Contract Key Terms/Rules

Contract

Definition: A legally binding and enforceable agreement between two parties

Consensus ad idem

Definition: "meeting of the minds"/agreement to the same thing

Case: Chwee Kin Keong v Digilandmall

Formative element

Definition: A fundamental component necessary for a legally binding agreement to be formed and enforceable (offer, acceptance, ITCLR, consideration)

Subjective intention

Definition: What the parties actually intended in their minds when entering into the agreement (will theory)

Objective intention

Definition: How the parties' words and conduct would be understood by a reasonable person, regardless of hidden intention (consent theory)

Offer

Definition: An expression of willingness to contract on certain terms from one party to another (must match acceptance to form a contract)

Cases: Storer v Manchester City Council, Gibson v Manchester City Council, Thornton v Shoe-Lane Parking, Carlil v Carbolic Smoke Ball

Invitation to treat

Definition: A preliminary statement or action that invites others to make an offer, rather than being an offer itself

Cases: PSGB v Boots, Partridge v Crittenden

Supply of information

Definition: Where one party provides facts or advice, which may assist the other in making a decision, but does not in itself amount to a contractual offer

Case: Harvey v Facey

Statement of intention

Definition: Expression of a future intention or plan, which is generally not capable of forming a binding contract

Case: Harris v Nickerson

Battle of the forms

Definition: When two businesses are negotiating the terms of a contract and each party wants to contract on the basis of its own terms.

Case: Butler Machine Tool v Ex-Cell-O

Bilateral contract

Definition: Both parties exchange promises to do something (obligations on both sides)

Unilateral contract

Definition: One party makes a promise in exchange for the performance of an act by another (obligation on one side)

Case: Carlil v Carbolic Smoke Ball

Termination of the offer

1. By revocation

Cases: Payne v Cave, Offord v Davies, Dickinson v Dodds, Byrne v Van Tienhoven, Errington v Errington, Daulia v Four Millbank Nominees

2. By rejection

Case: Hyde v Wrench

3. By unfulfilled condition

Case: Financings v Stimson

4. Lapsing by want of acceptance

Case: Manchester Diocesan Council v CGI

Acceptance

Definition: Final, unqualified, and unambiguous expression of assent to the exact terms of an offer

Cases: R v Clarke, Felthouse v Bindley, Brogden v Metropolitan Railway, Carlil v Carbolic Smoke Ball, Manchester Diocesan Council v CGI, Fitch v Snedaker, Gibbons v Proctor

Postal acceptance rules

Definition: If it is reasonable to use the post or the offeror stipulates that the post can be used, the contract is accepted upon posting

Cases: Adams v Lindsell, Household Fire Insurance v Grant, Korbetis v Transgrain Shipping, Holwell v Hughes

Electronic contract formation rules

Definition: Postal rules apply only to non-instantaneous communications; acceptance by instant communication is complete when and where it is received

Cases: Brinkibon v Stahag Stahl, Electronic Commerce Regulations 2002, Thomas v BPE Solicitors, Thomas v BPE Solicitors, Greenclose v NWB

Intention to create legal relations

Definition: Parties' intention for their agreement to be legally binding and enforceable by law

ITCLR: Family Agreements

1. General presumption

Family agreements typically do not have ITCLR

Case: Balfour v Balfour

2. Rebutting the presumption

Cases: Merritt v Merritt, Soulsbury v Soulsbury

ITCLR: Social Agreements

1. General presumption

Social agreements typically do not have ITCLR

Cases: Albert v MIB

2. Rebutting the presumption

Case: Coward v MIB, Simpkins v Pays

ITCLR: Commercial Agreements

1. General presumption

Between commercial parties, there is a strong presumption of ITCLR Case: Esso Petroleum v Commissioners of Customs and Excise

2. Rebutting the presumption

Cases: Kleinwort Benson v Malaysia Mining, Baird Textile v M&S, Investec Bank v Zulman, Blue v Ashley

