Business Law Law of Contract
what is consent
The parties to a contract must consent to contract with one another. Consent must be full, free and voluntary, no: -Undue influence (someone might take advantage of trust in relationship -Facility and circumvention (vulnerable, suffering from weakness, try to get around someone) -Force and fear
The basic approach
The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is , so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.
What is the difference between the UCTA and the regulations?
UTCA Only exclusion clauses Consumers and traders (actions brought under both) Two Techniques if they don't like your exclusion test -Void and reasonable test Regulations Most terms Only consumers (actions are brought under both) It will be void if they do not like your clause
As before but this time the contract between Mandy and Tony is deemed voidable. Tony sells to Mandy => Mandy resells to Bunty =>
Voidable Valid or Void Depends upon the timing of the resale
what are 4 things people cannot do under 18 years old
Child cant make valid will Cannot be sued (or sue someone else) Child cannot make a gratuitous promise 4. Child can't enter into contracts - If child has done what is thought to be in keeping for what that child might do (bought something in shop) then common sense will see that it's a contract - simple contracts with normal behavior
What damages are assigned for breaches?
Compensatory -Damages allotted restores you to the position you would have been in if your contract wasn't breached Not punitive -Not designed to punish the ones who caused the breach Can be for non-financial loss E.g. personal injury, disappointment
What are the five features of a valid contract?
Consensus in idem (meeting of the minds- mutual agreement) Consent Capacity -Must be able to enter into contract Formal requirements where they apply Not prohibited by the law (pacta illicita)
How would courts rule if there is a common bilateral error in substantials in concomitans
Contract void (circumstantial) Contract valid
what three things result from a lack of consensus
Error wasn't too material A bit more serious but not catrostrpic - contract voidable for contract to be reduced by court and freed from contract Contract is void
What are the types of error?
Induced (someone lead you to a mistake) uninduced (your own ignorance caused the error Common bilateral error (both contracting parties make the same mistake) Mutual bilateral error (more than one person makes a mistake but it is over different things Unilateral error (one person makes a mistake)
pacta illicita
Unlawful agreements are unenforceable The loss lies where it falls
what contracts are not enforced by scottish courts?
social agreements, domestic agreements, agreements binding in honour alone, gambling agreements
What is the central rule
An unfair term in a contact concluded with a consumer by a seller or supplier shall not be binding on the consumer.
There are a few remedies that the innocent party of the contract can hold to compensate for the breach of contract. There are a few ways a breach can happen:
Anticipatory breach Failing to perform the contract Delayed performance Unsatisfactory/defective performance
What did the unsolicited goods and services act 1971 and 75 do?
Companies would send packs of vinyl records w/o people asking for them, and say if you don't return them in 2 weeks, we will consider them bought and send a bill Act made sure to say that you are NOT contractually bound to buy these
How courts provide Remedies for breach
Rescission Action for payment Retention and Lien -Hold onto something of the other party until they do the contract Order a Specific Implement -Say to the person "you must follow through with the contract or held in contempt" Interdict -Opposite of implement, tell someone "don't do that" Damages Can be awarded -
what do pacta illicita come to court with?
Restrictive covenants- used by one party in a contractual relationship to protect his legitimate business interest from unjustified exploitation or interference by another person Put in contract that by entering you are agreeing you arent going to sell something in this area for the next 10 years Promise restricting yourself If contract restrict in trade to help get monopoly, courts will void Must prove that what you asked them not to do is reasonable - Courts will consider 1. Will it restrict employee from finding work for a certain amount of time 2. Was the employee a target - did they know trade secret 3. Are employees in position to court clients 4. Is convenient reasonable (if reasonable courts issue introdite - says don't do that and if you do youll be in trouble)
specific implement
Decree ad factum praestandum Primary remedy ...theoretically in practice will be refused: When performance impossible or disproportionate Money compensation adequate Personal Relationship involved The court won't get involved if its personal
when does an offer lapse?
