Contract Law FLK 1 SQE

This is only from vitiating factors to discharge and vari

contract is …. for mistake

void

contract is …. for duress

voidable

contract is … for undue influence

voidable

contract is … for illegality or contravention of public policy

void

contract is …. for misrepresentation

voidable

What is a void contract?

A contract without any legal effect from the beginning so no remedy is available.

What is a voidable contract?

A contract that is valid until it is rescinded. The innocent party can rescind or affirm the contract.

What is recission?

Where the party is rescinded the parties are put back in the position they were in had they never entered the contract.

What are the two things needed for Mistake to void a contract?

1. So fundamental that it prevents the formation of the contract because the parties were not properly in agreement.

2. Makes what has been agreed fundamentally different from what was intended.

Common Mistake

Mistake in Common. Both Parties have made the same mistake.

Example of Common Mistake

The parties contract for the hire purchase of a boat. The seller and the buyer do not know but at the time of the contract formation the boat has sunk and is no longer available.

Mistake as to Quality

Not possible for common mistake and unilateral mistake. You cannot have these forms of mistake: a carriage is a carriage doesn’t matter the quality.

Mutual Mistake

Where parties are both mistaken about different things. Would a reasonable person take the agreement to mean what each one did. If the result of this is an ambiguous contract then it is void.

Example of mutual mistake.

Wine auction. The seller stocks two types of wine both under the same generic name. One set of wine is more expensive than the other. The buyer thinks that they are bidding for only type of the expensive wine and price their bid accordingly. The seller thinks they are selling the less expensive wine. The buyer wins the bid but the contract is void because neither were in agreement and a reasonable person would have also been confused as to which wine they were buying.

Unilateral Mistake

One party is mistaken on the terms but the other is aware of the mistake.

Example of unilateral mistake

A homeowner wants to get some work done on their house and accepts bids from contractors. Each price is around £1,500 except one which is priced at £400. The homeowner accepts the £400 offer. The builder says that it was a typo the real price is £1,400. The contract is void for mistake. It is assumed that the homeowner would have known that it was a mistake because it was so much lower than the other bids.

Mistake as to identity.

One party contracts on the basis that they think the other is someone else. If they are wrong then they might have a case for misrepresentation. This kind of mistake can void a contract if it is fundamental to the first party entering the contract.

Example of potential mistake to identity.

Where it is fundamental to the contract not just a factor, for example, A enters into a contract with B to sell a rare item knowing that B is a well-known collector and restorer of these rare items. C pretends to be B and buys the item. A contends that they would never have sold the item to anyone except B.

Non Est Factum

A doctrine to protect those who mistakenly sign a document thinking it was something else. Very strict. Must be radically different to what the party thought they were signing and they cannot have been careless.

Rectification.

Where the mutually agreed terms are incorrectly written down. Must fail to represent the parties’ wishes or that the written document is clear but irrational or arbitrary. The court will rectify it if they can deduce the common intention from the evidence of the parties. Cannot rectify a contract where there are third party rights involved in the written contract.

Example of rectification.

As a part of a divorce settlement the husband contracted to pay the wife money that is free of income tax. This is impossible under the tax laws. The settlement is changed so that the husband pays a greater amount that once income tax is deducted it would be the original amount intended.

Duress is governed by

Common law

Undue influence is governed by

Equitable doctrine.

What is needed for Duress.

Illegitimate pressure that induced the party to enter the contract.

What are the three types of Duress?

Person, Goods, Economic.

Duress of the Person

Physical threat, like they will kill you if you don’t enter this contract. Needs to be one of the reasons to enter the contract. Doesn’t have to be the only reason to enter the contract.

Duress of Goods

A party unlawfully keeps goods to induce the other party into a contract. Less likely to succeed than Duress of Person.

Economic Duress

One party uses stronger economic pressure to pressure the other into a contract. Needs to be significant.

Two things needed for economic duress

A “coercion of the will so as to vitiate consent,” and Illegitimate pressure.

Things to determine illegitimate pressure?

Does it deprive the innocent party of practical choice?

Is the threat unlawful? (can be lawful but only in rare cases.)

Did the innocent party seek to rely on the contract?

Did the innocent party protest?

Undue Influence.

Look to the state of mind rather than the conduct of the parties. Did the party reach the conclusion by themselves? Focus on personal relationships. Conduct can be lawful pressure and in good faith.

Two types of undue influence?

