C5 Notes Law Of Contract

Date: 18/1/2011 Terminology No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Term Simple contract Special contract Executory contract Executed contract Consideration Breaching Repudiate Revocation of offer Binding / Not Binding Valid contract Void contract Violable contract Discharge of contract Remedies of breach Illegal contract Terminate / rescind / rescission Damages Plaintiff / defendant Appellant / Respondent Liable / Not liable Acquitted / convicted Innocent / guilty Enforceable contract Un-enforceable contract

C5 Notes Law Of Contract

Elements necessary for the formation of a contract

Elements necessary for the formation of a contract

Offer

Acceptanc e

Intention to create legal relations

Consideration

Capacity to contract

Contract must be genuine Willingnes s

Legality of objection

Possibility of performance

Minor below 18 Major above 18 Corporatio n No capacity i.e. persons who are insane or highly intoxicated

Term & condition must be legal Must be valid accordance to governmen t policy/law

Both parties must be able to perform the contract

Note: Every contract is an agreement, but, not every agreement is a contract.

Offer An offer is a definite indication of the offerors willingness to be bound by a contract on specified terms if they accepted by the offeree (offer means term put forward by offerer to the offeree).
Understood, or to make known indirectly / the manner in which a person behaves; behaviour include.

Rules / Principles of offer

1. Offer to individual/Group or whole world via Oral, written, implied/conduct.

2. Offer communicated via letter received and read, verbal listen instantly.

3.

Statement of price is not necessarily an offer to sell.

4. Invitation to treat ("an expression of willingness to negotiate. A person making an invitation to

treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed.) It means inviting others to make offers e.g. auctions, tender, application of shares.

5.

Termination of offer

a. On the death of either offeror or offeree before acceptance

b. By non-acceptance within stated time or reasonable time

C5 Notes Law Of Contract

c. When revoked before acceptance direct or indirect revocation-reliable source.

d. When rejected by the offeree

6.

Rejection of offer a. Counter offer

e.g . TV advertised special offer by Jusco (with while stock last), this is offer with term. This special offer means that Jusco must sales to customer unless stock has finished.

b. Conditional acceptance c. Cross-offers (when both parties make the offer on the same time.

C5 Notes Law Of Contract

Date: 25/1/11 Acceptance Acceptance is unconditional assent to the terms of an offer.

In other words, the acceptance means the offeree agreed to all the terms put forward by the offeror.

Rules/Principles of Acceptance 1. Offer (note: one, group or world; via oral, written, implied/conduct; acceptance normally
2. 3. 4. taken the same mode) Acceptance must be unconditional. (i) Subject to Contract No Contract (ii) Provisional Contract the draft agreement is binding. The postal rules a. Where the use of the post is within the contemplation of both the parties, acceptance is complete and effective as soon as a letter of acceptance is posted. b. This is even though it may be delayed/even lost altogether in the post.

Intention to create legal relations It means that whether parties intend to create a legally binding relationship in laws that are a contractual relationship. In commercial agreement, the intention of the parties would be clear but in social & domestics agreement, the intention of parties may not be clear.

Case: Simpkins vs Pays (1955) The defendant, her granddaughter, and the plaintiff, a paying lodger shared a house. They all contributed one-third of the stake in entering a competition in the defendant's name. One week a prize of 750 was won but on the defendant's refusal to share the prize, the plaintiff sued for a third. It was held that the presence of the outsider rebutted the presumption that it was a family agreement and not intended to be binding. The mutual arrangement was a joint enterprise to which cash was contributed in the expectation of sharing any prize.

C5 Notes Law Of Contract

Considerations

(1) Considerations need not be adequate the contracting parties are free to make their own bargain. (2) Considerations must be sufficient.
The Rules in Pinnels Case Any amount due on the date must always be paid in full. Any lesser amount on the due date will be insufficient consideration. Exceptions:a) When the creditor demands an earlier payment from the debtor. b) When something of value is added. c) When payment is made by third party. d) Composite agreements = Compound.

