are a particular type of transaction which involve an economic exchange, and which are enforceable as a matter of law. -Contract law regards contacts as mutual obligations assumed voluntarily by (at least) two parties towards each other. In focusing on voluntary obligations, contract law differs from the other two branches of the Law of Obligations, Tort Law and the Law of Unjust Enrichment. -A contract is a transaction based on an agreement. It can be oral or written. It could be a standard-form contracts or negotiated (partially or fully). Many contracts are performed instantly or over an extended time for performance. -Contract law determines: * whether and when a contract has been concluded * what the obligations between the parties are * what should happen if there has been some flaw during the process of making a contract * when the parties can be discharged from their obligations * what should happen if one party has failed to honour its obligations -There is no broader statutory basis for contract law, although there has been discussion in the past about the potential for codifying the common law rules. -Broadly speaking, there are five key stages to a contract: 1. Pre-contractual: negotiation over terms 2. Contract formation: concluding a binding contract 3. Determining the substance of a contract 4. Performance of the contract 5. Discharge -Relevance of ‘the contract’ in a commercial deal: -Planning stage: contract to record agreement; contract law as backdrop for contract

-Disputes: problem occurs during performance; relationship between parties broken down. -‘Freedom of Contract’ is a fundamental principle of English Contract Law. “Parties are ordinarily free to contract on whatever terms they choose, and the court’s role is to enforce them.” -There are some limitations at common law: effectiveness of certain contract terms; penalty clauses; clauses granting wide discretion to one party.

Lecture 2: The Elements of Contract Law -English Contract Law looks for four elements: an offer made by one party, an acceptance of that offer by the other party, an intention to be legally bound (i.e. an intention that the agreement constituted by the offer and acceptance should be legally enforceable), and consideration (something of value given by each party in return for what the other party provides). -Offer and acceptance together constitute the agreement between the parties. A common practical difficulty is to identify the moment at which there was an agreement, particularly when there is extensive negotiation between the parties. -The requirements of consideration and intention to create legal relations are important because these are the criteria used to determine whether the agreement reached between the parties should be legally enforceable. Not every agreement will therefore be legally enforceable as a contract. -Agreement + objective standard: The question of whether the parties have reached an agreement is determined objectively i.e. based on what the parties have said and how they have acted towards one another, rather than based on what they subjectively thought they were doing. -If, objectively, what was said clearly was not what was intended, it may be that there is no agreement at all. Hartog v Colin and Shields [1939] -There is also no contract where the parties are at cross-purposes over what has been agreed (sometimes referred to as a “mutual mistake”). Raffles v Wichelhaus (1864) -Furthermore, where one party is mistaken about the terms of the contact or the identity of the other party, and the other party knows (or should know) about that mistake, there will be no agreement either. Shogun Finance Ltd v Hudson [2004] -An offer can be described as “an expression, by words or conduct, of a willingness to be bound by specified terms.” -It has to be distinguished from an invitation to treat. An invitation to treat is an indication of a willingness to enter into negotiations. Thus, advertisements, websites, and shop-displays are not offers in the legal sense, but merely invitations to treat. -An acceptance is described as “offeree has to accept the offer on the terms stated by the offeror.” Any suggestions for change would result in counteroffer. Hyde v Wrench (1840). -It must be communicated: by words or inferred from conduct; any reasonable method unless specific method stipulated by offeror; difficulties posed by some means of communication. -A unilateral offer is when the offeror has promised something in return for performance by the offeree (e.g. reward for finding and returning lost item). Offeree does not promise to

perform in return -the acceptance isn’t communicated in advance; it is in the very acts requested by offeror. No obligation on offeror until performance is completed. Errington v Errington [1952]. -Consideration requires each party to promise to do something in return for the other party’s promise (bilateral contracts) -In the case of unilateral contracts, performance by offeree would also be consideration. -The consideration has to have value, but nominal value sufficient. -Intention to create legal relations: normally presumed in commercial agreements Esso Petroleum v Customs & Excise [1976]. -Presumption against in social and domestic arrangements (e.g. planning to go to a particular restaurant with friends)

Lecture 3: Defects in Contract Formation (vitiating factors) -The instances when English contract law will intervene in a contract because the process of reaching an agreement has been tainted in some way. It is not possible to intervene in a contract because the contract may not be economically advantageous to one of the parties, or because of some general feeling that the contract is unfair. Instead, the parties are expected to look after their own interests. -The law has developed four doctrines which provide the basis for undoing a contract when the process of reaching an agreement has been tainted by what one party has done or said. They are misrepresentation, undue influence, duress and mistake. Together, these are often referred to as ‘vitiating factors.’ -In the case of the first three of these, a contract becomes voidable, i.e. the ‘innocent’ party has the right to set the contract aside. If the innocent party chooses not to do so, or delays unduly, then the contract continues. Compensation may still be awarded though. -In the case of a mistake, the law treats the contract as not having been concluded at all- usually expressed as the contract being void from the outset. There is no right, or requirement, for a party to actively set aside the contract- this is automatic. -Generally speaking, each party to a contract has to make sure they seek out all the information they need before deciding to enter into a contract. There is no obligation at common law for one party to voluntarily disclose any relevant information to the other party. However, once something is said, this must be true and accurate. Misrepresentation -One party makes a false statement which is relied upon by the other party or induces the other party when entering into the contract = actionable misrepresentation. -It must be a false statement, or representation by conduct, of present fact or law. Spice Girls Ltd v Aprilia World Service BV [2002] (Spice Girls agreed to a photoshoot, but by this point one member had decided to leave but Aprilia was not informed, causing a misrepresentation of facts). -This is contrasted with ‘statement of intention,’ and ‘statement of opinion.’

