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Contract Lawcards Glossary

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Chapter 1

Offer
A definite promise to be bound provided that certain specified terms are accepted. An offer may be made to a particular person, to a group of persons, or to the whole world. The person making an offer is called the offeror and the person accepting the offer is called the offeree.
Invitation to treat
An indication that the invitor is willing to enter into negotiations but is not prepared to be bound immediately. See Pharmaceutical Society of GB v Boots Cash Chemists Ltd [1953]
Unilateral Offer
An offer open to acceptance by any person who performs the specified terms. For example the offer of a reward. See Carlill v The Carbolic Smoke Ball Co Ltd [1893]
Counter offer
Any attempt by the offeree to change the terms of an offer will amount to a counter offer. A counter offer will terminate the original offer which will no longer be open for acceptance. See Hyde v Wrench (1840). A counter offer can be accepted by the offeror.
Acceptance
A final and unqualified assent to all the terms of the offer. A valid acceptance must be made while the offer is still in force and exactly match the terms of the offer - sometimes referred to as the "mirror image" rule. A mere request for information will not however amount to a rejection. See Stevenson v McLean (1880)
Postal rule

Acceptance takes place when a letter is posted, not when it is received. See Adams v Lindsell (1818). Note the difference between acceptance and revocation of an offer by post:

  • Acceptance of an offer takes place when a letter is posted.
  • Revocation of an offer takes place when the letter is received.

Chapter 2

Consideration
Defined in Currie v Misa (1875)) as some right, interest, profit or benefit to one party; or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.
Past Consideration
Consideration must not be past. A promise made after a contract has been entered into will not be enforceable as no consideration will have been provided for the promise. See Re McArdle (1951) and Roscorla v Thomas (1842)
Performance of existing duties
Where a party undertakes an obligation, for which he is already legally bound, the act can never be sufficient to constitute consideration for a new agreement. See Stilk v Myrick [1809]
Williams v Roffey Bros (1991)
provides an exception to the rule that where a person does something for which he is already contractually bound, this can never amount to consideration for a new agreement. The exception will arise where the party making the promise to pay more money is said to receive an additional benefit from the other party's agreement to complete what he was already contractually bound to fulfil under the existing agreement.
Pinnel's Case (1602)
provides authority for the rule that payment of a lesser sum than the amount outstanding on the due date can never provide satisfaction for the whole debt. The creditor will always be able to sue for the outstanding balance. The rule is subject to some exceptions; the main ones being where the debtor does something different, for example, where payment is made, at the creditor's request at an earlier time; at a different place; or by a different method or where payment is accompanied by an additional benefit.
Promissory estoppel
the doctrine provides a defence where a creditor is suing for the remainder of a debt where the creditor has previously indicated that part payment in settlement of the whole is acceptable. Where the defendant has acted in reliance on the promise to waive the remainder of the debt, the claimant will be estopped from reneging on his earlier promise. The doctrine can be used only as a "shield and not a sword". See Central London Property Trust Ltd v High Trees house ltd [1947]

Chapter 3

Representation
A statement made by either party which was not intended to form part of the contract, but may or may not have been intended to induce one of the parties to enter into the contract. A representation should be distinguished from a mere opinion as an opinion is not based on fact and a party will not be liable for its accuracy. See Bisset v Wilkinson [1927]. If a representation is found to be untrue it may be a misrepresentation and the contract will be voidable.
Term
Any statement that is intended by the parties to form part of the contract will be a term and must be complied with. If a term is broken there will be a breach of contract. Terms can be express; that is agreed by the parties or implied by custom or law. See Hutton v Warren [1836] - example of a term implied by custom and Sale of Goods Act 1979 - for terms implied by statute.
Parol evidence rule
oral or other evidence extrinsic to the document is not normally admissible to 'add to, vary, or contradict' the terms of the written agreement. See Jacobs v Batavia and General Plantations Trust (1924).
Sale of Goods Act 1979

Statute which implies the following terms into contracts for the sale of goods:

  • that the seller has the right to sell the goods
  • that goods sold by description correspond with the description
  • that the goods are of satisfactory quality
  • that the goods are fit for any special purpose made known to the seller
  • that goods sold by sample correspond with the sample
Conditions
Statements of fact or promises which form the essential terms of the contract. If the statement is untrue, or the promise is not fulfilled, an injured party may terminate (or treat as discharged) the contract and claim damages. See Poussard v Spiers and Pond (1876)
Warranties
Contractual terms concerning the less important or subsidiary statements of facts or promises. If a warranty is broken, this does not entitle the other party to terminate (or treat as discharged) the contract, it merely entitles him to sue for damages. See Bettini v Gye (1876).
Innominate terms
The term is not classified into a specific category, instead, in determining the outcome of a breach of term, the courts will consider the consequences of the breach rather than how it is classified when deciding the appropriate remedy. See Hong Kong Fir Shipping co Ltd v Kawasaki Kisen Kaisha Ltd (1962).

