CONTRACT

UNIT 30
Preview
Definition
Requirements for a valid contract
Contract formation
Privity of contract
Contents of a contract (terms)
Ending the contract
Voidable contracts: vitiating factors
Remedies for a breach of contract
Definition
A legally binding agreement between two or more persons which the
courts will enforce
Generates rights and obligations that may be enforced by courts
Agreement arises as a result of offer and acceptance
Requirements for a valid contract
1) parties must have legal capacity to enter contracts
2) one party must make a binding offer to the other, and the offer must
be accepted by the other party
3) consideration
Requirements for a valid contract
4) Agreement must be genuine
5) in some cases, the contract must be made in a particular form
6) the object of the contract must not be disapproved by the law
Contract formation
Offer
Acceptance
Consideration
Offer
An indication of willingness to do or refrain from doing sth that is
capable of being converted into a legally binding contract
It is made by an offeror to an offeree and is capable of acceptance only
by an offeree who knows of its existence
Offer
An offer is terminated when it has been revoked, or lapsed, or met with
a counter-offer
Acceptance
Agreement to the terms of an offer that, provided other requirements
are fulfilled, converts the offer into a legally binding contract
Acceptance
If the method by which acceptance is to be signified is indicated by the
offeror, that method alone will be effective
If it is not, acceptance may be either express (by word of mouth or in
writing) or inferred by the offeree’s conduct, e.g. if he receives goods
and makes use of them
Acceptance
Must involve some action on the part of the offeree
Validity of acceptance
1) it must take place while the offer is still in force;
2) it must be on the same terms as the offer
3) it must be unconditional
4) it must be communicated to the offeror
Counter-offer
Acceptance: Only when all the terms of the offer are agreed to
If you propose a change to the terms of an original offer, you are making
a new offer – this is called a counter-offer
Counter-offer – a rejection of the original offer; there can be no
contract until the counter-offer is accepted
Special cases
When the offer consists of a promise to confer a benefit on whoever
may perform a specified act, the offeror waives the requirement of
communication
Example
If the offeror offers a reward for information, a person able to supply
the information is not expected to accept the offer formally
The act of giving the information constitutes the acceptance, the
communication of the acceptance, and the performance of the contract
Intention to create legal relations
If it can be shown that it was not the intenion of the parties to create a
legally binding relationship, there is no contract
Presumption: if the agreement is with family or friends, the agreement
was not intended to be binding; commercial agreements – the other
way round
Consideration
An exchange of promises to perform acts in the future
An act, forbearance, or promise by one party that constitutes the price
Principles
1) a valuable consideration is required, i.e. the act, forbearance, or
promise must have some economic value
2) consideration need not be adequate but it must be sufficient (it need
not constitute a realistic price as long as it has some economic value)
Principles
3) consideration must move from the promisee
4) consideration must not be past
Legal capacity
Adults have capacity, but not if they are of unsound mind
Breaking off contractual negotiations
In legal systems where the doctrine of good faith is recognised, breaking
off contractual negotiations may give rise to legal consequences
No duty to negotiate in good faith in English law; no liability for pulling
out of negotiations at any stage or for whatever reason
Privity of contract
You get the rights or have to fulfill the obligations of a contract only if
you are a party to the contract
If you are not a party, you can neither sue nor be sued because of the
contract
Exception: third party
Example: you have entered into a contract with an
insurance company; the aim – that your partner
can benefit from the contract; it would be pointless
if the company later refused to pay anything to
your partner because she was not a party to the
contract
English law allowes a third party who is to benefit
from the contract to enforce it
Contents of the contract
Express terms
Implied terms
Conditions
Warranties
Exclusion terms
Terms
Conditions or duties which have to be carried out as part of a contract,
arrangemens which have to be made before a contract is valid
Express terms
Terms that the parties have specifically agreed to, being terms the
parties either said or wrote
Implied terms
Example: you buy a boat. The first day you go sailing the boat sinks. You
complain to the seller, he says the contract did not promise that the
boat would float
One of the terms implied into a contract of sale –that goods are of
satisfactory quality and are fit for their purpose
Terms of a contract
Term: a promise that is part of the contract
Terms of a contract:
1) conditions
2) warranties
Condition
A fundamental term
If a party does not carry it out, you not only have the right to claim
damages, but also to treat the contract as terminated
Warranty
A term of contract of lesser importance
Does not deal with the main purpose of the contract
If you have not carried out your obligations under a warranty, the other
party has the right to sue you for damages, but not to terminate the
contract
Exclusion clauses
The purpose: to exclude all liability for failing to
carry out the contract, either at all or not properly;