-Party claiming misrepresentation to show that decision to enter into contract ‘materially influenced’ by the misrepresentation. -the misrepresentation had a real and substantial part in that decision, even if there were other reasons. -There are the different types: fraudulent, negligent or innocent. The main remedy is rescission. -Fraudulent: tort of deceit -Negligent: tort of negligence under Hedley Byrne. -There is a statutory right to damages under the Misrepresentation Act 1967 -There are special rules for consumer contracts under Consumer Protection from unfair trading regulations 2008. Undue Influence -One party is under the undue influence of the other party and contract is entered into under such influence. This generally means the party’s judgment not free and independent of the other party (usually because of the relationship between both parties). The contract can be rescinded. -Rebuttable presumption of undue influence where: 1. Relationship of trust and confidence: -claimant has reposed trust and confidence in the other party, or other party as acquired ascendancy over the claimant O’Sullivan v Management Agency & Music Ltd [1985]. -irrefutably presumed where: parent and young child; solicitor and client; doctor and patient; spiritual adviser and follower. 2. Contract seems unfavourable to the claimant - “calls for an explanation” - “is not readily explicable by the relationship between the parties” Duress -A party may be pressured into a contract. There have been rare instances where such pressure was a threat of violence or other harm, but often, the pressure is economic. -English law presupposes that parties will seek to protect their economic interests when negotiation contracts, and a degree of commercial pressure is therefore acceptable. -When a decision to enter into a contract was the result of illegitimate pressure, then we have a situation of duress. -Pressure is treated in law as illegitimate threat. It induces the other party to enter into a contract (or agree to variation) as a result. The other party would not have entered into the contract but for this threat, the contract can be set aside (rescinded) on the basis of duress. -Illegitimate threat: any unlawful threat (to commit a crime or a tort, or a threat to breach a contract (civil wrong)). Lawful pressure may be regarded as illegitimate if exerted in bad faith. -Causation: but for test; party on the receiving end of the contract to consider reasonable availability of alternative options. Mistake -Finally, there are instances when parties enter into the contract on a shared common assumption about some fundamental matter. If it subsequently turns out that this matter did

not exist at the time of entering into the contract, it may be the case that the contract is void altogether (or rather, non-existent), because it is based on a mistake. It is important to note that the ‘mistake’ has a very specific and rather narrow meaning in this context. -Common misassumption that contract can be performed as planned when it cannot (already not possible before contract concluded but neither party is aware). This makes the contract void from the outset. -The requirements of a common mistake: 1. both parties enter into the contract on assumption that a certain state of affairs exists (e.g. existence of something to be provided under the contract, or a vital attribute thereof. Also circumstances essential for the performance of the contract) 2. If parties are mistaken and state of affairs does not exist, contract will be void; unless: (i) there is a provision in the contract which provides for the risk of this mistake; or (ii) one of the parties is at fault in respect of the non-existence of that state of affairs

Lecture 4: The Contents of a Contract -Each contract is made up of terms. These may be negotiated by the parties, or they may have been pre-drafted by one of the parties. It will be important to establish whether terms have been incorporated into a contract – this must be done before the contract is concluded. -At a later point, the parties may disagree as to the meaning of a particular term. The courts may be called upon for an interpretation of that term. -Furthermore, certain types of contract terms are subject to controls either at common law or under legislation. -During the performance of a contract, it may become necessary to vary the terms of the contract. It is important that each variation is supported by further consideration. -Finally, a contract may have an effect on someone who is not a party to that contract, so called third parties. Terms and their incorporation -The terms agreed to between the parties are generally referred to as express terms. -Contrast with representations: -made by the parties during the process of negotiating the contract -disagreement between the parties as to whether a particular statement has become term of contract (some oral terms may not be explicitly stated in the written document but are still legally binding) -determined on the basis of the objective intentions of the parties. -Terms may also be incorporated into a contract in several instances: (i) any term contained in a signed document is deemed to be part of the contract; (ii) reasonable notice is given of terms before the contract is concluded; (iii) there is an established course of dealing between the parties on a common set of terms (for contracts made repeatedly between the same parties) (iv) it is a trade custom in the parties’ trade to incorporate certain terms into a contract. -Implied terms: -Terms that are implied ‘in law’: either under statute or at common law for certain types of contract.

