Flashcards · 7162 · Topic 4

Law of contract flashcards

36 cards on Topic 4. Pick a subtopic or study them all.

Study mode needs JavaScript. Every card is listed below, so you can still cover the answers and test yourself.

All 36 cards

For a quick read-through or printing. Cover the right-hand side to test yourself.

The rules of contract law

What is a contract?: A legally binding agreement between two or more parties, enforceable by the courts.
Where is contract law found?: Mainly in case law, and in statutes such as the Consumer Rights Act 2015, the Unfair Contract Terms Act 1977 and the Misrepresentation Act 1967.
How do you structure an answer to a contract problem?: Was a valid contract formed? What are its terms? Has a term been breached, or is the contract vitiated or discharged? What remedies are available?

Theory of contract law

What is freedom of contract?: The idea that parties should be free to make whatever bargain they choose, and the courts should enforce it as agreed.
Why does the law limit freedom of contract for consumers?: Consumers usually have less bargaining power and knowledge than businesses, so statutes such as the Consumer Rights Act 2015 imply terms and control unfair terms.
Does English contract law require good faith?: There is no general duty of good faith; an agreement to negotiate in good faith is not enforceable (Walford v Miles, 1992). A duty may be implied in some relational contracts (Yam Seng v ITC, 2013).

Essential requirements of contract

What is the difference between an offer and an invitation to treat?: An offer can be accepted to form a contract. An invitation to treat cannot: goods displayed in a shop window (Fisher v Bell, 1961) or on shelves (Pharmaceutical Society v Boots, 1953), and most advertisements (Partridge v Crittenden, 1968).
What are the rules on acceptance?: Acceptance must be unconditional and mirror the offer; a counter-offer destroys the offer (Hyde v Wrench, 1840). It must be communicated (Felthouse v Bindley, 1862), except under the postal rule (Adams v Lindsell, 1818). Instant communication takes effect when received (Entores v Miles Far East, 1955).
What are the rules on consideration?: It must be sufficient but need not be adequate (Chappell v Nestle, 1960) and must move from the promisee. Performing an existing duty is not enough (Stilk v Myrick, 1809) unless it gives a practical benefit (Williams v Roffey Bros, 1991). Part payment of a debt is not consideration (Foakes v Beer, 1884).
What is intention to create legal relations?: In social and domestic agreements it is presumed absent (Balfour v Balfour, 1919), but this can be rebutted. In commercial agreements it is presumed present.
What is privity of contract?: Only the parties to a contract can enforce it (Tweddle v Atkinson, 1861). The Contracts (Rights of Third Parties) Act 1999 lets a third party enforce a term that is for their benefit or expressly allows it.

Contract terms: general

How do the courts decide whether a statement is a term or a representation?: By the importance attached to it (Bannerman v White, 1861) and the relative knowledge of the parties (Oscar Chess v Williams, 1957; Dick Bentley v Harold Smith Motors, 1965).
What is the difference between conditions, warranties and innominate terms?: Breach of a condition allows termination and damages (Poussard v Spiers, 1876). Breach of a warranty gives damages only (Bettini v Gye, 1876). For an innominate term, the remedy depends on the seriousness of the breach (Hong Kong Fir Shipping v Kawasaki, 1962).
How are terms implied by the courts?: In fact, where needed to make the contract work (business efficacy) or so obvious that it goes without saying; or in law, for all contracts of that type.

Contract terms: specific terms implied by statute law in relation to consumer contracts

Which terms does the Consumer Rights Act 2015 imply into consumer contracts for goods?: Goods must be of satisfactory quality (s9), fit for any particular purpose made known (s10), and match their description (s11).
What term does the Consumer Rights Act 2015 imply into consumer contracts for services?: That the trader will perform the service with reasonable care and skill (s49).
What remedies does a consumer have for faulty goods under the Consumer Rights Act 2015?: A short-term right to reject within 30 days; then repair or replacement; then, if that fails, a price reduction or the final right to reject.
Can a trader exclude the statutory rights for goods under the Consumer Rights Act 2015?: No. s31 makes a term that tries to exclude or restrict liability under ss9–11 not binding on the consumer.