(3) (4) (5) (6) (7)

Considerations must be genuine. Considerations must be legal. Considerations must be possible. Considerations must be move from the promissee to the promissor. Considerations must not be past (note: consideration must be present at the time of the contract). Exceptions:(a) under the Bills of Exchange Act (b) when services are rendered at the request of the other party.

Equitable Estoppel Common law rigid and not flexible. Looks at the facts of the case only but not the intentions. Equity law Not rigid. Does justice. Not only looks at the facts but also the intentions of the parties.

Case : High Trees case.

Doctrine of Part Performance The court will apply the doctrine where: (a) The contract is such of nature that the courts can effectively compel performance .This doctrine doesnt apply to contract of personal services. (b) The circumstances are such that it will be fraudulent on the defendants part to take advantage of the lack of written evidence. (c) There is adequate and admissible oral evidence of the term of the term of the contract.

Note:

Common law oral evidence not accepted Equity law yes. Contracts (a) must be in writing ; (b) must be evidence in writing

C5 Notes Law Of Contract

The court will apply the doctrine to protect innocent party by applying the official bystandard test i.e. an imaginary 3rd party will listen to the story and see whether this 3rd believe or not

C5 Notes Law Of Contract

Capacity to Contract Those who have an agreement are expected to have the capacity to enter into a contract. Usually adults who have full capacity are able to enter into contracts. However, there are groups who have limitations when entering into contracts. The law provides special protection to those with a mental disability. Minors (< 18years) Major (>18 years) Corporations Minors Contract Act Contract for necessaries Contract for the minors benefits Case: Doyle V White City Stadium (1935) This is where there was an agreement to train a boxer. There was no money paid, but the contract was enforceable because it was considered that the contract was beneficial because of the training. In another case where the contract was enforceable was in Clements v London & NW Rail Co (1894) where certain benefits were removed from the contract, but the contract was considered to be beneficial. Public companies -> Certificate of Incorporation -> Contract >commence Trading Private companies -> Certificate of Incorporation -> Certificate of Trading -> Contract

Date: 8/2/11 Exemption clauses / Exclusion Clauses / Limitation of Liability Clause Rules:1. The exclusion clauses must be brought to the attention of the other party either before or at the time of the making of the contract. Case : Olley v Marlborough Court

2. An exclusion clause printed on a receipt is not valid cos it is brought to the attention of the
other party only after the contract. Case : Chapelton v Barry U.D.C

3. If one party misrepresents the extent of the exemptions clauses, it will bind the other party.
Case: Curtis v Chemical Cleaning and Dyeing 4. As a general rule, the parties are bound by what they sign.

C5 Notes Law Of Contract

The unfair contract term act 1977 Condition Principal / fundamental term Breach terminate + Claim Damages Innominate Term reasonable Cannot Termination, can claim damages

unreasonable Can Termination, can claim damages

Warranty Subsidiary term Cannot terminate but can claim damages There are 3 reasons why an exemption clause inserted into the contract cannot be relied on. 1. The Unfair Contract Term Act 1977. Sec.2.(1) provide that a clause purporting to exempt liability for death/ personal injury cause by negligence will be of no effect. Sec.2.(2) state there is other cases due to negligence the clause only will be valid if it is reasonable. The act does not define reasonable but gives some guidelines: (i) The strength of the bargaining position of the parties relative to each other. (ii) Whether the customer received an inducement to agree to the term. (iii) Whether the customer knew or ought (duty or obligation) reasonably to have known of the existence or extent of the term. 2. The Contra Proferentum Rule the clause which ambiguous is interpreted against the interest of the party who seek to rely on it. This rule is strictly applied in the event of a fundamental breach of contract. 3. Oral representation/misrepresentation can over-ride exemption clause upon which he seeks to rely.

C5 Notes Law Of Contract

Vitiation of Contract

Common both parties make o same mistakes Mutual each party make different mistake Unilateral one party makes mistakes and he is not aware but the other party is aware.

