CONTRACT

1. CONTRACT Unit 30

2. Preview • Definition • Requirements for a validcontract • Contractformation • Privityofcontract • Contentsof a contract (terms) • Endingthecontract • Voidablecontracts: vitiatingfactors • Remedies for a breachofcontract

3. 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

4. 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

5. 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

6. Contractformation • Offer • Acceptance • Consideration

7. 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

8. Offer • An offer is terminated when it has been revoked, or lapsed, or met with a counter-offer

9. Acceptance • Agreement to the terms of an offer that, provided other requirements are fulfilled, converts the offer into a legally binding contract

10. 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

11. Acceptance • Must involve some action on the part of the offeree

12. 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

13. 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

14. 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

15. 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

16. 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

17. Consideration • An exchange of promises to perform acts in the future • An act, forbearance, or promise by one party that constitutes the price

18. 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)

19. Principles • 3) consideration must move from the promisee • 4) consideration must not be past

20. Legal capacity • Adults have capacity, but not if they are of unsound mind

21. 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

22. 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

23. 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

24. Contents of the contract • Express terms • Implied terms • Conditions • Warranties • Exclusion terms

25. 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

26. Express terms • Terms that the parties have specifically agreed to, being terms the parties either said or wrote

27. 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

28. Terms of a contract • Term: a promise that is part of the contract • Terms of a contract: • 1) conditions • 2) warranties

29. 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

30. 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

31. 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

32. 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)

33. ValidityofContracts • Valid • Void • voidable

34. ValidityofContracts • 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

35. Reasons to have a contract set aside: vitiating factors • Misrepresentaion • Duress and undue influence • Mistake

36. 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

37. 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

38. 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)

39. Mistake • If absolutely fundamental, as it gets to the very heart of the transaction, the contract will be considered void from the outset

40. Termination of a contract • Performance • Express agreement • Breach • Doctrine of frustration

41. 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

42. Discharge by agreement • Parties may agree that the contract should end automaticaly if some event occurs or after a fixed period of time

43. 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

44. 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?

45. 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.

46. 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

47. 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

48. 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

49. 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

50. 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