The offer is rejected There is a counter offer Either party loses capacity A set time limit expires The offer has not been accepted within a reasonable time limit
Remoteness and Causation
Under normal circumstances, if there is a breach then someone will expect a normal loss then general ordinary damages Under unusual circumstances- have to make sure the person you are contracting knows of your circumstances!!- if a contract is breached, then the person suffers an abnormal loss (you suffered more greatly than a normal person, have greater losses)- get special damages Law will impost a cut off point Reasonably forseeable loss Distinction made between normal loss and abnormal loss General or ordinary damages Special damages These relate to the reasonable forseeability of the loss
What happens to innocent third parties in these contacts: Tony and Mandy have a contract for the sale of a car by Tony to Mandy. The contract is declared void. In the meantime Mandy has sold the car to Bunty. What are Bunty's legal rights in this situation? Tony sells to Mandy => Mandy resells to Bunty =>
Void void bunty can sue mandy
Delayed preformance
Was time of the essence? Or important to the terms of the contract A material breach?- If material, then the company can resile. If not, they sue for damages
remedies stipulated i the contract that will affect the court
What the court deems to be a 'Penalty Claus will not be upheld Courts wont uphold anything that reads like a penalty clause Ex. A single sum of money that is owed Liquidate damages clause Courts must be satisfied that these reflect a genuine pre-estimate of loss
Failing to preform the contract: X fails to carry out his contractual obligations to y
Y calls repudiation and can resile from the contract
Contract definition
a contract is a legally enforceable agreement between two or more legal distinct parties ** Know this definition and write it whenever you are describing a contract. - Often there are obligations on both sides. Can be as simple as purchasing a bottle of water to extremely complex thins
What is a rescission remedy
a self help remedy. Breach must be material In any contract which contains multifarious stipulations there are some that go so to the root of the contract that a breach of those stipulations entitles the party pleading the breach to declare that the contract is at an end. There are others that do not go to the root of the contract, which are a part of the contract and would give rise if broken to an action for damages.
what is good faith
the strength of the bargaining position whether the consumer had an inducement to agree to the term whether the goods or services were sold or supplied to the special order of the consumer the extent to which the seller or supplier has dealt fairly and equitably with the consumer
What are the requirements of writing in terms of contracts?
things should be written down and a contractural obligation should be written
what occurs when there is a counter offer in an offer
the counter offer kills the original offer
What are the rules by contracting by post?
A contract is deemed to exist from the moment an acceptance is posted by the acceptor (not received by the offeror) Adams v Lindsell 1818 2. Revocation of an offer or must reach the offeree before the acceptance is posted. Thomsom v James 1855 3. Revocation of an acceptance must reach the offeror before or at the same time as the original letter of acceptance reaches the offeror
consumer protection regulations 2000
Further backs up the Act of 1971 and 1975. Says if someone sends you something like that, it is an unconditional gift or the sender has 14 days to retrieve it at their expense.
In clerical errors are contracts valid or void?
voided
a term is unfair if
, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer.
ejusdem generis rule
- when it comes to other things, it has to share common characterisitics with the things already mentioned
Who lacks contractual capacity?
-the insane Insane people do not have the capacity to contract Any contract would be VOID. Loudon v Elder's Curator Bonis Lucid interval Essentials Intoxicated people Enemy aliens (always void contracts) - corporate bodies Have their own legal identity Must know that rep of corporate body has the authority from the company to make the decision on the companies behalf - in companies articles of association (what people have right to do on behalf of company)
what must be known about an offer?
1. Must be clear 2. Not Be an invitation to treat. an invitation to treat is a negotiation, not an offer! (goods are an invitation to treat) 3. Inviting tenders is an invitation to treat- not an offer 4. Inviting bids is an invitation to treat 4. Adverts are an invitation to treat
what two type of control does UCTA use
1. makes terms void 2. applies reasonable test: how reasonable is the term and this terms deemed reasonable by the courts will also be upheld
explain an anticipated breach: If X informs Y that they no longer wish to carry out duties that X had agreed to do in the future Y can:
Do nothing and wait Take action at the point of learning about X's intentions to not do the contract Apply to court so X does the contract, or Y can stop their own duties of the contract as well Y can ignore X's decision and go ahead with their side of the bargain and then sue for damages (controversial- see example)
when constructing a contract, what are the types of terms you can use?
Express Terms -Clearly set out verbally or in writing. Important to say what you actually mean Implied terms -Not expressed but a court may hold them to be included in a contract Terms incorporated by reference Full details of terms noted elsewhere --
What are acceptance rules with regards to instant communication?
Fax, telex, e-mail, text, answer machines The offeree must ensure that the offeror has received and understood that the offer has been accepted If you send a message to somebody, in order for you to say that they accepted it, you have to be able to prove that they READ that message.
What are the three questions you should ak about an error in contract law.