Mistake

Nature of the document Rules:(1) If a person is mistaken as to the content of the document, the contract will be binding. (2) If a person is mistaken as to the nature of the document, whether it is binding or not will depends on whether he was careless. Note: non est factum not my act Identity of the other party Rules:(1) If a person has only one person in mind, with whom he wishes to contract., and by mistake if he contracts with anyone else, it will be a void contract, (2) If a person has no particular person in mind with whom he wishes to contract, then, whom so ever he contracts with, will be a valid contact. In Equity (when the rectification is possible) Rules:(1) There must be concluded agreement. (2) The intention of the parties must be clear. (3) The mistake must be on the expression only. (4) The mistake must have occurred at the time of the making of the contract. (5) The mistake must be common to both parties. (6) The mistake must be exactly proof by the party themselves.

C5 Notes Law Of Contract

Date: 22/2/11 Misrepresentation

Misrepresentation is an untrue statement of fact made by one party to the contract to the other party to induce the other party to enter into the contract. Fraudulent Negligent

Innocent

Statement made which is not true without knowing that it's untrue.

No intention to deceive. Remedies: a) Terminate contract and claim damage (this is based on court discretion, normally, hard to claim) b) Repudiate contract c) Affirm contract

Statement made which is not true despite knowing it's not true. Has intention to deceive.

Statement made carelessly or recklessly without checking the facts. Case : Hedley Byrne

Remedies: a) Terminate contact and claim damages. b) Notify police or prosecute c) Bring civil action in tort of deceit.

Remedies: a) Terminate contract and claim damages (Misrepresentation Act).

What plaintiff must prove? 1) The statement was made to him. 2) He relied upon the statement. 3) He acted upon it. 4) As a result, he suffered losses. When rectification is not possible:

1) The party cannot be restored to their original position. 2) The party knowing of the misrepresentation take the benefit under the contract or in some
other way affirm the contract.

3) 3rd party have acquired rights under the contract. 4) Long delay in taking action (laches).
Duress There is threat of physical force or violence. In order for there to be a valid contract the parties must act freely. If one of the parties is forced to make the contract by violence or the threat of violence, that is duress, and renders the contract voidable. Undue Influence

No threat of physical force / violence but merely persuasion (is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible).

Case: Allcard v Skinner 1887 In 1867 an unmarried woman aged 27 sought a clergyman as a confessor. The following year she became an associate of the sisterhood of which he was spiritual director and in 1871 she was admitted a full member, taking vows of poverty, chastity and obedience. Without independent advice, she made gifts of money and stock to the mother superior on behalf of the sisterhood. She left the

10

C5 Notes Law Of Contract

sisterhood in 1879 and in 1884 claimed the return of the stock. Proceedings to recover the stock were commenced in 1885. It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of undue influence brought to bear upon the plaintiff through the training she had received, she was disentitled to recover because of her conduct and the delay.

Illegal Contract This is referring to contracts illegal at common law. Illegality in English law is a potential ground in English contract law, tort or trusts for a court to refuse to enforce an obligation. The illegality of a transaction, either because of public policy under the common law, or because of legislation, potentially means no action directly concerning the deal will be heard by the courts By Status To commit crime or tort Beresford v Royal Insurance Co. Ltd Tendency to sexual immorality Pearce v Brooks Freedom of marriage Trading with enemy Injuring public service Parkinson v College of Ambulance Restraint of trade

Between buyer and seller of businessBetween employer and employee Solus trading agreement Case: Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894]Case: Fitch v Dewes Case: Esso Petroleum Co. Ltd. v. Harper's GarageWhether an employer can restraint an employer or not would be depends on the followings: The status of the employee in the organization Whether consideration has been given Whether the employer if merely preventing the employee from competing with him The period of restraint Whether employee has a access to the employers client and record In the Soluss trading agreement, a manufacturer / wholesaler will refuse to make the merchandise available for the distribution to the public unless the distributor accept certain condition which restrict his liberty of trading e.g. he must not supply goods of competitor. All contract in restraint of trade are illegal and void but there are exceptions. For such restraints to be valid, there are three requirements which must be fulfilled: There must be a valid interest which the party imposing the restraint is trying to protect; The restraint must be no more extensive than is reasonable to protect that interest; and The restraint must not be contrary to the public interest.