Chapter 4

Exclusion clause
A term of the contract which purports to exclude, wholly or in part, liability for a breach of a contract or a tort. To be valid an exemption clause must be incorporated into the contract and must satisfy the tests set by the Unfair Contract Terms Act 1977 and the Unfair Terms in consumer Contracts 1999
Course of dealing
where there is evidence of a course of dealing between the contacting parties, the usual terms may be incorporated into the contract even though they may not have been specifically drawn to the attention of the parties on each occasion a contract has been made. See Spurling v Bradshaw (1956).
Unfair Contract Terms Act 1977
The Act covers exemption clauses only. It covers both contractual and tortious liability. Under the Act certain clauses, such as exclusion of liability for death or personal injury caused by negligence are void. Other specified clauses are valid only if reasonable.
Unfair Terms in Consumer Contracts Regulations
The regulations cover any term in a contract between a seller or supplier and a consumer where the term has not been individually negotiated, i.e. drafted in advance. The regulations cover ALL terms, not solely exclusion clauses. The regulations operate to govern "unfair terms", which are described as "any term which contrary to good faith causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer", (Reg 5(1)). See Director General of Fair Trading v First National Bank plc [2002]

Chapter 5

Vitiating Factors -

There are four categories of vitiating factors:

  • Misrepresentation - contract will be voidable
  • Mistake - if the mistake is operative the contract will be void
  • Duress and undue influence - contract will voidable
  • Illegality - contract will be void
Rescission

Restoring the parties as far as is possible to the position they were in before they entered into the contract. Rescission is subject to certain bars:

  • Affirmation of the contract - see Long v Lloyd (1958)
  • Lapse of time - see Leaf v International Galleries (1950)
  • Restitution must be possible
  • Third party rights - Rescission will not be granted if third parties have acquired rights in the subject matter of the contract. See Phillips v Brooks (1919) and Lewis v Avery (1972)
Misrepresentation
An untrue statement of fact made by one party to the contract (representor) to the other (representee) which induces the other to enter into the contract. See Smith v Land and House Prop Corpn (1884)
Fraudulent misrepresentation
to be successful in a claim for fraudulent misrepresentation, (also know as the tort of deceit), the claimant must show that the defendant knew that the statement was false, or the statement was made without any belief in its truth, or the defendant was reckless or careless as to whether the statement was true or false. The defendant will not be liable if he can show that he had an honest belief in the truth of the statement. See Derry v Peek (1889).
Negligent misrepresentation
The claimant can sue under the common law in negligent misstatement where the misstatement has caused a financial loss. See Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]. The claimant can also sue for negligent misrepresentation under the Misrepresentation Act 1967. The Act will assist a misrepresentee who is unable to prove fraud. The misrepresentee need only prove that the statement is untrue. It is for the misrepresentor to prove that he had good grounds for making the statement, and the burden of proof is a heavy one. See Howard Marine and Dredging Co Ltd v Ogden (1978)
Innocent misrepresentation
a misrepresentation which is neither fraudulent nor negligent. Damages will not usually be available, but may be awarded in lieu of rescission under s 2(2) Misrepresentation Act 1967. An indemnity may also be awarded.
Undue influence
An equitable doctrine. Pressure not amounting to duress at common law, whereby a party is excluded from the exercise of free and independent judgment. Undue influence is based on the misuse of a relationship of trust or confidence between the parties and will render a contract voidable. See Barclays Bank v O'Brien (1993)
Economic duress
where one party has been forced into a contract due to illegitimate economic pressure. See Atlas Express Ltd v Kafco (Importers and Distributors) ltd (1989).

Chapter 6

Common mistake
Will occur when the parties are agreed, but they are both under the same misapprehension. If this misapprehension is sufficiently fundamental, it may nullify the agreement. The mistake may concern the existence of the subject matter or ownership of the property. At common law, a common mistake may render the contract void and the contract will have no legal effect; it cannot be enforced by either party and title to property cannot pass under it. See McRae v Commonwealth Disposals Commission (1950) and Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988.
Mutual mistake
Will occur when both parties are mistaken. The parties are not mistaken about the same thing, but are at cross purposes and have a different interpretation of the terms of the contract. A mutual mistake will render the contract void. See Raffles v Wichelhaus [1864]
Unilateral mistake
Will occur when only one party is mistaken and the other party is aware of the mistake. The mistake can concern the identity of the other party to the contract or the terms of the contract. See Hartog v Colin & Shields [1939] and Cundy v Lindsay (1878).
Bell v Lever Brothers Ltd [1932]
Provides authority on mistake as to quality of a bargain. The House of Lords said that a mistake as to the quality of a contract will not effect the contract unless the mistake was as to the existence of some quality which made the thing without that quality essentially different from the thing it was believed to be. Lord Atkin gave the following example - if a horse believed to be sound turns out to be unsound, then the contract remains valid; but, if a horse believed to be a racehorse turns out to be a carthorse, then the contract is void.
Mistaken identity
Where the parties negotiate in person, there is a presumption that the innocent party intended to do business with the person physically in his presence. See Phillips v Brooks (1919) and Lewis v Averay (1972)