open to abuse
In order to prevent parties relying on unfair
contract terms, there are strict legal rules about the
use of exclusion clauses
The law protects consumers in particular against
the wrongful use of exclusion clauses by businesses
Ending the contract
1) a contract can be set aside (cancelled) if it later
appears there was sth wrong (misrepresentation,
duress, mistake, undue influence)
2) a contract can be discharged where the contract
is valid, but comes to an end because it has been
carried out (performance),the parties agree to end
it (agreement) , or there is a serious breach of
contract (breach)
Validity of Contracts
Valid
Void
voidable
Validity of Contracts
Void contract – one that was never legally valid
Voidable c. – can have legal effect but could be made void if you want to
rescind it (=annul)
Valid c. – legally enforceable
Reasons to have a contract set aside:
vitiating factors
Misrepresentaion
Duress and undue influence
Mistake
Misrepresentation
A representation – a statement that was made to
encourage you to enter into a contract, but it does
not itself become part of the contract
Misrepresentation (false representation) – you
cannot bring an action for breach of contract, but
you can bring special acton for a misrepresentation
if you would not have otherwise entered into the
contract
Remedies for misrepresentation

Misrepresentation makes the contract voidable

Recission: if you rescind the contract, the parties
are put back in the position they were in before the
contract was entered into. It is as if the contract
never existed
Damages: you can sue for financial compensation if
you have suffered any losses
Duress and undue influence
Duress: either actual violence or the threat of violence was used to
make the other party enter into the contract (“sign this contract or I’ll
shoot you!”)
Undue influence: improper pressure other than violence (e.g. blackmail)
Mistake
If absolutely fundamental, as it gets to the very heart of the transaction,
the contract will be considered void from the outset
Termination of a contract
Performance
Express agreement
Breach
Doctrine of frustration
Discharge by performance
Only after you have carried out everything you promised to do in the
contract, exactly in the way you agreed to do it, your contractual
obligations will be discharged
Discharge by agreement
Parties may agree that the contract should end automaticaly if some
event occurs or after a fixed period of time
Discharge by breach
A party has made it clear that he will not carry out the contract, or
The party has not performed his obligations properly
Consequences
Some breaches give you the right to sue for damages, but not the right
to terminate the contract
Has there been fundamental breach or not?
Condition or warranty?
Example
In the contract it states that you must deliver 10,000 tonnes of
tomatoes on 23 May. You deliver tomatoes two days later, on 25 May.
If the date of delivery was a condition, the other party has the right not
only to claim damages, but also to end the contract,i.e. he can refuse to
take delivery.
Example
If the delivery date is a warranty, he does not have the right to refuse
the tomatoes, only to sue you for any loss he might have suffered
because you delivered two days late
Remedies for breach
Damages: the aim is to put the claimant in the
position he would have been in if the contract had
been performed properly
Specific performance: an order to make a party
perform his obligations under the contract
Injunction: a court order to stop someone
breaching a term of the contract
Suspension of performance
Suspension of performance
In civil law systems: if the other party is in breach, you can stop carrying
out your obligations under the contract
In common law: there is no general principle allowing for suspension of
performance if the other party is in breach; suspension of performance
– considered to be breach of contract
Discharge by frustration
Example: you hire a room in a pub for your band to put on a show.
Before the date for the show, the pub gets burned down. The fire is not
your fault, nor the fault of the owner of the pub. The fire has made it
impossible to carry out the contract: discharge by frustration
Common law vs. Civil law
At common law, contractual liability for breach is strict and the motive
for that breach is irrelevant
In civil law systems this may seem a very harsh approach
Force majeure
It is usual for commercial contracts to include a force majeure clause: a
list of events considered to be outside the control of the parties, e.g.
labour disputes, war, riot, accident, fire, flood, etc.
Legal terms
Unconditional acceptance of all the terms of an offer
Acceptance
Refusal or failure by a party to a contract to perform an obligation
imposed under the contract
Breach of contract
Legal terms
Ability of a natural or legal person to enter into a contract
Capacity
A fundamental term of the contract. If it is breached, the innocent party
may not only claim damages, but may also opt to treat the contract as
ended
Condition
Legal terms
A contract must be a bargain. Each party gives value to the other by
exchanging promises (or by a promise given in exchange for an act). This
exchange of value is
Consideration
Legally enforceable agreement
Contract
Legal terms
If not all the terms of an offer have been accepted, then there is no
acceptance of the offer, but a…This is in effect a new offer, which now
has to be accepted by the other party
Counter offer
Legal terms
In contract law, financial compensation that shuld
put the claimant in the position he would have
been if the contract had been performed properly
Damages
Release from the obligations under a contract.