11

C5 Notes Law Of Contract

Date: 1/3/11 Question (1) Ernest is a commercial fish farmer producing a speciality salmon. In the June he contracted with Eric a shipper who agrees to take a full consignment of salmon for the Christmas treat to Sunset Island where they inherited a various form of fish. The shipment was having take place in Nov and the agreed price 50,000. In Aug, Eric told Ernest that he would be unable to ship the fish due to other commitment. Other carries are now quoting 150,000 for the same consignment and these are rumours that he Sunset Island to be invaded by a neighbouring country. Advice Ernest.

12

C5 Notes Law Of Contract

Question (2) Albert has an assortment of shoes in his shop windows. Each pair has a price tag on it showing price of 10. Brenda sees a pair of shores in the shop and wants to buy them. In the window is a larger notice which read special offer, super shoes sales, all un-tag shoes 7. Brenda asked Albert for a pair of shoe and the pair of 7 shoe. Albert informs Brenda that has been a mistake and the price on the tagged shoe should read 90. And the special offer shoes are 50. Advise Brenda whether or not she can have the shoe at the lower price.

13

C5 Notes Law Of Contract

Question (3) Collin places an order to advertise a new machine in this month useless sales trade journal for 15,000. The magazine inadvertently advertised the machine price for 150. Debbie saw the advertisement and without seeing the machine, said shell have it in the price of the paper. Collin has not seen the error and said she has better come and view the machine first. Debbie said she could not come that earning but would come in the following day. Eric also saw the advertisement and telephone Collin for a demonstration of the machine. Once Eric saw the demonstration, he said he will have it for 150 but Collin refused to sell it to him saying that there had been a mistake and price of the machine is 15,000. There was a long discussion over the price and finally Collin let Eric have it 14,500. In fact the machine was only worth 10,000. Later in the evening, Debbie was told by Fidel that Eric has brought the machine. After she has a couple of drinks, Debbie met Collin and said she would have the machine for 15,000 before Collin could tell her the machine had already been sold.

Q1: Eric feels that he has been cheated, and wants to know if he can sue Collin for breach of contract as he feels he has paid too much for the machine. Advise Eric. Q2: Debbie wants to know if the contract is enforceable against Collin. Advise Debbie.

14

C5 Notes Law Of Contract

Date: 8/3/11 16. Discharge of Contract (how a contract comes to the end)

By Agreement

By Performance Charles Richards Ltd v Oppenheim

By Breach Anticipatory breach

Operation of Law

Frustration

Both parties mutually agreed to terminate the contract (must be in writing) Material Alteration Merger Bankruptcy Death Notes: Charles Richards Ltd v Oppenheim Charles Richards v Oppenheim [1950] 1 KB 616 A buyer who pressed for delivery after the delivery date was not allowed to sue for late delivery but could retract the forbearance by giving the seller a new delivery date (a reasonable date) beyond which he must not go. The Courts have extinguished legal rights on a forbearance when the party relying on the forbearance is not able to return to the status quo ante. A buyer who states that he will accept goods of a lesser quality from those contracted for will lose his right by forbearance if the seller then acts in such away that he cannot then supply goods of the contract quality within the delivery period. Main items in a contract 1. Consideration 2. Duration 3. Name of contracting parties 4. Title of agreement 5. Signatures

15

C5 Notes Law Of Contract

17. Frustration (totally impossible to perform) Supervening Illegality Destruction of the specific thing necessary for the performance of contract Taylor v Caldwell Depends on the happening of a certain event Death/personal incapacity Vital change in circumstance

Krell v Henry

Codor v The Barron Knights

Tsakiroglou & Co. Ltd. v. Noblee Thorl.

