ICAEW Law

Simple contract

One that doesn't need to be in writing

Contracts that must be in writing

Bills of exchange

Regulated Consumer Credit Arrangements

Transfers of land (speciality contracts)

Guarantees

Void

= No contract at all

e.g. Illegal contract

Voidable

= Can be set aside

e.g.

Lack of capacity

Lack of free will

Contract made due to misrepresentation

Unenforceable

= Valid contract but cannot be enforced

e.g. Contract not in correct form

Essential elements of a valid contract

Offer

Acceptance

Consideration

Intention to be legally bound

Offer

Definite promise to be bound on specific terms

Made by an offeror to an offeree

What is not an offer?

Invitation to treat

Statement of intention

Vague statements

Ways an offer can be terminated

Rejection and counter-offer

Revocation

Lapse of time

Failure of a pre-condition

Revocation

When the offeror withdraws their offer

(any time before acceptance by offeror or a reliable third party)

Exception to revocation

If offeree pays offeror to keep the offer open

Unilateral contract - offer to entire world (impossible to notify everyone)

Acceptance

Unequivocal and unconditional assent to all the terms of the offer

Postal rule

Exception to the rule that acceptance must always be communicated

States that acceptance is complete as soon as the letter is posted

Only applied where properly stamped and addressed and where it is reasonable to use post

Applies even if letter is never received

Doesn't apply if stated on offer that requires 'notice in writing'

Consideration

Act or forbearance on the part of one party to a contract as the price of the promise made to him by the other party to the contract

Valid consideration

Executed or executory

Sufficient consideration

Capable of being given a value

Inadequate consideration

Unequal in value

Waiver of rights

If one of the parties forfeits their rights to something this could be good consideration if it is capable of being assigned a value

Invalid consideration

Past consideration

Existing statutory duty

Existing contractual duty

Promise to do or the act of doing an illegal act

The part payment problem

Waiver of an existing debt

Payment of a lesser sum in satisfactino of a greater sum cannot be any satisfaction for the whole sum

Subject to contract

Where 'subject to contract' is included in an agreement, there is a strong presumption that there is no intention to create an immediately binding contract

Privity of contract

Only a person who is a party to a contract has enforceable rights or obligations under it

Express terms

Specifically agreed

Must be clear

Implied terms

Not expressly included but are still part of the contract

Discharge of contract methods

Performance

Frustration

Breach of contract

Severable contract

If contract is divisible the contract can be discharged by performance of part of the obligations

When does Quantum meruit occur?

One party is prevented from performing his duties under a contract due to the actions of the other party

In these circumstances the offer of performance is sufficient to discharge contractual obligations

Quantum Meruit

An order for the defendant to pay damages for the proportion of the contract price that the work is worth at this point

The Law Reform (Frustrated contracts) Act 1943

Provides that:

- Amounts paid by one party to another under the contract are to be refunded

- Amounts still outstanding are no longer due

- If a person has to repay sums he may set off any expenses, provided they were incurred in carrying out the contract prior to the frustrating event

- If either party has benefitted other than with a payment of money the court can order a payment of all or a part of that value as it considers just

Lawful excuse for breach

One party has offered to perform his obligations but the other party has refused

One party makes it impossible for the other to perform his obligations

Parties have agreed that certain obligations shall not be performed

Types of damages

Unliquidated

Liquidated

Penalty clause

Equitable remedies

Specific performance

Rescission

Injunction

Specific performance

An order to the defendant to perform his part of the contract

Rarely granted except in connection with the sale of land

Types of injunction

Mandatory

Prohibitory

Asset freezing

Injunction

Order for a person to do or not to do something

Common Law tests (exclusion clauses)

Exclusion clauses are only enforceable if:

- they have been properly incorporated into the contract

- the wording of the clause covers the loss suffered by the claimant

Tort

Breach of a legal duty

Damages under valid contract

Intended to put the claimant back in the position he would have been in had the contract been properly performed

Damages in tort

Intended to put the claimant in the position he would have been in had the tortious act never taken place