Actual

Presumed

Actual undue influence.

Overt influence to enter a contract using improper pressure. Needs abuse of relationship. Needs to only be a factor not the sole factor for entering into the contract.

presumed undue influence.

Needs relationship of trust and confidence first. It is not presumed that spouses have this relationship. If there is a transaction that calls for question then undue influence is presumed. Can be rebutted by other party showing the party made the decision of their own free will e.g. after taking independent advice.

Third party undue influence.

Normal for bank loans with spouses. If the bank contracts with the wife with the suspicion that the husband (a third party) is exerting pressure on her then the contract might be set aside. Bank needs to take reasonable steps to ensure the wife is not acting because of pressure. I.e giving independent advice. May be actual or presumed based on the relationship of the party and the facts.

Contracts void for illegality and under public policy.

Illegal contracts are unenforceable and void.

Types of illegal contracts

Illegal at formation

contracts performed in an illegal manner

Contracts illegal by statute

Contracts illegal at common law

contracts contrary to morality or the institution of marriage

contracts damaging to the government

contracts that interfere with justice.

Unreasonable restrictive covenants with no legitimate interest.

Misrepresentation needs…

A false statement of fact or law to induce a party into a contract.

It must be a substantial reason to enter the contract.

A material representation which would have induced a reasonable person into entering the contract.

What is an actionable statement of fact?

statement of present or past conditions.

A statement of intention if the person knew it was false when they made it.

What is not a statement of fact?

A promise (more than a misrepresentation but this may be a term though)

A genuine honest and reasonable statement of opinion

A statement of future events.

Silence - unless there is a fiduciary relationship requiring disclosure or where there is a contract of utmost good faith (insurance contracts)

What is important in representations?

That the statements must remain true.

What can amount to misrepresentation?

Partial non-disclosure can amount to misrepresentation

Failure to correct a representation.

what are the three types of misrepresentation?

Fraudulent, Negligent and Innocent.

Requirements for fraudulent misrepresentation?

Statement was made either…

1. Knowingly

2. Reckless to whether it was true or false

3. without belief it was true

Negligent Misrepresentation

Covered under the Misrepresentation Act 1967. Any misrepresentation is actionable unless you can prove there were reasonable grounds for believing it.

Innocent Misrepresentation

Misrepresentation that was made with reasonable belief - not negligently or fraudulently.

Remedies for misrepresentation.

Contract is voidable. ALL

Recission ALL - where there is notice and may issue an indemnity order which covers costs accrued up to that point to help the parties get back to where they were before the contract.

Damages NOT FOR INNOCENT - claimed in addition to recission.

Damages in lieu of recission NOT FOR FRAUD - damages where equitable and recission is not barred.

What are the bars to recission?

Affirmation by statement or conduct

Lapse of time

Impossibility of restitution

Third Party rights

Damages for misrepresentation.

Fraudulent misrepresentation

Negligent misrepresentation under MA

Damages in lieu of recission

under the MA discretionary for Negligent and Innocent misrepresentations. If recission is not barred.

Are damages in lieu of rescission available for fraudulent misrepresentations?

No.

Duty of mitigation of loss

Duty of parties to mitigate their losses once they know of the misrepresentation and damages will calculated as such. Also damages will be reduced where there is benefit accrued.

Exclusion clauses for misrepresentation

Misrepresentation Act requires any exclusion clauses for misrepresentations be reasonable. (same test as unfair contracts act)

what is discharge of a contract?

where the contract comes to an end either at the specified time or by giving notice. Can be discharged through variation or agreement from the parties.

Normally need full performance of entire obligations to discharge a contract.

discharge v recission

Rights and obligation accrued up until the discharge still enforceable - discharge.

Destroys all rights and the contract is treated to as never have happened. - recission of a voidable contract.

requirements for discharge and creation of new/varied contract.

all must agree

there must be fresh consideration for the new agreement to end the contract. Examples:

Were all parties still have unperformed obligations but want to enter into an agreement to end the contract all being excused from their obligations is good consideration.

Where one party has fulfilled their obligations in full, then to make an agreement to end the contract you need to have a deed or new consideratino from the party who still has to perform obligations.

Variations of existing contracts.

Need all parties to agree and new consideration like giving up rights or it must be done by deed if no fresh consideration.

Can be implied by conduct.

How can you get around consideration requirement for variation of a contract.

Doctrine of Waiver.

Doctrine of waiver.