Certainty of terms

Definition: Fundamental principle requiring that the essential terms of an agreement (price, subject matter, parties, duration) must be sufficiently clear, definite, and complete for the court to enforce them

Cases: Scammel and Nephew v Ouston, May & Butcher v The Kings, Hillas v Arcos, RTS Flexible Systems v Molkerei, Sudbrook Estate v Eggleton, Nicolene v Simmonds, Winn v Bull

Consideration

Definition: What each party gives/promises to give in exchange for the other’s price/promise. Badge of enforceability; the principal way in which courts decide whether an agreement can be legally enforceable

Cases: Currie v Misa, Offord v Davies

Consideration: What constitutes consideration

1. Consideration must be of economic value

Case: White v Bluett

2. Consideration must be sufficient but need not be adequate

Cases: Bainbridge v Firmstone, Thomas v Thomas, Chappel v Nestle

3. Past consideration is no consideration

Cases: Roscorla v Thomas, Pao On v Lau Yiu Long

4. Performance of an existing obligation

Case: Collins v Godefroy, Glasbrook v Glamorgan)

5. Duty imposed by a contract between the promisee and a third party

Case: Pao On v Lau Yiu Long

6. Forbearance as consideration

Cases: Wade v Simeon, Simantob v Shavleyan

7. Contracts signed under duress

Case: Atlas v Kafco

Consideration: Practical benefit

Definition: A recognized form of consideration that makes a promise to pay more for existing work legally binding

Cases: Stilk v Myrick, Williams v Roffey, Re Selectmove, Rock Advertising v MWB

Waiver

Definition: The promise of a party to forfeit the rights they are to receive under a contract and not enforce said rights despite having not received anything in return for this promise

Cases: Charles Rickards v Oppenheim, WJ Alan v El Nasr

Promissory estoppel

Definition: A legal doctrine that enforces a promise even without formal consideration

1. The doctrine

Requires:

i - a promise that is intended to be binding

ii - a promise that is intended to be acted upon

iii - a promise that is in fact acted upon

Case: Central London Property Trust v High Trees House

2. Limitations

Cases: Evenden v Guildford City FC, Combe v Combe, Walton's Stores v Maher, Baird Textile v M&S, Collier v P&M J Wright, Evans v Amicus Healthcare, Kim v Chasewood Park

3. Relationship between p.e. and part payment of a debt

Generally, p.e. cannot extinguish a debt

Cases: Pinnel's Case, Foakes v Beer, Re Selectmove, Collier v P&M J Wright

Privity of Contract

Definition: Determines who is bound by the contract and who can enforce it

Cases: Dunlop v Selfridge, Beswick v Beswick

Contracts (Rights of Third Parties) Act 1999

Aim: Does not abolish privity of contract but provides a statutory exception where the parties to the contract intend to confer an enforceable benefit upon a third party

s1: A person who is not a party to a contract may enforce a contractual term if:

i - the contract expressly provides that he may, or

ii - the contract appears to benefit him impliedly unless s1(2) says otherwise

s1(2): Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.

Cases: PCSU v Secretary of State, The Swedish Club

s1(3): The third party must be expressly identified in the contract by name, but need not be in existence when the contract is entered into.

Case: Avraamides v Colwill

s1(4): There shall be available to the third party any remedy that would have been available to him in an action for the breach of contract had be been a party to the contract

s2: Third party's consent is needed for the contracting parties to remedy/rescind the contract

Term

Definition: A statement that forms part of a contract and forms contractual obligations

Case: Helibut Symons & Co v Buckleton)

Warranty

Definition: Contractual promise and assurance of performance

Case: Oscar Chess v Williams

Representation

Definition: A statement that induces a party to enter into a contract

Voidable

Definition: A contract that is initially valid and binding but can be annulled or cancelled by one of the parties involved due to specific legal reasons like misrepresentations. A voidable contract remains in force until rescinded.