How serious is the error? How was the error caused? How many of the two parties have been mistaken when they entered the contract? these will possibly lead to a different validity of a contract
Duty to mitigate loss
Innocent party must take steps to keep the costs down
Rules of interpretation
Interpretation: courts can only interpret Extrinsic evidence- brought intp the court
What is the subject to reasonableness test?
Liability for loss or damage from negligence other than personal injury or death - s.16. Standard form and consumer contracts covered by s.17 Up to a business to argue that the terms of liability are reasonable. Up to the business to pass reasonability test Sale of goods and hire purchase contracts - s.20 Other contracts for the supply of goods - s.21 Indemnity Clauses in consumer contracts - s.18
How does it make terms void
Liability for personal injury or death - s 16 Cannot excuse yourself from being liable for someone's injury or death Guarantees relating to consumer goods - s 19 A manufacturer cannot limit their liability through faulty goods they have produced. They will always be liable for faulty goods. Sale of goods and hire purchase contracts with consumers - s 20 Block any attempt to limit the implied terms of the sales of good act. Even if people arent buying the goods outright it still protects them. Other consumer contracts for the supply of goods - s.21
what are the types of induced error
Misrepresentation Innocent misrepresentation Can get voiding if someone accidentally misrepresented w/o maliciousness Deliberate or fraudulent misrepresentation -Pursuer can prove that someone treated you fraudulently, then you can sue Silence as misrepresentation -Buyer beware: its up to you to identify bad things. Ex. Seller does not have to say there is faulty things with the car, buyer has to find issues. Some issues Patterson v Landsberg 1905, Gillespie v Russell 1856 Failure to disclose material facts Negligent misrepresentation -Delict
Who does the Unfair terms in consumer contracts regulations 1999 apply to?
Most contracts between traders and consumers except: those individually negotiated If you have negotiated one on one with someone, they might not apply those defining main subject matter of contract; or price included because of mandatory statute
interdict
Mostly to prevent threatened breach of restrictive covenant e.g. in restraint of trade.
what are the aspects of formality that must be considered
Not necessarily needs o be in writing majority of contracts are verbal agreements, behavioural/implication (contracts existence is proved by a partners behaviour), some need written form: the requirements of writing act in 1995 cover land and building contracts, electronic communications act 2000: have to prove that they actually opened and read the message, e signatures are allowed
Unilateral promises or gratutitous obligations
Occure when people do not realize they made a contract. Careful of the promises you make to people@
How does a contract terminate naturally and the obligations surrounding it
Performance (both parties preform their full obligations) Payment (contract ends when the payment (the obligation) is made) Prescription (the lapse or creation of rights one ac certain time limit has passed) Acceptation- mutual agreement to end the contract before full performance Confusion- person becomes both creditor and debtor Compensation- Done when someone is owed money and owes someone else money. Say that the person can pay the person you owe on your behalf (as long it is ok with both parties Both debts must be liquid Must be due for payment Delegation- new debtor replaces old one, one creditors consent Novation- new obligation replaces old Frustration-Contract is either impossible to perform from the start or is illegal (void ab initio) When it becomes impossible or illegal at a later date it is known as supervening impossibility and supervening illegality
two types of prescription
Positive Prescription You gain a right- ex you do something and it eventually becomes a law Negative Prescription Lose your right to do something. You have 5 years to do the right, but is lost after 5 years
what does the age of legal capacity act 1992 do
Protects young people under prejudicial transactions - If you can show before you're 21 that you have entered into contract aged 16 or 17 that you wouldn't have entered into when you were older, and can show that contract adapted to your detriment, then courts will set contract aside. Must come before you were 21.
What things should yo consider when doing the reasonable test?
Relative bargaining strength Is one party trying to abuse their power Inducements Done to get the customer to buy the item (ex lower price), and was the customer aware of how this affects their rights Did customer know of the term Is compliance with condition practicable
What are some ways to scale back the damages awarded by the court
Remoteness Causation -Was the breach the actual cause of the loss? Duty to mitigate loss Disappointment, distress, upset Contributory negligence? -Has the innocent party contributed their loss in any way
in what part of the contract can you have an error in the substantials?
Subject matter of the contract (parties are confused and mistaken as the subject matter of the contract) Mistake of the Identity of person you have been chatting with Price (confusion surrounding price, parties think they are different) Misunderstood the Nature of the contract (how it will operate) Quality, quantity or extent of the subject matter
What legislation controlled the exclusion clauses
The Unfair Contract Terms Act 1977 Unfair Terms in Consumer Contracts Regulations 1999
What is the unfair contract terms act 1977 what does it not apply to?