Promise not to enforce rights but the right can be reinstated with notice. Can be implied if the new agreement is just carried on with, without new consideration.

Exceptions to full performance rule.

Substantial but imprecise performance has been held to be sufficient for contract where a lump sum is given after performance. Not available for divisible contracts e.g. for delivery of goods in installments.

Partial Performance accepted by the other party. Court will decide that there is consideration if the parties have agreed to a new lower price or might infer it and make an assessment as to the reasonable remuneration based on the partial performance.

Types of breach

Actual - non-performance or defective performance

Anticipatory - tells you they are not going to fulfil the performance

outcome of breach

if termination for breach then all the rights accrued up to then are enforceable and the innocent party can claim damages.

Goods delivered under contract where there is a breach

buyer doesn’t have to pay for the goods but must return them and then they can claim damages.

When can you end the contract if you are aware of anticipatory breach?

if it is a breach of condition or fundamental term then as soon as you know and then claim damages. DO NOT HAVE TO WAIT FOR WHEN PERFORMANCE WOULD HAVE BEEN DUE. But can choose to wait until the performance is due (riskier).

Frustration

Happens after the formation of the contract. Needs an event which would make the contract impossible to perform or radically different.

Types of frustration

Impossible - no longer exists or long-term illness of a party

Illegal - change in the law it is now illegal

radically different - fundamental to the contract and cant have been in the contemplation of the parties at the time of the contract formation.

What is not frustration?

If it is more different or more expensive to perform.

If frustration is self-induced.

If events could be foreseen doesn’t matter what impact you thought it would have (then just liable for breach).

what is the effect of frustration?

no damages

the contract is discharged from the moment of frustrating event.

Under the Law reform (frustrated Contracts) Act 1943 - all sums paid before the frustrating act may be recovered. e.g deposit. May have to pay for any benefit gained before frustrating event, may be allowed to retain part of a deposit to offset incurred charges.

When does the Law reform (frustrated Contracts) Act 1943 not apply?

where there are express terms in the contract that have been agreed.

Charterparties (hires of ships and delivery of cargo) for the carriage of goods by sea.

Contracts of insurance

Contracts for the sale of goods where the contract has been frustrated because the goods have perished.

Force Majeure Clauses

Allows the contract to be terminated where there is an event outside of both parties control which either prevents or delays performance. Like an Act of God or the outbreak of war.

What are the rules around silence and misrepresentation?

As a general rule, silence will not amount to a misrepresentation. This is because the law requires a false statement (a positive act). There is no general duty to disclose facts.

Rules of liquidated damages clauses

A liquidated damages clause represents the parties' genuine attempts to pre-estimate the loss that may be suffered under the contract. Any clause that is extravagant, exorbitant, or unconscionable in relation to the legitimate interests of the party it is supposed to be protecting is likely to be viewed as a penalty clause by the courts and will not be enforceable.

which contracts need to be written?

Guarantees

Contracts in the interest of land

Consumer credit contracts

If you have no consideration but wish to make a contract what should you do?

Make a contract by deed

Which contracts must be made by deed?

promises where there is no consideration

conveyances of land

What is different to simple contract and a contract by deed?

Deeds have a longer claim period of 12 years from date of breach

What is a collateral contract?

A secondary agreement that exists alongside a primary contract. It typically involves a promise or assurance that supports the main contract, often providing additional terms or conditions it needs to be supported by additional consideration.

Is asking whether someone would consider reducing the price of something a counter offer?

No it is merely an enquiry

What is the test for determining if something is an enquiry?

The reasonable person test

What is a counter offer?

An offer made on the same subject as the original offer but differs in terms

Is changing the method of pay, i.e. in instalments enough to constitute a counter offer?

yes

Is it possible to accept a bilateral contract by beginning performance?

Yes so long as there is not a method of accepted in the terms of the contract

How is a contract terminated by operation of law?

if any of the following events happen:

death of one of the parties

destruction of the property matter (frustration)

supervening illegality (frustration)

Failure of any condition in the offer

What will the court ask in determining if something is no less advantageous in method of acceptance?

What was the purpose in prescribing this method? Can that purpose be achieved another way which is no less advantageous?

Example of no less advantageous method of acceptance.

A specified that acceptance was to be by letter to a specific address.

B send the letter to A’s surveyors.

Held: the purpose was that A wanted a binding acceptance through the letter. No less advantageous to A to receive notification of acceptance from the surveyors.