The effects of frustration The l law Reform (Frustration Contract) Act: 1. All money paid before frustration is recoverable. 2. Money payable before frustration ceases to the payable. 3. Where one person had benefited monetary, the court will order that party to pay a reasonable sum to the other party. 4. Where one person has benefited other than monetary, the court will order that person to compensate a reasonable sum to other party.

Notes: Cases Taylor v. Caldwell 1863 Facts This contract, entered into in May 1861, involved the letting of the Surrey Gardens and music hall for the purposes of concerts and other events in June and August. After the agreement, but before the first concert, the hall was destroyed by fire. The fire was not the fault of either party. The concerts could not go ahead, and the plaintiffs sued for breach of contract. Held It was held that since performance was impossible, this event excused the parties from any further obligations under the contract. Blackburn J justified this approach on the basis that where the parties must have known from the beginning that the contract was dependent on the continued existence of a particular thing, the contract must be construed: as subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without the fault of the contractor. Krell v Henry Facts The defendant had made a contract for the use of certain rooms in Pall Mall owned by the plaintiff for the purpose of watching the coronation procession. He paid a deposit of 25 and was to pay the balance of 50 on the day before the coronation. Before this day arrived, the King was taken ill, and the procession postponed. The plaintiff sued for the payment of the 50, and the defendant counter-claimed for the return of the 25 (though this claim was later dropped). Held The Court of Appeal held that the postponement of the procession frustrated the contract. Although literal performance was possible, in that the room could have been made available to the defendant at the appropriate time, and the defendant could have sat in it and looked out of the window, in the absence of the procession it had no point, and the whole purpose of the contract had vanished. The decision of the trial judge in favour of the defendant was upheld.

16

C5 Notes Law Of Contract

Condor v Barron Knights Facts The drummer with a pop group was taken ill. Medical opinion was that he would only be fit to work three or four nights a week, whereas the group had engagements for seven nights a week. Held His contract of employment was discharged by frustration. He was incapable of performing his contract in the way intended.

Tsakiroglou & Co. Ltd. v. Noblee and Thorl GmbH 1962 House of Lords Facts The appellants agreed to sell groundnuts to the respondents to be shipped from Port Sudan to Hamburg. Both parties expected that the shipment would be made via the Suez Canal, but this was not specified in the contract. The Suez Canal was closed by the Egyptian government, and this meant that the goods would have had to be shipped via the Cape of Good Hope, extending the time for delivery by about four weeks. The appellants failed to ship the goods and the respondents sued for non-performance. The appellants argued that the contract had been frustrated. Held The House of Lords held that this was not frustration. The route for shipment had not been specified in the contract, nor was any precise delivery date agreed. The fact that the re-routing would cost more was regarded as irrelevant. The appellants were in breach of contract and the respondents entitled to succeed in their action.

18. Remedies for Breach of Contract Refusal of further performance Action for damages
(a) Liquidated: Pre-estimated damages agreed by the contracting parties of the time of contract.

Specific performance
Not granted if damages are an adequate remedy. Not granted for personal services.

Action on quantum meruit

Injunction

Rescission

(b)

Un-liquidated :

Damages assessed by the court by applying the common law rues of assessment. Penalty clause is void. Hadley v. Baxendale Victoria Laundry v Newman Industry

Hoenig v Isaacs

Lumley v. Wagner

To sue for damages: 1) It must arise naturally.

17

C5 Notes Law Of Contract

2) It must be foreseeable. To claim for damages, it must not too remote in law; the test
Foreseeability Test.

18

C5 Notes Law Of Contract

Date: 15/3/11 19: Privity of Contract Only the contracting parties can acquire rights and liabilities under the contract. Stranger or 3rd party cannot benefit under contract but there are exceptions:

a) Action by beneficiary under a trust. b) Contract of insurance. c) Negotiable instrument. d) Law of agency.

19