The act controls the use of notices which attempt to exclude liability on the person relying on the notice and the person who is injured only parts 2 and 3 apply doesn't apply to Contracts of Insurance Formation of Companies Commercial Marine Contracts
What are the different categories of implied terms
by statute -Sale of Goods Act 1979 by case law By custom
Capacity
capable of assuming legally binding obligations
Uberrimae fidei
contract absolutely based on trust (insurance company)
John makes an offer to sell his bicycle to Paul by post on Monday Paul receives John's offer on Tuesday Paul posts her acceptance on Wednesday John receives Paul's acceptance on Thursday
contract is formed
Kenny makes an offer to sell his piano to Gaby by post on Monday Gaby receives Kenny's offer on Tuesday Kenny changes his mind and posts a revocation of his offer to Gaby on Tuesday Gaby posts her acceptance of Kenny's offer on Wednesday Gaby receives Kenny's revocation on Thursday Kenny receives Gaby's acceptance on Thursday
contract is formed on wednesday
How would courts rule if there is an unilateral error
contract valid (it is your own fault, nobody made you believe anything)
How would courts rule if there is a mutual bilateral error in substantials in concomitans
contract void contract valid
which takes precedent, implied or express
espress
what happens if you don't have it in writing?
f you have taken significant actions on that promise, and you will suffer if that promise is not taken through, you might have a claim Promiser has to know that you are acting on that promise though Have to show that you acted on the strength of the promise Prove you will be disadvantaged and prove Suffering is material
contra proferentum rule of interpretation
if there is something that is a bit ambiguous, if you say it means this, but it could also mean that, the court will rule against you. CANNOT have ambiguous terms
supervening impossibility
is the impossibility arising after the formation of a contract. However, this arises at the time when the promisor's performance is due. Such impossibility usually arises due to facts that the promisor had no reason to anticipate and did not contribute to the occurrence o a change in personal circumstances rei interitus
supervening illegality
is when a statute or regulation or court decision makes the object of an offer illegal
What is a consensus of idem?
meeting of the minds, all parties to a contract need to be thinking the same thing
Error in the substantials or error concomitans
mistake or error goes to the very root of the contract and therefore completely undermines any potential agreement. Concern one or more aspects of the agreement considered void
Robbie makes an offer to sell his guitar to Gary by post on Monday Gary receives Robbie's offer on Tuesday Gary posts his acceptance of Robbie's offer on Tuesday (2nd class) Gary changes his mind and posts a revocation of his acceptance to Robbie on Wednesday (1st class) Robbie receives Gary's revocation on Thursday Robbie receives Gary's acceptance on Friday
no contract. contract came before or at the same time so there is no contract
What two things must happen or a contract to form
offer and acceptance= legally binding contract.
Formality
the conditions which must be observed in making contracts, and the words which the law gives to be used in order to render them valid
valid, voidable or void
valid- an ok contract, has all the contractual elements and can be enforced by law void-a void contract is not a contract and has no effect in a court of law and cannot be enforced in a court of law. Missing an element of contracts (offer or acceptance) Most commonly, a void contract will be missing one or all of the essential elements needed for a valid contract. Neither party needs to take action to terminate it, since it was never a contract to begin with. Example A contract that was between an illegal drug dealer and an illegal drug supplier to purchase a specified amount of drugs for a specified amount. Either one of the parties could void the contract since there is no lawful objective and hence missing one of the elements of a valid contract. voidable-Voidable Contracts - a voidable contract is a contract which may appear to be valid and has all of the necessary elements to be enforceable, but has some type of flaw which could cause one or both of the parties to void the contract. The contract is legally binding, but could become void. PARTIES CHOOSE IF THEY WANT TO ENFORCE THE CONTRACT OR NOT. THEY CAN VOID IT LATER IF NOT LEGALLY BOUND If there is an injured party involved, the injured party or the defrauded must take action, otherwise the contract is considered valid. Example A contract entered into with a minor could be voidable.
what is a special case of an offer
vending machines- an offer to the world at large, make a contract right there
for induced errors, How would courts rule: in substantials in concomitans
void voidable
When is acceptance confirmed
when there acceptance is communicated to the offerer. Generally, silence cannot be taken as an acceptance