Contract terms: exclusion clauses

What is an exclusion clause?: A term that tries to exclude or limit one party’s liability for breach of contract or negligence.
How is an exclusion clause incorporated into a contract?: By signature (L’Estrange v Graucob, 1934), or by reasonable notice given before or when the contract is made (Olley v Marlborough Court, 1949). Unusual or onerous terms need greater notice (Thornton v Shoe Lane Parking, 1971).
How does the Unfair Contract Terms Act 1977 control exclusion clauses?: In business contracts, liability for death or personal injury from negligence cannot be excluded; other exclusions must satisfy the requirement of reasonableness.
What is the contra proferentem rule?: Where an exclusion clause is ambiguous, it is interpreted against the party relying on it.

Vitiating factors

What is a misrepresentation?: A false statement of fact made by one party to the other, which induces the other to enter the contract. It makes the contract voidable.
What are the three types of misrepresentation?: Fraudulent: made knowingly, without belief in its truth, or recklessly (Derry v Peek, 1889). Negligent: under s2(1) Misrepresentation Act 1967, unless the maker proves reasonable grounds for believing it true. Innocent: made with an honest belief on reasonable grounds.
What are the remedies for misrepresentation?: Rescission (setting the contract aside), and damages for fraudulent and negligent misrepresentation. For innocent misrepresentation the court may award damages instead of rescission (s2(2) Misrepresentation Act 1967).
What is economic duress?: Illegitimate pressure on a party’s commercial interests that leaves them no practical choice but to agree, e.g. a threat not to deliver unless paid more (Atlas Express v Kafco, 1989). The contract is voidable.
What is duress to the person?: Threats of violence used to force someone into a contract; the contract is voidable if the threat was a reason for agreeing (Barton v Armstrong, 1976).

Discharge of a contract

What is discharge by performance?: Performance must be complete and exact (Cutter v Powell, 1795), but substantial performance allows a claim for the price less the cost of putting defects right (Hoenig v Isaacs, 1952).
What is frustration?: An event after formation, beyond either party’s control, makes performance impossible (Taylor v Caldwell, 1863), illegal or radically different (Krell v Henry, 1903). It does not apply where the contract is just harder or more expensive (Davis Contractors v Fareham UDC, 1956).
What is discharge by breach?: Breach of a condition, or a serious breach of an innominate term, allows the innocent party to treat the contract as ended. Anticipatory breach lets them sue before performance is due.
What is discharge by agreement?: The parties agree to end the contract, each giving up their rights; where only one side still has obligations, the release needs consideration or a deed.

Remedies

What is the aim of damages for breach of contract?: To put the claimant in the position they would have been in if the contract had been performed (expectation loss).
What is the test for remoteness of damage in contract?: Losses arising naturally from the breach, or within both parties’ reasonable contemplation when they contracted (Hadley v Baxendale, 1854). Unusually large profits not known about are too remote (Victoria Laundry v Newman Industries, 1949).
What is the duty to mitigate loss?: The claimant must take reasonable steps to reduce the loss caused by the breach and cannot recover for loss that could reasonably have been avoided.
When can a party recover for disappointment, and when is an agreed sum unenforceable?: Disappointment: where the contract’s purpose is enjoyment, e.g. a holiday (Jarvis v Swans Tours, 1973). A penalty clause out of all proportion to the innocent party’s legitimate interest is unenforceable (Cavendish Square Holding v Makdessi, 2015).
What equitable remedies are available for breach of contract?: Specific performance and injunctions, at the court’s discretion where damages are inadequate. An injunction may stop a party working for a rival in breach of contract (Warner Brothers v Nelson, 1937).