-Terms implied ‘in fact’: where necessary to give full effect to the intentions of the parties; tests (business efficacy [this term is needed to make the contract as a whole to work] officious bystander [would a regular person be like yeah that’s bait]) -Not where contract would otherwise produce disadvantageous result. Interpretation -At some point during the performance of a contract, the parties might disagree as to what precisely a particular term was intended to mean. If this disagreement reaches a court, the court will have to identify how that term should be interpreted. -The general question is what the term would mean to a reasonable person who has all the relevant background knowledge that was reasonably available to the parties at the time the contract was made, bearing in mind the whole of the contract. -Priority is given to the natural and ordinary meaning of the words. -Departures: (i) when considering the overall purpose of the term and of the contract as a whole suggests a different meaning; (ii) the facts and circumstances known at the time of contracting; and (iii) particularly where a term is open to more than one interpretation, commercial common sense. Common law and statutory controls -Whilst freedom of contract has a broad scope in English contract law, there are some instances when the effectiveness of particular types of contract term is subjected to legal controls. -Important to note that the courts do not have a general power to change individual terms of a contract, or to ‘rewrite’ a contract for the parties. However, some terms have been restricted at common-law, with much greater intervention by Parliament. -Unfair Contract Terms Act 1977 (UCTA): Primary target: limitation and exclusion clauses -Contract terms which seek to restrict the liability of one of the parties for loss caused by negligence or breach of contract, and related clauses. -Clauses within the scope of UCTA are ineffective unless they satisfy the test of ‘reasonableness’ under the Act. (None of the clauses which UCTA polices are automatically ineffective except: clause seeking to exclude liability for death or personal injury caused by negligence). -Courts have generally applied their own powers under UCTA restrictively in the case of commercial bargains where the parties are of comparable bargaining strength. -The ‘reasonableness’ is not a test that can be applied to every contract term- only those specific types of term withing UCTAs scope. -Consumer Rights Act 2015: Part 2 of the CRA controls terms in consumer contracts (based on a European Directive) -It can be used to challenge any tern in a consumer contract, whether negotiated or pre-drafted (except terms which specify the main subject matter of the contract and the price payable under the contract). -Consumer contracts therefore open to broad fairness review. It is unfair if: 1. contrary to the requirement of good faith, 2. it causes a significant imbalance in the parties’ rights and obligations, 3. to the detriment of the consumer

Variation of a contract -Many contracts are designed to be performed over a period of time, e.g. a contract to build or refurbish a house. At some point during the performance of a contract, it may become necessary to make changes to what had originally been agreed, i.e. there is a need to vary some of the terms of the contract. -Adjustments to what has been agreed after contract concluded. -As a general rule, any variation to a contract must be supported by further consideration (e.g. a party requiring more money to complete performance already promised has to provide something additional to the other party). -Courts have developed some flexibility -practical benefit might be sufficient consideration where there is no indication of duress Williams v Roffey Bros [1991]. -not in respect of a variation whereby a lesser sum than the one due is agreed to satisfy the full debt (unless consideration beyond practical benefit provided). -Exception to consideration requirement: promissory estoppel -one party has promised clearly and unequivocally that it will forego some of its rights under the contract. -other party relies on this promise (no indication that the promise was obtained improperly) -party making the promise will be estopped from relying on the rights it has promised to forego. -Effect of an estoppel varies: -in some instances, the rights may be extinguished altogether (resulting in a de facto permanent variation to the contract). -in other instances, party who is estopped may give reasonable notice to reassert its rights (original situation will be reinstated, unless it would be inequitable to do so). Third parties -Contracts are usually only of concern to the contracting parties. However, sometimes, contracts are intended to have an effect on others who are not party to such contracts, i.e., third parties. -Privity of contract: only the parties to a contract can sue and be sued on it. A person who is not a party cannot enforce any aspect of that contract (even where a term of the contract confers a benefit on that person). -Contracts (Rights of Third Parties) Act 1999: provides a broad exception to the doctrine of privity where: -term in a contract is expressed to be enforceable by a third party; or -term purports to confer a benefit on a third party -third party is identified by name or meets a particular description.

Lecture 5: Discharge and breach -In most instances, a contract ends after performance by both parties of their respective obligations. Once they have performed, the parties are discharged. -However, contracts are not always performed as planned. Sometimes, unexpected events outside the control of the parties may make performance difficult or impossible. Although

the parties should make provision for this in their contract, there are narrow grounds on which the doctrine of frustration will operate to discharge the parties from any further obligation to perform. -Where one party has not performed its obligations, that party will be in breach of contract. The primary remedy in English law is to award damages to the party not in breach for any losses suffered. Some breaches allow the opposite party to terminate the contract and bring it to an end. Discharge and performance -The expectation is that the parties will perform their promises in accordance with the contract (obligation to perform is strict and once performance is complete, the contract is discharged (comes to an end)). -Failure to perform is a breach of contract. There are several remedies for breach such as termination and damages -Fault is not a prerequisite- liability for breach of contract is strict this means the only question her...