Damages

Definition: A monetary award ordered by a court to compensate a C for loss or injury caused by a D's wrongful act.

Rule of remoteness

A claimant can only recover losses that were not too remote (i.e. losses that were reasonably foreseeable or within the scope of responsibility.)

Recission

Definition: A remedy that cancels a contract, returning both parties to their pre-contractual positions as if the agreement never existed.

Bars to recission:

1. Impossibility

Case: Erlanger v New Sombrero Phosphate

2. Lapse of time

Case: Lead v International Galleries

3. Waiver by election

Case: Long v Lloyd

4. Bona fide third party

Case: Phillips v Brooks

Misrepresentation

Definition: An unambiguous false statement of fact or law that induces another party to enter into a contract (can be a failure to disclose)

1. The representation must be false

Cases: Dimmock v Hallet, With v O'Flanagan, Conlon v Simms

2. The representation must be one of fact, not opinion

Cases: Bisset v Wilkinson, Esso Petroleum v Mardon, Smith v Land and House Property

3. The representation must be one of fact, not intention

Cases: Wales v Wadham, Edgington v Fitzmaurice

4. The representation must be one of law

Case: Pankhania v Hackney

5. The representation must be addressed to the party misled and intended to be acted upon

Cases: Commercial Banking Co of Sydney v RH Brown, Peek v Gurney, Andrews v Mockford

6. The representation must induce the contract

Cases: JEB Fasteners v Marks, Bloom & Co, Horsfall v Thomas, Smith v Chadwick, Attwood v Small, Redgrave v Hurd, Smith v Eric S Bush, Edgington v Fitzmaurice, BV Nederlandse v Rembrandt, C Challenger

Fraudulent Misrepresentation

1. Overview

Definition: The maker of the statement knows or believes that the statement is true, or does not care whether it is true or false.

Cases: Derry v Peek, Doyle v Olby, Archer v Brown, East v Maurer

2. Remedies

Recission: Yes (subject to bars)

Damages: Yes (tort of deceit/no rule of remoteness)

Cases: Archer v Brown, Boyle v Olby, East v Maurer, 4 Eng v Harper & Simpson

Innocent Misrepresentation

1. Overview

Definition: The maker of the statement genuinely believes it is true and does not act negligently in making it.

Cases: Newbiggin v Adam, Whittington v Seal Hayne

2. Remedies

Recission: Yes (subject to bars)

Damages: No

Cases: Car & Universal Finance v Caldwell, Intrapreneur Pub v Sweeney, Pennsylvania Shipping v Campagnie, Archer v Brown, Whittington v Seal Hayne

Negligent Misrepresentation

1. Overview

Definition: The maker of a statement and the person relying upon it are in some sort of 'special relationship' which gives rise to a duty of care or is one by which the maker assumes responsibility over the receiver

Cases: Hedley Byrne v Heller, Playboy Club v BNL, Henderson v Merrett Syndicates, NRAM v Steel

2. Remedies

Recission: Yes (subject to bars)

Damages: Yes (negligent misstatement/rule of remoteness)

Cases: Esso Petroleum v Mardon, IFE Fund v GSI, South Australia Asset Management v York Montague, Hughes-Holland v BPE Solicitors

Statutory Misrepresentation

1. Overview

Definition: The maker of a statement has no reasonable grounds for believing it to be true and are liable for damages as if the misrepresentation were fraudulent, unless they can prove they had reasonable grounds to believe it was true (reverses burden of proof from C to D) s2(1)

Case: Howard Marine v Ogden

2.Remedies s2(1)

s2(1): If a representor makes a misrepresentation that induces the representee to enter the contract and results in a loss. They will be liable unless they prove they had reasonable grounds to believe the statement was true (reverse burden of proof)

Recission: Yes (subject to bars)

Damages: Yes (as if fraudulent/no rule of remoteness)

