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3 - Law of contract (part 1) (Formation (Consideration (Rules (Must not be…
3 - Law of contract (part 1)
Types
Unilateral contracts
Only one party is bound, e.g. someone offering reward
Bilateral contracts
Each party is legally bound
Void contracts
No binding effect on either party and is contradicting term
An agreement which neither party can enforce
Contracts under seal
In writing and is witnessed
Contracts not in this form are
simple contracts
Voidable contracts
One or both parties have right to set aside
Formation
Consideration
Contracts under seal
Some contracts do not have consideration, e.g. promise of donation
Only binding if under seal
Rules
Must not be in past
Consideration can't be wholly from one party
Doesn't have to be equal on both sides
Can't be something promisee is already bound to do
Must be real (not vague)
Law will not generally enforce a contract unless there is consideration, i.e. something is offered in return
Contract can can come into force before payment is made, e.g. insurance policy
Promissory estoppel
Promise made without consideration can still be used as a legal defence
One may promise not to enforce their strict contractual rights
Can be 'estopped' (prevented from going back on promise)
Intention to create legal relations
Exceptions
Social and domestic
Assumed in consumer situations that agreements are not meant to have legal consequences
Express terms
Parties can expressly state in agreement that it is not legally binding
Usually assumed to be present in non-consumer business
Form
Contracts by deed
Must be signed and witnessed
Face of document must show that it is a deed
Gratuitous promises (without consideration) are enforceable if made by deed
Contracts which must be made in writing
Bills of exchange
Transfer of shares
Sale or disposition of land
Contracts which must be evidenced in writing
Documents may come into existence after contract is made
Contracts of guarantee
Contracts where particulars must be supplied
Employer giving employment contract in writing on landlord giving tenant a rent book
Contractual capacity
Minors
Binding unless repudiated
Can discharge from any further liability
Leases, partnerships and shareholder agreements
Not binding
All other contracts
Buying 'non-necessaries' and borrwoing money
Binding
Bound to pay for 'necessaries'
Employment/apprenticeship contracts
Restitution
Law requiring return of property
Remedy in the
Minors' Contracts Act (1987)
Court can order return of goods, money made by selling said goods, or goods bought through sale of said goods
Person under age of 18
Mental health conditions
Generally valid but can be avoided if patient was unable to understand the agreement
Patient ...
Can ratify a contract which didn't previously bind them
Must also pay reasonable price for necessaries supplied to them
Drunken persons
Can avoid contract if they didn't understand what they were agreeing to and oher party knew this
Can be ratified when sober
Agreement
Offer
True offer
Offeror intends to be immediately bound if offer is accepted
Invitation to treat
Circulars and advertisements often fall into this category
Merely and invitation to make an offer
Duration of the offer
Death
Acceptance
Revocation
Rejection or counter-offer
Time limit
Acceptance
Positive act
Offer can't be accepted with silence or by doing nothing
Communication
Acceptance not effective until communicated by offeree
Exceptions
Offer may dispense with this
'Posting rule'
Contract in force as soon as acceptance letter is posted
Manner
Unqualified
Accepted and contract in force
Qualified
Counter offer - not deemed acceptance
Must used method specified by offeror, e.g. written or spoken
Corporations
Statutory corporations and registered companies
Contracts made by companies will be valid even if they are outside the powers of its memorandum of association
Company can bring an action to restrain activities outside its powers
Chartered corporations
Contract not authorised or is prohibited by charter remains valid
Engaging in activities outside charter risks it being revoked
Terms
Certainty
No contract formed if vital term missing or unclear
Classification
Express terms
Words used in reaching or recording agreement
Implied terms
Form part of agreement but not put into words
Terms and exceptions
Common law rules
Person who relies on exclusion must prove it was incorporated into the contract, ie. the other person agreed to it
Signing of written documents
Signer bound by contract even if they have not read it properly
Notice
Exemption clause can be in a notice. e.g. a receipt
Must show it was 'contractual' relationship
Take reasonable steps to draw it to attention of person
Course of dealing
Exceptionally, courts may allow exclusion clause if it is not in contract but has been in previous contracts between parties
Unfair Contract Terms Act (1977)
Partially replaced by CRA (2015) and now only applied to business contracts
Key provisions
Negligence liability
Nobody can exclude liability for death or bodily injury by negligence