Limitation period in contract

Six years from the breach of contract

Limitation period in tort

Generally six years but three years for personal injury

Main elements of a tort

Must be an act or omission by the defendant

This must have directly caused damage or injury to the claimant

Courts must be able to establish a legal liability as a result of the damage

Negligence

Breach of a legal duty to take care, which results in damages to another

Negligence claimants need to prove

A duty of care was owed to him by the defendant

The defendant breached that duty

As a consequence of that breach, damage or loss has been suffered

Duty of care

Duty to take reasonable care not to cause foreseeable harm to others

The 'neighbour principle'

A duty of care may be owed to a person, even where no contractual relationship exists

Limits of the duty of care

Reasonable foreseeable

Sufficient proximity

Fair, just and reasonable

Public policy

Breach of duty of care successful claim

Claimant must not only prove that a duty of care existed, but also that the duty was breached by the defendant

Res Ipsa Loquitur

The facts of the case speak for themselves

Particular skill

If the defendant possesses a particular skill (i.e. qualified solicitor/surveyor etc.) the standard of care expected will be that of a reasonable person with that skill

Lack of skill

Lack of training or the peculiarities of the defendant are not relevant

i.e. standard of skill expected from a trainee accountant is the same as that of any reasonable accountant

Lack of hindsight

Tests focus on the defendant's knowledge at the time

Body of opinion

A professional is expected to follow the general practice and body of opinion in that area

Advantage and risk

When deciding if reasonable care has been taken the courts will weigh up the benefit and risk of the defendant's actions

Emergency

If an emergency situation caused the defendant to act negligently, this will be taken into consideration

Vulnerability

If the claimant is vulnerable and the defendant is aware of this vulnerability, then a higher standard of care is expected

Recoverable losses

Loss as a result of personal injury

Damage to property

Financial loss directly connected to personal injury (i.e. loss of wages)

(N.B. Pure financial loss is very rarely recoverable)

Special relationship

Defendant in business of giving professional advice

Advice given in business context

Knows, or should know, claimant would rely on it

Factors to consider in establishing whether a duty of care exists

Purpose for which the statement was made

Skill accorded to that professional

State of knowledge at the time

Any responsibility that the defendant had to the claimant

Size or class to which the claimant belongs

Extent to which the advice given was relied upon

If it was foreseeable that the advice given would be acted upon by the claimant

If it is fair and equitable to impose a duty of care

Companies Act 2006 liability for auditors

Offence for an auditor to recklessly cause an auditor's report to contain any matter that is misleading or false to a material extent (punishable by fine) (S.507)

Any provision exempting auditors from or indemnifying them against liability for negligence is void in relation to providing audited accounts (S.532)

A company may enter into a liability limitation agreement with an auditor, limiting his liability for negligence in the course of auditing accounts (S.534)

Three main defences to a charge of negligence

Contributory negligence

Volenti non fit injuria

Exclusion clauses

Contributory negligence

Claimant is partly responsible for losses suffered - damages are reduced

Volenti non fit injuria

Claimant freely consented to risk of harm - no damages awarded

Exclusion clauses

Can limit/exclude liability

Must pass legal tests for exclusion clauses

Vicarious liability

Liability imposed on a party for torts committed by another

Most important types of agency relationship

Partner within a partnership is an agent of the business

Director is an agent of a company

Creation of agency

Agreement (consent)

Estoppel

Necessity

Ratification

Agency by estoppel

Principal implies that there is an agency relationship

Estoppel arises

Where the principal fails to notify third parties who have dealt with his agent that the agent's authority has been terminated

Where the principal allows his agent to appear to have more authority than he actually has

How to create agency by estoppel

There must be a representation by the principal either expressly or impliedly to a third party who relies on it and believes that the agent has authority to enter contracts of that type

Agency from necessity

Must meet all of following:

- Emergency situation

- Not possible for the agent to communicate with the principal

- Agent is acting in good faith in the best interests of the principal

Agency by ratification

If a properly appointed agent exceeds his authority or a person having no authority purports to act as an agent, the principal has no liability on that contract unless the principal 'ratifies the contract'