D…may be by performance, agreement, breach or
frustration
Discharge
Legal terms
Both parties agree to end the contract
Discharge by agreement
A contract may be discharged by ___where the party in default has
refused to perform, or where the performance is so defective that there
has been fundamental___
Discharge by breach
Legal terms
Parties are excused from the contract if, through no fault of either party,
after the formation of the contract it becomes impossible to carry out
the contract or the contract has become commercially pointless
Discharge by frustration
Legal terms
The obligations under the contract have been carried out fully and
exactly
Discharge by performance
Violence or threats of violence in order to make someone enter into a
contract
duress
Legal terms
Term in a contract to exclude the liability of a party for contractual
failure. That failure could be in the form of breach of contract,
misrepresentation or negligence
Exclusion clause
Terms explicitly stated by the parties, either oral or written
Express terms
Legal terms
Most contracts include a f__ m___clause. This lists
events considered to be outside the control of the
parties and for which the parties cannot be held
responsible.
Force majeure
A term is f:__ if it goes to the root of the contract. If
it is breached, the breach is referred to as ____
Fundamental breach
Legal terms
Terms that can be read into the contract, whether
by custom, statute or by the courts
Implied terms
A court order to stop a clause in the contract from
being broken. It is a discretionary remedy and will
not be ordered if damages are a sufficient remedy
injunction
Legal terms
Where the representation is a false statement, it is
called:____. M. can be fraudulent, negligent or
innocent.
Misrepresentation
A contract only confers rights and obligations on
the parties to the contract. There are exceptions to
this rule, both in statute law and common law.
Privity of contract
Legal terms
A statement that encourages a party to enter into the contract, but
does not itself form a part of that contract
Representation
Improper pressure other than violence to make someone enter into a
contract
Undue influence
Legal terms
A defect that was present in th agreement at the time the contract was
made. The defect is sufficiently serious to have the contract set aside.
V___ factors include misrepresentation, mistake, duress and undue
influence
Vitiating factor
Questions
1. For the formation of a contract, consideration is
one of the three requirements to make an
agreement into a contract. What are the other two
requirements?
2. What is the doctrine of privity of contract?
3. What is the difference between an express tem
and an implied term?
Questions
4. In English law, contractual terms are classified according to their
importance: a term may be of fundamental importance or it may be
only a minor term. Name these two categories of terms.
5. What is the purpose of an exclusion clause in a contract?
Questions

6. What is misrepresentation?
7. What is the difference between discharge by frustration and
discharge by breach?
Contract law case discussion
Mr Jones is a second-hand car dealer. Miss Smith wants a
second-hand car, but tells Mr Jones that she is only
interested in buying a car which has done less than 10,000
miles. He ofers Miss Smith a 1998 Ford Escort for a
reasonable price. During the trial run, Miss Smith tells him
she likes the car, the price is acceptable, but she repeats
that she only wants the car if it has done less than 10,000
miles. Mr Jones says: ‘Of course it has not done more than
10,000 miles. Look at the milometer!” The milometer shows
7,000 miles.
Contract law case discussion
However, what Mr Jones said was not true. The milometer has been
tampered with and Miss Smith finds out that the care has done at least
30,000 miles.
Advise Miss Smith as to her legal position.
Put the verbs in brackets into
appropriate forms
In any contractual situation, it __(require, passive)
that the promise ___(make) by each party must
have some economic value. However, there is no
requirement that it must constitute a realistic price
for the promise it ____(buy). Thus, a contract
___(make) to sell a property worth $200,000 for
the sum of $10,000 is legally valid. It would
therefore _____(say, passive) to be legally binding.
Key
In any contractual situation, it is required that the promise made by
each party must have some economic value. However, there is no
requirement that it must constitute a realistic price for the promise it
buys. Thus, a contract made to sell a property worth $200,000 for the
sum of $10,000 is legally valid. It would therefore be said to be legally
binding.
Fill in the missing words: contractual,
gratuitous, jurisdictions, legislation, party,
promise
The main effect of the requirement of consideration is that
_____promises made by one ___ to another (i.e. where one party
makes a ____to another party but no promises are made in return) do
not give rise to ____obligations. However, it should be noted that in
many ____this requirement has been displaced by ___in respect of
certain kinds of contract.
Key
The main effect of the requirement of
consideration is that gratuitous promises made by
one party to another (i.e. where one party makes a
promise to another party but no promises are
made in return) do not give rise to conractual
obligations. However, it should be noted that in
many jurisdictions this requirement has been
displaced by legislation in respect of certain kinds
of contract.