Contractual liability
Cannot exclude or restrict liability for breach of contract, except subject to requirement of reasonableness
Sale of goods and hire-purchase
Implied terms cannot be excluded or restricted by contract terms
Restricted mainly to exclusion and limitation clauses
Insurance contracts not within the scope of the Act
Consumer Rights Act (2015)
Requirement for fairness in consumer contracts
Unfair term is not binding on consumer
Contract still in effect in other aspects
Even if specific term has been individually negotiated
Exclusions
Nobody can exclude liability for death or bodily injury by negligence
Exclusions don't apply to insurance contracts or transfers of interest in land
Implied terms
A term that excludes implied terms is not binding on the consumer
Conditions and warranties
Conditions
Relates to important aspect of agreement
If broken, party has right to claim damages and terminate contract
Warranties
Affects only minor aspect of agreement
If broken, party has right to claim damages but not terminate contract
Parties will often state which is which in a contract
Intermediate or innominate terms
Modern courts more flexible and focus on impact on injured party to ascertain if condition or warranty has been broken
True nature of terms only considered when breach is revealed
Law originally based on
freedom of contract
Idea that people could agree to any terms they liked
Courts could not stop in if terms were unfair
Now increasingly regulated
Sale of Goods Act (1979)
Consumer Rights Act (2015)
Defective contracts
Improper pressure
Not voidable just because one party drove hard bargain or used selling techniques
Must be 'improper'
Duress
Any threat to commit legal wrong
Undue influence
More subtle forms of persuasion
One party has dominant position, e.g. doctor or solicitor
Mistake
e.g. contract to buy goods when neither party realised they had been destroyed
Could be confusion over what contract is regarding
Misake has to undermine the basis of the entire contract
Mistakes which would make contract void...
Subject matter of contract
For example, confusion over subject of life insurance
Indentity
A may believe they are dealing with B, but may actually be dealing with C
Recording
May make error in recording what has been agreed
Cour may amend document to make it accurately reflect agreement
Misrepresentation
A false statement of fact which induces other party to enter into contract
Could be fraudulent, negligent or innocent
Requirements for it to be damaging on contract...
Must be one of fact
Must be made by party to contract
Must induce the contract
Remedies
Recission
Misrepresentation Act (1967)
allows claimant to bring action to rescind contract
Damages
Can be in addition to recission in the case of fraud
Refusal of further performance
Avoidance of contract pretends contract never existed, and therefore other party doesn't have to fulfil their side
Affirmation
Injured party can treat contract as binding if they wish
Non-disclosure
False representation will harm contract but no duty of disclosure
Position in sale of goods is
caveat emptor
(let the buyer beware)
If a statement becomes untrue during negotiations, there is a duty to correct it
Illegality
Effects
An illegal contract is generally void
Money or goods delivered can't be recovered in court
Defendant will be in a stronger position than claimant
Some exceptions...
If one party entered contract through improper pressure, fraud or mistake
When one party 'repents' (voluntarily abandons legal purpose)
If illegality arises under statute to protect certain class of people
Tenants can recover from landlords
Insurance contracts
When illegality can arise...
Purpose of contract is illegal
e.g. purchasing motor insurance with intention of using vehicle to commit crime
Unlawful use of insured property
Lack of insurable interest
Close connection to crime
Can't be allowed to profit from criminal act
Motor insurance
Third party's right to claim for injury can't be affected by criminal act of driver
Insurer or Motor Insurers' Bureau (MIB) in case of uninsured or untraced drivers
Liability insurance
Cover not affected if negligence only
Deliberate or reckless act can invalidate cover
Those which include the commission of a legal wrong or are against public interest
Contrary to public policy
Sexual immorality
Freedom of marriage
Pervert course of justice
Restraint of trade
Contracts of employment
Employers sometimes look to restrict where else employee can work after end of employment
Seller of a business
Buyer often requires seller to agree they will not set up competing business
Courts more willing to hold up restraints of this nature
Contrary to law
Contracts to...
Steal property
Kill or injure someone
Forge bank notes
Life Assurance Act (1774)
No insurance can be made by person without insurable interest
Duty of fair presentation
Customers make take care not to make misrepresentations under
CIDRA
Insurer can only remedy if it is deliberate
Duty of fair presentation of risk for non-consumer contracts