Cases: Naughton v O'Callaghan, Royscot Trust v Rogerson, Smith v Citibank, Yam Seng PTE v ITC, Taberna Europe v Selskabet

3. Remedies s2(2)

s2(2): If a representor makes a non-fraudulent (innocent) representation, the damages can be awarded in lieu of recission if it would be equitable to do so

Recission: No

Damages: Yes (in lieu of recission/rule of remoteness)

Cases: William Sindall v Cambridgeshire, Salt v Stratstone

Mistake

Definition: An erroneous belief held by one or both parties at the time of a contract's formation that can make it void (initial impossibility)

Case: Kleinwort Benson v Lincoln City Council

Void

Definition: A contract that has no legal effect or binding power from its inception, and is treated as if it never existed due to specific legal reasons like mistake.

Mutual Mistake

Definition: Both parties misunderstand one another and are cross-purposes. There is thus no consensus ad idem

Cases: Raffles v Wichelhaus, Scriven Bros v Hindley

Common Mistake

Definition: Both parties make the same mistake about the same facts

1. Mistake as to the existence of the subject matter

Cases: Couturier v Hastie, McRae v Commonwealth Disposals

2. Mistake as to the possibility of performance

Cases: Sheikh Bros v Ochsner, Cooper v Phibbs, Griffith v Brymer

3. Mistake as to the quality of the subject matter

Cases: Bell v Lever Bros, Nicholson & Venn v Smith-Marriot, Galloway v Galloway, Associated Japanese Bank v Credit du Nord, Great Peace Shipping

Unilateral Mistake

Definition: One party is mistaken, and the other knows of it, causes it, or takes advantage of it.

1. Mistake as to the promise

Case: Smith v Hughes

2. Mistake as to identity

Cases: Hardman v Booth, Cundy v Lindsay, King's Norton Metal v Edridge, Phillips v Brooks, Ingram v Little, Lewis v Averay, Shogun Finance v Hudson

Mistake in Equity

Definition: A contract could be set aside in equity where both parties shared a fundamental mistaken belief about a fact or legal right, or one party was mistaken and the other knowingly allowed it to continue, the mistake was fundamental, and the party seeking relief was not at fault (no longer recognised)

Cases: Solle v Butcher, Great Peace Shipping

Equitable Relief

Definition: Remedies provided by courts of equity to address unfairness arising from mistake, including:

Rescission: Cancelling the contract to restore parties to their pre-contractual positions.

Rectification: Correcting a written document that fails to reflect the actual agreement (still recognised).

Cases: Malins v Freeman, FE Rose v William Pim, Tyrne and Wear v National Union

Frustration

Definition: A later realisation by both parties that performance of the contract is impossible (subsequent impossibility). Not a vitiating element, but a means by which a contract can be discharged

Cases: Paradine v Jane, Taylor v Caldwell, Davis Contractors v UDC, National Carriers v Panalpina, The Sea Angel, Armchair Answercall v People in Mind, Canary Wharf v European Medicines Agency

Instances of Frustration

1. Destruction of subject matter

Cases: Taylor v Caldwell Appleby v Myers

2. Personal services contracts

Cases: Morgan v Manser, Condor v The Baron Knights, Stubbs v Holywell Railway

3. Unavailability and interruption

Cases: Jackson v Union Marine, Acetylene v Canada Carbide, BP Exploration (Libya) v Hunt

4. Failure of source

Cases: Howell v Coupland, Blackburn Bobbin v TW Allen

5. Method of performance

Case: Tsakiroglou v Noblee Thorl

6. Supervening illegality

Case: Fibrosa Spolka v Fairbairn Lawson Combe Barbour

Limits to Frustration

1. Contractual provisions

Force majeure: A contractual clause that excuses a party from performing their obligations when an event beyond their control occurs, which prevents or delays performance.

