Contract Law

Overview of Contracts

  • Definition: A contract is an agreement that the law will enforce. The aim of a contract is to allocate risk through mutual bargain.
  • Court's Role: The court assesses the existence of a contract to determine contractual rights.

Ingredients Needed for a Contract

  1. An Agreement (by Offer and Acceptance)
  2. Intention (to Create Legal Relations)
  3. Consideration (Justa Causa)

Offer

  • Definition: An offer is a proposal made by the offeror with specific terms, promising to be bound if accepted unconditionally by the offeree.
  • Validity of an Offer: Must be communicated to the offeree, specific (not vague), and cannot be an answer to a question or a supply of information.

Invitation to Make an Offer

  • General Rule: A paper advertisement is generally considered an invitation to make an offer.
  • Exception: If an advertisement contains a promise to pay or provide a reward, it is considered an offer (unilateral contract).
  • Examples:
    • Company Prospectus: Published by public companies and invites application for shares, leading to an offer upon share allotment.
    • Bids in Auction: Call for bids is an invitation to make an offer, with bids considered offers and acceptance at the fall of the hammer.

Termination of an Offer

  • Lapse of Time: A specified time period can be set by the offeror. If none is specified, the offer lapses after a reasonable amount of time.
  • Revocation of Offer: The offeror may revoke at any time before acceptance; the offer lapses only when the offeree learns of the revocation.
  • Rejection by Offeree: The offeree may notify rejection or submit a counter-offer.
  • Death of Parties:
    • If the offeree dies, the offer lapses if it was specifically made to that offeree.
    • If the offeror dies, the offer only lapses if the offeree knew about the death, or if the offer involves personal services.

Intention to Create Legal Relations

  • General Rule: No intention is presumed in social arrangements; intention is presumed in commercial agreements.
  • Binding Social Arrangements: Certain social arrangements may be binding, such as in cases of separation or joint enterprises.
  • Non-Binding Commercial Agreements: An example includes agreements between trade unions and management or a letter of comfort where parties expressly agree.

Consideration

  • Definition: Consideration is the justifiable cause or value underpinning a promise to be binding.
  • Types of Consideration:
    • Executory: A promise made by the promisee.
    • Executed: Price paid, acts performed, or detriment suffered by the promise.
    • Past: A promise made subsequent to the act.
  • Past Consideration: Generally not valid to bind a promise except under specific conditions.
  • Validity Requirements:
    • A promise must be supported by consideration to be valid, with exceptions for deeds and the doctrine of promissory estoppel.
    • Consideration must not be illegal or immoral and needs to move from the promisee to the promisor.
    • Consideration doesn't have to be adequate but must be sufficient; it cannot fulfill existing legal obligations or contractual obligations.

Waiver of Existing Rights

  • Payment of Lesser Amount: Paying a lesser amount does not satisfy a debt fully, with certain exceptions such as providing something the creditor is not entitled to.
  • Doctrine of Promissory Estoppel: A creditor cannot back out of a promise to accept a lesser amount as settlement if the debtor relies on that promise.

Types of Contracts

Binding and Enforceable vs. Defective
  • Defective Contracts:
    • Void: No contract exists (no obligations arise).
    • Voidable: The contract can be avoided by the affected party.
    • Unenforceable: A valid contract that cannot be enforced due to lack of required formalities.
Misrepresentation
  • Definition: Misrepresentation is a false statement of fact made by one party before the contract was formed, inducing the other party into the contract.
  • Types of Misrepresentation:
    • Fraudulent Misrepresentation: Knowing the statement is false. Remedies include rescission and damages.
    • Negligent Misrepresentation: Made without proper investigation. Remedies include damages for negligence or under the Misrepresentation Act of 1967.
    • Innocent Misrepresentation: Made believing the statement was true. Remedies include rescission or damages.

Disclosure of Material Facts

  • Silence: Silence is generally not considered misrepresentation; a positive statement is required.
  • Exceptions to Silence: Include contracts of utmost good faith such as insurance and material representations.

Mistake in Contracts

  • Types of Mistakes:
    • Common Mistake: Subject matter does not exist.
    • Mutual Mistake: Parties are at cross purposes.
    • Unilateral Mistake: Concern around the identity of the other party.

Duress and Undue Influence

  • Duress: Involves actual or threatened physical violence or economic pressure, making contracts voidable.
  • Undue Influence: Occurs within a special relationship between parties, rendering contracts voidable.

Illegality in Contracts

  • Definition: Illegal contracts are void from the outset. Common laws prevent contracts that restrain trade or harm marriage.

Formalities in Contracts

  • General Rule: No specific format is required for a contract to be binding; exceptions include contracts made by deed and those required to be in writing.

Capacity to Contract

  • Minors: May void contracts, except contracts for necessities.
  • Mental Capacity: Individuals of unsound mind or under intoxicants may avoid contracts.
  • Corporations: Their capacity is determined by the memorandum of association and the Companies Act of 1985.

Types of Contractual Terms

Essential Terms
  • Definition: These are binding obligations or promises made orally, in writing, or implied by conduct. Representations are not considered terms.
Types of Terms**:
  • Conditions: Vital terms central to the contract; breach allows for claiming damages or repudiating the contract.
  • Warranties: Less important terms; breach only allows for damages, not repudiation.
  • Express Terms: Clearly specified terms agreed upon by the parties; may include price variation, liquidated damages, and exemption clauses.
  • Implied Terms: Binding to the same level as express terms; developed through courts, customs, or statutes (e.g., Sale of Goods Act 1979, Supply of Goods and Services Act 1982).

Relevant Legislation

Sale of Goods Act 1979
  • Definition: Governs contracts in which the seller agrees to transfer ownership of goods for money.
  • Implied Terms:
    • Seller's right to sell goods.
    • Goods should match their description.
    • Must meet satisfactory quality and fitness for purpose.
    • Sale by sample provisions.
Supply of Goods and Services Act 1982
  • Scope: Relates to contracts for service provision.
  • Implied Terms:
    • Services rendered with reasonable care and skill.
    • Services executed within a reasonable time.
    • Entitlement to a reasonable fee for the services provided.

Exemption Clauses

  • Purpose: To exclude or limit liability, conflicting with the principle of freedom of contract.
  • Judicial Controls: Exemption clauses must be incorporated legally, either through signed documents or presented prior to contract formation.
  • Interpretation by Courts:
    • Contra Proferentum Rule: Ambiguities in contracts are interpreted against the party relying on the clause.
    • Main Purpose Rule: Exemption clauses should not defeat the contract's main purpose.
Statutory Controls under the Unfair Contract Terms Act 1977
  • Scope: Restricts business liability to ensure public protection against exemption clauses.
  • Standard Contracts: Clauses are void for certain defined circumstances and are subject to a test of reasonableness.