Consequence of ratification

- Principal becomes liable and entitles under the contract

- The ratification operates retrospectively and principal is bound from the date the contract was actually made

- Agent is relieved from liability to principal for acting beyond his authority

- No authority is given for future acts

Conditions for ratification

Principal is in existence at the time of the agent's act

Principle had the legal capacity to make the contract himself (at time of contract and of ratification)

Agent named or otherwise sufficiently identified the principal at the time of the contract

Principal is made aware of all terms of the contract

To ratify the principal must

Ratify the whole contract (a purported ratification of part will operate as a ratification of the whole)

Ratify the contract within a reasonable time

Communicate a sufficiently clear intention of ratifying

(A void or illegal contract cannot be ratified)

Duties of the agent

Accountability

Conflict of interest

Performance

Obedience

Skill

Personal performance

Confidentiality

Effect of a breach of duty by an agent

= breach of the agency agreement so agent is liable to the principal for any loss

Where breach is serious principal may dismiss the agent and refuse to pay him any commission

Principal may recover any benefit obtained or profit made by the agent

Where a third party is fraudulently party to the breach the principal may avoid the contract

Rights of the agent (or duties of the principal)

Indemnity

Remuneration

Lien

Indemnity

Agent is entitled to be repaid expenses properly paid and to be indemnified by his principal against losses and liabilities

Remuneration

Entitled to be paid any agreed remuneration for his services by his principal

Lien

Agent has the right to exercise a lien over property owned by the principal (i.e. a right to retain and hold goods pending payment of sums owed to him)

Types of authority

Actual express

Actual implied

Apparent or Ostensible

Liability - disclosed principal

Principal is liable unless it is clear that the parties intended otherwise

Liability - undisclosed principal

Agent is liable unless the third party becomes aware of the principal's existence, in which case they can choose who to sue

Exceptions to disclosed principal liability

Agent liable in following circumstances

- shown an intention to undertake personal liability

- trade usage or custom

- agent refuses to identify the principal

- agent is acting on behalf of a fictitious principal

- agent makes a contract under seal

Undisclosed principal cannot intervene when

Terms of the contract are inconsistent with the existence of the agency

The identity of the principal or agent is of material importance to the third party

The agent did not have the actual authority to make the contract

Tort of deceit

Applies where the agent has no authority

Advantages of sole trader

Profits all belong to the owner

No formal procedures to set up

Independence (no need to gain others' approval)

Self-accountability (no need to disclose information about the business other than to tax authorities)

Disadvantages of sole trader

Risk

Limited options for capital injection

High dependence on the owner

If the trader does not engage employees the success of the business is dependent on owner's skills

Partnership

The relation which subsists between persons carrying on a business in common with a view of profit

How a partnership is formed

Informally - merely agree to run a business together

Formally - partnership agreement

If no partnership agreement what do they follow?

The Partnership Act 1890

The Partnership Act 1890

Profits shared equally

All partners involved in the management of business

Change in business must be unanimous

New partners must be agreed by a unanimous decision

Partners are expelled by a majority decision

End of partnership

Death or bankruptcy of partner

Expiry of a fixed term

Completion of a single joint venture

Continuation of the partnership would be illegal

A partner gives notice for the firm to be dissolved

Order of the court

Court can bring partnership to end in following situations

Partner has mental disorder or permanent incapacity

Partner engages in activity prejudicial to the business

Partner persistently breaches the partnership agreement

Business can only be carried on at a loss

It is just and equitable to do so

Options when LLP becomes insolvent

Propose a voluntary arrangement

Apply to put LLP into administration

Resolve to go into compulsory or voluntary liquidation

Veil of incorporation

Company is a separate legal entity

Consequences of the veil of incorporation

Company has contractual capacity

Owns property in own name

Perpetual succession

Seperation of management and control/ownership

Limited liability

Lifting the veil of incorporation

In certain circumstances the courts can look through the company to identity of the shareholders.

Intended to prevent inequitable results and expose the commercial reality of the situation

usual result of lifting the veil of incorporation

members or directors become personally liable for the company's debts