2. Where the contracting party assumed the risk

Case: CTI Group v Transclear

3. Impracticality is insufficient

Cases: Herne Bay v Hutton, Krell v Henry, Davis Contractors v UDC

4. Imprudent bargains

Case: The Nema

5. Foreseeability

Cases: WJ Tatem v Gamboa, Ocean Tramp Tankers v V/O Sovfracht

6. Cannot be self-induced

Cases: Maritime National Fish v Ocean Trawlers, The Super Servant Two

Frustration: Remedial Consequences

1. At common law

Cases: Appleby v Myers, Fibrosa Spolka v Fairbairn Lawson Combe Barbour

2. By statute

Law Reform (Frustrated Contracts) Act 1943 s1:

s1(1): where a contract is frustrated, the parties are discharged from further performance subject to the rest of the Act

s1(2): money paid before frustration is recoverable; money payable but not yet paid ceases to be payable

Case: Gamerco v ICM

s1(3): where a party has received a non-monetary benefit before frustration, the other party may recover a just sum, capped at the value of the benefit received. In deciding what is just, the courts must consider:

i. s1(3)(a): expenses incurred by the benefitted party before frustration

ii. s1(3)(b): the effect of the frustrating event on the benefit

Case: BP Exploration (Libya) v Hunt

s2(5): ‘This Act shall not apply’-

a) To any charterparty (except a time or demise charterparty) or any other contracts for carriage of goods by the sea

b) To insurance contracts, except where expressly provided

c) To contracts for the sale/delivery of specific goods that are frustrated because the goods have perished

Duress

Definition: The apparent consent was induced by pressure exercised upon him by that other party which the law does not regard as legitimate, with the consequence that the consent is treated in law as revocable unless approbated either expressly or by implication after the illegitimate pressure has ceased to operate on his mind.

1. Duress to the person

Case: Barton v Armstrong

2. Duress to goods

Case: The Siboen and The Sibotre

3. Economic duress

Cases: The Siboen and The Sibotre, Pao On v Lau Yiu Long, Atlas v Kafco, DSND Subsea v Petroleum, Morley v RBS

4. Lawful vs unlawful act duress

Unlawful act duress: pressure involving a threat to do something unlawful; usually a breach of contract or a tort/crime (very likely to succeed in duress claim)

Lawful act duress: Pressure involving a threat to do something lawful (much harder to prove)

Cases: CTN Cash & Carry v Gallaher, Times Travel v Pakistan International, DSND Subsea v Petroleum

5. Effect of duress

Renders contract voidable

Cases: Barton v Armstrong, North Ocean Shipping v Hyundai

Undue Influence

Definition: Where one person, or a party in a fiduciary relationship, uses their power, trust, or authority to exert excessive persuasion, coercion, or control over another, forcing them to enter into a contract, deed, or will that does not reflect their free will.

Cases: RBS v Etridge no 2

1. Actual undue influence

Definition: Where one party exercised such domination over the mind and will of the other that the latter’s independence of decision was substantially undermined, and this domination brought about the transaction, the victim will be entitled to relief on the ground of undue influence

Case: CIBC Mortgage v Pitt

2. Presumed undue influence

Definition: Where one party places trust and confidence in another, and the transaction is manifestly disadvantageous to the person relying on that trust. Law presumes undue influence unless rebutted.

Relationships presumed by law: These relationships include parent and child, religious adviser and disciple, doctor and patient, and solicitor and client, trustee and beneficiary

De facto relationships: the complainant may prove the de facto existence of “a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence." 

Cases: Lloyds Bank v Bundy, Barclay's Bank v O'Brien

3. Effect of undue influence

Renders the contract voidable

Cases: Lloyds Bank v Bundy, Barclay's Bank v O'Brien, RBS v Etridge

Unconscionable Bargains

Definition: Situations of gross power imbalances where the stronger party takes advantage of a weaker party

Cases: Aylesford v Morris, Boustany v Pigott, Alec Lobb v Total Oil, Uber Technologies v Heller, Lloyds Bank v Bundy