Chapter 7

Contracts illegal by statute
a contract can be illegal either in its formation or illegal on performance. A contract agreement which is prohibited by statute will be void. See Re Mahmoud and Ispahani [1921]. A contract which has been legitimately created but has become illegal during its performance will be unenforceable. See Marles v Philip Trant (1954)
Contracts in restraint of trade
A contract is in restraint of trade if it restricts a person's liberty to carry on his trade or profession. A contract should nevertheless be enforced if the restriction protects a legitimate interest and is reasonable. See Esso Petroleum v Harpers Garage (1968) and Forster v Suggett (1918).
Capacity

certain categories of person will be affected by their capacity to freely enter into a contract

  • Minors (under age of 18)
  • Persons who are drunk (when the contract is formed)
  • Mental patients (when the contract is formed)
Contracts for necessaries
provide an exception to the rule that contracts are unenforceable against a minor. The common law recognises that minors should pay for goods and services that are classified as necessaries. In deciding what are necessaries the court will take into account the minor's lifestyle and current needs. See Nash v Inman [1908]
Drunkenness and its effect on capacity
where a party is not aware of the quality of his actions on entering into the contract, and provided that the other party is aware of his condition, the contract will be voidable by the drunken person when he becomes sober again
Discharge of contract

A contract is 'discharged' when there are no obligations outstanding. Despite the rule that performance must be exact, the law will allow payment to be made, on a quantum meruit basis, for incomplete performance where:

  • The contract is divisible and payment can be recovered for the completed part
  • Where the promisee accepts partial performance. See Sumpter v Hedges (1898)
  • Where the promisee prevents complete performance. See Planché v Colburn (1831)
  • Where the promisor has performed a substantial part of the contract. See Hoenig v Isaacs (1952), (the doctrine of substantial performance).
Anticipatory breach
Occurs before the date of performance is due. Notice will be given by one party to the other either expressly, or it may be implied from his conduct that he will not complete his obligations which will amount to a breach of contract. The other party does not have to await the date of performance; he may sue for damages immediately. See Hochster v De La Tour (1853). The innocent party may refuse to accept the repudiation and continue to perform his obligations under the contract. See White and Carter Ltd v McGregor (1962)
Affirmation
the party who has endured a breach of a condition in a contract may repudiate the contract, or affirm it. If he affirms the contract the contract will continue and the wronged party may sue for damages. See Fercometal SARL v Mediterranean Shipping Co (1988)
Frustration
Frustration occurs when there has been a change in circumstances making performance of the contract impossible, or where the contract has been deprived of its commercial purpose. See Taylor v Caldwell (1863) and National Carriers v Panalpina (1981).
Law Reform (Frustrated Contracts) Act 1943
This Act provides that all sums paid or payable before the frustrating event shall be recoverable or cease to be payable, but the court has a discretionary power under S1(2) to allow the payee to set off against the sum so paid in respect of expenses he has incurred before the frustrating event. Under s 1(3), where one party has obtained a valuable benefit before the time of discharge, the other party may recover from him such sums as the court considers appropriate.

Chapter 9

Remoteness of damage
Damages cannot be recovered for losses that are too remote. The losses must be 'within the reasonable contemplation' of the parties. The leading case on recoverability of damages is Hadley v Baxendale (1854)
Reliance loss
The claimant can recover for expenditure incurred in advance of a contract that has been breached. Claims on this basis are usually made when the amount of loss of profit is difficult to quantify. See Anglia Television Ltd v Reed [1972]
Rescission

The court will order that the parties are returned to their pre-contractual position. Rescission is subject to certain bars:

  • Affirmation of the contract - see Long v Lloyd (1958)
  • Lapse of time - see Leaf v International Galleries (1950)
  • Restitution must be possible
  • Third party rights - There can be no rescission if third parties have acquired rights in the subject matter of the contract. See Phillips v Brooks (1919) and Lewis v Avery (1972)
Specific performance
an order of the court requiring the defaulting party to carry out his contractual obligations. Specific performance will only be awarded where damages are not an adequate remedy and will not usually be granted where there is a need for constant supervision. See Ryan v Mutual Tontine Association (1893).
Injunction
An order of the court requiring a party to do something positive, or to refrain from doing something. An injunction will be granted to enforce a negative stipulation in a contract of employment, as long as this is not an indirect way of enforcing the contract. See Warner Bros Pictures Inc v Nelson (1937) and Page One Records v Britton (1968).

Chapter 10

Privity of contract
no person can sue another or be sued on a contract if they have not provided consideration under the contract. See Tweddle v Atkinson [1861]
Statutory exceptions to privity of contract

there are a number of statutory exceptions to the doctrine. These are:

  • Price maintenance agreements
  • Various insurance contracts
  • Law of Property Act 1925, s 56
  • Negotiable instruments
Contracts (Rights of Third Parties) Act 1999
under the Act, the rights of third parties will be recognised in certain limited circumstances, provided that there is an intention that a benefit was to be conferred on that party. The third party can be specifically identified in the contract or can be identified as a member of a class.